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Maximising value through technology, innovation and partnerships

Sinclair Pharma plc Corporate overview 2010

Sinclair Pharma plcGodalming Business CentreWoolsack WayGodalmingSurrey GU7 1XW United KingdomTel +44 1483 410600 Fax +44 1483 410620

sinclairpharma.com

Sinclair Pharma, skin and mouth experts. As a leading skin and mouth disease specialist, we strive to improve the health, appearance and confidence of our patients, creating value for healthcare providers and shareholders.

We have a growing sales and marketing operation that is present in France, Italy, Germany and Spain, and an extensive marketing partner network across selected developed and emerging markets.

Sinclair Pharma plc Corporate overview 2010 01w

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HighlightsPage 02

Our market- leading productsPage 08/09

Financial reviewPage 16

Delivering against our strategy Page 04/05

Sinclair Pharma at a glancePage 03

Review of operationsPage 12/13

02 Sinclair Pharma plc Corporate overview 2010

26.6

FY09

FY10

23.0

60.8

57.8

Highlights

Financial Total revenue of £27.6m (2009: £30.4m) Product and royalty revenues increased by 16% Gross margin excluding licence income improved

to 60.8% from 57.8% GroupconsistentlyprofitableinH2forthefirsttime EBITDAlossbeforeexceptionalitemsandnon-cash

licensing of £0.5m (2009: £1.9m) Operatinglossbeforeexceptionalitemsof£3.7m

(2009: £0.3m) Operatinglossafterexceptionalitemsof£17.0m

(2009: £2.7m) Losspershareafterexceptionalitemsof13.5p

(2009: 3.9p)

Operational Implementationofstrategicreviewtransforms

the Company Strengthenedexecutivemanagementteamallocatedkeyarearesponsibilities

Business now streamlined and highly focused on productcommercialisation

Strengthenedsalesandmarketingcapabilitiesdriving revenue and margin growth across Group

Majorinstitutionalinvestmentspreandpostperiodcreates strong capital base and reduces debt

Strategicproductacquisitionsfacilitatedwhichacceleratesgrowthpotential

Lucrativepostperiodendlicensingdealssecuredwith leading new products for athlete’s foot and anti-scartreatmentstoaddressglobalandkeyEuropean markets

Strong new business pipeline building

Product and royalty revenue £million

Gross margin excluding licence income %

FY09

FY10


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Sinclair Pharma at a glance

Dermatology

Wound care

Oral care

Weareaninternationalspecialtypharmaceuticalcompanyprovidingsolutionstotreatwounds,dermatologicalandoraldiseasesthroughadvancedsurfacetechnologyandinnovativedeliverysystems.

Ourexpertiseindermatologycoversfungalinfections,acne,atopicdermatitisand family dermatology.

Ourexpertiseinwoundcarecoversskindisinfection,radiationdermatitistreatment and wounds and burns healing.

Ourexpertiseinoralcarecoversgingivitis,periodontitis,mouthulcers and teething.


Chief Executive’s Strategic ReviewChris Spooner

Asaleadingskinandmouthdiseasespecialist,westrivetoimprovethehealth,appearanceandconfidenceofourpatients,creatingvaluefor healthcare providers and shareholders.

Consistent trend of improving revenues and profitability

Manufacturing optimisation

Redefined business development focus

Comprehensive dermatology portfolio and niche position in oral care

Consolidated proprietary operations

Widespread promotion of external image of Sinclair with patients, prescribers and partners


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Delivering against our strategy

ReturntolikeforlikegrowthinH2,following2%decline inH1

Gross margin three percentage points improvement Reducecorporatecomplexity,notablyproducts/SKUs

and distributors Flammazineintegrationproceedingwellwithrevenuecontributionof£4.2minFY10

Strengtheningregulatoryaffairs,marketing/communicationsandfinancialreportingtosupportrevenueincrease andacquisitions

New CSO appointed with strategic review of R&D pipeline and assets

Targetedproductandtechnologyacquisitions ExploitingthecurrentportfolioinemergingmarketsinEurope,notablyGermanyandDecapinol®andDelmopinol(potentialforusewithcompanionanimals)

New head of France. Emphasis on sales to pharmacies with new direct strategy and team established

Italy. 23% like for like growth from Italian business post business realignment. Overhaul of sales force management and contracts

LocalGermanpresence.Newofficeestablishedin2010

Departmentrestaffed,reorganisedandcentredinParis Focus on reducing the number and complexity of existingrelationships

CEOandCOOledinitiativesformulti-country/ multi-productdealsinemergingmarkets

Focusonportfoliooffering,long-termdurationandsharedmarketingresponsibilities

SKUnumberdecreasedtolessthan400(vs655June09)and trending lower

In-houseproductionexceeded3munitsinH2FY10 (+20%vsFY09H2)

Supplychainreviewinitiatedwithtargettoreducenumberof third party suppliers

Revisedmarketingmaterials.Pan-operationsglobalmarketingtaskforce.Emphasisonuseoftechnology

StandardisationofSinclairpackagingandartwork New corporate website with links to partners. Product

websites development ongoing

2009–10 performance

Acquiredexclusivemarketing,developmentand sales rights for launched and approved anti-scartreatmentKelo-Cote®inFrance,Spain and Italy

Exerciseoptiontoacquireexclusiverightstoa Terbinafine based ‘once only’ athlete’s foot sprayandfileforfirstE.U.approvalwithincomefromfirstEuropeansalesexpectedearly 2012

Opportunitytoinvestinidentifiedpartnershipopportunitiesinnon-proprietarymarkets,notablyBRIC and south-east Asia. PossibleadditionalregionallicensingdealsforSinclairportfoliowithlargepharmacompanies

Flexibility to further develop the European proprietary sales force in Germany following Flammazine®andKelo-Cote®andtoexpandin France,inItaly and in Spain

Development programmesforanti-biofilmagentDelmopinol,woundcareFlammazine®andFlammacerium®,line-extensionstoexistingportfolio,OTCdevelopment

Productionforemergingmarketsexpectedto be transferred to India. Possibility to extend arrangement to other markets

2011 initiatives


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Expanding our market presenceAcquisition of Flammazine® and Flammacerium®

InDecember2009,SinclaircompletedtheacquisitionofFlammazine®andFlammacerium®fromSolvayfor€17.5m.

Theproducts,bothtopicalcreamsforthepreventionandtreatmentofsevereburnsandwoundspronetoinfection,arewell-establishedbrandsacrossEuropeand provide Sinclair with a franchise inwoundcareanditsfirstpresencein hospitals. It also consolidated our FrenchandSpanishoperations,enabledustolaunchSinclairinGermany,andleveragedourinternationaloperationsin more than 40 other markets.

FromDecember2009,theproductsgenerated revenue of £4.2m. Sinclair plans to grow the revenue from these brandsviaincreasedpromotion,newopportunitiesinnewmarkets,newindications,andlaunchinglineextensionsfromourin-houseproductdevelopment.


Our market-leading products

Dermatology

Atopiclair® Non-steroidalcreamandlotion Indicatedforthesymptomatic

treatment of mild to moderate atopicdermatitis

Available in 13 countries PlannedlaunchesinGermany, Austria,Pakistan,India,Greece and Scandinavia

Atopiclair®CreamreimbursedinFrance from September 2010 www.atopiclair.fr

Papulex® Dermo-cosmeticrange,consisting

in six products indicated for the cleansing,moisturisingandprotectionof acne prone skin

Containstheactiveingredientnicotinamide4%inassociationwith apatentedanti-bacterialadhesionactivepreventingandmanaginginflammation

Available in 19 countries Planned launches in India Papulex®UVlaunchedinFY10, Papulex®Dosaderm™tobelaunched this year

Sebclair® Non-steroidalrangeofthreeproducts,availableasacream,shampooandscalpfluid

Designed for the management of skin andscalpseborrheicdermatitis

Available in six countries Planned launches in Pakistan and India SuccessfulU.S.launchofSebclair®CreaminJuly2009

Bio-Taches® Dermo-cosmeticrangepartofthe

Derma Omnium products acquired bySinclairinFY08

Contains azeloglycin that prevents andreducespigmentationdisorderssuchaschloasma,melasmaordyschromia

Available in 15 countries Planned launches in Italy and Spain Bio-Taches®NightSerumtobelaunchedinFY11

Dermachronic® Dermo-cosmeticrangecomposed

of a foaming gel and of a cream for dry andsensitiveskins

Deliverstherightquantityofproduct tochronicpatients

Available in four countries Planned launches in Asia


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Our aim is to maximise the value of our brands through innovation,acquiredtechnologiesandintensivemarketingviaourowncountryoperationsand networkofinternationalpartners. Chris Spooner CEO

Wound careOral care

Flammazine® Acquired by Sinclair in December 2009,aswellasFlammacerium®

Silver sulfadiazine cream for the preventionandtreatmentof severe burns and wounds prone toinfection

Available in 36 countries FlammaEvo™,FlammaSpray™andFlammaDosaderm™tobelaunched inFY11

Aloclair® Range of products indicated to relieve

the pain caused by aphthous mouth ulcers and other minor oral lesions

Hyaluronicacidandaloeverasupportingnaturalhealingofdamagedtissues

Available in 32 countries Planned launches in Serbia andCroatia

Decapinol® Rangeofproductscombatingplaquebuild-uponteeth,managinggingivitisandpreventingperiodontitis

Delmopinol,aproprietarykeyingredient,developedtocombatbiofilms

Available in eight countries PlannedlaunchesinFrance,Sweden,Denmark,SouthKoreaandTaiwan

Delmopinol new markets inwoundcareandcoating medical devices

Dermoxyl® Range of products from skin disinfectiontowoundhealing

Dedicatedtodisinfectionand wound dressing and speeds up the healing process

Availableinfivecountries Planned launches in Turkey Dermoxyl®Spraytobelaunched inFY11

Oxyplastine® Highestconcentrationinzincoxidelonglastingtreatment

Indicated in the treatment of humid eczema and diaper rash

Available in four countries Planned launches in Italy Oxyplastine®Evo,Oxyplastine®SoftandOxyplastine®Dosaderm™tobelaunchedinFY11


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Maximising our resourcesOptimisation of the supply chain

During 2010 Sinclair’s manufacturing has undergone a rigorous streamlining programme to ensure theoptimisationofthesupplychain. As a result of this ongoing process,aswellastheintegrationofFlammazine®andFlammacerium®,Sinclair manufacturing recorded a verystrongperformanceinFY10.

From a total of more than 15.8m unitsproducedthisyear,4.9mweremanufactured by the Group’s proprietary facilityatClérySaintAndre,France(versus4.2minFY09).Thetotalvolumeproducedincreasedby44%andSKUshave been reduced from almost 700 to under400withfurtherrationalisationplanned for the coming year.

InFY10theratioofcostofproductionversus sales revenue decreased by three percentage points.


Review of Operations

SinclairoperatesthroughitsownaffiliatesinFrance,Italy,SpainandGermany,followingthecreationofthelatterearlieronintheyear.Fortheyearended30June2010,CountryOperationscontributed£15.6m(57%)ofGroup revenues.

France InDecember2009,PatrickLoyerwasappointedOperationDirectorforFrance.Marketingandregulatoryaffairsteamshavealsobeenstrengthened,todevelopeffectivemarketingstrategiesandanticipateincreasedright-to-market requirements over pharma companies.

Sinclair maintained its sustainable strategy to dermatologists which led to Sinclair France achieving its ranking as Nº11 company in terms of shareofvoice(CEGEDIMpanel,Q22010).Duringtheyear,theFrenchOperationalsoimplementeditsnewstrategyofdirectsalestopharmacies,increasing its sales force and reinforcing OTC marketingexpertise.FromJanuary2010,followingtheacquisitionofFlammazine®andFlammacerium®,theFrenchOperationhasinitiatedpromotiontoburnsunits,throughtheappointmentofaKeyAccountManager.

Important investment has been allocated topre-marketingactivitiespriortotheanticipatedreimbursementofAtopiclair®Creamandsubsequentrelaunch,aswellastothelaunchesoftheDermachronic®XLrangeandPapulex®UVandtotherapidandsuccessfulintegrationofFlammazine®andFlammacerium®intothecurrentportfolio.

Sinclair France contributed £10.2m to Group revenues,increasedfrom£9.8minFY09,aidedbytheacquisitionofFlammazine®.

Italy Sinclair Italy has demonstrated remarkable energywhichledtotheirfirstprofitableyearattheoperationslevelthankstoinnovativeandconsistentmix-marketingactivities,adynamicsalesforce,whichnowcoversthewhole country and the transfer of all Italian distributorrelationshipstotheItalianaffiliate.

TheItalianteamlaunchedtheSoftlineoffoams(CeraSoftandESoft)todermatologists,which amongst other factors contributed to the 22% growth of Sinclair sales in Italy versus previousyear.TheoralcareportfolioinItalyiscurrently promoted through partners such as Recordati,whoweresuccessfulinlaunchingtheAloclair®Plusrangelastyearwhichcontributed to a 60% increase in Aloclair sales. AspartoftheGroup’sstrategicreview,theB-LiftandB-Dermrangeshavebeendivested.

Chris SpoonerChiefExecutiveOfficer

Christophe FoucherChiefOperatingOfficer


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Thisyear,theItalianOperationcontributed£4.7m to Group revenues.

2010sawthepreparationaheadofthe merger between our two Italian companies.Witheffectfrom1July2010,thereisjustoneSinclaircompanyinItaly,thusreducingadministrationcosts.

Spain InFY10SinclairreshapeditsactivitiesinSpain,throughtheconsolidationofitssalesforcetodermatologists as well as through obtaining the authorisationtoownandmarketdrugs.DespitethechallengingeconomicclimateinSpain,totalproduct revenue increased by 70% mainly due to theconsolidationofFlammazine®andthegrowthofSebclair®andPapulex®.FY10alsosawthesuccessfullaunchoftheDermachronic®XLrange.

Germany Sinclair Pharma Germany was founded in November2009,tomanagetheGerman,Austrian and Swiss markets. Lothar Nau was appointedCountryOperationDirectortooversee developments in these territories.

Aftertheinitialperiodofestablishmentandconsolidation,thenewaffiliateassumedresponsibilityfordistributionpartnersintheseterritories.Since1April2010,SinclairGermanyhasheldthemarketingauthorisationsforFlammazine®inGermanyand Austria and has started to market and activelypromoteFlammazine®inhospitalsand burn centres. A new branch has been established in Switzerland to manage Flammazine®anddeveloppartnerships.

Sinclair Germany contributed £0.5m to Group revenuesintheperiodsinceitsincorporation.

International Operations TheInternationalOperationsteamhasbeenrestructured and relocated to Paris during the yeartofacilitatethesharingofbestpractices.Anew‘meanandlean’organisationwassetupwithreinforcedmarketingandregulatoryaffairsskills.Thismovehasbeenbolsteredby new members in each regional team with anincreasedfocusonsupportingpartnersinmarketing,regulatoryaffairsandlogistics.

Following the change in management duringtheyearandstrategicreview,InternationalOperationsisnowfocusedonsigningmulti-country,multi-productdealsinkey,fast-growing,emergingmarkets.

Thisyear,InternationalOperationsrevenueswere£11.9mrepresenting43%ofGrouprevenues,andnowmostlycomposedofproductsalesandroyalties,notone-offlicensingfees.

MEPIA region (Middle East, Pakistan, India, Africa) The MEPIA region represented more than 40%ofInternationalOperationsrevenuefor the year. Along with a strong focus on realisingourstrategyinIndia,theMEPIAteamsuccessfullybuiltonourrelationshipswithkeypartnerssuchasHikmaandthroughthekeylaunchesofPapulex®andEffadianeinAlgeriaand Saudi Arabia. In line with the Group’s goal of simplifying our modus operandi,theMEPIA team is currently reducing its number of partners in Algeria and Morocco and integratingFlammazine®asthetopproductintheregionintermsofrevenuecontribution.

ERTI region (Europe, Russia, Turkey, Israel) In May 2010 Dario Opiparo was appointed Regional Business Director for the region which followingtheclosureoftheU.K.salesforceinJuly2009nowincludestheU.K.business.DuringtheyearAtopiclair®andSebclair®werelaunchedinEasternEurope,andDecapinol®andHerpclair®inIsrael.Sinclairalsosignedakeymulti-product,multi-countrydealinScandinaviawithlaunchesofAtopiclair®,Decapinol®,Herpclair®andXclairplannedforthecomingyear.InlinewiththeGroup’snewstrategy,theERTIregioniscurrentlyfocusedonconsolidatingitspresenceinCentralandEasternEuropethroughmulti-countryandmulti-productpartnerships.

NALA region (North America, Latin America) MutualterminationoftheDecapinol®distributionagreementwasagreedwithOrapharmaintheU.S.inNovember2009,openingongoingdiscussionstofindanewdistributortocommercialisetherinse.AfruitfulpartnershipwithSunstarAmericasforAloclair®ledtoa30%increaseinsalesversusFY09.

Sebclair®,Sinclair’streatmentforseborrhoeicdermatitiswaslaunchedduringtheyearintheU.S.byPromiusPharma,thedermatologydivisionofDrReddy’sLaboratoriesInc.,underthebrandnamePromiseb.Inunderayear,Promiseb has become one of the leading prescribedproductswithinitsclassintheU.S.

Aworld-leadinganimalhealthcompanyhas maintained its exclusive rights to develop Delmopinol for oral care in companionanimals,adding$0.25minlicencefeestorevenueforFY10.

Asia region Sinclair is currently involved in advanced discussionstofindamulti-country,multi-productdealtocoverkey,high-growthAsianmarkets.AnagreementisexpectedtobesignedinFY11.


Sinclair codeProduct description Product class

Target indication

Estimated launch (calendar years)

2010 2011 2012

H2 H1 H2 H1 H2

Section 1. In-licensed technologies

SPH220 Terbinafinesingle applicationanti-fungalspray

Generic with proprietary delivery technology

Athlete’s Foot (Tinea pedis)

SPH230 Kelo-Cote®andKelo-Cote®Solaire

Medical device CE marked Class I

Scarreductionand removal (Hypertrophic/keloids)

SPH231 Kelo-Cote®Medspray™Line Extension

Medical device Wound healing with scar reduction

Section 2. Leveraged internal assets

SPH 240-3 Dosaderm™products

Cosmeticsandmedical devices

Variousincludingacne,dryskin,minorcuts and burns and nappy rash

SPH 260-4 Delmopinol anti-biofilmprogrammes

Medical device + drug

Internal and partnered programmes for various new applicationsandformulationsonwards

SPH 265 Delmopinol coated dental implants

Medical device Peri-implantitis

SPH 266 Delmopinol use in companion animals

Vetproduct Animal oral health

SPH 241 and SPH 270

Flamma Dosaderm™andFlammaSpray™

Medical device andcosmetics

Minor burns and sunburns

SPH 280 BPO + Nicotinamide

Drug Acne

Section 3. New formulations and presentations

SPH 290 Bio-Taches™Night Serum

Cosmetic Age related pigments,liver spots

SPH 291 Jonctum™Stretchmarks

Cosmetic Stretchmarks

SPH 300 Sinlice™ Medical device Headlice

SPH 400-3 and SPH 270

Foams(Softline) Cosmetics Variousincluding dryskin,hyperkeratoses,nappyrash,erythema

Onwards


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Strategic research and developmentProviding products with global reach and significant USPsSimonYoulton,ChiefScientificOfficer,joinedSinclairinJanuary2010 to lead a restructured R&D and regulatory team from theGroup’scorporateofficesintheU.K.Simonimmediatelyembarked on a strategic review of the R&D pipeline which resulted inswiftdecisions,andprojectattritioninordertoreleaseandrefocus resources towards:

leveraging the key Company assets with the largest commercialpotential,suchasDelmopinol and the ‘Flamma’ branded products for burns and wound care; and

identifyingandundertakingthefirststepsinacquiring/licensingnew products and near market developments that cannot only synergisewithSinclair’sexistingpharmacy and dermatologists distributionchannelsbutprovide products with global reachandsignificantUSPs.

SimonYoultonCommercialChiefScientificOfficer


Financial Review

The year ended 30June2010was split into two very differenthalves,bothoperationallyandfinancially.

Alan OlbyChiefFinancialOfficer

ThefirsthalfdominatedbytheacquisitionofFlammazine®,associatedfundraisingactivitiesandchangesinseniormanagement.The second half dominated by the strategic review,integrationofFlammazine®andimplementationofthenewstrategy.Thefinancialperformancewasalsodramaticallydifferentineachperiodassetoutbelow:

H1 H2

Revenue £11.0m £16.6mGross margin (excl. licence revenues) 58% 62%EBITDApreexceptionals (£2.4m) £1.9m

RevenueProductrevenuesandroyaltiesincreased by 15% to £26.6m from £23.0m as a result oftheFlammazine®acquisitionwhichcontributed £4.2m to revenues in the six monthspostacquisition.

CountryOperationsSinclair’sCountryOperationscontributed57%ofGrouprevenuefortheyear,splitasfollows:

2010 £m

2009 £m

France 10.2 9.8Italy 4.7 3.7Germany 0.5 –Spain 0.2 0.2U.K. – 0.4

15.6 14.1

Sinclair France revenues were boosted by £0.8m bytheacquisitionofFlammazine®.Thetransferof the products from Solvay completed in March forFranceresultinginjustoverthreemonthsofrevenuecontributionfortheyear.Underlyingsales,excludingtheacquiredproductsdeclined6.7%overtheyear,continuingthedeclineseenin recent years. This is a result of a decline in sales through wholesalers while the new strategy of direct selling to pharmacies has shown encouraging signs of increased sales through pharmacies towards the end of the year and this has started to reduce the rate of decline seenacrosstheFrenchportfolioasawhole.

SinclairItalyperformedparticularlywellintheyearwithgrowthacrossallareasoftheportfolio.Aloclair®revenuesgrewby60%aspartnerRecordatilaunchedtheAloclair®PlusrangeandAloclair®teethinggel.Dermatologyproductsalesgrewby23%inconstantcurrencyterms,inspiteofa36%declineinthenon-coredermacosmeticproduct range which is being disposed.

Sinclair Germany was incorporated in December 2009inordertomanageFlammazine®andFlammacerium®inGermany,AustriaandSwitzerland revenues of £0.5m represent three months sales for the products.

InternationalOperationsRevenueinInternationalOperationswasunchanged at £11.9m. Product revenues and royaltiesincreasedfrom£8.8mto£11.0m,boostedbytheacquisitionofFlammazine®andFlammacerium®whichcontributed£2.7minrevenuestoInternationalOperations.Importantly,productsalesandroyaltiesrepresented93%ofrevenues,comparedwithjust74%in2009.Underlyingrevenues,ignoringtheimpactofproductacquisitionsandcurrencyfluctuations,declinedby7%intheyearasaresultofareductionof£2.0minrevenuesfromAtopiclair®andSebclair®.Bothproductssawincreased revenue in 2009 due to large stocking orders from a distributor in Eastern Europe whichwerenotrepeatedin2010andAtopiclair®revenues also included £0.8m in 2009 from GracewayintheU.S.,priortotheiracquisitionof the rights in December 2008. This decline waspartiallyoffsetbygrowthinrevenuesfromAloclair®(£0.7m)andDecapinol®(£0.4m).

Gross marginThe Group has increased the gross margin excluding licence revenues (a key performance indicator) from 57.8% to 60.8% for the full year. This is a result of the focus on manufacturing andsupplychainandillustratesthebenefitofincreasingproductionattheGroup’sin-house manufacturing facility at Cléry Saint André,Francewheresparecapacityexists.

Operating expensesTotaloperatingexpensesexcludingexceptionalitems were reduced by £0.1m to £20.9m in theyear.Selling,marketinganddistributioncosts increased from £9.5m to £9.7m as a resultoftheacquisitionofFlammazine®andacontinuedfocusonsalesandmarketingactivities.Administrativeexpensesdeclinedfrom£11.5mto£11.2m,inspiteofa£0.8mincreaseinamortisationcharges.Thisreductionreflectingthe£1.5mannualisedcostsavingsachieved by the new management team following the Group restructuring in early 2010.

Financing costsFinance costs of £1.4m are unchanged from 2009andincludeinterestchargesof£0.9m,ashare-basedpaymentschargeonwarrantsissuedtoBracken,£0.1m,andnetforeignexchangelossesarisingonthetranslationof Euro denominated debts of £0.1m.

Placing and open offerInearlyOctober2010,Sinclaircompletedafullyunderwrittenplacingandopenoffertoraise£19mat28ppershare,an8%premiumto the closing share price on the day before announcement. The net proceeds will be used to paying down the remaining debt undertheBrackenfacility,acquiretwonewproducts,investinthedevelopmentofexistingassets(DelmopinolandFlammacerium®)andinvestinregulatoryaffairsactivities.

Sinclair Pharma, skin and mouth experts. As a leading skin and mouth disease specialist, we strive to improve the health, appearance and confidence of our patients, creating value for healthcare providers and shareholders.


Maximising value through technology, innovation and partnerships

Sinclair Pharma plc Corporate overview 2010


sinclairpharma.com

Annual report and accounts 2010

Sinclair Pharma, skin and mouth experts.As a leading skin and mouth disease specialist, we strive to improve the health, appearance and confidence of our patients, creating value for healthcare providers and shareholders.


01 Highlights02 Chairman’s Statement04 Business Review 08 Financial Review10 Board of Directors and Senior Management11 Directors’ Report15 Statement of Directors’ Responsibilities16 Corporate Governance Report20 Directors’ Remuneration Report

25 Independent Auditors’ Report26 Consolidated Income Statement and

Statement of Comprehensive Income27 Group and Parent Company Balance Sheets28 Group and Parent Company Statements of

Changes in Equity30 Group and Parent Company Cash Flow Statements31 Notes to the Financial Statements58 Corporate Advisors

Contents

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a.com Sinclair Pharma plc Annual report and accounts 2010 01

Financial Total revenue of £27.6m (2009: £30.4m) Product and royalty revenues increased by 16% Gross margin excluding licence income improved to 60.8%

from 57.8% GroupconsistentlyprofitableinH2forthefirsttime EBITDAlossbeforeexceptionalitemsandnon-cashlicensingof

£0.5m (2009: £1.9m) Operatinglossbeforeexceptionalitemsof£3.7m(2009:£0.3m) Operatinglossafterexceptionalitemsof£17.0m(2009:£2.7m) Losspershareafterexceptionalitemsof13.5p(2009:3.9p)

Operational ImplementationofstrategicreviewtransformstheCompany Strengthenedexecutivemanagementteamallocatedkey arearesponsibilities

Business now streamlined and highly focused on product commercialisation

Strengthenedsalesandmarketingcapabilitiesdrivingrevenueand margin growth across Group

Majorinstitutionalinvestmentspreandpostperiodcreatesstrong capital base and reduces debt

Strategicproductacquisitionsfacilitatedwhichacceleratesgrowthpotential

LucrativepostperiodendlicensingdealssecuredwithleadingnewproductsforAthlete’sFootandanti-scartreatmentstoaddressglobalandkeyEuropeanmarkets

Strong new business pipeline building

Highlights

02 Sinclair Pharma plc Annual report and accounts 2010

Chairman’s Statement

The last financial year was one of generational change for Sinclair as we focused aggressively on creating a platform for greater sales and margin growth from our existing products; makingandfinancingsignificantproductacquisitionstoachieve greater critical mass; eliminating all unproductive costs; achieving more consistent cash generation from a stronger capital base; and on effecting management and cultural changes to achieve these objectives.

Management and cultural changeWe are all very grateful to Michael Flynn and Jerry Randall, forbringingtheCompanytobeingawell-knownnameinthespecialtypharmaceuticalssector.However,inordertoachieve our ambitious objectives for growth, improved operating efficiency and better cash flow generation, the Board decided, coinciding with the intention of Michael Flynn to retire, that a significant cultural change and a new visionwasimportant.ChrisSpoonerwasappointedasCEOhaving demonstrated to the Board an exceptional vision of whattheCompanycouldachieve.

Chrisperformedanin-depthstrategicreviewofyourCompanyonhisarrivalandafterreceivingthefullendorsementofyourBoard,embarkedonanenergeticplanfor cultural change. There were immediate changes to the executive management team, including the appointment of SimonYoulton,ournewChiefScientificOfficer,andanumber of personnel changes at all levels. A flatter management structure has resulted in faster decision makingandsignificantlyreducedoverheadandnewinformation systems have increased operational and financial transparency. Every employee is aware of our corporate goals and has detailed personal objectives.

Stronger balance sheetTheappointmentofChrisSpoonerattractedthestronginterestandbackingofsomeofthelargestandmostrespected institutional investors in Europe, who indicated an enthusiasmfornewinvestmentintheCompany.Weraisednew equity of £18.2m during the year and £19.0m post year end. This second equity issue was at an 8% premium to the share price prior to the announcement of issue, which is a very encouraging sign of the level of support for the new managementteam.Bothissueshavebeenbackedandindeed oversubscribed by major institutions.

These equity issues have enabled us for the first time to achieve a strong capital base; permit investment in strong new products; and to focus on driving sales of our own productsinsteadofworkingtoachieveone-offlicensingdealstosupplyourworkingcapitalneedsandfulfil Cityexpectations.

Stronger operating performanceAn intensive restructuring exercise was successfully completed during the year. We have yet to see a full year effect, but annual savings of £1.5m were achieved despite 27 new personnel joining in the second half. We have also significantly reduced general and admin costs and diverted theseresourcesintoabigstep-upinmarketing.

There has been a major drive to improve gross margins, resulting in a three percentage points improvement compared with 2009. We have dramatically reduced the number of peripheral products and focused resources on ourkeyproducts.Wearefocusingactivelyondrivingpurchasing costs down by manufacturing more product at ourFrenchplantinCléry,whichisoperatingatrecordproduction levels and we are negotiating supply contracts with high quality manufacturers in India, initially for our growingemergingmarketsbusiness.

As a result of these initiatives, operations were consistently profitable in the second half for the first time in the Company’shistoryandweachievedourexpectationsdespite spending considerable energy and resources on refocusing and restructuring and without recourse to one-offlicensingtransactions.

Italwaystakeslongerfortheeffectsofrestructuringandcultural change to be reflected in sales growth but during the second half we saw underlying growth in sales and the start to 2010–11 has been particularly encouraging.

Product acquisitions and product developmentYourCompanyhasanexcellentdistributionplatformandgood product acquisitions can improve critical mass and generate rapid gross margin contribution. During the year we acquired and integrated two of the world’s leading wound care brands, Flammazine® and Flammacerium®. Theseunder-marketedbutleadingproductsnotonlyadded£9m of annualised sales immediately but offer excellent growthopportunitieswithappropriatemarketingsupport, and some very promising line extensions and new indications.

Grahame CookChairman

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Aftertheyear-endweannouncedthatwehadacquiredanoptiontolicensetheworldwiderightsforaone-shotspraypresentation of Terbinafine for athlete’s foot – the only such presentationcurrentlyavailable,andwithalikelyfirstEuropeanlaunchinH12012.Wearealsodelightedtohavelicensedleadinganti-scartreatmentKelo-Cote®forkeyEuropeanmarkets.

Wehaveactivelyreviewedthepotentialofourin-housetechnologies. Of note, we remain convinced that Decapinol® has significant potential despite the termination of Orapharma’s U.S. rights to the mouth rinse. Indeed, we are currently in discussions with a number of parties about takingtheproductforward.Withthehelpofcommercialpartners we have commenced several delmopinol development programmes and have high expectations for a companion animal product which is currently in late-stagedevelopment.

LicensingThe complete reorganisation and relocation of our Business Development team to Paris has been accompanied by a change in strategy.

We have removed the pressure to enter into license agreements, driven primarily by the need for revenue and cash,andaretakingamorestrategicapproachtolicensingpartners. Emphasis has been to reduce the complexity and improve the profitability of existing arrangements by focusingonkeyproductsandpartners.

Inkeyemergingmarkets,vigorouseffortshavebeenmadetosecurelong-term,multi-product,multi-countrypartnerships. Several promising negotiations are ongoing andweexpecttomakeannouncementsduringthecurrentfinancial year. We strongly believe in the potential of this strategytodrivegrowthinthemedium-term.

OutlookYour Board is confident that a successful management, cultural and strategic change has been implemented. Accompanied by widespread restructuring and refocusing measures, and the introduction of significant new capital, webelieveyourCompanyisinthebestpositionsinceitsIPOto deliver excellent returns to shareholders.

Welookforwardtoreportingfurtherprogressinthe year ahead.

Grahame Cook Chairman


Business Review

Country OperationsSinclair operates through its own affiliates in France, Italy, Spain and Germany, following the creation of the latter earlier on in the year. For the year ended 30 June 2010, CountryOperationscontributed£15.6m(57%)ofGroup revenues.

FranceInDecember2009,PatrickLoyerwasappointedOperationsDirectorforFrance.Marketingandregulatoryaffairsteamshave also been strengthened, to develop effective marketingstrategiesandanticipateincreasedright-to-marketrequirementsoverpharmacompanies.

Sinclair maintained its sustainable strategy to dermatologists which led to Sinclair France achieving its rankingasNº11companyintermsofshareofvoice(CEGEDIMpanel,Q22010).Duringtheyear,theFrenchOperation also implemented its new strategy of direct sales topharmacies,increasingitssalesforceandreinforcingOTCmarketingexpertise.FromJanuary2010,followingtheacquisition of Flammazine® and Flammacerium®, the French Operation has initiated promotion to burns units, through theappointmentofaKeyAccountManager.

Importantinvestmenthasbeenallocatedtopre-marketingactivities prior to the anticipated reimbursement of Atopiclair® cream and subsequent relaunch, as well as to the launches of the Dermachronic® XL range and Papulex® UV and to the rapid and successful integration of Flammazine® and Flammacerium® into the current portfolio.

Sinclair France contributed £10.2m to Group revenues, increased from £9.8m in FY09, aided by the acquisition of Flammazine®.

ItalySinclairItalyhasdemonstratedremarkableenergywhichledtotheirfirstprofitableyearattheOperationslevelthanks toinnovativeandconsistentmix-marketingactivities,adynamic sales force, which now covers the whole country and the transfer of all Italian distributor relationships to the Italian affiliate.

TheItalianteamlaunchedtheSoftlineoffoams(CeraSoftand ESoft) to dermatologists, which amongst other factors contributed to the 22% growth of Sinclair sales in Italy versus the previous year. The oral care portfolio in Italy is currently promoted through partners such as Recordati, who were successful in launching the Aloclair® Plus range last year which contributed to a 60% increase in Aloclair® sales. As partoftheGroup’sstrategicreview,theB-Lift&B-Dermranges have been divested. This year, the Italian Operation contributed £4.7m to Group revenues.

2010 saw the preparation ahead of the merger between our two Italian companies. With effect from 1 July 2010, there is just one Sinclair company in Italy, thus reducing administration costs.

SpainIn FY10 Sinclair reshaped its activities in Spain, through the consolidation of its sales force to dermatologists as well as throughobtainingtheauthorisationtoownandmarketdrugs. Despite the challenging economic climate in Spain, total product revenue increased by 70% mainly due to the consolidation of Flammazine® and the growth of Sebclair® and Papulex®. FY10 also saw the successful launch of the Dermachronic® XL range.

GermanySinclairPharmaGermanywasfoundedinNovember2009,tomanagetheGerman,AustrianandSwissmarkets.LotharNauwasappointedCountryOperationDirectortooverseedevelopments in these territories.

After the initial period of establishment and consolidation, the new affiliate assumed responsibility for distribution partners in these territories. Since 1 April 2010, Sinclair GermanyhasheldthemarketingauthorisationsforFlammazine® in Germany and Austria and has started to marketandactivelypromoteFlammazine®inhospitalsandburn centres. A new branch has been established in Switzerland to manage Flammazine® and develop partnerships. Sinclair Germany contributed £0.5m to Group revenues in the period since its incorporation.

International OperationsThe International Operations team has been restructured and relocated to Paris during the year to facilitate the sharing of best practices. A new ‘mean and lean’ organisationwassetupwithreinforcedmarketingandregulatoryaffairsskills.Thismovehasbeenbolsteredbynew members in each regional team with an increased focus onsupportingpartnersinmarketing,regulatoryaffairsand logistics.

Chris Spooner Christophe FoucherChiefExecutiveOfficer ChiefOperatingOfficer

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Following the change in management during the year and strategic review, International Operations is now focused on signingmulti-country,multi-productdealsinkey,fast-growing,emergingmarkets.Thisyear,InternationalOperations revenues were £11.9m representing 43% of Group revenues, and now mostly composed of product salesandroyalties,notone-offlicensingfees.

MEPIA region (Middle East, Pakistan, India, Africa)The MEPIA region represented more than 40% of International Operations revenue for the year. Along with a strong focus on realising our strategy in India, the MEPIA teamsuccessfullybuiltonourrelationshipswithkeypartnerssuchasHikmaandthroughthekeylaunchesofPapulex® and Effadiane in Algeria and Saudi Arabia. In line with the Group’s goal of simplifying our modus operandi, the MEPIA team is currently reducing its number of partners in Algeria and Morocco and integrating Flammazine® as the top product in the region in terms of revenue contribution.

ERTI region (Europe, Russia, Turkey, Israel)In May 2010 Dario Opiparo was appointed Regional Business Director for the region which following the closureoftheU.K.salesforceinJuly2009nowincludestheU.K.business.DuringtheyearAtopiclair®andSebclair® were launched in Eastern Europe, and Decapinol®andHerpclair®inIsrael.Sinclairalsosignedakeymulti-product,multi-countrydealinScandinaviawithlaunchesofAtopiclair®,Decapinol®,Herpaclair®andXclairplanned for the coming year. In line with the Group’s new strategy, the ERTI region is currently focused on consolidatingitspresenceinCentralandEasternEuropethroughmulti-countryandmulti-productpartnerships.

NALA region (North America, Latin America)Mutual termination of the Decapinol® distribution agreement was agreed with Orapharma in the U.S. in November2009,openingongoingdiscussionstofindanewdistributor to commercialise the rinse. A fruitful partnership with Sunstar Americas for Aloclair® led to a 30% increase in sales versus FY09.

Sebclair®, Sinclair’s treatment for seborrhoeic dermatitis was launched during the year in the U.S. by Promius Pharma, the dermatology division of Dr Reddy’s Laboratories Inc., under the brand name Promiseb. In under a year, Promiseb has become one of the leading prescribed products within its class in the U.S.

Aworld-leadinganimalhealthcompanyhasmaintaineditsexclusive rights to develop delmopinol for oral care in companion animals, adding $0.25m in licence fees to revenue for FY10.

ASIA regionSinclair is currently involved in advanced discussions to find amulti-country,multi-productdealtocoverkey,high-growthAsianmarkets.Anagreementisexpectedtobesigned in FY11.

Manufacturing and logisticsDuring 2010 Sinclair’s manufacturing has undergone a rigorous streamlining programme to ensure the optimisation of the supply chain. As a result of this ongoing process, as well as the integration of Flammazine® and Flammacerium®, Sinclair manufacturing recorded a very strong performance in FY10. From a total of more than 15.8m units produced this year, 4.9m were manufactured by the Group’s proprietaryfacilityatClérySaintAndre,France(versus4.2min FY09). Following the new product acquisitions in December 2009, 1.7m units were produced for Flammazine® andFlammacerium®duringH2.Thetotalvolumeproducedincreasedby44%andSKUshavebeenreducedfromalmost700 to under 400 with further rationalisation planned for the coming year. In FY10 the ratio of cost of production versus sales revenue decreased by three percentage points.

Further positive results are expected with the transfer of some production operations to a manufacturing contractor in India, which will significantly reduce product costs, since this facility will be used as a platform to supply finished products in a first stage to the Far East and low cost emergingmarkets.ThesupplychainteamhasbeenreinforcedtorationalisethenumberofsuppliersandSKUs,toimproveCOGsandtoleverageproductionexpertise.

Further cost reductions will be obtained by focusing on purchasing strategy through competitive purchasing and tenders, a reduction in the number of third party contractorsandthereallocationofproductiontoClérytoimprove capacity utilisation. Other projects include the completionoftheartworkstandardisationprogrammeandan improved system for production forecasting. Most of these activities have already been implemented during FY10 and further positive results resulting from these changes are expected in FY11.

Marketing and communicationsAconsistentandcoherenton-linestrategywasinitiatedinH2withthecreationofanewSinclaircorporatewebsite (www.sinclairpharma.com) presenting the Company’sactivities,portfolioandinvestorrelationsinformation. Product and country websites are now under construction, as is an extranet dedicated to Sinclair’sdistributionpartnernetworkandpresenceonsocialnetworkingsites.ThenewSinclairgraphicchartisnow fully deployed for both the dermatology and oral care portfolios, as well as for acquired products.

Finally,ProductChampionshavebeenappointedtoshareexpertiseandbestpracticesacrosstheOperationsonkeybrands, and to prepare the launches of the Soft line (foams) andoftheDosaderm™range(firstmonodosepackagingindermatology and woundcare). Sinclair and its portfolio of products are now presented and promoted both coherently andconsistentlyacrossallmarkets.


Research and developmentSimonYoulton,CSO,joinedSinclairinJanuary2010toleadarestructuredR&DandregulatoryteamfromtheGroup’scorporateofficesintheU.K.SimonimmediatelyembarkedonastrategicreviewoftheR&Dpipelinewhichresultedinswift decisions, and project attrition in order to release and refocus resources towards:

a) leveragingthekeyCompanyassetswiththelargestcommercial potential, such as Delmopinol and the ‘Flamma’ branded products for burns and woundcare; and

b) identifyingandundertakingthefirststepsinacquiring/licensingnewproductsandnearmarketdevelopmentsthat can not only synergise with Sinclair’s existing pharmacy and dermatologists distribution channels but provide products with global reach and significant USPs.

R&D strategy HistoricallySinclairhasbenefitedfromtheacquisitionsmadeinFranceandItaly.Thishasprovideditafasttrackroutetomarketthroughits‘AnnexII’QAcertifiedfacility in Milan to develop and deliver medical devices and a formulation and production expertise (gels, creams and foams) through its own manufacturing plant.

Sinclair has established and proven its ability to develop and launch dermatology and oral healthcare products in major markets.Inthemain,thesearemedicaldevicesandSinclairhas been credited with being one of the first to open the medicaldevicerouteforafast-trackmarketentryofcreamsand gels based on ‘barrier’ technology with an ability to amelioratesymptomsofdisease.TheCompanyalsohasstrengths in the cosmeceutical field with such brands as Papulex® for acne.

Products such as Atopiclair® have fast become recognised as being highly efficacious and filling a clinical gap that was previously present between the more aggressive Rx treatmentsandthesimpleemollient/cosmeticproducts.

Sinclair aims to continue developing such medical devices where clinical unmet needs present themselves and this also sits well with our intention to expand our woundcare franchise, where liquid dressings are recognised as being medical devices.

Over the last year Sinclair has firmly established its intent to expandthebandwidthofitsproductsfromacosmeceutical/medicaldevicecompanytoamedicaldevice/Rxcompanywith multinational sales of branded and generic drugs with a USP. It is our intention to identify new products that:a) have unique USPs and patent protection in terms of

presentation, delivery or ingredients.b) have line extension growth possibilities based on internal

compatibility with other proprietary Sinclair ingredients orknow-how.

c)comewithminimumrightstomarketinallofSinclair’sEuropeanOperationalCountriesandpreferablywithEurope/Asia/U.S.orglobalrights.

LikemostbiotechsandsmalltomediumsizedlifesciencecompaniesthereisaneedtosupplementourR&Dresourcesthroughexternalisation.Weshallcomplimentourin-houseformulation,pre-clinicaldevelopmentexpertiseand marketknowledgethroughtheuseofContractResearchOrganisations to manage our drug dossier drafting and clinical trial programmes and collaborations with Academic andClinicalopinionleaderstoprogressprojectsthroughproof of principle stages.

Regulatory affairs and QASinclair has established a platform of very good procedures forQAandNationalPharmacovigilancecomplianceandhassuccessfully passed a number of audits and inspections from competent authorities and notified bodies during the last year.

The next financial year will place considerably more burden on the department and for this reason we have recently recruitedanewHeadofGlobalRegulatoryAffairs.Wehavealso retained the services of new contractors, one of whom willrunacentralisede-databasefortheCompany’spharmacovigilance and the other has been recruited to manage and accelerate the completion of the Flammazine® and Flammacerium® MA transfers and dossier updates that arose from the acquisition late last year from Solvay.

Two new product acquisitionsA novel presentation of an OTC drug for athlete’s footThe first opportunity brings Sinclair a much needed boost in thefieldofanti-infectives.Therearestillrelativelyfewclassesofanti-fungaldrugsonthemarketandofalltherecent switches that have occurred from systemic to topical formulations,Lamisil®fromNovartishasbeenthemostcommerciallysuccessful,andatitspeakachievedannualsales in excess of $1b.

The active pharmaceutical ingredient (‘API’), terbinafine is now genericised and in terms of efficacy is by far the most superior drug class to treat Tinea pedis infections. Sinclair has identified a development programme from Medpharm which is based on a novel and patented delivery platform (MedSpray) that allows the controlled release of the API fromasprayonpatchoverseveraldays.TheONLYothersingle application treatment for this indication is Lamisil Once®whichisanaqueousgelinatube(NotetheLamisil®spray equivalent requires daily applications for seven days). Lamisil Once® is also not available in the U.S. 10–15% of adults suffer from athlete’s foot in the developed world and ourlicensedOTCpreparationwouldcombinethemosteffectiveactivewiththemostuser-friendlydeliverysystem(patent protected).

TheproducthasalreadycompletedaphaseIInon-inferioritystudy and reached its endpoints. We intend to use this clinical data for European approvals using an abridged dossier,tobesubmittedinH12011andexpecttolaunchthroughSinclairCountryOperationsin2012.

Sinclair will set up a new trial in the U.S. against a different comparatorandonceunderwayseekalicensingpartnerforNorthAmerica.

Business Review continued

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Kelo-Cote®As announced in early September 2010, Sinclair has licensed therightstomarketKelo-Cote®inFrance,ItalyandSpainunder the Sinclair brand and expect to launch the product in early 2011.

Kelo-Cote®ismanufacturedandmarketedbyAdvancedBio-Technologies,IncintheU.S.andrepresentsthemostadvanced derivation of a ‘liquid’ silicone dressing with the added benefit of a patented formulation allowing for a transparent,quickdryingproducttobeappliedtotheskin.This has considerable application and patient esthetic benefits as most people do not favour use of silicone sheets tapedtovisibleareasoftheirskinandmake-upcanbeappliedafterapplicationofKelo-Cote®.

The product has shown superiority to other silicone gels on themarket,andhasprovenefficacyinreductioninrednessand itching and flattening of raised scars (hypertrophic scars). It is effective as a preventative measure to enhance scar maturation and improve physical appearance and to reduce the symptoms of established problematic scars. It has a profile that compliments Sinclair’s woundcare expansionneedsandcurrentmarketpresence.TheproductisbothsoldOTCandbyprescription.ItisreimbursedintheU.K.andlistedintheBNF.Itisboth510KandCEcertified.

ThemarketsforKelo-Cote®areburnscentres(complimenting Flammacerium®), dermatologists and pharmacies and it has potential use in scar management after elective cosmetic surgery such as breast augmentation. AnewKelo-Cote®Solaire(withsunblocker)producthasjustbeen certified in Europe and will be available at launch to Sinclair.

Sinclair has also secured development rights under the ABT patentsandaimtousethetechnologyinKelo-Cote®lineextensions that may well include other wound healing ingredients and further presentations of a silicone based product.

Internal development programmesFlammacerium® and the ‘Flamma’ brandA French based study which is not sponsored by Sinclair but which nonetheless addresses potential future applications of Flammacerium® is under way. This trial is addressing its use in ischaemic ulcers and in particular as an alternative to the practice of excision in infected ulcers. Sinclair is to invest in wider registrations for licences for this highly efficacious product across Europe as well as updating the dossier and potentially extending the label. It is already used as an unlicensedmedicineintheU.K.wheredemandfromburnscentres is high.

Sinclairisdevelopingnewnon-drugbasedformulationsofproducts for low level domestic burns and sunburn which will be launched under the ‘Flamma’ branding to pharmacies.

DelmopinolDelmopinolisthekeyingredientinouranti-gingivitisportfolioofproducts(marketedas‘Decapinol®’)andistheONLY‘biofilmbustingmolecule’availableforlicensingwithathoroughclinicalpackage.Sinclairisnowdirectingitsactivities to proof of concept studies and partnering activities to extend its use in woundcare and for coating medical devices such as catheters. These applications have recent Sinclair patent applications based on medical ‘use’ claims.Earlyindicationsarethatthesemarketsneedamolecule to combat the more pathogenic and difficult to remove ‘biofilm’ colonisers and that Delmopinol may be employed as a single reagent or in combination with another antispetic. We have secured development agreements with partners established in these fields, where broadly each party contributes to the development at their own cost. The most advanced of these deals is for the use of Delmopinol in thecompanionanimaloralhealthmarket.

Peri-implantitiswhichisaconditioncausedbydentalimplant related infections is another ‘low hanging fruit’ to leveragetheuseofDelmopinol.Theriseofcosmetic/elective dental implants allied to there being no options currently available to mitigate incidence of microbial infection on the surface of the implants has provided Sinclair withamarketforDelmopinolpre-coatedimplants.TheCompanyalreadyhasproofofconceptthatthecoatingwouldworkandnotcompromiseosseo-integrationorhealing.Itisnowtheintentiontoundertakeacross-overclinical study to show efficacy in reducing the incidence of post implantation infection. It is estimated that such a study wouldtake15–18monthstocompleteandwouldbethebasis of a medical device certification and data to elicit a license from an implant manufacturer.

Chris SpoonerChiefExecutiveOfficer

Christophe FoucherChiefOperatingOfficer


The year ended 30 June 2010 was split into two very different halves, both operationally and financially. The first half dominated by the acquisition of Flammazine®, associated fund raising activities and changes in senior management. The second half dominated by the strategic review, integration of Flammazine® and implementation of the new strategy. The financial performance was also dramatically different in each period as set out below:

H1 H2

Revenue £11.0m £16.6mGross margin (excl. licence revenues) 58% 62%EBITDA pre exceptionals (£2.4m) £1.9m

RevenueOverall revenue of £27.6m shows a 9% decline from the £30.4m reported for the year to 30 June 2010. This is due to a significant reduction in licence fee income of £6.4m as the non-cashassetswapdealsandone-offrightsdisposalsfrom2009 were not repeated. Product revenues and royalties increased by 16% to £26.6m from £23.0m as a result of the Flammazine® acquisition which contributed £4.2m to revenues in the six months post acquisition. Sinclair will no longerengageinnon-cashassetswapsorfocusonup-frontlicensing income when entering into new distribution agreements but will prioritise ongoing product revenues and aim to maximise gross margins. Licence revenues are therefore not expected to be a significant contributor to revenues in future.

Country OperationsSinclair’sCountryOperationscontributed57%ofGrouprevenue for the year, split as follows:

2010 2009 £m £m

France 10.2 9.8Italy 4.7 3.7Germany 0.5 –Spain 0.2 0.2U.K. – 0.4 15.6 14.1

Sinclair France revenues were boosted by £0.8m by the acquisition of Flammazine®. The transfer of the products from Solvay completed in March for France resulting in just over three months of revenue contribution for the year. Underlying sales, excluding the acquired products declined 6.7% over the year, continuing the decline seen in recent years. This is a result of a decline in sales through wholesalers while the new strategy of direct selling to pharmacies has shown encouraging signs of increased sales through pharmacies towards the end of the year and this has started to reduce the rate of decline seen across the French portfolio as a whole.

Sinclair Italy performed particularly well in the year with growth across all areas of the portfolio. Aloclair® revenues grew by 60% as partner Recordati launched the Aloclair® Plus range and Aloclair® teething gel. Dermatology product sales grew by 23% in constant currency terms, in spite of a 36%declineinthenon-coredermacosmeticproductrangewhich is being disposed.

Sinclair Germany was incorporated in December 2009 in order to manage Flammazine® and Flammacerium® in Germany,AustriaandSwitzerlandandtoprovideaCountryOperation for Sinclair in Germany. The transfer of Flammazine® products completed on 1 April and revenues of £0.5m therefore represent just three months sales for the products.

Sinclair’s Spanish Operation did not benefit from the transfer of Flammazine® until June 2010 and therefore revenues are unchangedon2009.TheU.K.salesforcewasclosedinJuly2009 at which time the remaining revenues of £0.4m for the year were reclassified into International Operations.

International OperationsRevenue in International Operations was unchanged at £11.9m. Product revenues and royalties increased from £8.8m to £11.0m, boosted by the acquisition of Flammazine® and Flammacerium® which contributed £2.7m in revenues to International Operations. Importantly, product sales and royalties represented 93% of revenues, compared with just 74% in 2009. Underlying revenues, ignoring the impact of product acquisitions and currency fluctuations, declined by 7% in the year as a result of a reduction of £2.0m in revenues from Atopiclair® and Sebclair®. Both products saw increased revenue in 2009 due tolargestockingordersfromadistributorinEasternEuropewhich were not repeated in 2010 and Atopiclair® revenues also included £0.8m in 2009 from Graceway in the U.S., prior to their acquisition of the rights in December 2008. This decline was partially offset by growth in revenues from Aloclair® (£0.7m) and Decapinol® (£0.4m).

Gross profit and marginGross profit of £17.2m for the year is reduced from the £20.7m recorded for 2009. This however is explained by the £6.4m reduction in licence revenues. Importantly, the Group has increased the gross margin excluding licence revenues (a keyperformanceindicator)from57.8%to60.8%forthefullyear. This is a result of the focus on manufacturing and supply chain following the strategy adopted by new management from January 2010; and illustrates the benefit ofincreasingproductionattheGroup’sin-housemanufacturingfacilityatCléry,Francewheresparecapacity exists.

Financial Review

Alan OlbyChiefFinancialOfficer

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Operating expensesTotal operating expenses excluding exceptional items were reducedby£0.1mto£20.9mintheyear.Selling,marketingand distribution costs increased from £9.5m to £9.7m as a result of the acquisition of Flammazine® and a continued focusonsalesandmarketingactivities.Administrativeexpenses declined from £11.5m to £11.2m, in spite of a £0.8m increase in amortisation charges. This reduction reflecting the £1.5m annualised cost savings achieved by the new management team following the Group restructuring in early 2010.

Exceptional itemsExceptional charges of £13.3m (2009: £2.4m) have a significant impact on the income statement and include the following major items:

Impairment charges of £8.5m against certain product •andtechnologyrights.Areassessmentofthemarketpotential of the technologies acquired through certain non-cashassetswapdealsandastrategicreviewoftheGroup’sR&Dactivitiesledtothedecisionnottocontinuedevelopment of the underlying technologies. A strategic review of the product portfolio by management led to the decision to dispose of the dermacosmetic products acquiredin2008whicharenon-coretothedermatologyportfolio.Thesearenon-cashcharges.Restructuringcostsof£2.7mwerebookedinrelationto•severanceandredundancypackagesagreedwithformerDirectors, senior management and other employees who left the Group following the restructuring, and legal provisions relating to certain contracts.Foreign exchange losses of £1.0m (2009: gains of £1.7m) •onthetranslationofanintra-grouploanbalanceasaresult of Sterling’s appreciation against the Euro comparedtoJune2009.Thisisanon-cashcharge.Other exceptional charges of £1.1m include inventory •provisions, legal claims and bad debt provisions. Further details are set out in note 5.

Operating lossThere is an operating loss for the year pre exceptional items of £3.7m (2009: £0.3m) and post exceptional items of £17.0m (2009: £2.7m).

Financing costsFinance costs of £1.4m are unchanged from 2009. Interest charges of £0.9m (2009: £0.65m) are increased due to the increased level of net debt during the year, largely arising on theBrackenfacilitywhichwasdrawninDecember2009topart fund the Flammazine® acquisition. Finance costs also includeshare-basedpaymentschargeonwarrantsissuedtoBracken,£0.1m,andnetforeignexchangelossesarisingon the translation of Euro denominated debts of £0.1m (2009: £0.3m).

Taxation A tax credit of £0.7m (2009: £0.4m) is recorded for the year as a result of the increase in deferred tax assets recognised on certain of the Group’s losses and in relation to the differencebetweenthebookvalueandtaxvalueofcertainintangible assets.

Liquidity and capital resourcesThe Group had cash and cash equivalents of £2.1m at 30 June2010(2009:£0.1m)aswellasaccesstoun-drawncommitted borrowing facilities of €2.6m (£2.1m) (2009: £1.9m). Borrowings of £17.3m (2009: £8.3m) principally includetheBrackenfacilityof£11.0m,bankloansof£3.7m(2009: £5.7m) and convertible loan notes of £2.3m issued in September2009.Netdebtat30June2010stoodat£15.2m(2009: £8.2m).

Placing and Open OfferIn early October 2010, Sinclair completed a fully underwritten Placing and Open Offer to raise £19m at 28p per share, an 8% premium to the closing share price on the day before announcement of the offer. The net proceeds will be used to fully implement the new strategy by paying downtheremainingdebtundertheBrackenfacility,acquiretwo new products, invest in the development of existing assets (delmopinol and Flammacerium®) and invest in regulatory affairs activities.

Alan OlbyChief Financial Officer


Board of Directors and Senior Management

Board of DirectorsGrahame Cook, Non-executive ChairmanMrCookjoinedtheBoardin2004.Hehasover18years’experienceininvestmentbanking,advisingonawidenumberofmergersandacquisitionsandcapitalmarkettransactionsintheU.S.andEurope.HewasGlobalCEOofWest LB Panmure, where he joined in 1999, Managing DirectorofCapitalMarketsandontheGlobalInvestmentBankingCommitteeatUBS.Hehasadvisedonanumberoftransactions in the pharmaceuticals and biotechnology sectors across Europe and the U.S., including private equity investments,IPOsandsecondaryofferings.MrCookwasafoundermemberoftheLSE’sTechMARKAdvisoryCommittee,andholdsanMA,doublefirst,fromOxfordUniversity.HeiscurrentlyaNon-executiveDirectorofAntisoma plc, as well as a number of other small public and private companies.

Chris Spooner, Chief Executive OfficerMr Spooner joined Sinclair following a career in financial services,mostrecentlyasfounderandCEOofHealthCorManagementU.K.,adedicatedhealthcarehedgefundandtheEuropeandivisionofHealthCorL.P.PriortothatMrSpooner enjoyed a career as the senior pharmaceuticals analystatvariousinvestmentbankscoveringtheEuropeanhealthcaresector.HeholdsanMAinEconomicsfromKing’sCollege,CambridgeUniversity.

Christophe Foucher, Chief Operating OfficerMrFoucherwasappointedChiefOperatingOfficerinMay2009 and is responsible for all commercial, supply chain and manufacturing activities in the Group. Prior to this he held the positions of General Manager for Sinclair Pharma France and Southern Europe Director, in charge of operations in Italy and Spain. Mr Foucher has 15 years’ experience in the pharmaceutical industry at senior level in Europe, Africa and Asia. Mr Foucher has a doctorate degree in Pharmacy, an INSEADdiplomainFinanceandanMBAfromIAE.Heisfluent in English, French and Italian.

Penny Freer, Senior Independent DirectorMs Freer joined the Board in January 2006. She has over 20 years’experienceininvestmentbankingadvisingcompanieson a wide variety of issues including their interaction with thecapitalmarkets.From2000,MsFreerwasHeadofEquities for Robert W. Baird in London, previously she was responsibleforCreditLyonnaisSecurities’smallandmidcapequitiesactivities.In2004sheco-foundedCapitalMarketsGroup, an FSA authorised corporate advisory and investor relationsbusiness.SheisalsocurrentlyaNon-executiveDirector of Advanced Medical Solutions plc and Empresaria Group plc.

Jean-Charles Tschudin, Non-executive DirectorMrTschudinjoinedtheBoardinNovember2007.Hehasextensive experience in the pharmaceutical industry at a senior executive level on three continents and was recently PresidentandChiefOperatingOfficerofYamanouchiEurope, the largest Japanese pharmaceutical company in Europe(nowAstellas).HehasalsoheldseniorpositionsatJohnson&Johnson,Schering-Plough,SyntexandCardinalHealth.MrTschudiniscurrentlyNon-executiveDirectorofSkyePharmaplc,isaCharteredDirectorandhealsoconsultsfor the pharma industry.

Senior ManagementAlan Olby, Chief Financial OfficerMr Olby joined Sinclair in September 2005 having gained experienceinthebiotechsectorworkingatXenovaGroupplcandKSBiomedixplcandwaspromotedtohiscurrentpositioninDecember2009.HequalifiedasaCharteredAccountant in 1996 and subsequently spent three years in corporatefinanceatDeloitte,workingwithpublicandprivatecompanieswithduediligence,workingcapitalreviewsandstockexchangetransactions.

Steve Redman, Legal Director and Company SecretarySteveRedmanjoinedSinclairasitsfirstin-houseLegalDirector in July 2007, from his previous role at Schering HealthCare.HeisabarristerandbringstotheSinclairGroupmore than 20 years’ experience as senior legal counsel in the financial services, insurance and pharmaceutical sectors. During this time he has supported the business growth of various employers by providing authoritative and practical adviceinawidevarietyoflegalareasthatincludesmulti-national transactions, commercial contracts, licensing, intellectual property, completion, corporate, EU law as well as regulatory compliance.

Simon Youlton, Commercial Chief Scientific Officer and Head of in-licensingSimon joined Sinclair in January 2010 after being a consultant to the life science industry covering a number of different medical projects in support to industry and academia.Hepreviouslyspentnearlyadecadeinoncologyidentifying and managing early stage development projects from drug discovery to phase I trials and subsequent commercialisation.Inthe90sSimonco-directedhisowncompany after an MBO and has since sat on Boards of severalearlystagebiotechnologyspinoutcompanies.Hebrings an entrepreneurial approach to driving forward scientificprogrammes.Hehasadiplomainlawandstudiedmolecular and microbiology at Bristol University.

Jean-Louis Lamandé, Operations Finance DirectorMrLamandéjoinedSinclairPharmain2008andwasappointed Operations Finance Director in December 2009 forCountryandInternationalOperationsandManufacturing.Hewaspreviouslyinchargeoffinancecontrol for Sinclair Pharma French and Spanish Operations. MrLamandéhaspreviouslyheldthepositionofFinancialDirectorininternationalgroupssuchasCLM-BBDO.MrLamandéhasaMastersDegreeinmanagementcontrol,accountancy and financial management and a Masters in International Finance.

Vittorio Cavagnera, Vice President Manufacturing and LogisticsMrCavagnerajoinedSinclairPharmaSrlinApril2006withmanufacturing and logistics responsibilities for Sinclair corporateproducts.SinceJuly2008,hetookoverresponsibility for the full Group products portfolio and the Group manufacturing plant in France, and in July 2010 was promotedtotheExecutiveManagementTeam.Hequalifiedin 1996 as an Industrial Engineer, and has experience in manufacturingandlogisticshavingworkedinIrelandwithoneof the major brewers, in Italy with one of the leading brewing industry equipment manufacturers and the Italian food marketleader,andinthepharmaceuticalandmedicaldeviceindustry as technical support and business development in one of the major Italian contract manufacturers before joining Sinclair.MrCavagnerahasanExecutiveMBA(withhonours)from Politecnico di Milano.

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The Directors present their annual report on the affairs of the Group, together with the audited financial statements for the year ended 30 June 2010.

Principal activitiesSinclairPharmaplcisaninternationalspecialtypharmaceuticalcompanywithproprietarysalesandmarketingoperationsinFrance,Italy,GermanyandSpain,andanextensivemarketingpartnernetworkacrossselecteddevelopedandemergingmarkets.

Business reviewTheGroupisrequiredtoproduceabusinessreviewcomplyingwiththerequirementsoftheCompaniesAct2006.Inadditiontotheprincipalrisksanduncertaintiesandkeyperformanceindicatorslaidoutbelow,therecanbefoundfurtherinformationaboutthebusiness,itsstrategy,structure,productsandthemarketsinwhichitcompetes,andfuturedevelopments within pages 2 to 9 of this report.

Principal risks and uncertaintiesSinclairPharmaplcisabusinessthatdependsonproductrevenuesthroughitsownsalesandmarketingoperationsandmarketingpartners,asuccessfulpipelinetobuildfuturerevenues,otherbusinessdevelopmentactivitiestogeneratefuturerevenues,andgoodmanagementofthefinancesoftheGroup.Themainrisksassociatedwiththesefactorsareoutlinedbelow.Informationonfinancialriskmanagementissetoutinnote3tothefinancialstatements.

Risk associated with commercialised success of productsThe Group’s revenues are, and will be, principally from sales of its products. There can be no assurance that current product revenuescanbemaintainedorincreasedinthefuture.Productsalesmaybeaffectedbyadversemarketconditionsorotherfactors including: pricing pressures from governments or other authorities, competition from other products, the withdrawalofaproductbecauseofaregulatoryorotherreason,orthefinancialorcommercialfailureofamarketingpartner. Manufacturing of the majority of Sinclair products is outsourced and supply may be interrupted or products may be recalled should safety or other issues arise.

Competition and intellectual property riskThepositionofSinclair’sproductsinthemarketisdependentonitsabilitytoobtainandmaintainpatentand/ortrademarkprotection for its products, preserve its trade secrets, defend and enforce its rights against infringement and operate without infringing the proprietary or intellectual property rights of third parties. The validity and enforceability of patents and/ortrademarksmayinvolvecomplexlegalandfactualissuesresultinginuncertaintyastotheextentoftheprotectionprovided. The Group’s intellectual property may become invalid or expire before or during commercialisation of the product.

Risk associated with pipeline productsSinclairiscurrentlyseekingandwillseekinthefuture,regulatoryapprovalforitspipelineproducts.Approvaloftheseproductswithinthetargettimeframeoratanytimeisarisk,astheCompanycannotguaranteethesafety,efficacyandregulatory pathway of these products. Once approved, the commercial success of pipeline products cannot be guaranteed and the returns on the product may not be sufficient to cover the costs incurred through its development. The Group may choose to halt development of certain pipeline products in adverse financial conditions.

Results, earnings and dividendsThe loss for the financial year was £17,628,000 (2009: £3,621,000). The Directors do not recommend a dividend (2009: £nil).

Going concernTheDirectorsaresatisfied,aftermakingappropriateenquiriesandfurthertotheannouncementon6October2010ofcompletion of the firm Placing and Open Offer, that the Group has adequate resources to continue in business for the foreseeable future and accordingly considers that it is appropriate to adopt the going concern basis in preparing the financial statements (see note 2).

Directors’ Report


Key performance indicatorsTheGroupmeasuresitsperformanceaccordingtoawiderangeofkeyperformanceindicators(‘KPIs’).ThemainfinancialKPIsataGrouplevelareasfollows:

Key performance indictor 2010 2009 Definition, method of calculation and analysis

EBITDA £(0.5)m Before

exceptional items

£(1.9)m Before

exceptional items

EBITDA is total earnings of the Group before interest income and expenses, tax charges and credits, depreciation, amortisation charges other exceptional itemsandnon-cashlicenceincome. ThegoaloftheCompanyistobecomeasustainablyprofitable specialty pharmaceutical company.

Product revenue and royalties

£26.6m £23.0m Product revenue and royalties grew by 16% in the year as a result of the acquisition of Flammizine® in December 2009.

Gross margin excluding licence revenue

60.8% 57.8% Gross margin is the ratio of gross profit after all direct costs to total revenue and excluding all licence income.

Sinclair aims to maximise gross margins for the Group. The 2010 margin improved through focus on the Company’ssupplychainandincreasedusageofthein-housemanufacturingfacility.

DirectorsTheDirectorsoftheCompanywhoservedduringtheyearwere:MrGCook Non-executiveChairmanDrMJFlynn ChiefExecutiveOfficer (resigned22December2009)MrJAPRandall ChiefFinancialOfficer (resigned10December2009)Ms P A Freer Senior Independent DirectorMrJ-CTschudin Non-executiveDirectorMrCPSpooner ChiefExecutiveOfficer (appointed22December2009)MrCHFoucher ChiefOperatingOfficer (appointed22December2009)

BiographiesofthecurrentDirectorsaredetailedonpage10.MrGCookandMrJ-CTschudinretirebyrotation,andwillbeavailable for reappointment at the AGM. Details of the resolution to reappoint them will be contained in the AGM notice. DrFlynnretiredduring2009andwasreplacedasChiefExecutiveOfficerbyMrChristopherSpooner.

DrFlynnretiredduring2009andwasreplacedasChiefExecutiveOfficerbyMrChristopherSpooner.

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Directors’ interestsThe interests of the Directors in the Group’s share capital at 30 September 2010, at 30 June 2010 and at the start of the year were as follows:

HoldingofOrdinary shares of 1p at:

30 September 30 June 30 June 2010 2010 2009

Dr M J Flynn1 n/a n/a 11,801,130MrJAPRandall n/a n/a 1,187,500MrGCook2 700,000 600,000 600,000Ms P Freer 100,000 100,000 100,000MrJ-CTschudin 632,388 632,388 442,391MrCPSpooner 6,545,868 6,545,868 –MrCHFoucher 76,200 76,200 –

1 Dr M J Flynn’s holding at 30 June 2009 included 2,410,000 shares held by his wife.2 MrGCook’sholdingincludes100,000sharesheldbyhiswife(2009:100,000).

Details of the Directors’ share options, warrants and interests in shares held by the Employee Share Trust (‘ESOT’) are included in the Directors’ Remuneration Report on pages 20 to 24.

Additional information for shareholdersFollowingtheimplementationoftheEUTakeoverDirectiveintoU.K.law,thefollowingdescriptionprovidestherequiredinformation for shareholders where not already provided elsewhere in this report.

Structure of the Company’s capitalTheCompany’ssharecapitalcomprisesasingleclassof1pOrdinaryshares,eachcarryingonevoteandallrankingequallywith each other. At 30 June 2010, the issued share capital was £1,621,511 comprising 162,151,069 1p Ordinary shares (2009: 103,335,448)allottedandfullypaid.TherearenorestrictionsonthetransferofsharesintheCompanyoronvotingrights.

Authority to issue and buy back sharesEachyearattheAGMtheDirectorsseekauthoritytoallotsharesandbuybackshares.Theauthorities,whengranted,lastfor 15 months or until the conclusion of the next AGM if sooner. At the last AGM held on 22 December 2009, shareholders gave authority for the Directors to allot relevant securities up to £344,451 and to allot for cash equity securities having a nominal amount not exceeding in aggregate £103,335 (being 10% of the issued share capital). Shareholders also gave authorityfortheDirectorstomakemarketpurchasesofupto10,335,545shares(being10%oftheissuedsharecapital).

Substantial shareholdingsAt30September2010,theCompanyhasbeennotified(orareotherwiseaware)ofthefollowinginterestsin3%ormoreofthe Ordinary share capital.

Shareholding %

Lansdowne Partners 23,524,889 14.5Dr M J Flynn 14,180,065 8.7Fidelity Investments 13,619,492 8.4Gartmore Investment management 7,747,766 4.8MrCSpooner 6,545,868 4.0Abingworth LLP 5,353,650 3.3SwedbankRobur 4,913,403 3.0

Significant agreementsTheCompaniesAct2006requirestheCompanytodiscloseanysignificantagreementswhichtakeeffect,alterorterminateuponachangeofcontroloftheCompany.TheCompanyisnotpartytoanysuchagreement.

Directors and officers liability insuranceTheCompanyhasinplacequalifyingthirdpartyindemnityinsuranceforallDirectors.

Health and safetyTheCompanyacknowledgesthatthekeytosuccessfulHealthandSafetymanagementrequiresaneffectivepolicy,organisation and arrangements, which reflect the commitment of senior management. To sustain that commitment we willcontinuallymeasure,monitorandrevisewherenecessaryanannualplantoensurethatHealthandSafetystandardsare adequate.

ItisthepolicyoftheCompanytoensure,sofarasisreasonablypracticable,thehealth,safetyandwelfareofallthe•employeesworkingfortheCompany.Equally,theCompanyacceptsasimilarresponsibilityfortheHealthandSafetyofother persons who may be affected by our actions. Every employee has a legal and moral obligation to see that their acts or omissions do not place other employees, members of the public or colleagues in jeopardy.


TheCompanyregardsallHealthandSafetylegislationasthebareminimumandexpectsmanagementtoachievetheir•managerialtargetswithoutcompromisingHealthandSafety.TheCompanywillprovide,sofarasisreasonablypracticable,safeplacesandsystemsofwork,safeplantandmachinery,•safe handling of materials and substances, the provision of adequate safety equipment and ensure that appropriate information, instruction and training is given.TheCompanywillensurethatsuitableandsufficientriskassessmentsarecompletedasrequiredbystatutorylegislation•andallrecommendationsimplemented.Whenthishasbeenundertakenallrelevantemployeeswillbeprovidedwithsufficientinformationtoenablethemtocompletetheirworkactivitysafely.TheCompanywillensurecontinuedconsultationwiththeworkforcetoenableallviewpointsandrecommendationsto•be discussed at regular intervals.

Research and developmentTheGroupactivelyreviewstechnicaldevelopmentinitsmarketswithaviewoftakingadvantageoftheavailableopportunities to maintain and improve its competitive position. The Group has continued to invest in the development of new pharmaceutical products during the year, details of which can be found in the Business Review on pages 4 to 7.

Payment to suppliersIt is the Group’s policy to abide by the payment terms agreed with suppliers whenever it is satisfied that the supplier has provided goods and services in accordance with agreed terms and conditions. The Group’s creditor days outstanding at 30 June 2010 were 64 days, (2009: 88 days).

EmployeesOur most important asset is our employees. We are committed to developing policies that encourage all employees to achievetheirgreatestpotentialandtocontinuetocontributetothesuccessoftheGroup.Weseektodevelopemployees’potentialbyencouragingthemtoattendseminars,trainingcourses,andprovidinghelpinseekingnecessaryprofessionalqualifications to further their careers. We operate equal opportunities in recruitment, training and promotion regardless of gender, ethnic origin, nationality or disability.

Every employee qualifies for our share option plans. The conditions and restrictions on qualifying employees are set out on pages 20 to 22 of the Directors’ Remuneration Report. This ensures that employees are able to share the success of the business as it grows and have a sense of ownership. Additionally, we have adaptable personnel policies, enabling flexible workingpractices.

Disabled employeesIt is our policy to treat applicants and employees with disabilities equally and fairly, and not to discriminate against the disabled in recruitment, training, career development and promotion.

Charitable and political donationsThere were no charitable or political donations during the year (2009: £nil).

Post balance sheet eventsDetails regarding post balance sheet events can be found in note 32.

Corporate GovernanceTheCompany’sstatementonCorporateGovernanceisincludedintheCorporateGovernanceReportonpages16to19.

Independent auditorsPricewaterhouseCoopersLLPhaveexpressedtheirwillingnesstocontinueinofficeasauditorsandaresolutionproposingtheir reappointment and authorising the Directors to determine their remuneration will be proposed at the AGM.

Annual General MeetingTheAnnualGeneralMeeting(‘AGM’)oftheCompanywillbeheldattheofficesofFaskenMartineauLLP,17HanoverSquare,LondonW1S1HUon18November2010at10am.TheNoticeconveningtheAGM,togetherwithinformationconcerningtheresolutions to be proposed at the AGM is enclosed with this report.

By order of the Board

Stephen Redman Company Secretary14 October 2010

Directors’ Report continued

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Statement of Directors’ Responsibilities

Statement of Directors’ responsibilitiesThe Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations.

CompanylawrequirestheDirectorstopreparefinancialstatements for each financial year. Under that law the DirectorshavepreparedtheGroupandParentCompanyfinancial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of theGroupandtheCompanyandofthelossoftheGroupforthat period. In preparing these financial statements, the Directors are required to:

select suitable accounting policies and then apply •them consistently;makejudgementsandaccountingestimatesthatare•reasonable and prudent;state whether applicable IFRSs as adopted by the •European Union have been followed, subject to any material departures disclosed and explained in the financial statements; andprepare the financial statements on the going concern •basis unless it is inappropriate to presume that the CompanyandGroupwillcontinueinbusiness.

TheDirectorsareresponsibleforkeepingadequateaccounting records that are sufficient to show and explain theCompany’sandGroup’stransactionsanddisclosewithreasonable accuracy at any time the financial position of the CompanyandtheGroupandenablethemtoensurethatthefinancial statements and the Directors’ Remuneration ReportcomplywiththeCompaniesAct2006and,asregardsthe Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assetsoftheCompanyandtheGroupandhencefortakingreasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrityoftheCompany’swebsite.Legislationin theUnitedKingdomgoverningthepreparationanddissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed in the Directors’ Report confirm that, to the best of theirknowledge:

the Group financial statements, which have been •prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Group; andthe Directors’ Report contained on pages 11 to 14 •includes a fair review of the development and performance of the business and the position of the Group,togetherwithadescriptionoftheprincipalrisksand uncertainties that it faces.

Statement as to disclosure of information to auditorsThe Directors, in office at the date of this Report, have confirmed that:(a) so far as they are aware, there is no relevant audit

informationofwhichtheCompany’sauditorsareunaware; and

(b)eachDirectorhastakenallthestepsthathe/sheoughttohavetakenasaDirectorinordertomakehimself/herself aware of any relevant audit information and to establishthattheCompany’sauditorsareawareofthat information.

This information is given and should be interpreted in accordance with the provisions of Section 418 of the CompaniesAct2006.

By order of the Board

Stephen Redman Company Secretary14 October 2010


Compliance with the Combined Code on Corporate GovernanceTheBoardsupportstheidealsoftheCombinedCodeonCorporateGovernance(the‘Code’),issuedbytheFinancialServices Authority in June 2008. This statement describes howtheCompanyappliestheprinciplesoftheCodeandtheCompany’scompliancewiththespecificprovisionsoftheCode.TheprinciplessetoutintheCodecoverfourareas:the Board, Directors’ remuneration, accountability and audit and relations with shareholders. With the exception of the Directors’ remuneration (which is dealt with separately in the Directors’ Remuneration Report) the following report sets out how the Board has applied such principles.

The Board considers that it has complied with provisions of theCodethroughouttheyearending30June2010,unlessotherwise indicated below.

Board and Board committeesThe Board of DirectorsTheBoardoftheCompanyisresponsiblefortheGroup’ssystem of corporate governance. At 30 June 2010 the Board comprisedfiveDirectors:aChiefExecutiveOfficer,MrCPSpooner;aChiefOperatingOfficer,MrCHFoucherandthreeNon-executiveDirectorsincludingthe Non-executiveChairman.

MrGCookisNon-executiveChairmanandMsPFreeristheSenior Independent Director.

Details of Directors’ service contracts are given in the Directors’ Remuneration Report on page 23.

All the Directors have access to advice and services of the CompanySecretary,whoisresponsibleforensuringthatBoard procedures and applicable regulations under the Company’sArticlesofAssociationorotherwisearecompliedwith.EachDirectorisentitled,ifnecessary,toseekindependentprofessionaladviceattheCompany’sexpense.

Board meetingsTheBoardofDirectorsmeetsatleastbi-monthlyandhasadefined schedule of matters reserved for its decision. It is responsible for the overall Group strategy, approval of major capital expenditure projects, and consideration of major financing matters of the Group. The Board met six times during the year. All Board members attended each meeting.

Board committeesThe Board committees, which are comprised solely of Non-executiveDirectors,operatewithinclearlydefinedterms of reference and report regularly to the Board. The terms of reference of the Board committee’s are available forinspectionontheCompany’sregisteredwebsite (www.sinclairpharma.com) and at the AGM (for 15 minutes prior to the meeting and during the meeting).

Audit Committee and auditorsThe Audit committee is composed entirely of independent Non-executiveDirectorsandischairedbyMrGCookandcomprisesMsPFreerandMrJ-CTschudin.Thecommittee’smain responsibility is to review any reports from management and the auditors regarding the financial statements or the internal control systems implemented throughout the Group along with consideration of both

Corporate Governance Report

interimandannualfinancialstatements.Itwillalsomakerecommendations to the Board on the appointment of the auditors and their audit fee. The Board considers that the membersoftheAuditCommitteepossessrecentandrelevantfinancialexperience.TheAuditCommitteehasunrestricted access to the Group’s auditors. Meetings are alsoattended,byinvitation,totheChiefExecutiveand theChiefFinancialOfficer.TheAuditCommitteemetthreetimes during the year. Each meeting was attended by all current members.

ThetermsofreferenceoftheAuditCommitteeincludethefollowing responsibilities:

monitoring the integrity of the financial statements of •theCompany,andanyformalannouncementsrelatingtotheCompany’sfinancialreportingperformance,andreviewing financial reporting judgements contained in them;reviewingtheCompany’sinternalfinancialcontrolsand•reviewingtheCompany’sinternalcontrolandriskmanagement systems;establishingandreviewingtheCompany’s‘whistle-•blowing’ arrangements;reviewandchallengewherenecessarytheCompany’s•audited financial statements, before submission to the Board;makingrecommendationstotheBoard,forittobeputto•shareholders for their approval in the AGM, in relation to the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;reviewing the need for a separate internal audit function;•reviewing and monitoring the external auditor’s •independence and objectivity and the effectiveness of theauditprocess,takingintoconsiderationrelevantprofessional and regulatory requirements;developing and implementing policy on engagement of •theexternalauditortosupplynon-auditservices,takinginto account relevant ethical guidance regarding the provisionofnon-auditservicesbytheexternalauditfirm;to review the consistency and application of •accounting policies;to establish procedures for the receipt, retention and •treatment of complaints regarding accounting, internal accounting controls and auditing matters;to meet with the external auditors at least twice each •year; andto review any auditors management letters and •management’s responses.

TheGroup’sauditors,PricewaterhouseCoopersLLP,providenon-auditservicesinadditiontotheprovisionofauditservices.Intheyearending30June2010,non-auditservicesprovidedbyPricewaterhouseCoopersLLPcomprisedadvicewith regard to taxation, reporting accountants, incentive and reward plans and other miscellaneous services. Where appropriatethePartnermanagingtheprovisionofnon-audit services is different from the Partner managing audit services and as such the Board believes the auditors remain objective and independent. The Board also considers the leveloffeeschargedbyPricewaterhouseCoopersLLPisnotdisproportionate or inappropriate to the size of the business andconsiderstheCompanythereforecompliantwithprovisionC3.2oftheCombinedCodewithregardtoindependence and objectivity.

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Nomination CommitteeTheNominationCommitteeischairedbyMrGCookandcomprisesMsPFreerandMrJ-CTschudin.Thecommitteeisresponsible to the full Board for determining the qualities andexperiencerequiredoftheCompany’sExecutiveandNon-executiveDirectorsandforidentifyingsuitablecandidates. In appropriate cases, recruitment consultants assist in the process. The committee is responsible for successionplanning.ExecutiveandNon-executiveDirectorsare subject to election by shareholders at the first opportunityaftertheirappointmentandtore-electionthereafter by the shareholders at least every three years. TheNominationCommitteemetonceduringtheyearandthe meeting was attended by all members.

ThetermsofreferenceoftheNominationCommitteeinclude the following responsibilities:

to review the structure, size and composition of •the Board;to prepare a description of the role and capabilities •required for a particular appointment;to identify and nominate candidates required for a •particular appointment; andto satisfy itself with regard to succession planning.•

Remuneration CommitteeTheRemunerationCommitteeismadeupentirelyofindependentNon-executiveDirectorsandischairedby MsPFreerandcomprisedMrGCook,andMrJ-CTschudin.ThecommitteeisresponsibleformakingrecommendationstotheBoardonremunerationpolicyfortheCompany’sExecutive Directors and the terms of their service contracts, with the aim of ensuring that their remuneration, including share options and awards under the Share Schemes, is based both on their own performance and that of the Group generally.TheRemunerationCommitteewillalsoadministerand establish performance targets for the Share Schemes and approve further grants or awards under them. In addition, it will advise on the remuneration policy for the Group’semployees.TheRemunerationCommitteemettwice during the year, each meeting was attended by all members.

ThetermsofreferenceoftheRemunerationCommitteeinclude the following responsibilities:

todeterminetheframeworkandpolicyandthe•individualpackagesfortheremunerationoftheExecutiveDirectors,Chairmanandmembersoftheexecutive management;todeterminetargetsforanyperformance-related•pay schemes;to approve overall remuneration policy;•to review employee benefit structures; and•to produce an annual report of the committee’s •remuneration policy.

Appointments to the BoardAppointments to the Board are made on merit and against objectivecriteria.Careistakentoensurethatappointeeshaveenoughtimetodevotetothejob.TheBoardkeepsunderreview,andtakesappropriateaction,toensureorderly succession for appointments to the Board and to senior management, so as to maintain an appropriate balanceofskillsandexperiencewithintheCompanyandontheBoard.TheCodeprovisionsrequiretheformationofa

NominationCommitteetoleadandoverseetheapplicationoftheCodeprinciplesastheyrelatetoBoardandseniormanagement appointments.

The Board considers the other significant commitments of Non-executiveDirectorspriortoappointment,toensurethat they have sufficient time to meet what is expected of them,andkeepschangestothesecommitmentsunderreview. The terms and conditions of appointment of Non-executiveDirectorsareavailableforinspectionattheCompany’sregisteredofficeduringnormalbusinesshoursand at the AGM (for 15 minutes prior to the meeting and during the meeting).

Chairman and Chief ExecutiveTherolesofChairmanandExecutivemanagement, ledbytheChiefExecutiveOfficer,areseparatedand clearly defined:a. TheNon-executiveChairman,MrGCook,isresponsible

for leadership of the Board, ensuring effectiveness in all aspects of its role, setting the Board’s agenda and conducting Board meetings, and ensuring effective communication with shareholders and the conduct of shareholders meetings; and

b. ExecutivemanagementareledbytheChiefExecutiveOfficer,MrCPSpooner,whohasbeendelegatedresponsibilitybytheBoardfortheday-to-daymanagementoftheCompanywithinthecontrolandauthorityframeworksetupbytheBoard.Thelevelsofauthority for management are periodically reviewed by theBoardandaredocumented.TheChiefOperatingOfficer,MrCHFoucherandmembersoftheexecutivemanagementteamassisttheChiefExecutiveOfficer,inmanaging the business.

ThedivisionofresponsibilitybetweentheChairmanandtheChiefExecutiveisclearlyestablished,setoutinwritingandagreed by the Board.

Board balance and independenceTheBoardincludesabalanceofExecutiveandNon-executive Directors such that no individual or small group of individualscandominatetheBoard’sdecisiontaking.ThesizeoftheBoardandbalanceofskillsisconsideredappropriatefortherequirementsofthebusiness.NooneotherthanthecommitteeChairmanandmembersisentitledtobepresentatameetingoftheAudit,NominationorRemunerationCommittees,butothersmayattendatinvitation of the committee.

AsasmallerCompany,CodeprovisionA3.2requirestheCompanytohaveatleasttwoindependentNon-executiveDirectors.TheBoardconsidersthatMrGCook,MsPFreer,andMrJ-CTschudinareindependentforthereasonssetout below.

The Board has reviewed the independence of the Non-executiveDirectors,includinganassessmentoftheiroverall character and approach, and concluded based on the following guiding principles that they are independent throughout the year. They have not been previous employees of the Group, have no material business relationships with the Group, are not members of the Company’spensionschemeorshareoptionschemes,havenoclosefamilytieswiththeCompany’sadvisers,


Directors or senior employees, hold no cross directorships linkingthemwiththeotherDirectors,donotrepresentsignificant shareholders and, in the case of Ms P Freer andMrJ-CTschudinhaveservedontheBoardlessthanfiveyears.AlltheNon-executiveDirectorshavenominalshareholdingsintheCompany,whichtheBoardconsidersappropriate without compromising independence. The BoardconsidersthatMrGCookremainsindependenteveninhiscapacityasChairman.

Information and professional developmentThe Board is supplied in a timely manner with information in a form and of quality appropriate to enable it to discharge itsduties.TheChiefFinancialOfficerisresponsibleforensuring the Directors receive accurate, timely and clear information, which is provided by operational management and enhanced or clarified where necessary.

All Directors receive induction on joining the Board and the ChairmanensuresthatDirectorscontinuallyupdatetheirskillsandknowledgeandfamiliaritywiththeCompanyrequiredtoundertaketheirrolebothontheBoardandonBoardcommittees.TheCompanyprovidesthenecessaryresources for developing and updating its Directors’ knowledgeandcapabilities.

UnderthedirectionoftheChairman,theCompanySecretary’s responsibilities include good information flows within the Board and its committees and between senior managementandNon-executiveDirectors,aswellasfacilitating induction and assisting with professional developmentasrequired.TheCompanySecretaryisresponsibleforadvisingtheBoard,throughtheChairman,on all governance matters and for ensuring that Board procedures are complied with and applicable rules and regulations are followed. The appointment and removal of theCompanySecretaryisamatterfortheBoardasawhole.The Directors have access to independent professional adviceattheCompany’sexpensewheretheyjudgeitnecessary to discharge their responsibilities as Directors. Committeesarealsoprovidedwithsufficientresourcestoundertaketheirduties.

AnnouncementsAllmajorannouncementsareapprovedbytheChairman,the Executive Directors and panel of senior executive management and then circulated to the Board prior to issue. TheGroupalsohasinternalandexternalcheckstoguardagainst unauthorised release of information.

Performance evaluationA formal performance review of the Board, Audit and RemunerationCommitteesandtheirChairmenwereperformedduringtheyearbyaprocessofself-assessment.Inperformingthesereviews,criteriathatweretakenintoaccountincludedtheabilityoftheDirectorto:taketheperspective of creating shareholder value; to contribute to thedevelopmentofstrategyandidentificationofrisks;toprovide clarity of direction to management; to be a source of wise counsel; to bring a broad perspective to discussions andanunderstandingofkeyissues;tocommitthetimerequired to fulfil the role; and to listen to and respect the ideas of fellow Directors and management.

The Senior Independent Director Ms P Freer is responsible fortheperformanceevaluationoftheChairman,takingintoaccount the views of the Executive Directors.

Re-electionAllDirectorsaresubmittedforre-electionatregularintervals, subject to continued satisfactory performance. TheBoardkeepsunderreviewtheneedforrefreshingtheBoardandtakesappropriateaction.

All Directors are subject to election by shareholders at the first Annual General Meeting after their appointment, and tore-electionannually.Non-executiveDirectorsareappointedforspecifiedtermssubjecttore-electionandtoCompaniesActprovisionsrelatingtotheremovalofa Director.

AccountabilityFinancial reportingThe Board is responsible for presenting a balanced and understandableassessmentoftheCompany’sposition and prospects, extending to interim reports and other price-sensitivepublicreportsandreportstoregulators as well as to information required to be presented by statutory requirements.

Internal controlThe Directors are responsible for reviewing the effectiveness of the Group’s internal controls on an annual basis. There is an ongoing process to identify, evaluate and managerisk,whichhasbeeninplacethroughouttheperiodand up to date of approval, in accordance with the Turnbull guidance, and it is regularly reviewed by the Board. The systemisdesignedtomanageratherthaneliminateriskoffailure to achieve business objectives. The system includes internal controls covering financial, operational and complianceareas,andriskmanagement.Therearelimitations in any system of internal control, which can provide reasonable but not absolute assurance with respect to the preparation of financial information, the safeguarding of assets and the possibility of misstatement or loss. Theadditionalkeyproceduresdesignedtoprovideaneffective system of internal control are the:

annual review of the control environment •and procedures;review and update of the Group’s policy and procedures;•review of external audit plans; •review of significant issues arising from the external •audit; anddiscussionswithmanagementonriskareasidentifiedby•the management and the Board.

Ariskassessmentandreviewofinternalcontrolswascarriedout during the year in compliance with the Turnbull guidelines.Riskswerecategorisedbylevelofimpactandlikelihoodofoccurrenceandforthehighimpactandhighlikelihoodrisksidentified,theassociatedinternalcontrolswere reviewed and approved by the Board.

Control environmentTheGroupoperateswithinacontrolframeworkdevelopedand strengthened over a number of years and communicated as appropriate by a series of written procedures. These lay down accounting and financial control

Corporate Governance Report continued

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procedures, in addition to controls of a more operational nature.ThekeyproceduresthatDirectorshaveestablishedwith a view to providing internal control are as follows:

the establishment of the organisational structure and the •delegated responsibilities of operational management;the definition of authorisation limits, including matters •reserved for the Board;the establishment of detailed operational budgets for •each financial year;reporting and monitoring performance against budgets •and rolling forecasts;the security of physical property and •computer information;establishment and annual review of a Group wide •insurance programme;detailedfinancial,legalandenvironmentaldue-diligence•on all acquisitions; andtheestablishmentofin-houselegalandhuman•resource functions.

The Board has reviewed the need for an internal audit functionandbasedonadvicefromtheAuditCommitteeand the relative size of the Group has concluded that for the time being it would not be appropriate to establish an internal audit function.

Relations with shareholdersThe Directors place great importance on maintaining good communications with both institutional and private investors.TheCompanyreportsformallytoshareholderstwice a year with the publication of its Interim and Annual Reports. More regular communication is provided through the website www.sinclairpharma.com where all press releases are posted. The Executive Directors also present to institutional shareholders and analysts at the time of the interimandfullyearresults.FeedbackfromthesemeetingsisprovidedtotheBoardthroughtheCompany’sbrokers. Ms P Freer, the Senior Independent Director, is available to shareholders if and when required.

The AGM provides an opportunity to communicate with privateandinstitutionalshareholdersandtheCompanywelcomes their participation.

Corporate social responsibilityTheCompanyoperatesinthehighlyregulatedpharmaceuticalandmedicaldevicessector.HenceeveryaspectoftheproductsforwhichtheCompanyownstheintellectualpropertyandwhicharemarketedorwhichareapprovedformarketingwillhavegonethroughanapprovalprocess overseen by E.U., U.S. or other national authorities to ensure their safety and efficacy.

TheCompanyoperatesinasociallyandenvironmentallyresponsiblemanner.Despitebeinginarelativelylow-impactindustry,theCompanyproactivelyseekswaysofreducingany adverse impact upon our surroundings through recyclingschemes,makingmoreefficientuseofutilitiesandseekingwaystoreducewaste.TheGroup’sU.K.officesaredesigned with energy saving devices and a new recycling scheme has significantly increased the amount of paper recycled. In order to reduce unnecessary air travel, video conferencing facilities are available to employees. The

Group adheres to relevant legislative, regulatory and environmental codes of practice.

Statement of compliance with the provisions of the Combined CodeThe Board confirms that throughout the year ended 30June2010theCompanyhascompliedwiththeprovisionssetoutinSection1ofthe2008Combined CodeonCorporateGovernanceissuedbytheFinancialServices Authority.


Directors’ Remuneration Report

IntroductionThe report sets out the Group’s remuneration policy and details of Directors’ remuneration. A resolution to approve this report will be proposed to shareholders at the AGM, details of the resolution may be found in the notice of the meeting which is enclosed with this Annual Report. This report is unaudited other than the sections noted as audited.

Remuneration CommitteeTheRemunerationCommittee(the‘Committee’)ismadeupentirelyofIndependentNon-executiveDirectorsandischaired by Ms P Freer. The other serving members of the CommitteeduringtheyearwereMrGCookandMrJ-CTschudin.TheCommitteemettwiceduringtheyear.HalliwellConsulting(‘Halliwell’),whohaveconsiderableexperience in executive remuneration and share schemes, wereappointedbytheCommitteetoprovideindependentadvice and analysis on remuneration matters, including the provisionofcompetitivemarketdata.HalliwellweresubsequentlyacquiredbyPricewaterhouseCoopersLLP(‘PwC’)(theGroup’sauditor)inJanuary2009.TheCommitteehavecontinuedtousethesameHalliwellteam,nowaspartofPwCwhohaveadvisedonanoptionsexchange programme and the possible implementation of a new share scheme during the year. These projects are managed separately from the Group audit and the CommitteeconsidersthatthisworkhasnoimpactonPwC’sindependence as auditors.

NoneoftheCommitteehasanyconflictsofinterestarisingfromcross-Directorshipsorday-to-dayinvolvementinrunningthebusiness.TheCommitteemakesrecommendations to the Board and no Director plays a part inanydiscussionsabouthisownremuneration.Asub-groupoftheCommitteenotcomprisingtheChairmanassessestheChairman’sremuneration.

Remuneration policyExecutiveremunerationpackagesaredesignedtoattract,motivate and retain Directors and to reward them for enhancing value to shareholders. The performance measurementoftheExecutiveDirectors’andkeymembersof senior management and the determination of their annualremunerationpackageisundertakenbytheRemunerationCommittee.TheBoarddeterminestheremunerationoftheNon-executiveDirectors.

There are four main elements of the remuneration policy:basicsalariesandbenefitsinkind;•shares and share option schemes;•bonus scheme; and•pensions.•

TheCompany’spolicyisthatasubstantialproportionoftheremuneration of the Executive Directors should be performance related. As described below, Executive Directors may earn annual incentive payments in the range between 20% and 80% of their basic salary, together with the benefits of participation in share option schemes. Executive Directors are entitled to accept appointments outsidetheCompany,providingtheseareapprovedbytheCommittee,butcannotbeinvolvedwithacompetingbusiness except with the written consent of the Board.

The Executive Directors’ who held office during the year external remunerated appointments are as follows: MrJAPRandall;KinneirDufortLimited£7,500andSilenceTherapeuticsPLC£12,500fortheperiodbetween1July2010 and 10 December 2009.

The Executive Directors who held office during the year also have the following non remunerated appointments: Dr M J Flynn; Maggiore Ventures Limited, and Octagen Limited;MrJAPRandall;KinneirDufortDesignLimited,MaggioreVenturesLimitedandAvantisUKLimited;MrCPSpooner; Future Perfect Partners LLP, Eclipse Film Partners NO.8LLP,EclipseFilmPartnersNO.23LLP,RedSquirrelLimited,PirtsemitLimited,HealthcorManagementUKLLP,RSS Group Limited.

(i) Basic salaries and benefits in kindTheRemunerationCommittee,priortothebeginningofeach year when an individual may change position or responsibility, determines basic salaries. In deciding appropriatelevels,theCommitteeconsiderstheGroup asawholeandtakesintoaccounttheperformanceof the individual and the rates for similar positions in comparable companies.

Benefitsinkindarenotpensionable.Directorsare paid a car allowance commensurate with their position withintheCompanyandaremembersoftheGroupshealth plan schemes covering certain medical, optical and dental procedures.

(ii) Share option schemesa. Sinclair Pharma plc 2003 Executive Incentive PlanTheCompanyalsoestablishedtheSinclairPharmaplc2003Executive Incentive Plan (‘EIP’) pursuant to a resolution of theBoardpassedon18November2003.TheEIPisintendedtoallowtheCompanytomakeshareawardsandgrantoptionstoseniorexecutivesandkeyemployees.

During the year ended 30 June 2009 performance share awards were granted to the following Directors: Dr M J Flynn – 981,615 shares, Mr J A P Randall – 789,501 shares and MrCHFoucher–300,000shares.Noperformanceshareawards were made during the year ended 30 June 2010.

A performance share award is a promise to deliver Ordinary shares at the end of the performance period subject to the satisfaction of the performance conditions. The right will vest automatically and does not require any action by the award holder.

NootherawardshavebeenmadetoDirectorsundertheEIPin the years ended 30 June 2010 or 30 June 2009.

AwardsmadeundertheEIParenotgrantedunderaHMRCapproved share scheme.

AtthediscretionoftheCommitteeanawardmaybegranted under the 2003 EIP to any Executive Director or employee of the Group who is required to devote the whole orsubstantiallythewholeofhisworkingtimetotheGroup.

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Awards may be made at any time other than a close period or other than at any time when a grant would be in breach ofanyotherapplicablelawsorregulations.Noawardswillbe made more than 10 years after the date of the adoption oftheEIP.Noawardmaybeassignedortransferredinanyway, although the executors or personal representatives of a deceased participant may in certain circumstances benefit fromtheaward.Noconsiderationispayableforthegrantofan award.

The performance criteria period will, in the absence of any otherperioddeterminedbytheCommittee,bethethreeconsecutive financial years commencing with the financial year in which the award is made.

TheCommitteewillsetperformanceconditionsthattheyconsider to be both relevant and stretching, and designed to enhancethebusinesshavingregardtotheCombinedCodeand the guidelines and standards of principles published from time to time by the Association of British Insurers relating to best practice on share incentive schemes. The performance conditions must be met at the end of the performance period for the award to vest.

The performance conditions for the awards granted on 25 July 2007 are:

Percentage of awards Company’ssharepriceon25July2010 whichwillvest

Below 115p 0%115p–124p 25%125p–139p 50%140p–174p 75%175p and above 100%

The Performance Share awards granted to Executive Directors and other senior managers in December 2008 are subject to performance conditions measured by total shareholder return (‘TSR’) against a comparator group of companies within the industry (FTSE Pharma and Biotech Index), and achievement of Group EBITDA targets. 50% of the awards will be judged against the TSR condition and 50% against the EBITDA target.

TheTSRconditionseekstoaligntheinterestsoftheExecutive Directors and senior managers with the interests of the shareholders by comparing Sinclair’s TSR performance with other companies within the industry. The awards will vest in full if Sinclair’s TSR, over the three year performance period,rankstheCompanyintheupperquartileofthecomparator group. 30% of the awards will vest if the Company’sTSRisequaltothemedianTSRofthecomparatorgroup, and no awards will vest if Sinclair’s TSR is below the median TSR of the comparator group. Between median and upper quartile performance, the number of awards which willvestwillbecalculatedonastraight-linebasis.

The EBITDA target will be measured on an average basis for the three years ending 30 June 2011. EBITDA will be calculatedaspertheKPIdefinitionassetoutintheDirectors’ Report on page 12. The awards will vest in full if the Group’s average EBITDA for the performance period exceeds £4.0m per annum. 30% of the awards will vest if

the Group’s average EBITDA for the period is £2.5m per annum, and no awards will vest if the Group’s average EBITDA for the period is below the £2.5m per annum. For average EBITDA between £2.5m and £4.0m per annum, the number of awards which will vest will be calculated onastraight-linebasis.

TheCommitteedeterminesatthedateoftheaward,theacquisition price payable for each Ordinary share when the award vests under the EIP.

b. Replacement, new and consultant warrantsReplacement WarrantsOn2December2003,theCompanyandholdersof4,350,000 warrants (‘Old Warrants’) agreed to the issue of Replacement Warrants (‘Replacement Warrants’) in exchange for the release of 4,350,000 Old Warrants.

The Replacement Warrants provide the holder with a right to acquire such number of Ordinary shares as are equal in amount to ‘target value’. Target value was calculated using the following formula:

NumberofOldWarrants(orUnapprovedOptions)heldbywarrant holder multiplied by the IPO placing price per Ordinary share.

Replacement Warrants are denominated in units. On the exercise of each unit of value a corresponding value of OrdinarysharesintheCompanymaybeacquired.Themaximum number of Ordinary shares which can be acquired under the terms of the Replacement Warrants shall not exceed the number of Ordinary shares that may have been acquired under the terms of the Old Warrants. The acquisition price payable for Ordinary shares shall be between £0.01 and £0.33 per unit and shall, in aggregate, be equal to the acquisition price payable for Ordinary shares under the terms of the Old Warrants.

TheCompanyandtheholdersofthewarrantsalsoenteredintoajointelectionundersection4(4)(a)oftheU.K.SocialSecurityContributionsandBenefitsAct1992totransferlegal responsibility for payment of the employers’ national insurance contributions to the holders of the Replacement Warrants.

ReplacementWarrantsarenotgrantedunderaHMRCapproved share scheme. There are no performance conditions relating to Replacement Warrants.

NofurthergrantsofReplacementWarrantshavebeenmade since 2 December 2003.

NewWarrantsIn consideration for the transfer of the employers’ national insurance liability on the Replacement Warrants, a total of 784,875NewWarrantsweregrantedon2December2003tothewarrantholders(the‘NewWarrants’).TheNewWarrants were granted under the same terms and the same exercise price as the Replacement Warrants to which they relate.


TheReplacementWarrantsandNewWarrantsareexercisable in whole or in part at any time.

These warrants shall lapse on the earlier of:1. the 10th anniversary of the date of grant; or2. thebankruptcyofthewarrantholder.

TherearenoperformanceconditionsrelatingtoNewWarrants.NofurthergrantsofNewWarrantshavebeenmade since 2 December 2003.

The Sinclair Pharma plc Employee Share Trust (‘ESOT’)The ESOT has been established to provide a vehicle through which share incentives and other benefits may be provided topast,presentorfutureemployeesoftheCompany.TheESOT may for example gift, sell or grant options or warrants oversharestoemployeesoftheCompany.

On 3 December 2003, the trustees of the ESOT subscribed for 6,034,875 Ordinary shares for the aggregate sum of £913,853. The trustees have agreed to use these Ordinary sharestosettletheReplacementWarrantsandNewWarrants over, in aggregate up to 6,034,875 Ordinary shares held by Dr M J Flynn, Mr J A P Randall, Mr A D S Prenn, and MrRSHarris.ThetrusteeshaveallocatedtheOrdinarysharestoindividualsub-fundsinproportiontothewarrantsin issue for each holder. Further, the trustees have appointed an interest in these Ordinary shares to the holders of the warrants such that following the exercise of allReplacementandNewWarrantsbyawarrantholder,theassetsintheirsub-fundsshallvestintheirnamesabsolutely.

On 22 February 2010, Dr M J Flynn and Mr J A P Randall exercisedtheirrightstotheReplacementWarrantsandNewWarrants and as a result, 4,827,900 Ordinary shares were transferred out of the ESOT.

Awards granted through ESOT are not granted under a HMRCapprovedsharescheme.Theperformanceconditionsrelating to awards granted through ESOT are listed above in paragraph (ii) (a) Share Option Schemes.

At 30 June 2010 there were no further shares held within the Sinclair Pharma plc employee share trust (ESOT) on behalf of Directors.

The interest in trust property shall lapse on the earlier of:1. the 10th anniversary of the date of appointment; or2. thebankruptcyofthebeneficiary.

TheCommitteehasresponsibilityforsupervisingtheschemes and the grant of options to Executive Directors under its terms.

c. Interest in sharesIn addition, on 3 December 2003, the trustees subscribed for1,431,129OrdinarysharesintheCompany.Thetrusteesappointed an interest over 1,172,490 Ordinary shares to Mr J A P Randall at an exercise price of £1.15.

The relevant trust property will vest absolutely to the beneficiaries after the earliest of the following events:1. the day prior to the 10th anniversary of the date of

appointment of the interest; and2. as notified to the trustees at the discretion of the

Committee,oronanytakeover,reconstruction,orpassing of a resolution for the voluntary winding up of theCompany.

The trustees may resolve that the interest in the trust property should vest absolutely to the beneficiary prior to the day prior to the 10th anniversary of the date of appointment.

The interest in trust property shall lapse on the earlier of:1. the 10th anniversary of the date of appointment; or2. thebankruptcyofthebeneficiary.

There are no performance conditions relating to interests in shares.

InNovember2009,theinterestinsharesheldbyMrJAPRandall were exchanged in return for 199,528 Replacement options issued under the EIP. The Replacement options have anexercisepriceof1peachandwillveston6November2011. Under the terms of Mr Randall’s severance agreement the Replacement options vested immediately and Mr Randall exercised his rights over these in December 2009.

(iii) Bonus schemeTheCommitteeestablishestheobjectivesthatmustbemetfor each financial year if a cash bonus is to be paid. Account istakenoftherelativesuccessofthedifferentpartsofthebusiness for which the Executive Directors are responsible and the extent to which the strategic objectives are being met. The Directors’ bonus is based upon profitability and share performance subject to targets being achieved.

(iv) PensionsThe Group operates a defined contribution scheme for the benefit of the Executive Directors and the employees. Both Dr M J Flynn and Mr J A P Randall were members of the Sinclair Pharma plc retirement plan, which is a money purchase scheme. The Group contributed 20% of their pensionable pay into the scheme during the year. Their dependants are eligible for a lump sum in the event of death in service. The assets of the pension scheme are held separately from those of the Group.

Directors’ Remuneration Report continued

140

Sinclair Pharma

Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10

120

80

60

40

20

0

100

FTSE Pharma and Biotech

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Performance Graph ThefollowinggraphshowstheCompany’sperformance,measuredbytotalshareholderreturn(‘TSR’),comparedwiththeperformance of the FTSE Pharma and Biotech Index also measured by TSR. TSR is defined as share price growth and reinvested dividend. The FTSE Pharma and Biotech Index has been selected for this comparison because it was deemed to be the most appropriate.

The graph below shows the percentage change in total shareholder return (with dividends reinvested) from 1 July 2005 to 30 June 2010.

Sinclair Pharma plc (SPH) v FTSE Pharma (TSR)

DataprovidedbySingersCapitalMarketsLtd.

Executive Directors’ contractsIt is the Group’s policy that Executive Directors should have contracts with a rolling term of 12 months providing for a maximum of 12 months’ notice by either party.

In the event of early termination, the Directors’ contracts provide for compensation up to a maximum of basic salary, employer’spensioncontributionsandotherbenefitsinkindforthenoticeperiod.DrFlynn’sandMrRandall’scontractswere terminated early in December 2009 and the compensation paid is disclosed in the Director’s emoluments section below.

NewcontractswereenteredintoduringtheyearforMrCPSpooner(11December2009).MrCHFoucher,ChiefOperatingOfficer, was appointed to the Board on 22 December 2009.

Non-executive Directors’ contractsAllNon-executiveDirectorshavespecifictermsofengagement.TheirremunerationisdeterminedbytheBoardbaseduponsurveysoffeespaidtoNon-executiveDirectorsofsimilarcompanieswithsimilarresponsibilities,undertakenbyHalliwell.ItistheGroup’spolicythatNon-executiveDirectorsshouldhavecontractswithafixedtermof12monthsprovidingforamaximum of three months’ notice by either party.

Abasicfeeissetfornormalduties.Non-executiveDirectorsareappointedforaninitialperiodof12monthsandsubjecttocontinuationofsatisfactoryperformanceandre-electionattheAGM,willberenewedforafurther12months.Non-executiveDirectorsarenoteligibleforpensions,incentivesoranysimilarpaymentsotherthannormaloutofpocketexpensesincurredonbehalfofthebusiness.CompensationforlossofofficeisnotpayabletoNon-executiveDirectors.

Noticeperiod Date of contract Initial period (both parties)

MrGCook 12July2004 12months 3monthsMs P Freer 25 January 2006 12 months 3 monthsMrJ-CTschudin 8November2007 12months 3months


Directors’ emoluments (audited Information)

Compensation Salary/ Benefits forloss 2010 2009 fees inkind Bonuses ofoffice Total Pension Total Pension £000 £000 £000 £000 £000 £000 £000 £000

ExecutiveDr M J Flynn3 134 11 – 355 500 22 375 55Mr J A P Randall4 94 9 120 349 572 20 305 44MrCPSpooner2 – 1 150 – 151 – – –MrCHFoucher2 126 – 92 – 218 – – –Non-executiveMrRSHarris1 – – – – – – 36 –MrGCook 60 – – – 60 – 50 –Ms P Freer 47 – – – 47 – 37 –MrJ-CTschudin 33 – – – 33 – 41 – 494 21 362 704 1,581 42 844 99

1 MrRSHarrisresignedon8December2008.2 MrCPSpoonerandMrCHFoucherwereappointedon22December2009,priortoappointmentMrCPSpoonerreceivedremunerationforconsultancy

workperformed(seenote31).3 Dr M J Flynn resigned on 22 December 2009.4 Mr J A P Randall resigned on 10 December 2009.

Directors’ share options, warrants, share awards and interests on shares (audited information)Details of the options, warrants, performance share awards and interests in Sinclair Pharma plc Ordinary 1p shares held by Directors are as follows:

At Granted/ At Exercise 1 July (lapsed) 30 June price Exercisable 2009 in the year 20101 (p) from to

Dr M J Flynn Replacement Warrants 3,000,000 – 3,000,000 £0.01 3 Dec 03 2 Dec 13NewWarrants 448,500 – 448,500 £0.01 3Dec03 2Dec13Unapproved options 299,149 (299,149) – £1.01 4 Oct 09 3 Oct 16Performanceshareawards 223,252 – 223,252 £0.01 25Jul10 N/A2

Performanceshareawards 981,615 – 981,615 £0.01 9Dec11 N/A2

4,952,516 (299,149) 4,653,367

Mr J A P RandallReplacement Warrants 1,200,000 – 1,200,000 £0.01 3 Dec 03 2 Dec 13NewWarrants 179,400 – 179,400 £0.01 3Dec03 2Dec13Interest in shares 1,172,490 (1,172,490) – £1.15 3 Dec 03 2 Dec 13Unapproved options 297,030 (297,030) – £1.01 4 Oct 09 3 Oct 16Replacementoptions – 199,528 199,528 £0.01 6Nov11 5Nov16Performanceshareawards 179,444 – 179,444 £0.01 25Jul10 N/A2

Performanceshareawards 789,501 – 789,501 £0.01 9Dec11 N/A2

3,817,865 (1,269,992) 2,547,873

Mr C H FoucherPerformance share awards3 300,000 – 300,000 £0.01 9Dec11 N/A2

300,000 – 300,000 9,070,381 (1,569,141) 7,501,240

1 Or date of resignation if earlier.2 Shares subject to performance share awards will be issued to holders of such awards immediately upon satisfaction of the performance criteria, subject to the

holder agreeing to pay the 1p per share nominal value if new shares are issued.3 At date of appointment.

ThemarketpriceoftheCompany’sOrdinarysharestowhichtheoptionsrelatefluctuatedbetween47pand23.00pduringtheyear.At30June2010,theclosingmarketpriceoftheCompany’sOrdinary1pshareswas25.50p

ApprovalThis report was approved by the Board of Directors on 14 October 2010 and signed on its behalf:

Ms P FreerChairmanRemunerationCommittee

Directors’ Remuneration Report continued

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Independent Auditors’ Report to the Members of Sinclair Pharma plc

We have audited the financial statements of Sinclair Pharma plc for the year ended 30 June 2010 which comprise the ConsolidatedIncomeStatementandStatementofComprehensiveIncome,theGroupandParentCompanyBalanceSheets,theGroupandParentCompanyStatementsofChangesinShareholders’Equity,theGroupandParentCompanyStatementofCashFlowsandtherelatednotes.Thefinancialreportingframeworkthathasbeenappliedintheir preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EuropeanUnionand,asregardstheParentCompanyfinancial statements, as applied in accordance with the provisionsoftheCompaniesAct2006.

Respective responsibilities of Directors and Auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 15, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and InternationalStandardsonAuditing(U.K.andIreland).Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for andonlyfortheCompany’smembersasabodyinaccordancewithChapter3ofPart16oftheCompaniesAct2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the ParentCompany’scircumstancesandhavebeenconsistentlyapplied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

Opinion on financial statements In our opinion:

the financial statements give a true and fair view of the •stateoftheGroup’sandoftheParentCompany’saffairsas at 30 June 2010 and of the Group’s loss and Group’s andParentCompany’scashflowsfortheyearthenended;the Group financial statements have been properly •prepared in accordance with IFRSs as adopted by the European Union; theParentCompanyfinancialstatementshavebeen•properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with theprovisionsoftheCompaniesAct2006;andthe financial statements have been prepared in •accordancewiththerequirementsoftheCompaniesAct2006 and, as regards the Group financial statements, Article 4 of the lAS Regulation.

Opinion on other matters prescribed by the Companies Act 2006 In our opinion:

the part of the Directors’ Remuneration Report to be •audited has been properly prepared in accordance with theCompaniesAct2006;the information given in the Directors’ Report for the •financial year for which the financial statements are prepared is consistent with the financial statements; andtheinformationgivenintheCorporateGovernance•Statement set out on pages 16 to 19 with respect to internalcontrolandriskmanagementsystemsandabout share capital structures is consistent with the financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following:

UndertheCompaniesAct2006wearerequiredtoreporttoyou if, in our opinion:

adequateaccountingrecordshavenotbeenkeptbythe•ParentCompany,orreturnsadequateforouraudithavenot been received from branches not visited by us; or theParentCompanyfinancialstatementsandthepartof•the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified •by law are not made; or we have not received all the information and •explanations we require for our audit; ora corporate governance statement has not been •preparedbytheParentCompany.

Under the Listing Rules we are required to review: the Directors’ statement, set out on page 11, in relation •to going concern; andthepartsoftheCorporateGovernanceStatement•relatingtotheCompany’scompliancewiththenineprovisionsoftheJune2008CombinedCodespecifiedforour review.

Stephen Wootten (Senior Statutory Auditor)forandonbehalfofPricewaterhouseCoopersLLPCharteredAccountantsandStatutoryAuditorsReading14 October 2010


2010 | 2009

Pre Exceptional Pre Exceptional exceptional items exceptional items items (note 5) Total items (note 5) Total Notes £000 £000 £000 £000 £000 £000

Revenue 4 27,628 – 27,628 30,408 – 30,408Costofsales (10,434) – (10,434) (9,704) – (9,704)Gross profit 17,194 – 17,194 20,704 – 20,704

Selling,marketinganddistributioncosts (9,724) – (9,724) (9,535) – (9,535)Administrative expenses (11,177) (13,318) (24,495) (11,477) (2,428) (13,905)Operating loss 6 (3,707) (13,318) (17,025) (308) (2,428) (2,736)

Finance income 8 69 – 69 131 – 131Finance costs 8 (1,397) – (1,397) (1,173) (260) (1,433)Loss before taxation (5,035) (13,318) (18,353) (1,350) (2,688) (4,038)Taxation 9 725 – 725 417 – 417Loss for the year (4,310) (13,318) (17,628) (933) (2,688) (3,621)

Loss per share (basic and diluted) 11 (3.3p) (10.2p) (13.5p) (1.0p) (2.9p) (3.9p)

2010 | 2009

Pre Exceptional Pre Exceptional exceptional items exceptional items items (note 5) Total items (note 5) Total Notes £000 £000 £000 £000 £000 £000

Loss for the year (4,310) (13,318) (17,628) (933) (2,688) (3,621)

Other comprehensive incomeCurrencytranslationdifferences (912) – (912) 2,330 – 2,330Total comprehensive income for the year (5,222) (13,318) (18,540) 1,397 (2,688) (1,291)

The notes on pages 31 to 57 are an integral part of these consolidated financial statements.

Consolidated Income Statementfor the year ended 30 June 2010

Statement of Comprehensive Incomefor the year ended 30 June 2010

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Group | Company

2010 2009 2010 2009 Notes £000 £000 £000 £000

Non-current assetsGoodwill 12 49,645 51,062 – –Intangible assets 13 25,144 19,708 773 817Property, plant and equipment 14 1,317 1,643 – –Investments 15 – 165 88,482 72,114Deferred tax asset 16 2,004 1,304 – –Othernon-currentassets 209 89 – –Assets held for sale 13 426 – – – 78,745 73,971 89,255 72,931Current assetsInventories 17 4,775 3,807 – –Trade and other receivables 18 9,986 9,764 127 222Currenttaxreceivable 24 48 – –Cashandcashequivalents 2,071 88 1,081 17 16,856 13,707 1,208 239Total assets 95,601 87,678 90,463 73,170Current liabilitiesFinancial liabilities – borrowings 20 (14,722) (3,733) (13,272) (956)Trade and other payables 19 (10,575) (9,865) (1,222) (791)Deferred income (405) (713) – –Currenttaxliabilities (7) (163) – –Provisions 21 (572) (382) (84) (260) (26,281) (14,856) (14,578) (2,007)Non-current liabilitiesFinancial liabilities – borrowings 20 (2,553) (4,602) – (1,841)Deferred income (29) (280) – –Othernon-currentliabilities (265) (239) – –Provisions 21 (98) (343) – – (2,945) (5,464) – (1,841)Total liabilities (29,226) (20,320) (14,578) (3,848)Net assets 66,375 67,358 75,885 69,322EquityShare capital 23 1,622 1,033 1,622 1,033Share premium account 24 39,500 23,131 39,500 23,131Merger reserve 50,474 50,474 55,574 55,574Other reserves 27 4,954 6,528 24 686Retained deficit (30,175) (13,808) (20,835) (11,102)Total shareholders’ equity 66,375 67,358 75,885 69,322


Approved by the Board of Directors on 14 October 2010

C P SpoonerChiefExecutiveOfficer

Balance Sheetsat 30 June 2010


Attributable to equity Share Share Merger Other Retained holders of Minority Total capital premium reserve reserves deficit the parent interest equityGroup £000 £000 £000 £000 £000 £000 £000 £000

Balance at 1 July 2008 935 21,472 50,474 4,198 (10,760) 66,319 12 66,331Exchange differences

arising on translation of overseas subsidiaries – – – 2,330 – 2,330 – 2,330

Loss for the year – – – – (3,621) (3,621) – (3,621)Total comprehensive

income/(expense) for the year – – – 2,330 (3,621) (1,291) – (1,291)

Share-basedpayments – – – – 573 573 – 573Options and warrants

exercised 1 – – – – 1 – 1Share capital issued 97 1,722 – – – 1,819 – 1,819Share issue expenses – (63) – – – (63) – (63)Purchase of minority

interests – – – – – – (12) (12)Balance at

30 June 2009 1,033 23,131 50,474 6,528 (13,808) 67,358 – 67,358Exchange differences

arising on translation of overseas subsidiaries – – – (912) – (912) – (912)

Loss for the year – – – – (17,628) (17,628) – (17,628)Total comprehensive

income/(expense) for the period – – – (912) (17,628) (18,540) – (18,540)

Share-basedpayments – – – – 549 549 – 549Options and warrants

exercised 11 19 – (662) 712 80 – 80Share capital issued 578 17,900 – – – 18,478 – 18,478Share issue expenses – (1,550) – – – (1,550) – (1,550)Balance at

30 June 2010 1,622 39,500 50,474 4,954 (30,175) 66,375 – 66,375


Statements of Changes in Shareholders’ Equityfor the year ended 30 June 2010

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Statements of Changes in Shareholders’ Equityfor the year ended 30 June 2010 Attributable to equity Share Share Merger Other Retained holders of capital premium reserve reserves deficit the parentCompany £000 £000 £000 £000 £000 £000

Balance at 1 July 2008 935 21,472 55,574 686 (10,170) 68,497Loss for the year – – – – (1,505) (1,505)Total comprehensive expense for the year – – – – (1,505) (1,505)Options and warrants exercised 1 – – – – 1Share capital issued 97 1,722 – – – 1,819Share issue expenses – (63) – – – (63)Share-basedpayments – – – – 573 573Balance at 30 June 2009 1,033 23,131 55,574 686 (11,102) 69,322Loss for the year – – – – (10,994) (10,994)Total comprehensive expense for the year – – – – (10,994) (10,994)Options and warrants exercised 11 19 – (662) 712 80Share capital issued 578 17,900 – – – 18,478Share issue expenses – (1,550) – – – (1,550)Share-basedpayments – – – – 549 549Balance at 30 June 2010 1,622 39,500 55,574 24 (20,835) 75,885



Group | Company

2010 2009 2010 2009 Notes £000 £000 £000 £000

Cash flows from operating activitiesNetcashoutflowfromoperations 28 (5,056) (1,225) (1,670) (1,862)Interest paid (1,525) (803) (1,347) (267)Interest paid on finance leases (12) (45) – –Taxation(paid)/received (149) 1,603 – –Net cash used in operating activities (6,742) (470) (3,017) (2,129)Investing activitiesInterest received 66 456 849 1,214Purchases of property, plant and equipment (245) (482) – –Proceeds from sale of property, plant and equipment 1 27 – –Purchase of intangible assets (17,667) (2,005) (17,121) –Advancesofintra-grouploans – – (7,629) (738)PaymentofcontingentconsiderationreCSDermatologie – (237) – (237)Deconsolidation of Portugal subsidiary – (129) – –Acquisitionofsubsidiaryundertaking,netofcashacquired – (400) – –Net cash (used in)/generated from investing activities (17,845) (2,770) (23,901) 239Financing activitiesRepayments of obligations under finance leases (65) (219) – –Proceeds from borrowings 15,593 3,866 14,300 2,771Repayments of borrowings (4,591) (3,203) (3,258) (2,124)Proceeds from issue of share capital 18,558 1,598 18,558 1,598Share issue expenses (1,510) (63) (1,510) (63)Net cash from financing activities 27,985 1,979 28,090 2,182Net increase/(decrease) in cash, cash equivalents and bank overdrafts 3,398 (1,261) 1,172 292Cash,cashequivalentsandbankoverdraftsat1July (1,597) (354) (91) (383)Exchangegainsoncashandbankoverdrafts 49 18 – –Cash, cash equivalents and bank overdrafts at end of year 1,850 (1,597) 1,081 (91)

Cash,cashequivalentsandbankoverdraftsincludes:Cashandcashequivalents 2,071 88 1,081 17Bankoverdrafts (221) (1,685) – (108)Cash, cash equivalents and bank overdrafts 1,850 (1,597) 1,081 (91)


Cash Flow Statementsfor the year ended 30 June 2010

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1. General informationTheCompanyisapubliclimitedcompanywhichislistedontheLondonStockExchange,andEuronext,ParisandisincorporatedanddomiciledintheUnitedKingdom.TheaddressofitsregisteredofficeisUnit4,GodalmingBusinessCentre,WoolsackWay,Godalming,Surrey,GU71XW.

2. Accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below.

Basis of preparationThe financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations Committee(‘IFRIC’)interpretationsendorsedbytheEuropeanUnionandwiththosepartsoftheCompaniesAct2006applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention as modified to fair value for certain financial assets and liabilities.

The preparation of financial statements in conformity with generally accepted accounting practice requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’sbestknowledgeoftheamount,eventoractions,actualresultsultimatelymaydifferfromtheseestimates.

Going concernOn 26 August 2010 the Board announced a fully underwritten Placing and Open Offer to raise £19.0m (£17.9m net of expenses) at 28p per share, an 8% premium to the share price immediately before the announcement. On 6 October 2010, thenewshareswereadmittedtotradingandtheproceedsreceivedbytheCompany.

TheDirectors,aftertakingintoaccounttheproceedsofthefundraising,whichwillbeusedfortherepaymentofborrowingsandinvestmentinnewproductsandprovidingworkingcapital,believethattheyhaveareasonablebasisforconcludingthatthe Group has adequate facilities to continue as a going concern. Accordingly the financial statements have been prepared on a going concern basis.

Basis of consolidationTheconsolidatedfinancialstatementsofSinclairPharmaplcincorporatethefinancialstatementsoftheCompanyanditssubsidiaries.SubsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtotheGroup.Controlisachieved where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. They are deconsolidated from the date on which control ceases.

The acquisition method of accounting is applied to all business combinations made by the Group. The cost of an acquisition is measured, as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed, in a business combination are measured initially at their fair values on the date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of the acquisition over the fair value of the Group’s share of identifiable net assets, including intangible assets acquired, is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

CSPortugal,whichwaspreviouslyjointlycontrolled,hasbeendeconsolidatedfromtheGroupresultssince1July2008astheGroupnolongerhaseffectivemanagementcontroltothisassociate.TheGroup’sinvestmentinCSPortugalwasdisposed of on 30 June 2010.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used intolinewiththoseusedbytheGroup.Onconsolidation,allintra-grouptransactions,balances,incomeandexpenditure are eliminated.

Segment reportingOperating segments are reported in a manner consistent with internal reporting provided to the executive management team(whoactasthechiefoperatingdecisionmaker).Theexecutivemanagementteamhasdeterminedthattherearetwomainoperatingsegments:InternationalOperationsandCountryOperations.

Notes to the Financial Statementsfor the year ended 30 June 2010


2. Accounting policies continuedForeign currency translationItems included in the financial statements of each of the Group’s entities are measured using the functional currency of the primary economic environment in which the entity operates (the ‘functional currency’). The consolidated financial statementsarepresentedinSterling,whichistheCompany’sandtheGroup’sfunctionalandpresentationalcurrency.Transactions in foreign currencies are translated into the functional currency at the rate of exchange ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the rates of exchange prevailing at that date. Gains and losses arising on translation are included in the income statement. The results of operations that have a functional currency different from the presentational currency are translated at the average rate of exchange during the period and their balance sheets at the rates ruling at the date of the balance sheet. Exchangedifferencesarisingontranslationfrom1July2005aretakendirectlytoaseparatecomponentofequity,thecumulativetranslationreserve.Exchangedifferencesonintra-grouploanbalancesaretakentotheincomestatement,unlesstheyareconsideredlong-termequitytypeinvestments.

Revenue recognitionRevenue from product sales is recognised upon shipment to customers. Provisions for rebates, product returns and discounts to customers are provided for as reductions to revenue in the same period as the related sales occurred. Royalties receivable under licensing agreements are recognised as they are earned and are recorded within revenue. The recognition of other payments received and receivable, such as licence fees, upfront payments and milestones, is dependent on the termsoftherelatedarrangement,havingregardtotheongoingrisksandrewardsofthearrangement,andtheexistenceofany performance or repayment obligations, if any, with the third party. Amounts received and receivable are recognised immediatelyasrevenuewheretherearenosubstantialremainingrisks,noongoingperformanceobligationsandamountsreceived are not refundable. Amounts are deferred over an appropriate period where these conditions are not met.

GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the identifiable net assets, including intangible assets, of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill arising on the acquisition of a foreign entity is treated as an asset of the foreign entity denominated in foreign currency and translated at the balance sheet date according to the rate of exchange prevailing at that date.

Intangible assets a) Licences and product rightsLicencesandtrademarksincludingproductdistributionrightsandtechnicaldossiersarerecognisedatcost.Theyhaveadefiniteusefullifeandarecarriedatcostlessaccumulatedamortisation.Amortisationiscalculatedusingthestraight-linemethod to allocate the cost over their estimated useful lives (10 to 18 years).

b) Research and developmentResearchexpenditureisrecognisedasanexpenseasincurred.Costsincurredondevelopmentactivitiesarerecognisedasintangible assets when it is probable that the project will be a success, considering its commercial and technological feasibility, status of regulatory approval, and costs can be measured reliably. Other development expenditure is recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Development costs that have a finite useful life and that have been capitalised are amortised from the dateofregulatoryapprovaloftheproductonastraight-linebasisovertheperiodofitsexpectedbenefit,notexceeding 10 years.

Property, plant and equipmentAllproperty,plantandequipmentisshownatcostlessaccumulateddepreciationandimpairment.Costincludesexpenditure that is directly attributable to the acquisition of the assets.

Subsequent costs are included in the assets’ carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Notes to the Financial Statements continuedfor the year ended 30 June 2010

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Landisnotdepreciated.Depreciationonotherassetsiscalculatedusingthestraight-linemethodtowriteoffthecostofeach asset to its residual value over its estimated useful life as follows:Freehold buildings over 15 to 45 years;Leasehold improvements expensed over period of lease;Office and laboratory equipment depreciated at 15% to 50% per year; andMotor vehicles are depreciated at 20% per year.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or where shorter, over the term of the relevant lease.

Investments in subsidiary undertakingsInvestmentsinsubsidiaryundertakingsarecarriedatcostlessimpairmentprovision.Suchinvestmentsaresubjecttoreview, and any impairment is charged to the income statement.

Impairment of tangible and intangible assets excluding goodwillAnnually, the Group reviews the carrying amounts of its tangible assets where those assets have infinite lives, and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverableamountofthecash-generatingunittowhichtheassetbelongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated futurecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentassessmentsofthetimevalueofmoneyandtherisksspecifictotheassetforwhichtheestimatesoffuturecashflowshavenotbeenadjusted.Iftherecoverableamountofanasset(orcash-generatingunit)isestimatedtobelessthanitscarryingamount,thecarryingamountoftheasset(cash-generatingunit)isreducedtoitsrecoverableamount.Animpairmentlossisrecognisedasanexpense immediately.

Whereanimpairmentlosssubsequentlyreverses,thecarryingvalueoftheasset(cash-generatingunit)isincreasedtotherevised estimate of its recoverable amount, provided that the increased carrying amount does not exceed the carrying amountthatwouldhavebeendeterminedhadnoimpairmentlossbeenrecognisedfortheasset(cash-generatingunit)inprior periods. A reversal of an impairment loss is recognised as income immediately.

InventoriesInventoriesarevaluedatthelowerofcostandnetrealisablevalue.Costcomprisesmaterials,directlabourandashareofproductionoverheadsifappropriateattherelevantstageofproduction.Provisionismadeforobsolete,slow-movingordefectiveitemswhereappropriate.Netrealisablevalueisdeterminedatthebalancesheetdateoncommerciallysaleableproductsbasedonestimatedsellingpricelessallfurthercoststocompletionandallrelevantmarketing,sellinganddistribution costs.

BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

TaxationThe tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expenses that are taxable and deductible in other periods and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or the initial recognition (other than a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.


2. Accounting policies continuedDeferred tax liabilities are recognised for taxable temporary differences arising from investments in subsidiaries and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

LeasesLeases, including hire purchase contracts, are classified as a finance lease whenever the terms of the lease transfer substantiallyalltherisksandrewardsofownershiptothelessee.Allotherleasesareclassifiedasoperatingleases.Assetsheld under finance leases and hire purchase contracts are capitalised and included in property, plant and equipment at fair value. Each asset is depreciated over the shorter of the lease term or its useful life. The obligations related to finance leases, netoffinancechargesinrespectoffutureperiods,areincluded,asappropriate,undercurrent,ornon-currentliabilities.Theinterest element of a rental obligation charged to the income statement is allocated to accounting periods during the lease term to reflect a constant rate of interest on the remaining balance of the obligation for each accounting period. Rentals underoperatingleasesarechargedtotheincomestatementonastraight-linebasisoverthetermoftherelevantlease.

PensionsThe Group operates a defined contribution pension scheme for its employees. The assets of the scheme are held in independentlyadministeredfunds.Contributionsarechargedtotheincomestatementastheybecomepayableinaccordance with the rules of the schemes.

Other employee benefitsTheexpectedcostofcompensatedshort-termabsence(i.e.holidays)isrecognisedwhenemployeesprovideservicesthatincreasetheirentitlement.Anaccrualismadeforholidaysearnedbutnottaken.

Share-based payments (options, warrants and performance share awards)The Group grants share options, warrants and performance share awards to Directors, employees and certain consultants. Equity-settledshare-basedpaymentsaremeasuredatfairvalueatthedateofgrantandexpensedonastraight-linebasisover the expected life of the option or warrant, based on the estimated number of options or warrants that will eventually vest. The share options or warrants granted have varying performance criteria required for the option or warrants to vest and these are considered in the method of measuring the fair value. Where it is considered appropriate, the fair value is measuredusingtheBlack-Scholesmodel.Wherecomplexmarketperformancecriteriaexist,aMonteCarlomodelhasbeenused to establish the fair value on grant.

Equity-settledshare-basedpaymentsgrantedbytheCompanytoemployeesofsubsidiariesarerecognisedasanexpensechargedtotherelevantsubsidiarywithanequalincreaseintheinvestmentinthesubsidiaryundertaking.

Trade receivables and trade payablesTrade receivables and trade payables do not bear any interest and are stated at their face value as reduced where appropriate with allowances for estimated irrecoverable amounts.

Cash and cash equivalentsCashandcashequivalentsincludescashinhand,depositsheldatcallwithbanks,othershort-termhighlyliquidinvestmentswithoriginalmaturitiesofthreemonthsorless,andbankoverdrafts.Bankoverdraftsareshownwithinborrowingsincurrent liabilities on the balance sheet.

Exceptional itemsExceptional items represent significant items of income and expense which due to their nature, size, or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of the financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in financial performance.

Non-current assets held for saleNon-currentassetsareclassifiedasassetsheldforsalewhentheircarryingamountistoberecoveredprincipallythroughasale transaction and a sale is regarded as highly probable. The assets are stated at the lower of carrying amount and fair value less costs to sell.

Critical accounting estimates and judgementsEstimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.


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TheGroupmakesestimatesandassumptionsconcerningthefuture.Theresultingaccountingestimateswill,bydefinition,seldomequaltherelatedactualresults.Theestimatesandassumptionsthathaveasignificantriskofcausingmaterialadjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimated impairment of goodwillThe Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy set out above.Therecoverableamountsofcash-generatingunitshavebeendeterminedusingvalueinusecalculations.Thesecalculations require the use of estimates.

New IFRS standards and interpretationsa) Standards and interpretations effective in 2010 and adopted by the GroupIFRS2(amendment),‘Share-basedpayments–Vestingconditionsandcancellations’(effectivefrom1January2009)TheamendmenttoIFRS2requiresnon-vestingconditionstobetakenintoaccountintheestimateofthefairvalueoftheequity instruments. The adoption of the amendment has not resulted in any additional charge to the administrative expenses charged in the consolidated income statement for the year ended 30 June 2010 and no net change in equity at 30 June 2010. The change in accounting policy had no impact upon the prior year consolidated income statement or equity.

IFRS 3 (revised), ‘Business combinations’ (effective from 1 July 2009)The revision to IFRS 3 requires transaction costs to be expensed rather than included as costs of acquisition, and contingent consideration will be required to be fair valued. In addition, there will be a choice of two goodwill measurement methods where less than 100% of the entity is acquired. Implementation of the revision to IFRS 3 has not impacted upon the financial statements in the current year, however, it will have a significant impact on any future acquisitions.

IFRS 8, ‘Operating Segments’ (effective from 1 January 2009)IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularlyreviewedbythechiefoperatingdecisionmaker,whichinthecaseoftheGroupistheexecutivemanagementteam,to allocate resources to the segments and to assess their performance. In contrast, the predecessor standard (IAS 14; ‘Segment Reporting’) required the Group to identify two sets of segments (business and geographical), with the Group’s systemofinternalfinancialreportingtokeymanagementpersonnelservingonlyasthestartingpointfortheidentificationof such segments.

The Group has determined in accordance with IFRS 8 that it’s reported operating segments will be based on business segments (which were the basis of its primary operating segments under IAS 14), and the segmental information set out in note 4 is presented on this basis. The adoption of this standard has not changed the allocation of goodwill between existing cash-generatingunits.

IAS 1 (revised), ‘Presentation of financial statements’ (effective from 1 January 2009)IAS 1 (revised) requires the production of a statement of comprehensive income setting out all items of income and expense relatingtonon-ownerchangesinequity.Thereisachoicebetweenpresentingcomprehensiveinonestatementorintwostatements comprising an income statement and a separate statement of comprehensive income. The Group has elected to present comprehensive income in two statements. The other revisions to IAS1 have not had a significant impact on the presentation of the Group’s financial information.

IAS27(revised),‘Consolidatedandseparatefinancialstatements’(effectivefrom1July2009)Annual improvements to IFRSs (2008) (effective 1 January 2009) have not had a significant impact on the presentation of the Group’s financial information.

b) Interpretations effective in 2010 but not relevantThe following interpretations to published standards are mandatory for accounting periods beginning on or after 1 July 2009 but are not relevant to the Group’s operations:IFRS 1 (revised), ‘First time adoption of IFRS’ (effective from 1 January 2009)IFRS1(amendment),‘FirsttimeadoptionofIFRS’,andIAS27,‘Consolidatedandseparatefinancialstatements’(effectivefrom 1 January 2009)IFRS 7 (amendment), ‘Financial instruments: Disclosure’ (effective from 1 January 2009)IAS 23 (revised), ‘Borrowing costs’ (effective from 1 January 2009)IAS 32 (amendment), ‘Financial instruments: Presentation’, and IAS 1 (amendment), ‘Presentation of financial statements’ – Puttable financial instruments and obligations arising on liquidation (effective from 1 January 2009)IAS 39 (amendment), ‘Eligible hedged items’ (effective from 1 July 2009)IFRIC12,‘Serviceconcessionarrangements’(effectivefrom30March2009)IFRIC15,‘Agreementsforconstructionofrealestates’(effectivefrom1January2009)


2. Accounting policies continuedc) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the GroupThe following standards and amendments to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 July 2010 or later periods, but the Group has not early adopted them:IAS 24 (revised), ‘Related party disclosures’ (effective from 1 January 2011)IAS 32 (amendment), ‘Financial instruments: Presentation on classification of rights issues’ (effective 1 February 2010)IFRIC19,‘Extinguishingfinancialliabilitieswithequityinstruments’(effective1July2010)Annual improvements to IFRSs (2009) (effective 1 January 2010)

d) Interpretations and amendments to existing standards that are not yet effective and not relevant for the Group’s operationsThe following interpretations and amendments to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2009 or later periods but are not relevant for the Group’s operations:IFRS 1 (amendment), ‘On first time adoption of IFRS additional exemptions’ (effective 1 January 2010)IFRS 1 (amendment), ‘First time adoption of IFRS’ (effective 1 July 2010)IFRS2(amendment),‘Share-basedpayments–Groupcash-settledshare-basedpaymenttransactions’(effectivefrom1January 2010)IFRIC14(amendment),‘IAS19–Thelimitonadefinedbenefitasset,minimumfundingrequirementsandtheirinteraction’(effective 1 January 2011)IFRIC18,‘Transferofassetsfromcustomers’(effectivefrom31October2009)

3. Financial risk managementMonitoringoffinancialriskispartoftheBoard’songoingriskassessmentprocess.Otherthanshort-termforwardcurrencycontracts,theGroupdoesnotusefinancialderivatives,anditistheGroup’spolicynottoundertakeanytrading in financial instruments.

ThemainfinancialrisksarisingfromtheGroup’soperationsareforeignexchangerisk,interestraterisk,andcreditrisk.

Foreign exchange riskThe Group has transactional currency exposures as the majority of the Group’s revenues, and certain expenditures, are in currenciesotherthanthefunctionalcurrencyoftheGroup,mainlyEurosandU.S.Dollars.CertainoftheGroup’sbankborrowings are denominated in Euros, as disclosed in note 22.

The Group finances the majority of its activities in Europe and the U.S. in the local currency, out of revenue receipts, excess currency receipts are then translated into Sterling either at the spot rate or through forward contracts. At 30 June 2010 and 30 June 2009, the Group had no such forward contracts outstanding.

At30June2010,iftheEurohadweakened/strengthenedby5%againstSterling,withallothervariablesheldconstant,lossaftertaxwouldhavebeen£1,155,000/(£1,317,000)(2009:profitaftertax£1,008,000/(£1,079,000))higher/lower.Theimpactontotalequitywouldhavebeen£3,223,000/£3,663,000(2009:£2,686,000/(£2,548,000)higher/lower.Theimpactonlossaftertaxismainlyasaresultofthedifferencearisingonthetranslationoftheintra-grouploanbalancewithSinclairPharma France. The impact of a 5% movement in the US Dollar against Sterling would be minimal.

Credit riskCreditriskismanagedonaGroupbasis.TheGroupisexposedtocreditriskthroughpre-wholesalersandmarketingpartners, such that if one or more of them is affected by financial difficulty, it could materially and adversely affect the Group’sfinancialresults.Concentrationofcreditriskinrelationtotradereceivablesisanalysedinnote18.

TheDirectorsdonotbelievethattheGroupisexposedtoconcentrationsofcreditriskonotherclassesof financial instruments.

Cash flow and interest rate riskTheGroupdoesnothavesignificantinterest-bearingassetsandthereforetheGroup’sincomeandoperatingcashflowsaresubstantiallyindependentofchangesinmarketinterestrates.

TheGroup’sinterestrateriskarisesfromshort-andlong-termborrowings.BorrowingsatvariableratesexposetheGrouptocashflowinterestraterisk.At30June2010,ifinterestratesonfloatingborrowingrateshadbeen0.5%higher/lowerwithallothervariablesheldconstant,lossaftertaxwouldhavebeen£40,000(2009:profitaftertax£19,000)higher/lower.

TheGroupdoesnotcurrentlyenterintointerestrateswapsorotherderivativetransactionstomanageinterestraterisk.

Price riskTheGroupisnotexposedtocommodityorothermarketpricerisk.


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4. Segmental informationThechiefoperatingdecisionmakerhasbeenidentifiedastheexecutivemanagementteam.ThisteamreviewstheGroup’sinternal reporting in order to assess performance and allocate resources. Management has determined the operating segments based on these reports.

The executive management team considers the business as being organised into two distinct operating segments; InternationalOperationsandCountryOperations.Researchanddevelopment,technologylicensingincomeandcosts,intellectual property and corporate costs are included under the ‘other’ heading.

The executive management team assesses the performance of the operating segments based on a measure of adjusted earnings before interest, tax, depreciation, amortisation and exceptional items (‘EBITDA’).

2010 | 2009

International Country International CountryOperating Operations Operations Other Total Operations Operations Other Totalsegments £000 £000 £000 £000 £000 £000 £000 £000

Revenue 11,850 15,623 155 27,628 11,898 14,150 4,360 30,408Costofgoodssold (5,849) (4,585) – (10,434) (4,206) (5,498) – (9,704)Gross profit 6,001 11,038 155 17,194 7,692 8,652 4,360 20,704EBITDA 4,174 (795) (3,892) (513) 5,269 (2,104) (896) 2,269Total segment assets 31,976 46,382 17,243 95,601 26,616 61,045 17 87,678

During the year there was £3,064,000 (2009: £828,000) of sales at arm’s length prices between segments. The revenue analysisaboveisstatednetofinter-companysales.

A reconciliation of total adjusted EBITDA to total operating loss is provided as follows:

2010 2009 £000 £000

EBITDA for reportable segments (513) 2,269Depreciation (335) (493)Amortisation (2,859) (2,084)Exceptional items (13,318) (2,428)Operating loss before tax (17,025) (2,736)

Revenue analysisBy destination, the Group’s revenue derives from the following geographic regions:

2010 2009 £000 £000

UnitedKingdom 1,347 1,129Rest of Europe 19,805 18,319United States of America 1,474 7,280Rest of World 5,002 3,680 27,628 30,408

An analysis of revenue by category is set out in the table below:

2010 2009 £000 £000

Product revenue 25,822 21,999Royalties 819 985Licence fees and milestones 987 7,424 27,628 30,408

Large customer: one customer comprised 10.9% of revenue for 2009, there were no single customers in 2010 greater than 10% of revenue.

Non-cashtransactionsof£nilareincludedinlicencefeesandmilestonesandnetprofit(2009:£4.2m).


5. Exceptional operating itemsExceptional items represent significant items of income and expense which due to their nature, size, or the expected infrequency of the events giving rise to them, are presented separately on the face of the income statement to give a better understanding to shareholders of the elements of financial performance in the year, so as to facilitate comparison with prior periods and to better assess trends in financial performance.

2010 2009 £000 £000

Foreignexchange(losses)/gains (1,038) 1,671Restructuring costs (2,737) (1,442)Impairment charges (8,470) –Spiromix claim and impairment charge (175) (898)Inventory provision (772) –Provision for doubtful debts (126) (1,204)Aborted acquisition costs – (555) (13,318) (2,428)

Foreignexchangelossesof£1,038,000representthelossonthetranslationofanintra-grouploanbalance(2009:gainof£1,671,000).Thisisanon-cashitem.

Restructuringcostsof£2,737,000(2009:£1,442,000)include:redundancypackagespaidtoformerDirectorsandseniormanagement as part of the management team restructuring; and provisions for settlements and legal costs following legal challengesfromseveralemployeesandcontractorswhosecontractshavebeenterminated.Costsinclude£342,000inrespectofshare-basedpaymentsthatvestedonredundancyofcertainemployeesandformerDirectors.

Impairment charges of £8,470,000 have been made against certain product and technology rights. Disappointing sales of the dermacosmetic products acquired from Syrio and a strategic review of the product portfolio led to the decision to dispose of these products. Agreement has been reached with one of the current distributors to purchase the assets which havebeenwrittendowntotheirrecoverableamount.Areassessmentofthemarketpotentialofthetechnologiesacquiredthoughcertainnon-cashassetswaparrangementstogetherwithareviewoftheGroup’sR&Dstrategyhasledtothedecision not to continue development of the underlying products, in particular the zinc technology and silver nanotechnology.Thevalueoftheserightshasbeenimpairedinfull.Thesearenon-cashcharges.

An impairment provision of £898,000 in prior year was made against the value of the product distribution rights for Spiromix, as a result of manufacturing delays which have resulted in the product not being available for sale in Italy during theyear.Thisisanon-cashcharge.Intheyearended30June2010,aclaimfordamageswasreceivedfromthedistributorofthe product, as a result of the manufacturing delays and a provision has therefore been made in respect of this claim.

The inventory provision of £772,000 relates to goods impounded by customs authorities in Saudi Arabia that were returned after 18 months but were no longer in a saleable condition, and to inventory of the dermacosmetic products that will be disposed for less than cost under the agreement to dispose of the product rights.

A provision of £126,000 (2009: £1,204,000) was made for a doubtful debt due from one distributor. Movements on other doubtful debt provisions are included within administrative expenses.

Aborted acquisition costs in the prior year were incurred in relation to an acquisition opportunity pursued in the summer of 2008.Thediscussionswereterminatedasaresultofthemarketvolatilityintheautumnof2008bywhichtimecostsof£555,000 had been incurred.


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6. Expenses by nature

2010 2009 £000 £000

Costofinventoryrecognisedasanexpense 10,006 8,765Royalties payable 302 87Depreciation on property, plant and equipment 334 493Impairment charges 8,470 915Amortisation of intangible assets1 2,859 2,084Employee benefit expense (note 7) 6,930 8,132Foreignexchangelosses/(gains) 1,138 (2,393)Operating leases – land and buildings 430 758Operating leases – other 105 28Research and development (excluding salary costs) 533 392Loss on disposal of property, plant and equipment 9 56Loss on sale or disposal of products rights 18 102Legal and professional fees including patents costs 1,383 2,041Distribution expenses (excluding salary costs) 1,180 858Sellingandmarketingcosts(excludingsalarycosts) 2,064 4,060Restructuring charges (note 5) 2,737 1,442Other expenses 6,155 5,324Total cost of sales, selling, marketing and distribution and administrative expenses 44,653 33,144

1 Amortisation and impairment of intangible fixed assets is included in the income statement under administrative expenses.

Services provided by the Group’s auditorDuring the year the Group obtained services from the Group’s auditor as described below:

2010 2009 £000 £000

FeespayabletoCompany’sauditorsfortheaudit ofParentCompanyandconsolidatedfinancialstatements 97 130

Fees payable to Company’s auditors and its associates for other servicesAudit of accounts of the Group’s subsidiaries pursuant to legislation 47 63Services relating to corporate finance transactions entered into or proposed

to be entered into by the Group 195 106Services relating to taxation 61 19All other services 170 25 570 343

7. Employees and DirectorsThe average monthly number of employees (including Executive Directors) employed by the Group during the year was:

Group | Company

2010 2009 2010 2009 Number Number Number Number

Sales and distribution 45 71 – –Production 20 18 – –Administration 32 36 1 2 97 125 1 2

Group | Company

2010 2009 2010 2009Staff costs for the above employees £000 £000 £000 £000

Wages and salaries 5,273 5,913 513 680Social security costs 1,273 1,321 64 85Pension costs 316 411 42 99Share-basedpayments 68 487 (11) 163 6,930 8,132 608 1,027

At 30 June 2010 the Group had unpaid pension contributions of £10,274 (2009: £9,968).

Includedwithinrestructuringcostsfortheyearended30June2010are£2,671,000ofredundancyandseverancepackagesagreed with former directors, senior management and other employees who left the Group following the restructuring. This sum also includes legal provisions relating to certain contracts.


7. Employees and Directors continuedKey management compensationKeymanagementincludesExecutiveDirectorsandmembersoftheexecutivemanagementteam.Compensationpaidorpayabletokeymanagementforemployeeservicesisshownbelow:

Group | Company

2010 2009 2010 2009 £000 £000 £000 £000

Salariesandshort-termemployeebenefits 1,189 1,373 394 680Post-employmentbenefits 68 113 42 99Termination benefits 1,020 – 831 –Share-basedpayments 59 295 6 163 2,336 1,781 1,273 942

Details of the Directors remuneration are set out in the Directors’ Remuneration Report on pages 20 to 24.

8. Finance income and costs

2010 2009 £000 £000

Interestonbankloansandoverdrafts (327) (591)Interest on other borrowings (601) (16)Interest due on finance leases (5) (45)Netforeignexchangelossesonfinancingactivities (100) (319)Share-basedpayments–warrantsissuedtofinanceproviders (140) (86)Other finance costs (224) (116)Exceptional finance costs – (260)Finance costs (1,397) (1,433)Finance income Bankinterestreceivable 7 2Interest receivable on trade receivables 62 50Unwindingofdiscountonnon-currentasset – 77Other interest income – 2Finance income 69 131Net finance expense (1,328) (1,302)

Exceptional finance costs in 2009 relate to costs incurred arranging finance facilities that the Directors decided not to enter into as the terms were unfavourable.

9. Taxation on loss on ordinary activities

2010 2009 £000 £000

Current taxOverseas tax 52 96Withholding tax – 10Over provided in previous years (69) – (17) 106Deferred tax (note 16) Origination of temporary differences (708) (523)Tax credit on loss before taxation (725) (417)


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Factors affecting the current tax chargeThe tax assessed on the loss on ordinary activities for the year is higher (2009: higher) than the standard rate of corporation taxintheU.K.of28%(2009:28%).Thedifferencesarereconciledbelow:

2010 2009 £000 £000

Loss on ordinary activities before tax (18,353) (4,038)Loss on ordinary activities before tax multiplied by the standardrateofcorporationtaxintheU.K.of28%(2009:28%) (5,139) (1,131)

Amortisation not allowed for tax purposes 289 296Expenses not deductible for tax purposes 281 78Unrelieved/(utilised)/U.K.taxlosses 3,731 (339)Unrelieved overseas tax losses 494 545Tax rate difference (310) (180)Decelerated capital allowances (5) 12Overseas tax – 96Over provided in previous years (69) –Other temporary differences 3 196Withholding tax suffered – 10Total tax credit (725) (417)

AnumberofchangestotheU.K.CorporationtaxsystemwereannouncedintheJune2010BudgetStatement.TheFinanceAct 2010 includes legislation reducing the main rate of corporation tax from 28% to 27% from 1 April 2011. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 24% by 1 April 2014. The changes had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements. The proposed reductions of the main rate of corporation tax by 1% per year to 24% by 1 April 2014 are expected to be enacted separately each year.

10. Loss for the financial yearAspermittedbysection408oftheCompaniesAct2006,theCompany’sincomestatementhasnotbeenincludedinthesefinancialstatements.TheCompany’slossforthefinancialyearwas£10,994,000(2009:lossof£1,505,000).

11. Loss per shareThe basic loss per share has been calculated by dividing the loss for the year, by the weighted average number of shares in existence for the year. Shares held by the Employees’ Share Trust, including shares over which options have been granted to former Directors and staff, have been excluded from the weighted average number of shares for the purposes of calculation of the basic loss per share.

The loss and weighted average number of shares for the purpose of calculating the diluted loss per share are identical to those used for the basic loss per share at 30 June 2010, as the exercise of share options and warrants would have the effect of reducing the loss per share and therefore is not dilutive.

2010 2009

Loss attributable to equity shareholders (£000) (17,628) (3,621)Weighted average number of shares 130,891,546 92,904,290Diluted weighted average number of shares 130,891,546 92,904,290Basic loss per share (pence) (13.5p) (3.9p)


12. Goodwill

£000

CostAt 1 July 2008 50,989Additions 355Exchange adjustments 2,597At 1 July 2009 53,941Additions –Exchange adjustments (1,417)At 30 June 2010 52,524

Accumulated amortisation and impairmentAt 1 July 2008 2,879At 1 July 2009 2,879At 30 June 2010 2,879

Net book valueAt 30 June 2010 49,645At 30 June 2009 51,062

Accumulated amortisation and impairment at 1 July 2009 represents amortisation charges prior to 30 June 2004, before transition to IFRS, and impairment of the goodwill arising on the acquisition of Ashbourne Pharmaceuticals Limited, recorded in 2008.

Exchange adjustments arise as a result of the impact of the difference in the Sterling:Euro exchange rate at the beginning and end of the year on balances recorded in Euros.

Goodwill has been allocated to the following cash-generating units:

£000

International Operations 14,234Sinclair Italy 4,651Sinclair France 30,760 49,645

Goodwill is not amortised but tested annually for impairment or more frequently if there are indications that it may be impaired.Goodwillhasbeenallocatedtothreeseparatecash-generatingunitsforthepurposeofimpairmenttesting.Valuein use calculations are generally utilised to calculate recoverable amount. Value in use is calculated as the net present value oftheprojectedposttaxcashflowsofthecash-generatingunit,discountedat11.5%,theGroup’sestimatedposttaxweighted average cost of capital. The cash flows, which have been approved by the Board, have been projected over five years represent the Director’s best estimate of future product revenues and margins. Growth rate assumptions have been appliedatanindividualproductlevel,andrangefrom0%fornon-coreproductsto20%forkeybrands.TheDirectorsbelievethatanyreasonablypossiblechangeinthekeyassumptionsonwhichtherecoverableamountsarebasedwouldnotcausethecarryingamountofgoodwilltoexceeditsrecoverableamount,otherthanfortheSinclairFranceCGUwhereanincreasein the discount rate above 12.5% would trigger an impairment.

CompanyTheCompanyhasnogoodwillateither30June2010or30June2009.


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13. Intangible assets

Group | Company

Licences and product rights Other Total Total £000 £000 £000 £000

CostAt 30 June 2008 16,554 1,225 17,779 1,225Additions 6,743 – 6,743 –Disposals (108) – (108) –Exchange adjustments 1,379 – 1,379 –At 30 June 2009 24,568 1,225 25,793 1,225Additions 17,219 37 17,256 17,161Disposals (43) – (43) (17,137)Reclassification to assets held for sale (2,778) – (2,778) –Exchange adjustments (752) – (752) –At 30 June 2010 38,214 1,262 39,476 1,249

Amortisation and impairmentAt 30 June 2008 2,628 340 2,968 340Chargefortheyear 2,016 68 2,084 68Disposals (6) – (6) –Impairment charge (note 5) 898 – 898 –Exchange adjustments 141 – 141 –At 30 June 2009 5,677 408 6,085 408Chargefortheyear 2,784 75 2,859 951Disposals (41) – (41) –Reclassification to assets held for sale (2,491) – (2,491) (883)Impairment charge (note 5) 8,111 – 8,111 –Exchange adjustments (191) – (191) –At 30 June 2010 13,849 483 14,332 476

Net book valueAt 30 June 2010 24,365 779 25,144 773At 30 June 2009 18,891 817 19,708 817At 30 June 2008 13,926 885 14,811 885

Additions in the year primarily relate to the acquisition of Flammazine® and Flammacerium® from Solvay Pharmaceuticals for€17.5mplusassociatedacquisitionexpenses.TheCompanytransferredtherightstotheseproductstoasubsidiaryattheirnetbookvalueduringtheyearwhichisreflectedwithindisposals.

Exchange adjustments arise as a result of the impact of the difference in the Sterling:Euro exchange rate at the beginning and end of the year on balances recorded in Euros.

Assets held for saleAs at 30 June 2010 the Group had product rights and inventory valued at £426,000 classified as assets being held for sale, theassetsheldforsalerelatetodermacosmeticproductswhichareconsiderednon-coretotheGroup’sfuturestrategy.There were no assets held for sale as at 30 June 2009. The assets have been remeasured at fair value less costs to sell which has resulted in an impairment loss of £2,288,000. As at 30 September 2010 these assets have not been sold however heads of terms have been agreed. The assets held for sale form part of the assets of ‘country operations’ as disclosed in note 4.


14. Property, plant and equipment

Freeholdland Leasehold Office&Lab Motor and buildings improvements equipment vehicles TotalGroup £000 £000 £000 £000 £000

CostAt 30 June 2008 747 456 1,391 194 2,788Exchange adjustments 26 15 63 10 114Additions – – 340 – 340Disposals – – (164) (48) (212)At 1 July 2009 773 471 1,630 156 3,030Exchange adjustments (13) (8) (33) (4) (58)Additions – 2 243 – 245Disposals (16) – (78) (104) (198)At 30 June 2010 744 465 1,762 48 3,019

Depreciation and impairmentAt 1 July 2008 47 168 734 12 961Exchange adjustments 5 7 28 4 44Chargeforyear 25 52 337 79 493Disposals – – (126) (2) (128)Impairment – – 17 – 17At 30 June 2009 77 227 990 93 1,387Exchange adjustments (3) (3) (17) (3) (26)Chargeforyear 33 53 220 28 334Disposals (16) – (78) (93) (187)Impairment – – 194 – (194)At 30 June 2010 91 277 1,309 25 1,702

Net book valueAt 30 June 2010 653 188 453 23 1,317At 30 June 2009 696 244 640 63 1,643At 30 June 2008 700 288 657 182 1,827

Thenetbookvalueofofficeequipment,leaseholdimprovementsandmotorvehiclesincludes£58,000(2009:£149,000)inrespect of assets held under finance leases and hire purchase agreements. Depreciation for the year on those assets was £91,000 (2009: £116,000).

CompanyTheCompanyhasnoproperty,plantandequipmentateither30June2010or30June2009.

15. Investments

Shares in joint ventureGroup £000

Cost and net book valueAt 1 July 2009 165Disposal (165)At 30 June 2010 –

CSPortugalLDA,wasdeconsolidatedfromtheGroup’sresultsfrom1July2008astheGroupnolongerhaseffectivemanagement control of this associate. The 50% holding in this investment was disposed on 30 June 2010.


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Shares in Loans subsidiary to Group undertakings undertakings TotalCompany £000 £000 £000

CostAt 1 July 2008 42,907 34,777 77,684Additions, net of loan repayments – (476) (476)InterestchargedonloanstoGroupundertakings – 1,214 1,214Loan waiver – (795) (795)Capitalcontributionreemployeeshareoptions 324 – 324Exchange adjustments – 1,671 1,671At 30 June 2009 43,231 36,391 79,622Additions, net of loan repayments 17,650 5,631 23,281InterestchargedonloanstoGroupundertakings – 842 842DisposalstootherGroupundertakings (3,472) – (3,472)Loan waiver – (3,146) (3,146)Capitalcontributionreemployeeshareoptions 76 – 76Exchange adjustments – (1,213) (1,213)At 30 June 2010 57,485 38,505 95,990Impairment At 30 June 2008, 2009 and 2010 (6,425) (1,083) (7,508)Net book value At 30 June 2010 51,060 37,422 88,482At 30 June 2009 36,806 35,308 72,114At 30 June 2008 36,482 34,117 70,599

TheCompany’sprincipalsubsidiaryundertakingsareassetoutbelow:

Countryof Proportion Natureof incorporation Holding held business

Sinclair Pharmaceuticals Ltd England Ordinary shares 100% Pharmaceutical productsPharmarights Ltd England Ordinary shares 100% Distribution rightsSinclairPharmaU.K.Ltd England Ordinaryshares 100% PharmaceuticalproductsSinclair Pharma Srl1 Italy Ordinary shares 100% Pharmaceutical productsSalix Pharma AB Sweden Ordinary shares 100% Pharmaceutical productsSinclair Pharma AB Sweden Ordinary shares 100% Pharmaceutical productsSinclair Srl Italy Ordinary shares 100% Pharmaceutical productsSinclairPharmaFranceHoldingSAS France Ordinaryshares 100% HoldingcompanySinclair Pharma France Distribution SAS1 France Ordinary shares 100% DormantSinclair Pharma France Fabrication SAS1 France Ordinary shares 100% DormantSinclair Pharma France SAS1 France Ordinary shares 100% Pharmaceutical productsSinclair Pharmaceutical Espana SL1 Spain Ordinary shares 100% Pharmaceutical productsSinclairPharmaGmbH Germany Ordinaryshares 100% Pharmaceuticalproducts

1 Investment held indirectly.

16. Deferred tax assetDeferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

A deferred tax asset arises as a result of the fair value adjustment to the carrying value of intangible assets at the time of the acquisitionofGroupeCSDermatologieSAS(nowSinclairPharmaFrance)andthesubsequentamortisationoftheintangibleassets and also on tax losses carried forward in certain entities which the Directors expect to be utilised in the foreseeable future. The movement in the Group’s deferred tax asset during the year is as follows:

Fair value adjustment on Tax intangible assets losses Other Total £000 £000 £000 £000

At 1 July 2009 1,050 249 5 1,304Exchange differences (6) (2) – (8)Creditedtotheincomestatement 125 583 – 708At 30 June 2010 1,169 830 5 2,004


16. Deferred tax asset continuedAnumberofchangestotheU.K.CorporationtaxsystemwereannouncedintheJune2010BudgetStatement.TheFinanceAct 2010 includes legislation reducing the main rate of corporation tax from 28% to 24% by 1 April 2014. These changes will not have an impact on the Group’s deferred tax asset at 30 June 2010, as these deferred tax assets relate to timing differencesoutsidetheU.K.,mainlyinFrance.

Unprovided deferred taxThe Group has a potential deferred tax asset, which has not been recognised in the financial statements, due to uncertainties surrounding suitable future taxable profits. This potential deferred tax asset is analysed as follows:

2010 2009 £000 £000

Tax losses 6,988 2,934Decelerated capital allowances 331 188Futuretaxreliefforshare-basedremuneration 138 402Other temporary differences 444 535Unprovided deferred tax asset 7,901 4,059

NodeferredtaxisrecognisedonthedistributedprofitsofsubsidiariesandjointventuresastheyarereinvestedbytheGroup and no tax is expected to be payable on them for the foreseeable future. Since acquisition, subsidiaries have earned profitsof£521,000(2009:£2,313,000)thathavenotbeenremittedtotheCompany.

17. Inventories

Group | Company

2010 2009 2010 2009 £000 £000 £000 £000

Raw materials 1,488 1,135 – –WIP 48 50 – –Finished goods 3,239 2,622 – – 4,775 3,807 – –

18. Trade and other receivables

Group | Company

2010 2009 2010 2009 £000 £000 £000 £000

Trade receivables 9,690 8,911 – –Less provision for impairment of trade receivables (1,541) (1,389) – –Trade receivables – net 8,149 7,522 – –Other receivables 854 1,243 – –Prepayments and accrued income 983 999 127 222 9,986 9,764 127 222

The ageing analysis of trade receivables is as follows:

2010 2009Group £000 £000

Notyetdue 6,031 6,644Up to three months past due 1,995 1,039Over three months past due 1,664 1,228Impaired (1,541) (1,389) 8,149 7,522

Receivablespastduebutnotimpairedrelatetowholesalersandmarketingpartnersforwhomthereisnorecenthistory of default.


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Movements on the Group’s provision for impairment of trade receivables are as follows:

2010 2009Group £000 £000

At 1 July 1,389 113Provision for receivables impairment (note 5) 126 1,308Receivables written off during the year as uncollectible (40) (7)Unused amounts reversed (15) (25)Exchange adjustments 81 – 1,541 1,389

The table below shows the Group’s top three debtors.

2010 2009Group £000 £000

CompanyA 656 593CompanyB 561 485CompanyC 519 482 1,736 1,560

ThecarryingamountsoftheGroup’sandCompany’stradeandotherreceivablesaredenominatedinthefollowingcurrencies:

Group | Company

2010 2009 2010 2009 £000 £000 £000 £000

GBP 269 671 127 222Euro 9,642 8,192 – –U.S. Dollars – 847 – –SEK 75 54 – – 9,986 9,764 127 222

19. Trade and other payables

Group | Company

2010 2009 2010 2009 £000 £000 £000 £000

Trade payables 6,065 5,471 90 362Other taxes and social security costs 713 788 – –Other payables 999 1,029 348 15Accruals 2,798 2,577 784 414 10,575 9,865 1,222 791


20. Borrowings

Group | Company

2010 2009 2010 2009 £000 £000 £000 £000

Bankloans 2,536 4,050 – 1,349Obligations under finance leases 17 60 – –Other borrowings – 492 – 492Non-current borrowings 2,553 4,602 – 1,841Obligations under finance leases 41 66 – –Bankloans 1,178 1,629 – 612Bankoverdrafts 221 1,685 – 108Other borrowings 13,282 353 13,272 236Current borrowings 14,722 3,733 13,272 956Total borrowings 17,275 8,335 13,272 2,797Borrowings included above are repayable as follows:On demand or within one year 14,722 3,733 13,272 956Over one and under two years 1,183 2,291 – 1,263Over two and under five years 1,370 2,311 – 578Total borrowings 17,275 8,335 13,272 2,797

The minimum lease payments under finance leases fall due as follows:

2010 2009 2010 2009 £000 £000 £000 £000

Notlaterthanoneyear 44 70 – –Later than one year but not more than five 17 65 – –Future finance charges on finance lease (3) (9) – –Present value of finance lease liabilities 58 126 – –

Thecarryingamountsandfairvalueofthenon-currentborrowingsare£2,553,000and£2,695,000(2009:£4,602,000and£4,575,000) respectively. The carrying amounts and fair value of current borrowings are £14,722,000 and £15,105,000 (2009: fair value approximated to current value) respectively.

TheGrouphasun-drawncommittedborrowingfacilitiesintheU.K.andFranceof£2,129,000(2009:£145,105,000)availableat 30 June 2010, all of which expire within one year.

Bankloansincludetwofixedratetermloanswithinterestratesof6.0%and3.95%respectively,therearenocurrent bankloanswithafloatinginterestrate(2009:5.45%overLIBOR).Bothloansarerepayableinquarterlyinstalmentsover five years.

The Group’s borrowings in France of £3,713,000 (2009: £3,668,000) are secured by a pledge over all assets of Sinclair Pharma France SAS, and the Italian overdraft balance of £63,000 (£896,000) is secured on the trade receivables of Sinclair SRL.

The£12.0mnewdebtfacilitysecuredinOctober2009fromBrackenHoldingsLimited(‘Bracken’)isclassifiedunderotherborrowings. This is secured on the Group’s assets and is contractually repayable over five years in monthly instalments. Part ofthefacilitywasusedtorefinanceanexistingbankloanintheU.K.Interestischargedat5.5%and6.5%overLIBORondifferent tranches of the facility. On £7.0m of the facility, contractually no repayments are due within the first year from drawdown. Expenses of £403,000 have been offset against the gross liability and are being amortised through finance costs over the life of the facility. The full amount has been classified as borrowings due within one year following agreement betweentheCompanyandBrackeninJune2010towaivetheJune2010covenantmeasurementsinorderfortheGrouptopursue its new strategy, in return for the facility being repaid in full out of the net proceeds of the Placing and Open Offer announcedinAugust2010.TheCompanyalsoissuedwarrantstoOctopusCapitalLimited,Bracken’sparentcompanyunderthetermsoftheBrackenfacility,seenote25.

The £2.3m one year unsecured convertible loan notes issued in September 2009 is included within other borrowings and bears interest at 8%. The convertible loan notes were refinanced by a new £2.3m loan note issued in September 2010. The loannotescanbeconvertedintoOrdinary1psharesintheCompanyatapriceof24.7ppershare,attheoptionoftheholderon quarter end days, starting on 31 December 2010 through to 31 March 2012, the redemption date. There was no fair value attached to the equity element at inception.

TheCompany’sbankloanswererepaidduringtheyearaspartofthenewBrackenfacility.

Amounts due under finance leases are secured on the assets to which they relate.


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21. Provisions

Group | Company

Legal Onerous Legal provision lease Restructuring Total provision £000 £000 £000 £000 £000

At 1 July 2009 260 80 385 725 260Chargedtotheincomestatement 264 65 720 1,049 100Utilised in the year (277) (80) (409) (766) (276)Released in the year – – (338) (338) –At 30 June 2010 247 65 358 670 84

Analysis of total provisions:

Group | Company

2010 2009 2010 2009 £000 £000 £000 £000

Non-current 98 343 – –Current 572 382 84 260 670 725 84 260

Legal provisionThe legal provision from 2009 relates to exceptional professional fees associated with arranging finance facilities which the Directors decided not to enter into as the terms were unfavourable. This provision was utilised in full during the year and newprovisionswereestablishedrelatingtovariousclaimsfromtherestructuringundertakenintheyear.

Onerous leaseTheonerousleaseprovisionrelatestothepropertywhichhasbeenvacatedasaresultoftheclosureoftheNorthamptonsite. The provision is for property and property related costs prior to the expected date of assignment of the lease. This provisionwasutilisedduringtheyearwithafurtherprovisionestablishedinrelationtoexcessspaceintheCompany’sGodalming office following the relocation of International Operations to Paris.

RestructuringThe restructuring provision from 2009 related to the employee costs associated with the restructuring plan implemented in theyear,whichincludedtheclosureoftheNorthamptonsiteandthesalesforce.Thisprovisionwasutilisedduringtheyearand further provisions were established following the further restructuring announced in December 2009. Some of these provisions were released prior to 30 June 2010 with the balance expected to be utilised within the next year.

22. Financial instrumentsThe Group’s financial instruments comprise; cash and cash equivalents, finance leases, borrowings and various trade and other receivables and trade and other payables that arise directly from its operations. The Group’s policies and additional disclosuresrelatingtothemanagementofforeignexchange,credit,cashflowandliquidityandpricingriskaresetoutinnote 3. Trade and other receivables and trade and other payables have been excluded from all of the following disclosures otherthancurrencyriskdisclosures.

The Group had the following financial instruments at 30 June each year:

Assets | Liabilities

2010 2009 2010 2009 £000 £000 £000 £000

Othernon-currentassets 209 89 – –Cashandcashequivalents 2,071 88 – –Bankoverdraft – – 221 1,685Trade and other receivables 9,003 8,765 – –Trade and other payables – – 9,862 9,077Othernon-currentliabilities – – 94 239Borrowings – finance leases – – 58 126Borrowings–bankloans – – 3,714 5,679Borrowings – other – – 13,282 845 11,283 8,942 27,231 17,651


22. Financial instruments continuedInterest rate riskFixedandfloatingrateinstantaccessdepositsearnedinterestatprevailingbankratesassetoutbelow.

Interest rate risk profileFinancial assets

2010 | 2009

Fixed Floating Fixed Floating £000 £000 £000 £000

Cash GBP – 1,077 – 15Cash Euro 1 916 – 65Cash U.S.Dollars – 71 – –Cash SEK – 6 2 6 1 2,070 2 86

Fixed rateThe weighted average interest rate on fixed rate financial assets is 0% (2009: nil).

Floating rateThe weighted average interest rate on floating rate financial assets is stated in the table below:

2010 2009 Weighted Weighted average rate average rate

GBP 1.3% –Euro – 0.2%U.S. Dollars – –

Financial liabilities

2010 | 2009

Fixed Floating Fixed Floating £000 £000 £000 £000

Bankoverdraft Euro – 221 – 1,340Bankoverdraft GBP – – – 345Borrowings – finance leases Euro 48 – 88 –Borrowings – finance leases GBP 10 – 38 –Borrowings–bankloans Euro 3,714 – 3,688 1,991Borrowings – other loans GBP 2,300 10,972 492 236Borrowings – other loans Euro 10 – 62 55 6,082 11,193 4,368 3,967

Floating rateThe interest rates on floating rate financial liabilities are stated in the table below:

2010 2009 Interest rate Interest rate

Euro–bankoverdrafts 4.9% 8.6%Sterling–bankoverdraftsandloans – 10.9%Euro – loans – 8.3%Sterling – other loans 6.3% 8.3%

Fixed rateThe interest rates on fixed rate financial liabilities are stated in the table below:

2010 2009 Interest rate Interest rate

Sterling – finance leases 13.6% 7.4%–14.8%Euro – finance leases 7.4 10.0%Euro – loans 4.0%–6.0% 6.0%Sterling – other loans 8.0% 8.0%

Tradeandotherreceivables,tradeandotherpayablesandothernon-currentliabilitiesarenotinterestbearing.In accordance with IAS 39 ‘Financial instruments: Recognition and measurement’ the Group has reviewed all contacts for embedded derivatives that are required to be separately accounted for. There were no such derivatives at 30 June 2010 or 30 June 2009.


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TheDirectorsconsiderthatthefairvalueoftheGroup’sfinancialinstrumentsdonotdiffersignificantlyfromtheirbookvalues,otherthanbankloans,assetoutinnote20.

Foreign currency exposureAt 30 June 2010 the Group’s operating companies have financial instrument assets of £71,000 (2009: £2,039,000) and financial instruments liabilities of £109,000 (2009: £489,000) denominated in U.S. Dollars, financial instrument assets of £11,294,000 (2009: £6,765,000) and financial instrument liabilities of £10,584,000 (2009: £14,007,000) denominated in Euros.

CompanyTheCompanyhadthefollowingfinancialinstrumentsat30Juneeachyear:

Assets | Liabilities

2010 2009 2010 2009 £000 £000 £000 £000

Cashandcashequivalents 1,081 17 – –Bankoverdraft – – – 108Trade and other payables – – 1,222 791Borrowings–bankloans – – – 1,961Borrowings – other loans – – 13,272 728 1,081 17 14,494 3,588

Bankoverdraftsandloansweresubjecttofloatingratesofinterest,thebankloanswererepaidduringtheyear. Theweightedaverageinterestrateonbankoverdraftsandloanswas0%(2009:6.4%).

BankLoansat30June2009of£1,961,000weresubjecttointerestat5.45%overLIBOR.Otherloansweresubjecttofixedand floating rates of interest. £492,000 is subject to fixed rate of interest at 8%, and the remaining £236,000 is subject to a floating rate of 5% above the Barclays base rate.

Other loans at 30 June 2010 include the unsecured convertible loan notes of £2,300,000 subject to interest at 8.0%, and the Brackenfacilityof£10,972,000subjecttointerestataweightedaveragerateof6.25%overLIBOR.

Tradeandotherpayablesandothernon-currentliabilitiesarenon-interestbearing.

Foreign currency exposureAt30June2010theCompanyhadfinancialinstrumentassetsof£nil(2009:£nil)andfinancialinstrumentsliabilitiesof£nil(2009: £1,961,000) denominated in Euros.

23. Called-up share capital

2010 2009 2010 2009GroupandCompany Number Number £000 £000

AuthorisedOrdinary shares of 1p 200,000,000 125,000,000 2,000 1,250Issued and fully paidOrdinary shares of 1pAt 1 July 103,335,448 93,478,980 1,033 935Allotted on exercise of share options 1,072,043 66,257 11 1Shares issued 57,743,578 2,356,521 578 23Shares issued in settlement of deferred consideration – 433,690 – 4Institutional placing – 7,000,000 – 70At 30 June 162,151,069 103,335,448 1,622 1,033

See note 25 for details of share options and warrants over Ordinary shares.

On10December2009theCompanyissued57,743,578Ordinary1psharesoncompletionofthePlacingandOpenOfferat32p per share for cash consideration of £18,477,945 giving rise to a share premium of £17,900,509.

TheCompanyalsoissued1,072,043Ordinary1psharesonexerciseofperformanceshareawardsbyemployeesduringtheyear. The price paid was 1p for each share, realising cash consideration of £10,721.


24. Share premium

2010 2009GroupandCompany £000 £000

At 1 July 23,131 21,472Proceeds from shares issued 17,919 1,722Share issue expenses (1,550) (63)At 30 June 39,500 23,131

See note 23 above for details of movements in share premium on issue of shares during the year.

25. Options and warrants over shares of Sinclair Pharma plcTheCompanyhasissuedshareoptionsandwarrantstoDirectorsandemployeesoftheGroup.Shareoptionshavebeenissued from the Sinclair Pharma plc 2003 Enterprise Management Incentive Scheme (‘2003 scheme’) which was approved by theBoardon18November2003.UnderthisschemetheCompanycangrantbothqualifyingoptions(EMIoptions)andunapprovedoptionsoverOrdinary1psharesintheCompany.Duringtheyear,theCompanyalsoissuedReplacementoptions under the 2003 Executive Incentive Plan (‘EIP’). The scheme rules for each of these schemes are summarised in the Directors’ Remuneration Report.

TheCompanyhasalsoissuedReplacementWarrants,NewWarrants,ConsultantWarrantsandInterestsinOrdinaryshares to certain Directors, employees and consultants subject to various conditions as set out in the Directors’ Remuneration Report.

Consultant WarrantsConsultantWarrantshavebeengrantedtosubscribeforOrdinarysharestocertainconsultants(‘ConsultantWarrants’).These warrants are exercisable at any time but will lapse on the earlier of:

The 10th anniversary of the date of grant;•12 months after the death of a warrant holder;•The cessation of a consulting contract•Bankruptcyofthewarrantholder;or•Subject to the discretion of the Board.•

AllOrdinarysharesissuedunderaConsultantWarrantwillrankpari passu with all other Ordinary shares then in issue other than in relation to dividends, which have a record date prior to the date of issue. There are no performance conditions relatingtoConsultantWarrants.

GEM WarrantsTheCompanyhasissuedwarrantstoGEMGlobalYieldFundLimited(‘GEMWarrants’)tosubscribeforOrdinary1pshares intheCompany.GEMwarrantsvestedimmediatelyonissueandcanbeexercisedforaperiodoffiveyearsfromthedate of grant.

Octopus WarrantsTheCompanyhasalsoissuedwarrantstoOctopusCapitalLimited(‘OctopusWarrants’),parentcompanyofBracken,tosubscribeforOrdinary1psharesintheCompany.TheOctopusWarrantsvestedimmediatelyandcanbeexercisedforaperiod of five years from the date of grant.


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The number of shares subject to options, warrants, performance share awards and interests in shares at 30 June 2010, the date of grant and periods in which they may be exercised are given below.

Outstanding at

Exercise 30 June 30 JuneDate of grant Price 2010 2009 Exercise period

Share options1 May 2001 67p – 15,000 10 December 2013–30 April 201110 December 2003 115p 36,000 729,000 10 December 2003–9 December201320 October 2004 94.5p 15,575 181,924 20 October 2007–19 October 20141 June 2005 115p – 37,500 1 June 2008–31 May 20156 October 2005 115p – 30,000 6 October 2008–5 October 20154 October 2006 101p 13,005 1,607,120 4 October 2009–3 October 2016Performance share awards 25 July 2007 1p 858,995 1,407,975 25July2010–N/A1

9 December 2008 1p 2,952,115 5,011,480 9December2011–N/A1

Replacement options6November2009 1p 157,543 – 6November2010–5November2016Replacement Warrants3 December 2003 1p – 4,200,000 3 December 2003–2 December 20133 December 2003 67p 75,000 75,000 3 December 2003–2 December 20133 December 2003 133p 75,000 75,000 3 December 2003–2 December 2013New Warrants3 December 2003 1p – 627,900 3 December 2003–2 December 20133 December 2003 67p 11,214 11,214 3 December 2003–2 December 20133 December 2003 133p 11,214 11,214 3 December 2003–2 December 2013Consultant Warrants31 May 2001 133p 2,835 53,815 10 December 2013–30 April 20113 December 2003 115p – 600,000 10 December 2013–2 December 2013Interests in shares3 December 2003 115p 258,639 1,431,129 3 December 2003–2 December 2013GEM Warrants15 May 2009 37.2p 900,000 900,000 15 May 2009–15 May 2014Octopus Warrants11 December 2009 32p 1,000,000 – 11 December 2009–10 December 2014 6,367,135 17,005,271

1 Shares subject to performance share awards will be issued to holders of such awards immediately upon satisfaction of the performance criteria, subject to the holder agreeing to pay the 1p per share nominal value if new shares are issued.

26. Share-based paymentsAll employees of the Group are awarded share options subject to qualifying conditions. Options are granted to employees underthe‘2003scheme’.Optionsgrantedundertheschemehaveafixedexercisepricebasedonthemarketpriceatthedate of the grant. The contractual life of all options and warrants is 10 years with the exception of the GEM and Octopus Warrants, five years. Options cannot normally be exercised before the third anniversary of the date of grant.

OptionswerevaluedusingtheBlack-Scholesoption-pricingmodelwherenomarketconditionswereattachedandtheMonteCarloModelwheremarketconditionsapplied.DirectorsandothersenioremployeesoftheGrouparenormallygrantedoptionswithmarketperformanceconditions.TheGrouphastakentheexemptionprovidedinIFRS1,whichallowsthechargeforshare-basedpaymenttobecalculatedonlyinrespectofoptionsgrantedtoemployeesafter7November2002, which had not yet vested by 1 July 2005. For each relevant option grant, individual valuation assumptions were assessed based upon conditions at the date of the grant. The range of assumptions in the calculations is as follows:

Expected Expected Performance ValuationAward Grantdate Expectedterm dividendyield volatility Riskfreerate conditions method

2003scheme 20October2004 3years 0% 53.5% 4.52% None Black-Scholes2003scheme 4October2006 3years 0% 26.9% 4.86% None Black-ScholesEIPscheme 25July2007 3years 0% 25.2% 5.69% None Black-ScholesEIPscheme 25July2007 3years 0% 25.2% 5.69% Market MonteCarloEIPscheme 9December2008 3years 0% 46.3% 2.83% None Black-ScholesEIPscheme 9December2008 3years 0% 46.3% 2.83% Market MonteCarloGEMWarrants 15May2009 3years 0% 58.9% 2.80% None Black-ScholesOctopusWarrants 11December2009 3years 0% 62.0% 2.80% None Black-Scholes


26. Share-based payments continuedThe expected lapse rate for the above awards is 7% evenly over the three year vesting period, other than GEM and Octopus Warrants which have no vesting period and therefore 0% lapse rate. The fair values per option granted are set out in the tables below.

Number Shareprice Fairvalue ofoptions/ ongrant priceongrant awards date date Fair valueAward Grant date granted (pence) (pence) £

2003 scheme 20 October 2004 288,526 96p 38p 109,6402003 scheme 4 October 2006 668,148 101p 25p 166,168EIP scheme 25 July 2007 1,157,420 118.7p 118p 1,364,019EIP scheme 25 July 2007 721,146 118.7p 71p 510,716EIP scheme 9 December 2008 2,505,740 17.25p 13p 325,746EIP scheme 9 December 2008 2,505,740 17.25p 16.3p 408,436GEM Warrants 15 May 2009 900,000 30.25p 9.6p 86,400Octopus Warrants 11 December 2009 1,000,000 33.75p 14p 140,000

A reconciliation of share option and warrant movements for the years ended 30 June 2010 and 30 June 2009 is set out below:

2010 | 2009

Weighted Weighted average average exercise price exercise price Number (pence) Number (pence)

Outstanding at 1 July 17,005,271 33.8p 12,065,076 52.2pGranted 1,488,999 21.8p 5,911,480 6.5pForfeited (3,352,224) 49.1p (540,951) 46.4pExchanged (2,755,495) 113.6p – –Lapsed – – (364,077) 187.5pExercised (6,019,416) 1.0p (66,257) 1.0pOutstanding at 30 June 6,367,135 19.4p 17,005,271 33.8pExercisable at 30 June 2,398,482 49.9p 8,048,696 45.9pExercisableandmarketpriceexceedsexercisepriceat30June – – 4,827,900 1.0p

The following table summarises information about the range of exercise prices for share options and warrants outstanding at 30 June 2010 and 30 June 2009.

2010 | 2009

Weighted Weighted average Weighted Weighted average

Range of average Number remaining life (years) average Number remaining life (years)

exercise prices exercise price of shares Expected Contractual exerciseprice ofshares Expected Contractual

Under 40p 11.8p 5,868,653 1.4 4.9 3.7p 12,147,355 1.3 5.541p to 80p 67.0p 86,214 – 3.4 67.0p 101,214 – 3.881p to 120p 113.4p 323,219 – 3.6 109.3p 4,616,673 0.6 5.5121p to 160p 133.0p 89,049 – 3.3 133.0p 140,029 – 2.7 6,367,135 17,005,271

Thetotalchargefortheyearrelatingtoemployeeshare-basedpaymentplansandwarrantswas£549,000(2009:£573,000)allofwhichrelatedtotheaboveequity-basedtransactions.


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27. Other reserves

Group | Company

Cumulative translation Warrant Warrant reserves reserve Total reserve £000 £000 £000 £000

At 1 July 2008 3,512 686 4,198 686Exchange differences arising on translation of overseas subsidiaries 2,330 – 2,330 –At 30 June 2009 5,842 686 6,528 686Exchange differences arising on translation of overseas subsidiaries (912) – (912) –Options and warrants exercised – (662) (662) (662)At 30 June 2010 4,930 24 4,954 24

Warrant reserveOtherreservesaroseonthegrantof784,875warrantsinsettlementoftheNationalInsuranceliabilityoncertainwarrantsandunapprovedshareoptionsthatwereissuedbytheCompany.

Duringtheyearended30June2004theCompanyenteredintoajointelectionwiththeholdersofcertainwarrantsforthetransferoftheemployer’sNationalInsuranceliabilityarisingontheexerciseofthewarrants.Inconsiderationforthetransferofthisliability,theCompanygrantedadditionalwarrantsoverunitstosubscribeforshares,which,asatthedateofgrant, provided the warrant holders with a right to subscribe for 784,875 shares.

ThewarrantsweregrantedatthesameexercisepriceasthewarrantsthatattractedNationalInsuranceliability,whichwaslessthanmarketvalueonthedateofgrantreflectingthevalueoftheNationalInsuranceliabilitytransferredtotheholders.Accordingly,theintrinsicvalue(thedifferencebetweenmarketpriceandthegrantprice)wastransferredfromtheNationalInsurance provision and is included in the warrant reserve, which is released to the profit and loss account reserve as the underlying warrants are exercised.

627,900 warrants were exercised during the year, resulting in a release of £662,000 to the profit and loss account reserve.

28. Cash flows from operating activities

Group | Company

2010 2009 2010 2009 £000 £000 £000 £000

Loss before tax (18,353) (4,038) (10,994) (1,505)Finance income (69) (131) (849) (1,214)Finance costs 1,397 1,433 1,062 835Share-basedpayments 409 487 409 163Depreciation 334 493 – –Amortisation of intangible assets 2,859 2,084 951 68Impairment charges 8,470 915 – 423Non-cashlicenceagreements – (5,363) – –Partial waiver of loan account – – 3,146 795Loss on disposal of property, plant and equipment 18 56 – –Loss on sale of product rights 9 102 – –(Profit)/lossondisposalofsubsidiarycompany (27) – 3,256 –Increase in provision for doubtful debts 34 1,268 – –Increase in provisions – net of finance costs provision 216 465 (176) –Exchange gains 1,064 (2,304) 1,038 (1,727)Changes in working capital (excluding effects of acquisitions) (3,639) (4,533) (2,157) (2,162)(Increase)/decreaseininventories (1,247) (192) – –(Increase)/decreaseinreceivables (625) 4,419 95 (185)Increase/(decrease)inpayables 1,011 (989) 392 485(Decrease)/increaseindeferredincome (556) 70 – –Netcashoutflowfromoperations (5,056) (1,225) (1,670) (1,862)


29. Operating lease commitments At30June2010theGrouphascommitmentsinrespectofnon-cancellableoperatingleasesasfollows:

Land and Land and buildings Equipment Total buildings Equipment Total 2010 2010 2010 2009 2009 2009Group £000 £000 £000 £000 £000 £000

Commitments under non-cancellable operating leases

Within one year 412 150 776 348 186 534Between two and five years 671 78 535 441 81 522After five years – 11 11 – – – 1,083 239 1,322 789 267 1,056

CompanyTherewerenooperatingleasecommitmentsfortheCompanyat30June2010(2009:£nil).

30. Capital commitmentsTheGroupandCompanyhadnocapitalcommitmentsat30June2010(2009:£nil).

31. Related party transactionsGroupThe following transactions were carried out with related parties:

a) Key management compensationThecompensationpaidtokeymanagementforemployeeservicesissetoutinnote7.

b) DirectorsRefertotheDirectors’RemunerationReportfordetailsofremunerationofDirectorsemployedbytheCompany.

Loans from Directors to the Group:

2010 2009 £000 £000

At 1 July 291 –Loans advanced during the year – 355Loans repaid during the year (200) –Loan converted into equity (91) (64)At 30 June – 291

TheloansfromMrJAPRandallandMrJ-CTschudinwereconvertedintoOrdinarysharesinDecember2009atthetime of the Placing and Open Offer. The loan from Dr M J Flynn’s wife was repaid in full with accrued interest of £19,000 in May 2010.

Company The following transactions were carried out with related parties:

a) Directors On 10 December 2009, the following Directors and related parties subscribed for shares under the Placing and Open Offer at 32p per share:

MrGCooksubscribedfor100,000shares.

Mr J A P Randall subscribed for 704,614 shares which included full settlement of the £36,000 loan and accrued interest that was owed to him.

MrJ-CTschudinsubscribedfor189,997sharesinfullsettlementofthe€62,500loanandaccruedinterestthatwasowedto him.

MrCSpoonersubscribedfor2,568,140shareswhichincludedfullsettlementofthe£500,000loanandaccruedinterest,and £300,000 fees payable under a consultancy agreement.

MrCSpooneralsoreceivedafeeof£192,000,paidincash,arisingunderhisconsultancyagreement,oncompletionofthePlacing and Open Offer in December 2009 and further fees of £180,000 are due and will be settled by the issue of shares to Mr Spooner as part of the Placing and Open Offer announced on 26 August 2010.


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b) Transactions with subsidiariesTheCompanyisresponsibleforfinancing,oftheGroup,managingGroupfunds,andsettingGroupstrategy.Financeisthenprovidedtooperatingsubsidiaryundertakingswherenecessary,detailsofinter-companyloansaresetoutinnote15.

TheCompanyhasbeenchargedforexpensespaidbysubsidiariesof£1,156,000duringtheyear(2009:£780,000).

Inaddition,optionsovertheCompany’sshareshavebeenawardedtoemployeesofsubsidiarycompanies.InaccordancewithIFRIC11,theCompanyhastreatedtheawardsasacapitalcontributiontothesubsidiaries,resultinginanincreaseinthe cost of investment of £76,000 (2009: £324,000).

32. Post balance sheet eventsPlacing and Open OfferOn 26 August 2010 the Board announced a fully underwritten Placing and Open Offer to raise £19.0m (£17.9m net of expenses) at 28p per share, an 8% premium to the share price immediately before the announcement. On 6 October 2010, thenewshareswereadmittedtotradingandtheproceedsreceivedbytheCompany.Thenetproceedswillbeused torepaytheremainingdebtundertheBrackenfacility,investmentinnewproducts(TerbinafinesprayandKelo-Cote®),investment in existing technologies (Delmopinol and Flammacerium®) and invest in the regulatory affairs activities of theCompany.

Convertible loan notesOn3September2010,theCompanyrepaidthe2,300,000convertibleloannotesissuedin2009throughtheissueofanewseries of loan notes on substantially the same terms. The new loan notes will expire on 31 March 2012 if not converted prior to that date.


AuditorsPricewaterhouseCoopersLLP9 Greyfriars RoadReadingBerkshireRG11JG

BankersBarclaysBankplcPO Box 7291CapabilityGreenLutonBedfordshire LU1 3US

Financial Advisor and BrokerSingerCapitalMarketsLimitedOneHanoverStreetLondon W1S 1YZ

RegistrarsCapitaRegistrarsNorthernHouseWoodsomeParkFenay BridgeHuddersfieldWestYorksHD80LA

Registered officeGodalmingBusinessCentreWoolsackWayGodalmingSurrey GU7 1XW

Company informationSinclair Pharma plc is registered as a public limited company under English law. Its shares are listed on the Official List of the LondonStockExchangeandonEuronextParis.

Sinclair Pharma plc is incorporated and domiciled in England and its registered number is 03816616.

Corporate Advisors

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a.com Sinclair Pharma plc Annual report and accounts 2010 5959 Sinclair Pharma plc Annualreport&accounts2010

Notes


Notes


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