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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
  
 FORM 20-F o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF
1934
 - OR - þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for
the fiscal year ended March 31, 2005
 - OR - 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: 333-85347 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:242,204,390 ordinary shares of 2p each as of March 31, 2005  
 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: þ   Yes                      o   No Indicate by check mark which financial statement item the Registrant has elected to follow: þ   Item 17                 o   Item 18




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TABLE OF CONTENTS PageINTRODUCTION
    
    
    1GLOSSARY
    
    
    2PART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    5ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    5ITEM 3. KEY INFORMATION
    
    
    5ITEM 4. INFORMATION ON THE COMPANY
    
    
    13ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    36ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    46ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    53ITEM 8. FINANCIAL INFORMATION
    
    
    54ITEM 9. LISTING
    
    
    54ITEM 10. ADDITIONAL INFORMATION
    
    
    55ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    67ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    67PART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    68ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    68ITEM 15. CONTROLS AND PROCEDURES
    
    
    68ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    68ITEM 16B. CODE OF ETHICS
    
    
    68ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    68ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITEES
    
    
    68ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    68PART IIIITEM 17 FINANCIAL STATEMENTS
    
    
    71ITEM 18. FINANCIAL STATEMENTS
    
    
    71ITEM 19. EXHIBITS
    
    
    71Ex-8.1  List of SubsidiariesEx-31.1  Section 302 Certification of the CEOEx-31.2  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 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 levelsantibody
    
    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 cattlecisplatin
    
    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 femaleshigh blood pressure
    
    blood pressure that is above medically defined limits and which is
associated with increased risks of stroke and heart disease
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immune 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)in 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 moleculepost-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 months
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prion 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 registered in the United States Patent
and Trademark Officesepsis 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 failure.serum
    
    the component of blood excluding the red and white blood cells and
fibrinogenspecificity
    
    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 compoundtherapeutic
    
    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 responseVEGF
    
    vascular endothelial growth factor, a protein which is involved in
the formation of new blood vessels
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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 differ 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 26 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 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(in thousands of pounds, except share and per share data)Consolidated Profit & Loss Account Information:U.K. GAAPTurnover
    
    
    18,839
    
    
    
    21,019
    
    
    
    11,270
    
    
    
    7,924
    
    
    
    4,186Operating (loss)/profit
    
    
    (2,464
    )
    
    
    1,245
    
    
    
    (604
    )
    
    
    (2,102
    )
    
    
    (6,543
    )Net (loss)/profit
    
    
    (2,587
    )
    
    
    1,265
    
    
    
    (238
    )
    
    
    2,867
    
    
    
    (6,206
    )Net (loss)/profit per ordinary share (basic
and fully diluted)
    
    
    (1.15p
    )
    
    
    0.61p
    
    
    
    (0.13p
    )
    
    
    1.59p
    
    
    
    (3.80p
    )U.S. GAAPTurnover
    
    
    13,119
    
    
    
    16,913
    
    
    
    12,515
    
    
    
    7,416
    
    
    
    2,255(Loss)/profit from operations
    
    
    (7,269
    )
    
    
    (10,875
    )
    
    
    (1,255
    )
    
    
    2,832
    
    
    
    (5,934
    )Net (loss)/profit
    
    
    (7,392
    )
    
    
    (10,855
    )
    
    
    (889
    )
    
    
    2,769
    
    
    
    (5,597
    )Net (loss)/profit per ordinary share (basic
and diluted)
    
    
    (3.30p
    )
    
    
    (5.26p
    )
    
    
    (0. 47p
    )
    
    
    1.55p
    
    
    
    (3.42p
    )Consolidated Balance Sheet Data:U.K. GAAPTotal assets (fixed assets plus current assets)
    
    
    40,389
    
    
    
    34,546
    
    
    
    19,525
    
    
    
    17,430
    
    
    
    11,696Net assets
    
    
    25,228
    
    
    
    15,293
    
    
    
    10,338
    
    
    
    10,141
    
    
    
    3,971Long-term obligations
    
    
    5,896
    
    
    
    9,449
    
    
    
    717
    
    
    
    1,106
    
    
    
    3,600Shareholders funds
    
    
    25,228
    
    
    
    15,293
    
    
    
    10,338
    
    
    
    10,141
    
    
    
    3,971Number of equity shares outstanding (in
thousands of shares)
    
    
    242,204
    
    
    
    207,750
    
    
    
    188,233
    
    
    
    188,233
    
    
    
    174,269U.S. GAAPTotal assets (fixed assets plus current assets)
    
    
    34,772
    
    
    
    27,430
    
    
    
    20,198
    
    
    
    20,024
    
    
    
    13,855Shareholders funds
    
    
    8,591
    
    
    
    2,877
    
    
    
    9,817
    
    
    
    10,271
    
    
    
    4,199
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No dividends have been paid by the Company in the periods illustrated above. 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 operating profit in fiscal 2004 and operating loss in fiscal 2005
included amortization charges of £782,000 and £998,000, respectively, 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. Under U.K. GAAP, the fiscal years 2002, 2003, 2004 and 2005 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. 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. Under U.S. GAAP, a charge for stock compensation plans is generally recognized over the
vesting period. Under U.S. GAAP, all derivative instruments must be recognized on the year-end balance sheet
as either assets or liabilities and measured at fair value. Changes in the fair value of the
Companys derivative instruments are recorded in earnings during the fiscal year ended March 31,
2003, 2004 and 2005 as indicated in the table below. A summary of the financial effects of reconciling the Companys U.K. GAAP accounts to U.S.
GAAP for the three years ended March 31, 2005 is illustrated below: Year Ended March 31,2005
    
    
    2004
    
    
    2003£
    000
    
    
    £
    000
    
    
    £
    000Net (loss) / profit of Group under U.K. GAAP
    
    
    (2,587
    )
    
    
    1,265
    
    
    
    (238
    )U.S. GAAP reconciling adjustments:Revenue recognition
    
    
    (4,593
    )
    
    
    (3,274
    )
    
    
    (1,119
    )Acquisition of Enact
    
    
    998
    
    
    
    (9,199
    )
    
    
    Stock compensation plans
    
    
    (584
    )
    
    
    (225
    )
    
    
    Derivative instruments and hedging activities
    
    
    (626
    )
    
    
    578
    
    
    
    468Net (loss) under U.S. GAAP
    
    
    (7,392
    )
    
    
    (10,855
    )
    
    
    (889
    )
 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 6




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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 $1.8888, the Noon Buying Rate on March 31, 2005. 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 June 30, 2005, the Noon Buying Rate was £1.00 to $1.7921 2005 Month Ended
    
    High
    
    
    LowJanuary 31
    
    $
    1.9058
    
    
    $
    1.8647February 28
    
    
    1.9249
    
    
    
    1.8570March 31
    
    
    1.9292
    
    
    
    1.8657April 30
    
    
    1.9197
    
    
    
    1.8733May 31
    
    
    1.9122
    
    
    
    1.8205June 30
    
    
    1.8368
    
    
    
    1.7921
 Year ended March 31,
    
    Average2001
    
    $
    1.47372002
    
    
    1.43172003
    
    
    1.55412004
    
    
    1.69262005
    
    
    1.8459
 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, may be 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 products and 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 7




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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. 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. With the exception of 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. 8




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Over 90% of the Companys revenues for the year ended March 31, 2005 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. 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. accounting rules 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. For fiscal year 2006,
the Company will be required to report under International Financial Reporting Standards (IFRS)
in the U.K. which will vary in certain respects from the current U.K. GAAP requirements and will
significantly affect the reported results of the Company within the U.K., although the U.S. GAAP
results will be unaffected by this change in standards. The Company has a history of operating losses and may not be profitable on a sustainable basis. With the exception of fiscal year 2004, the Company has not been profitable at an operating
level over a full financial year. For the fiscal years ended March 31, 2005, 2003, 2002, and 2001,
the Company had U.K. GAAP (losses)/profits on ordinary activities after taxation of approximately
(£2,587,000), (£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. A return to profitability will depend on the Companys ability to generate sufficient
revenues from existing product sales, product candidates that are currently under development and
to enter into new partnerships for the licensing of its product candidates, while maintaining
existing partnerships. During the forthcoming years, the Company anticipates increasing its
expenditure in relation to establishing a sales force 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; 9




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
    
    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 current or potential collaborators
and licensees will not pursue alternative technologies either on their own or in collaboration with
others, including the Companys competitors. 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 production
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. 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 Kentucky 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 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 10




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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 U.S. Food and Drug Administration (FDA) and other regulatory
authorities, such as the European Medicines Evaluation Agency (EMEA) or the Medicines and
Healthcare Products Regulatory Agency (MHRA), 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. 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 FDA and comparable agencies in foreign countries, including the EMEA and the MHRA
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 well advanced in its preparations towards submitting the licensing applications
for its Voraxaze  product to the FDA and the EMEA. If either the FDA or EMEA do not
accept the Companys applications in their current forms, the Company could be required to revise
and resubmit the applications or to conduct further clinical trials, which could significantly
delay marketing approvals for the product and require substantial additional expense which the
Company may not be able to finance easily, if at all. 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; 11




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
    
    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 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 payers, 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. 12




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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 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 U.S. drug discovery company, which has since been acquired by Amgen Inc. 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 Pharma 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 13




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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 products generating revenues, one outlicensed technology generating a
royalty revenue stream, and several product candidates in various stages of development. The acquisition of Enact Pharma in June 2003 provided the Company with a broader research and
development pipeline and technology platforms, with one product being prepared for filing with the
regulatory authorities and 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. Operations The Company has good manufacturing practice compliant (GMP) manufacturing facilities in
Wales, Australia and Salt Lake City, Utah, and administrative, clinical development and regulatory
affairs facilities in Runcorn, Cheshire in the U.K. 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
and develop its products. See Item 10. Additional Information  Material Contracts. 14




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##### Table of Contents



Products The following table lists the Companys products currently commercially available or under
development: Distribution Partner /
    
    Next SignificantProduct
    
    Principal uses
    
    Status
    
    Licensee
    
    Milestone(1)Products Commercially AvailableCroFab®[Crotalidae
Polyvalent Immune Fab
(Ovine)]
    
    Minimal to moderate
Crotalid
(rattlesnake)
envenomation
    
    Launched (U.S.)Sold on named
patient basis
within E.U.
    
    Altana (U.S.)Swedish Orphan
(Scandinavia and
Baltic Countries)
    
    Increased marketing
efforts in the
Southeastern
section of the U.S.DigiFab®[Digoxin Immune Fab
(Ovine)]
    
    Treatment of
life-threatening
digoxin toxicity or
overdose
    
    Launched (U.S.)U.K. marketing
authorization
application
submitted August
2004
    
    Altana (U.S.)Beacon
Pharmaceuticals
(Europe excluding
Scandinavia)Mayne Pharma
(Australia/SE Asia)
    
    European marketing
approval expected
2005(2)Voraxaze
    
    Methotrexate
toxicity
    
    Orphan Drug
designation in E.U.
and U.S. Sold on
named patient basis
within E.U. and
supplied on
compassionate use
basis in the U.S.
    
    IDIS (European
named patient
sales)
NCI (U.S.
compassionate use
distribution)
    
    Regulatory
submission to FDA
and European
authorities planned
for the second half
of
2005(3)ViperaTAb
    
    Vipera berus
(common adder
snake) envenomation
Northern Europe
    
    Sold on a named
patient basis
    
    Swedish Orphan
(Scandinavia and
Baltic countries)
    
    Expansion of named
patient sales in
European UnionEnfer TSE Kit
    
    Detection of Bovine
Spongiform
Encephalopathy
(BSE) in carcasses
    
    Out-licensed and
generating revenues
    
    Licensed to Enfer
Scientific Limited
and Abbott
Laboratories, via
Enfer
    
    Potential launch in
the U.S.Products in DevelopmentCytoFab®
(formerly
CytoTAb)
    
    Treatment of severe
sepsis
    
    Process
optimization
ongoing and Phase
III planning
    
    To be determined
    
    Agreement with
strategic partnerProlarix(formerly
NQO2)
    
    Cancer therapy
    
    Phase I trial
    
    
    
    Preliminary trial
results expected
2005Angiotensin Vaccine
    
    Hypertension
    
    Studies with
proprietary
adjuvants completed
Preclinical
testing with chosen
adjuvant ongoing
    
    
    
    Clinical trials
with lead adjuvant
to commence in the
first half of 2006.CroVet antivenin
    
    Rattlesnake
envenomations in
animals
    
    Evaluating
opportunities for
commercialization
    
    
    
    Not in active development
 15




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##### Table of Contents



Distribution Partner /
    
    Next SignificantProduct
    
    Principal uses
    
    Status
    
    Licensee
    
    Milestone(1)Products in ResearchVEGF Vaccine
    
    Cancer therapy
    
    Pre-clinical testing
    
    
    
    Results of pre-clinical
testing in model of
metastasis with
chosen adjuvantMetalloorganic
    
    Ovarian cancer
    
    Research
    
    
    
    Results of
pre-clinical
testing of lead
candidate 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)
    
    See discussion of DigiFab ®marketing approvals below.(3)
    
    See discussion of Voraxaze marketing approvals below. Products Commercially Available CroFab® [Crotalidae Polyvalent Immune Fab (Ovine)] is a
polyclonal antibody fragment for the management of minimal to moderate envenomations from North
American crotalids (for example, rattlesnakes). It is intended for treating bites early in the
course of poisoning to prevent them from developing into more severe cases. CroFab® was
approved by the Food and Drug Administration (FDA) in 2000 and was launched in the U.S. in 2001. It
is currently distributed by Fougera, a division of Altana Inc., and is the only product marketed
for rattlesnake bites in the U.S. A similar product produced in Mexico from horse serum may
compete with CroFab® in the future, if it obtains regulatory approval in the
U.S. The Company is developing a revised manufacturing process which, subject to FDA approval
anticipated in late 2007, will improve yields from this product. In addition, Altana are working
with the Company to better demonstrate the benefits of using CroFab®in milder
copperhead bites. DigiFab® [Digoxin Immune Fab (Ovine)] is a polyclonal antibody fragment for the
treatment of life-threatening digoxin toxicity or overdose. Digoxin is a widely prescribed drug
for the treatment of cardiac conditions but its effective dose is close to its toxic dose (i.e., it
has a narrow therapeutic window). DigiFab® was approved by the FDA in 2001 and
launched in the U.S. in 2002; it is distributed by Fougera, a division of Altana Inc. There is one
similar product on the U.S. market, Digibind® (GlaxoSmithKline). A U.K. marketing
authorization application was submitted in August 2004 and discussions are ongoing with the U.K.
regulatory authority (the MHRA) to resolve outstanding issues regarding the basis for approval.
Assuming these are resolved, approval is anticipated in the second half of 2005. ViperaTAbis a polyclonal antibody fragment sold on a named patient basis for the
management of envenomations from the European common adder (Vipera berus). It is currently
distributed in Sweden, Norway, Finland, Denmark and the Baltic countries by Swedish Orphan AB. The
Company also supplies ViperaTAb to the U.S. Department of Defense. The Company is
currently exploring opportunities for wider European distribution, including using its own in-house
sales and marketing team. Voraxaze(glucarpidase, previously known as carboxypeptidase G2 or CPG2) was acquired by the
Company when it bought Enact Pharma PLC in June 2003. It has been developed as an adjunctive
treatment for patients experiencing or at risk of toxicity following administration of high doses
(> 1 g/m2) 16




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of methotrexate. Methotrexate is an established drug in cancer therapy
which can cause serious and sometimes life-threatening toxicity if its elimination from the body is
delayed. Voraxaze is an enzyme which rapidly breaks down methotrexate thereby reducing the time
that the patient is exposed to potentially toxic concentrations. There are no other drug therapies
available that can achieve this. Voraxaze is already used on a compassionate basis through the National Cancer Institute (NCI)
in the U.S. Named patient sales commenced in Europe and elsewhere outside the U.S. in January 2004
and are distributed by Idis. Voraxaze was granted orphan drug status in the European Union (E.U.)
in February 2003 and in the U.S. in August 2003. The Company is currently in discussions with the FDA in preparation for the Companys U.S.
license application for Voraxaze, anticipated to be made in the second half of 2005, although the
timing of the application will depend, in part, on the FDAs acceptance of the Companys clinical
study designs and collected data. Regulatory submissions for marketing approval in the E.U. are
also expected in the second half of 2005. Enfer TSE Assay (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 licensed its intellectual property in transmissible spongiform
encephalopathy (TSE) diagnosis in animals to Enfer Scientific Limited in 1997 and Enfer developed a
post-mortem kit to test carcasses for BSE. The test received approval in the E.U. in 2001. Enfer
uses the kit itself to test carcasses in Ireland and also sells it to third parties. In 2001 Enfer
entered into an agreement with Abbott Laboratories to market the test in other territories and in
April 2004 Abbott received approval from the U.S. Department of Agriculture (USDA) to sell the test
kit in the U.S., although the USDA does not, as yet, require routine testing of cattle. In
February 2005 Enfer received approval in the E.U. for an improved version of its test kit.
Recently, seven new tests for BSE have been approved in the E.U., bringing the total number of
tests approved in the E.U. to twelve. Products in Development or Research CytoFab® (formerly CytoTAb) is based on the same polyclonal antibody technology as
CroFab® and DigiFab®and binds TNFa, a cytokine involved in inflammation. It
has been developed to treat sepsis, a disease that affects about 750,000 per year in the U.S. and
which has a mortality rate in excess of 30%. There is only one product approved for the treatment
of sepsis, Xigris® (Eli Lilly), but, because of its safety profile, its use is
restricted to a small subset of patients. A Phase IIb study with CytoFab® has been completed with significant reductions
observed in the time patients spent in the intensive care unit and on mechanical ventilation
relative to placebo, with a trend to improved survival. Two end-of-Phase II meetings have been
held with the FDA, one in September 2003 to discuss the Phase III program and the other, in October
2003, to discuss the manufacture of the product. Agreements on how to proceed have been reached in
principle in both areas. The positive Phase IIb data and FDA agreement that CytoFab® is ready to be taken
into Phase III has stimulated interest from a number of potential licensing partners. Discussions
with several companies are ongoing. ProlarixTM (formerly NQO2) was also acquired by the company when it acquired Enact
Pharma. It is a small molecule based chemotherapy involving the coadministration of a prodrug,
tretazicar (formerly CB 1954) with a cosubstrate, caricotamide (formerly EP-0152R). In the
presence of caricotamide, tretazicar is converted to a highly potent cytotoxic agent by an enzyme,
NQO2, which is present at higher levels in tumors than in most normal tissues, including those that
are often sensitive to other cytotoxic agents, such as bone marrow. ProlarixTM thus has
the potential to be a highly selective anticancer agent, killing cancer cells but sparing normal
cells. 17




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##### Table of Contents



A Phase I study in patients with solid tumors is underway in the U.K. under the auspices of
Cancer Research UK (CRUK). The study is designed to identify the doses of both tretazicar and
caricotamide to take forward into Phase II based on safety and pharmacokinetics. Both tretazicar
and caricotamide have been well-tolerated to date and the dose of the former has been increased as
planned. The anticipated reductions in the levels of tretazicar in the blood have been observed in
the presence, but not the absence, of caricotamide, providing some evidence that it is being
converted to the active cytotoxic agent by NQO2. Patients who tolerate ProlarixTM and
whose disease does not progress can receive up to six cycles of treatment in the Phase I study. Protherics has selected primary liver cancer (hepatocellular carcinoma, HCC) as the target
indication for Phase II based on the large differential in NQO2 activity observed between liver
tumors and normal liver tissue. HCC is one of the five most common cancers in the world and its
incidence is increasing in the U.S. and E.U. There are no therapeutic agents specifically approved
for use in HCC and those that are used have had little impact on survival, with less than 5% of
patients living more than 5 years. A patent protecting the Companys technology in regard to the co-factor has already been
granted in the U.K., the U.S. and Hong Kong and is under examination in other territories. Angiotensin Vaccineis being developed by the Company for high blood pressure (hypertension).
Although hypertension can be treated with oral therapies, because people with mild to moderate
hypertension generally feel well, compliance with such treatments is very poor. It is estimated
that 70% of patients fail to take their medication as prescribed. As hypertension is a major
factor in stroke and heart disease, failure to control blood pressure can have serious
consequences. Protherics is therefore developing a vaccine designed to maintain control of blood
pressure with only periodic injections. The vaccine produces antibodies to angiotensin, one of the
hormones involved in the regulation of blood pressure. Angiotensin Vaccine has been evaluated in a series of studies and effects on the
renin-angiotensin system, but not blood pressure, have been observed in patients with hypertension.
In order to stimulate the immune system to produce more antibodies to angiotensin, which is
expected to result in a reduction in blood pressure, several different formulations of the vaccine,
containing novel adjuvants, have been investigated. One of the formulations, containing a proprietary adjuvant, increased the antibody response in
animals by about 10-fold relative to the formulation used in the previous clinical study which
contained alhydrogel as adjuvant. Further preclinical studies are ongoing with the vaccine
containing the proprietary adjuvant to support its use in a Phase IIa study. One other company (Cytos, Switzerland) is known to be developing a vaccine for hypertension
that would compete directly with the Companys Angiotensin Vaccine. The Company received patent approval in Europe for its vaccine in June 2005. VEGF Vaccineis being developed by the Company 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. metastasis. By inhibiting angiogenesis, metastasis may be
impaired. The Company has identified a proprietary adjuvant which in animal studies boosted the
immune response to the vaccine compared with the previous formulation which contained alhydrogel as
adjuvant. The Company has filed a priority patent application in the U.K., and made a Patent Cooperation
Treaty (PCT) filing worldwide in June 2003. 18




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##### Table of Contents



Metalloorganicsare water soluble titanocene derivatives which, in vitro, show high activity
against cisplatin 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 cisplatin. The Company has an option to license the lead
compound from the University of Leeds (U.K.). 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, under U.K. GAAP, by geographical market for each of the last three fiscal years. 2005
    
    
    2004
    
    
    2003£
    000
    
    
    £
    000
    
    
    £
    000United Kingdom
    
    
    622
    
    
    
    157
    
    
    
    54Rest of Europe
    
    
    932
    
    
    
    1,588
    
    
    
    1,503North America
    
    
    17,229
    
    
    
    18,993
    
    
    
    9,669Rest of the World
    
    
    56
    
    
    
    281
    
    
    
    4418,839
    
    
    
    21,019
    
    
    
    11,270
 All diagnostic test revenues are included within the Rest of Europe category and amounted to
£712,000 , £1,362,000 and £1,331,000 in the years ended March 31, 2005, 2004 and 2003,
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. 19




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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 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 has filed or is in the process of filing patent
applications around certain researched and unpublished aspects of Voraxaze ,
with the first filing in February 2004 a PCT filing in February 2005, and a further PCT
application due to be filed before the end of August 2005;
    
    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 and a PCT
application filed in January 2005.
    
    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. The New Zealand, Australian and European
patents have now been granted;
    
    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); 20




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
    
    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 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, Japanese 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.
An application is being pursued in the U.S. and is expected to be granted shortly;
    
    Prolarix (formerly 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., the U.S. and Hong Kong, the EPO
has indicated allowability of the application and the applications are proceeding in
the other territories. Divisional applications are pending in the U.S. and at the EPO;
    
    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 date for the first of these patents
was December 1999 and it has subsequently been granted in Europe and the U.S. The
priority date for the second family of patents is July 2002. Third Party Patent Rights Rockefeller University had a European patent which could be construed to cover use of
anti-TNFa antibodies which has now been revoked. 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 21




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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. 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 has taken steps to
ensure that its supplier of TNFa is appropriately licensed under 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.
In response to the opposition, Abbott withdrew the Australian patent application. 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. Pursuant to the terms of the agreement, these patent rights were 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. and Europe;
    
    DigiTAb in the United Kingdom;
    
    ViperaTAb in the United Kingdom; and
    
    Voraxaze in Europe. In addition, applications to register the following active trademarks are currently pending: 22




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
    
    Voraxaze in the U.S.; and
    
    Prolarix in the U.S., Europe and Japan. 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 the relevant 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 following application 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
application process. Furthermore, regulatory authorities of different countries may impose differing requirements
and may refuse to grant approval, 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
product, 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. 23




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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 Agency, as well as(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
certain constraints including, in the case of branded pharmaceutical products sold to the United
Kingdom National Health Service, the Pharmaceutical Price Regulation Scheme which limits price
increases on those products. 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; 24




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(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;(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 25




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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. 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. 26




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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 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 27




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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
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, and marketing of their products. National legislation in the area increasingly reflects
initiatives at the European Union level, normally in the form of Directives and regulations. There
is a broad range of European Union legislation related to medicinal products. This legislation is
supplemented by numerous non-binding guidelines (which provide guidance on safety, quality and
efficacy). 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 in July 2003) and Directive 2004/27/EC
(which must be implemented by member states by October 30, 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 the legislation are
expanded upon by a broad range of guidance documents which are 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 28




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require a strong justification upon
application for a marketing authorization. Directive 86/609/EEC (as amended by Directive
2003/65/EC) established 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 established high standards of
practice 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) and the European Commission have
also issued a number of guidelines on good clinical practice. In addition, other 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, as
amended, 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 legislation. Registration Systems  Three principal systems currently exist in the European
Union for registering pharmaceutical products in order to obtain a marketing authorization: the
national system, the mutual recognition procedure (MRP) and the centralized procedure (CP). In
addition Directive 2004/27/EC introduced a new system termed the decentralized procedure (DP)
which will be an alternative to the MRP. This new DP has not yet come into operation. 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 Member State, the mutual recognition procedure or
the centralized procedure described below must be used. The mutual recognition procedure (MRP) 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 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 authorizations obtained prior to the arbitration process. In
accordance with Directive 2004/27/EC a formal Coordination Group will be set up beginning in
November 2005 in order to address any issues that arise during the MRP and the new DP. 29




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The centralized procedure (CP) is a process for which there is a single application, a single
evaluation and a single authorization for medicinal products. This procedure applies only to
certain types of applications and is compulsory for certain biotechnology products. Under
Regulation 726/2004, treatments for AIDS, cancer, diabetes and neurodegenerative diseases will also
have to use the CP from November 2005. From May 2008 the CP will also become mandatory for
treatments for autoimmune diseases and other immune dysfunctions and viral diseases. The centralized procedure 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 procedure, a specific timetable is
specified for evaluation of the application, including allowances for appeals. The European Medicines Agency (formerly 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. The EMEA is responsible for coordinating 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 procedure and arbitrates between Member States of the European Union on other medicinal
products submitted under the mutual recognition procedure. The EMEA comprises a management board,
four 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, one for the
designation of orphan drugs for rare diseases, and one for herbal medicinal products), an
executive director and a permanent secretariat. As stated above Directive 2004/27/EC introduces a new system termed the decentralized
procedure (DP) which will be an alternative to the MRP. This new DP has not yet come into
operation. A key feature of this new process is that the Reference Member State (RMS) and the
Concerned Member States (CMSs) are chosen before the 1st step of the process and the RMS
does not grant a Marketing Authorization prior to the application being reviewed by the CMSs (as
is the case with the MRP). 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 (as amended). 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 30




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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. 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 a Regulation 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, in certain cases (but excluding the centralized procedure), a
national regulatory authority may impose its own requirements and may refuse to grant approval or
may require additional data before
granting 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. In contrast it
usually takes 12 -18 months to gain approval under the centralized procedure. Marketing
authorizations are granted subject to certain generally applicable conditions and may also be
subject to product specific restrictions determined by regulatory authorities. 31




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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 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 CHMP 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 Directive
2001/83/EC, as amended, 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. 32




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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 the National Institute for Clinical Excellence (NICE) 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 exclusivity 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 Union 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. The new E.U. legislation (Regulation 726/2004 and Directive 2004/27/EC) introduces the so
called 8+2+1 data protection rules which are designed to reward innovation while encouraging the
early availability of generic copies. These rules, which will apply to applications for marketing
authorizations for generic products submitted after November 2005, allow 10 or 11 years exclusivity
in the European Union for the reference product to which they relate. The 11 years protection will
be applicable if a new marketing authorization for a therapeutic claim bringing a significant
clinical benefit is introduced in the 8 years following marketing approval. Prior to this some E.U.
Member States chose to implement 10 years exclusivity (e.g., U.K.) while other Member States chose
6 years exclusivity (although the period for products approved by the centralized procedure has
always been 10 years). 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. 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 726/2004
(centralized authorization). This includes all products developed by means of recombinant DNA
technology or the controlled expression of genes coding for biologically active proteins in
prokaryotes and eukaryotes. In any remaining cases, there may be an option as to the approval
process followed depending on the therapeutic indication concerned. 33




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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 726/2004 above.
As is the case with human pharmaceutical products, no unauthorized veterinary product may be
marketed in the European Union, 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. 34




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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
    
    
    dormant
    
    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, 2,768 sq. ft. of office space at The Heath
Business & Technical Park, Runcorn, Cheshire WA7 4QF, from SOG Limited. This lease commenced on
April 1, 2005, 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 5,002 sq. ft. corporate office at 5214 Maryland Way, Suite 405,
Brentwood, Tennessee 37027 with a currently unexercised option over a further 1,554 sq. ft. The
lease commenced on November 1, 2003 and will continue through December 31, 2009. 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 in 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, and the option to extend the
term for a further ten years is in the process of being exercised. 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 35




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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. 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 Company reports its financial results on a
March 31 fiscal year end basis. 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
and the results of the businesses acquired have been included in the operating results from this
date. Operating Results Year Ended March 31, 2005 Compared to Year Ended March 31, 2004. Total revenues for the fiscal year 2005 decreased by £2,180,000, or 10%, to £18,839,000 from
£21,019,000. The Companys two main products, CroFab® and DigiFab®, are sold
predominantly in U.S. dollars and the weakening of the U.S. dollar against sterling has had a
significant impact on the turnover generated by these products. CroFab® contributed sales of £11,447,000, down 13% from fiscal year 2004. This
reduction arose despite increased shipments to our distributor, Altana, due to a combination of
adverse exchange rates and a planned reduction in the Companys share of the net sales revenue
generated by Altana. This reduction, from 60% to 50% of net sales revenue, arose in November 2003,
being the third anniversary of the first sales of this product and, therefore, the Company
benefited from the increased revenue share during the main bite season in fiscal year 2004, whereas
no such benefit was achieved in fiscal year 2005. DigiFab® contributed sales of £5,850,000, down 2% from fiscal year 2004 which had
included the final milestone under the Altana distribution agreement of £318,000. Excluding this
milestone, revenues from DigiFab® increased due to higher unit sales although this
growth was restricted by the weakening of the U.S. dollar. ViperaTab sales reduced from £284,000 to £168,000 as a consequence of stock levels held by
customers reducing unit sales and also the effects of the weakening U.S. dollar. Voraxaze
revenues rose from £131,000 in fiscal 2004 to £479,000 in fiscal 2005. Voraxaze was launched on a
named patient basis in Europe in January 2004 and, therefore, fiscal year 2005 has benefited from a
full years sales. Stronger sales of Voraxaze were achieved in the second half of fiscal 2005 as
product awareness within the medical community improved. Royalty income from Enfer Scientific relating to the BSE testing reduced by £650,000 to
£712,000, having suffered from increased competition and pricing pressures during fiscal year 2005.
Other revenues amounted to £183,000 in fiscal year 2005 as compared to £82,000 in fiscal year
2004, 36




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mainly as a result of the £110,000 recognized on the out-license of certain early stage
technologies which had been obtained through the acquisition of Enact in the prior year. As a consequence of reduced product revenues and increased operating costs, predominantly the
research and development costs and marketing build up relating to Voraxaze, the Company recorded
an operating loss of £2,464,000 in fiscal year 2005 compared to an operating profit of £1,245,000
in fiscal year 2004. Cost of sales decreased 7% to £8,801,000 for fiscal year 2005 from £9,461,000 for fiscal year
2004. Although sales revenues from CroFab®and DigiFab® declined as
explained above, unit sales to the distributor, Altana, increased in the fiscal year 2005 compared
to fiscal year 2004. The reduced cost of sales resulted from increased manufacturing volumes and
efficiency improvements instigated during the fiscal year 2004. As previously indicated, the Company has a high proportion of its income derived from the U.S.
markets, where pricing is in U.S. dollars, while manufacturing costs occur predominantly in pounds
sterling and Australian dollars. Currency exposures are managed by a policy of forward covering of
expected revenues on a rolling 12-month basis. As a consequence, the impact of the weakening U.S.
dollar will continue to adversely effect the results during fiscal year 2006. In fiscal year 2005, total research and development expenses increased by £865,000, or 24%,
from £3,668,000 to £4,533,000 in fiscal year 2004. The most significant factor in this rise was the
continuing high levels of research and development being performed on Voraxaze in preparation for
the regulatory submission to the FDA and the European Medicines Agency which is now planned for
fiscal year 2006, along with further studies on the Companys product candidate Angiotensin Vaccine
and the continuing phase I study on Prolarix (formerly NQO2). Administration expenses excluding goodwill amortization increased by £1,108,000 reflecting the
build-up of the Companys sales and marketing capability and Voraxaze pre sales launch planning.
The goodwill amortization charge is a result of the Enact acquisition in June 2003 and therefore
the £998,000 charge in fiscal year 2005 reflects a full years charge whereas the £782,000 in the
fiscal year 2004 reflected 9 months. Interest income for fiscal year 2005 increased by £182,000 to £236,000 as a consequence of
increased cash and short term investments following the net £9.3 million fundraising in July 2004. Interest expense for fiscal year 2005 increased by £128,000, or 24%, to £655,000. The main
factors contributing to this rise were a full years interest on the 6% unsecured convertible loan
notes issued as the main part of the consideration for the Enact acquisition in June 2003 and the
increase in asset financing secured during the ongoing program to increase manufacturing capacity. The tax credit recognized in fiscal year 2005 mainly represents the anticipated receivable
from the surrender of tax losses following incurrence of qualifying U.K. research and development
expenditure. This amounts to £290,000, compared with £252,000 in fiscal year 2004. The credit in
fiscal year 2004 was also affected by adjustments to the prior year estimates of £62,000 and a
deferred tax asset of £267,000 being recognized in respect of the trading losses at the Companys
U.S. operations following recognition of a similar asset in relation to Australia in fiscal year
2003. The directors do not consider that any further credit or charge should be recognized in
respect of deferred taxation for fiscal year 2005. Following the acquisition of the final shareholding of Enact in September 2003, no further
minority interest credit has been recognized. The Companys net loss for the fiscal year 2005 was £2,587,000 compared to a profit of
£1,265,000 for fiscal year 2004. 37




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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 was the result of an increase in overall revenues and efforts 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 due to a combination of increased sales of DigiFab®, a significantly higher margin
product than CroFab®, and improvements in manufacturing, which increased both yields and
efficiencies in fiscal year 2004 as compared to fiscal year 2003. 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 contributors to this rise were an increase in
research and development on Voraxaze, along with studies for the Angiotensin Vaccine, VEGF
Immunotherapeutic Vaccine and Prolarix 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 primarily as a result of
the issuance of the 6% Unsecured Convertible Loan Notes, the main part of the consideration for the
Enact acquisition, and the additional asset financing 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 equity minority interest credit in fiscal year 2004 reflected 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. 38




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Differences between U.K. GAAP and U.S. GAAP The Companys net (loss)/profit for the 2005, 2004 and 2003 fiscal years as reported under
U.K. GAAP amounted to (£2,587,000), £1,265,000 and (£238,000), respectively. The Companys net
(loss)/profit under U.S. GAAP for the same years would have been (£7,392,000), (£10,858,000) and
(£889,000) respectively. The contributors to these differences were as follows:  
    
    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. The
effect of these adjustments for the fiscal years 2005, 2004 and 2003 are shown below.
    
    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 effect of these adjustments in the fiscal year 2005 and 2004 is shown below. This
adjustment had no effect on the fiscal year 2003.
    
    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 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 has been recognized in the fiscal years ended March 31, 2005
and March 31, 2004 as illustrated in the table below. No expense has been recognized in
the year 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 (FAS 133) 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. 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 (gains and losses) in its earnings during the
period of change. For the years ended March 31, 2003, 2004 and 2005, the effects of
recording the fair value of the
derivative instruments on the balance sheet under U.S. GAAP, and corresponding effects
on earnings, is illustrated in the table below. 39




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The net effect of the above adjustments between U.K. and U.S. GAAP are illustrated in the
table below: Year Ended March 31,2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Net (loss) / profit of Group under U.K. GAAP
    
    
    (2,587
    )
    
    
    1,265
    
    
    
    (238
    )Adjustments:Revenue recognition
    
    
    (4,593
    )
    
    
    (3,274
    )
    
    
    (1,119
    )Acquisition of Enact
    
    
    998
    
    
    
    (9,199
    )
    
    
    Stock compensation plans
    
    
    (584
    )
    
    
    (225
    )
    
    
    Derivative instruments and hedging activities
    
    
    (626
    )
    
    
    578
    
    
    
    468Net (loss) under U.S. GAAP
    
    
    (7,392
    )
    
    
    (10,855
    )
    
    
    (889
    )
 Under U.K. GAAP, the Companys shareholders funds on March 31, 2005 and 2004 amounted to
£25,228,000 and £15,293,000, while under U.S. GAAP the balances would have been £8,591,000 and
£2,877,000, respectively. The contributors to these differences are illustrated in the table
below: Year Ended March 31,2005
    
    
    2004£000
    
    
    £000Equity Shareholders funds under UK GAAP
    
    
    25,228
    
    
    
    15,293Adjustments:Revenue recognition
    
    
    (8,831
    )
    
    
    (4,238
    )Acquisition of Enact
    
    
    (8,201
    )
    
    
    (9,199
    )Derivative instruments and hedging activities
    
    
    395
    
    
    
    1,021Equity Shareholders funds under US GAAP
    
    
    8,591
    
    
    
    2,877
 Further discussion of the differences between U.K. and U.S. GAAP are itemized in
note 26 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. At March 31, 2005, the Company had cash and cash equivalents totaling £7,247,000. The
Companys net cash outflow from operating activities during fiscal year 2005 totaled £3,103,000, as
compared to a net cash inflow of £639,000 from fiscal year 2004. This adverse movement results
from the reduced revenues following the planned reduction in the royalty rate received from Altana
for CroFab® and the adverse effects of exchange rate movements along with increased
administrative expenditure and research and development costs. In addition, a shutdown of the main
manufacturing
facility is being undertaken during the first half of fiscal year 2006 to integrate the
existing facilities with the new clean rooms. This will be followed by a review of data of the
expanded facility by the FDA. In order to secure supply during this extended period, the Company
has built inventories of bulk CroFab® 40




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and DigiFab® during fiscal year 2005
which has also increased the net cash outflow from operating activities. Capital expenditures financed by cash reduced 31% to £1,001,000 in fiscal year 2005 from
£1,445,000 in fiscal year 2004. Against these expenditures, the Company received grants of £10,000
in fiscal year 2005 compared to £611,000 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 approximately £1 million are budgeted for fiscal year 2006 in order to
instigate process improvements and to complete the expansion of the commercial production capacity,
against which the Company has secured external financing in excess of £385,000. In addition,
receipt of a further £250,000 grant is anticipated from the Welsh National Assembly. The Company
also has an overdraft facility with Barclays Bank PLC of up to £2,000,000, which expired on
June 30, 2005 and which is currently in the process of being extended to September 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. 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
at 25p per ordinary share. 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 August 2004, the Company raised an additional £9,350,000 net of anticipated expenses
through a fully underwritten Cash Placing and Open Offer of new ordinary shares which is intended
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 U.S., 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. 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 years 2004 and 2005, 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 41




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##### Table of Contents



dollars. For further discussion, see Item 11. Quantitative and Qualitative Disclosures about
Market Risk. Contractual Obligations and Commercial Commitments The Companys contractual and commercial commitments at March 31, 2005 are illustrated below. Payments due by periodLess than
    
    
    
    Between 1
    

    
    
    Between 3
    
    
    
    Over 5Total
    
    
    
    1 year
    
    
    
    and 3 years
    
    
    
    and 5years
    
    
    
    years£000
    
    
    
    £000
    
    
    
    £000
    
    
    
    £000
    
    
    
    £000Long-Term Debt
    
    
    4,205
    
    
    
    193
    
    
    
    218
    
    
    
    
    
    
    
    3,794Capital Lease Obligations
    
    
    1,780
    
    
    
    534
    
    
    
    973
    
    
    
    273
    
    
    
    Operating Leases
    
    
    1,524
    
    
    
    472
    
    
    
    835
    
    
    
    169
    
    
    
    48Unconditional purchase obligations
    
    
    534
    
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    
 Net Operating Loss Carryforwards The tax credits in fiscal years 2005, 2004, 2003 and 2001 have risen as a result of research
and development expenditure claimed under the Finance Act 2000. No tax credit was recognized in
fiscal year 2002 since the Company did not qualify in that year. 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. in fiscal year 2004,
since it is the directors opinion based upon recent and forecast trading that the level of profits
in both Australia and the U.S. in the forthcoming years will lead to the realization of these assets.
At March 31, 2005, the Company had tax losses, subject to the agreement of the Taxation
Authorities, of approximately £73 million (2004: £68 million) available for offset against future
taxable profits of the same trade. Of these losses, approximately £20 million (2004: £23 million)
relates to net operating losses of Protherics Inc., the use of £12 million of which is restricted
to £0.8 million (US$1.5 million) per year. Recently Issued Accounting Pronouncements On December 16, 2004, the FASB issued Statement of Financial Accounting Standard (SFAS) No.
123 (revised 2004) Share-based Payment (SFAS 123R) which eliminates the ability to account for
share-based compensation transactions using Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees, (APB 25) and generally requires that such transactions
be accounted for using a fair value-based method with the resulting compensation cost recognized
over the period that the employee is required to provide service in order to receive their
compensation. SFAS 123R also amends SFAS No. 95, Statement of Cash Flows, requiring the benefits
of tax deductions in excess of recognized compensation cost to be reported as a financing cash
flow, rather than as an operating cash flow as currently required. The Company plans to adopt SFAS
123R beginning April 1, 2006, using the modified-prospective method. The Company is in the process
of assessing the impact of adopting SFAS 123R. On November 24, 2004, the FASB issued SFAS 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4 (SFAS 151), which clarifies that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) should be recognized as a current period expense. In
addition, this Statement requires that allocation of fixed production overhead to the costs of
conversion be 42




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based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal
years beginning after June 15, 2005. The Company does not believe that the implementation of this
standard will have a material impact on the Companys financial position, results of operations or
cash flows. In December 2004, the FASB issued Statement of Financial Accounting Standard No. 153 (SFAS
153), Exchanges of Non-monetary Assetsan amendment of APB Opinion No. 29. SFAS 153 addresses
the measurement of exchanges of non-monetary assets. It eliminates the exception from fair value
measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29 Accounting for Non-monetary Transactions and replaces it with an exception for
exchanges that do not have commercial substance. A non-monetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 will be effective for non-monetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have a material impact
on the Companys financial position, results of operations or cash flows. 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 is currently deferred under U.S.
GAAP until the replacement privilege expires or sufficient historical sales returns information
becomes available. 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, 2005. In the event that trading projections 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. 43




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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. International Financial Reporting Standards (IFRS) The Company will be adopting IFRS for
the fiscal year 2006. It is expected that the Company will no longer be required to amortize the
goodwill arising on the acquisition of Enact on an annual basis, although ongoing consideration of
the valuation for possible impairment will be required. An increased charge for share-based
compensation (which is widely used in the biotechnology sector) is also anticipated. The Company
anticipates that it will continue to hedge its U.S. dollar receivables, but under IFRS, the
gains/losses will not be reflected in turnover, but will be included as other income/expense. In
addition, IFRS will require the Company to value its forward contracts at each period end, thereby
accelerating the impact on the accounts. Potentially major change for pharmaceutical and
biotechnology companies may arise from the treatment of costs for later stage clinical trials and
development under IAS38, where some internal development costs could be capitalized. These may
require consideration on a case by case basis, and it is currently too early to give guidance on
the application in specific cases. Overall, the impact on the Groups earnings of the changes required under IFRS is anticipated
to be positive in the foreseeable future. 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 expenditures for fiscal years ended 2005, 2004 and 2003
was £4,533,000, £3,668,000, and £1,591,000, respectively. Trend Information Although revenues from sales of CroFab® have been included for the full twelve
months of results for fiscal years 2003, 2004 and 2005, 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 year 2006. In addition to the
revenue variances caused by the quantity of CroFab® supplied, the first eight months of
fiscal year 2004 provided the Company with 60% of the net sales revenue achieved by Altana, which
was then subject to a scheduled reduction to 50%. Fiscal year 2005, therefore, includes a full year
of CroFab® revenues at this ongoing reduced revenue split. Advance orders of
CroFab® for fiscal year 2006 remain in line with expectations. DigiFab® was approved by the FDA in August 2001 with revenues commencing in
February 2002 and, therefore, fiscal years 2003, 2004 and 2005 include full 12 months results for
DigiFab®. The Companys U.S. distributor, Altana, is required to provide the Company
with product sales forecasts two years before anticipated delivery date and these estimates can be
revised by +/- 25% until one year prior to delivery, at which point a firm order is placed. A
significant proportion of the Companys U.S. DigiFab® revenues are based solely upon the
Company supplying the required product for these orders with the balance being recognized when
Altana makes sales into the marketplace. Although Altana estimates both an increase in market
share and in sales to the marketplace in the coming year, Altana has 44




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advised the Company that it intends to satisfy orders principally from their own inventories
of DigiFab®, which may lead to a reduction in Altanas orders of product from the
Company and decreased revenues to the Company from the principal U.S. market over the next 12 to 24
months. The Company anticipates generating 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. The Company is on track to complete the current investment in its manufacturing facilities.
Regulatory approval will be required before any product manufactured in the revised facility is
released for sale. The Company does not anticipate this process will affect its ability to meet
product demand for fiscal 2006, although the Company remains dependent upon the ability of its
filling and freeze-drying contractors 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 mitigates its currency exposures by a policy of forward
covering expected revenues for up to twelve months on a rolling basis., The U.S. dollar declined in
value against sterling by 17% during fiscal year 2004 and a further 5% during fiscal year 2005.
Therefore, the effective exchange rate that will be achieved in the forthcoming fiscal year under
the Companys hedging policy will be adverse to that achieved in fiscal year 2005. 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. The Company intends to implement modest selling
price increases in U.S. dollars in order to mitigate the negative effects of the weak dollar and, in
the longer term, to make further cost reductions in the manufacturing process. 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 2005 in order to advance its products in development and to seek regulatory
approval for Voraxaze. This increase is anticipated to continue during fiscal year 2006 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 product revenues during fiscal year
2006 and proceeds of the fundraising completed in August 2004. The acquisition of Enact Pharma in June 2003 has led 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 fiscal year 2004 reflected the full period
cost. In December 2004, the unsecured convertible loan notes became exercisable and as of March
31, 2005, 47% of the notes issued had been converted. This will have the effect of reducing the
interest expense during fiscal year 2006. 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 administrative costs during fiscal year 2006. The Company will be adopting IFRS for its 2006 fiscal year, which may lead to significant
variances from its current accounting treatments, as noted on page 44. 45




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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors and Senior Management The following table sets forth information as of June 30, 2005 about the directors and
executive officers of the Company. Name
    
    Age
    
    Position within the CompanyExecutive Directors
Andrew John Heath, M.D., Ph.D.
    
    57
    
    Chief Executive Officer and DirectorBarrington Marshall Riley, BA, FCA
    
    56
    
    Finance Director and DirectorJames Campbell Christie, BSc., MBA
    
    47
    
    Operations Director and DirectorNon-Executive Directors
Stuart Michael Wallis, FCA, ATII(1)(2)
    
    59
    
    ChairmanDavid Whitnall Gration, FRPharmS(1)(2)(3)(4)
    
    66
    
    Deputy ChairmanGarry Watts, FCA(1)(2)(3)
    
    47
    
    DirectorJohn Robert Brown, Ph.D, MBA(1)(2)(3)
    
    49
    
    DirectorExecutive Officers
Saul Komisar, MBA, BS, CCM
    
    36
    
    President, Protherics Inc.Ian Scoular, Ph.D, BSc, DMS
    
    55
    
    Director of Business DevelopmentSally Waterman, Ph.D, BSc, DMS
    
    47
    
    Director of Research & DevelopmentNick Staples, Ph.D, BSc
    
    35
    
    Director of Corporate Affairs
 
 (1) Member of Nomination Committee.(2) Member of Remuneration Committee(3) Member of Audit Committee(4) Mr. Gration resigned from the Board of Directors and
its Committees effective July 20, 2005. Executive Directors 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 U.S.-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, 46




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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. Non-Executive Directors 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 Plethora Solution Holdings
PLC and The Simply Smart Group Limited. 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. Mr. Gration has resigned from the Board and its Committees effective July 20, 2005. Garry
Watts, F.C.A.is 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., M.B.A.was 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. Martin Brown and Michael Peagram, formerly non-executive directors of the Company, both
resigned on April 16, 2004. Anthony Atkinson, also formerly Chief Scientific Officer of the Company
until his resignation on April 22, 2004 when he became a non-executive director of the Company,
resigned on April 19, 2005. Executive Officers Saul
Komisar, M.B.A., B.S., C.C.M.has served as President of Protherics Inc. since November 2000.
Mr. Komisar joined Protherics in December of 1996, having spent the previous six years working in
corporate finance specialized in the healthcare industry. He has responsibility for Protherics
U.S. operations, including the commercialization of the Companys FDA approved products. He holds
an MBA from The Owen Graduate School of Management at Vanderbilt University. Ian
Scoular, Ph.D., B.Sc, D.M.S.has served as Director of Business Development for the Company
since July 2000. Mr. Scoular has more than 20 years business development experience in the
pharmaceutical industry through positions in Nycomed Pharma, Schering Plough and Reckitt & Colman.
He is responsible for seeking commercial partners for the Companys development products and
intellectual property portfolio. Sally
Waterman, Ph.D., B.Sc, D.M.S.has served as Director of Research and Development since April
2005. Ms. Waterman has over 20 years experience within the pharmaceutical industry. She previously
served as Director of Development Operations at Xenova Group plc, following its recent 47




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acquisition of KS Biomedix Holdings plc, where she was Vice President of Research and
Development. Prior to this, she held various senior positions within Vanguard Medica plc (now
Vernalis plc), including Vice President of Non-Clinical Development. Nick
Staples, Ph.D., BSchas served as Director of Corporate Affairs since November of 2003 and
is responsible for corporate development and investor relations. He was previously a biotechnology
analyst at WestLB Panmure and spent 4 years as a management consultant in the Life Sciences
practice at PA Consulting Group, gaining experience in strategic planning, business analysis and
due diligence. There are no family relationships among the directors or other executive officers. 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 There are five main elements of the compensation packages for executive directors:  
    
    Basic salaries and benefits in kind
    
    Share option plans
    
    Long Term Incentive Plan (the LTIP)
    
    Annual Incentive and Deferred Bonus Plan (the DBP)
    
    Pensions For information relating to these elements to the compensation packages for executive
directors, see Note 5 of the Notes to the Consolidated Financial Statements included herein at Item
17. Board Practices The Board currently has three executive directors and four 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. 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
    
    £115,548
    
    12 months
    
    12 monthsU.S. $113,000B.M. Riley
    
    July 13, 1995
    
    £130,000
    
    12 months
    
    6 monthsJ.C. Christie
    
    September 21, 2000
    
    £122,000
    
    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 and in the case of Mr. Riley, an additional £15,000 in lieu of
salary. In the case of Dr. Heath, the Group made pension contributions of 15 percent of his U.K.
salary plus an additional £70,452 per annum in lieu of salary, in addition to a maximum of $16,700
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 48




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##### Table of Contents



Protherics bonuses, which in the case of Messrs. 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. 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, 2005. The Company provides life insurance and permanent health insurance.
The appointment is terminable with 12 months notice by either party. During the year ended March 31, 2005, Mr. Wallis received £70,000 from the Company as remuneration for services as Chairman of the Board.
The remuneration was paid in equal halves  pursuant to both a letter of appointment dated
September 1, 1998, as subsequently amended by agreement, and a
consultancy agreement dated September 1, 1998, as subsequently
amended by agreement, with Mr. Wallis management company.
Both the letter of appointment and the consultancy agreement are
terminable by 12 months notice from either party. 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 received £24,000
in fiscal year 2005. The appointment is terminable by either party on 3 months notice. Dr. J.R. Brown has a letter of appointment dated February 23, 2004 under which he received
£21,000 in fiscal year 2005. The appointment is terminable by either party on 3 months notice. The Board has appointed the following standing committees: Audit Committee. The Audit Committee is comprised of Messrs. Watts and J.R. Brown. Mr.
Wallis resigned from this Committee on May 26, 2005. Mr. Gration served as a member of the
Committee until his resignation from the Board on July 20, 2005. 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. Remuneration Committee. The Remuneration Committee is comprised of Messrs. Wallis, Watts and
J.R. Brown. Mr. Gration served as a member of the Committee until his resignation from the Board
on July 20, 2005. 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 Dr. Brown who replaced Mr. Gration
as Chairman during fiscal year 2005. 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, Watts, J.R. Brown and Heath. Dr. Heath was appointed to the Committee on May 26, 2005. Mr.
Gration served as a member of the Committee until his resignation from the Board on July 20, 2005.
The Nomination Committee is chaired by Mr. Wallis. The Nomination Committee is currently undertaking a search for a non-executive director to
fill the vacancy created by Mr. Grations resignation on July 20, 2005. The Company anticipates
that the new non-executive director, once identified and approved by the Board, will be appointed
to fill the vacancies on each committee on which Mr. Gration served. 49




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##### Table of Contents



Employees The number of persons, including directors, employed by the Company as of March 31, 2005,
2004, and 2003 are broken down by activity and geographic location is shown below. 2005
    
    
    2004
    
    
    2003U.K.
    
    
    U.S.
    
    
    Australia
    
    
    U.K.
    
    
    U.S.
    
    
    Australia
    
    
    U.K.
    
    
    U.S.
    
    
    AustraliaManagement
    
    
    27
    
    
    
    2
    
    
    
    5
    
    
    
    27
    
    
    
    1
    
    
    
    4
    
    
    
    21
    
    
    
    1
    
    
    
    3Administration
    
    
    19
    
    
    
    3
    
    
    
    2
    
    
    
    18
    
    
    
    3
    
    
    
    3
    
    
    
    10
    
    
    
    3
    
    
    
    2Research and
production
    
    
    103
    
    
    
    8
    
    
    
    42
    
    
    
    113
    
    
    
    6
    
    
    
    44
    
    
    
    92
    
    
    
    2
    
    
    
    39Total
    
    
    149
    
    
    
    13
    
    
    
    49
    
    
    
    158
    
    
    
    10
    
    
    
    51
    
    
    
    123
    
    
    
    6
    
    
    
    44
 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. 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 June 30, 2005. Ordinary shares
    
    
    
    
    
    
    6% Convertible LoanName
    
    owned
    
    
    Percentage
    
    
    Notes (£)S.M. Wallis
    
    
    503,724
    
    
    
    0.21
    %
    
    
    60,606A.J. Heath
    
    
    346,498
    
    
    
    0.14
    %
    
    
    24,242D.W. Gration
    
    
    47,234
    
    
    
    0.02
    %
    
    
    B.M. Riley
    
    
    30,019
    
    
    
    0.01
    %
    
    
    15,151J.C. Christie
    
    
    28,343
    
    
    
    0.01
    %
    
    
    G. Watts
    
    
    
    
    
    
    
    
    
    
    J.R. Brown
    
    
    20,000
    
    
    
    0.01
    %
    
    
    
 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 has operated 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. On January 27, 2005, the Company adopted a new Executive Share Option Plan (ESOP) consisting
of an unapproved section with a linked Inland Revenue approved addendum. A Long-term Incentive Plan
(LTIP) and Deferred Bonus Plan (DBP) were also adopted. Under the LTIP and DBP, 50




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##### Table of Contents



awards can be made in the form of options at nil or a nominal price per share. Options were
granted under the LTIP on February 28, 2005 at 2p per share, as shown in the table below. 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. The table below sets forth the details of the Companys outstanding share options as of June
30, 2005. At April 1,
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    At June 30,
    
    
    ExerciseDate exercisable
    
    2004
    
    
    Granted
    
    
    Exercised
    
    
    Or expired
    
    
    2005
    
    
    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.$6.001 Mar 2004 to 1 Jan 2006
    
    
    
    
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    58.508 Oct 2004 to 1 Jan 2006
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    23.25Approved 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
    
    
    
    
    
    
    
    3,835
    
    
    
    928
    
    
    
    59,712
    
    
    
    37.5028 Feb 2004 to 27 Feb 2011
    
    
    341,000
    
    
    
    
    
    
    
    5,000
    
    
    
    8,000
    
    
    
    328,000
    
    
    
    43.50Unapproved scheme22 June 2001 to 21 June 2008
    
    
    275,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275,000
    
    
    
    46.0023 Dec 2001 to 22 Dec 2005
    
    
    10,305
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5,305
    
    
    
    45.0022 Dec 2002 to 21 Dec 2009
    
    
    540,000
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    525,000
    
    
    
    39.0027 Jan 2003 to 26 Jan 2010
    
    
    87,909
    
    
    
    
    
    
    
    
    
    
    
    812
    
    
    
    87,097
    
    
    
    37.502 Aug 2003 to 1 Aug 2010
    
    
    2,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,908
    
    
    
    28.5022 Feb 2004 to 21 Feb 2011
    
    
    1,430,000
    
    
    
    
    
    
    
    60,000
    
    
    
    
    
    
    
    1,370,000
    
    
    
    43.5016 Jan 2005 to 15 Jan 2012
    
    
    2,369,000
    
    
    
    
    
    
    
    40,000
    
    
    
    46,000
    
    
    
    2,283,000
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    140,000
    
    
    
    1,110,000
    
    
    
    23.2524 Jun 2006 to 23 Jun 2013
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    23.001 Mar 2007 to 28 Feb 2014
    
    
    1,240,000
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    1,170,000
    
    
    
    58.501 Mar 2009 to 28 Feb 2014
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325,000
    
    
    
    58.5027 Sep 2009 to 26 Sep 2014
    
    
    
    
    
    
    310,000
    
    
    
    
    
    
    
    
    
    
    
    310,000
    
    
    
    49.50*28 Feb 2008 to 27 Feb 2015
    
    
    
    
    
    
    741,669
    
    
    
    
    
    
    
    
    
    
    
    741,669
    
    
    
    2.00Savings related options1 Apr 2005 to 31 Oct 2005
    
    
    96,300
    
    
    
    
    
    
    
    83,700
    
    
    
    
    
    
    
    12,600
    
    
    
    37.50Protherics PLC option plan for
ex-Therapeutic Antibodies employees27 Jan 2000 to 29 June 2008
    
    
    166,222
    
    
    
    
    
    
    
    
    
    
    
    3,984
    
    
    
    162,238
    
    
    
    175.0 to 312.09,548,459
    
    
    
    1,221,669
    
    
    
    207,535
    
    
    
    298,259
    
    
    
    10,264,334
 * Options issued under the long term incentive plan approved by the shareholders on
January 27, 2005. The price of a share at the date of grant was 54.75p. At March 31, 2005, there were no unexercised warrants (2004: nil; 2003: 887,008) for ordinary
shares, however, there are unexercised warrants for 225,500 (2004: 932,500) ordinary shares in
Enact Pharma PLC which expire between March 12, 2005 and July 9, 2012 and are exercisable at prices
between 30p 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 51




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##### Table of Contents



ordinary shares. The 6% Loan Notes became convertible at 25p per ordinary share on December
19, 2004. The terms of the 6% Loan Notes permit the Company to repurchase the 6% Loan Notes at any
time by tender (available to all holders alike) or by privately negotiated transactions with
individual holders at any price. Options Granted to Therapeutic Antibodies former employees and consultants In addition, as of March 31, 2005, options over up to 507,818 ordinary shares (2004: 697,387;
2003: 728,904) 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. Share Options in Enact Pharma PLC At March 31, 2004, options over 527,602 ordinary shares in Enact Pharma PLC were outstanding
and exercisable at 20p per Enact Pharma PLC ordinary share between January 9, 2005, and January 8,
2012. Had these been exercised, the Company was 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 6% Loan Notes are disclosed above. These options lapsed during the year ended March 31, 2005
on the departure of certain former Enact employees to Morvus Technology Limited. Share Options held by Directors of Protherics PLC Details of share options granted to directors are set forth in the table below as of June 30, 2005. At April 1,
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    At June 30,
    
    
    Exercise
    
    
    Exercisable2004
    
    
    Granted
    
    
    Exercised
    
    
    Cancelled
    
    
    2005
    
    
    Price (p)
    
    
    From
    
    
    ToApproved optionsB M Riley
    
    
    52,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,955
    
    
    
    68.83
    
    
    25 Jul 1998
    
    24 Jul 2005Unapproved optionsD W Gration
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    46.00
    
    
    22 Jun 2001
    
    21 Jun 2008B 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 2014B M Riley*
    
    
    
    
    
    
    132,420
    
    
    
    
    
    
    
    
    
    
    
    132,420
    
    
    
    2.00
    
    
    28 Feb 2008
    
    27 Feb 2015J 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 2014J C Christie*
    
    
    
    
    
    
    111,416
    
    
    
    
    
    
    
    
    
    
    
    111,416
    
    
    
    2.00
    
    
    28 Feb 2008
    
    27 Feb 2015A 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 2014A J Heath*
    
    
    
    
    
    
    221,233
    
    
    
    
    
    
    
    
    
    
    
    221,233
    
    
    
    2.00
    
    
    28 Feb 2008
    
    27 Feb 2015Savings 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 20094,851,255
    
    
    
    465,069
    
    
    
    27,000
    
    
    
    
    
    
    
    5,289,324
 52




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##### Table of Contents



* Unapproved options granted under the long term incentive plan. The market price of a share
at date of grant was 54.75p. Messrs. Wallis, Watts and J.R. Brown do not hold options for the Companys ordinary shares. The price of the Companys ordinary shares to which the options relate was 49.25p at March 31,
2005, and fluctuated between 47.0p and 65.75p 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, 5% or more of the Companys ordinary shares, as of August 29, 2003, September 15, 2004,
and June 30, 2005 each being the most recent practicable date before reporting for the last three
fiscal years. 2003
    
    
    2004
    
    
    2005% of
    
    
    
    
    
    

    % of
    
    
    
    
    
    
    % of# of
    
    
    issued
    
    
    # of
    
    
    issued
    
    
    # of
    
    
    issuedShareholder
    
    shares
    
    
    shares
    
    
    shares
    
    
    shares
    
    
    shares
    
    
    sharesM & G Asset Management
    
    
    13,289,501
    
    
    
    6.42
    
    
    
    12,570,232
    
    
    
    5.50
    
    
    
    12,287,209
    
    
    
    5.07Morley Fund Management
    
    
    13,592,075
    
    
    
    6.57
    
    
    
    17,883,779
    
    
    
    7.83
    
    
    
    25,392,268
    
    
    
    10.48Insight Investment
Management
    
    
    *
    
    
    
    *
    
    
    
    13,498,092
    
    
    
    5.91
    
    
    
    14,965,692
    
    
    
    6.17Framlington Asset Management
    
    
    13,591,500
    
    
    
    6.56
    
    
    
    26,842,493
    
    
    
    11.75
    
    
    
    27,067,615
    
    
    
    11.17
 
 * Holder of less than 5% of the Companys ordinary shares. All of the Companys major shareholders have the same voting rights. At June 30, 2005, approximately 11,678,966 ordinary shares were held of record by
approximately 395 holders with registered addresses in the U.S., representing approximately 4.8% 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 known to the Company, the operation of which could result in a change in control of
the Company. Related Party Transactions The Company rents office accommodation from, and has administration services provided by
Chimaeron Limited, a company in which Dr. Anthony Atkinson, a former director of the Company who
resigned on April 19, 2005, has a controlling interest. Rent charged and other services provided in
the year to March 31, 2005 amounted to £7,125 (2004: £21,375) and £1,457 (2004: £4,811)
respectively. At March 31, 2005, the Company owed Chimaeron Limited £7,655 (2004: £13,186). On September 22, 2004, the Company assigned intellectual property and transferred certain
Company assets and staff members to Morvus Technology Limited, a company in which Dr. Anthony
Atkinson is a director and is in a position to exercise influence. The Company received a small
equity stake in Morvus Technology Limited, valued at the time of transfer at £150,000. £40,000
related to the value of the assets transferred while £110,000 related to certain expenses incurred
by the Company in relation to the facilities and staff being transferred. The Company has retained
a right of first refusal to license certain products that may be developed by Morvus Technology
Limited. The directors of the Company had assigned no value to the intangible assets. During the
year ended March 31, 2005, Morvus Technology Limited has charged the Company £46,044 for services
provided while the Company has charged Morvus Technology Limited £62,024 for reimbursement of costs
incurred on their behalf. At 53




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March 31, 2005, the Company owed Morvus Technology Limited £3,812.
The directors consider all transactions with Morvus Technology Limited to be at an arms length
valuation M. Brown, a former non-executive director of the Company, who resigned on April 26, 2004,
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. 54




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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 London
Stock Exchange. Financial Year Ended March 31,
    
    High
    
    
    Low£
    
    
    £2001
    
    
    0.448
    
    
    
    0.2802002
    
    
    0.408
    
    
    
    0.2052003
    
    
    0.345
    
    
    
    0.142First 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
    
    
    
    0.470Second Quarter
    
    
    0.562
    
    
    
    0.467Third Quarter
    
    
    0.537
    
    
    
    0.480Fourth Quarter
    
    
    0.658
    
    
    
    0.4802006First Quarter
    
    
    0.593
    
    
    
    0.450Calendar Year 2005
Most Recent Six MonthsJanuary
    
    
    0.658
    
    
    
    0.605February
    
    
    0.628
    
    
    
    0.548March
    
    
    0.550
    
    
    
    0.493April
    
    
    0.510
    
    
    
    0.465May
    
    
    0.485
    
    
    
    0.450June
    
    
    0.593
    
    
    
    0.460
 
 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 55




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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. In the case of joint holders of a share, any one of such persons may vote at any meeting
either personally or by proxy. If more than one such joint holders is present at any meeting,
either personally or by proxy, the shareholder whose name stands first on the register shall be
entitled to vote. 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. 56




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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 in such manner as may be provided by such rights, or in the
absence of any such provision, 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 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 U.K. 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 57




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assumed responsibility in whole or in part under a guarantee or indemnity or
by the giving of security;(c)
    
    any proposal concerning an offer of 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;(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 his 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 either relates
to both employees and Directors of the Company or any of its subsidiaries, or
which has been approved by, or is subject to and conditional upon approval by
the Board of Inland Revenue for taxation purposes and 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 or any arrangement for the
benefit of employees of the Company or any of the subsidiaries under which the
Director benefits in a similar manner to employees; and(g)
    
    any contract, arrangement, transaction or other proposal
concerning any insurance which the Company is empowered to purchase and/or
maintain for, or for the benefit of, any Director, Auditors or other officer of
the Company or any of its subsidiaries, 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. These provisions do 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. 58




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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. 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 subsidiaries, so as to
secure (as regards subsidiaries, so far as by such exercise they can secure) that the aggregate
amount at any one 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; and(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 59




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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. 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 60




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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 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. 61




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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: 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, the remaining income is shared 80% to the Company and
20% to the University College Dublin. A total of £712,000 has been recognized as royalty income in
the fiscal year 2005. 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. In February 2001 and February 2002, Altana began marketing and distributing the Companys
CroFab® and DigiFab® products, respectively, under the agreement in the
United States. A total of £16,655,000 has been recognized as income in the fiscal year 2005. 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. A total of £203,000 has been recognized as income in the fiscal year
2005. Mayne Pharmaceuticals (formerly F.H. Faulding & Co. Limited) 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 62




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and freeze drying CroFab® under the agreement. Costs of £904,000 have been incurred under this contract in fiscal year 2005. 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. The final payment was made in December 2004 and, in
accordance with the license agreement, the underlying patents were 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® and
DigiFab® products. Under the agreement, which commenced in May 2003, Chesapeake is
entitled to a set fee per batch of product filled and freeze-dried. Costs of £469,000 have been
incurred under this contract in fiscal year 2005. 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. Costs of A$2,385,000 have been incurred under this contract in fiscal
year 2005. 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 63




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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 Income Tax Convention
allows U.S. holders to elect to apply the Old Income Tax Convention for 12 months after a relevant
Income Tax Convention provision came into effect. This elective period expired on April 30, 2004;
therefore this discussion only addresses the 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. 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, 64




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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. 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. 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. However, a qualified foreign
corporation does not include a Passive Foreign Investment Company (PFIC)  see discussion below
entitled Passive Foreign Investment Company Rules. The U.S. Internal Revenue Service (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. Under the Income Tax Convention, there will be no U.K. tax withheld. Therefore, a U.S. holder
will not be entitled to claim a foreign tax credit in respect of any dividends. 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. The maximum capital gains tax for
non-corporate U.S. holders is 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. 65




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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 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. 66




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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, U.S. holders are no
longer able to recover any part of this tax credit. 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
either (i) a non-corporate person or entity which carries on a trade, profession or vocation in the
United Kingdom through a branch or agency 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 branch or
agency; or (ii) a corporate entity 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, 25 and 26 to the Consolidated Financial
Statements attached as an exhibit to this filing. 
  ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES  Not applicable. 67




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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 the 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. Our board of directors has
determined that Mr. Watts is independent as that term is defined in the NASDAQ listing standards
and regulations of the Securities and Exchange Commission. 
 ITEM 16B. CODE OF ETHICS The Board of Directors has adopted a Code of Ethics applicable to the Chief Executive Officer,
Finance Director and Financial Controller. A copy of this Code of Ethics is available on the
Companys website at www.protherics.com. 68




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In addition, the Company complied with the provisions of the revised UK Combined Code on
Corporate Governance throughout the year ended March 31, 2005 with the following exceptions:  
    
    the Chairman of the Company, Mr. Wallis, and Mr. Gration, who is not considered to be an
independent non-executive due to options held which were granted while he held an executive
role in the Company, were both members of the Audit Committee throughout the year since it
was considered that both individuals bring significant relevant experience to the Audit
Committee. In accordance with the Smith guidance, Mr. Wallis resigned as a member of the
Audit Committee on May 26, 2005 while Mr. Gration stepped down from the Board and its
committees in July 2005;
    
    the terms of reference of the Remuneration and Nominations Committees were not adopted
until May 26, 2005, and have since been posted on the Companys website, together with the
revised Audit Committee terms of reference. 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following summarizes the audit and non-audit fees paid to the Companys independent
auditors, PricewaterhouseCoopers LLP: 2005
    
    2004£000
    
    £000Audit fees
    
    
    101
    
    
    
    106Audit related fees
    
    
    31
    
    
    
    10Tax fees
    
    
    51
    
    
    
    83All other fees
    
    
    80
    
    
    
    49263
    
    
    
    248
 Audit Fees Audit fees consisted of fees for professional services rendered by the independent auditor in
connection with statutory audits and regulatory filings. Audit Related Fees Audit related fees consisted fees for professional services rendered by the independent
auditor such as assurance and related services that are reasonably related to the performance of
the audit or review of the Companys financial statements and include accounting reviews and
reviews of Company assessments as to the effects of new accounting standards and other regulatory
requirements. 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. 69




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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. In addition to the above, the
auditors also received 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. 
 ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. 
  ITEM 16E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS None. 70




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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, 2003, 2004 and 2005
    
    
    F-4Consolidated Statement of Total Recognised Gains and Losses
March 31, 2003, 2004 and 2005
    
    
    F-5Consolidated Balance Sheet at March 31, 2004 and March 31, 2005
    
    
    F-6Company Balance Sheet at March 31, 2004 and March 31, 2005
    
    
    F-7Consolidated Cash Flow Statement for the years ended
March 31, 2003, 2004 and 2005
    
    
    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)1.2
    
    Memorandum of Association of Protherics PLC (4)2.1
    
    Instrument constituting 6 per cent. Unsecured Convertible Loan Notes 2010 (1)
 71




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ExhibitNumber
    
    Exhibit Title4.1
    
    Patent and Know-how Licence Agreement, dated April 2, 2001, between Protherics
Molecular Design Limited and Enfer Technology Limited (3)4.2
    
    Letter Agreement, dated August 13, 1996, between Proteus, University College Dublin and
Pharmapro Limited (4)4.3
    
    Distribution Agreement, dated October 11, 1997, between Therapeutic Antibodies Inc. and
Altana, Inc. (5)4.4
    
    First Amendment to the Distribution Agreement, dated October 25, 1999, between Altana,
Inc. and Protherics (4)4.5
    
    Amendment No. 1 to Distribution Agreement, dated September 12, 2000, between Altana,
Inc. and Protherics (4) (+)4.6
    
    Amendment No . 3 to Distribution Agreement, dated February 2002, between Altana Inc.
and Protherics (2)4.7
    
    First Amended and Restated Product Agreement, dated March 31, 2000, between Swedish
Orphan AB and Protherics Inc. (4)4.8
    
    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 (6)4.9
    
    Contract Manufacturing Agreement, dated as of November 17, 1998, between Therapeutic
Antibodies Inc. and F.H. Faulding & Co. Limited (3)4.10
    
    Supply agreement, dated October 21, 2002, between Selborne Biological Services
(Australia) Pty Limited and Protherics Australasia Pty Limited (2)4.11
    
    Manufacturing Agreement, dated March 19, 2003, between Protherics UK Limited and
Chesapeake Biological Laboratories Inc (2)4.12
    
    Memorandum of Lease, dated August 1, 1995, between Minister for Primary Industries, as
Lessor, and TAb Australasia Pty. Limited, as Lessee (9)4.13
    
    Proteus Approved Executive Share Option Scheme (5)4.14
    
    Proteus Unapproved Share Option Scheme (5)4.15
    
    Proteus Savings-Related Share Option Scheme (5)4.16
    
    Option Deed, dated December 22, 1999, between Protherics PLC and Andrew J. Heath (4)4.17
    
    Employment Agreement, dated November 13, 2001, between Protherics Inc. and Andrew J.
Heath (3)4.18
    
    Employment Agreement, dated November 13, 2001, between Protherics PLC and Andrew J.
Heath (3)4.19
    
    Employment Agreement, dated July 13, 1995, between Protherics PLC and Barry M. Riley (3)
 72




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ExhibitNumber
    
    Exhibit Title4.20
    
    Employment Agreement, dated July 13, 1995, between Protherics PLC and James C. Christie
(3)4.21
    
    Letter Agreement, dated September 1, 1998, between Therapeutic Antibodies (UK) Limited
and Stuart M. Wallis (8)4.22
    
    Consultancy Agreement, dated August 21, 1998, between Therapeutic Antibodies (UK)
Limited and Stuart M. Wallis (8)4.23
    
    Consultancy Agreement, dated September 1, 1998, between Therapeutic Antibodies (UK)
Limited and Stuart M. Wallis (8)4.24
    
    The Protherics PLC Company Share Option Plan for Therapeutic Antibodies Inc. Employees
adopted on January 27, 2000 (4)4.25
    
    Letter of Appointment dated January 19, 2004, between Protherics PLC and Garry Watts (1)4.26
    
    Letter of Appointment dated February 23, 2004, between Protherics PLC and John R. Brown
(1)8.1
    
    List of Subsidiaries*11.1
    
    Code of Ethics (1)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(+)
    
    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 30, 2004.(2)
    
    Incorporated by reference to exhibits filed with the Companys Annual Report on Form 20-F,
filed on September 27, 2003.(3)
    
    Incorporated by reference to exhibits filed with the Companys Annual Report on Form 20-F,
filed on September 27, 2002.(4)
    
    Incorporated by reference to exhibits filed with the Companys Annual Report on Form 20-F,
filed on September 27, 2001.(5)
    
    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.(6)
    
    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.(7)
    
    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.(8)
    
    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. 73




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(9)
    
    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. 74




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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. July 22, 2005
    
    PROTHERICS PLCBy:
    
    /s/ Barrington M. RileyBarrington M. RileyFinance Director




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Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Protherics PLC In our opinion, the accompanying consolidated Balance Sheets and related consolidated Profit
and Loss Accounts, Cash Flow Statements, Statements of Total Recognised Gains and Losses and the
related notes present fairly, in all material respects, the financial position of Protherics PLC
and its subsidiaries at 31 March 2005 and 2004, and the results of their operations and their cash
flows for each of the three years in the period ended 31 March 2005, in conformity with accounting
principles generally accepted in the United Kingdom. These accounts are the responsibility of the
Companys management. Our responsibility is to express an opinion on these accounts based on our
audits. We conducted our audits of these accounts in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the accounts are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the accounts, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall accounts presentation. We believe that our audits
provide a reasonable basis for our opinion. Accounting principles generally accepted in the United Kingdom vary in certain significant respects
from accounting principles generally accepted in the United States of America. Information
relating to the nature and effect of such differences is presented in Note 26 to the consolidated
financial statements. PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
Manchester, United Kingdom
22 July 2005 F-1




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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-2




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Consolidated Profit and Loss Account  Year ended
    
    
    Year ended
    
    
    Year ended31 March
    
    
    31 March
    
    
    31 March2005
    
    
    2004
    
    
    2003Notes
    
    
    £000
    
    
    £000
    
    
    £000Turnover
    
    
    2
    
    
    
    18,839
    
    
    
    21,019
    
    
    
    11,270Cost of sales
    
    
    
    
    
    
    (8,801
    )
    
    
    (9,461
    )
    
    
    (5,920
    )Gross profit
    
    
    
    
    
    
    10,038
    
    
    
    11,558
    
    
    
    5,350Administrative expensesResearch & development
    
    
    
    
    
    
    (4,533
    )
    
    
    (3,668
    )
    
    
    (1,591
    )General & administrative
    
    
    
    
    
    
    (6,971
    )
    
    
    (5,863
    )
    
    
    (4,363
    )(11,504
    )
    
    
    (9,531
    )
    
    
    (5,954
    )Goodwill amortisation
    
    
    
    
    
    
    (998
    )
    
    
    (782
    )
    
    
    Total administrative expenses
    
    
    
    
    
    
    (12,502
    )
    
    
    (10,313
    )
    
    
    (5,954
    )Operating (loss) / profit
    
    
    2,3Before goodwill amortisation
    
    
    
    
    
    
    (1,466
    )
    
    
    2,027
    
    
    
    (604
    )Goodwill amortisation
    
    
    
    
    
    
    (998
    )
    
    
    (782
    )
    
    
    Total operating (loss) / profit
    
    
    
    
    
    
    (2,464
    )
    
    
    1,245
    
    
    
    (604
    )Interest receivable
    
    
    
    
    
    
    236
    
    
    
    54
    
    
    
    100Interest payable
    
    
    6
    
    
    
    (655
    )
    
    
    (527
    )
    
    
    (95
    )(Loss) / profit on ordinary activities before taxation
    
    
    
    
    
    
    (2,883
    )
    
    
    772
    
    
    
    (599
    )Taxation for the year
    
    
    7
    
    
    
    296
    
    
    
    457
    
    
    
    361(Loss) / profit on ordinary
activities after taxation
    
    
    
    
    
    
    (2,587
    )
    
    
    1,229
    
    
    
    (238
    )Equity minority interest
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    (Loss) / profit for the financial year
    
    
    19
    
    
    
    (2,587
    )
    
    
    1,265
    
    
    
    (238
    )Basic and fully diluted (loss) / earnings per share (pence)
    
    
    8
    
    
    
    (1.15
    )
    
    
    0.61
    
    
    
    (0.12
    )Basic and fully diluted (loss) / earnings per share (pence)
before goodwill amortisation
    
    
    8
    
    
    
    (0.71
    )
    
    
    0.99
    
    
    
    (0.12
    )
 The results for the years ended 31 March 2003, 2004 and 2005 relate solely to continuing
operations. The notes on pages F-8 to F-41 form part of these financial statements. F-3




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##### Table of Contents



Consolidated Statement of Total Recognized Gains and Losses  2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000(Loss) / profit for the financial year
    
    
    (2,587
    )
    
    
    1,265
    
    
    
    (238
    )Currency translation differences on
foreign currency equity investments
    
    
    (33
    )
    
    
    623
    
    
    
    435Total recognized (losses) / gains for the year
    
    
    (2,620
    )
    
    
    1,888
    
    
    
    197
 The notes on pages F-8 to F-41 form part of these financial statements. F-4




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##### Table of Contents



Consolidated Balance Sheet  2005
    
    
    2004Notes
    
    
    £000
    
    
    £000Fixed assetsIntangible fixed assets
    
    
    9
    
    
    
    9,282
    
    
    
    9,838Tangible fixed assets
    
    
    10
    
    
    
    7,034
    
    
    
    7,47316,316
    
    
    
    17,311Current assetsStocks
    
    
    12
    
    
    
    12,752
    
    
    
    9,745Debtors  Amounts receivable within one year
    
    
    13
    
    
    
    3,463
    
    
    
    3,740Debtors  Deferred taxation asset due
beyond one year
    
    
    7
    
    
    
    432
    
    
    
    442Total debtors
    
    
    
    
    
    
    3,895
    
    
    
    4,182Investments
    
    
    14
    
    
    
    151
    
    
    
    1Cash at bank and in hand
    
    
    
    
    
    
    7,275
    
    
    
    3,30724,073
    
    
    
    17,235Creditors:Amounts falling due within one year
    
    
    15
    
    
    
    (9,265
    )
    
    
    (9,804
    )Net current assets
    
    
    
    
    
    
    14,808
    
    
    
    7,431Total assets less current liabilities
    
    
    
    
    
    
    31,124
    
    
    
    24,742Creditors:Amounts falling due after more than one year6% Convertible unsecured loan notes
    
    
    16
    
    
    
    (3,762
    )
    
    
    (7,050
    )Other
    
    
    16
    
    
    
    (2,134
    )
    
    
    (2,399
    )(5,896
    )
    
    
    (9,449
    )Net assets
    
    
    
    
    
    
    25,228
    
    
    
    15,293Capital and reservesCalled up equity share capital
    
    
    18
    
    
    
    4,844
    
    
    
    4,155Share premium account
    
    
    19
    
    
    
    77,868
    
    
    
    66,027Other reserves
    
    
    19
    
    
    
    51,163
    
    
    
    51,163Profit and loss account
    
    
    19
    
    
    
    (108,647
    )
    
    
    (106,052
    )Equity shareholders funds
    
    
    20
    
    
    
    25,228
    
    
    
    15,293
 The notes on pages F-8 to F-41 form part of these financial statements. Approved by the Board on 20 July 2005
and signed on its behalf by Barrington M. RileyFinance Director F-5




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##### Table of Contents



Company Balance Sheet  2005
    
    
    2004Notes
    
    
    £000
    
    
    £000Fixed AssetsTangible fixed assets
    
    
    10
    
    
    
    242
    
    
    
    269Investments in subsidiary undertakings
    
    
    11
    
    
    
    62,357
    
    
    
    62,35762,599
    
    
    
    62,626Current assetsDebtors
    
    
    13
    
    
    
    13,139
    
    
    
    12,673Investments
    
    
    
    
    
    
    1
    
    
    
    1Cash at bank and in hand
    
    
    
    
    
    
    6,852
    
    
    
    19,992
    
    
    
    12,674Creditors:Amounts falling due within one year
    
    
    15
    
    
    
    (6,060
    )
    
    
    (5,992
    )Net current assets
    
    
    
    
    
    
    13,932
    
    
    
    6,682Total assets less current liabilities
    
    
    
    
    
    
    76,531
    
    
    
    69,308Creditors:Amounts falling due after more than one year
6% Convertible unsecured loan notes
    
    
    16
    
    
    
    (3,762
    )
    
    
    (7,050
    )Other
    
    
    16
    
    
    
    (3
    )
    
    
    (31
    )(3,765
    )
    
    
    (7,081
    )Net assets
    
    
    
    
    
    
    72,766
    
    
    
    62,227Capital and reservesCalled up equity share capital
    
    
    18
    
    
    
    4,844
    
    
    
    4,155Share premium account
    
    
    19
    
    
    
    77,868
    
    
    
    66,027Profit and loss account
    
    
    19
    
    
    
    (9,946
    )
    
    
    (7,955
    )Equity shareholders funds
    
    
    
    
    
    
    72,766
    
    
    
    62,227
 The notes on pages F-8 to F-41 form part of these financial statements. Approved by the Board on 20 July 2005
and signed on its behalf by Barrington M. RileyFinance Director F-6




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##### Table of Contents



Consolidated Cash Flow Statement  31 March
    
    
    31 March
    
    
    31 March2005
    
    
    2004
    
    
    2003Notes
    
    
    £000
    
    
    £000
    
    
    £000Net cash (outflow) / inflow from operating
activities
    
    
    23
    (i)
    
    
    (3,103
    )
    
    
    639
    
    
    
    (1,723
    )Returns on investments and servicing of financeInterest received
    
    
    
    
    
    
    236
    
    
    
    54
    
    
    
    100Finance lease interest paid
    
    
    
    
    
    
    (131
    )
    
    
    (56
    )
    
    
    (12
    )Other interest paid
    
    
    
    
    
    
    (494
    )
    
    
    (345
    )
    
    
    (83
    )Net cash (outflow) / inflow from returns on
investments and servicing of finance
    
    
    
    
    
    
    (389
    )
    
    
    (347
    )
    
    
    5TaxationUK Corporation tax received
    
    
    
    
    
    
    332
    
    
    
    26
    
    
    
    582Overseas tax paid
    
    
    
    
    
    
    (79
    )
    
    
    
    
    
    
    Net cash inflow from taxation
    
    
    
    
    
    
    253
    
    
    
    26
    
    
    
    582Capital expenditure and financial investmentPayments to acquire tangible fixed assets
    
    
    
    
    
    
    (1,001
    )
    
    
    (1,445
    )
    
    
    (1,862
    )Payments to acquire intangible fixed assets
    
    
    
    
    
    
    (191
    )
    
    
    
    
    
    
    Capital grants received
    
    
    
    
    
    
    10
    
    
    
    611
    
    
    
    Proceeds from sale of tangible fixed assets
    
    
    
    
    
    
    35
    
    
    
    29
    
    
    
    22Net cash outflow from capital expenditure and
financial investment
    
    
    
    
    
    
    (1,147
    )
    
    
    (805
    )
    
    
    (1,840
    )Acquisitions and disposalsPurchase of business
    
    
    
    
    
    
    
    
    
    
    (519
    )
    
    
    Net overdrafts acquired with subsidiary
undertaking
    
    
    
    
    
    
    
    
    
    
    (812
    )
    
    
    Net cash outflow from acquisitions and
disposals
    
    
    
    
    
    
    
    
    
    
    (1,331
    )
    
    
    Net cash outflow before management of liquid
resources and financing
    
    
    
    
    
    
    (4,386
    )
    
    
    (1,818
    )
    
    
    (2,976
    )FinancingIssue of share capital, net
    
    
    
    
    
    
    9,161
    
    
    
    3,067
    
    
    
    Repayment of loans
    
    23(iii)
    
    
    (336
    )
    
    
    (492
    )
    
    
    (484
    )Repayment of finance leases and hire purchase
agreements
    
    23(iii)
    
    
    (490
    )
    
    
    (201
    )
    
    
    (51
    )Net cash inflow / (outflow) from financing
    
    
    
    
    
    
    8,335
    
    
    
    2,374
    
    
    
    (535
    )Increase / (decrease) in cash during the year
    
    23(iii)
    
    
    3,949
    
    
    
    556
    
    
    
    (3,511
    )
 The notes on pages F-8 to F-41 form part of these financial statements. F-7




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##### Table of Contents



Notes to the Financial Statements  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 and the Companies Act 1985 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 has been 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. Other intangibles 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
(currently a maximum of 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-8




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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.
Provision is made for obsolete, slow-moving, or defective items where appropriate. 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 or the contracted rate where appropriate 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-9




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##### Table of Contents



The principal exchange rates used for translation of foreign currencies were as follows: 2005
    
    
    2004
    
    
    2003Average
    
    
    Year End
    
    
    Average
    
    
    Year End
    
    
    Average
    
    
    Year EndUS dollar
    
    
    1.844
    
    
    
    1.891
    
    
    
    1.688
    
    
    
    1.844
    
    
    
    1.545
    
    
    
    1.580Australian dollar
    
    
    2.496
    
    
    
    2.444
    
    
    
    2.437
    
    
    
    2.408
    
    
    
    2.748
    
    
    
    2.619
 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
or the contracted rate where appropriate. 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. Under the provisions of the Urgent Issues Task Force (UITF) Abstract 17, Employee
Share Schemes, a charge has been made to the profit and loss account with a corresponding credit
to reserves for the difference between the market value at the date of grant and the exercise price
of the options granted. The charge is spread over the vesting period of the underlying options. The Group operates an approved savings related option scheme which allows for the grant of share
options at a discount to the market price at the date of grant. The Group has made use of the
exemption under UITF Abstract 17 not to recognize any charge in respect of these options. F-10




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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 operating (loss) / profit 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 and
operating (loss) / profit are as follows: Turnover
    
    
    Operating (loss)/profit2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000United Kingdom
    
    
    3,011
    
    
    
    1,519
    
    
    
    1,301
    
    
    
    (4,680
    )
    
    
    (1,700
    )
    
    
    (905
    )United States
    
    
    15,777
    
    
    
    19,438
    
    
    
    9,926
    
    
    
    2,667
    
    
    
    2,899
    
    
    
    (64
    )Australia
    
    
    51
    
    
    
    62
    
    
    
    43
    
    
    
    (451
    )
    
    
    46
    
    
    
    36518,839
    
    
    
    21,019
    
    
    
    11,270
    
    
    
    (2,464
    )
    
    
    1,245
    
    
    
    (604
    )
 The operating assets by geographical origin are as follows: 2005
    
    
    2004Net
    
    
    
    
    
    
    
    
    
    
    Netoperating
    
    
    Net cash /
    
    
    Net assets/
    
    
    operating
    
    
    Net cash /
    
    
    Net assets/assets
    
    
    (debt)
    
    
    (liabilities)
    
    
    assets
    
    
    (debt)
    
    
    (liabilities)£000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000United Kingdom
    
    
    23,841
    
    
    
    1,681
    
    
    
    25,522
    
    
    
    23,359
    
    
    
    (6,079
    )
    
    
    17,280United States
    
    
    (3,213
    )
    
    
    (9
    )
    
    
    (3,222
    )
    
    
    (4,626
    )
    
    
    44
    
    
    
    (4,582
    )Australia
    
    
    3,310
    
    
    
    (382
    )
    
    
    2,928
    
    
    
    2,980
    
    
    
    (385
    )
    
    
    2,59523,938
    
    
    
    1,290
    
    
    
    25,228
    
    
    
    21,713
    
    
    
    (6,420
    )
    
    
    15,293
 An analysis of turnover by geographical destination is as follows: 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000United Kingdom
    
    
    622
    
    
    
    157
    
    
    
    54Rest of Europe
    
    
    932
    
    
    
    1,588
    
    
    
    1,503North America
    
    
    17,229
    
    
    
    18,993
    
    
    
    9,669Rest of World
    
    
    56
    
    
    
    281
    
    
    
    4418,839
    
    
    
    21,019
    
    
    
    11,270
 An analysis of (loss) / profit on ordinary activities before taxation has not been presented
as the directors consider the analysis of operating (loss) / profit to be more meaningful. A
reconciliation of operating (loss) / profit and (loss) / profit on ordinary activities before
taxation is given in the consolidated profit and loss account. F-11




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##### Table of Contents



3. Operating (Loss) / Profit The operating (loss) / profit is stated after charging/(crediting): 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Depreciation  owned assets
    
    
    1,340
    
    
    
    1,114
    
    
    
    882Depreciation  leased assets
    
    
    170
    
    
    
    114
    
    
    
    15Amortization  goodwill
    
    
    998
    
    
    
    782
    
    
    
    Amortization  other intangible assets
    
    
    111
    
    
    
    120
    
    
    
    128Auditors remuneration:Audit
    
    
    71
    
    
    
    73
    
    
    
    65Other services
    
    
    192
    
    
    
    108
    
    
    
    165Operating leases  hire of plant and equipment
    
    
    24
    
    
    
    32
    
    
    
    46Operating leases  other
    
    
    547
    
    
    
    561
    
    
    
    437Loss / (profit) on disposal of tangible fixed assets
    
    
    162
    
    
    
    125
    
    
    
    (2
    )Release of deferred grant income
    
    
    (48
    )
    
    

    (77
    )
    
    
    (101
    )Staff costs (see note 4)
    
    
    7,454
    
    
    
    6,853
    
    
    
    5,004
 The audit fee relating to the parent company amounted to £14,000 (2004: £13,500; 2003:
£13,000). In addition to the fees disclosed above, during 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 and received 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-12




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##### Table of Contents



A more detailed analysis of auditors remuneration on a worldwide basis is provided below: 2005
    
    
    2004
    
    
    2003£000
    
    
    %
    
    
    £000
    
    
    %
    
    
    £000
    
    
    %Services as auditors- Statutory accounts
    
    
    71
    
    
    
    27.0
    
    
    
    79
    
    
    
    31.9
    
    
    
    65
    
    
    
    28.3- US regulatory
    
    
    30
    
    
    
    11.4
    
    
    
    27
    
    
    
    10.9
    
    
    
    20
    
    
    
    8.7101
    
    
    
    38.4
    
    
    
    106
    
    
    
    42.8
    
    
    
    85
    
    
    
    37.0Further assurance services- Tax compliance
    
    
    42
    
    
    
    16.0
    
    
    
    43
    
    
    
    17.4
    
    
    
    23
    
    
    
    10.0- Other
    
    
    10
    
    
    
    3.8
    
    
    
    10
    
    
    
    4.0
    
    
    
    18
    
    
    
    7.852
    
    
    
    19.8
    
    
    
    53
    
    
    
    21.4
    
    
    
    41
    
    
    
    17.8Tax advisory services
    
    
    10
    
    
    
    3.8
    
    
    
    40
    
    
    
    16.1
    
    
    
    94
    
    
    
    40.9Other non-audit services- Accounting advisory services
    
    
    20
    
    
    
    7.6
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    4.3- Accounting and taxation
reviews
    
    
    80
    
    
    
    30.4

    
    
    
    49
    
    
    
    19.7
    
    
    
    
    
    
    
    100
    
    
    
    38.0
    
    
    
    49
    
    
    
    19.7
    
    
    
    10
    
    
    
    4.3263
    
    
    
    100.0
    
    
    
    248
    
    
    
    100.0
    
    
    
    230
    
    
    
    100.0
 4. Staff Costs The average number of persons, including directors, employed by the Group during the year was: 2005
    
    
    2004
    
    
    2003Number
    
    
    Number
    
    
    NumberManagement
    
    
    34
    
    
    
    32
    
    
    
    25Administration
    
    
    25
    
    
    
    24
    
    
    
    15Research and production
    
    
    153
    
    
    
    163
    
    
    
    133212
    
    
    
    219
    
    
    
    173
 2005
    
    
    2004
    
    
    2003Their total remuneration was:
    
    £000
    
    
    £000
    
    
    £000Salaries
    
    
    6,298
    
    
    
    5,865
    
    
    
    4,343Social security costs
    
    
    553
    
    
    
    503
    
    
    
    327Pension costs
    
    
    603
    
    
    
    485
    
    
    
    3347,454
    
    
    
    6,853
    
    
    
    5,004
 Pension contributions of £30,000 (2004: £6,000; 2003: £5,000) were included in accruals at the
year end. F-13




---



##### 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: 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Emoluments
    
    
    872
    
    
    
    815
    
    
    
    711Money purchase pension contributions
    
    
    149
    
    
    
    102
    
    
    
    891,021
    
    
    
    917
    
    
    
    800
 B. Directors Emoluments Fees/
    
    
    Compensationbasic
    
    
    for loss of
    
    
    Benefits
    
    
    Annual
    
    
    Total
    
    
    Total
    
    
    TotalSalary
    
    
    office
    
    
    in kind
    
    
    Bonus
    
    
    2005
    
    
    2004
    
    
    2003Name of director
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000ExecutiveJ C Christie
    
    
    122
    
    
    
    
    
    
    
    1
    
    
    
    37
    
    
    
    160
    
    
    
    137
    
    
    
    130A J Heath
    
    
    176
    
    
    
    
    
    
    
    1
    
    
    
    74
    
    
    
    251
    
    
    
    243
    
    
    
    212B M Riley
    
    
    130
    
    
    
    
    
    
    
    1
    
    
    
    44
    
    
    
    175
    
    
    
    157
    
    
    
    136A Rushton**
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70Non-ExecutiveA Atkinson*
    
    
    103
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    91
    
    
    
    J Brown
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    2
    
    
    
    M S Brown**
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    13
    
    
    
    14M R B Gatenby**
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    21D W Gration
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    27
    
    
    
    26M Peagram**
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    S M Wallis
    
    
    70
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    103
    
    
    
    101
    
    
    
    102G Watts
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    4
    
    
    
    674
    
    
    
    7
    
    
    
    36
    
    
    
    155
    
    
    
    872
    
    
    
    815
    
    
    
    711
 
 *
    
    A Atkinson resigned as an executive director, and was appointed non-executive director, on
22 April 2004 and resigned as a non-executive director on 19 April 2005.**
    
    A Rushton and M R B Gatenby resigned as a directors of the company on 25 October 2002 and 12
February 2004 respectively. M S Brown and M Peagram resigned as directors of the company on 16
April 2004. The fees in respect of A Atkinson include £83,000 (2004: £76,000; 2003: £nil) paid to a company
controlled by himself. The fees in respect of S M Wallis and M Peagram include £35,000 and £nil
paid to their respective management companies (2004: £35,000 and £16,000 respectively, 2003:
£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. A J Heath has elected to have his annual bonus paid into the company pension fund. F-14




---



##### Table of Contents



C. Directors Pension Entitlements Three directors were members of Money Purchase Schemes (2004: three; 2003: four). Contributions
made by the Company in respect of such directors were as follows: 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000J C Christie
    
    
    12
    
    
    
    12
    
    
    
    11A J Heath
    
    
    107
    
    
    
    77
    
    
    
    61B M Riley
    
    
    30
    
    
    
    13
    
    
    
    12A Rushton
    
    
    
    
    
    
    
    
    
    
    5149
    
    
    
    102
    
    
    
    89
 The pension contributions for the year ended 31 March 2005 made by the Company in respect of A
J Heath and B M Riley include amounts sacrificed from the salary disclosed above of £70,000 and
£15,000 respectively. D. Interests in Ordinary Shares and Convertible Loan Notes The directors interests in the ordinary shares and convertible loan notes of the Company at 31
March 2005, 2004 and 2003 were as follows: Ordinary Shares
    
    
    6% Convertible Loan Notes31 March
    
    
    31 March
    
    
    31 March
    
    
    31 March
    
    
    31 March
    
    
    31 March2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Number
    
    
    Number
    
    
    Number
    
    
    £
    
    
    £
    
    
    £S M Wallis
    
    
    503,424
    
    
    
    457,931
    
    
    
    436,125
    
    
    
    60,606
    
    
    
    60,606
    
    
    
    A J Heath
    
    
    346,498
    
    
    
    314,999
    
    
    
    300,000
    
    
    
    24,242
    
    
    
    24,242
    
    
    
    D W Gration
    
    
    47,234
    
    
    
    42,941
    
    
    
    40,897
    
    
    
    
    
    
    
    
    
    
    
    B M Riley
    
    
    30,019
    
    
    
    27,291
    
    
    
    14,814
    
    
    
    15,151
    
    
    
    15,151
    
    
    
    J C Christie
    
    
    1,343
    
    
    
    1,221
    
    
    
    1,163
    
    
    
    
    
    
    
    
    
    
    
    A Atkinson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    528,006
    
    
    
    682,162
    
    
    
    G Watts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    J Brown
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948,518
    
    
    
    844,383
    
    
    
    792,999
    
    
    
    628,005
    
    
    
    782,161
    
    
    
    
 As at the date of this report, the only change to the directors interests in ordinary shares
from the interests disclosed above arose on 6 April 2005 when J C Christie exercised options within
an approved savings related scheme over 27,000 shares at 37.5p per ordinary share on which date the
market price was 49.5p. There has been no changes to directors interest in the convertible loan
notes between the year end and the date of this report. A J Heath held warrants to subscribe for nil (2004: nil; 2003: 14,538) ordinary shares
respectively, at US$2.07 per share. The warrants expired on 15 June 2003. F-15




---



##### 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 year ended 31 March 2003. Details of share options granted to directors are as follows: At 1 April
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    At 31 March
    
    
    Exercise
    
    
    Exercisable2004
    
    
    Granted
    
    
    Exercised
    
    
    or expired
    
    
    2005
    
    
    price (p)
    
    
    from
    
    
    toApproved optionsB M Riley
    
    
    52,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,955
    
    
    
    68.83
    
    
    25 Jul 1998
    
    24 July 2005Unapproved optionsD W Gration
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    46.00
    
    
    22 Jun 2001
    
    21 Jun 2008B 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 2014B M Riley*
    
    
    
    
    
    
    132,420
    
    
    
    
    
    
    
    
    
    
    
    132,420
    
    
    
    2.00
    
    
    28 Feb 2008
    
    27 Feb 2015A 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 2014J C Christie*
    
    
    
    
    
    
    111,416
    
    
    
    
    
    
    
    
    
    
    
    111,416
    
    
    
    2.00
    
    
    28 Feb 2008
    
    27 Feb 2015A 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 2014A J Heath*
    
    
    
    
    
    
    221,233
    
    
    
    
    
    
    
    
    
    
    
    221,233
    
    
    
    2.00
    
    
    28 Feb 2008
    
    27 Feb 2015Savings-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 20065,237,445
    
    
    
    465,069
    
    
    
    
    
    
    
    46,520
    
    
    
    5,655,994
  *
    
    Unapproved options granted under the long term incentive plan. The market price of a share
at date of grant was 54.75p. F-16




---



##### Table of Contents



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 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 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
 Options issued on 1 March 2004 under the unapproved plan 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 date 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 date
of grant) between four and eight times annual salary, performance will be measured after five
years. No options are exercisable if the total shareholder return of the Company is at the median
of the FTSE All Share Pharmaceutical and Biotech Index. Options may then be exercised on a sliding
scale beyond this point, with the maximum number of shares being exercisable if the Companys
performance is at or above the upper quartile. The Remuneration Committee must also be satisfied
that there has been an improvement in the Companys underlying financial performance over the
period. F-17




---



##### Table of Contents



Options were granted on 28 February 2005 under the long term incentive plan adopted on 27 January
2005. Performance will be measured after three years from grant by measuring the total shareholder
return of the Company against a comparator group consisting of the primary listed components of the
FTSE All Share Pharmaceutical and Biotech Index but excluding those companies in the FTSE 100.
Total shareholder return (TSR) will normally be averaged across a period of three months before
the date of the reward and three months before the date on which the performance period ends,
although the Remuneration Committee may determine that a different averaging period is appropriate
and properly reflective of management performance but in any event this will not be more than six
months or less than one month. This is in keeping with normal market practice and is a practical
adjustment to smooth out the impact of short-term market influences and to provide a more robust
measure of the performance of the group. Awards will vest, on a sliding scale between each step, as
follows: Protherics PLC TSR relative to
    
    % of total awardcomparator group
    
    vestingUpper decile
    
    
    100
    %Upper quartile
    
    
    80
    %Median
    
    
    30
    %Below median
    
    Nil
 Measuring the Companys performance against these comparators recognizes the importance for
shareholders that the Company outperforms its sector and reflects the importance of the Companys
aim of sustainable share price growth. Options issued prior to 1 March 2004 under both the approved and unapproved share option plans,
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 FTSE
All Share Pharmaceutical and Biotech Index in any three year period commencing on or after the date
of grant of the option. Prior to December 1999, the approved plan required real growth in earnings
per share over three years. Initially, the unapproved plan, 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 completion of agreements
with milestone payments generating turnover. The board considered that the criteria was not
appropriate to the more mature business of Protherics PLC, and, under the scheme rules, adopted the
performance criteria approved in December 1999 as likely to be a fairer and more effective
incentive. There are no performance criteria under the approved savings related option plan. The performance criteria for A J Heaths individual option is similar to those of the unapproved
share option plan. 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 All Share Pharmaceutical and Biotech 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 without 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. F-18




---



##### Table of Contents



The market price of the Companys ordinary shares to which the options relate was 49.25p at 31
March 2005 and fluctuated between 47.0p and 65.75p during the year. F. Directors Transactions The assets and liabilities acquired in the purchase of Enact Pharma PLC on 18 June 2003 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 during the year ended 31
March 2004 were as follows: Principal
    
    
    Interest£
    
    
    £A Atkinson
    
    
    5,000
    
    
    
    542M Peagram
    
    
    140,000
    
    
    
    14,219
 In the year ended 31 March 2004, 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 rented office accommodation from, and had administration services provided by
Chimaeron Limited, a company in which A Atkinson has a controlling interest. This agreement
terminated upon his resignation as an executive director in April 2004. Rent charged and other
services provided in the year to 31 March 2005 amounted to £7,125 (2004: £21,375, 2003: £nil) and
£1,457 (2004: £4,811, 2003: £nil) respectively. At 31 March 2005, the Company owed Chimaeron
Limited £7,655 (2004: £13,186, 2003: £nil). During the year ended 31 March 2004, 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. On 22 September 2004, the Company assigned further intellectual property and transferred certain
Company assets and staff members to Morvus Technology Limited, a company in which A Atkinson is a
director and is a position to exercise significant influence. The Company received a small equity
stake in Morvus Technology Limited, valued at the time of transfer at £150,000. £40,000 related to
the value of the assets transferred whilst £110,000 related to certain expenses incurred by the
Company in relation to the facilities and staff being transferred. The Company has retained a right
of first refusal to license certain products that may be developed by Morvus Technology Limited.
The directors of Protherics PLC had assigned no value to these technologies. During the year ended
31 March 2005, Morvus Technology Limited has recharged the Company £46,044 for consultancy services
provided whilst the Company has charged Morvus Technology Limited £62,024 for reimbursement of
costs incurred on their behalf. At 31 March 2005, the Company owed Morvus Technology Limited
£3,812. The directors consider all transactions with Morvus Technology Limited to be at an arms
length valuation. M S Brown rents office space at the Groups Nashville premises at a market rental of $17,500 (2004:
$17,500, 2003: $16,527) per annum. F-19




---



##### Table of Contents



6. Interest Payable 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Finance lease and hire purchase agreements
    
    
    131
    
    
    
    56
    
    
    
    12Bank loans and overdrafts
    
    
    24
    
    
    
    36
    
    
    
    36% convertible unsecured loan note
    
    
    381
    
    
    
    337
    
    
    
    Amortisation of 6% convertible unsecured loan notes issue costs
    
    
    81
    
    
    
    18
    
    
    
    Notes payable to South Australian Minister for Primary Industries
    
    
    17
    
    
    
    29
    
    
    
    39Other
    
    
    21
    
    
    
    51
    
    
    
    41655
    
    
    
    527
    
    
    
    95
 7. Taxation 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Current taxationUK Corporation tax credit for the current year
    
    
    290
    
    
    
    252
    
    
    
    170Adjustment in respect of prior years:- UK Corporation tax
    
    
    15
    
    
    
    (62
    )
    
    
    305
    
    
    
    190
    
    
    
    170Overseas taxation
    
    
    (9
    )
    
    
    
    
    
    
    Total current taxation
    
    
    296
    
    
    
    190
    
    
    
    170Deferred taxationIncrease in estimate of recoverable tax asset
    
    
    
    
    
    
    267
    
    
    
    191296
    
    
    
    457
    
    
    
    361
 The tax credit arising in the current and prior years was as a result of research and
development expenditure claimed under the Finance Act 2000. The weighted average standard rate of current tax for the year based on the average rate of
corporation tax to the group is 30.9% (2004: 30.5%; 2003: 31.4%). The actual charge for the current
and previous years differs from the standard rate for the reasons set out in the following
reconciliation: 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000(Loss) / profit on ordinary activities before tax
    
    
    (2,883
    )
    
    
    772
    
    
    
    (599
    )Tax on (loss) / profit on ordinary activities at standard rate
    
    
    (891
    )
    
    
    235
    
    
    
    (188
    )Factors affecting charge for the periodTiming differences between capital allowances and depreciation
    
    
    262
    
    
    
    134
    
    
    
    (39
    )Other timing differences
    
    
    
    
    
    
    120
    
    
    
    (419
    )Other expenditure not deductible for tax purposes
    
    
    457
    
    
    
    47
    
    
    
    17Additional tax credit for research and development expenditure
incurred
    
    
    (343
    )
    
    
    (87
    )
    
    
    (128
    )Lower rate of tax on research and development credits surrendered
    
    
    271
    
    
    
    70
    
    
    
    13(Utilisation of)/addition to losses carried forward
    
    
    (37
    )
    
    
    (771
    )
    
    
    574Adjustments to tax charge in respect of prior years
    
    
    (15
    )
    
    
    62
    
    
    
    Total actual amount of current tax
    
    
    (296
    )
    
    
    (190
    )
    
    
    (170
    )
 A deferred tax asset of £432,000 has been recognized at 31 March 2005 (2004: £442,000; 2003:
£191,000). 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 Groups
products 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 2004
    
    
    442Credited to the profit and loss account
    
    
    Exchange adjustment
    
    
    (10
    )At 31 March 2005
    
    
    432
 In addition to the losses on which the 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 30.9% is approximately £23 milllion (2004: approximately £20 million at 30.5%;
2003: approximately £22 million at 31.4%). At 31 March 2005 the Group had tax losses, subject to the agreement of the Taxation Authorities, of
approximately £73 million (2004: £68 million; 2003: £70 million) available for offset against
future taxable profits of the same trade. Included within these losses, approximately £20 million
(2004: approximately £23 million; 2003: £34 million) relates to Protherics Inc., and of these, the
use of £12 million is restricted to US$1.5 million per year. 8. (Loss) / earnings per Share Basic (loss) / earnings per share is based on attributable losses of £2,587,000 (2004: attributable
profits of £1,265,000; 2003: attributable losses of £238,000) and a weighted average number of
shares in issue during the year of 224,145,177 (2004: 206,707,102; 2003: 190,688,639). The weighted
average number of shares in issue for the year ended 31 March 2004 and 31 March 2003 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 earnings per share
previously reported except in the year ended 31 March 2003, where loss per share reduced from 0.13
pence to 0.12 pence. Losses per share were anti-dilutive in the years ended 31 March 2005 and 31 March 2003. In the year
ended 31 March 2004, fully diluted earnings 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 207,429,811. Supplementary (loss) / 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. 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000(Loss) / profit for the year retained for equity shareholders
    
    
    (2,587
    )
    
    
    1,265
    
    
    
    (238
    )Add back: goodwill amortisation (2005: 0.44 pence per
share; 2004: 0.38 pence per share; 2003: nil pence per share)
    
    
    998
    
    
    
    782
    
    
    
    (1,589
    )
    
    
    2,047
    
    
    
    (238
    )
 F-21




---



##### Table of Contents



9. Intangible Fixed Assets OtherGoodwill
    
    
    intangibles
    
    
    Total£000
    
    
    £000
    
    
    £000GroupCostAt 1 April 2004
    
    
    9,981
    
    
    
    879
    
    
    
    10,860Additions
    
    
    
    
    
    
    580
    
    
    
    580Translation
    
    
    
    
    
    
    (36
    )
    
    
    (36
    )At 31 March 2005
    
    
    9,981
    
    
    
    1,423
    
    
    
    11,404AmortizationAt 1 April 2004
    
    
    782
    
    
    
    240
    
    
    
    1,022Charge for the year
    
    
    998
    
    
    
    111
    
    
    
    1,109Translation
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )At 31 March 2005
    
    
    1,780
    
    
    
    342
    
    
    
    2,122Net Book Value31 March 2005
    
    
    8,201
    
    
    
    1,081
    
    
    
    9,28231 March 2004
    
    
    9,199
    
    
    
    639
    
    
    
    9,838
 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. Other
intangibles are written off over the estimated useful life of the underlying intangible assets
(currently a maximum of 8 years). F-22




---



##### Table of Contents



10. Tangible Fixed Assets Furniture,Land &
    
    
    Plant &
    
    
    fixturesbuildings
    
    
    machinery
    
    
    & equipment
    
    
    Total£000
    
    
    £000
    
    
    £000
    
    
    £000GroupCostAt 1 April 2004
    
    
    5,285
    
    
    
    7,503
    
    
    
    2,343
    
    
    
    15,131Additions
    
    
    522
    
    
    
    543
    
    
    
    292
    
    
    
    1,357Disposals
    
    
    
    
    
    
    (161
    )
    
    
    (178
    )
    
    
    (339
    )Translation
    
    
    (16
    )
    
    
    (24
    )
    
    
    (22
    )
    
    
    (62
    )At 31 March 2005
    
    
    5,791
    
    
    
    7,861
    
    
    
    2,435
    
    
    
    16,087DepreciationAt 1 April 2004
    
    
    3,032
    
    
    
    3,551
    
    
    
    1,075
    
    
    
    7,658Charge for the year
    
    
    405
    
    
    
    777
    
    
    
    328
    
    
    
    1,510Disposals
    
    
    
    
    
    
    (14
    )
    
    
    (88
    )
    
    
    (102
    )Translation
    
    
    (4
    )
    
    
    (2
    )
    
    
    (7
    )
    
    
    (13
    )At 31 March 2005
    
    
    3,433
    
    
    
    4,312
    
    
    
    1,308
    
    
    
    9,053Net Book
Value31 March 2005
    
    
    2,358
    
    
    
    3,549
    
    
    
    1,127
    
    
    
    7,03431 March 2004
    
    
    2,253
    
    
    
    3,952
    
    
    
    1,268
    
    
    
    7,473
 2005
    
    
    2004£000
    
    
    £000Land and buildings comprise:Freehold
    
    
    1,556
    
    
    
    1,452Short leasehold
    
    
    802
    
    
    
    8012,358
    
    
    
    2,253
 Plant and machinery includes cost of £2,167,000 (2004: £1,737,000) in respect of assets in the
course of construction. The net book value of tangible fixed assets includes £2,370,000 (2004: £2,127,000) in respect of
assets held under finance lease and hire purchase agreements. Depreciation for the year on those
assets was £170,000 (2004: £114,000). The net book value of tangible fixed assets include capitalized interest of £38,000 (2004:
£81,000). No interest was capitalized in the current or prior year and the associated depreciation
charge for the year amounted to £43,000 (2004: £46,000). F-23




---



##### Table of Contents



Land &
    
    
    Plant andbuildings
    
    
    machinery
    
    
    Total£000
    
    
    £000
    
    
    £000CompanyCostAt 1 April 2004
    
    
    42
    
    
    
    303
    
    
    
    345Additions
    
    
    
    
    
    
    22
    
    
    
    22Disposals
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )At 31 March 2005
    
    
    42
    
    
    
    323
    
    
    
    365DepreciationAt 1 April 2004
    
    
    42
    
    
    
    34
    
    
    
    76Charge for the year
    
    
    
    
    
    
    48
    
    
    
    48Disposals
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )At 31 March 2005
    
    
    42
    
    
    
    81
    
    
    
    123Net Book Value31 March 2005
    
    
    
    
    
    
    242
    
    
    
    24231 March 2004
    
    
    
    
    
    
    269
    
    
    
    269
 11. Investments in Subsidiary Undertakings Long termShares
    
    
    loans
    
    
    Total£000
    
    
    £000
    
    
    £000CompanyCostAt 1 April 2004 and 31 March 2005
    
    
    9,929
    
    
    
    52,676
    
    
    
    62,605ProvisionAt 1 April 2004 and 31 March 2005
    
    
    (119
    )
    
    
    (129
    )
    
    
    (248
    )Net Book Value31 March 2005 and 31 March 2004
    
    
    9,810
    
    
    
    52,547
    
    
    
    62,357
 F-24




---



##### Table of Contents



Details of subsidiary undertakings, all of which are consolidated and 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 Group2005
    
    
    2004£000
    
    
    £000Raw materials and consumables
    
    
    1,488
    
    
    
    998Work in progress
    
    
    11,152
    
    
    
    8,686Finished goods
    
    
    112
    
    
    
    6112,752
    
    
    
    9,745
 13. Debtors  amounts falling due within one year Group
    
    
    Company2005
    
    
    2004
    
    
    2005
    
    
    2004£000
    
    
    £000
    
    
    £000
    
    
    £000Trade debtors
    
    
    2,360
    
    
    
    2,459
    
    
    
    
    
    
    
    Amounts owed by Group undertakings
    
    
    
    
    
    
    
    
    
    
    12,859
    
    
    
    12,349Other debtors
    
    
    152
    
    
    
    227
    
    
    
    
    
    
    
    Taxation recoverable
    
    
    344
    
    
    
    307
    
    
    
    
    
    
    
    Prepayments and accrued income
    
    
    607
    
    
    
    747
    
    
    
    280
    
    
    
    3243,463
    
    
    
    3,740
    
    
    
    13,139
    
    
    
    12,673
 F-25




---



##### Table of Contents



14. Investments As disclosed in note 5, during the current year, the Group received ordinary shares in Morvus
Technology Limited, a private company, in consideration for the license of certain technologies and
certain assets valued at £150,000 at the time of transfer. The shares received represented less
than 4% of the issued share capital. 15. Creditors  amounts falling due within one year Group
    
    
    Company2005
    
    
    2004
    
    
    2005
    
    
    2004£000
    
    
    £000
    
    
    £000
    
    
    £000Bank loans and overdrafts
    
    
    53
    
    
    
    172
    
    
    
    
    
    
    
    9Notes payable to South Australia Minister for
Primary Industries (Note 16)
    
    
    140
    
    
    
    130
    
    
    
    
    
    
    
    Other loans
    
    
    
    
    
    
    198
    
    
    
    
    
    
    
    Obligations under finance lease and hire
purchase agreements (Note 16)
    
    
    534
    
    
    
    456
    
    
    
    28
    
    
    
    25Trade creditors
    
    
    2,675
    
    
    
    2,497
    
    
    
    770
    
    
    
    593Amounts owed to Group undertakings
    
    
    
    
    
    
    
    
    
    
    4,594
    
    
    
    4,756Other taxation and social security
    
    
    209
    
    
    
    127
    
    
    
    165
    
    
    
    147Other creditors
    
    
    642
    
    
    
    125
    
    
    
    2
    
    
    
    -Accruals
    
    
    1,971
    
    
    
    1,925
    
    
    
    501
    
    
    
    462Deferred income
    
    
    3,041
    
    
    
    4,174
    
    
    
    
    
    
    
    -9,265
    
    
    
    9,804
    
    
    
    6,060
    
    
    
    5,992
 Included within deferred income are the following capital grants: Group2005
    
    
    2004£000
    
    
    £000Deferred income  falling due in less than one year
    
    
    63
    
    

    
    61Deferred income  falling due after more than one year
    
    
    638
    
    
    
    678701
    
    
    
    739
 During the current year, capital grants of £10,000 were received and £48,000 was released to
the profit and loss account.   F-26




---



##### Table of Contents



16. Creditors  amounts falling due after more than one year Group
    
    
    Company2005
    
    
    2004
    
    
    2005
    
    
    2004£000
    
    
    £000
    
    
    £000
    
    
    £000Loans:6% Convertible unsecured loan notes
    
    
    3,762
    
    
    
    7,050
    
    
    
    3,762
    
    
    
    7,050Notes payable to South Australian
Minister for Primary
Industries
    
    
    64
    
    
    
    208
    
    
    
    
    
    
    
    Bank loans
    
    
    186
    
    
    
    54
    
    
    
    
    
    
    
    4,012
    
    
    
    7,312
    
    
    
    3,762
    
    
    
    7,050Obligations under finance lease and
hire purchase agreements
    
    
    1,246
    
    
    
    1,459
    
    
    
    3
    
    
    
    31Deferred income (see note 15)
    
    
    638
    
    
    
    678
    
    
    
    
    
    
    
    5,896
    
    
    
    9,449
    
    
    
    3,765
    
    
    
    7,081Repayments of loans and overdraftsIn one year or less, or on demand
    
    
    193
    
    
    
    500
    
    
    
    
    
    
    
    9In more than one year, but not
more than two years
    
    
    56
    
    
    
    229
    
    
    
    
    
    
    
    In more than two years, but not
more than five years
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    In more than five years
    
    
    3,794
    
    
    
    7,083
    
    
    
    3,762
    
    
    
    7,0504,205
    
    
    
    7,812
    
    
    
    3,762
    
    
    
    7,059
 Obligations under finance lease and hire purchase agreement bear interest at normal commercial
rates and fall due as follows: Group
    
    
    Company2005
    
    
    2004
    
    
    2005
    
    
    2004£000
    
    
    £000
    
    
    £000
    
    
    £000Less than one year
    
    
    534
    
    
    
    456
    
    
    
    28
    
    
    
    25Within one to two years
    
    
    526
    
    
    
    448
    
    
    
    3
    
    
    
    28Within two to five years
    
    
    720
    
    
    
    1,011
    
    
    
    
    
    
    
    31,780
    
    
    
    1,915
    
    
    
    31
    
    
    
    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 rate is currently in line with
market interest rates. The Welsh Development Agency has a legal charge over certain buildings, plant and equipment
securing grants received amounting to £33,000. F-27




---



##### Table of Contents



17. Deferred Taxation A provision for deferred taxation is not required and there is no potential liability for deferred
taxation (2004: £nil). 18. Share Capital Group and Company
    
    
    Group and Company2005
    
    
    2004No. Shares
    
    

£000
    
    
    No. Shares
    
    

£000AuthorizedOrdinary shares of 2p each
    
    
    317,100,000
    
    
    
    6,342
    
    
    
    313,500,000
    
    
    
    6,270Allotted, called-up and fully paid
Ordinary shares of 2p each
    
    
    242,204,390
    
    
    
    4,844
    
    
    
    207,750,086
    
    
    
    4,155
 During the year the company has allotted the following ordinary shares: NominalValue
    
    
    ConsiderationNo. Shares
    
    
    £000
    
    
    £000Approved share option scheme at 43.5p
    
    
    5,000
    
    
    
    
    
    
    
    2Approved share option scheme at 37.5p
    
    
    3,835
    
    
    
    
    
    
    
    1Unapproved share option scheme at 39.0p
    
    
    15,000
    
    
    
    
    
    
    
    6Unapproved share option scheme at 43.5p
    
    
    60,000
    
    
    
    1
    
    
    
    26Unapproved share option scheme at 39.5p
    
    
    40,000
    
    
    
    1
    
    
    
    16Cash placing and open offer at 48.0p
    
    
    20,773,088
    
    
    
    415
    
    
    
    9,971Settlement issued to former employees at 48.0p
    
    
    81,205
    
    
    
    2
    
    
    
    39Conversion of 6% unsecured convertible loan note
    
    
    13,476,176
    
    
    
    270
    
    
    
    3,36934,454,304
    
    
    
    689
    
    
    
    13,430
 Share Warrants At 31 March 2005 there were no unexercised warrants (2004: nil), however there are unexercised
warrants for 225,000 ordinary shares (2004: 932,500 ordinary shares) in Enact Pharma PLC, a company
acquired during the prior year, which expire between 12 March 2007 and 9 July 2012 and are
exercisable at prices between 30p and 60p per share. Should these be exercised, the Company is
entitled to repurchase these shares by issuing £17.05 6% convertible unsecured loan notes per 100
Enact Pharma PLC ordinary shares. The terms of these loan notes are disclosed in note 16 to the
accounts. F-28




---



##### Table of Contents



Share Options Details of outstanding share options are as follows: At 1 April
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    At 31 March
    
    
    Exercise2004
    
    
    Granted
    
    
    Exercised
    
    
    or expired
    
    
    2005
    
    
    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$6.001 Mar 2004 to 1 Jan 2006
    
    
    
    
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    58.508 Oct 2004 to 1 Jan 2006
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    23.25Approved21 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
    
    
    
    
    
    
    
    3,835
    
    
    
    928
    
    
    
    59,712
    
    
    
    37.5028 Feb 2004 to 27 Feb 2011
    
    
    341,000
    
    
    
    
    
    
    
    5,000
    
    
    
    8,000
    
    
    
    328,000
    
    
    
    43.50Unapproved22 June 2001 to 21 June 2008
    
    
    275,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    275,000
    
    
    
    46.0023 Dec 2001 to 22 Dec 2005
    
    
    10,305
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5,305
    
    
    
    45.0022 Dec 2002 to 21 Dec 2009
    
    
    540,000
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    525,000
    
    
    
    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
    
    
    
    
    
    
    
    60,000
    
    
    
    
    
    
    
    1,370,000
    
    
    
    43.5016 Jan 2005 to 15 Jan 2012
    
    
    2,369,000
    
    
    
    
    
    
    
    40,000
    
    
    
    36,000
    
    
    
    2,293,000
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    140,000
    
    
    
    1,110,000
    
    
    
    23.2524 Jun 2006 to 23 Jun 2013
    
    
    30,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    23.001 Mar 2007 to 28 Feb 2014
    
    
    1,240,000
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    1,170,000
    
    
    
    58.501 Mar 2009 to 28 Feb 2014
    
    
    325,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325,000
    
    
    
    58.5027 Sep 2009 to 26 Sep 2014
    
    
    
    
    
    
    310,000
    
    
    
    
    
    
    
    
    
    
    
    310,000
    
    
    
    49.5028 Feb 2008 to 27 Feb 2015*
    
    
    
    
    
    
    741,669
    
    
    
    
    
    
    
    
    
    
    
    741,669
    
    
    
    2.00Savings related options1 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
    
    
    
    
    
    
    
    
    
    
    
    3,984
    
    
    
    162,238
    
    
    
    175.00 to 312.009,548,459
    
    
    
    1,221,669
    
    
    
    123,835
    
    
    
    287,447
    
    
    
    10,358,846
 * Options issued under the long term incentive plan approved by the shareholders on 27 January
2005. The price of a share at the date of grant was 54.75p. F-29




---



##### Table of Contents



At 1 April
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    At 31 March
    
    
    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
    
    
    
    US$6.00Approved21 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
    
    
    
    43.50Unapproved19 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 employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27 Jan 2000 to 29 June 2008
    
    
    166,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,222
    
    
    
    156.0 to 312.07,467,902
    
    
    
    2,845,000
    
    
    
    355,789
    
    
    
    408,654
    
    
    
    9,548,459
 Therapeutic Antibodies former employees and consultants In addition to the above, options over up to 507,818 shares (2004: 697,387) 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 US$3.87 to US$6.99 per share and may be exercised at various dates from 15 May 2005 to
15 Dec 2006. During the current year, options over 189,569 ordinary shares expired unexercised. Share options in Enact Pharma PLC At 31 March 2004, options over 537,852 ordinary shares in Enact Pharma PLC could be exercised at
20p per Enact Pharma PLC ordinary share between 9 January 2005 and 8 January 2012. Had these been
exercised, the Company was entitled to repurchase these shares by issuing £17.05 6% convertible F-30




---



##### Table of Contents



unsecured loan notes per 100 Enact Pharma PLC ordinary shares, the terms of these loan notes being
disclosed in note 16 to the accounts. These options lapsed during the year to 31 March 2005. 19. Reserves Group and Company
    
    
    Group Merger
    
    
    Profit and
    
    
    Loss accountShare Premium
    
    
    Reserve
    
    
    Group
    
    
    Company£000
    
    
    £000
    
    
    £000
    
    
    £000At 31 March 2004
    
    
    66,027
    
    
    
    51,163
    
    
    
    (106,052
    )
    
    
    (7,955
    )Exchange movement
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    Issue of shares
    
    
    11,841
    
    
    
    
    
    
    
    
    
    
    
    Share option compensation charge
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    Retained loss for the year
    
    
    
    
    
    
    
    
    
    
    (2,587
    )
    
    
    (1,991
    )At 31 March 2005
    
    
    77,868
    
    
    
    51,163
    
    
    
    (108,647
    )
    
    
    (9,946
    )
 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 loss for the year of the Group, losses of £1,991,000
have been dealt with in the accounts of the Company. 20. Reconciliation of Movement in Equity Shareholders Funds Group2005
    
    
    2004£000
    
    

£000(Loss) / profit for the financial year
    
    
    (2,587
    )
    
    
    1,265Issue of shares
    
    
    13,430
    
    
    
    3,276Expenses of equity share issues
    
    
    (900
    )
    
    
    (209
    )Share option compensation charge
    
    
    25
    
    
    
    Currency translation differences on foreign currency equity investments
    
    
    (33
    )
    
    
    623Net increase in shareholders funds
    
    
    9,935
    
    
    
    4,955Opening shareholders funds
    
    
    15,293
    
    
    
    10,338Closing shareholders funds
    
    
    25,228
    
    
    
    15,293
 21. Capital Commitments At 31 March 2005 the Group had capital commitments of £534,000 (2004: £378,000) contracted but not
provided for. 22. Financial Commitments At 31 March 2005 the Group had the following annual commitments in respect of operating leases
which expire: Property
    
    
    Other2005
    
    
    2004
    
    
    2005
    
    
    2004£000
    
    

£000
    
    

£000
    
    

£000Within one year
    
    
    
    
    
    
    135
    
    
    
    1
    
    
    
    11Within two to five years
    
    
    453
    
    
    
    439
    
    
    
    9
    
    
    
    9After five years
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    462
    
    
    
    574
    
    
    
    10
    
    
    
    20
 F-31




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##### Table of Contents



23.
    
    Notes to the Consolidated Cash Flow Statement  (i)
    
    Reconciliation of operating (loss) / profit to net cash (outflow) / inflow from
operations 31 March
    
    
    31 March
    
    
    31 March2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Operating (loss) / profit
    
    
    (2,464
    )
    
    
    1,245
    
    
    
    (604
    )Depreciation and amortisation
    
    
    2,619
    
    
    
    2,130
    
    
    
    1,025Loss / (profit) on disposal of tangible fixed assets
    
    
    162
    
    
    
    125
    
    
    
    (2
    )Deferred grant income
    
    
    (48
    )
    
    
    (77
    )
    
    
    (101
    )Grant received
    
    
    
    
    
    
    31
    
    
    
    122Non cash revenues
    
    
    (110
    )
    
    
    
    
    
    
    Increase in stocks
    
    
    (3,032
    )
    
    
    (2,583
    )
    
    
    (3,092
    )Decrease / (increase) in debtors
    
    
    267
    
    
    
    (478
    )
    
    
    (1,677
    )(Decrease) / increase in creditors
    
    
    (497
    )
    
    
    246
    
    
    
    2,606Net cash (outflow) / inflow from operating activities
    
    
    (3,103
    )
    
    
    639
    
    
    
    (1,723
    )
  (ii)
    
    Reconciliation of net cash flow to movement in net funds / (debt). 31 March
    
    
    31 March
    
    
    31 March2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Increase / (decrease) in cash
    
    
    3,949
    
    
    
    556
    
    
    
    (3,511
    )Cash outflow from financing
    
    
    826
    
    
    
    693
    
    
    
    535Increase / (decrease) in net funds resulting from cash flows
    
    
    4,775
    
    
    
    1,249
    
    
    
    (2,976
    )6% convertible unsecured loan notes converted / (issued)
    
    
    3,288
    
    
    
    (7,050
    )
    
    
    New finance lease and hire purchase agreements
    
    
    (356
    )
    
    
    (1,857
    )
    
    
    (89
    )Debt acquired with acquired businesses
    
    
    
    
    
    
    (356
    )
    
    
    Foreign exchange differences
    
    
    3
    
    
    
    6
    
    
    
    (21
    )Increase / (decrease) in net funds in the year
    
    
    7,710
    
    
    
    (8,008
    )
    
    
    (3,086
    )Net (debt) / funds brought forward
    
    
    (6,420
    )
    
    
    1,588
    
    
    
    4,674Net funds / (debt) carried forward
    
    
    1,290
    
    
    
    (6,420
    )
    
    
    1,588
  (iii)
    
    Analysis of net funds / (debt) Foreign
    
    
    AtAt 1 April
    
    
    
    
    
    
    Non-cash
    
    
    Exchange
    
    
    31 March2004
    
    
    Cashflow
    
    
    Changes
    
    
    Differences
    
    
    2005£000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000Cash at bank and in hand
    
    
    3,307
    
    
    
    3,977
    
    
    
    
    
    
    
    (9
    )
    
    
    7,275Overdraft
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    (28
    )3,307
    
    
    
    3,949
    
    
    
    
    
    
    
    (9
    )
    
    
    7,247Loans  amounts falling

due in less than one
year
    
    
    (500
    )
    
    
    334
    
    
    
    
    
    
    
    1
    
    
    
    (165
    )Loans  amounts falling
due in more than one
year
    
    
    (7,312
    )
    
    
    2
    
    
    
    3,288
    
    
    
    10
    
    
    
    (4,012
    )Obligations under
finance lease and hire
purchase agreements
    
    
    (1,915
    )
    
    
    490
    
    
    
    (356
    )
    
    
    1
    
    
    
    (1,780
    )(6,420
    )
    
    
    4,775
    
    
    
    2,932
    
    
    
    3
    
    
    
    1,290
 F-32




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##### 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 convertible loan notes converted into
equity and amortization of issue costs. 24. Contingent Liabilities The Company has guaranteed certain operating lease, finance lease and hire purchase agreements
entered into by subsidiary companies. 25 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 2005, the Group held net cash balances of £7,275,000. Of this amount, £6,392,000 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-33




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##### 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 March2005
    
    
    2004£000
    
    
    £000Financial assets by currency:Sterling
    
    
    6,655
    
    
    
    2,861US Dollar
    
    
    151
    
    
    
    392Australian Dollar
    
    
    469
    
    
    
    547,275
    
    
    
    3,307
 All financial assets mature within one year, or on demand. Borrowing Facilities The Group has an undrawn overdraft facility of £2,000,000 available at 31 March 2005 (2004:
£2,000,000) 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 2005: Fixed rate
    
    
    Fixed rate
    
    
    
    
    
    
    
    
    
    
    Non interestweighted
    
    
    weighted
    
    
    Fixed rate
    
    
    Floating rate
    
    
    bearing
    
    
    31 Marchaverage
    
    
    average
    
    
    financial
    
    
    financial
    
    
    financial
    
    
    2005period
    
    
    interest rate
    
    
    liabilities
    
    
    liabilities
    
    
    liabilities
    
    
    Totalyears
    
    
    %
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000CurrencySterling
    
    
    4.7
    
    
    
    6.6
    
    
    
    5,392
    
    
    
    54
    
    
    
    
    
    
    
    5,446US dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157
    
    
    
    
    
    
    
    157Australian dollar
    
    
    1.0
    
    
    
    8.2
    
    
    
    149
    
    
    
    200
    
    
    
    33
    
    
    
    382Total
    
    
    4.6
    
    
    
    6.6
    
    
    
    5,541
    
    
    
    411
    
    
    
    33
    
    
    
    5,985
 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
 A maturity profile of financial liabilities, which include loan notes and obligations under
finance leases and hire purchase obligations is presented in note 16. Floating rate borrowings are based on interbank rates in each country. F-34




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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 notes, based on the fair value of the underlying
shares (assuming conversion), was £7,539,000 compared to a book value of £3,827,000 (2004:
£15,120,000 and £7,092,000 respectively). The fair value of forward foreign currency contracts,
based on closing exchange rates at the year end, was an asset of £458,000, compared to a book value
of £75,000 (2004: an asset of £1,552,000, compared to a book value of £323,000). 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 2005Australian
    
    
    
    
    
    
    
    
    
    
    CanadianSterling
    
    
    dollar
    
    
    US dollar
    
    
    Euro
    
    
    dollar
    
    
    Yendenominated
    
    
    denominated
    
    
    denominated
    
    
    denominated
    
    
    denominated
    
    
    denominated
    
    
    Total£000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000Functional CurrencySterling
    
    
    
    
    
    
    2,476
    
    
    
    1,494
    
    
    
    (233
    )
    
    
    (3
    )
    
    
    (76
    )
    
    
    3,658US dollar
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    (377
    )
    
    
    
    
    
    
    
    
    
    
    (379
    )Australian dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    (2
    )
    
    
    2,476
    
    
    
    1,494
    
    
    
    (610
    )
    
    
    (3
    )
    
    
    (76
    )
    
    
    3,279
 31 March 2004Australian
    
    
    
    
    
    
    
    
    
    
    CanadianSterling
    
    
    dollar
    
    
    US dollar
    
    
    Euro
    
    
    dollar
    
    
    Yendenominated
    
    
    denominated
    
    
    denominated
    
    
    denominated
    
    
    denominated
    
    
    denominated
    
    
    Total£000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000
    
    
    £000Functional CurrencySterling
    
    
    
    
    
    
    861
    
    
    
    (91
    )
    
    
    (218
    )
    
    
    (42
    )
    
    
    (22
    )
    
    
    488US dollar
    
    
    (1,040
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,040
    )Australian dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    (1,040
    )
    
    
    861
    
    
    
    (91
    )
    
    
    (218
    )
    
    
    (42
    )
    
    
    (22
    )
    
    
    (552
    )
 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 2005, there were unrecognized profits of £383,000 (2004:
unrecognized profits of £1,229,000). As in the prior year, these forward foreign currency
contracts are due to expire within 12 months of the balance sheet date. F-35




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##### Table of Contents



26. 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 results and net assets are set out below. (a) 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 over 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: 2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Cost
    
    
    1,909
    
    
    
    1,909
    
    
    
    1,909Accumulated Amortization
    
    
    (1,909
    )
    
    
    (1,909
    )
    
    
    (1,909
    )Net book value
    
    
    
    
    
    
    
    
    
    
    
 F-36




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##### Table of Contents



(b) 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
amortization in the years to 31 March 2004 and 31 March 2005 was £782,000 and £998,000
respectively. Under US GAAP, in accordance with Statement of Financial Standard (SFAS) No. 141, Business
Combinations, SFAS 142, Goodwill and other 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 SFAS 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 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 income statement for the years ended 31 March 2004 and 31 March 2005 was: 2005
    
    
    2004£000
    
    
    £000Amortization of goodwill under U.K. GAAP
    
    
    998
    
    
    
    782In process research and development write-off under U.S. GAAP
    
    
    
    
    
    
    (9,981
    )Impact on income statement for the year
    
    
    998
    
    
    
    (9,199
    )
 (c) 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 all plans.
Under U.S. GAAP, as permitted by statement of SFAS 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 date. Under U.S. GAAP, an additional expense of £584,000 has been recognized in the year ended 31 March
2005 (2004: £225,000). No expense was recognized in the year ended 31 March 2003 since the market
value was below the exercise price of these options. F-37




---



##### Table of Contents



(d) 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, SFAS 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 income/(loss) and shareholders equity for fiscal 2005, 2004
and 2003, under US GAAP the following balances would be restated to the figures shown below: US GAAPYear ended
    
    
    Year ended
    
    
    Year ended31 March
    
    
    31 March
    
    
    31 March2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Revenues
    
    
    13,119
    
    
    
    16,913
    
    
    
    12,515Cost of goods sold
    
    
    7,674
    
    
    
    8,629
    
    
    
    8,284Inventory
    
    
    14,941
    
    
    
    10,807
    
    
    
    7,315Deferred Income  amounts falling due within one year
    
    
    14,061
    
    
    
    9,474
    
    
    
    5,923
 (e) Accounting for derivative instruments and hedging activities. SFAS 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. The Company has not designated any of its derivative instruments as qualifying hedge
instruments under SFAS 133 and accordingly, the Company records changes in the fair value of its
derivative instruments in current earnings. For the years ended March 31, 2003, March 31, 2004 and
March 31, 2005 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, 2003, March 31, 2004, and March 31,
2005, which improved the result for the years ended March 31, 2003 and March 31, 2004 by £468,000
and £578,000, respectively, and increased the loss by £626,000 in respect of the year ended March
31, 2005. F-38




---



##### Table of Contents



(f) 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 March2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Net (loss) / profit of Group under UK GAAP
    
    
    (2,587
    )
    
    
    1,265
    
    
    
    (238
    )Adjustments:Acquisition of Enact
    
    
    998
    
    
    
    (9,199
    )
    
    
    Stock compensation plans
    
    
    (584
    )
    
    
    (225
    )
    
    
    Revenue recognition
    
    
    (4,593
    )
    
    
    (3,274
    )
    
    
    (1,119
    )Derivative instruments and hedging activities
    
    
    (626
    )
    
    
    578
    
    
    
    468Net (loss) under US GAAP
    
    
    (7,392
    )
    
    
    (10,855
    )
    
    
    (889
    )
 (g) 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 March2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Equity Shareholders funds under UK GAAP
    
    
    25,228
    
    
    
    15,293
    
    
    
    10,338Adjustments:Acquisition of Enact
    
    
    (8,201
    )
    
    
    (9,199
    )
    
    
    Revenue recognition
    
    
    (8,831
    )
    
    
    (4,238
    )
    
    
    (964
    )Derivative instruments and hedging activities
    
    
    395
    
    
    
    1,021
    
    
    
    443Equity Shareholders funds under US GAAP
    
    
    8,591
    
    
    
    2,877
    
    
    
    9,817
 F-39




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##### Table of Contents



(h) U.K. GAAP profit and loss account Year ended
    
    
    Year ended
    
    
    Year ended31 March
    
    
    31 March
    
    
    31 March2005
    
    
    2004
    
    
    2003Notes
    
    
    £000
    
    
    £000
    
    
    £000Turnover
    
    
    2
    
    
    
    18,839
    
    
    
    21,019
    
    
    
    11,270Cost of sales
    
    
    
    
    
    
    (8,801
    )
    
    
    (9,461
    )
    
    
    (5,920
    )Gross profit
    
    
    
    
    
    
    10,038
    
    
    
    11,558
    
    
    
    5,350Administration expenses
    
    
    
    
    
    
    (12,502
    )
    
    
    (10,313
    )
    
    
    (5,954
    )Operating (loss) / profit
    
    
    2,3
    
    
    
    (2,464
    )
    
    
    1,245
    
    
    
    (604
    )Interest receivable
    
    
    
    
    
    
    236
    
    
    
    54
    
    
    
    100Interest payable
    
    
    6
    
    
    
    (655
    )
    
    
    (527
    )
    
    
    (95
    )(Loss) / profit on ordinary activities before taxation
    
    
    
    
    
    
    (2,883
    )
    
    
    772
    
    
    
    (599
    )Taxation for the year
    
    
    7
    
    
    
    296
    
    
    
    457
    
    
    
    361(Loss) / profit on ordinary
activities after taxation
    
    
    
    
    
    
    (2,587
    )
    
    
    1,229
    
    
    
    (238
    )Equity minority interest
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    (Loss) / profit for the financial year
    
    
    19
    
    
    
    (2,587
    )
    
    
    1,265
    
    
    
    (238
    )Basic and fully diluted (loss) / earnings per share (pence)
    
    
    8
    
    
    
    (1.15
    )
    
    
    0.61
    
    
    
    (0.12
    )
 The results for the years ended 31 March 2003, 2004 and 2005 relate solely to continuing
operations. (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 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. F-40




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##### Table of Contents



Year
    
    
    Year
    
    
    Yearended 31
    
    
    ended 31
    
    
    ended 31March
    
    
    March
    
    
    March2005
    
    
    2004
    
    
    2003£000
    
    
    £000
    
    
    £000Net cash flows from operating activities
    
    
    (3,248
    )
    
    
    313
    
    
    
    (1,080
    )Net cash flows from investing activities
    
    
    (1,147
    )
    
    
    (2,136
    )
    
    
    (1,840
    )Net cash flows from financing activities
    
    
    8,335
    
    
    
    2,374
    
    
    
    (535
    )Net change in cash and cash equivalents under US GAAP
    
    
    3,940
    
    
    
    551
    
    
    
    (3,455
    )Cash and cash equivalents under US GAAP at beginning of year
    
    
    3,307
    
    
    
    2,756
    
    
    
    6,211Cash and cash equivalents under US GAAP at end of year
    
    
    7,247
    
    
    
    3,307
    
    
    
    2,756Short term cash deposits
    
    
    
    
    
    
    
    
    
    
    Restricted cash balances
    
    
    
    
    
    
    
    
    
    
    Cash and bank balances under UK GAAP at end of year
    
    
    7,247
    
    
    
    3,307
    
    
    
    2,756
 (j) Recently issued accounting pronouncements On December 16, 2004, the FASB issued Statement of Financial Accounting Standard (SFAS) No.
123 (revised 2004) Share-based Payment (SFAS 123R) which eliminates the ability to account for
share-based compensation transactions using Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, (APB 25) and generally requires that such transactions
be accounted for using a fair value-based method with the resulting compensation cost recognized
over the period that the employee is required to provide service in order to receive their
compensation. SFAS 123R also amends SFAS No. 95, Statement of Cash Flows, requiring the benefits
of tax deductions in excess of recognized compensation cost to be reported as a financing cash
flow, rather than as an operating cash flow as currently required. The Company plans to adopt SFAS
123R beginning 1 April 2006, using the modified-prospective method. The Company is in the process
of assessing the impact of adopting SFAS 123R. On November 24, 2004, the FASB issued SFAS 151, Inventory Costs  an amendment of ARB No. 43,
Chapter 4 (SFAS 151), which clarifies that abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) should be recognized as a current period expense. In
addition, this Statement requires that allocation of fixed production overhead to the costs of
conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for
fiscal years beginning after June 15, 2005. The Company does not believe that the implementation of
this standard will have a material impact on the Companys financial position, results of
operations or cash flows. In December 2004, the FASB issued Statement of Financial Accounting Standard No. 153 (SFAS
153), Exchanges of Non-monetary Assetsan amendment of APB Opinion No. 29. SFAS 153 addresses
the measurement of exchanges of non-monetary assets. It eliminates the exception from fair value
measurement for non-monetary exchanges of similar productive assets in paragraph 21(b) of APB
Opinion No. 29 Accounting for Non-monetary Transactions and replaces it with an exception for
exchanges that do not have commercial substance. A non-monetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 will be effective for non-monetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of SFAS 153 is not expected to have a material impact
on the Companys financial position, results of operations or cash flows. F-41