RNS Number:0173T
Phytopharm PLC
09 December 2003

9 December 2003



Preliminary results for the year ended 31 August 2003



Phytopharm plc (PYM: London Stock Exchange) ("Phytopharm" or the "Group") today
announces its preliminary results for the year ended 31 August 2003.



Announced today



*          Commencement of Phase II study of novel Alzheimer's disease treatment
under the terms of a UK Clinical Trial Exemption certificate (Programme P58, see
separate press release).



Highlights



*        Commencement of Phase I study of novel motor neurone disease treatment
under US Investigational New Drug application (Programme P59)



*        Successful completion of 28-day Phase I repeat dose study in novel
Parkinson's disease treatment (Programme P63)


*        Second milestone due from Yamanouchi Pharmaceutical Co., Ltd. ("
Yamanouchi") following evaluation of Phase I data (Programmes P58 and P63)


*        Return of rights and licensing progress in programme for the dietary
control of obesity (Programme P57)


*        Licence and Option agreement with Yamanouchi for development and
commercialisation of PYM50028 in Japan and other Asian countries (Programmes P58
and P63)



*        First milestone of $3 million paid by Yamanouchi



*        Appointment of marketing partner and launch programme for novel
treatment for canine osteoarthritis (Programme P54v)





Dr Richard Dixey, Chief Executive of Phytopharm, said:



"We have met all our deliverables for 2003 and have made strong progress. We
expect 2004 to continue in a similar vein, with significant cash flows coming
into the company from milestones and the launch of our veterinary products."



Enquiries:


Phytopharm plc                                 Today:              07867 782000
Dr Richard Dixey, Chief Executive              Thereafter:         01480 437697
                                               Mobile              07867 782000

Financial Dynamics                             Tel:                0207 831 3113
David Yates / Ben Atwell



            Phytopharm has updated its website from 9 December 2003

                               www.phytopharm.com





Operational review



Phytopharm is focused on developing novel pharmaceutical products based on
clinical data generated from medicinal plant extracts. Such research can
identify important and innovative platforms for drug discovery that include
libraries of compounds, biological targets and associated clinical and
pre-clinical data. This data creates drug development programmes aimed at target
diseases, and leads to multiple licensing opportunities for specific compounds
within those programmes. The current status of the four platforms being
developed within Phytopharm, each at different stages of development, are
described below.


Platform              Programme          Indication           Mode of Action             Development stage
Neuro-degeneration    P58                Alzheimer's disease/ Reverse age related        Phase II in progress
                                         dementia             decline in memory
                      P59                Motor neurone        Neuroregenerative          Phase I in progress
                                         disease (ALS)
                      P63                Parkinson's disease  Neuroregenerative          Phase Ib completed
Metabolic disease     P57                Dietary control of   Direct action on satiety   Phase IIa reported
                                         obesity              centre
                      P64                Obesity and          Direct action on satiety   Pre-clinical
                                         metabolic syndrome   centre
Dermatology           P7v                Canine atopic        Inhibits allergic and      Pre-launch
                                         dermatitis           inflammatory cytokines
                      P55                Eczema               Inhibits allergic and      Pre-clinical
                                                              inflammatory cytokines
Inflammation          P54v               Canine               Inhibits induction of      Pre-launch
                                         osteoarthritis       inflammatory enzymes
                      P61                Asthma and other     Anti-inflammatory and      Pre-clinical
                                         inflammatory         anti-spasmodic
                                         disorders



Platform 1: Neurodegeneration



The neurodegeneration platform has been extended from a programme for
Alzheimer's disease (P58) to include programmes for Parkinson's (P63) and motor
neurone disease, including amyotrophic lateral sclerosis (P59). Phytopharm has
now developed a total of nine patent families to protect the large group of
related chemical compounds within this platform. These molecules, which have a
novel mechanism of action, are potential disease modifiers and are expected to
offer a real therapeutic advance in these conditions where there is a high unmet
medical need.



The lead compound from the Alzheimer's and Parkinson's disease programme is
coded PYM50028. In pre-clinical studies, PYM50028 has been shown to be
neuroprotective and to reverse both the decrease of neuronal growth factors and
the neuronal degeneration observed in the ageing brain. Importantly, this
product was also observed to restore levels of proteins that are altered in the
ageing brain, returning them to levels observed in the young, causing beneficial
outgrowth and branching of neurites. Key events during the year were the
following:



  * In January 2003, we announced the start of a Phase I randomised,
    double-blind, placebo-controlled clinical study using a new formulation of
    PYM50028 to evaluate the safety, tolerability and pharmacokinetic profile
    for Alzheimer's and Parkinson's disease. This data is a key component in
    understanding how PYM50028 is absorbed by man.

  * In May 2003, Phytopharm signed a licensing agreement with the leading
    Japanese pharmaceutical company, Yamanouchi Pharmaceutical Co., Ltd., for
    the development and commercialisation of PYM50028. Under the agreement,
    Yamanouchi acquired an exclusive licence to develop, manufacture and market
    PYM50028 for the treatment of Alzheimer's disease in Japan and some other
    Asian countries, which together represent some 15% of the world market.
    Phytopharm received $3 million upon signing of the agreement, with a further
    five milestones totalling $17 million potentially payable over the next
    eighteen months, subject to the achievement of specific objectives.  In
    total, Phytopharm is entitled to $33 million of licence fees and potential
    milestone payments with respect to the Alzheimer's indication (of which $3
    million had been received by the year end), as well as receiving royalties
    on sales of PYM50028.

  * Yamanouchi also acquired the option to licence PYM50028 for the additional
    indications of Parkinson's disease, Lewy body dementia, vascular dementia
    and mild cognitive impairment, for which Phytopharm will be entitled to
    receive potential additional licence fees and milestones.  These further
    fees and milestones are based on each indication's market potential relative
    to the Alzheimer's indication. Phytopharm will also receive royalties on
    sales of PYM50028 by Yamanouchi for all indications developed.

  * In May 2003 we announced the successful completion of the safety,
    tolerability and pharmacokinetics of single and repeated oral dosing of
    PYM50028 administered over 7 days to healthy subjects aged over 50 years.

  * In June 2003 we announced that we had entered into an agreement with the
    Oxford Project to Investigate Memory and Ageing (OPTIMA) regarding the
    clinical development of PYM50028. Under the joint leadership of Professor
    David Smith (Project Leader, OPTIMA) and Professor Robin Jacoby (Principal
    Investigator), OPTIMA will enroll patients with memory impairment into the
    Phase II proof of principle study.

  * In November 2003 we announced the successful completion of the Phase Ib
    stage of the study in which thirty healthy men and women aged 50 years and
    older were enrolled and randomly allocated to receive either PYM50028 or
    placebo once daily for 28 days. Results indicated that the product has
    absorption and pharmacokinetic characteristics suitable for once-daily
    dosing and is well tolerated with a good emergent safety profile.

  * In November 2003 the Phase Ib data was submitted to Yamanouchi, the
    results of which are the subject of the second milestone payable under the
    licence agreement announced on 1 May 2003 between Yamanouchi and Phytopharm
    for marketing of PYM50028 in Japan and some other Asian countries. This
    payment is due imminently.

  * In December 2003, we announced that we had been granted clearance by the
    Medicines and Healthcare Products Regulatory Agency (MHRA) to commence a
    Phase II 'proof of concept' clinical study in Alzheimer's disease patients
    under a clinical trial exemption (CTX) certificate, that was granted
    following a review of all the manufacturing, safety, pharmacological and
    clinical data generated by Phytopharm concerning PYM50028.  The Phase II
    study utilises a randomised,  double-blind, placebo-controlled design to
    evaluate the safety, efficacy and pharmacokinetic profile of PYM50028 after
    once daily oral administration over three months.  The effects of PYM50028
    on memory, concentration and executive function will be evaluated during the
    study. The study is expected to report in Q1 2005.



The lead compound arising from the motor neurone disease programme, which
targets  amyotrophic lateral sclerosis (ALS), (P59) is coded PYM50018.
Pre-clinical work has demonstrated that PYM50018 is a potent neuroprotective
agent, reverses neurodegeneration in spinal motor neurones and improves survival
to a greater extent than standard treatment in superoxide dismutase 1 (SOD1)
mice, a model of ALS.



In December 2003, we announced that P59 had been granted clearance by the USA
Food and Drug Administration to commence a Phase I clinical study under an
investigational new drug (IND) application, to evaluate the safety, tolerability
and pharmacokinetic profile of PYM50018 for amyotrophic lateral sclerosis. We
anticipate that the results will be reported at the end of Q2 2004.



Platform 2: Metabolic disease



The metabolic disease platform is focused on obesity, obese-onset diabetes and
metabolic disease. This platform comprises the patented use of three plant
species, their mode of action and related active molecules. Programme P57
contains a novel appetite suppressant product that has been shown to reduce
calorific intake in overweight subjects, as demonstrated in a
double-blind-placebo controlled clinical study that was announced by Phytopharm
in December 2001.



In March 2003, Phytopharm announced that it had received the first six monthly
progress report from Pfizer Inc. ("Pfizer") concerning the ongoing development
of programme P57. This followed the announcement in July 2002 that Pfizer was
taking responsibility for the development of the programme, under the terms of
the Licence and Royalty agreement entered into between Pfizer and Phytopharm in
August 1998.



In July 2003, Phytopharm announced that it had received notice from Pfizer that
it was discontinuing clinical development of P57 and returning the rights to the
company. Pfizer stated that in a changing environment for discovery and
development of new medicines, it continually reviews its pipeline of potential
new therapies. Following the closure of the Natureceuticals group within Pfizer,
the company determined that the development of P57 might be best achieved by
another organisation. Pfizer also stated that the positive clinical data of P57
in patients generated to date encourages further study of this natural material
as a therapy for obesity.



As a consequence, Phytopharm is now free to Licence P57 to other parties. This
has now created an opportunity to extend the P57 programme into the dietary
control of obesity with multiple licensing opportunities. This licensing
programme is progressing vigorously, with detailed development plans in
discussion with potential partners.



Phytopharm has also developed screens that are predictive of appetite
suppressant activity that can be used to evaluate other compounds. Good progress
has been made in understanding the structural activity relationships of our
compounds and in the development of synthetic molecules that form the basis of a
further licensing opportunity. This new programme (P64) is focused on the
development of pharmaceutical prescription products for the treatment of obesity
and metabolic disease.



Platform 3: Dermatology



The dermatology platform comprises a programme concerning the use of extracts of
plants with a novel mode of action for the treatment of canine atopic dermatitis
(P7v). These products have a dual mode of action that targets both the allergic
and inflammatory components of dermatitis.



In November 2003, we completed a European multi-centre study in canine atopic
dermatitis with a three plant product, coded PYM00217. This randomised,
double-blind, placebo-controlled study was conducted by specialist veterinary
dermatologists to determine the optimal dose for future commercialisation of the
product. The study is expected to report in Q1 2004.



Phytopharm has completed the pharmaceutical development of PYM00217 and is now
able to manufacture tonne-scale quantities of material to Good Manufacturing
Practice (GMP) standards. Commercialisation and launch of this product is well
underway for early 2004.



A programme aimed at human eczema is also emerging from this platform. Coded
P55, steady progress has been made in developing a dosage form suitable for use
in man.



Platform 4: Inflammation



Finally, the inflammation platform contains a programme containing a family of
novel, third generation, non-steroidal anti-inflammatory drugs ("NSAID")
characterised by their inhibition of a wide range of enzymes central to chronic
inflammation (P54v).



The results of a double-blind, placebo-controlled trial of our product, coded
PYM50014, in canine osteoarthritis have enabled us to actively pursue
commercialisation and enter a licence and distribution agreement in the
companion animal market. Large-scale manufacture of PYM50014 has been completed
to GMP standards and the product will be launched in Q1 2004.



Research into the mode of action of this platform has continued to generate
novel synthetic molecules. Pre-clinical work has demonstrated that these
molecules have powerful anti-inflammatory and antispasmodic effects. This has
given rise to a new programme (P61) that is intended to result in a
pharmaceutical prescription medicine for the treatment of inflammatory disorders
including asthma. The lead candidate will enter development towards the end of
2004.



Statement of prospects



We enter the coming year with considerable optimism. We are anticipating a
number of cash positive events in the year: including significant milestones
from Yamanouchi concerning our P58 programme in Alzheimer's disease and two
product launches, for our veterinary product P7v in canine atopic dermatitis and
P54v in canine osteoarthritis. In addition to this, the maturity of our porfolio
means that we have three additional programmes, P57 and P64 in obesity and P59
in motor neurone disease, that are attracting substantial interest from
licencees. Along with the key clinical data for P58 emerging in the first
quarter of 2005, a product where 85% of the world territories remain unlicenced,
the progress in our portfolio means that we are looking forward to a period of
sustained progress.



Financial Review



Summary



Financial performance for the fiscal year ended 31 August 2003 has been
influenced by two main events: the licensing of PYM50028 to Yamanouchi in May
2003 and the transfer of the P57 development activities to Pfizer in December
2002.  The Group's investment in research and development continues to grow in
line with the continuing progress of our four development platforms, in
particular, the P58, P63 and P7v programmes, resulting in the consumption of
significant cash resources.  However, the Group anticipates potential milestone
payments of up to $17 million from Yamanouchi over the next 18 months.



Turnover



Revenues of #2.43 million for the year (2002: #2.71m) comprised a #2 million
milestone payment from Yamanouchi, for the exclusive licence to develop,
manufacture and market PYM50028 for the treatment of Alzheimer's disease in
Japan and some other Asian countries, and #0.42 million in development income
from Pfizer for P57, the Group's appetite suppressant.  Revenues were lower this
year following the transfer of the P57 development work to Pfizer in December
2002.



Expenses



Research and development remained our most significant investment, totalling
#7.23 million or 86% of total operating costs, an increase of 20% (2002: #6.00
million).  This is largely due to the successful progress of the P58 programme
which is in clinical trials and to a lesser extent the ongoing P7v clinical
trial.  The rise in research and development activity required additional
administrative support, which is reflected in the higher administration costs of
#1.16 million, an increase of 13% (2002: #1.02 million).  This year's total
operating expenses were #8.38 million, a rise of 19% (2002: #7.03 million), in
line with budget.



Interest and Tax



Interest income of #0.28 million was lower this year (2002: #0.48 million), due
to a combination of lower average cash balances and lower interest rates, and
represents an average return of 3.8% on the cash balances throughout the year.
The net tax recoverable of #0.38 million was also lower this year (2002: #0.55
million), despite a similar research and development corporation tax credit to
the previous year, due to the payment of a 10% Japanese withholding tax deducted
from the Yamanouchi income earlier in the year.



Liquidity and Capital Resources



At 31 August 2003 the Group had cash and liquid resources of #5.61 million,
#3.54 million lower than at the start of the year.



The fixed asset base remained low at #0.16 million (2002: #0.24 million) as
research and development activities are contracted out so that the Group does
not need to finance its own laboratory facilities.  Debtors of #1.09 million
(2002: #2.84 million) comprised principally research and development tax
credits.  Creditors of #1.82 million (2002: #1.95 million) comprise mainly trade
creditors and accruals.



Working capital at 31 August 2003 was #4.93 million.  The Group utilised #5.11
million of working capital during 2003, which is equivalent to #426,000 per
month.  This expenditure is in line with the Group's business plan and is a
consequence of the P58 programme maturing.



A combination of decreases in turnover of #0.29 million, interest income of
#0.20 million, and a net tax recoverable of #0.18 million, together with an
increase in operating expenses of #1.36 million, resulted in an increase in the
loss for the year of #2.02 million to #5.31 million. Overall the results for the
year were better than anticipated and within the budget.





     Consolidated Profit and Loss Account for the year ended 31 August 2003


                                                                Notes               2003               2002
                                                                               Unaudited            Audited
                                                                                   #'000              #'000

Turnover                                                            2              2,427              2,714
                                                                              __________         __________

Gross profit                                                                       2,427              2,714

Other operating expenses                                            3            (8,381)            (7,027)
                                                                              __________         __________

Operating loss                                                                   (5,954)            (4,313)

Interest receivable and similar income                                               277                478
Interest payable and similar charges                                                 (4)                (4)
                                                                              __________         __________

Loss on ordinary activities before taxation                                      (5,681)            (3,839)
                                                                              __________         __________

Tax on loss on ordinary activities                                  4                378                554
                                                                              __________         __________



Loss for the year                                                   6            (5,303)            (3,285)

                                                                               =========          =========

Basic fully diluted loss per ordinary share (pence)                 5             (13.7)              (8.5)
IIMR loss per share (pence)                                         5             (13.7)              (8.4)



All revenue and expenses shown above were generated from continuing operations.



The Group has no recognised gains or losses for the financial year other than
those disclosed above.





                  Consolidated Balance Sheet at 31 August 2003




                                                                Notes               2003               2002
                                                                               Unaudited            Audited
                                                                                   #'000              #'000
Fixed assets
Tangible assets                                                                      162                241

Current assets
Stocks                                                                                43                  -
Debtors                                                                            1,094              2,843
Cash held on deposit as short term investments                                     5,131              8,831
Cash at bank and in hand                                                             482                323
                                                                              __________         __________

                                                                                   6,750             11,997

Creditors: amounts falling due within one year                                   (1,815)            (1,953)
                                                                              __________         __________

Net current assets                                                                 4,935             10,044

                                                                              __________         __________

Total assets less current liabilities                                              5,097             10,285

                                                                              __________         __________



Net assets                                                                         5,097             10,285

                                                                               =========          =========


Capital and reserves
Called up share capital                                                              388                386
Share premium account                                               6             31,808             31,726
Merger reserve                                                      6              (204)              (204)
Profit and loss account                                             6           (26,895)           (21,623)
                                                                              __________         __________
Equity shareholders' funds                                                         5,097             10,285

                                                                               =========          =========





       Consolidated Cash Flow Statement for the year ended 31 August 2003


                                                                Notes               2003               2002
                                                                               Unaudited            Audited
                                                                                   #'000              #'000
Net cash outflow from continuing operating activities                7            (3,938)            (5,362)

                                                                               _________          _________
Returns on investment and servicing of finance
Interest received                                                                    277                478
Interest paid on finance leases                                                        -                (4)
Other interest paid                                                                  (4)                  -

                                                                               _________          _________

                                                                                     273                474

                                                                               _________          _________
Taxation
UK corporation tax received                                                          277                224
Foreign taxation paid                                                              (200)                  -

                                                                               _________          _________

                                                                                      77                224

                                                                               _________          _________

Capital expenditure and financial investment
Purchase of tangible fixed assets                                                   (85)              (140)
Proceeds on sale of tangible fixed assets                                             57                 13

                                                                               _________          _________

                                                                                    (28)              (127)

                                                                               _________          _________
Cash outflow before use of liquid resources and financing

                                                                                 (3,616)            (4,791)

                                                                               _________          _________
Management of liquid resources
Decrease in cash held on short term deposit                                        3,700              3,837

Financing
Proceeds from exercise of share options                                               83                478
Repayment of principal under finance leases                                          (8)               (56)

                                                                               _________          _________
Net cash inflow from financing                                                        75                422
                                                                               _________          _________

Increase/(decrease) in cash in the year                                              159              (532)
                                                                                ========           ========





Notes to the preliminary announcement



1.         Basis of preparation



These financial statements have been prepared in accordance with the accounting
policies set out in the annual report of the Group for the year ended 31 August
2002.



The figures shown for the year to 31 August 2003 represent unaudited abridged
financial statements and have not as yet been delivered to the Registrar of
Companies.  The comparative figures for the year to 31 August 2002 have been
taken from, but do not constitute, the Group's financial statements for that
financial year.  Those financial statements have been reported on by the Group's
auditors and delivered to the Registrar of Companies.  The report of the
auditors was unqualified and did not contain a statement under s237 (2) or (3)
of the Companies Act 1985.



2.         Turnover


                                                                          2003                         2002
                                                                     Unaudited                      Audited
                                                                         #'000                        #'000
By business activity
Licensing and development                                                2,427                        2,714

                                                                       =======                      =======



All turnover arose in the United Kingdom.



3.         Other operating expenses



Other operating expenses comprise:


                                                                          2003                         2002
                                                                     Unaudited                      Audited
                                                                         #'000                        #'000
Continuing operations
Research and development                                                 7,228                        6,003
Administrative expenses                                                  1,153                        1,024
                                                                     _________                    _________
                                                                         8,381                        7,027

                                                                      ========                     ========


4.                  Tax on loss on ordinary activities


                                                                         2003                          2002
                                                                    Unaudited                       Audited
                                                                        #'000                         #'000
United Kingdom
Corporation tax credit                                                    578                           554
Foreign Taxation
Witholding tax suffered                                                 (200)                             -
                                                                    _________                     _________
                                                                          378                           554

                                                                     ========                      ========



The Group has taken advantage of the Research and Development corporation tax
credits introduced in the Finance Act 2000 whereby the Group may surrender
corporation tax losses incurred on research and development expenditure for a
corporation tax refund at the rate of 24 pence in the pound.



5.         Loss per share



The basic undiluted loss per share is based on losses of #5,303,318 (2002: loss
of #3,284,518) and ordinary shares of 38,671,689 (2002: 38,480,633), being the
weighted average number of shares in issue during the period.  The IIMR earnings
per share figure excludes gains and losses on disposals of fixed assets during
the year.



6.         Share premium account and reserves


                                                          Share                                     Profit
                                                        premium                Merger             and loss
                                                        account               reserve              account
                                                      Unaudited             Unaudited            Unaudited
                                                          #'000                 #'000                #'000

At 1 September 2002                                      31,726                 (204)             (21,623)
Premium on issue of shares                                   82                     -                    -
Loss for the year                                             -                     -              (5,303)
Share option compensation charge                              -                     -                   31

                                                     __________             _________          ___________
At 31 August 2003                                        31,808                 (204)             (26,895)

                                                      =========              ========            =========



7.             Reconciliation of operating loss to net cash outflow from
operating activities


                                                                                 2003                  2002
                                                                            Unaudited               Audited
                                                                                #'000                 #'000
Continuing activities
Operating loss                                                                (5,954)               (4,313)
Depreciation on tangible fixed assets                                             106                   124
Loss on disposal of fixed assets                                                    1                     9
(Increase) in stocks                                                             (43)                     -
Decrease/(increase) in debtors                                                  2,051               (2,145)
(Decrease)/Increase in creditors                                                (130)                   949
Provision for impairment of value in fixed asset investments

                                                                                    -                    30
Decrease in provision for employers National Insurance on share                     -                  (16)
option gains
Increase in provision for share option compensation charge                         31                     -

                                                                           __________            __________
Net cash outflow from continuing activities                                   (3,938)               (5,362)

                                                                            =========             =========




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