‘…a world-class vaccines company’ Annual Report 2001 04 Chairman’s statement 10 Operating review 26 Reference section 30 Board of Directors 32 Financial review 34 Report of the Remuneration Committee 39 Corporate governance 41 Report of the Directors 43 Report of the auditors 44 Consolidated profit and loss account 44 Statement of total recognised gains and losses 45 Consolidated and company balance sheets 46 Consolidated cash flow statement 47 Notes to the financial statements 63 Glossary of terms Professional advisers

Front cover Evans Vaccines’ manufacturing facilities in Speke, UK. 01 PowderJect Pharmaceuticals plc 2001

With a broad portfolio of marketed vaccines and a strong pipeline of new products based on its proprietary powder injection technology, PowderJect is a world-class vaccines company.

Turnover £m Loss before tax £m R&D expenditure £m Cash and short-term Net cash (outflow)/inflow investments £m from operating activities £m

40.0 20.6 30.9 84.1

18.4 70.5

62.0 21.6

9.4 14.2

4.7 7.4 20.5 3.6 5.8 2.4 2.5 3.1 2.8 5.0 0.5 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001

(2.7)

(7.1) (6.9)

(20.2)

Sixth highest vaccines sales in the world With a range of products marketed under its Evans Vaccines and SBL Vaccin brands, PowderJect is now a major player in the vaccines field. Based on sales, PowderJect is the world’s sixth largest vaccines business and Europe’s fourth largest biotech company. As a fully integrated vaccines company with significant research, development, manufacturing, marketing and distribution capabilities, PowderJect has built the foundations on which to grow its business rapidly. Its Fluvirin® franchise in the influenza field demonstrates this growth potential. As the UK’s flu vaccine market leader, with a significant proportion of the US market, PowderJect is well positioned to capitalise on this expanding worldwide market of approximately $500 million. 04 PowderJect Pharmaceuticals plc 2001 The last year has seen PowderJect undergo an exciting and extremely positive transformation. With the acquisition of Chairman’s statement Medeva’s vaccines business (rebranded under the established Evans Vaccines name) we are now a major player in the vaccines field. Indeed, PowderJect is the sixth largest vaccines company in the world, and the fourth largest biotechnology company in Europe. We have a range of products sold under our Evans Vaccines brand, one of Europe’s largest biologics manufacturing facilities and an exciting pipeline of next generation medicines based on our unique delivery technology, powder injection. This change is also reflected in the strengthening of our financial performance. The Evans Vaccines business contributed to PowderJect’s finances for the final six months of the financial year, with revenues of £34.7 million. For the full year turnover climbed significantly to £40.0 million (2000: £2.8 million), cash and short-term investments moved ahead of last year’s position to £70.5 million (2000: £62.0 million) and net assets also increased, reaching £88.0 million (2000: £67.2 million). Loss for the year was contained at £19.6 million (2000: £18.4 million) despite a more than 40% increase in R&D investment, which totalled £30.9 million (2000: £21.6 million). Cash inflow from operating activities also improved significantly to £2.4 million (2000: outflow of £20.2 million) and capital expenditure decreased to £4.0 million (2000: £4.7 million). In addition to strengthening our business financially, we have moved ahead scientifically, achieving successful clinical results with our most advanced powder injection product, lidocaine. By demonstrating that we can meet our product specification, combining effective local anaesthesia with favourable tolerability, we have achieved the appropriate characteristics to progress into a phase III development programme. This major achievement is strategically important. In addition to providing clinical validation of our platform delivery technology, we now have a great opportunity to pursue our vision of becoming a leading global vaccines and immunotherapeutics company. The vaccine marketplace is extremely attractive, with estimates showing the market growing from $6.5 billion to $20 billion in the next 10 years. The development of immunotherapeutics, which harness the power of the immune system to treat rather than protect against disease, is predicted to account for significant market growth. To capitalise on this opportunity we are following a two-fold strategy, which is designed to increase our focus on the vaccines and immunotherapeutics field, where our powder injection technology adds most value.

Dr Paul Drayson, Chairman 3 July 2001 Firstly, we are pursuing our strategy to acquire vaccine 05 PowderJect Pharmaceuticals plc 2001 assets to build our portfolio of high value, consumer-focused vaccines. Consequently I am extremely pleased to announce our acquisition of Sweden’s leading vaccines company, SBL Vaccin AB (SBL). This transaction builds on our existing business, further consolidating our position in the premier league of vaccine companies. We now have nine approved products, three vaccines in phase III development, a pipeline of over 10 vaccines, a world lead in next-generation DNA vaccine technology, world-class manufacturing facilities, expertise throughout the entire pharmaceutical value chain from research through to marketing and distribution, and a workforce of highly trained professionals totalling approximately 1,000. Therefore, this acquisition is another step in the realisation of our ambition to become a high growth, high value, vaccines company. Secondly, we aim to divest our drugs business from a position of strength based on our extremely positive lidocaine results. This business encompasses the strategic assets required to develop next generation, needle-free powder injection products in the fields of small molecules and biopharmaceuticals, and includes lidocaine as its lead product. PowderJect will retain its platform delivery technology and focus on the key area of vaccines and immunotherapeutics. This strategy creates an Building on its leading position attractive drugs business for a potential buyer, and allows A considerable body of clinical data on Dukoral® has been PowderJect to significantly reduce its cost base by divesting generated in well over 100,000 subjects, demonstrating its its non-vaccine-focused functions. This strategic divestment efficacy and safety. SBL intends to consolidate this work and has an additional positive upside: the combined PowderJect, conduct limited further trials to pursue filings in the EU and US Evans Vaccines and SBL business is expected to move into profit over the next two years, thereby capitalising on the significant more rapidly. As a consequence of pursuing this strategy, the travel diarrhoea vaccine market. acquisition of SBL and divestment of our drugs business will The world’s only WHO recommended cholera vaccine make PowderJect the world’s largest pure vaccines company. SBL’s cholera vaccine is a drinkable product offering a high Acquisition of SBL Vaccin, Sweden’s leading vaccine company level of protection (85%), and is the only cholera vaccine The acquisition of SBL adds significant strategic vaccines recommended by the WHO. To date SBL has won tenders to assets to our business. Most important of these are a range supply the vaccine to Madagascar, Mozambique and Mayotte of proprietary, consumer-focused vaccines, strong sales and and the company is currently pursuing WHO registration, marketing infrastructure and growing revenues that will further which would permit the World Health Organisation to purchase strengthen our financial base. the vaccine for some of the world’s least developed countries. World lead in travel diarrhoea vaccine market Injectable polio vaccine SBL’s product range is focused on travel vaccines, with the SBL also produces and markets a polio vaccine in Sweden. company leading the world in the travel diarrhoea vaccine The market for polio vaccines is moving away from the oral market. This market is particularly attractive, with increasing to injectable presentation, particularly as a component of numbers of people travelling to the high risk regions of combination vaccines. Consequently, SBL is pursuing wider Latin America, South East Asia and Africa. Of these travellers, approval in Europe to supply its injectable vaccine to potential 10 million per year contract diarrhoea. By the year 2005, partners for inclusion in their multivalent products. the number of travellers worldwide is predicted to reach Strong sales and marketing infrastructure 100 million, representing a travel diarrhoea market of In addition to its range of proprietary vaccine products, SBL approximately $400 million. SBL is well placed to capitalise has built a Nordic sales, marketing and distribution organisation. on this opportunity. Its Dukoral® product is the only travel Indeed, the company has a particularly strong trademark, and diarrhoea vaccine available, and as a consequence, the current is the leading distributor in Sweden, with approximately 60% competition consists of antibiotics taken by travellers after market share. The skills developed by SBL’s team fit particularly becoming ill. Dukoral® is a consumer-friendly drinkable vaccine, well with PowderJect’s marketing strategy, which targets based on SBL’s oral vaccine technology, whose marketing non-traditional marketing channels, such as travel clinics. includes direct to consumer promotion. SBL currently sells the vaccine in Sweden and Norway through a number of channels As well as promoting its own products, SBL has a strategic including travel clinics. Sales have grown strongly, with 16% of distribution partnership with Aventis Pasteur. Under this Swedish travellers now receiving the vaccine. agreement SBL utilises its strength in the marketplace to promote and distribute Aventis Pasteur MSD’s range of travel vaccines and a number of its adult vaccines in Sweden. In addition, SBL distributes Aventis Pasteur MSD’s entire Swedish vaccine range. The agreement also covers Aventis Pasteur distributing SBL’s cholera vaccine globally, outside of the US and specific EU countries. As part of the collaboration, Aventis Pasteur is currently pursuing registrations for the cholera vaccine in approximately 20 countries, with sales expected to begin in some territories this year. Financial strength SBL currently generates revenues of approximately £16 million. Combined with PowderJect’s existing vaccines business, group revenues are expected to amount to approximately £100 million in the coming year. This demonstrates the strength of PowderJect as we transition into a pure vaccines business. 06 PowderJect Pharmaceuticals plc 2001 Chairman’s statement continued

Acquisition funded through vendor placing plus cash reserves We are funding our acquisition of SBL via a payment of $37.5 million (£26.5 million) derived from a vendor placing, through the issue of 5,824,176 new ordinary shares at a price of 455p per share, with the balance attributable to the SBL business of $12.5 million taken from our cash reserves. Strong sales performance by Evans Vaccines Since our acquisition of Evans Vaccines in October 2000, the business has performed extremely well. The last six months of the financial year saw revenues reach £34.7 million, with a gross profit of £11.3 million and operating profit of £5.0 million. While this is a significant achievement, several factors, including expected strong flu vaccine sales, our new contract to supply BCG tuberculosis vaccine to the Department of Health and the relaunch of Arilvax® should see further improvements in the coming year. Fluvirin® – record sales Sales of our flu vaccine, Fluvirin®, reached a new high of £40.6 million during the year to 31 March 2001 (with £23.9 million recognised by PowderJect and the remainder by Celltech, the business’ previous owner). We are now the market leader in the UK with a 35% market share, Third-party manufacturing performing well and we hold over 20% of the US market, the world’s largest. During the last six months of the financial period, we have Market conditions are highly favourable, with industry capacity renegotiated a number of Evans Vaccines’ third-party constrained due to two US manufacturers experiencing manufacturing contracts, which coupled with improved volumes difficulties with the FDA, one of whom has now withdrawn from and margins has generated revenues of £7.5 million. With the manufacturing completely. This leaves only three producers to extra capacity available at Evans Vaccines’ site in Speke and serve the entire US market. Consequently, Evans Vaccines has limited availability of specialist facilities throughout the industry, renegotiated its distribution agreement for the US to gain a we have a good opportunity to expand our third-party greater share of profits. In addition, the production process for manufacturing activities further. our next season vaccine is progressing well. We also have plans Vaccines pipeline continues to advance to capitalise on this rapidly growing market in the medium-term. We are currently undertaking a number of steps to significantly The robust performance of our marketed vaccines is mirrored by increase our production capacity. Much of this work is not capital the progress we have made with our pipeline of next-generation intensive, and while we expect to equal or improve on this year’s products. Of particular note is our achievement of an important record, significant capacity growth will take a further year to milestone in the development of a commercial device to deliver come online. DNA vaccines. We have now configured a dermal PowderJect® system to deliver our entire range of DNA vaccines. We aim to BCG – new contract will boost revenues confirm the safety and immunogenicity achieved by this device Just days before the end of the financial year we announced in a clinical study later this year. an important new contract making Evans Vaccines the UK Department of Health’s (DoH) sole supplier of BCG tuberculosis Another first in our GlaxoSmithKline DNA vaccines and complementary tuberculin diagnostics tests. vaccine collaboration While we had continued manufacturing these products During the year we announced interim clinical results that over the preceding months, we did not receive significant further validate our world lead in the field of DNA vaccines. revenues associated with the DoH contract during the period. Our hepatitis B DNA vaccine was the first DNA vaccine ever to Consequently, we expect strong top and bottom-line growth achieve protective immunity in those who have not responded to from these products in the coming year. The contract is current commercial vaccines, despite receiving up to nine doses. progressing well, and Evans Vaccines has supplied over Our previous successes in inducing cellular immune responses 500,000 doses ahead of schedule. with our innovative DNA vaccine technology, prompted us Arilvax® – relaunch offers good opportunity for sales growth to initiate a clinical study supporting the second programme The Arilvax® manufacturing upgrade that was ongoing in our collaboration with GlaxoSmithKline. This clinical trial when PowderJect acquired Evans Vaccines is now complete. is exploring a number of parameters related to the cellular Evans Vaccines plans to relaunch its yellow fever vaccine in the immune response, which will support the development of near future, initially in the UK followed by Europe. This is a a DNA immunotherapeutic designed to treat hepatitis B. strategically important product for PowderJect. Firstly, it is sold Promising work in HIV through travel clinics, which represent the type of non-traditional During the year PowderJect scientists also followed up on our marketing channel that we intend to exploit. Secondly, the vaccine encouraging work in the field of HIV. They have now confirmed has a good market opportunity, with limited competition in a previous preclinical results showing that PowderJect’s DNA marketplace that is predicted to grow to $215 million by 2005. vaccine offered significant protection against different viral mutants and different routes of infection. In the same field, PowderJect has also completed early research exploring the use of DNA vaccination combined with anti-viral therapy. Again the level of protection associated with DNA immunisation was extremely encouraging. This work provides a good foundation on which to base the development of effective products to prevent and treat HIV. 07 PowderJect Pharmaceuticals plc 2001

Successful phase II lidocaine configuration studies validate powder injection technology PowderJect has now successfully completed its largest phase II adult configuration study, supporting results from the Company’s earlier clinical work. The database compiled during this series of clinical trials comprises many hundreds of PowderJect administrations. Importantly, the most recent data are decisive, confirming that all four configurations of PowderJect’s needle-free delivery device tested in the study offer: • good tolerability (treatment-related adverse events mild only; no bleeding on administration; acceptable erythema and oedema with three configurations achieving Draize score ≤2) • effective local anaesthesia (all configurations achieved >70% pain reduction, with three attaining >80%, on venepuncture at the antecubital fossa with 21 gauge needle versus sham; n = 20 and p <0.001 for each configuration). Next generation flu vaccines show good potential Indeed, all configurations tested in this most recent configuration PowderJect’s strategy for its flu vaccine franchise involves the study meet the product specification for PowderJect Lidocaine, development of next-generation powder injection vaccines and therefore offer the characteristics required by a commercial offering improved levels of protection. The most advanced of product. Consequently, PowderJect has selected the parameters these, PowderJect’s conventional flu vaccine, incorporates (dose, microcylinder pressure, cassette membrane parameters, antigens from Evans Vaccines’ Fluvirin®. Due to the favourable particle size range) that are appropriate for progression into a safety and immunogenicity profile achieved by delivery to phase III development programme. the epidermis, PowderJect is currently working closely with scientists at Evans Vaccines to develop a formulation that allows The plans for the lidocaine phase III programme are now in place, significantly enhanced manufacturing yields. In order to progress with initiation scheduled for later this calendar year. The plan into the clinic as soon as possible, we are currently transferring comprises several studies involving over 800 subjects, focusing the appropriate technology to Evans Vaccines and compiling the on use in venepuncture (blood draws) and venous cannulation. necessary preclinical safety and tolerability data. The key elements of the supply chain are in place to support the phase III programme, which involves two pivotal efficacy and In addition, preclinical research with our third generation tolerability studies as well as a number of supporting trials. product, PowderJect flu DNA vaccine, has confirmed earlier work showing the potential for improved protection. Serono collaboration By incorporating DNA encoding a number of influenza genes, Since beginning our collaboration with Serono, we have achieved PowderJect researchers demonstrated that unlike current encouraging results and attained milestones in the two lead commercial vaccines, the DNA vaccine offers protection against programmes. Both companies agree that additional preclinical different viral mutants. studies will be required before clinical trials can commence. While this is not related to the underlying strength of the Drug business presents strategic divestment opportunity PowderJect technology, it does mean that the programmes The successful acquisitions of Evans Vaccines and SBL represent may not meet Serono’s original product development schedule. key steps in our strategy to become a leading vaccine company, Consequently, the companies are exploring a number of options. providing us with a broad financial base and the infrastructure The outcome of this process and the likely impact upon the to commercialise our pipeline of consumer focused powder collaboration may not be known for several months. injection vaccines. During the last year, we have also achieved Looking forward as the world’s leading pure another important milestone: the clinical validation of our vaccines company powder injection technology in our successful phase II lidocaine studies. When combined, these factors present us with the In the last six months PowderJect has begun its transformation strategic opportunity to divest our drugs business from a into a fully integrated pharmaceutical company. The strategy we position of strength, thereby focusing our activities on our have announced today accelerates us towards profitability and core business, vaccines and immunotherapeutics. The drugs transitions us into the world’s largest pure vaccines company. business, while non-core for PowderJect, offers a potential buyer We aim to build on Evans Vaccines’ strong financial performance a strong, patented technology, with a lead product poised for both organically and with our newly acquired SBL business. phase III studies. With a high quality R&D team, facilities in the The decisive results we achieved with lidocaine should underpin San Francisco Bay-area biotech heartland and agreements in the divestment of our drugs business, thereby focusing our place with a number of pharmaceutical companies, including resources and development activities on the field where we add Serono, this business offers PowderJect an important most value, vaccines. The next year promises to be another exciting one for PowderJect. Manufacture of our flu vaccine, divestment opportunity. In addition to the value that can be ® generated through the divestment, PowderJect will be able to Fluvirin , is progressing well, and the addition of SBL’s products save approximately 40% of its R&D budget going forward: this and sales and marketing infrastructure should further boost year total R&D investment amounted to just over £30 million. our revenues. Indeed, we anticipate turnover to increase by well over 100%, gross margins to improve, and R&D expenditure to level out at 20-25% of sales. With these solid commercial foundations in place, I am pleased to report that we have the financial strength to deliver on our business plan. Therefore, I look forward to reporting next year on the activities of the world’s leading pure vaccines company.

World-class vaccine manufacturing PowderJect has world-class commercial vaccine manufacturing facilities located at its Evans Vaccines site in Speke, UK. This site, which has received approximately £60 million of investment over the last four years, is one of the few in the world approved by both the FDA and MCA regulatory authorities. Unusually, the facilities are also approved by the US and European regulators to handle live viruses in the production of vaccines. As one of Europe’s largest biologics production facilities, Evans Vaccines provides manufacturing services to a range of leading pharmaceutical companies. The site boasts a new state-of-the-art packing and filling line with a 40 million syringe capacity, and a new vial filling line is currently being installed. In addition to the capacity already utilised in Speke, the site has potential for growth, with additional space available to manufacture products for third-parties. 10 PowderJect Pharmaceuticals plc 2001 Operationally, the last 12 months have been a period of great change for PowderJect. The integration of Evans Vaccines has Operating review progressed well, and sales, particularly of our key vaccine Fluvirin®, grew strongly. The recent acquisition of SBL Vaccin promises to continue this growth trend as PowderJect accelerates to profitability. As well as adding a range of products to PowderJect’s vaccine portfolio the SBL acquisition brings an established sales and marketing organisation. This complements PowderJect’s and Evans Vaccines integrated infrastructure, strengthening the commercial side of the business. In addition, PowderJect’s vaccine pipeline is now broader, with a number of late-stage products. During the year, PowderJect continued its clinical advance in the field of DNA vaccines, confirming the Company’s lead in the area. Turning to powder injection, conclusive results in the phase II lidocaine programme represent a major achievement, with the product now configured for the phase III programme. The combination of all these factors presents PowderJect with an opportunity to focus exclusively on vaccines, the field where its powder injection technology adds most value. To achieve this focus and channel R&D investment entirely into vaccines, PowderJect intends to divest its drug business. PowderJect’s fully integrated vaccines business Strong performance from Evans Vaccines In the last six months Evans Vaccines has achieved record sales, generating revenues of £34.7 million. This performance was led by Fluvirin®, Evans Vaccines’ influenza vaccine, with on schedule manufacture and distribution helping to alleviate the widely reported supply problems experienced in both the UK and US. Indeed Fluvirin® was the first flu vaccine to reach the US market by many weeks. Continuing progress at Evans Vaccines’ manufacturing facilities will assist in maintaining this strong performance: a new filling line is now licensed to supply the US, and the Company is installing an additional line for use in future seasons. In addition, the coming months will witness the relaunch of Arilvax® and potentially the launch of the hepatitis B vaccine, Hepacare®. With a number of new contracts in place and manufacturing progressing well on next season’s flu vaccine, Evans Vaccines is well placed to build on the solid performance achieved this year. Below Primary vaccine manufacture ® at Evans Vaccines’ world-class facilities • Fluvirin (flu vaccine) hits new sales record. The 2000/2001 in Speke, Liverpool. flu season was a record year for Fluvirin®. Production exceeded Opposite above Evans Vaccines’ 23 million doses, with sales of £40.6 million (£23.9 million extensive commercial production recognised by PowderJect) well above those achieved in 1998, capabilities include a range of primary the previous record year. In the UK, Fluvirin® was the market manufacturing technologies. leader with sales of 3.75 million doses and a market share Opposite middle Fermentors are used of approximately 35%. In the US, Fluvirin’s largest market, extensively in the manufacture of Evans Vaccines’ marketed products. the vaccine accounted for market share of over 20% with sales of 15 million doses representing a 15% increase on the Opposite below Sophisticated control and monitoring is an integral previous record. part of Evans Vaccines’ world-class Fluvirin® is the most important of the Evans Vaccines’ products manufacturing. with a strong position in an expanding marketplace: the worldwide flu vaccine market is predicted to grow annually by over 10% to over $600 million in 2004. More than 50% of these worldwide sales will be generated in the US, where there is currently significant industry capacity constraint, with one manufacturer leaving the market completely and another working under FDA consent degree. Evans Vaccines’ Fluvirin® is now one of only three flu vaccines available in the US. Therefore, with an established position in the market, Fluvirin® has significant future potential. Indeed, to satisfy increasing demand, Evans Vaccines is working to extend its Fluvirin® manufacturing capacity significantly over the next few years. In addition to this commercial potential, Fluvirin® is of strategic importance to PowderJect. With pharmacy immunisations led by sales of flu vaccine, Fluvirin® offers PowderJect the opportunity to establish sales in non-traditional marketing channels. 11 PowderJect Pharmaceuticals plc 2001

• Arilvax® (yellow fever vaccine) stocks in place for relaunch. During PowderJect’s acquisition of Evans Vaccines, the Arilvax® manufacturing facility was undergoing an upgrading process, which is now complete. With stocks of Arilvax® in place and manufacturing ongoing, Evans Vaccines is preparing to relaunch the vaccine onto the UK market in the near future. Relaunches in several European countries will follow, with additional Arilvax® launches planned for France and Spain. In addition, US approval is being pursued by Acambis . Arilvax® is strategically important because it is sold direct to travel clinics, consistent with PowderJect’s consumer-oriented marketing strategy. The travel vaccine market is an important target for PowderJect because it is expected to grow significantly due to the rise in global travel: current estimates suggest yellow fever vaccine sales are worth approximately $75 million worldwide, with growth of over 15% per year expected to take the market to $215 million by 2005. In addition, the competition is limited. There is only one supplier of yellow fever vaccine in the US, and Evans Vaccines is one of only two suppliers in Europe. • BCG (TB vaccines) production moves ahead of schedule. Evans Vaccines manufactures and markets BCG vaccines for protection against tuberculosis and tuberculin for use in the Heaf and Mantoux diagnostic tests. Earlier this year, Evans Vaccines was extremely pleased to announce a new two-year contract for the sole supply of both BCG and tuberculin to the UK Department of Health’s school immunisation programme. Production of the tuberculosis vaccine is progressing well, with approximately 500,000 doses supplied ahead of schedule. In addition to this important tender, Evans Vaccines also won a contract providing sole supply to the Irish Medicines Board. • Clostet® (tetanus vaccine) to retain more value. Clostet® represents a modest growth opportunity for Evans Vaccines. The tetanus vaccine is currently bought in bulk from a third party, filled, packed and branded by Evans Vaccines, and sold directly to GP practices in the UK. However, with an industry shortage of tetanus antigen, Evans Vaccines is exploring options to increase its income from this product.

World leading research into next generation vaccines Vaccines are widely acknowledged as one of science’s greatest achievements, and are one of the safest and most cost-effective forms of health intervention. Indeed, vaccines are the single most important reason for the virtual disappearance of a number of infectious diseases, such as smallpox, diphtheria and tetanus. PowderJect is proud to be one of the world leaders in the vaccines field, and is investing significant resources to develop the next generation of vaccines. For instance, its drinkable vaccine technology, developed by SBL Vaccin, can provide protection against diseases such as cholera and travel diarrhoea. A new approach, DNA vaccination, goes further, offering the potential to protect against, and treat, diseases such as HIV and hepatitis B. PowderJect’s investment is paying off, with the Company now leading the world in the development of this new type of vaccine. To date, PowderJect scientists have invented and patented a number of new DNA vaccines and associated techniques to improve the performance of this revolutionary technology. In addition, PowderJect’s powder injection technology can further boost the performance of vaccines by targeting the immune cells in the outer layer of the skin, the epidermis. Powder injection can achieve balanced and robust immune responses with a fraction of the dose required by liquid injections. In the case of DNA vaccines this can be as little as one-thousandth of the dose, offering potential safety advantages in addition to the significant cost benefit. 14 PowderJect Pharmaceuticals plc 2001 Operating review continued

• Hepacare® (hepatitis B vaccine) evaluation nearing Below top Evans Vaccines’ multistorey completion. Evans Vaccines is currently examining the potential warehouse is serviced by a computer guided, robotic pallet truck. market for Hepacare®, and exploring the opportunities for a potential launch in the coming months. Hepacare® is a third Below middle Sophisticated protection equipment allows the production of generation recombinant vaccine approved in Europe for a wide range of biologics including protection against hepatitis B. Hepacare® achieves higher hazardous materials. antibody titres than existing hepatitis B vaccines and is Below bottom Evans’ range of indicated for those who have failed to respond to current bioreactors offers production flexibility. products. This provides Hepacare® with a potential niche market, encompassing healthcare workers who are not protected by commercial vaccines but for whom immunity is essential. The existing manufacturing process is low volume and high cost, which means that Hepacare® would need to be sold at a significant premium price compared with existing hepatitis B vaccines. • Diamorphine (analgesic) generates stable revenues. In addition to its range of vaccines, Evans also produces and sells one drug, diamorphine. This is not a strategically important product, but generates stable revenues without requiring significant sales and marketing investment. Diamorphine is one of the most powerful analgesics, used mainly for the palliative care of terminally ill patients. It is a controlled drug and is therefore produced and sold in the UK only. Diamorphine customers comprise hospitals, wholesalers and other pharmaceutical companies. Robust contract manufacturing performance at Evans Vaccines Evans Vaccines has continued to strengthen its third-party production business at its Speke facilities over the last six months. Renegotiation of the contract relating to the manufacture of Aviron’s intranasal flu vaccine, Flumist™, secured income of $35 million over five years with the potential of additional performance-based milestones. In addition, a two-year contract extension to 2005 with a major customer includes a modest increase in fees. The contract also has provision for greater volumes, which have approximately doubled this year. Evans Vaccines integration proceeding well Since PowderJect’s acquisition of Evans Vaccines in October 2000, a strategic integration team has overseen the transformation of the organisation into a stand-alone commercial business. This was completed by March 2001. The majority of the support functions, including IT, regulatory, customer services and sales & marketing, have been established at Evans Vaccines’ Speke site, with the new medical affairs and pharmacovigilance departments located in the Corporate Headquarters in Oxford. Integration with the research and development functions is also progressing well, with a number of teams working to transfer powder-form vaccine manufacturing technology to Evans Vaccines. 15 PowderJect Pharmaceuticals plc 2001

PowderJect’s vaccine pipeline Clinical progress in GlaxoSmithKline DNA vaccine collaboration During the last year, PowderJect continued to make clinical progress in its major collaboration with GlaxoSmithKline, and achieved another world first confirming its lead in the field of DNA vaccines. Interim results from a phase I clinical study show that the PowderJect hepatitis B DNA vaccine was the first ever to achieve protective immunity in non-responders to commercial vaccines. The PowderJect DNA vaccine demonstrated a positive safety profile, and proved highly immunogenic, inducing protective antibody levels in many of the volunteers who had previously not responded to as many as nine doses of commercial vaccine. The ability of DNA vaccines to induce a cellular response is believed to be critical for treating chronic viral infections such as hepatitis B. Clinical studies demonstrate that PowderJect DNA vaccines can induce this type of immune response. Above top Syringes are washed Indeed, an earlier clinical study demonstrated that PowderJect’s and sterilised to ensure sterility preventive hepatitis B DNA vaccine induced cellular immune before filling. responses in all evaluable subjects. Consequently, in early 2001 Above bottom Syringe stoppers are GlaxoSmithKline and PowderJect initiated a clinical trial to fed automatically onto Evans Vaccines’ support the development of a DNA immunotherapeutic to treat state-of-the-art filling line. hepatitis B. Immunisation of all the volunteers is now complete, with follow-up ongoing. Striking results with PowderJect DNA vaccine in field of HIV In May 2000 PowderJect reported encouraging results with a PowderJect DNA vaccine in a laboratory model of HIV. During the last year, PowderJect scientists have followed-up this study. Examination of lymph tissue rather than simple plasma samples confirms that the DNA vaccine offered significant protection against different viral mutants of the disease and against virus transmitted via the mucosa, despite the PowderJect® system administering the vaccine to the skin. These characteristics are thought to be important for an HIV vaccine to be effective. In addition to this encouraging work, PowderJect has conducted early-stage research into the combined use of DNA vaccination and antiviral drug therapy, which is used to reduce the amount of virus post-infection with HIV. Interim preclinical results show that vaccination post-infection combined with drug therapy greatly reduced viral load compared with drug treatment alone. Even more notable was the effect of vaccination pre- and post-infection combined with the drug treatment. Unlike the drugs therapy, the DNA vaccine approach reduced viral burden to undetectable levels in almost all cases. While PowderJect’s work in the field of HIV remains at an early stage, it forms a solid foundation for the development of future HIV DNA vaccines and immunotherapeutics.

Powder injection pipeline is the foundation for growth PowderJect’s ambition is to build on its position as one of the world’s largest vaccines companies. While its current range of vaccines offers a growing revenue stream, it is the Company’s pipeline of next-generation powder injection vaccines that will allow PowderJect to accelerate that growth. PowderJect’s powder injection development programmes incorporate prophylactic (preventive) and therapeutic products, including conventional vaccines, next generation DNA vaccines and immunotherapeutics, targeting $500 million-plus markets including HIV, flu and hepatitis B. In addition to this breadth, the pipeline is also deep with a number of clinical programmes, and others at the preclinical stage moving towards the clinic. To ensure an optimal risk : reward ratio, PowderJect has a balance of powder injection vaccines under development in-house and collaborative programmes with major pharmaceutical companies such as GlaxoSmithKline where R&D funding is provided by the partner. 18 PowderJect Pharmaceuticals plc 2001 PowderJect DNA flu vaccine moves forward Operating review continued PowderJect’s DNA flu vaccine is designed to offer protection against different viral strains and mutations. Therefore, this novel proprietary vaccine incorporates DNA encoding a highly conserved influenza gene. To boost performance further, the PowderJect DNA vaccine also incorporates additional flu genes. To demonstrate the power of this approach, PowderJect has conducted preclinical challenge studies using different virus mutants. In this laboratory model, current commercial vaccines offered only 12% protection, while the PowderJect DNA vaccine offered 100% protection. This encouraging work further supports PowderJect’s world-class flu vaccine franchise, offering the potential of a third-generation product with enhanced efficacy. PowderJect conventional flu vaccine – secure supply of antigen from Evans Vaccines PowderJect’s conventional powder injection flu vaccine also provides potential improved protection compared with current commercial products. The acquisition of Evans Vaccines has secured a stable supply of antigen for the powder-form product, replacing the previous supplier who has completely withdrawn from the flu vaccine market. Currently, the PowderJect and Evans Vaccines’ teams are transferring the formulation, manufacturing and analytical processes used in the production Below Barrier isolation technology of powder-form conventional vaccines. To confirm the safety offers efficient access to the and tolerability of the product, PowderJect is performing the syringe filling process, whilst maintaining enhanced control necessary preclinical work before moving the PowderJect flu of the local environment. vaccine into the clinic. Below bottom ‘Reservoirs’ hold PowderJect research strengthens core vaccine technologies syringes on the packaging line to avoid bottlenecks. Next generation powder injection technology moves forward During the past year PowderJect has continued to work on next generation powder injection technology. This has resulted in an important milestone: the configuration of the PowderJect disposable ND system for the delivery of DNA vaccines. This represents a key step in the development of a commercialisable system that will be capable of delivering PowderJect’s entire range of DNA vaccines. A clinical study to confirm the immunogenicity and tolerability achieved in previous preclinical testing is planned for later this financial year. In parallel, PowderJect has scaled up DNA vaccine formulation and manufacturing processes to support the clinical development of these products. Powder-form adjuvants offer further improvement in vaccine performance Scientists have explored the use of adjuvants to boost vaccine performance for many years, but the approach was not routinely accepted because of adjuvant toxicity. PowderJect scientists have now confirmed earlier preclinical research showing that powder injection offers advantages in the field of vaccine adjuvantation. Unlike liquid injection, delivery of adjuvants via the PowderJect® system enhances vaccine performance without associated toxic side-effects. Therefore, powder injection may resurrect a number of effective adjuvants that cannot be administered to humans with a needle and syringe because of toxicity, offering PowderJect a potentially important commercial advantage. 19 PowderJect Pharmaceuticals plc 2001

Top A number of carton filling lines offers flexibility for packing finished products. Bottom In addition to syringe filling, Evans Vaccines has extensive vial filling and testing capabilities.

Powder-form adjuvantation also offers advantages in the field of DNA vaccines. By using DNA encoding known adjuvants, PowderJect scientists can both enhance and modulate the immune response. In laboratory research, DNA adjuvants directed the immune system to move from an antibody response to a predominantly cellular response. This type of control may be highly valuable for PowderJect’s DNA vaccine programmes, particularly in the field of immunotherapy. PowderJect’s drug business Drug business offers attractive divestment opportunity As an integral part of its ambition to become a leading global vaccines and immunotherapeutics company, PowderJect has taken the strategic step to begin the process of divesting its drugs business. The drug business focuses on the fields of small molecules and biopharmaceuticals, and therefore includes PowderJect’s Fremont operation in California, PowderJect Lidocaine, PowderJect’s collaboration with Serono and a number of other agreements with major pharmaceutical companies. • PowderJect Lidocaine plans in place for phase III pivotal trials. The local anaesthetic PowderJect Lidocaine has successfully completed a series of configuration studies, and plans are now in place for a programme of phase III clinical trials to begin in the coming months. During the last year, a number of clinical studies involving over 500 PowderJect administrations have culminated in a decisive trial that has defined a drug dose and device configuration that delivers well tolerated and effective dermal anaesthesia at the antecubital fossa (inside of the elbow). Consequently, PowderJect Lidocaine can move into the final phase of testing to support a regulatory filing for use in blood draws and venous cannulation. The phase III programme plan comprises a number of studies involving over 600 adults and more than 200 children, to take place at commercial clinical research organisations in Europe and the USA. In addition to the pivotal trials, whose objective is to confirm the efficacy and tolerability of PowderJect Lidocaine, a number of studies are designed to explore use in different age groups and patients with different skin types.

Unique technology, unique products, unique benefits Many of the innovative vaccines that PowderJect is developing incorporate its unique delivery technology, powder injection. This patented technology offers a unique range of benefits. By delivering vaccines into the outer layer of the skin in a simple-to-use device, the PowderJect® system offers patients needle-free medicines. Healthcare workers benefit too: with as many as 800,000 accidental needle-stick injuries each year in the US alone, many workers are currently exposed to hepatitis B, HIV and hepatitis C. Powder-form medicines also offer pharmaco-economic advantages: PowderJect products avoid the need for the costly cold chain required for many vaccines. The WHO have established that the cold chain adds nearly 15% to the cost of immunisation. However, the most important benefit offered by powder injection delivering to the correct layer of the skin, is the ability to improve the performance of vaccines. Research shows that by targeting the skin’s epidermis, powder injection can greatly increase the size and quality of the immune response achieved by both conventional and DNA vaccines. 22 PowderJect Pharmaceuticals plc 2001 Operating review continued

In parallel to clinical development, manufacturing process development has also progressed well, and all the key supply chain elements are in position to support the phase III requirements and commercial launch of the product. Supply of helium cylinders is ensured through PowderJect’s long-term manufacturing agreement with The BOC Group plc, whose existing pilot plant is capable of meeting all of the clinical trial requirements. Manufacture of the powder-form lidocaine unit dose package is undertaken at the Company’s Fremont facility, where construction of clean room capacity to support commercial launch is complete. The plastic moulded device components for PowderJect Lidocaine’s phase III programme and commercialisation are to be produced by the world-class medical device manufacturer Bespak. Bespak will also assemble the product at its commercial production facilities in North Carolina, USA. • The Serono collaboration. PowderJect’s drug business also encompasses its collaboration with Serono. The collaboration Above PowderJect’s in-house vaccines research is a core skill in the fully made encouraging progress last year with the second programme, integrated vaccines company. beta-interferon delivered via the PowderJect® system, successfully completing initial studies. Both companies now agree that additional preclinical studies will be required before clinical trials can commence. While this is not related to the underlying strength of the PowderJect technology, it does mean that the programmes may not meet Serono’s original product development schedule. Consequently, the companies are exploring a number of options. The outcome of this process and the likely impact upon the collaboration may not be known for several months. 23 PowderJect Pharmaceuticals plc 2001

PowderJect continues commercial progress Below PowderJect’s research capabilities incorporate the skills Following its acquisition of Evans Vaccines in October 2000, required to develop next-generation, PowderJect has continued to make commercial progress. consumer-focused vaccines – microbiology and immunology, The recent acquisition of Sweden’s leading vaccine company, analysis and device development. SBL Vaccin, adds key strategic assets to PowderJect’s vaccines business. Notably, the acquisition boosts PowderJect’s commercialisation capability: SBL’s marketing and distribution business, which handles its own and third-party products, is particularly strong in Sweden and the Nordic region. Oral vaccines for cholera and travel diarrhoea also extend Evans Vaccines’ travel vaccine franchise. In addition, SBL’s injectable polio vaccine further strengthens PowderJect’s range of marketed products. For further details on SBL products please see the Reference Section in this Annual Report. In terms of strategic development, PowderJect continues its drive to expand the Company’s portfolio of marketed and late-stage vaccines. To this end, PowderJect will continue to explore opportunities to acquire appropriate strategic vaccine assets. Future outlook is bright The next year promises to be exciting for PowderJect. Strong performance by Evans Vaccines and SBL Vaccin should be matched by progress in PowderJect’s vaccine pipeline. The BLA filing for Arilvax® in the US will mark a key milestone, as will the relaunch of the yellow fever vaccine and the registration of SBL’s travel vaccines in a number of additional territories. Evans Vaccines will make its decision regarding a potential launch of Hepacare®, and PowderJect will continue to explore strategic acquisition opportunities to complement its existing product range and commercial manufacturing activities in Speke. The divestment of PowderJect’s drugs business should be finalised, and consequently, the coming financial year will see PowderJect accelerate towards its objective of becoming a profitable, fully integrated vaccines company.

The vaccines market is transforming. Recognition of the benefits Capitalising on growth markets of vaccination means new marketing channels are opening PowderJect’s strategic focus is firmly on the vaccines marketplace. up. Many companies now offer influenza vaccines to their In addition to its large size, the market is growing rapidly: vaccine employees. Members of the public in the US can receive their sales exceed $6 billion and are predicted to reach approximately vaccines in consumer-focused locations, such as pharmacies. $11 billion by 2005. But most importantly, PowderJect’s powder The same is now true in the UK, where one of the leading injection technology offers major consumer and product pharmacy chains, Boots the Chemists, has a seasonal flu advantages in this key market. Most vaccines are injected via vaccination programme in selected stores for shoppers. needle and syringe and require refrigeration or reconstitution In addition, travel vaccines are available in dedicated travel into a liquid prior to injection. Powder injection overcomes these clinics, offering the growing tourist market convenient problems, and clinical and preclinical data show that powder immunisation and advice. In the near future, the prospect of injection can also greatly improve the performance of vaccines. new protective vaccines and immunotherapeutics to treat disease, means that vaccines offer PowderJect an extremely attractive growth opportunity. 26 PowderJect Pharmaceuticals plc 2001 A leading international vaccines company Reference section PowderJect is a rapidly growing international vaccines business. The Company manufactures and markets a range of vaccines, with a pipeline of development-stage vaccines based on two core platforms: PowderJect’s unique needle-free powder injection delivery system and its recently acquired drinkable vaccine technology. PowderJect’s growth strategy PowderJect’s strategy focuses on continuing its rapid transformation into a profitable international vaccines company. The Company’s three-fold strategy is designed to ensure that PowderJect builds on its fully integrated business model to retain the value of future products, by discovering, developing, manufacturing and commercialising a range of important vaccines and immunotherapeutics: • Establishing powder injection as a standard by using PowderJect’s proprietary delivery technology and unique benefits as the foundation of a strong vaccines brand. PowderJect is developing a broad range of vaccines incorporating powder injection delivery, both in-house and with its major pharmaceutical company partner, GlaxoSmithKline. This portfolio forms the base on which to build powder injection into an industry standard. • Developing the assets to manufacture and market PowderJect vaccines. PowderJect has established the infrastructure to develop, produce and commercialise existing and next generation vaccines. The Company has a range of vaccines on the market, sold under the Evans Vaccines and SBL Vaccin brands. These are produced at the world-class commercial manufacturing facilities at Evan’s site in Speke and SBL’s facilities in Sweden. By focusing on building sales through non-traditional channels that do not require large sales forces, such as pharmacies and travel clinics, these products give PowderJect the opportunity to develop a strong marketing capability and to reach the financial critical mass required to retain the value of future medicines. • Ensuring long-term growth through innovative proprietary vaccines. PowderJect aims to maximise product value by developing and/or acquiring a range of proprietary vaccines that the Company can manufacture, market and sell using its own facilities and sales force. PowderJect is making progress with this element of its strategy in several areas: by leveraging its world leading position in the field of DNA vaccines to develop a number of proprietary PowderJect DNA vaccines; by progressing SBL’s late-stage and marketed vaccines for travellers diarrhoea and cholera; by building on SBL’s established sales and marketing organisation to promote its own products. Vaccines – a rapidly growing market With its portfolio of products marketed under its Evans Vaccines and SBL Vaccin brands, PowderJect is one of the largest vaccines companies in the world (based on sales). This is an important foundation on which PowderJect aims to develop and launch new vaccines into the rapidly growing vaccine marketplace. 27 PowderJect Pharmaceuticals plc 2001

As knowledge of the human immune system grows, the field of vaccines is changing rapidly, with the market predicted to Worldwide influenza vaccine market ($m) grow from approximately $6.5 billion to $20 billion by 2010. New vaccines targeting high profile diseases, next generation 604 vaccines that offer the potential to treat diseases such as cancer 549 and HIV, and new technologies such as DNA vaccination that 516 453 offer the prospect of improved efficacy, all have the potential 426 to drive market growth. In addition, heightened consumer 367 341 awareness gained from increasing public access to medical 311 326 information and more convenient immunisation, such as in the 281 297 workplace, pharmacies and travel clinics, should also increase the market. Calls for effective, user-friendly vaccine initiatives by the US Centers for Disease Control and Prevention and the training of pharmacists to offer immunisations in over 30 US states demonstrate the advances underway to increase access to vaccines. As the public continues to demand more patient- 1994 1995 1996 19971998 1999 2000 2001 20022003 2004 friendly healthcare, the development of new consumer-focused delivery techniques, such as PowderJect’s powder injection technology, is predicted to further increase vaccine uptake. PowderJect is well placed to capitalise on the changing dynamics of this market. This is demonstrated by the Company’s influenza vaccine franchise. The market for influenza vaccines is growing rapidly, and is predicted to grow by nearly 50% over the next four years to over $600 million. This growth is attributed to a number of factors. The US and UK governments have significantly reduced the age defining those at high risk, with the British government spending an additional £60 million (including vaccine) to support the winter flu programme, which included an advertising campaign disseminating the importance of flu vaccination to the elderly. In addition, many corporations are offering immunisations to employees, and vaccination against flu is available in pharmacies in the US and now in the UK. This growth is in an environment of industry capacity constraint, with one US manufacturer ending production entirely last year. With Evans Vaccines’ manufacturing facilities reaching a new flu vaccine production record last year, and two generations of powder injection flu vaccines in development offering the potential of improved levels of protection, PowderJect is in a strong position to build on its current significant proportion of this important market. 28 PowderJect Pharmaceuticals plc 2001 Reference section continued

PowderJect’s marketed/approved products PowderJect’s range of approved and marketed products, sold under its Evans Vaccines and recently acquired SBL brand, make it one of the largest vaccines businesses in the world. • Fluvirin® Fluvirin® is Evans Vaccines’ triple antigen vaccine for flu prevention. Fluvirin® is approved in 30 countries and is sold in the US, UK, Belgium, France, Ireland, Spain, The Netherlands, Germany, Sweden, Norway, Australia and Argentina. • Arilvax® Evans Vaccines produces the vaccine Arilvax® for protection against yellow fever. Arilvax® is approved for sale in 17 countries including the UK. Launches are planned in France and Spain. • Dukoral® SBL markets Dukoral® in Sweden and Norway as a drinkable vaccine against travel diarrhoea. Dukoral® is also registered in a number of other countries predominantly in South America. • Cholera SBL’s oral cholera vaccine has been sold in Sweden and Norway for approximately 10 years. The Company has a distribution agreement with Aventis Pasteur covering the rest of the world, excluding the EU and USA. • BCG and tuberculin Two BCG vaccines for tuberculosis are manufactured at Speke and marketed in the UK by Evans Vaccines. In addition to BCG, Evans Vaccines also supplies tuberculin for diagnostic testing. • Clostet® Clostet® is a tetanus booster vaccine sold in the UK under the Evans Vaccines brand name. • Polio Injectable polio vaccine is marketed by SBL in Sweden, and the Company is seeking to supply bulk antigen to partners as a component for their combination vaccines. • Hepacare® (also known as Hepagene) Hepacare® is Evans Vaccines’ recombinant vaccine for protection against hepatitis B. The vaccine is approved for sale in Europe but is not currently on the market. • Diamorphine Evans Vaccines manufactures and distributes diamorphine in the UK. Diamorphine is one of the most powerful analgesics, used mainly for the palliative care of terminally ill patients. Powder injection – the foundations of PowderJect’s pipeline PowderJect’s pipeline of vaccines incorporates the Company’s core technologies: the proprietary delivery technique powder injection and a drinkable vaccine technology. • Powder injection involves the use of a sophisticated device to deliver minute amounts of powder-form medicine into the outer layer of the skin, without the use of a needle. • Drinkable technology allows oral vaccines to generate an immune response. PowderJect’s pipeline Conventional vaccines PowderJect is developing a range of conventional vaccines targeted at major markets. • Dukoral® As part of the process of seeking approvals in Europe and the US, PowderJect intends to undertake a limited number of clinical studies to consolidate the considerable body of data that is currently available for Dukoral®. • Arilvax® Acambis is pursuing regulatory approval for Arilvax® in the US. As part of the registration process, Arilvax® is in phase III studies. 29 PowderJect Pharmaceuticals plc 2001

• ETEC travellers diarrhoea vaccine Oral ETEC vaccine Vaccines pipeline incorporates inactivated strains of enterotoxigenic Escherichia coli, a bacteria that is responsible for many tourist diarrhoea Arilvax® (US) Phase III cases. The vaccine is currently undergoing phase III studies. Dukoral® (EU) Phase III ® • PowderJect influenza vaccine – PowderJect Fluvirin Dukoral® (US) Phase III Preclinical tests show that vaccination against influenza using the PowderJect® system leads to better protection than ETEC Phase III traditional needle and syringe delivery, and may provide an extra PowderJect Hep B DNA Px Phase I level of protection against virus mutants that are not directly incorporated in the product. PowderJect plans to develop its PowderJect Hep B DNA Rx Phase I ® flu vaccine using Fluvirin antigens. PowderJect HIV DNA Px Preclinical • PowderJect hepatitis B vaccine In laboratory models PowderJect HIV DNA Rx Preclinical PowderJect hepatitis B vaccine achieves higher seroprotection rates and better reproducibility than conventional needle and PowderJect HPV DNA Preclinical syringe vaccinations, offering the potential of a premium product. PowderJect Undisclosed DNA Preclinical • PowderJect diphtheria/tetanus (“dT”) booster DT vaccine PowderJect Fluvirin® Preclinical delivered using the PowderJect® system elicited stronger antibody responses in preclinical tests than needle delivery, PowderJect Hep B Preclinical providing PowderJect with the opportunity to develop a PowderJect DT Preclinical product with improved performance. PowderJect Flu DNA Preclinical PowderJect DNA vaccines – next generation technology PowderJect has a strong development pipeline in the field of PowderJect HSV DNA Preclinical DNA vaccines, a field in which it leads the world. The Company has a number of in-house proprietary programmes and a major partnership with GlaxoSmithKline. • PowderJect flu DNA vaccine PowderJect’s flu DNA vaccine offers the prospect of protection against different mutations of flu viruses and also against different strains of the disease. These advantages would be particularly important to high-risk populations. • Other in-house programmes PowderJect is working on DNA vaccination approaches in the field of herpes simplex virus and has filed patents with broad claims in the area. PowderJect has also patented DNA vaccine techniques designed to generate strong cellular immune responses. • GlaxoSmithKline collaboration – key DNA vaccine partnership In its collaboration with PowderJect, GlaxoSmithKline holds five options, and six licences in the following fields: • hepatitis B protection • hepatitis B therapy • HIV protection • HIV therapy • human papilloma virus therapy for genital warts • an undisclosed infectious disease field. • Hepatitis B DNA vaccines Clinical trials of the PowderJect hepatitis B DNA vaccine have demonstrated strong immunological results. A phase I study with this vaccine achieved a world first for DNA vaccination: 100% of the patients attained protective levels of antibodies. In addition, the vaccine elicited a cellular immune response in all evaluable subjects, which is thought to be important in developing therapeutic vaccines. Following this study PowderJect has initiated a clinical study supporting the development of a DNA immunotherapeutic to treat hepatitis B. 30 PowderJect Pharmaceuticals plc 2001 Board of Directors

Executive Directors: 4 – Dr Clive Dix Senior Vice President, Research and Development (aged 46) 1 – Dr Paul Drayson Dr Clive Dix was previously Glaxo Wellcome’s UK Research Chairman and Chief Executive Officer (aged 41) Director. He has over 20 years’ experience in life science One of PowderJect’s co-founders, Dr Drayson brings more than research, with over 15 years in senior pharmaceutical industry 15 years’ experience as a managing director and entrepreneur. positions. As Research Director at Glaxo Wellcome he was His early career was with Rover Cars and Trebor Group in new responsible for running the company’s research site at product development and marketing. As Managing Director, Stevenage in the UK, managing over 900 scientists. He also Dr Drayson led a management buyout backed by 3i plc of co-chaired Glaxo Wellcome’s management group that had a Trebor subsidiary during Trebor’s take-over by Cadbury responsibility for overseeing all research projects across the Schweppes. Dr Drayson subsequently acquired a competing world. Previously, Dr Dix held the post of Biology Director at business owned by Allied Lyons and successfully sold the Glaxo Wellcome in addition to other senior scientific positions, combined operation in 1991. Dr Drayson earned a BSc and including Head of Biochemistry at Ciba-Geigy Pharmaceuticals. PhD in robotics from Aston University. 5 – Steven Harris 2 – Dr Terry Burkoth Finance Director (aged 35) Senior Vice President, Science and Technology (aged 60) Steven Harris joined PowderJect in February 1997 following Dr Burkoth joined PowderJect from ALZA Corporation, where he three years as financial controller at Desoutter, a subsidiary served as Vice President, Product Development and a Principal of Atlas Copco, a Swedish multinational corporation. Prior to Scientist. He also was Executive Director of various technology this, Mr Harris gained six years of audit and corporate finance groups, including outside development partnerships. Dr Burkoth experience with Price Waterhouse. Mr Harris is a Chartered has 27 years of industrial research and development experience Accountant who holds a degree in business economics and in guiding novel technologies, including new molecular entities, accounting from Southampton University. and transdermal drug delivery systems to commercialisation through all phases of development, particularly the government 6 – Charles Swingland regulatory process. Prior to ALZA, Dr Burkoth worked at Sandoz- Company Secretary and General Counsel (aged 48) Zoecon as Vice President, Product Development, developing Charles Swingland is a solicitor and has advised PowderJect five novel chemicals from lab discoveries to commercial product. since its formation in 1993. He joined PowderJect as General Dr Burkoth received an AB in chemistry from Ripon College, Counsel and Company Secretary in February, 1996. He qualified a PhD in organic chemistry from Stanford University and was as a solicitor with Goodman Derrick in the City of London in an NIH Postdoctoral Fellow in chemistry at Columbia University. 1979, where he subsequently became a partner in the firm. 3 – Larry Ellberger Senior Vice President, Corporate Development (aged 53) Larry Ellberger was Chief Financial Officer and a Senior Vice President of strategic planning and development for WR Grace. Prior to joining WR Grace in May 1995, Mr Ellberger worked at American Cyanamid, a multinational life sciences company, where he was Vice President and Director of the Corporate Development and Planning Division. He was previously a Director of Applied Solar Energy Corporation. He joined the Board of PowderJect as a Non-Executive Director in June 1997 and became Senior Vice President, Corporate Development in June 2000.

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2 36 31 PowderJect Pharmaceuticals plc 2001

Non-Executive Directors: 10 – Philip Carne Non-Executive Director (aged 62) 7 – Dr Gerald Möller Mr Carne was, from 1985 to 1999, Chairman of Ethicon Medical Deputy Chairman (aged 57) Products Inc, the world leader in surgical wound closure products Dr Möller has 25 years’ experience in the pharmaceutical and and minimally invasive devices, with responsibility for $2 billion medical diagnostics industry. As CEO of Boehringer Mannheim, in sales and over 10,000 employees. During a nearly 40 year he headed a worldwide organisation with revenues of over career in International business with major US corporations, $3.5 billion and 18,000 employees, and managed the recent Procter & Gamble, General Foods and Johnson & Johnson, he merger and integration of the group with Hoffmann-La Roche. managed companies in the USA, Europe, Latin America and Following the merger he led the Global Development and Australia. During his 25 years with Johnson & Johnson, he became Strategic Marketing function at Roche Pharmaceuticals and Group Chairman of J&J’s medical businesses in Asia, Europe was a member of the Executive Board of Hoffmann-La Roche. and Latin America, in addition to his role as Ethicon Worldwide Dr Möller has extensive international experience, with senior Chairman. Mr Carne was appointed to the PowderJect Board in postings in the US and Japan, including a seat on the board of April 1999, and also serves on the boards of various UK based Sugen Inc prior to its acquisition by Pharmacia & Upjohn. He is technology companies. currently the Chairman and Chief Executive of 4Sigma Ltd, a healthcare service provider, and is Chairman of MorphoSys AG 11 – Richard Spizzirri and November AG, two of Germany’s leading publicly-quoted Non-Executive Director (aged 68) biotechnology companies and sits on the board of several A graduate of Harvard Law School, Mr Spizzirri became a privately held biotech companies including chairmanship of Partner at leading New York law firm Davis Polk & Wardwell Strakan Group Plc/Scotland. in 1967 and Senior Counsel in 1994, specialising in mergers and acquisitions, leveraged buyouts, corporate finance, venture 8 – Professor John Bell capital and R&D partnerships. He also has extensive experience Non-Executive Director (aged 49) as a board director, particularly in the life sciences sector, Professor Bell is the Nuffield Professor of Clinical Medicine at with previous directorships at Centocor Inc, Sugen Inc and the John Radcliffe Hospital in Oxford, having previously held a at Advanced Polymer Systems. He is currently a director of post at Stanford University in California. He is responsible for a Valigene a US, French and Berlin based genomics company. group of 350 scientists and clinicians whose research covers Mr Spizzirri is also a director of several technology companies. the fields of human genetics, diabetes, rheumatoid arthritis and renal medicine. He is Chairman of the Wellcome Trust Centre for Human Genetics. Professor Bell joined the Board of PowderJect as a Non-Executive Director in September 1993. 9 – Professor Brian Bellhouse Non-Executive Director (aged 64) Professor Bellhouse is Head of the Medical Engineering Unit at the University of Oxford and Director of the PowderJect Centre for Gene and Drug Delivery Research. He is a fellow of Magdalen College, Oxford. His research interests lie mainly in Medical Engineering and he has more than 100 papers and 30 patents describing his work. Professor Bellhouse co-founded PowderJect in July 1993.

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8 10 11 32 PowderJect Pharmaceuticals plc 2001 Financial review

The acquisition of Evans Vaccines (formerly Medeva Vaccines) Gross profit is an important step in creating a profitable, high growth Gross profit has increased to £16.6 million (2000: £2.8 million). pharmaceutical business. It has considerably strengthened the Of this £11.3 million derives from Evans Vaccines at a gross financial profile of the Group which now has turnover of £40.0 margin of 33%. This includes an exceptional release of million (2000: £2.8 million), cash and short-term investments £2.3 million negative goodwill. The negative goodwill arose of £70.5 million (2000: £62.0 million including overdraft of on the acquisition of Evans and specifically relates to the 2000 £2.4 million) and net assets of £88.0 million (2000: £67.2 million). season flu business. It has been fully amortised to the profit The results of Evans Vaccines have been consolidated into the and loss account in line with the flu sales to which it relates. Group results under the acquisition method of accounting from Operating expenditure the date of the acquisition which became unconditional on Investment in research and development during the period 1 October 2000. increased by 43% to £30.9 million (2000: £21.6 million). The performance of Evans in the last six months, with turnover This reflects an increase in the investment in the R&D pipeline of £34.7 million, gross profit of £11.3 million and operating profit in particular the progress of lidocaine towards pivotal phase III of £5.0 million, is not indicative of performance in the future for trials. Despite this, operating loss remains similar to last year several reasons. The acquisition was completed in the middle of at £23.2 million (2000: £22.2 million). Selling and distribution the flu season which begins at the end of July, the results were expenses relating to Evans Vaccines are £3.9 million. for six months only, several contracts have been renegotiated This includes fees and commissions payable on the sale of and the release of negative goodwill of £2.3 million in respect Fluvirin, Clostet and Diamorphine. General and administrative of the 2000 flu season is for this year only. The net effect of expenses have increased to £5.0 million (2000: £3.4 million). these differences will deliver considerable improvements to Headcount increased from 225 to 844. Of this, 626 are the gross margin by next year end. employed by Evans Vaccines. Profit and loss account Net interest receivable in the period decreased to £2.6 million Turnover (2000: £3.8 million). This is mainly due to interest payable on the convertible loan notes (this is discussed in further detail Turnover for the period includes sales of existing vaccines, under the heading ‘Balance sheet and cash flow’) in the last contract manufacture and milestone receipts, licence six months of the year. exercises, option extensions and development fees from R&D collaboration agreements. Taxation The Group has taken advantage of the provision for increased Turnover for the year has increased to £40.0 million (2000: tax relief for R&D expenditure under the Finance Act 2000. £2.8 million). This includes sales of £34.7 million from Evans This will enable the Group to lodge a claim for the repayment Vaccines and revenue from R&D collaboration agreements of £1.0 million from the Inland Revenue which has been reflected of £5.3 million. The latter includes milestones from Serono in in the profit and loss account. respect of ß-interferon and the Follicle Stimulating Hormone (FSH) development programme amounting to £2.0 million. Acquisition On 1 October 2000, the acquisition of the Evans Vaccines Product sales in Evans Vaccines includes £23.9 million in respect business became unconditional. of Fluvirin, accounting for 69% of Evans sales. Much of the remainder of sales within Evans relates to revenue from contract The consideration for the acquisition was £63.5 million. Of this, manufacture and licensing agreements amounting to £7.5 million £35.0 million is attributable to the Evans Vaccines business, or 22% of sales. Sales for the forthcoming year are expected £26.0 million to the 2000 season Fluvirin stocks and Fluvirin to be higher because results from Evans Vaccines will be for a debtors acquired on 1 October 2000 and £2.5 million to full year, the contract for the supply of BCG to the NHS has been acquisition costs. renewed, yellow fever vaccine will be relaunched in Europe and The consideration of £63.5 million was satisfied by a cash several contracts have been renegotiated. payment of £32.5 million and a further £31.0 million in unlisted In accordance with emerging best practice, revenue from convertible loan notes. collaborative research agreements is recognised on a contract by contract basis, based upon the cost of the efforts incurred to date as a proportion of the total expected research and development cost, but limited to the non-refundable revenue amounts received or which have become due and payable. This modification in accounting policy was adopted with effect from 1 April 2000 and has resulted in no material changes to prior year figures. 33 PowderJect Pharmaceuticals plc 2001

Issue of ordinary share capital Capital expenditure Cash inflow from the issue of ordinary share capital during the Capital expenditure in the period decreased to £4.0 million year was £41.0 million before expenses and £39.7 million after (2000: £4.7 million). This reflects the gradual completion of expenses (2000: £0.5 million). This arose from: the expansion of facilities in the United States. • a fully underwritten Placing and Open Offer of 5,884,489 Post balance sheet event – acquisition of SBL Vaccin AB shares at 600p per share which raised cash of £35.3 million On 2 July 2001 control of SBL Vaccin AB (SBL) transferred before expenses (£34.0 million after expenses) (2000: £nil); from Active Biotech AB to PowderJect. The transaction will be • share capital issued under collaborative agreements completed on 6 July 2001 when payment of the consideration £5.1 million (2000: £nil); is made. The consideration for the acquisition is $50 million. • share capital issued under share option schemes £0.6 million Of this, $37.5 million will be satisfied by a vendor placing of (2000: £0.5 million). 5,824,176 shares at 455p. The remaining $12.5 million will be satisfied in cash. Balance sheet and cash flow During the period, cash and short-term investments have In a separate agreement with Active Biotech AB, SBL will make increased from £62.0 million at 31 March 2000 to £70.5 million milestone payments of $10 million (approximately £7 million) at 31 March 2001. The main components of this increase are on EU regulatory approval of Dukoral before 31 December 2003 operating cash inflow of £2.4 million (2000: £20.2 million and $10 million on FDA regulatory approval of ETEC before outflow) purchase of Evans Vaccines £32.5 million (2000: £nil) 31 December 2005. These milestones decrease to minimum and cash inflow from the issue of ordinary share capital payments of $5 million for each product if the approval dates are (before expenses) of £41.0 million. Included in the operating later. In addition, royalty payments have been agreed in respect cash inflow of £2.4 million is a cash inflow of £27.9 million from of sales on each of these products. Evans Vaccines Limited. This contribution from Evans is higher Treasury policies than would normally be expected because of the cyclical nature Treasury policies and significant treasury transactions are of the Evans business and the structure of the acquisition. reviewed and approved by the Board. The Group’s aim is to There is a net cash outflow during the period from April secure returns in line with prevailing market rates while to November while the flu vaccine is manufactured and minimising the risk of capital loss. Credit risk is controlled by customers invoiced for Fluvirin and a net cash inflow mainly limiting the Group’s credit exposures to institutions maintaining due to receipts from these sales between December and March. a very high credit quality AA rating and short-term F1 rating as Thus the timing of the acquisition played a significant part in the defined by IBCA. In addition, specific credit limits are applied to net effect on the Group results and is therefore not expected to individual institutions. recur in the future. During the year the Company issued convertible loan notes for £31.0 million as part of the consideration for Evans Vaccines Limited. These were issued at par, bear interest (payable half yearly) at 4% per annum, have a yield to maturity of 7% and will have a five year maturity. The convertible loan notes are convertible into ordinary shares at a price of 719p per ordinary share (a total of 4.3 million shares). The new ordinary shares to be issued on conversion will rank pari passu with ordinary shares in issue at the time of conversion. 34 PowderJect Pharmaceuticals plc 2001 Report of the Remuneration Committee

The Remuneration Committee employees on hire and thereafter annually following performance appraisals. The number of shares over which an The Remuneration Committee (the “Committee”) comprises individual employee is granted an option is based on salary four independent Non-Executive Directors of the Company and seniority but is also linked to the results of individual Mr P Carne (Chairman), Mr R Spizzirri, Prof J Bell and performance appraisals. Dr G Möller (appointed 21 September 2000). Mr J Noble resigned from the Committee on 17 April 2000. The main responsibilities Shareholders will be asked to approve at the Annual General of the Committee are to set the Company’s overall policy on Meeting three new schemes a summary of which is given below. executive remuneration, long-term incentive schemes and Full details can be found in the Notice to the AGM booklet: to decide the specific remuneration, benefits and terms of • The 2001 Employee Share Option Scheme (The Option Scheme). employment for each Executive Director, including the Chairman • The 2001 Restricted Stock Scheme (The Restricted Stock Scheme). and Chief Executive, and a number of other senior managers. • The 2001 Savings Related Share Option Scheme Policy on Executive Directors’ remuneration (The Sharesave Scheme). The objectives of the Committee’s policies are to ensure that The Option Scheme is open to all employees and Executive Executive Directors receive compensation which is appropriate Directors and is divided into three parts. The Company intends to to their performance, scale of responsibility and experience. seek UK Inland Revenue approval of Part A. Part B of the option Remuneration packages should also allow the Group to attract scheme will remain unapproved and Part C permits the grant and retain executives of the necessary calibre while, at the same of incentive stock options to US participants (which will confer time, motivating them to achieve the highest level of Company certain tax reliefs on its participants). Generally, options will only performance in line with the best interests of shareholders. be exercisable between three and ten years following the date To determine the elements and level of remuneration of grant. For the initial share option grant to senior employees, appropriate to each Director, the Committee reviews surveys exercise of options will be subject to the satisfaction of share on executive pay, obtains external professional advice and price growth targets. Subject to the approval of this scheme considers individual performance. by shareholders, CSOP A and CSOP B will be closed without Components of Executive Directors’ remuneration prejudice to existing option holders. The Restricted Stock Scheme is open to selected employees Executive Directors’ remuneration currently comprises annual and Executive Directors. Awards will be made in the form of salary, bonus, pension, health insurance and a long-term rights to receive, by transfer, shares from the Employee Share incentive in the form of share options. In addition, two Directors Trust for such price as the Remuneration Committee may decide are reimbursed for motoring expenses. The Executive Directors at the time of the award. Awards will not normally vest before receive no other form of remuneration. the expiry of a deferral period. Other than in exceptional Annual salary circumstances, this period will not be less than three years, but in the case of awards which are initially proposed, the deferral The salaries of Executive Directors are set by the Committee. period will be five years. Participants have no rights in relation to In determining the appropriate salary level for each Director, the shares subject to an award until it has vested. The Employee the Committee considers both the nature and status of the Share Trust may acquire shares to satisfy awards either by Company’s operations and the responsibilities and performance subscribing for new ordinary shares or buying existing ordinary of each Director. The Committee also compares the Company’s shares on the market. remuneration packages with those jobs of similar type and seniority in companies whose activities are comparable with The Sharesave Scheme will be approved by the Inland Revenue. PowderJect, and with which it competes for staff. UK resident Directors and employees who are not otherwise Long-term incentives excluded by the relevant legislation will be eligible to participate in the scheme. Options may only be granted to employees who The Board believes that the long-term incentive schemes enter into Inland Revenue approved savings contracts, under (the share option schemes) provide a strong incentive for which employees commit to set monthly savings, normally over retaining and recruiting high calibre individuals, ensure that a period of three or five years. Options granted under the scheme the performance of executives is focused on creating long-term will be over a number of shares which can be acquired using the shareholder value and allow the Company’s cash reserves to maturity proceeds of the related savings contract. The price per be conserved. ordinary share payable upon the exercise of an option will not be less than the higher of 80% of the market value of an ordinary The current scheme enables the Executive Directors and share or the nominal value of the share (for options over managers to participate in share price growth. The scheme is new issue shares). Options will normally be exercisable for divided into two parts known as CSOP A and CSOP B. CSOP A has six months only from the third, fifth or seventh anniversary been approved by the Inland Revenue and CSOP B is unapproved. of the commencement of the relevant savings contracts. Options granted under the scheme have either a seven or ten year life and can usually be exercised no earlier than three years Where appropriate, separate or modified schemes will be from the date of the grant. Grants of options are at or above the introduced for non-UK employees to take account of local tax, market price of the Company’s shares on the date of the grant. exchange control or securities laws outside the UK. All options granted to Executive Directors and senior employees Pensions and other benefits are subject to the satisfaction of demanding share price performance targets prior to exercise. Options granted to On 27 March 1998, the Remuneration Committee approved the all other employees under CSOP A prior to 21 February 2001 establishment of a group pension scheme which all UK based and under CSOP B prior to 25 October 2000 are subject to employees of the Company, including Executive Directors, are demanding performance targets. Options granted to all other entitled to join. employees since 21 February 2001 for CSOP A and 25 October The scheme is a defined contribution or money purchase 2001 for CSOP B are not subject to performance targets. scheme which means that the benefits are determined In order to promote sustained performance, the Remuneration directly by the value of contributions paid in respect of Committee has implemented a policy for the phased granting of each member and the investment performance achieved options on an annual basis. Options are granted to selected on those contributions. 35 PowderJect Pharmaceuticals plc 2001

The scheme allows for the Group to contribute a maximum of The terms under the defined contribution section are essentially 5% of salary, matching the employees’ contribution. The Group the same as those of the pre-existing Group pension described has no obligation to the pension scheme beyond the payment above. Thus, the Company will match any contributions that the of contributions. employees make up to 5% of their basic salary. The scheme benefits are determined directly by the value of contributions Only one Executive Director participates in the UK Group paid in respect of each member and the investment performance pension scheme. Contributions made by the Group in respect achieved on those contributions. The assets of the scheme are of Mr Harris amounted to £6,812 for the year (2000: £6,250). held separately from those of the Company. The scheme is open The Company operates a 401K scheme in the US. Two Directors to all employees after three months of service. participate in this scheme. Contributions made by the Group The terms under the defined benefit section will apply only in respect of Mr Ellberger and Dr Burkoth were £2,726 and to former Medeva UK Pension Plan members. The scheme £2,087 respectively. benefits are based on the final pensionable pay of each Other benefits are offered to all employees, including the employee. The scheme assets are held separately from those payment of life insurance and health insurance premiums. of the Company. All the Executive Directors participate in both these schemes. Executive Directors’ service contracts With effect from 1 April 2001, a new pension scheme (the PowderJect’s purpose in entering into service contracts with PowderJect Pension Scheme or PPS) was established for Executive Directors is to enable the recruitment of high quality employees transferring with the acquisition of Evans Vaccines. executives and to obtain protection from their sudden departure Until this date, under the terms of the purchase agreement, to competitor companies. In addition, service contracts are an these employees were entitled to remain members of the important element in maintaining maximum protection for the existing Medeva UK Pension Plan. Pension contributions were Group’s intellectual property rights and other commercially made by the Company on behalf of these employees to the sensitive information. The maximum notice period required for Medeva UK Pension Plan between 1 October 2000 and 31 March the termination of an Executive Director’s service contract is 2001. At 1 October 2000, the scheme was fully funded. On 1 April one year by both the Company and the Director. 2001 the transfer value of those employees transferring was determined. The difference between the value at this date and Non-Executive Directors’ remuneration the value at 1 October was immaterial and therefore no surplus Non-Executive Directors do not have service contracts but letters or deficit arises during this period. of engagement. Non-executive directorships can be terminated The object of the new scheme is to provide the same defined at any time by a resolution of the members of the Company. benefits as the Medeva UK Pension Plan for the Evans Vaccines Non-Executive Directors do not receive any remuneration from employees. In addition, any employees of the UK Group will the Company other than their fees for services as members of be able to join the PPS but on a defined contribution basis. the Board and additional fees if they serve on committees of the Therefore, under the umbrella of one revenue approved pension Board except for Prof B Bellhouse. The level of fees is determined scheme, employees will accrue benefits on different bases. by the Board in consultation with the professional advisers.

Directors’ remuneration 2001 2000 Salary/fees Bonus Benefits Total Total £000 £000 £000 £000 £000 Executive Dr P Drayson (Chairman) 315 52 18 385 335 Dr T Burkoth 170 26 5 201 179 Dr C Dix (appointed 13 March 2001) 13 – – 13 – Mr L Ellberger (appointed 21 June 2000) 152 21 6 179 – Mr S Harris 136 24 1 161 133 Mr G Saul (resigned 26 June 2000) 41 162 1 58 179 Mr C Swingland 150 24 6 180 160 Non-Executive Prof J Bell 37 – – 37 37 Prof B Bellhouse1 63 – – 63 63 Mr P Carne 28 – – 28 24 Mr L Ellberger3 10 – – 10 40 Dr. G Möller (appointed 21 September 2000) 22 – – 22 – Mr J Noble (resigned 17 April 2000) 1 – – 1 30 Mr R Spizzirri 40 – – 40 2 Total 1,178 163 37 1,378 1,182 1Prof Bellhouse is Head of the Medical Engineering Unit at the University of Oxford and Director of the PowderJect Centre for Gene and Drug Delivery Research, from which all intellectual property in the Group’s field will be assigned to the Company. In addition to his academic duties at the university, which include his research duties as Director of the PowderJect Centre, he provides to the Group up to 30 days’ consultancy per annum. 2The bonus payment was performance related except for £6,460 in respect of Mr G Saul (see note 1 on page 36 for explanation). Following his resignation on 26 June 2000, Mr Saul continued as an employee of the Company until 14 January 2001 during which time he received remuneration of £57,000. Between 15 January and 31 March 2001, Mr G Saul provided consultancy services to the Group, fees for which were £23,000, of which £19,600 was outstanding at the year end. 3Mr Ellberger was a Non-Executive Director until his appointment as an Executive on 21 June 2000. The total aggregate emoluments and gains on share options of the highest paid Director amounted to £741,000 (2000: £2,067,000). This includes a gain on exercise of options of £683,000 (2000: £1,888,000). 36 PowderJect Pharmaceuticals plc 2001 Report of the Remuneration Committee continued

Directors’ options New share options were granted during the year to Dr Dix and Mr Ellberger on appointment as Executive Directors of the Board. Exercised/ At Granted in cancelled in At Market value Date from 1 April 2000 the year the year 31 March 2001 Exercise on date which Number Number Number Number price of exercise exercisable Expiry date Dr T Burkoth 1,017,000 – – 1,017,000 10.0p1 – 31 Dec 1998 30 Dec 2002 Dr T Burkoth 37,556 – – 37,556 868.5p – 19 Jan 2003 18 Jan 2010 Mr S Harris 423,750 – – 423,750 53.5p – 11 Mar 2000 10 Mar 2004 Mr S Harris 29,412 – – 29,412 868.5p – 19 Jan 2003 18 Jan 2010 Mr G Saul 858,800 – (100,000) 758,800 10.0p1 693p 1 Jan 1999 31 Dec 2002 Mr G Saul 226,000 – – 226,000 102.0p – 19 May 2000 18 May 2004 Mr G Saul 37,556 – (37,556)2 – 868.5p – 19 Jan 2003 18 Jan 2010 Mr C Swingland 904,000 – – 904,000 39.2p – 1 July 1999 30 Jun 2003 Mr C Swingland 35,294 – – 35,294 868.5p – 19 Jan 2003 18 Jan 2010 Dr C Dix – 178,089 – 178,089 381.8p – 29 Mar 2004 29 Mar 2011 Mr L Ellberger – 200,000 – 200,000 392.5p – 21 Jun 2003 21 Jun 2010 Total 3,569,368 378,089 (137,556) 3,809,901 –––– 1Following the share capital reorganisation which took place at the time of the flotation and which is described in the 1997 financial statements, the option price in respect of the shares granted to Dr T Burkoth and Mr Saul in PowderJect Pharmaceuticals plc was 3.54p per share, which is below the 10p nominal value of those shares. Accordingly, a cash bonus of 6.46p per share will be paid on the exercise of those options to compensate for the difference between the nominal value of 10p and the exercise price of 3.54p per share. As Mr Saul exercised 100,000 shares during the year, this amounts to £6,460. 2These options were cancelled during the year. The total gain on the exercise of share options was £683,000 three and seven years from the date on which the options were in respect of Mr G Saul. The gain is calculated as the difference granted. Those granted under CSOP B after that date or CSOP A between the exercise price and the market price at the date must be exercised between three and ten years from the date on of exercise. A cash bonus of £6,460 was paid to Mr Saul to which the options were granted. compensate for the difference between the nominal value of 10p The mid-market price of the Company’s shares at 31 March 2001 and the exercise price of 3.54p per share (see note 1 above). was 375p (2000: 657.5p). During the year, the mid-market price The options granted under the PowderJect Research Limited of the Company’s shares ranged from 332.5p to 732.5p (2000: Executive Share Option Scheme, the Unapproved Scheme 623.5p to 1005p). The price at the date of flotation in June 1997 and CSOP B prior to 5 April 1999 must be exercised between was 185p. Directors’ interest in shares The Directors of the Company who have beneficial interests in the ordinary shares of the Company are: At At 31 March 2001 31 March 2000 Number Number Dr P Drayson (Chairman)2 7,1 97, 21 3 7,197,213 Prof B Bellhouse3 3,289,425 3,386,925 Prof J Bell 452,000 452,000 Mr J Noble (resigned 17 April 2000)1 – 108,250 Mr P Carne 21,171 15,000 1Mr Noble resigned on 17 April 2000. As he was no longer a Non-Executive Director at 31 March 2001, his beneficial interests in the ordinary shares of the Company are not shown. 2 Dr P Drayson is a discretionary object of the trust owning Sherdley Limited which holds 2,825,000 shares. Mrs E Drayson is a discretionary object of the trust owning Vardale Limited which holds 2,825,000 shares. This is in addition to the shareholding disclosed in the table. 3 Prof B Bellhouse is a discretionary object of the trust owning Norville Limited which holds 2,260,000 shares. This is in addition to the shareholding disclosed in the table. Following the sales of shares by certain Directors in June 1999, Dr Paul Drayson undertook not to sell any further shares until the group realises a profit on ordinary activities in any financial year. As at 3 July 2001, there have been no changes in Directors’ interests since 31 March 2001. 37 PowderJect Pharmaceuticals plc 2001

Share option schemes are no longer subject to performance conditions except if granted to Board Directors and senior management. In addition, At 31 March 2001 the Company had four share option schemes. some options contained additional performance targets linked The PowderJect Research Limited to the achievement of goals related to specific projects within Executive Share Option Scheme (the “PRL Scheme”) the Group. This scheme has been closed without prejudice to existing option In order to help attract suitably experienced employees, a holders. Options over 2,706,300 shares remain outstanding dispensation has been obtained from the Association of British (including Directors) following the exercise of options over Insurers (ABI) to allow the grant of options to new employees 174,250 shares. Options under this scheme were granted to both on the commencement of their employment, instead of UK and US employees. the requirement to wait for a 42 day period following the The PowderJect Pharmaceuticals plc announcement of interim or final results as set out in the Company Share Option Plan (the “Unapproved Plan”) ABI guidelines. Minor changes were made to the rules of both This scheme has also been closed without prejudice to existing schemes to reflect this greater flexibility. The change to the option holders. Options over 1,477,000 shares remain rules of CSOP A has been approved by the Inland Revenue. outstanding (including Directors) following the exercise of options The scheme rules do not require shareholder approval for over 127,453 shares and the cancellation of 35,313 shares. changes of this nature. Options under this scheme were granted to both UK and Employee share trust US employees. The Employee Share Trust (the “Trust”) was set up in June The PowderJect Pharmaceuticals Company Share Option 1997 in order to hold shares in the Company for the benefit Plan Parts A and B (respectively “CSOP A” and “CSOP B”) of employees of the Group and their immediate families. These are the plans under which new options are granted. The Trust is based in Jersey and administered by PowderJect CSOP A is approved by the Inland Revenue and CSOP B is Pharmaceuticals Employees’ Share Scheme Trustees Limited. unapproved. During the year options over 239,687 shares As at 31 March 2001, the Trustees held 442,544 ordinary shares were granted under CSOP A and 1,281,643 shares were granted in the Company of which 166,910 shares have been allocated to under CSOP B, bringing the total, after exercises and lapses, employees under the Restricted Share Scheme. The Trustees outstanding under each scheme to 351,284 shares and purchased 32,068 shares for 600p each under the placing 2,597,829 shares respectively. Options under CSOP B were and open offer of shares in October 2000. No sales or granted to both UK and US employees. Those under CSOP A allocations of shares were made during the year. The nominal are granted to UK employees only. value of the shares held at the year end were 10.0p each and No option granted under CSOP A or CSOP B is usually exercisable the mid-market value of the shares at 31 March 2001 was 375p until three years after the date of grant. Options granted under (2000: 657.5p each). these schemes prior to 15 July 1998 only become exercisable The Restricted Share Scheme is administered by the following a doubling of the share price. Options granted on or Remuneration Committee in conjunction with the independent after 15 July 1998 become exercisable in three equal tranches Trustees of the Trust. The purpose of the Scheme is to enable following share price increases of 30%, 60% and 90%. share allocations to be made out of the Trust to individual Options granted under CSOP A on or after 21 February 2001 employees at the discretion of the Remuneration Committee. and options granted under CSOP B on or after 25 October 2000 38 PowderJect Pharmaceuticals plc 2001 Report of the Remuneration Committee continued

Outstanding options Number of shares issuable under outstanding options granted to Directors and employees within the Group for all share option schemes. Weighted exercise price Number Pence At 31 March 1996 2,599,000 10.0 Options granted 2,300,672 49.8 Options exercised 28,250 10.0 At 31 March 1997 4,871,422 28.8 Options granted 2,127,253 123.1 Options cancelled 84,750 93.1 At 31 March 1998 6,913,925 57.0 Options granted 527,598 462.5 Options exercised 200,000 10.0 Options cancelled 102,254 139.8 At 31 March 1999 7,139,269 87.1 Options granted 642,314 842.8 Options exercised 1,204,635 42.3 Options cancelled 77,961 302.8 At 31 March 2000 6,498,987 167.5 Options granted 1,521,330 447.4 Options exercised 576,524 530.1 Options cancelled 311,380 502.4 At 31 March 2001 7,132,413 217.2

Options outstanding at 31 March 2001 (Including Directors) Weighted average Weighted Range of remaining exercise price exercise price contractual life Number Pence Pence Years PRL Scheme 2,706,300 20.0 10.0 – 39.5 1.9 Unapproved Plan 1,477,000 61.5 53.5 – 102.0 3.0 CSOP A 351,284 534.0 195.5 – 969.5 8.8 CSOP B 2,597,829 468.2 185.0 – 969.5 7.4 Total 7,132,413 217.2 10.0 – 969.5 4.5 The options outstanding at 31 March 2001 are normally capable of being exercised over varying periods up to March 2011. There has been no change in the exercise price of any outstanding options during the financial period. Since 31 March 2001, a further 190,140 options have been granted. Options exercisable (including Directors) Weighted exercise price Number Pence At 31 March 2000 3,143,179 23.5 At 31 March 2001 4,720,868 53.0 The options above are exercisable according to their terms. On behalf of the Board Philip Carne Chairman of the Remuneration Committee 3 July 2001 39 PowderJect Pharmaceuticals plc 2001 Corporate governance

The Directors have set out below the means by which they Principal board committees seek to apply current best practice corporate governance Audit Committee procedures within the Group and the extent to which the Group The Audit Committee comprises three independent has complied with the Listing Rules of the Financial Services Non-Executive Directors. They are Mr R Spizzirri (Chairman), Authority relating to the provisions of the Principles of Good Prof J Bell and Dr G Möller. Mr R Spizzirri replaces Mr L Ellberger Governance and Code of Best Practice (the ”Combined Code“) as Chairman. Mr J Noble served as Chairman until his as published in 1998. resignation on 17 April 2000. Mr L Ellberger was appointed Board of Directors Chairman on 17 April 2000 and resigned as Chairman and as a member of the Audit Committee on 21 June 2000. On 21 June The Board of Directors comprises six Executive and five 2000, Mr Spizzirri was appointed Chairman. Dr G Möller was Non-Executive Directors. Mr J Noble resigned with effect from appointed on 21 September 2000. The Committee meets at least 17 April 2000 and Mr G Saul resigned with effect from 26 June twice a year and monitors the adequacy of the Group’s internal 2000. Mr L Ellberger, previously a Non-Executive Director, controls, accounting policies and financial reporting. It reviews was appointed Executive Director on 21 June 2000. Dr G Möller the results of the annual risk self assessment process which the was appointed to the Board on 21 September 2000, Dr C Dix Group undertakes and the Group’s Interim and Annual Reports was appointed on 13 March 2001. Prof J Bell resigned as prior to their submission for approval by the full Board. It also Deputy Chairman of the Board on 3 May 2001 and was provides a forum through which the Group’s external auditors replaced by Dr G Möller as Deputy Chairman on 3 May 2001. report to the Board. All Directors bring strong independent judgement and considerable knowledge and experience to bear on issues of The Committee meets at least once a year with the Group’s strategy, performance, resources and standards of conduct. external auditors in the absence of any Executive Directors. The Board is keeping under review the combined role of Nomination Committee Chairman and Chief Executive. The Non-Executive Directors This comprises the Chairman and the Non-Executive Directors. are of sufficient calibre and number for their views to provide It is chaired by Prof J Bell and meets as required to select and balance in the decision making process. propose to the Board suitable candidates for appointment as Executive and Non-Executive Directors. With the exception of Prof B Bellhouse who was previously an Executive Director, the Non-Executive Directors are independent. Remuneration Committee The Non-Executive Directors are not invited to participate This comprises four independent Non-Executive Directors. in the Company’s Share Option Scheme and their service is They are Mr P Carne (Chairman) Prof J Bell, Mr R Spizzirri non-pensionable. and Dr G Möller. Dr G Möller was appointed to the Remuneration Committee on 21 September 2000. Mr J Noble resigned on Prof J Bell was the senior independent Non-Executive Director 17 April 2000. The Committee’s report to shareholders appears until 3 May 2001 when he resigned as Deputy Chairman. on pages 34 to 38. Dr G Möller, who was appointed as Deputy Chairman in his place became the new senior independent Non-Executive Director The Committee meets at least twice a year. from this date. Relationships with investors The Board meets at least once every two months and has Institutional investors adopted a formal schedule of matters specifically reserved to The Company has designated various members of the Board as it for decision. This includes overall Group strategy, financing its principal spokespersons with institutional investors, analysts, arrangements, material acquisitions and divestments, approval press and other interested parties. of the annual budget, major capital expenditure projects, risk management and treasury policies and the establishment and Private investors monitoring of internal controls. At each meeting, the Board All shareholders are sent copies of Annual and Interim Reports reviews the progress of the Group towards its objectives, and, where appropriate, circulars and prospectuses and are given particularly in respect of the development projects and monitors notice to enable them to attend the Company’s Annual General financial performance against budget and the Chairman Meeting. Shareholders whose shares are held by nominees may ensures that all Directors are properly briefed on issues arising receive copies of such communications on request. at Board meetings. The Company’s internet website (http://www.powderject.com) All Directors receive appropriate training on first appointment includes information relating to the products and technology, and have access to the advice and services of the Company press releases and share price. Copies of this and previous Secretary. The Board has established a procedure for Directors annual reports are also available on the website. to take, if necessary, in order to obtain independent professional advice at the Company’s expense. 40 PowderJect Pharmaceuticals plc 2001 Corporate governance continued

The Combined Code The BioIndustry Association (BIA) Code of Best Practice The Combined Code incorporates recommendations of best The BIA has recently published a code of Best Practice with practice in respect of the control and reporting functions of which member companies are required to comply. The Code the Board. It sets out principles under the headings of: consists of eight principles which are broad statements of best practice for the guidance of bioscience companies. Principles are • Directors; accompanied by code provisions which are mainly more detailed • Directors’ remuneration; non-exhaustive illustrations of the application of the principles. • relations with shareholders; • accountability and audit. The principles are set out under the headings: Detailed provisions in respect of each principle are provided • Board composition; within the Code. These require Directors to report in the Annual • Board information; Report on: • access to external advice; • unpublished price sensitive information; • Directors’ remuneration; • public announcements about products; • Directors’ responsibility for the accounts; • public announcements about regulatory process; • going concern; • effect of announcements on patients and others; • internal control. • use of scientific or technical terms in public announcements. Internal control The Company seeks to comply with best practice prescribed Internal control is defined in the Combined Code as ‘all controls, in the BIA Code. The Board considers that the Company has including financial, operational and compliance controls and applied the principles of the BIA Code. risk management’. Internal audit In accordance with the provisions of the Combined Code, the There is currently no internal audit function. The Group Directors are responsible for the Company’s system of internal is keeping under review the need to appoint this function. control and for reviewing its effectiveness. In response to the extended requirements of the Combined Code in respect of Going concern internal control, the Company has reviewed and updated its The Directors have a reasonable expectation that the Company assessment of the risks affecting the business and the policies and the Group has adequate cash resources to continue in and procedures by which these risks are managed. operation for the foreseeable future. For this reason, they This risk assessment process has been in place for the period continue to adopt the going concern basis in preparing the under review and complies with the Turnbull guidance. financial statements. Processes have been designed to enable operating subsidiaries Statement of compliance to report on the risks that they have identified and the controls they have in place to manage these risks. The Board, through The Board is committed to the highest standards of Corporate the Audit Committee has reviewed the effectiveness of the Governance and has complied with all the relevant principles Group’s system of internal control for the period covered by the and provisions set out in the Combined Code (as annexed to Annual Report. Such a system can provide only reasonable and the Listing Rules) throughout the period under review, except not absolute assurance against material misstatement or loss. in respect of the following provisions: The key features of the Group’s internal control system are: • the requirement to separate the roles of Chairman and Chief Executive Officer; • clear statements on mission, group goals and strategy; • the requirement to have at least three Non-Executive Directors • effectively communicated and clearly identified business on the Audit Committee throughout the year. For the period objectives; June-September there were only two Non-Executive Directors. • appropriate organisational structure, which is subject to periodic review to ensure that changing business needs are By order of the Board continuously served, which identifies responsibilities and reporting structures; Charles Swingland • integrated financial approval and reporting procedures which Company Secretary enable progress against business objectives to be monitored 3 July 2001 and performance against plan to be compared each month; • framework of policies and procedures to ensure pre-clinical, clinical and manufacturing activities are carried out in accordance with good laboratory practice (GLP), good clinical practice (GCP) and good manufacturing practice (GMP); • policies in respect of business conduct and ethical values clearly communicated to employees; • system of self assessment and identification of risks and controls in place to manage those risks reported to the Board twice a year. 41 PowderJect Pharmaceuticals plc 2001 Report of the Directors

The Directors present their report and the audited financial Research and development statements for the year ended 31 March 2001. The Group continues to carry out research and development Review of the business and future developments in the areas of device development and product development. Total research and development expenditure during the year Since the acquisition of Evans Vaccines, the Group’s activities was £30.9 million (2000: £21.6 million). include the manufacture and sale of vaccines in addition to the development of needle-free powder injection of drugs, Dividend biopharmaceuticals, vaccines and diagnostics. A review of the The Directors do not recommend payment of a dividend Group’s activities and future developments is contained within (2000: £nil). the Chairman’s Statement, the operational reviews and in the Financial Review. Euro The introduction of the Euro as a functional currency on 1 January 1999 has had no significant impact on the operations of the Group. The costs of preparing for the changeover were not material. Substantial shareholdings At 3 July 2001, the Directors had been notified of the following disclosable holdings representing 3%, or more, of the issued share capital of the Company. Percentage of Shareholder Number issued shares Dr P Drayson1 7,197,213 8.7 Credit Suisse First Boston Equities Nominees Limited 5,300,000 6.4 Glaxo Group Limited 4,936,297 6.0 Smith & Williamson Nominees Limited 3,249,454 3.9 HSBC Global Custody Nominee UK Limited 2,713,725 3.3 1Dr P Drayson holds 4,154,162 ordinary shares beneficially, and his wife, Mrs E Drayson, holds 3,043,051 ordinary shares beneficially. The following disclosures are included in the 7,197,213 shares disclosed above. Dr P Drayson and Mrs E Drayson are holders of 359,860 ordinary shares as trustees of the Julia Bowditch Discretionary Trust, of 359,860 ordinary shares as trustees of the James Drayson Settlement, of 359,860 ordinary shares as trustees of the Helen Goldie Discretionary Settlement and of 359,860 ordinary shares as trustees of the Olivia Drayson Settlement. Directors The Directors of the Company during the year were: Executive Non-Executive Dr P Drayson (Chairman) Prof J Bell (resigned as Deputy Chairman on 3 May 2001) Dr T Burkoth Prof B Bellhouse Mr L Ellberger (appointed 21 June 2000)1 Mr P Carne Mr S Harris Mr L Ellberger1 Mr G Saul (resigned 26 June 2000) Mr J Noble (resigned 17 April 2000) Mr C Swingland Mr R Spizzirri Dr C Dix (appointed 13 March 2001) Dr G. Möller (appointed 21 September 2000 and appointed Deputy Chairman 3 May 2001) 1Mr Ellberger was a Non-Executive Director until his appointment as an Executive on 21 June 2000. The unexpired term of Dr Drayson’s service contract is one year. Biographical details of the Directors are given on pages 30 and 31. Reappointment Service contracts At the forthcoming Annual General Meeting Dr P Drayson, Details of Executive Directors’ service contracts are given Prof B Bellhouse and Prof J Bell will retire by rotation and, in the Report of the Remuneration Committee on page 35. being eligible, will be proposed for reappointment. Dr G Möller As Non-Executive Directors, Prof J Bell, Mr R Spizzirri, and Dr C Dix, who were appointed to the Board on 21 September Dr G Möller, Prof B Bellhouse and Mr P Carne do not have 2000 and 13 March 2001 respectively, offer themselves for service contracts with the Company. reappointment. The unexpired term of Dr Drayson’s contract is one year. The unexpired term of Dr Dix’s contract is six months. 42 PowderJect Pharmaceuticals plc 2001 Report of the Directors continued

Directors’ interests Directors’ interests in contracts Details of the interests of the Directors and their families in the None of the Directors had an interest in any contract of ordinary shares of the Company, as disclosed in the Register of significance to which the Company or a subsidiary undertaking Directors’ interests, are given in the Report of the Remuneration was a party during the financial year. Committee on page 36. Directors’ responsibilities Share option schemes Company law requires the Directors to prepare financial Details of the Company’s share option schemes are given on statements for each financial year which give a true and fair pages 37 and 38. view of the state of affairs of the Company and the Group and of the profit or loss of the Company and the Group for that A summary of the proposed new share option schemes, which period. In preparing those financial statements, the Directors are subject to shareholder approval, is given on page 34. are required to: Charitable and political contributions • select suitable accounting policies and then apply them The Company made no contributions to charitable or political consistently; organisations. • make judgements and estimates that are reasonable Post balance sheet event – acquisition of SBL Vaccin AB and prudent; • state whether applicable accounting standards have been On 2 July 2001 control of SBL Vaccin AB (SBL) transferred followed, subject to any material departures disclosed and from Active Biotech AB to PowderJect. The transaction will be explained in the financial statements; completed on 6 July 2001 when payment of the consideration • prepare the financial statements on the going concern basis is made. The consideration for the acquisition is $50 million. unless it is inappropriate to presume that the Company and Of this, $37.5 million will be satisfied by a vendor placing of the Group will continue in business. 5,824,176 shares at 455p. The remaining $12.5 million will The Directors confirm that they have complied with the above be satisfied in cash. requirements in preparing the financial statements. In a separate agreement with Active Biotech AB, SBL will make The financial statements for the year ended 31 March 2001 are milestone payments of $10 million (approximately £7 million) published in hard-copy printed form and on the Company’s on EU regulatory approval of Dukoral before 31 December 2003 website on the internet. The Directors are responsible for the and $10 million on FDA regulatory approval of ETEC before maintenance and integrity of the website in accordance with 31 December 2005. These milestones decrease to minimum UK legislation governing the preparation and dissemination of payments of $5 million for each product if the approval dates are financial statements. Access to the website is available from later. In addition, royalty payments have been agreed in respect outside the UK, where comparable legislation may be different. of sales on each of these products. Payment of creditors The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time It is the policy of the Company to agree terms of payment the financial position of the Company and the Group to enable when orders for goods and services are placed and to pay in them to ensure that the financial statements comply with the accordance with those terms. Trade creditor days at the year Companies Act 1985. They are also responsible for safeguarding end were nil for the Company (2000: nil). the assets of the Company and the Group and hence for taking Employment policies reasonable steps for the prevention and detection of fraud and other irregularities. It is the policy of the Group that there should be no unfair Annual General Meeting discrimination in recruiting, training and promoting staff, including applicants who are disabled. Should any employee The notice convening the Annual General Meeting (AGM) become disabled, every practical effort is made to provide of the Company together with an explanation of the items of continued employment. The Directors are committed to business is set out in a separate document. The AGM will be maintaining and developing communication and consultation held at University Department of Pharmacology, Mansfield Road, processes with employees, who in turn are encouraged to Oxford OX1 3QT on 11 September 2001 at 11 am. become aware of and involve themselves in the performance Auditors of the Group. Employees are encouraged directly through the share option schemes, performance reviews, and training and PricewaterhouseCoopers have expressed their willingness development opportunities. to continue as auditors and their reappointment is proposed. Health, safety and the environment It is also proposed that the Directors be given authority to set the auditors’ remuneration. PowderJect is committed to high standards and aims for By order of the Board continuous improvement in health, safety and environmental performance. The Group has an excellent health and safety Dr Paul Drayson record and is keen to reduce the environmental impact of Chairman its activities. Waste materials are recycled, where possible, 3 July 2001 and hazardous waste is catalogued and handled by licensed, Company registered number 3321428 specialist disposal companies. 43 PowderJect Pharmaceuticals plc 2001 Report of the auditors To the members of PowderJect Pharmaceuticals plc

We have audited the financial statements which comprise the Basis of audit opinion profit and loss account, statement of total recognised gains We conducted our audit in accordance with Auditing Standards and losses, balance sheet, cash flow statement, and the related issued by the Auditing Practices Board. An audit includes notes, which have been prepared under the historical cost examination, on a test basis, of evidence relevant to the amounts convention and the accounting policies set out in the statement and disclosures in the financial statements. It also includes an of accounting policies. assessment of the significant estimates and judgements made Respective responsibilities of Directors and auditors by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to The Directors’ responsibilities for preparing the Annual Report the Company’s circumstances, consistently applied and and the financial statements in accordance with applicable adequately disclosed. United Kingdom law and accounting standards are set out in the statement of Directors’ responsibilities. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary Our responsibility is to audit the financial statements in in order to provide us with sufficient evidence to give reasonable accordance with relevant legal and regulatory requirements, assurance that the financial statements are free from material United Kingdom Auditing Standards issued by the Auditing misstatement, whether caused by fraud or other irregularity Practices Board and the Listing Rules of the Financial or error. In forming our opinion we also evaluated the overall Services Authority. adequacy of the presentation of information in the financial We report to you our opinion as to whether the financial statements. statements give a true and fair view and are properly prepared Opinion in accordance with the Companies Act 1985. We also report to you if, in our opinion, the report of the Directors is not consistent In our opinion the financial statements give a true and fair view with the financial statements, if the Company has not kept of the state of affairs of the Company and the Group at 31 March proper accounting records, if we have not received all the 2001 and of the loss and cash flows of the Group for the year information and explanations we require for our audit, or if then ended and have been properly prepared in accordance with information specified by law or the Listing Rules regarding the Companies Act 1985. Directors’ remuneration and transactions is not disclosed. We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. We review whether the corporate governance statement reflects PricewaterhouseCoopers the Company’s compliance with the seven provisions of the Chartered Accountants and Registered Auditors Combined Code specified for our review by the Listing Rules, Uxbridge and we report if it does not. We are not required to consider 3 July 2001 whether the Board’s statements on internal control cover all risks and controls, or to form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. 44 PowderJect Pharmaceuticals plc 2001 Consolidated profit and loss account For the year ended 31 March 2001

Continuing Continuing operations operations Acquisitions Total Total 2001 2001 2001 2000 Note £m £m £m £m Turnover 2 5.3 34.7 40.0 2.8 Cost of sales – amortisation of negative goodwill 4 – 2.3 2.3 – Cost of sales – other – (25.7) (25.7) – Cost of sales – (23.4) (23.4) – Gross profit 5.3 11.3 16.6 2.8 Selling and distribution – (3.9) (3.9) – Research and development (28.8) (2.1) (30.9) (21.6) General and administrative expenses (4.7) (0.3) (5.0) (3.4) Total operating expenses (33.5) (6.3) (39.8) (25.0) Operating (loss)/profit 3 (28.2) 5.0 (23.2) (22.2) Net interest receivable 5 – – 2.6 3.8 Loss on ordinary activities before taxation – – (20.6) (18.4) Taxation 8 – – 1.0 – Loss after taxation – – (19.6) (18.4) Loss for the year 23 – – (19.6) (18.4) Basic and diluted loss per share 9 – – 25.24p 24.94p

Statement of total recognised gains and losses

2001 2000 Note £m £m Loss for the year (19.6) (18.4) Exchange movements 23 0.7 – Total recognised gains and losses for the year (18.9) (18.4) The notes on pages 47 to 62 form part of these financial statements. 45 PowderJect Pharmaceuticals plc 2001 Consolidated and company balance sheets As at 31 March 2001

Group Group Company Company 2001 2000 2001 2000 Note £m £m £m £m Fixed assets Intangible assets 10 – 0.4 – – Negative goodwill 10 (2.8) – – – Tangible assets 11 49.1 7.7 – – Investments 12 0.7 0.5 123.1 58.6 47.0 8.6 123.1 58.6 Current assets Stock 13 11.9 – – – Debtors – due within one year 14 17.7 1.2 0.2 0.1 – due after more than one year 14 0.1 0.1 – – 29.7 1.3 0.2 0.1 Investments 15 66.2 62.7 66.2 62.7 Cash at bank and in hand 4.3 1.7 2.9 – 100.2 65.7 69.3 62.8 Creditors: amounts falling due within one year 16 (23.9) (6.8) – (2.4) Net current assets 76.3 58.9 69.3 60.4 Total assets less current liabilities 123.3 67.5 192.4 119.0 Other creditors 17 (3.5) – – – Convertible loan notes 19 (31.4) – (31.4) – Creditors: amounts falling due after more than one year 17 (34.9) – (31.4) – Provisions for liabilities and charges 20 (0.4) (0.3) – – 88.0 67.2 161.0 119.0 Capital and reserves Called up share capital 22 8.3 7.5 8.3 7.5 Share premium account 22 143.7 104.8 143.7 104.8 Other reserves 23 0.6 0.6 – – Profit and loss account 23 (64.6) (45.7) 9.0 6.7 Shareholders’ funds – equity interests 24 88.0 67.2 161.0 119.0 The notes on pages 47 to 62 form part of these financial statements. Approved by the Board and signed on its behalf by:

Dr Paul Drayson Chairman 3 July 2001 46 PowderJect Pharmaceuticals plc 2001 Consolidated cash flow statement For the year ended 31 March 2001

2001 2000 Note £m £m Net cash inflow/(outflow) from operating activities 25 2.41 (20.2) Returns on investments and servicing of finance Interest received 3.4 4.0 Interest paid (0.5) – Net cash inflow from returns on investments and servicing of finance 2.9 4.0 Capital expenditure and financial investment Purchase of tangible fixed assets (4.0) 2 (4.7) Purchase of other fixed asset investments – (0.1) Purchase of own shares by Employee Trust Company (0.2) – Net cash outflow from capital expenditure and financial investment (4.2) (4.8) Acquisitions Purchase of Evans Vaccines 29 (32.5) – Net cash outflow for acquisitions (32.5) – Net cash outflow before use of liquid resources and financing (31.4) (21.0) Management of liquid resources3 Cash (placed on)/withdrawn from fixed term deposit 28 (3.5) 18.6 Net cash outflow before financing (34.9) (2.4) Financing Issue of ordinary share capital 41.0 0.5 Fees and expenses paid in connection with the issue of shares 24 (1.3) (1.4) Capital element of finance lease rental payment (0.1) (0.1) Net cash inflow/(outflow) from financing 39.6 (1.0) Increase/(decrease) in cash during period 26 4.7 (3.4) The notes on pages 47 to 62 form part of these financial statements. 1Included in the net cash inflow of £2.4 million for the year is a cash inflow of £27.9 million in respect of Evans Vaccines. 2Included in the purchase of tangible fixed assets of £4.0 million is £1.0 million in respect of Evans Vaccines. 3PowderJect Pharmaceuticals plc includes as liquid resources term deposits of less than one year. 47 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements

1 Group accounting policies Research and development Accounting convention Research and development expenditure is charged to the consolidated profit and loss account in the period in which The financial statements have been prepared under the it is incurred. Tangible fixed assets used for research and historical cost convention and in accordance with applicable development are depreciated in accordance with the accounting standards. Group’s policy. Basis of preparation Stock The consolidated financial information includes the financial Stocks are included in the financial statements at the lower of information of the Company and its subsidiary undertakings, cost (including manufacturing overheads, where appropriate) Evans Vaccines Limited, PowderJect Research Limited, and net realisable value. Cost is determined on a first in, first PowderJect Technologies Inc, PowderJect Technologies BV, out basis. PowderJect Technologies Limited, PowderJect Vaccines Inc, PowderJect Pharmaceuticals Employees’ Share Scheme Grants Trustees Ltd, PowderJect Therapeutics Inc and Grants for capital expenditure are deferred and released to Progenica Limited. revenue over the expected useful life of the relevant asset by equal annual amounts. Grants for revenue expenditure are All intercompany accounts and transactions have been credited to revenue in the same period in which the revenue eliminated. expenditure to which they relate is charged. Accounting for acquisitions Goodwill Newly acquired subsidiary undertakings are consolidated On the acquisition of a business or intangible assets, fair values from the effective date of their acquisition, the date when are attributed to the net assets acquired. Goodwill arising on control passes. acquisitions since 1 April 1998 is capitalised and amortised Turnover over its estimated useful life which does not exceed 20 years. In accordance with emerging best practice, from 1 April 2000, The carrying value of goodwill is subject to review when the Group’s turnover accounting policy in respect of appropriate and any impairment is charged to the profit collaborative research agreements has been modified. and loss account. Revenue from collaborative research agreements is spread on a Prior to this, the Group’s policy was to eliminate goodwill contract by contract basis, based upon the cost of the efforts arising on acquisitions against reserves. Under the transitional incurred to date as a proportion of the total expected research arrangements of Financial Reporting Standard 10 – “Goodwill and development cost, but limited to the non-refundable revenue and intangible assets” reinstatement of goodwill is not required. amounts received or which have become due and payable. Consequently, such goodwill has not been reinstated and any This modification in accounting policy has no material impact such goodwill will remain eliminated against reserves until the on the results for the year to 31 March 2000 as reported. disposal or termination of the business acquired. The profit or loss on the subsequent disposal or termination will be calculated Revenue from sales of vaccines is recognised in the profit and after charging the amount of any such goodwill. loss account when goods or services are supplied to external customers against orders received. Turnover represents the net Intangible fixed assets invoice value, after the deduction of standard discounts given at Intangible fixed assets other than goodwill, which comprise the point of sale less accruals for estimated future rebates and licences and rights are stated at cost less a provision for returns. Value added tax and other sales taxes are excluded amortisation. Amortisation is calculated to write off the cost from revenue. of intangible assets in equal annual instalments over the lower of their legal and estimated useful lives, but no longer than Revenue from manufacturing agreements arranged under 20 years. The carrying values of intangible assets are subject licence is recognised on a contract by contract basis. This is to review when appropriate and any impairment is charged to based on the cost of the efforts incurred to date as a proportion the profit and loss account. The amortisation period currently of the total expected costs under the agreement, but limited being used is five years. to the non-refundable revenue amounts received or which have become due and payable. Revenue from other contract Prior to April 1998, acquired intangibles were eliminated in manufacture agreements is recognised in the profit and loss the balance sheet against reserves in the year of acquisition. account when goods or services are supplied to external Acquired intangibles not meeting the recognition criteria customers against orders received. specified in FRS10 have not been reinstated. 48 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements continued

1 Group accounting policies (continued) Foreign currencies Investments Transactions denominated in foreign currencies are translated at the rate of exchange on the day the transaction occurs. Fixed asset investments are stated at cost less provision required Monetary assets and liabilities denominated in a foreign for any impairment in value. currency are translated at the exchange rate ruling on the Tangible fixed assets balance sheet date. Exchange differences are included in the Depreciation is calculated so as to write off the cost of tangible profit and loss account. fixed assets on a straight-line basis over the expected useful The accounts of overseas subsidiary undertakings are translated economic lives of the assets concerned. The principal annual into sterling in the consolidated accounts on the following basis: rates used for this purpose are: profit and loss account items are translated at the average rate Land and buildings (freehold) 50 years of exchange for the financial year. Assets and liabilities are Land and buildings (leasehold) Term of lease translated at the rate of exchange ruling on the balance sheet Leasehold improvements Term of lease date. Exchange differences arising on the retranslation of Computer equipment 3 years opening assets and liabilities are taken directly to reserves. Plant, equipment and vehicles 3–10 years Deferred taxation Provision is made for deferred taxation using the liability method Impairment of fixed assets to take account of timing differences between the incidence of An impairment is the reduction in the recoverable amount of a income and expenditure for taxation and accounting purposes to fixed asset or goodwill below its carrying amount. The recoverable the extent that it is probable that an asset or liability is expected amount is the higher of net realisable value and value in use. to crystallise. Value in use is measured using discounted cash flows. Convertible loan notes The carrying values of fixed assets are reviewed for impairment The convertible loan notes are stated at the amount of the net when there is an indication that the assets might be impaired. proceeds adjusted to amortise the finance cost of the debt Impairment reviews are conducted for acquired goodwill and evenly over the term of the debt. intangible assets for the first full year following acquisitions. Financial instruments Leased assets The Group does not hold or issue derivative financial Leasing agreements which transfer to the Group substantially instruments for trading purposes. The Group’s policy for all the risks and benefits of ownership of an asset are treated managing exposure to market risks from operating activities as finance leases, as if the asset had been purchased outright. and treasury operations is described below. The assets are included in tangible fixed assets and the capital element of the leasing commitments is shown as obligations The Group’s principal currency exposure is the US dollar/£ Sterling under finance leases. Assets held under finance leases are translational exposure arising from the Group’s activities at its depreciated over the shorter of the lease term and the useful US subsidiaries at Madison and Fremont and payments received economic lives of the assets. The interest element of the lease from customers in respect of Vaccine sales. The Group seeks rental is charged to the profit and loss account as it is incurred. to minimise its exposure to foreign currency exchange rate movements by matching US dollar expenses with revenues All other leases are operating leases and the annual rentals are received in US dollars. Where US dollar expenses exceed charged to the profit and loss account on a straight-line basis US dollar revenues, the Group’s strategy is to convert £ Sterling over the lease term. to US dollars at the time that the expense is incurred in order to Pension costs minimise the exchange risk. Where US dollar revenues exceed The Group operates a defined contribution pension scheme in US dollar expenses, the Group’s strategy is to convert US dollars the UK. Employer’s contributions are charged to the profit and to £ Sterling at the time that the revenue is received. The Group loss account as they are incurred. The Group has no obligation has not hedged any of its transactions during the year. to the pension scheme beyond the payment of contributions New accounting policies and requirements and does not offer any other post retirement benefits. The Company will be required to implement in the year ended During the period 1 October 2000-31 March 2001, the Company 31 March 2002 three new accounting standards. The first is continued to pay into the Medeva UK Pension Plan on behalf Financial Reporting Standard 17: “Retirement benefits”. of those employees transferring with the acquisition of The FRS adopts a market value approach to the measurement Evans Vaccines. See note 33. of retirement benefits and requires expanded disclosures. Employee Trust Company The second is FRS18; “Accounting policies”. The FRS updates an Where appropriate, transactions relating to shares in the existing standard and provides new guidance. It is not expected Employee Trust Company are treated as recommended by to have a significant effect on measurement of the results and the consensus reached in Urgent Issues Task Force (UITF) 13 assets and liabilities of the Company. “Employees share ownership plans” and UITF 17 “Employee The third is FRS19: “Deferred tax”. This requires deferred tax to share schemes”. A UITF 17 charge is recognised in the profit and be accounted for on a full provision basis rather than a partial loss account where options or other share awards are granted provision basis as presently prescribed. The maximum potential to employees and there is a difference between the fair value deferred tax asset is set out in note 21. at the date of grant of shares or options on shares and the consideration to be received. The timing of the charge is dictated by the conditions of the allocation. Shares in the Company owned by the Trust are capitalised at cost and are included in fixed asset investments. 49 PowderJect Pharmaceuticals plc 2001

2 Segmental information The Group operates in one business segment. An analysis of turnover, loss before tax and net assets by geographical location is set out below. The reason for the difference since prior year in the UK is directly attributable to the acquisition of Evans Vaccines Limited. 2001 2000 £m £m Turnover by location of subsidiary undertaking UK 39.0 1.1 USA 1.0 1.7 External turnover 40.0 2.8 Loss before tax by location of subsidiary undertaking UK (7.4) (10.6) USA (15.8) (11.6) Operating loss (23.2) (22.2) Net interest receivable 2.6 3.8 Loss before tax (20.6) (18.4) Net assets by location of subsidiary undertaking UK 43.6 2.9 USA 3.5 2.3 Net operating assets 47.1 5.2 Non operating assets 40.9 62.1 Net assets 88.0 67.2 Turnover by location of customer Europe 24.8 1.1 USA 14.5 1.7 Rest of World 0.7 – External turnover 40.0 2.8

3 Operating loss

2001 2000 £m £m Operating loss is stated after charging/(crediting): Staff costs (note 6) 20.5 9.0 Depreciation: owned assets 4.0 1.1 assets under finance lease 0.2 0.1 Amortisation of negative goodwill (2000 season flu business) (note 4) (2.3) – Amortisation of negative goodwill (non flu business) (0.1) – Amortisation of intangible assets 0.1 0.2 Impairment loss goodwill 0.1 – Impairment loss intangible fixed assets 0.2 0.2 Provision against fixed asset investments – 0.1 Auditors’ remuneration: audit services 0.1 0.1 non audit services 0.2 0.1 Foreign exchange gains (0.8) (0.1) Operating lease rentals: land and buildings 1.2 0.6 Release of government grants (0.1) – Auditors’ remuneration for audit services includes fees for the holding company for the year ended 31 March 2001 of £10,200 (2000: £9,525). Fees paid to PricewaterhouseCoopers in the year ended 31 March 2001 in respect of non-audit services relate primarily to tax and consultancy services. Additional fees of £0.5 million were incurred in respect of the acquisition of Evans Vaccines which have been capitalised and are not included above.

4 Exceptional items Included in cost of sales is negative goodwill of £2.3 million which arose on the acquisition of Evans Vaccines Limited. This relates specifically to the 2000 season flu business (see note 29) and has been amortised to the profit and loss account in line with the flu sales for the year. 50 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements continued

5 Net interest receivable

2001 2000 £m £m Interest payable on other loans (0.9) – Interest receivable 3.5 3.8 2.6 3.8

6 Employee information The average number of persons employed, including Executive Directors, by the Group in the UK during the year was 400 (2000: 80) and in the US was 139 (2000: 119). The Group had 844 employees at 31 March 2001 (2000: 225), and an average for the year of 539 (2000: 199). The split of employees by function is: 2001 2000 Number Number Manufacturing 316 – Research and development 204 185 Administration 19 14 Total 539 199

2001 2000 £m £m Staff costs including Executive Directors Wages and salaries 18.4 8.2 Social security costs 1.5 0.7 Other pension costs (note 33) 0.6 0.1 20.5 9.0 Full details of all outstanding share options at the year end are included in the Report of the Remuneration Committee on pages 34 to 38 and form part of these financial statements.

7 Directors’ emoluments

2001 2000 £000 £000 Aggregate emoluments 1,378 1,182 Aggregate gains made on exercise of share options 683 4,960 Company contributions to money purchase pension schemes 12 6 2,073 6,148 Highest paid Director Aggregate emoluments 58 179 Gain on share options 683 1,888 741 2,067 The contributions paid in 2001 to the money purchase pension scheme relate to one UK and two US Directors. Contributions in respect of two US based Directors were paid into the 401K. Further details of Directors’ remuneration, share options and interests are included in the Report of the Remuneration Committee on pages 34 to 38.

8 Taxation The credit for £1.0 million reflects a claim under the Finance Act 2000 for a cash repayment from the Inland Revenue in respect of increased tax relief for R&D expenditure. No liability to corporation tax arose as a result of the losses incurred throughout the Group. 51 PowderJect Pharmaceuticals plc 2001

9 Loss per share

Year to Year to 31 March 2001 31 March 2000 Basic loss per share Basic 25.24p 24.94p The calculation of the basic and diluted Loss per share is based on: Loss for the year (in £ million) 19.6 18.4 Weighted average number of shares (in millions) 77.8 73.6 The actual loss for the year is £19,643,495. The actual weighted average number of shares is 77,821,687. There is no difference between the basic and diluted loss per share since the effect of including exercisable options and the conversion of the convertible loan note would be to reduce the loss per share.

10 Intangible fixed assets

Negative goodwill Goodwill Licence Product rights Total £m £m £m £m £m Cost At 1 April – 0.2 0.2 0.5 0.9 Additions (5.2) – – – (5.2) As at 31 March 2001 (5.2) 0.2 0.2 0.5 (4.3) Amortisation At 1 April 2000 – 0.1 0.2 0.2 0.5 (Credit)/charge for the year (2.4) – – 0.1 (2.3) Impairment loss – 0.1 – 0.2 0.3 At 31 March 2001 (2.4) 0.2 0.2 0.5 (1.5) Net book value at 31 March 2001 (2.8) – – – (2.8) Net book value at 31 March 2000 – 0.1 – 0.3 0.4 During the year, the Group acquired Evans Vaccines Limited giving rise to negative goodwill of £5.2 million. Of this £2.3 million related to the 2000 season flu business and £2.9 million to the non-flu business (see note 29). The negative goodwill relating to the 2000 season flu business has been fully amortised to the profit and loss account in line with the flu sales to which it relates. The negative goodwill relating to the non-flu business is being amortised on a straight-line basis over ten years. This is the average remaining life of the plant and machinery. PowderJect Alprostadil was being developed through a business venture with PharmaSciences Inc called Psiox Inc. In April 1998, the Group acquired the remaining 50% of the shares of Psiox Inc and renamed the company PowderJect Therapeutics Inc. The carrying value of the goodwill arising on this transaction has been reviewed and in accordance with Financial Reporting Standard 11 “Impairment of fixed assets and goodwill”, an impairment loss of £0.1 million has been provided, bringing the carrying value of the goodwill to nil. In addition, the carrying value of the rights to acquire low cost, high quality alprostadil from Oxford Asymmetry has been reviewed and an impairment loss of £0.2 million provided. This brings the carrying value of these rights to nil. This reflects the decision to suspend the PowderJect Alprostadil project. 52 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements continued

11 Tangible fixed assets

Plant, Assets in the Land and Leasehold Computer equipment and course of buildings improvements equipment vehicles construction Total Group £m £m £m £m £m £m Cost At 1 April 2000 – 2.0 1.0 6.1 0.7 9.8 Additions – – 0.2 1.0 3.3 4.5 Acquisitions 12.1 – 0.2 28.3 – 40.6 Exchange differences – 0.3 0.1 0.2 0.1 0.7 Reclassifications – 0.9 – 0.3 (1.2) – At 31 March 2001 12.1 3.2 1.5 35.9 2.9 55.6 Depreciation At 1 April 2000 – 0.4 0.5 1.2 – 2.1 Charge for the year 0.2 0.4 0.5 3.1 – 4.2 Exchange differences – – – 0.2 – 0.2 At 31 March 2001 0.2 0.8 1.0 4.5 – 6.5 Net book value At 31 March 2001 11.9 2.4 0.5 31.4 2.9 49.1 At 31 March 2000 – 1.6 0.5 4.9 0.7 7.7

Assets held under finance leases, capitalised and included under plant, equipment and vehicles are set out below. £m Cost 0.4 Cumulative depreciation (0.3) Net book value 0.1

Analysis of net book value of land and buildings 2001 2000 £m £m Freehold 0.7 – Leasehold – over 50 years unexpired 5.8 – – under 50 years unexpired 5.4 – Net book value 11.9 –

12 Investments held as fixed assets

Company Company Group Shares in Loans to Group Equity Group subsidiary subsidiary Company Own shares investments Total undertakings undertakings Total £m £m £m £m £m £m Cost At 1 April 2000 0.5 0.1 0.6 3.7 54.9 58.6 Additions 0.2 – 0.2 63.5 1.0 64.5 At 31 March 2001 0.7 0.1 0.8 67.2 55.9 123.1 Provision At 1 April 2000 and 31 March 2001 – (0.1) (0.1) – – – Net book amount at 31 March 2001 0.7 – 0.7 67.2 55.9 123.1 Net book amount at 31 March 2000 0.5 – 0.5 3.7 54.9 58.6 In the prior year, an equity stake was taken in one of our collaborators. This was fully provided against on conclusion of the collaboration. Details of the Group’s subsidiary undertakings are set out below. All holdings represent the Group’s share of the issued ordinary share capital of each company. 53 PowderJect Pharmaceuticals plc 2001

12 Investments held as fixed assets (continued)

Country of operation Percentage of nominal value Subsidiary undertakings and incorporation of ordinary shares held* PowderJect Research Limited England 100% PowderJect Technologies BV Netherlands 100% PowderJect Technologies Inc USA 100% PowderJect Technologies Limited England 100% PowderJect Vaccines Inc USA 100% PowderJect Pharmaceuticals Employee’s Share Scheme Trustees Ltd Jersey 100% PowderJect Therapeutics Inc (formerly Psiox Inc) USA 100% Progenica Limited England 100% Evans Vaccines Limited England 100% *Voting rights equate to ownership The principal operating companies of the Group are Evans Vaccines Limited, PowderJect Technologies Limited, PowderJect Technologies Inc, PowderJect Vaccines Inc, and Progenica Limited. With the exception of Evans Vaccines Limited, the principal activity of all these companies is scientific research and development. The principal activity of Evans Vaccines Limited is the sale and manufacture of vaccines. PowderJect Research Limited and PowderJect Technologies BV are intermediate holding companies. Employee Trust Company PowderJect Pharmaceuticals Employees’ Share Scheme Trustees Limited (the “Trustee”) was established in Jersey, Channel Islands to act as Trustee of a discretionary trust (the “Trust”). The purpose of the Trust is to acquire ordinary shares of PowderJect Pharmaceuticals plc for future acquisition by the Group’s employees under option schemes. The Trust has 442,544 shares and has waived its right to receive dividends. The assets of the Trust have been consolidated in the Group accounts at cost. Costs incurred by the Trustees are recognised in the consolidated profit and loss account. Key features of the Trust include: • the Trustee cannot hold more than 5% of the issued shares at any one time; • in any period of ten years commencing on Listing, not more than 10% of the ordinary share capital may, when aggregated with the number of shares which have been subscribed under any other employee share scheme operated by the Company, be subscribed for by the Trustee; • beneficiaries have no claim on any part of the Trust fund and no right to call for the accounts of the Trustee; • beneficiaries cannot compel the sale of any of the Trust’s investments or direct the manner in which the investments are made • any benefit under the Trust does not form part of any contract of employment between a beneficiary and the Company or a relevant subsidiary undertaking and does not form part of any beneficiary’s remuneration; • arrangements for distribution are determined by the Remuneration Committee in accordance with their procedures. The Company PowderJect Pharmaceuticals plc has a direct interest in PowderJect Research Limited and an indirect interest in all other subsidiary undertakings.

13 Stock

Group Group Company Company 2001 2000 2001 2000 £m £m £m £m Raw materials and consumables 2.9 – – – Work in progress 7. 2 – – – Finished goods 1.8 – – – 11.9 – – – 54 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements continued

14 Debtors

Group Group Company Company 2001 2000 2001 2000 £m £m £m £m Debtors due within one year Trade debtors 13.5 0.1 – – Other debtors 1.8 0.9 – – Prepayments and accrued income 2.4 0.2 0.2 0.1 17.7 1.2 0.2 0.1 Debtors due after more than one year Other debtors 0.1 0.1 – – 17.8 1.3 0.2 0.1

15 Investments held as current assets

Group Group Company Company 2001 2000 2001 2000 £m £m £m £m 66.2 62.7 66.2 62.7 This represents cash placed on fixed term deposits. Included in the £66.2 million is £2.5 million on variable term deposits.

16 Creditors: amounts falling due within one year

Group Group Company Company 2001 2000 2001 2000 £m £m £m £m Bank loans and overdraft – 2.4 – 2.4 Trade creditors 6.7 2.3 – – Other creditors 5.5 – – – Taxation and social security 0.8 0.4 – – Accruals 6.6 1.5 – – Deferred income 4.1 0.1 – – Obligations under finance leases (note 18) 0.2 0.1 – – 23.9 6.8 – 2.4 Amounts disclosed under bank loans and overdraft in the prior year arose as a result of timing differences on book values and not overdrafts on bank balances. There were no bank loans or overdrafts in place at the year ended 31 March 2000 or thereafter.

17 Creditors: amounts falling due after more than one year

Group Group Company Company 2001 2000 2001 2000 £m £m £m £m Obligations under finances leases (note 18) 0.1 – – – Deferred income 3.4 – – – Convertible loan notes (note 19) 31.4 – 31.4 – 34.9 – 31.4 –

18 Maturity profile of debt An analysis of the maturity profile of the Group’s debt is given below: Group Group Group Company Company Company Convertible Finance Group Finance Convertible Finance Finance loan notes leases Total leases loan notes leases leases 2001 2001 2001 2000 2001 2001 2000 £m £m £m £m £m £m £m Liabilities due: Within one year –0.20.2 0.1 ––– Between two and five years 31.4 0.1 31.5 – 31.4 – – 31.4 0.3 31.7 0.1 31.4 – – 55 PowderJect Pharmaceuticals plc 2001

19 Convertible loan notes The Company has issued two convertible loan notes, one for £25.0 million on 2 October 2000 and the other for £6.0 million on 30 March 2001 . These were issued at par, bear interest (payable half yearly) at 4% per annum, will have a yield to maturity of 7% and will have a five year maturity. The convertible loan notes may be redeemed early at the option of the holders of the convertible loan notes in certain circumstances, including a takeover or winding up of the Company. The convertible loan notes are convertible into ordinary shares at a price of 719p per ordinary share (a total of 4.3 million shares). The conversion rate is subject to adjustment as provided in the conditions of the convertible loan notes on various new and securities issues and other changes to the share capital of the Company. The new ordinary shares to be issued on conversion of the convertible loan notes will rank pari passu with ordinary shares in issue at the time of conversion. Transfer of the convertible loan notes is permitted one year following the issue of the convertible loan notes and thereafter may be transferred with the Company’s consent. The convertible loan notes constitute direct, unsecured and unconditional obligations of the Company and rank pari passu with all other outstanding unsecured and unsubordinated obligations of the Company.

20 Provisions for liabilities and charges

Group Group 2001 2000 £m £m At 1 April 2000 0.3 0.2 Charge for the year 0.1 0.1 At 31 March 2001 0.4 0.3 The amount provided relates to potential obligations under licensing agreements. Due to the extended nature of the negotiations regarding this obligation and the uncertainty regarding the expected timing of the settlement, this amount has been recognised as a provision in the current year.

21 Deferred taxation Due to the availability of tax losses, no provision has been made for deferred tax. Unrecognised deferred tax asset Group Group 2001 2000 £m £m Accelerated capital allowances 7.9 0.3 Other 0.5 0.5 8.4 0.8 The potential deferred tax asset in respect of losses for the year which are not included in the table above is estimated to be £23.0 million (2000: £12.5 million).

22 Share capital

Number of 2001 Number of 2000 Group and Company shares £m shares £m Authorised Ordinary shares of 10p each 144,000,000 14.4 85,000,000 8.5 Allotted, called up and fully paid Ordinary shares of 10p each 82,078,953 8.3 74,544,330 7.5

Number of Share capital Share premium Total increase Description shares £m £m £m At 1 April 2000 74,544,330 7.5 104.8 – Share capital issued under share option schemes 576,524 0.1 0.5 0.6 Placing and open offer 5,884,489 0.6 34.7 35.3 Share capital issued under collaborative agreements 1,073,610 0.1 5.0 5.1 Placing and open offer expenses – – (1.3) (1.3) At 31 March 2001 82,078,953 8.3 143.7 39.7 56 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements continued

23 Reserves

Other Profit and Other Profit and reserves loss account reserves loss account 2001 2001 2000 2000 Group £m £m £m £m At 1 April 0.6 (45.7) 0.6 (27.3) Loss for the year – (19.6) – (18.4) Exchange movements –0.7 –– At 31 March 0.6 (64.6) 0.6 (45.7)

Profit and Profit and loss account loss account 2001 2000 Company £m £m At 1 April 6.7 3.1 Profit for the year 2.3 3.6 At 31 March 9.0 6.7 In accordance with the exemption available under Section 230 of the Companies Act 1985, the Company’s profit and loss account has not been included in these financial statements. The profit of the Company for the year was £2.3 million (2000: £3.6 million). Profitability has decreased in the current year largely because of interest payable on the convertible loan notes. As at 31 March 2001, the cumulative amount of goodwill eliminated against reserves was £8.6 million (2000: £8.6 million).

24 Reconciliation of movements in shareholders’ funds

2001 2000 Group £m £m Opening shareholders’ funds 67.2 85.1 Loss for the year (19.6) (18.4) Net proceeds of shares issued under share option schemes 0.6 0.5 Proceeds from placing and open offer 35.3 – Placing and open offer expenses (1.3) – Net proceeds of shares issued under collaborative agreements 5.1 – Exchange movement 0.7 – Net addition/(reduction) to shareholders’ funds 20.8 (17.9) Closing shareholders’ funds 88.0 67.2

2001 2000 Company £m £m Opening shareholders’ funds 119.0 114.9 Profit for the year 2.3 3.6 Net proceeds of shares issued under share option schemes 0.6 0.5 Net proceeds from placing and open offer 35.3 – Net proceeds of shares issued under collaborative agreements 5.1 – Placing and open offer expenses (1.3) – Share placement expense not realised – – Net addition to shareholders’ funds 42.0 4.1 Closing shareholders’ funds 161.0 119.0 57 PowderJect Pharmaceuticals plc 2001

25 Reconciliation of operating loss to net cash outflow from operating activities

2001 2000 £m £m Operating loss (23.2) (22.2) Depreciation 4.2 1.2 Amortisation of intangibles 0.1 0.2 Amortisation of negative goodwill (2.4) – Impairment loss goodwill 0.1 – Impairment loss intangible fixed assets 0.2 0.2 Release of government grant (0.1) – Foreign exchange gain (0.7) – Provision against fixed asset investments – 0.1 Decrease in stock 5.0 – Decrease/(increase) in debtors 2.3 (0.9) Increase in creditors 16.9 1.2 Net cash inflow/(outflow) from operating activities 2.4 (20.2) Included in the net cash inflow of £2.4 million is a cash inflow of £27.9 million in respect of Evans Vaccines.

26 Reconciliation of movement in cash to movement in net funds

2001 2000 Note £m £m Increase/(decrease) in cash in the year 4.7 (3.4) Cash outflow from change in lease financing 0.1 0.1 Cash placed on/(withdrawn from) fixed term deposit 3.5 (18.6) Change in net funds resulting from cash flows 8.3 (21.9) Convertible loan notes (31.4) – Finance leases due within one year acquired with Evans Vaccines Limited (0.2) – Finance leases due after more than one year acquired with Evans Vaccines Limited (0.1) – Exchange movement on cash 0.3 – Movements in net funds in the year (23.1) (21.9) Net funds at the beginning of the year 61.9 83.8 Net funds as at the end of the year 28 38.8 61.9

27 Major non-cash transactions Part of the consideration for purchase of Evans Vaccines Limited was satisfied by the issue of convertible loan notes for £31.0 million. Further details of the acquisition are set out in note 29.

28 Analysis of changes in net funds

Acquisition Other At (ex cash non-cash Exchange At 1 April 2000 Cash flow and overdraft) changes movement 31 March 2001 £m £m £m £m £m £m Cash at bank and in hand 1.7 2.3 – – 0.3 4.3 Overdraft (2.4) 2.4 – – – – Sub-total (0.7) 4.7 – – 0.3 4.3 Current asset investments 62.7 3.5 – – – 66.2 Convertible loan notes (note 19) – – – (31.4) – (31.4) Finance leases due after more than one year (0.1) 0.1 (0.1) – – (0.1) Finance leases due within one year – – (0.2) – – (0.2) Total 61.9 8.3 (0.3) (31.4) 0.3 38.8 58 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements continued

29 Acquisition The Group acquired 100% of the share capital of Evans Vaccines Limited (formerly Medeva Vaccines) on 1 October 2000. Accordingly, Evans Vaccines Limited is accounted for as a subsidiary undertaking. The total cost of the acquisition was £63.5 million of which £2.5 million was acquisition costs. Under the terms of the purchase agreement the purchase consideration of £61.0 million was satisfied by a cash payment of £30.0 million, £25.0 million in unlisted convertible loan notes and a further issue of £6.0 million in unlisted convertible loan notes. The issue of the latter loan note was deferred consideration in respect of Fluvirin sales for the period to 28 February 2001. The consideration for the business will be finalised at 30 September 2001, when account will be taken of the returns of flu stock and the purchase price will be adjusted accordingly. The adjustment is not expected to be material and within the range £nil–£0.7 million. From 1 October 2000 to 31 March 2001, Evans Vaccines Limited contributed £34.7 million to turnover, an operating profit of £5.0 million to loss before and after interest and tax, £27.9 million to net operating cash inflow and paid £1.0 million in respect of capital expenditure. In its last financial year to 31 December 1999, the loss after tax was £11.8 million. For the period since then to 30 September 2000, the accounts which have been prepared on a carve out basis (see basis of preparation) are set out below: Statement of income less direct and allocated expenses before taxation Nine months ended 30 September 2000 £m Turnover 34.7 Cost of sales (29.5) Gross profit 5.2 Selling, marketing and distribution expenses (3.8) Administrative expenses (2.6) Development expenses – impairment of tangible fixed assets (20.3) – other development expenses (2.6) Operating loss – continuing operations (24.1) Loss after tax (24.1) There are no other recognised gains or losses other than the profit or loss for each financial period above. Basis of preparation Historically, the Evans Vaccines business has not been managed on a stand alone basis and accordingly no financial or management accounts have previously been prepared for this business on a stand alone basis. The statement of income less direct and allocated expenses before taxation above has been prepared on a carve out basis to represent the related results of the business. It includes those revenues and costs which can be directly attributable to Evans Vaccines together with allocations of certain costs which cannot be specifically attributable either to Evans Vaccines or the other operations of Medeva Pharma Limited of which Evans Vaccines was a part. Cost allocations have been made in respect of sales, marketing, warehousing, administration and regulatory expenses based on employee numbers. These functions were controlled from Medeva Pharma Limited’s headquarters at Leatherhead, Surrey. Interest charges and taxation have not been included in the allocation. All of the above allocations, estimates and management charges included in the statements of income less direct and allocated expenses before taxation are based on assumptions that management believes are reasonable. However, these allocations and estimates are not necessarily indicative of the costs that would have resulted if Evans Vaccines had operated on a stand alone basis. Fair values Table 1 sets out the fair values of the assets and liabilities acquired in Evans Vaccines Limited. This has been presented in respect of the 2000 season flu business (comprising flu stock of £11.6 million and flu debtors of £16.7 million acquired from Celltech) and the non-flu business. Table 2 sets out the fair value adjustments applied to the book values of the non-flu business. The book values of these assets and liabilities have been taken from the management accounts of Evans Vaccines Limited at 1 October 2000. Book values for the 2000 season flu business equate to fair value. 59 PowderJect Pharmaceuticals plc 2001

29 Acquisition (continued) Table 1: Acquisition of Evans Fair value 2000 season Fair value Fair value Flu business Non-flu business Total £m £m £m Tangible fixed assets – 40.6 40.6 Stock 11.6 5.3 16.9 Debtors 16.7 0.2 16.9 Creditors due within one year – (0.3) (0.3) Creditors due after more than one year – (5.4) (5.4) Net assets acquired 28.3 40.4 68.7 Negative goodwill (2.3) (2.9) (5.2) Consideration 26.0 37.5 63.5 Consideration satisfied by: Cash 20.0 12.5 32.5 Convertible loan notes 6.0 25.0 31.0 26.0 37.5 63.5

Table 2: Non-flu business Fair value Fair value Book value adjustments Non-flu business £m £m £m Tangible fixed assets 51.5 (10.9) 40.6 Stock 5.3 – 5.3 Debtors 0.2 – 0.2 Creditors due within one year (0.3) – (0.3) Creditors due after more than one year (5.4) – (5.4) Net assets acquired 51.3 (10.9) 40.4 Negative goodwill – – (2.9) Consideration ––37.5 Consideration satisfied by: Cash – – 12.5 Convertible loan notes ––25.0 ––37.5 The fair value adjustments are in respect of revaluations of the tangible fixed assets, specifically land and buildings and plant and machinery.

30 Financial instruments Set out below are the narrative disclosures relating to financial instruments. The numerical disclosures are set out under the headings “foreign currency risk”, “interest rate risk”, “liquidity risk” and “fair values”. The Group has taken advantage of the exemption available under FRS13 “Derivatives and other financial instruments” not to provide numerical disclosures in respect of short term debtors and creditors, other than currency risk disclosures. Financial instruments The Group’s financial instruments comprise the convertible loan notes, cash, finance leases and other items such as trade creditors, trade debtors etc. that arise directly from the operations. The main purpose of these financial instruments is the financing of the Group’s operations. The Group does not use derivative financial instruments or trade in financial instruments. The main risks arising from the Group’s financial instruments are foreign currency risk and interest rate risk and to a lesser extent liquidity risk. The Board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained unchanged throughout the year. Foreign currency risk The Group’s principal currency exposure is the US dollar/£ Sterling translation exposure arising from the Group’s activities at its US subsidiaries at Madison and Fremont and payments received from customers in respect of Vaccine sales . The Group seeks to minimise its exposure to foreign currency exchange rate movements by matching US dollar expenses with revenues received in US dollars. Where US dollar expenses exceed US dollar revenues, the Group’s strategy is to convert £ Sterling to US dollars at the time that the expense is incurred in order to minimise the exchange risk. Where US dollar revenues exceed US dollar expenses, the Group’s strategy is to convert US dollars to £ Sterling at the time that the revenue is received. 60 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements continued

30 Financial instruments (continued) Interest rate risk The Group finances its operations through a mixture of cash raised through the issue of ordinary share capital on the London Stock Exchange, revenue from customers and collaborators and most recently the issue of convertible loan notes to help finance the acquisition of Evans. The Group has significant cash balances which are susceptible to interest rate risk. The Group seeks to minimise this risk by placing surplus funds on short term deposit at fixed rates of interest. The Group’s objective is to minimise the risk of loss to the Group by limiting the Group’s credit exposure to institutions maintaining a very high credit quality AA rating and short-term F1 rating as defined by IBCA. The Group treasury policies are set out in the Financial Review on page 33. Liquidity risk The operations of Evans Vaccines are cyclical in nature with significant drawings on working capital between April and November with the manufacture of flu vaccine and invoicing customers for this and the cash receipts which occur mainly between December and March from these sales. This cycle has led to an increase in the liquidity risk for the Group which has been addressed by close monitoring of the working capital requirements of the operations and ensuring that the maturity profile of the cash placed on fixed term deposit matches these requirements. Numerical disclosures Foreign currency risk The table below shows the extent to which group companies have monetary assets and liabilities in currencies other than their local currency. Foreign exchange differences on retranslation of these assets and liabilities are taken to the profit and loss account. Net foreign currency monetary (liabilities)/assets Sterling US dollars Total £m £m £m Functional currency of group operation Sterling – 28.2 28.2 Dollars (18.5) – (18.5) At 31 March 2001 (18.5) 28.2 9.7

Sterling US dollars Total £m £m £m Functional currency of group operation Sterling –3.13.1 Dollars (12.0) – (12.0) At 31 March 2000 (12.0) 3.1 (8.9) It is the Group’s policy to recognise all foreign exchange gains and losses in the period in which they are incurred. Interest rate risk Financial assets

Cash at bank Short term Cash at bank Short term and in hand deposits Total and in hand deposits Total 2001 2001 2001 2000 2000 2000 £m £m £m £m £m £m Sterling 0.5 43.3 43.8 0.7 62.7 63.4 Dollars 3.8 22.9 26.7 1.0 – 1.0 At 31 March 4.3 66.2 70.5 1.7 62.7 64.4 Floating rate 4.3 2.5 6.8 1.7 – 1.7 Fixed rate – 63.7 63.7 – 62.7 62.7 At 31 March 4.3 66.2 70.5 1.7 62.7 64.4 The benchmark rate for floating rate cash is LIBOR. The fixed rate short term deposits (note 15) are placed with banks on a rolling basis. Contracts in place at 31 March 2001 had a weighted average annualised rate of interest of 5.5% (2000: 6.3%). Of the short-term deposits held at 31 March 2001 38% (2000: 64%) were for periods of one month or less with the remainder for periods of up to six months. Floating rate cash earns interest based on prevailing market rates. The long term debtor has been excluded from the above table as it does not meet the definition of a financial asset under FRS13. 61 PowderJect Pharmaceuticals plc 2001

30 Financial instruments (continued) Financial liabilities Excluded from these tables is £2.4 million disclosed in the prior year under bank loans and overdrafts. This was a cash book position only. There were no bank loans or overdrafts in place with the bank at the year end. Financial liabilities on which Fixed rate financial liabilities no interest is paid Total Total 2001 2000 2001 2000 2001 2000 £m £m £m £m £m £m Sterling 31.7 – 0.4 0.3 32.1 0.3 Dollars – 0.1 – – – 0.1 At 31 March 31.7 0.1 0.4 0.3 32.1 0.4

Fixed rate financial liabilities Fixed rate financial liabilities Financial liabilities on which no interest is paid Weighted average Weighted average period Weighted average period interest rate for which rate is fixed until maturity 2001 2000 2001 2000 2001 2000 % % Years Years Years Years Sterling 7.0 – 4.6 – 1.0 1.0 Dollars – 15.2 – 1.7 – – At 31 March 7.0 15.2 4.6 1.7 1.0 1.0

Liquidity risk Maturity of financial liabilities Group Group Group Group Convertible Finance Group Group Convertible Finance Group Group loan notes leases Provisions Total loan notes leases Provisions Total 2001 2001 2001 2001 2000 2000 2000 2000 £m £m £m £m £m £m £m £m Liabilities due: Within one year – 0.2 0.4 0.6 –0.10.30.4 Between two and five years 31.4 0.1 – 31.5 –––– 31.4 0.3 0.4 32.1 –0.10.30.4 The finance charge allocated to future periods in respect of the loan notes and finance leases is £10.8 million at fixed interest rates. Fair values The fair values of the financial instruments are compared to net book values in the table below. Book value Book value Fair value Fair value 2001 2000 2001 2000 £m £m £m £m Cash 4.3 1.7 4.3 1.7 Investments held as current assets 66.2 62.7 66.2 62.7 Bank loan and overdraft – 2.4 – 2.4 Convertible loan notes (note 19) 31.4 – 33.4 – Finance leases 0.3 0.1 0.3 0.1 Provisions for liabilities and charges 0.4 0.3 0.4 0.3 Fair values are the amounts at which financial instruments could be exchanged in an arm’s length transaction between informed and willing parties, other than a forced or liquidation sale and excludes accrued interest. As market values are not available, the fair values have been calculated by discounting expected future cash flows at prevailing interest and exchange rates.

31 Operating lease commitments At 31 March 2001, the Group had annual commitments under non-cancellable operating leases as set out below: Land and Land and buildings buildings 2001 2000 £m £m Expiring: Within two to five years 0.6 0.3 After five years 0.6 0.3 1.2 0.6 62 PowderJect Pharmaceuticals plc 2001 Notes to the financial statements continued

32 Capital commitments Capital commitments at 31 March 2001 were £53,000 (2000: £6,000 for the Group and £nil for the Company). These were contracted but not provided for by the Group and Company.

33 Pension commitments

2001 2000 £m £m Pension charge 0.6 0.1 The Group operates a pension scheme which all UK based employees of the Group, including Executive Directors are entitled to join. The scheme is a defined contribution or money purchase scheme which means that the benefits are determined directly by the value of contributions paid in respect of each member and the investment performance achieved on those contributions. The assets of the scheme are held separately from those of the Group in an independently administered fund. The regular cost represents contributions payable by the Group to the schemes. Contributions are charged to the profit and loss account as they are incurred. No contributions remain payable at the year end (2000: £16,000). With effect from 1 April 2001, a new pension scheme (the PowderJect Pension Scheme or PPS) was established for employees transferring with the acquisition of Evans Vaccines. Until this date, under the terms of the purchase agreement, these employees were entitled to remain members of the existing Medeva UK Pension Plan. Pension contributions were made by the Company on behalf of these employees to the Medeva UK Pension Plan between 1 October 2000 and 31 March 2001. At 1 October 2000, the scheme was fully funded. On 1 April 2001 the transfer value of those employees transferring was determined. The difference between the value at this date and the value at 1 October was immaterial and therefore no surplus or deficit arose during this period. The PPS is divided into two sections. The first is a defined benefit or final salary scheme for those employees who were members of the Medeva UK Pension Plan. The second is a defined contribution or money purchase scheme with terms described below. The assets of the scheme are held separately from those of the Company in an independently administered fund. The Company will match any contributions that the employees make up to 5% of their basic salary. The scheme benefits are determined directly by the value of contributions paid in respect of each member and the investment performance achieved on those contributions. The assets of the scheme are held separately from those of the Company. The scheme is open to all employees after three months of service. Under the defined benefit section, contributions are charged to the profit and loss account so as to spread the cost of pensions over employees’ working lives with the Company. The contribution rate of 11.1% was based on the assumptions used in the Medeva UK Pension Plan. The contributions for the defined benefit section for the forthcoming year will be determined by a qualified actuary on the basis of triennial valuations, the most recent of which will be on 1 April 2001. The Group has no exposure to any other post-retirement benefit obligations.

34 Related party transactions There were no related party transactions in the year ended 31 March 2001.

35 Post balance sheet event – acquisition of SBL Vaccin AB On 2 July 2001 control of SBL Vaccin AB (SBL) transferred from Active Biotech AB to PowderJect. The transaction will be completed on 6 July 2001 when payment of the consideration is made. The consideration for the acquisition is $50 million. Of this, $37.5 million will be satisfied by a vendor placing of 5,824,176 shares at 455p. The remaining $12.5 million will be satisfied in cash. In a separate agreement with Active Biotech AB, SBL will make milestone payments of $10 million (approximately £7 million) on EU regulatory approval of Dukoral before 31 December 2003 and $10 million on FDA regulatory approval of ETEC before 31 December 2005. These milestones decrease to minimum payments of $5 million for each product if the approval dates are later. In addition, royalty payments have been agreed in respect of sales on each of these products.

36 Copies of these accounts Copies of these accounts will be sent to all shareholders and will be available to the public at the Company’s registered office: Florey House, The Oxford Science Park, Oxford OX4 4GA. 63 PowderJect Pharmaceuticals plc 2001 Glossary of terms

Anaesthetics FDA Substances which eliminate pain or sensation. The United States Food and Drug Administration. Antibody Generic drug/compound A protein manufactured by lymphocytes (a type of white blood A drug/compound which is not patented or on which patent cell) to neutralise an antigen (foreign protein) in the body. protection has expired and which may therefore be The formation of antibodies against a foreign protein is part manufactured and supplied by companies other that the of the body’s normal defence system. original patentee. Antigen Genes A substance which stimulates the production of antibodies. The biological units of heredity. Genes are made up of DNA. Biopharmaceutical GMP Relating to biotechnology and pharmaceutical compounds. Good manufacturing practice, a system of guidelines to ensure Blood capillaries manufacturing quality. Extremely narrow blood vessels of 5 – 20µm diameter. Hepatitis B Catheter A virus which is spread by infected blood or blood products and which infects the liver. A system used for introducing drugs or instrumentation into the bloodstream comprising a plastic tube and needle overlaid by a HIV biocompatible plastic sheath which may remain in the patient’s Human immuno-deficiency virus, responsible for causing AIDS. vein once the needle is withdrawn. Indication Connective tissue A disease target for a drug. Tissue that supports, binds and separates more specialised Interstitial fluid tissues or organs and functions as a packing element of Fluid in the spaces between cells. the body. Intra-dermal CTX Within the dermis or the skin. Clinical trial exemption, permission by the MCA in the UK to test new medical products in patients. Intravenous Drug formulation Directly in to a vein. A drug combination with other ingredients to make the drug In vitro available in a form that can be administered. Biological phenomena that are made to occur in a laboratory Dermis in an artificial environment. The layer of living tissue that lies below the epidermis. In vivo DNA Biological phenomena that occur or are observed occurring within the bodies of living organisms. Deoxyribonucleic acid, the genetic material of living things. Langerhans cells Efficacy Dendritic cells in the skin that detect and present foreign The ability of a drug to produce the desired therapeutic effect. materials to the immune system. Epidermis The upper layer of the skin. Epithelial membrane The tissue that covers the external surface of the body and lines hollow structures. 64 PowderJect Pharmaceuticals plc 2001 Glossary of terms continued

Paediatric Recombinant Branch of medicine relating to children. A descriptive term for a protein encoded by a section of DNA Pathogen from one organism that has been artificially spliced into the existing DNA of another organism for its production. Any disease producing organism. Stratum corneum Peptide/Polypeptide Outermost layer of the skin and the principle barrier to drug Molecule consisting of amino acids sufficiently small so as not delivery into the body through the skin and water loss from to have tertiary structure. Peptides can be either individually the body. biologically active or a segment of a protein. Stratum basale Phase I clinical trials A cellular layer in skin at the border of the epidermis and dermis. Clinical trials normally conducted in healthy human volunteers following preclinical studies, usually to assess the safety and Subcutaneous pharmacokinetics of a drug candidate. Beneath the skin. Phase II clinical trials Subcutaneous layer Clinical trials to assess short-term safety and preliminary The layer or space in skin beneath the dermis. efficacy in a limited number of patients with the relevant disease Systemic and to determine appropriate dose ranges and regimens. Transiting the whole body, present in the whole body via the Phase III clinical trials circulatory system for general or local effect. Clinical trials to undertake a comprehensive evaluation of Therapeutic safety and efficacy in patients with the relevant disease Capable of treatment of disease. under practical conditions. Transdermal PowderJect® System Across the skin. PowderJect’s proprietary dry powder injection system. Transmucosal Preclinical studies Across the mucosal surface. Studies performed before administration to man to determine, inter alia, safety, pharmacological activity and product quality. Vaccine Prophylactic A suspension of dead, attenuated, or otherwise modified micro-organisms or antigens derived from organisms or Tending or intending to prevent the occurrence of disease. synthesised for inoculation to produce immunity to a Protein disease by stimulating the production of antibodies. Large complex molecule consisting of amino acids having defined tertiary structure typically required for biological activity. Professional advisers

Registered office Solicitors Florey House Cameron McKenna The Oxford Science Park Mitre House Oxford OX4 4GA 160 Aldersgate Street Telephone +44(0)1865 332 600 London EC1A 4DD Facsimile +44(0)1865 332 601 Telephone +44(0)20 7367 3000 Facsimile +44(0)20 7367 2000 Financial advisers Patent agents Robert Fleming & Co. Limited 25 Copthall Avenue JA Kemp & Co London EC2R 7DR 14 South Square Telephone +44(0)20 7638 5858 Gray’s Inn Facsimile +44(0)20 7588 7219 London WC1R 5LX Telephone +44(0)20 7405 3292 Auditors Facsimile +44(0)20 7242 8932

PricewaterhouseCoopers Bankers West London Office Harman House Lloyds TSB Bank plc 1 George Street Black Horse House Uxbridge Wallbrook Court Middlesex UB8 1QQ North Hinksey Lane Telephone +44(0)1895 273 333 Botley Facsimile +44(0)1895 274 777 Oxford OX2 0QS Telephone +44(0)1865 724 483 Stockbrokers Facsimile +44(0)1865 723 957

WestLB Panmure Ltd Website New Broad Street House 35 New Broad Street http://www.powderject.com London EC2M 1SQ Telephone +44(0)20 7638 4010 Facsimile +44(0)20 7920 9305

Registrars Lloyds TSB Registrars The Causeway Worthing West Sussex BN99 6DA Telephone +44(0)1903 502 541 Facsimile +44(0)1903 854 031

PowderJect® and smart particle™ are trademarks of PowderJect Research Limited and the PowderJect mark is registered in the UK. Designed and produced by Radley Yeldar, photography by Richard Glover. PowderJect Pharmaceuticals plc PowderJect Pharmaceuticals plc Florey House Robert Robinson Avenue The Oxford Science Park Oxford OX4 4GA Telephone +44 (0)1865 332 600 Facsimile +44 (0)1865 332 601 www.powderject.com Annual Report 2001