ERX - A thread for everyone

RNS Number:4983O
EiRx Therapeutics PLC
21 December 2006


For immediate release 21 December 2006




EIRX THERAPEUTICS PLC


('EiRx' or 'THE COMPANY')


PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2006



Cork, Ireland, 21 December 2006 EiRx Therapeutics plc (AIM: ERX), the drug
discovery company developing targeted therapies for cancer, is pleased to
announce its preliminary results for the year ended 30 June 2006.


Copies of the annual report and accounts will be posted to shareholders by 28
December 2006 and will be available at 50 Broadway, Westminster, London SW1H 0BL
until the company's Annual General Meeting which will be held at the same
address at 9-00am on 2 February 2007.



Highlights:

* launch of EnPADTM technology and filing of Company's first ever patent
application describing the chemical composition of potential new
anti-cancer drugs - August 2005

* collaboration and Intellectual Property agreement with Almac
Diagnostics - March 2006

* #1.2M raised by share placement - March 2006



Post reporting period highlights:

* collaboration agreement with bioMerieux SA - July 2006

* efficacy of lead molecule ERX3722 in xenograft model of breast cancer
- September 2006

* change of broker and #0.5M raised by share placement - September 2006





Chairman's statement

Financial Review

During the financial year, revenues of #24,571 were generated from services
provided to third party research pharmaceutical companies and #2,209 was
received in royalties. Expenditures totalled #1,975,981 including #370,281 of
goodwill amortisation and #81,818 of depreciation and amortisation of patents,
against which grants received of #93,073 have been credited. The net loss for
the year was #1,856,210. Auvation, the subsidiary acquired last year made a
loss of #467,558 which contributed to this net loss and accounted for all the
revenues and royalty income.



The company subdivided its share capital with a ten for one share split during
the year and consequently the relevant figures for last year including those set
out below, have been restated to reflect this.



In August 2005 acceptances were received for the remaining shares outstanding in
Auvation and as a result 22,500,000 new shares were issued. The amount of
#45,000 in respect of these shares was shown as Shares To Be Issued in last
year's balance sheet. In November 2005 the company issued 23,341,250 new shares
at a price of
0.4 pence per share, to pay a debt owed to the University of Aberdeen and in
March 2006 603,500,000 new shares were issued at par of 0.2 pence per share
raising working capital of #1,207,000 before costs. During the year advances
were received in the form of Loans amounting to #245,000 from EiRx Pharma
Limited.



At the end of the financial year cash at bank and in hand amounted to #297,674
against which there was a bank overdraft of #2,704.



Since the year end, shares have been issued and allotted as detailed elsewhere
in this report at a value of #500,000 to fund ongoing research and development
activities.



Key Performance Indicators ("KPI's")

1) Our business KPI is to carry out our research programme in accordance
with plans approved by the Board of Directors.



2) Our financial KPI is to ensure that we have adequate funding in place
to accomplish 1.



Corporate and Product Development Review

In the previous year's annual report I set out various steps the Company was
taking to realign its principal business activities in line with the changing
priorities of our target market, the multinational Pharmaceutical companies. In
August '05 we achieved a major milestone in this process, with the filing of the
Company's first ever patents on potential new cancer drugs discovered through
in-house research. This successfully completed our collaboration with BioFocus
plc, in which we sought to compile a discovery library of kinase inhibitor
compounds for application to our growing bank of custom-designed cancer cell
screening assays. In September '06, shortly after the financial year end, we
announced results of an in vivo study confirming that a selected molecule from
this series, designated ERX3722, inhibits the growth of human breast cancer
cells in a xenografted tumour model. Your Board intends to leverage this
progress to improve the Company's capitalization, enhance our technical
capabilities in key aspects of drug development and propel our experimental
cancer treatments towards clinical evaluation.



The two series of molecules identified in our first EnPADTM programme have
demonstrated the ability to induce apoptosis in a number of cancer cell lines in
a specific and selective fashion. The first series of molecules from this
programme was advanced through early ADME (administration, distribution,
metabolism, excretion) studies in the first half of 2006. Certain compounds
from the series were found to be sufficiently "drug-like" to warrant further
development, and were advanced to an in vivo efficacy study using a human tumour
xenograft model. We were encouraged by the positive results from this study,
which are further discussed below in the section dealing with events occurring
after the '05/'06 financial year end.



In the course of the present financial year we have pursued the development of a
pipeline of unique EnPADTM models targeting various aspects of the growth and
survival pathways on which cancer cells depend, and also more than doubled the
size of our drug discovery compound library. The new EnPADTM screening models
are based either on novel, proprietary targets identified as key apoptosis
regulators via application of our ALIBITM platform, or on key apoptosis genes
implicated in the scientific literature. These initiatives build on the success
we have enjoyed with our first-generation EnPADTM model targeting the wnt /
B-catenin pathway, and we anticipate a similar level of productivity from
these new programmes over the coming months.



Progress has also been made over the last year at EiRx's second research site in
Aberdeen, Scotland. Cancer drug targets discovered by the Aberdeen team during
research on the ACCRI-BANK tissue repository have been evaluated using the
Company's combined target validation capabilities, and the most promising
targets have been selected for further study and entry to drug discovery.
Certain enzymes of the Cytochrome P450 family which the Company has disclosed as
tumour markers in patent applications have been screened with a compound library
and selective inhibitors have been identified. The Company is currently
exploring opportunities for their out-licensing or continued internal
development as potential treatments for certain cancers. Work on development of
prodrugs targeting the CYP1B1 enzyme has been discontinued in order to
concentrate greater effort and resources on our EnPADTM approach.



The US biotech company MGI Pharma (NASDAQ: MOGN) is developing a cancer vaccine
(ZYC300) based on IP licensed from EiRx's Auvation subsidiary. A Phase I/IIa
single-agent clinical trial of ZYC300 conducted by MGI Pharma demonstrated that
patients whose immune system responded to the vaccine responded favourably to
subsequent "salvage" chemotherapy. In September '06 MGI Pharma initiated a
second Phase I/IIa trial of ZYC300, this time combining it with a second agent
that it is hoped will enhance the favourable immune response. EiRx stands to
earn milestones and royalties on the successful development of ZYC300. A
similar success-based milestone arrangement pertains to the Company's licensing
of drug targets to OSI Pharmaceuticals (NASDAQ: OSIP). The Board will update
the market if and when such milestones are reached.



Patents Granted

In November 2005 the European Patent Office granted one of EiRx's screening
patents, application number 01947681.1. The patent is key to underlying aspects
of the Company's ALIBITM technology for drug target discovery.



Collaboration with Almac Diagnostics

In March '05 EiRx signed a collaborative agreement with the applied genomics
specialist Almac Diagnostics of Craigavon, Northern Ireland. The collaboration,
which is part-funded by the InterTrade Ireland INNOVA Collaborative R&D program,
will allow EiRx to use its ALIBITM platform to design and model the
transformation events and mechanisms associated with resistance to apoptosis
that occur during the early development of colorectal cancer. Almac Diagnostics
will measure and correlate gene expression changes and potential drug targets
will be validated using EiRx's proprietary siRNA platform before being advanced
into our drug discovery programme. EiRx and Almac Diagnostics view the signing
of this agreement the first phase of a strategic alliance that is expected to
expand as the companies work together to develop enhanced treatments for
colorectal cancer.



Significant events occurring after the Financial Year end

Collaboration with bioMerieux SA

In July of this year the Company entered into an agreement with bioMerieux SA,
the leading international diagnostics group headquartered in France. Under the
terms of the collaboration both companies will undertake research into the
expression of genes and proteins within tumour samples from cancer patients,
aiming to identify "biomarkers" associated with the development and progression
of the disease. Biomarker technologies are expected to contribute to the
improved diagnosis and treatment of cancer, and to accelerate the development
and clinical evaluation of new medicines. As such they are vital to the
emerging science of personalised medicine and represent a major area of
investment for the life sciences industry. During the collaboration, bioMerieux
will explore the utility of proteins from EiRx's biomarker panel as components
of new and improved diagnostic tests for colorectal cancer. At the same time,
EiRx will employ its siRNA-driven functional validation platform to explore the
utility of bioMerieux's colorectal biomarker panel as targets for new drug
therapies. Should we enjoy success in our collaborative technical programme we
would expect to progress to technology licensing and ultimately to generate
milestone payments and revenues from the development of new cancer diagnostics
products by bioMerieux.



Efficacy of ERX3722 in breast cancer model

In September EiRx announced the results of an in vivo efficacy study examining
the effect of ERX3722 in a subcutaneous human breast cancer xenograft model.
All treatment dosage groups responded with a reduction in tumour volume relative
to the untreated control. The Company was particularly pleased to note that the
higher dose administered achieved a very significant 50% reduction in tumour
volume with no evidence of systemic toxicity. This indicates that ERX3722 is
able to enter the circulation, reach the site of the tumour and inhibit its
growth and that biological activity is targeted on the tumour. These molecules
are currently undergoing further development and optimization for the treatment
of breast cancer; a market estimated to be worth $6.2 billion per annum. Other
cancer indications will also be sought for these molecules and/or their
optimized derivatives.



Prospects

EiRx has refocused on in-house drug development because we believe experience
shows discovery-stage research services and drug target licensing opportunities
have been poorly valued within our industry in recent years. In contrast, one
of the most striking trends in the biotech industry in the last two years has
been the remarkable increase in the valuations placed on late preclinical /
early clinical stage deals to license or co-develop innovative drug candidates.
Research analyst firm Wood MacKenzie calculates that the value of preclinical
product deals in the '05/'06 financial year is up 180% on the previous year(*),
due to competition between Pharmaceutical majors to enlarge their product
pipelines in preparation for the expiry of patents protecting many of today's
bestselling drugs. EiRx's main discovery effort aims to identify novel cancer
kinase inhibitors, and several recent third-party licensing deals indicate the
impressive valuations being placed on such products at the late preclinical
stage. These include Rigel's licensing of the aurora kinase inhibitor R763 to
Serono (total potential value of $160M, with $25M upfront), CGI's licensing of
the multi-kinase inhibitor CGI1842 to Genentech (total potential value of $500M,
with $25M upfront), Plexxikon's licensing of the PLX4032 inhibitor of mutant
B-Raf kinase to Roche (total potential value $660M, with $40M upfront) and
Piramed's licensing of its PI3-kinase inhibitor programme to Genentech (total
potential value of $230M).



I believe this recent licensing activity in EiRx's chosen field bodes well for
EiRx's future prospects, but also indicates the stage of development at which
the Company can expect to secure a significant license deal. To reach the late
preclinical stage common to the recent license deals listed above, EiRx will
require a minimum of two to three years' further research and development. We
have deliberately structured our drug discovery programme to ensure that
multiple projects will be available for further development by the Company over
this timeframe, to hedge against the risk of failure of one or more projects.



Drug development is a complex process. The initial stage is to develop potential
candidates, or "hits". The next stage in development of such hits is known as
"lead optimization", where various properties of a hit are improved. These
properties will typically include the potency of effect, selectivity for a
defined molecular target, and factors affecting bioavailability such as
solubility and metabolic stability. This is accomplished via the application of
medicinal chemistry, wherein stepwise changes are made to the chemical structure
of the chosen "hit", sometimes randomly and sometimes in accordance with known
chemical principals, until the various properties are improved as much as
possible. Once optimized, the molecule is known as a "lead" and is advanced to
preclinical evaluation, where its administration, distribution, metabolism,
excretion and toxicity are rigorously examined. Minor shortcomings at this
stage may be corrected by further rounds of medicinal chemistry, whilst major
faults may result in abandonment of the programme. If deemed safe, bioavailable
and biologically active, application can be made to a regulatory body such as
the EMEA or FDA to begin clinical trialling. Several recent deals, as mentioned
above, demonstrate the value recognized by Pharma for drugs that reach this
stage.



The Board will need to raise additional funds to accomplish the following:



(i) development of hit compounds from EnPADTM programmes into clinical
candidates



Compounds emerging from our EnPADTM platform possess certain advantages over
"hits" (as unoptimised compounds from library screening are called) discovered
by many of our competitors. Unoptimised screening hits from our wnt / B-catenin
EnPADTM programme have shown selective toxicity towards breast and colorectal
cancer cells (representative of cancers where wnt / B-catenin signalling is
known to be abnormal) and in vivo efficacy.



The Company plans to continue to invest in progression of the wnt / B-catenin
pathway inhibitor programme through lead optimisation and towards formal
preclinical evaluation. In the first instance we intend to work with an
experienced contract chemistry services organisation, which will supply the
necessary expertise in medicinal chemistry. For future development of "hits"
emerging from multiple new EnPADTM programmes we are exploring the creation of
our own medicinal chemistry team. This may be most quickly and cost-effectively
achieved by establishing a dedicated EiRx team to work on multiple lead
optimization programmes within the premises of a leading academic research
centre and centre of excellence.



(ii) exploitation of our tissue bank resource



We intend to fully exploit the rarity and value of our ACCRI-BANK tumour
repository to integrate cutting edge biomarker technologies into our drug
discovery programmes. We are working towards the establishment of a new
biomarker study centre in Aberdeen, where oncology, pathology and molecular
biology will be integrated to study molecular changes in cancer cells and
clinical specimens exposed to EiRx drug candidates, and to validate diagnostic,
prognostic and response biomarkers. This initiative will help to differentiate
us from competitors by integrating personalized medicine technologies into our
drug discovery programmes.



We hope to continue to fund some of the desired development in the Company's
skill base through grant funding and partnering with Pharmaceutical majors. By
continuing to support the Company's development from compound discovery through
to the preclinical evaluation stage we believe that shareholder value will be
enhanced. The Company is open to exploring in-licensing and M&A options that
enable the acquisition of additional competences in medicinal chemistry and lead
optimisation, as and when the opportunity arises.



I extend the gratitude of the Board to all our shareholders for your support to
date, particularly through the last 18 months. We have demonstrated the value
of our expertise and platform technologies through collaborations and licensing,
and the scientific basis of our approach is being proven by the outcome of in
vivo studies. The Company's progress can be measured by the positive newsflow
announced this year to shareholders and I look forward to reporting on further
progress during the current financial year.





Consolidated profit and loss account




Note 2006 2005
# #

Turnover 2 26,780 69,070

Administrative expenses (1,882,908) (3,006,664)

Other operating income - rent receivable 23,769 -

Operating loss (1,832,359) (2,937,594)

Net interest 3 (4,033) 4,593

Loss on ordinary activities before taxation 2 (1,836,392) (2,933,001)

Taxation 5 (19,818) (615)

Loss on ordinary activities after taxation for the year 17 (1,856,210) (2,933,616)

Basic and diluted loss per share 7 (0.0918)p (0.2018)p


All operations are continuing.





Consolidated statement of total recognised gains and losses


2006 2005
# #

Loss for the financial period (1,856,210) (2,933,616)
Currency difference on foreign currency net investments (81,917) 19,201

Total recognised gains and losses for the period (1,938,127) (2,914,415)







Consolidated balance sheet




Note 2006 2005
# #

Fixed assets
Intangible assets
Goodwill 8 5,113,786 5,484,067
Patents 8 167,576 133,511
5,281,362 5,617,578
Tangible assets 9 192,637 233,224
5,473,999 5,850,802

Current assets
Stocks 11 20,965 20,806
Debtors 12 167,820 599,254
Cash at bank and in hand 297,674 24,990
486,459 645,050

Creditors: amounts falling due within one year 13 (778,003) (566,087)

Net current (liabilities)/assets (291,544) 78,963

Total assets less current liabilities 5,182,455 5,929,765

Creditors: amounts falling due in more than one year 14 (433) (4,843)

Net assets 5,182,022 5,924,922


Capital and reserves
Called up share capital 16 4,970,348 3,671,666
Shares to be issued 16 - 45,000
Share premium account 17 1,537,542 1,595,997
Merger reserve 17 2,999,768 3,206,206
Exchange translation reserve 17 (19,703) 62,214
Profit and loss account 17 (4,305,933) (2,656,161)

Shareholders' funds 5,182,022 5,924,922




Company balance sheet




Note 2006 2005
# #

Fixed assets
Investments 10 4,507,584 4,414,219

Current assets
Debtors 12 2,579,275 1,764,049
Cash at bank and in hand 273,000 5,891
2,852,275 1,769,940

Creditors: amounts falling due within one year 13 (430,482) (184,159)

Net current assets 2,421,793 1,585,781

Total assets less current liabilities 6,929,377 6,000,000


Capital and reserves
Called up share capital 16 4,970,348 3,671,666
Shares to be issued 16 - 45,000
Share premium account 17 1,537,542 1,595,997
Merger reserve 17 2,171,712 2,171,712
Profit and loss account 17 (1,750,225) (1,484,375)

Shareholders' funds 6,929,377 6,000,000



Consolidated cash flow


Note 2006 2005
# #

Net cash outflow from operating activities 19 (1,085,270) (645,274)

Returns on investments and servicing of finance
Interest received 4,688 6,697
Interest paid (8,721) (2,104)
Net cash (outflow)/inflow from returns on investments and servicing (4,033) 4,593
of finance

Taxation
Corporation tax (18,203) -

Capital expenditure
Investment in patents (63,763) (27,687)
Investments in tangible assets (426) (26,285)
Net cash outflow from capital expenditure (64,189) (53,972)

Acquisitions
Net cash acquired from purchase of subsidiary - 9,110
undertaking
Costs of acquisition - (104,499)
Net cash outflow from acquisitions - (95,389)

Financing
Issue of shares 1,300,365 645,000
Expenses paid in connection with share issues (105,138) (30,748)
Other loan drawn down 257,250 -
Finance lease and hire purchase repayments (10,802) (4,240)
Net cash inflow from financing 1,441,675 610,012

Increase/(decrease) in cash 20 269,980 (180,030)






Notes to the accounts





1 Basis of preparation

These financial statements have been prepared on the going concern basis, which
assumes that the company will continue in operational existence for the
foreseeable future.



The directors have produced forecasts for 12 months from the date of signing
these accounts. These forecasts show a requirement for a #1m fundraising in
April 2007, in order to continue scientific and product development.



The directors have entered into discussions with brokers who have indicated that
the funds will be able to be raised, but, as with any future fundraising, the
outcome is uncertain.



On this basis, the directors believe that it is appropriate for the accounts to
be prepared on the going concern basis. The accounts do not include any
adjustments that would result should the company be unable to raise sufficient
funding.





2 Turnover and loss on ordinary activities before taxation

The turnover is attributable to contract research and licence fees in regard to
out licensing of intellectual property all from within the European Union.
Further analysis is not provided because the directors consider disclosure to be
seriously prejudicial to the interests of the group.


The loss on ordinary activities before taxation is stated after: 2006 2005
# #
Research and development:
Current year expenditure including depreciation and amortisation of patents,
hire of equipment and operating lease rentals 923,299 907,738
Grants receivable in respect of research and development (93,073) (90,888)
Auditors' remuneration:
Audit services 23,493 22,695
Non-audit services (note 1) 20,224 53,841
Redundancy payment to former director 46,886 -
Depreciation and amortisation:
Goodwill 370,281 296,720
Other intangible fixed assets - patents 34,086 24,451
Tangible fixed assets, owned 45,343 86,985
Tangible fixed assets, leased 2,389 994
Impairment of goodwill - 1,500,000
Provisions for diminution in value:
Provision for permanent diminution in value of fixed assets - patents - (2,235)
Foreign currency losses 80,140 22,275
Hire of equipment 1,607 5,865
Other operating lease rentals 150,723 150,723



Note 1 Auditors' remuneration includes #17,846 (2005: #47,000) for services as
Nominated Adviser to the company. The remainder results to taxation services.



3 Net interest
2006 2005
# #

Interest receivable on bank deposits 4,688 6,697
Interest payable on bank overdrafts (8,721) (2,104)
(4,033) 4,593





4 Directors and employees

Staff costs during the period were as follows:
2006 2005
# #

Wages and salaries 354,361 286,619
Social security costs 46,460 44,971
Other pension costs 19,875 25,465
420,696 357,055



The average number of employees by category was as follows:
2006 2005
Number Number

Research staff 14 14
Administrative staff 4 4
Management 3 4
21 22



Remuneration in respect of directors was as follows:
2006 2005
# #

Emoluments 144,968 183,698
Pension contributions to money purchase pension schemes 5,046 10,298
150,014 193,996
Payments to third parties for directors' services 151,421 92,297
301,435 286,293



During the period two (2005: two) directors participated in defined money
purchase pension schemes.



During the period no directors exercised share options.



The amounts set out above include remuneration in respect of the highest paid
director as follows:

2006 2005
# #

Emoluments 71,683 85,946
Pension contributions to money purchase pension schemes - 5,906
71,683 91,852



5 Taxation

There is a charge to taxation of #1,593 on income received by a subsidiary
company. No other charge to corporation tax arose.



Unrelieved tax losses of approximately #4.3 million (2005: #4 million) remain
available to offset against future taxable trading profits of the company's
subsidiary company.



Factors affecting the tax charge for the period.

The tax assessed for the period is higher than the standard rate of corporation
tax in the UK of 30%.

The differences are explained as follows:
2006 2005
# #

Loss on ordinary activities before taxation (1,836,392) (2,933,001)

Loss on ordinary activities multiplied by standard rate of corporation tax at (550,918) (879,900)
30%

Effect of:
Expenses incurred not deductible for tax purposes 135,787 527,520
Overprovision brought forward 21 -
Overseas income not relieved against losses at 12.5% 2,971 -
Differential rates on overseas unrelieved income 4,160 -
Income not chargeable for tax purposes (27,922) (27,266)
Tax losses carried forward on UK operating loss at 30% 188,875 130,837
Tax losses carried forward on overseas operating loss at 12.5% 101,952 82,003
Lower tax rates on overseas loss 146,667 166,191
Adjustment in respect of prior years 18,225 -
Current tax charge for period (19,818) (615)



6 Loss for the financial period

The parent company has taken advantage of section 230 of the Companies Act 1985
and has not included its own profit and loss account in these financial
statements. The parent company's loss for the period was #265,850 (2005:
#3,430,444).



7 Loss per share

The calculation of the basic earnings per share is based on the loss
attributable to ordinary shareholders divided by the weighted average number of
shares in issue during the period.



Reconciliation of the earnings and weighted average number of shares used in the
calculations are set out below.



Weighted average Per share
Loss number of amount
# shares #
Basic and Diluted Earnings per share
attributable
to ordinary shareholders (1,856,210) 2,022,624,077 (0.0918)p


2005
Weighted average Per share
Loss number of Amount
# shares #

Basic and Diluted Earnings per share (2,933,616) (0.2018)p
attributable to ordinary shareholders
1,453,909,220



There is no dilutive effect on the loss per share as a result of the issue of
options and consequently this has not been shown.



8 Intangible fixed assets
The group Goodwill on
consolidation Patents Total
# # #
Cost
At 1 July 2005 7,402,923 173,691 7,576,614
Additions - 63,763 63,763
Foreign exchange differences - 5,954 5,954
At 30 June 2006 7,402,923 243,408 7,646,331

Amortisation
At 1 July 2005 (1,918,856) (40,180) (1,959,036)
Provided in the year (370,281) (34,086) (404,367)
Foreign exchange differences - (1,566) (1,566)
At 30 June 2006 (2,289,137) (75,832) (2,364,969)

Net book amount at 30 June 2006 5,113,786 167,576 5,281,362

Net book amount at 30 June 2005 5,484,067 133,511 5,617,578





9 Tangible fixed assets
The group Leasehold Laboratory Office
property equipment equipment Total
# # # #
Cost
At 1 July 2005 205,460 349,890 59,180 614,530
Additions - 426 - 426
Foreign exchange differences 7,019 10,683 2,022 19,724
At 30 June 2006 212,479 360,999 61,202 634,680

Depreciation
At 1 July 2005 (41,729) (289,247) (50,330) (381,306)
Provided in the period (8,445) (36,568) (2,719) (47,732)
Foreign exchange differences (1,481) (9,787) (1,737) (13,005)
At 30 June 2006 (51,655) (335,602) (54,786) (442,043)

Net book amount at 30 June 2006 160,824 25,397 6,416 192,637

Net book amount at 30 June 2005 163,731 60,643 8,850 233,224



Included above are assets held under finance lease with a net book value of
#6,196 (2005: #8,600). Depreciation changed in respect of such assets amounted
to #2,389 (2005: #994)


The company holds no tangible fixed assets.



10 Fixed asset investments
The company Shares in Loan to
subsidiary subsidiary
companies company Total
# # #
Cost/written down value
At 1 July 2005 3,113,422 1,300,797 4,414,219
Issue of shares to pay debt owed by subsidiary 93,365 - 93,365
At 30 June 2006 3,206,787 1,300,797 4,507,584



The investment in EiRx Therapeutics Limited has been impaired to the directors'
estimate of market value.



The loan to the subsidiary company is governed by loan notes issued by the
subsidiary that carry interest at 4% per annum and are redeemable either by the
company at any time after 2 January 2009 or by the subsidiary on

2 January 2014.


At 30 June 2006 the group held 20% or more of the allotted share capital of the
following:


Subsidiary undertaking Country of Class of share Proportion Nature of
capital held
incorporation held business

Auvation Limited Scotland Ordinary shares 100% Research into drugs
EiRx Therapeutics Limited Ireland Ordinary shares 100% Research into

apoptosis





11 Stocks
2006 2005
# #

Research materials and consumable stores 20,965 20,806





12 Debtors
The group The company
2006 2005 2006 2005
# # # #

Amount due from parent company - 135,000 - 135,000
Amounts due on calls on shares 100,000 - 100,000 -
Amount due from subsidiary undertakings - - 2,443,811 1,281,387
Trade debtors 2,666 - - -
Other debtors 18,694 420,650 18,694 318,694
Corporation tax recoverable - - - -
VAT recoverable 31,067 21,620 10,286 16,547
Prepayments and accrued income 15,393 21,984 6,484 12,421
167,820 599,254 2,579,275 1,764,049


In the company, #2,443,811 (2005:#1,127,187) of amounts due from subsidiary
undertakings is considered to be due after more than one year.





13 Creditors: amounts falling due within one year
The group The company
2006 2005 2006 2005
# # # #

Bank overdraft 2,704 - - -
Other loan 257,250 - 257,250 -
Trade creditors 321,824 405,022 86,667 127,656
Corporation tax payable 1,616 - - -
Social security and other taxes 38,105 37,786 - -
Accruals 149,509 109,892 86,565 56,503
Amounts due under finance leases 6,995 13,387 - -
778,003 566,087 430,482 184,159





14 Creditors: amounts falling due in more than one year
The group The company
2006 2005 2006 2005
# # # #

Amounts due under finance leases 433 4,843 - -





15 Commitments under finance leases and hire purchase agreements

Future commitments under finance leases and hire purchases agreements are as
follows:


The group The company
2006 2005 2006 2005
# # # #

Amounts payable within 1 year 6,995 13,387 - -
Amounts payable between 1 and 2 years 433 4,843 - -
7,428 18,230 - -





16 Share capital
2006 2005
# #

Authorised
5,000,000,000 ordinary shares of 0.2 pence each 10,000,000 10,000,000

Allotted, called up and fully paid
2,485,174,050 (2005: 1,835,832,800) ordinary shares of 0.2 pence each 4,970,348 3,671,666



On 9 August 2005, acceptances were received in respect of the last outstanding
shares in Auvation Limited 22,500,000 shares were issued and allotted to the
holders. These shares had been shown as Shares To Be Issued as at 30 June 2005.



On 15 November 2005, 23,341,250 shares were issued and allotted to the
University of Aberdeen at a price of 0.4 pence per share in settlement of a debt
due by the group to the University. The difference between par value of #46,683
and the amount of the debt cancelled of #93,365 was credited to Share Premium
account.



On 31 March 2006, a placing of shares resulted in the issue and allotment of
603,500,000 shares at par value of 0.2 pence per share. The funds raised
amounted to #1,207,000 and expenses of the issue of #105,137 were charged
against the Share Premium account.





17 Share premium account and reserves
The group Share Exchange Profit and
premium Merger Translation loss
account reserve Reserve account
# # # #

At 1 July 2005 1,595,997 3,206,206 62,214 (2,656,161)
Retained loss for the year - - - (1,856,210)
Exchange differences - - (81,917) -
Premium on allotments during the year 46,682 - - -
Issue costs (105,137) - - -
Transfer to profit and loss account - (206,438) - 206,438
At 30 June 2006 1,537,542 2,999,768 (19,703) (4,305,933)




The company Share Profit and
premium Merger loss
account Reserve account
# # #

At 1 July 2005 1,595,997 2,171,712 (1,484,375)
Retained loss for the year - - (265,850)
Premium on allotments during the year 46,682 - -
Issue costs (105,137) - -
Transfer to profit and loss account - - -
At 30 June 2006 1,537,542 2,171,712 (1,750,225)





18 Reconciliation of movements in shareholders funds
2006 2005
# #

Loss for the financial year (1,856,210) (2,933,616)
Other recognised gains and losses (81,917) 19,201
Issue of shares, net of costs 1,195,227 3,314,252
Net (reduction)/increase in shareholders' funds (742,900) 399,837
Shareholders' funds at 30 June 2005 5,924,922 5,525,085
Shareholders' funds at 30 June 2006 5,182,022 5,924,922







19 Net cash outflow from operating activities
2006 2005
# #

Operating loss (1,832,359) (2,937,594)
Exchange differences (93,024) (646)
Depreciation, amortisation and write-off of patents 452,099 409,150
Impairment of goodwill - 1,500,000
Increase/decrease in stock (159) 514
Decrease in debtors 431,434 138,136
(Decrease)/increase in creditors (43,261) 245,166
Net cash outflow from operating activities (1,085,270) (645,274)





20 Reconciliation of net cash flow to movement in net funds
2006 2005
# #

Net cash inflow/(outflow) for the year 269,980 (180,030)
Repayment of finance leases and hire purchase agreements 10,802 4,240
Cash inflow in respect of other loan (257,250) -
Movement in net funds from cash flows 23,532 (175,790)
Inception of finance leases - (22,470)
Movement in net funds for the year 23,352 (198,260)
Net funds at 1 July 2005 6,760 205,020
Net funds at 30 June 2006 30,292 6,760





21 Analysis of changes in net funds
At 1 July Non-cash At 30 June
2005 Cash flow items 2006
# # # #

Cash at bank and in hand 24,990 272,684 - 297,674
Bank overdraft - (2,704) - (2,704)
Finance leases (18,230) 10,802 - (7,428)
Other loan - (257,250) - (257,250)
Net funds 6,760 23,532 - 30,292





22 Financial instruments

The group uses financial instruments, other than derivatives, comprising
borrowings, cash on deposit and in current accounts and other items, such as
trade debtors, trade creditors, etc. that arise directly from its operations.
The main purpose of these financial instruments is to raise finance for the
group's operations.



The group also enters into derivatives transactions such as forward rate
agreements and forward foreign currency contracts. The purpose of such
transactions is to manage the currency risks arising from the group's operations
and its sources of finance.



The main risk arising from the group financial instruments is currency risk.
The board reviews and

agrees policies for managing each of these risks and they are summarised below.



All transactions in derivatives, principally forward foreign currency contracts,
are undertaken to manage the risks arising from underlying business activities
and no transactions of a speculative nature are undertaken.



It is and has been throughout the period under review, the group policy that no
trading in financial instruments shall be undertaken.



Interest rate risk

The group has financed its operations to date from cash raised from issues of
shares. Cash surplus to immediate requirements is placed on interest bearing
deposit with the group's bankers.



The table below shows the the extent to which the group had cash on deposit and
in current accounts and the rates of interest applicable to deposits at 30 June
2005.


At 30 June 2006
Deposit at 30 day Current
Functional currency of operation call deposits accounts Total
# # # #

Sterling (note 1) 274,991 - - 274,991
Euro (note 2) 22,683 - - 22,683
297,674 - - 297,674


At 30 June 2005
Deposit at 30 day Current
Functional currency of operation call deposits accounts Total
# # # #

Sterling (note 1) 9,831 - - 9,831
Euro (note 2) - 1,342 13,817 15,159
9,831 1,342 13,817 24,990



Note 1: As at 30 June 2005, the sterling deposit at call was at a rate of 1%
being LIBOR minus 3.5%. Deposit interest rates depend on both LIBOR and the
value of funds on deposit.



Note 2: As at 30 June 2005, the Euro 30-day deposit was at a rate of 1.68% being
30 day EURIBOR minus 0.4%. The rate of interest depends on both EURIBOR and the
value of funds on deposit.



Liquidity risk

The group seeks to manage financial risk by ensuring sufficient liquidity is
available to meet foreseeable needs and to invest cash assets safely and
profitably.



Currency risk

The group does not hedge its exposure of foreign investments held in foreign
currencies.



The group is exposed to translation and transaction foreign exchange risk. In
relation to translation risk, assets held in foreign currency are currently left
exposed. Transaction exposures are hedged when known, mainly using the forward
hedge market.



The group seeks to hedge its exposures using a variety of financial instruments,
with the objective of minimising fluctuations in exchange rates on future
transactions and cash flows.



The table below shows the extent to which group companies had monetary assets
and liabilities in currencies other than their local currency. Foreign exchange
differences on retranslation of these assets and liabilities are taken to profit
and loss account of the group companies and the group.


At 30 June 2006
Functional currency of operation Sterling US Dollar Euro Total
# # # #

Sterling - - 446 446
Euro 1,800 24,065 - 25,865
1,800 24,065 446 26,311


At 30 June 2005
Functional currency of operation Sterling US Dollar Euro Total
# # # #

Sterling - - 446 446
Euro 4,328 4,473 - 8,801
4,328 4,473 446 9,247



The fair value of the financial instruments is not considered to be materially
different from the book values shown.





23 Leasing commitments
Land and buildings
2006 2005
# #

Between two and five years 478,332 11,068
In five years or more 1,793,744 162,852
2,272,076 173,920





24 Capital commitments

Neither the group nor the company had any capital commitments at 30 June 2006 or
30 June 2005.





25 Contingent liabilities

There were no contingent liabilities at 30 June 2006 or 30 June 2005.



26 Retirement benefits

Defined Contribution Pension Scheme

The group operates a defined contribution pension scheme for the benefit of the
employees and full-time executive directors of EiRx Therapeutics Limited. The
assets of the scheme are administered by trustees in a fund independent from
those of the group.



The contributions of the company and its subsidiary undertakings and employees
will remain at 7% and 5% of earnings respectively.



27 Post balance sheet events

On 31 August 2006, 40,568,710 Ordinary shares of 0.2 pence per share were issued
and allotted to the landlord of the group's Cork premises at par value of
#81,137 in payment of arrears of rent on unoccupied space. The space has now
been sub-let.



On 11 October 2006, 200,000,000 Ordinary shares of 0.2 pence per share were
issued and allotted pursuant to a Placing at a price of 0.25 pence per share
raising #475,000 after expenses of #25,000 to provide additional working capital
for the group.





28 Transactions with directors and other related parties

Included in directors' remuneration in note 4 to the financial statements are
payments to third parties as follows:



#31,050 (2005: #30,477) was paid to Wellbeach Associates, a partnership in which
John Pool has an interest.



#29,607 (2005: #28,660) was paid for scientific consultancy to Prof. Thomas
Cotter.



#22,662 (2005: #20,835) was paid to N.G Strong MA (Cantab), FCA, a business in
which Nicholas Strong is the principal, for financial consultancy.



#68,102 (2005: #nil) was paid to Prof. Michael Fowler for his services as
Executive Deputy Chairman.



In each case, the directors are responsible for their own tax and national
insurance in respect of such fees and have i