PowderJect...making medicines work better

Annual Report 2000 Achieved Key objectives set out in last year’s annual report ✔ Lidocaine FDA end of Phase II review ✔ Results of lidocaine paediatric Phase II trials1 – Out-license lidocaine product2 ✔ Complete first alprostadil Phase II trial ✔ Results of DNA cancer vaccine Phase I clinical trial3 ✔ Initiation of European DNA vaccine Phase I clinical trial – Start Phase I clinical study for a conventional vaccine4 – Further Phase I clinical trial of oral system5 – Start Phase I clinical trials of the reusable system6 ✔ Further Phase I hepatitis B DNA vaccine studies – Start Phase I clinical study of second protein/peptide7

1 Results of first study announced, results of second study in analysis 2 Focus on paediatric indication extends timelines to some extent 3 Analysis of results ongoing 4 Following antigen supplier quality problems, study planned when supply issues resolved 5 Lidocaine development focused on paediatric indication for dermal use 6 Reusable system refined to incorporate advances with single-use device 7 PowderJect FSH progresses into clinical development

Other key achievements ✔ Lead product in Serono collaboration, PowderJect FSH, progresses into clinical development ✔ Promising progress towards development of HIV DNA vaccine ✔ Glaxo Wellcome purchased further DNA vaccine licence ✔ Hepatitis B DNA vaccine clinical trial initiated at Mayo Clinic ✔ Alprostadil Phase II study shows clinical proof of concept in patients ✔ Positive results of European clinical study with malaria DNA vaccine ✔ Further clinical trial successfully completed in glucose monitoring ✔ Positive results in immuno-diagnostic clinical study ✔ Research collaboration with Baxter on delivery of a protein ✔ Strengthened BOC relationship with long-term manufacturing agreement ✔ Selected Bespak for commercial supply of PowderJect Lidocaine devices ✔ Strategic commercialisation collaboration with PA Consulting Group: PA take equity investment in PowderJect ✔ Establised agreement with AdProTech giving rights to innovative adjuvant technology ✔ Prestigious award for innovation announced by Prime Minister ✔ In-licensed ProMetic technology to support Smart particle™ formulation programme

Contents Benefits: Needle-free medicines 02 Pain-free medicines 04 Better medicines 06 Proprietary medicines 08 Branded medicines 10 Chairman’s statement 13 Operating review 18 Reference section 26 Board of Directors 32 Financial review 34 Report of the Remuneration Committee 35 Corporate governance 40 Report of the Directors 43 Report of the auditors 45 Consolidated profit and loss account 46 Statement of total recognised gains and losses 46 Consolidated company balance sheets 47 Consolidated cash flow statement 48 Notes to the financial statements 49 Annual general meeting 63 Notice of meeting 64 Professional advisers 66 Glossary of terms 67 01 PowderJect Pharmaceuticals plc

Powder injection means medicines with no needle, medicines with no pain. But powder injection is much more. Precise delivery of advanced powder formulations can boost the performance of tomorrow’s medicines. To fulfil their potential, many next generation medicines demand specialised delivery. PowderJect offers the solution. PowderJect DNA vaccines are more effective. PowderJect proteins don’t need complicated reconstitution. PowderJect vaccines do away with costly refrigeration. PowderJect alone has a patent ‘lock’ on powder injection, so PowderJect can create an industry standard. PowderJect can build a long-term brand. PowderJect is making medicines work better. 02 PowderJect Pharmaceuticals plc

No needles means safer treatments Removing the needle removes Easy-to-administer products Contaminated needles represent a significant the impact of needle-phobia should improve treatment health hazard, particularly to healthcare The majority of patients dislike needle The PowderJect system is so easy to use workers. The needle-free PowderJect injections, and in the case of children, that healthcare professionals will not require delivery system overcomes this problem. research shows that hypodermic needles are special training. Using the PowderJect US estimates suggest there are 600,000 among the most stress-provoking items they delivery device is very straight forward, so accidental needle-stick injuries in hospitals encounter. By offering needle-free delivery, patients should be able to self-administer each year. In addition, disposal of sharps, powder injection removes the impact of medicines, such as fertility treatment. such as needles, is a major problem, with as needle-phobia and hence removes patients’ This should reduce the need for clinic visits many as one-third of all sharps injuries being desire to avoid treatment. This should and increase patients’ compliance with related to the disposal process. This puts increase patient compliance and therefore their treatment. workers at risk of exposure to pathogens improve treatment. such as HIV, hepatitis B and hepatitis C. To help address this problem, seven US states have passed legislation, with legislation pending in many more, requiring the use of safety needle devices. Delivering medicines via the PowderJect system will help eliminate this serious health hazard.

PowderJect’s powder injection technology is needle-free. That means significant benefits for consumers and health workers, and a big market opportunity for PowderJect. The market for injectable medicines is large, with the number of injections estimated at between 8 and 12 billion each year and the value of protein therapeutics, vaccines and injected small molecules put at over $25 billion. Powder injection provides the opportunity to deliver many of these medicines without a needle, making treatment more pleasant, safer and more convenient. 03 PowderJect Pharmaceuticals plc needle-free medicines needle-free 04 PowderJect Pharmaceuticals plc

Pain-free administration Improved stability provides Stable products should simplify improves treatment easier treatment access to treatment Unlike liquid injection, the PowderJect Some liquid drugs require chilled storage to Treatments for powder injection can be system delivers drug particles that are so maintain their activity, or are unstable in liquid distributed without refrigeration, are easy to small they do not cause tissue distention form and are therefore supplied as dry administer and don’t require reconstitution. sufficient to trigger the pain receptors in the powders. Reconstituting powders for liquid These significant advantages should simplify skin (shown above is a drug cassette injection can be complicated and gives an home delivery of certain medicines, such containing a dose of powder-form medicine). opportunity for error. Medicines requiring as proteins for long-term therapy, improving Research clearly demonstrates that refrigeration or reconstitution include a access to treatment. New marketing administration via the PowderJect system number of small molecule products and the channels such as the internet and is pain-free. This should be particularly majority of vaccines and protein drugs. pharmacies should be ideally suited to important for treatments delivered to These pharmaceuticals represent an many PowderJect medicines because sensitive administration sites and for important commercial opportunity, with of their inherent distribution and consumer paediatric indications. Children’s anxiety protein drugs alone forecast to increase the advantages. before receiving an injection can intensify size of the drug delivery marketplace by 50% their experience of pain, so pain-free powder over the next few years. injection should be particularly advantageous in this important market.

Powder injection of medicines is more than just needle-free. It’s pain-free as well. Using the PowderJect system can take away the discomfort associated with liquid injections, and also the nuisance and potential expense caused by having to reconstitute or refrigerate certain liquid-based pharmaceuticals. By incorporating powder-form medicines that are more stable, PowderJect has the opportunity to increase access to treatment through non-traditional marketing channels such as the internet. 05 PowderJect Pharmaceuticals plc pain-free medicines pain-free 06 PowderJect Pharmaceuticals plc

PowderJect system delivery of DNA vaccines (see page 28 for more details)

PowderJect makes next generation substantially better results, both qualitatively Controlled drug action medicines work better and quantitatively, than injection of liquid can improve treatment PowderJect leads the world in the field of DNA vaccines. Indeed, powder injection has Powder injection offers the ability to improve DNA vaccination, which offers the prospect achieved more complete immune responses certain medicines by controlling the timing of of protection and treatment for some of the with as little as one-thousandth of the drug action. Varying the release of a drug world’s most insidious diseases, such as dose used by liquid injection. In addition, over a period of time, thereby reducing malaria, HIV and cancer. Unlike other delivery PowderJect is capitalising on its dosing frequency, is important for a techniques, powder injection can target world-leading position in the field by range of treatments. By applying proven immune system cells in the epidermal developing other proprietary techniques implant or depot formulation techniques, layer of the skin (such as Langerhans cells – that improve DNA vaccination, such as a PowderJect has the ability to provide this picture opposite shows subcellular detail fusion concept that can enhance immune benefit. Powder injection can also offer the of a human Langerhans cell) generating responses to specific vaccines. As part of advantage of rapid onset, which is important an extremely robust immune response. this strategy PowderJect has pending patent for products requiring quick action such as PowderJect has demonstrated that delivery applications covering this fusion concept. migraine treatments. via the PowderJect system produces

While powder injection is both needle-free and pain-free, it offers much more. PowderJect’s unique technology is actually making medicines work better. PowderJect has harnessed the expertise of highly skilled scientists, engineers, immunologists and drug delivery experts to develop advanced technology that offers unique benefits. By targeting specific layers of the skin, the PowderJect system dramatically improves the efficacy of next generation medicines such as DNA vaccines, achieves higher systemic bioavailability than many competing technologies and allows the possibility of controlled pharmacokinetics such as rapid onset or delayed action. 07 PowderJect Pharmaceuticals plc

Epidermis

Dermis

Sub-Cutaneous Layer

Better bioavailability than many competitors Bioavailability, or the amount of drug that is available biologically, can be important, particularly for expensive treatments. By targeting delivery of drugs at the border of the epidermal/dermal layers in the skin (see diagram of skin cross-section above), PowderJect products can achieve good bioavailability compared with many competitors, by accessing the extensive vascular network of the dermis. Indeed, preclinical research demonstrates that powder injection achieves bioavailability several times greater than many other competing technologies such as pulmonary delivery. better medicines 08 PowderJect Pharmaceuticals plc

PowderJect is in an enviable position: ownership of an entire method of drug and vaccine delivery. Through its extensive patent estate, PowderJect has a lock on the powder injection of medicines. This means PowderJect owns the benefits of powder injection too. By constantly building on its comprehensive patent portfolio PowderJect can maintain its dominance in the field to at least 2019.

Ownership brings commercial strength Broad and deep portfolio PowderJect’s patent portfolio provides ensures exclusivity exclusive, interlocking worldwide coverage PowderJect’s patent strategy is to establish for the transdermal/transmucosal delivery of layers of coverage to support its core any powdered medicine, for any indication, patents covering the method of particle in any mammal, by any and all means other delivery. New patents cover new than by inhalation. This comprehensive applications, such as diagnostics, new ownership gives PowderJect the strength to generations of devices and formulation negotiate commercially attractive agreements techniques. PowderJect has a portfolio of with pharmaceutical companies eager to 60 patent families constructed to maintain exploit the advantages of PowderJect’s the Company’s proprietary position to at technology. PowderJect’s existing large least 2019. collaborations with Glaxo Wellcome and Serono are good examples of this partnering strategy. 09 PowderJect Pharmaceuticals plc proprietary medicines proprietary 10 PowderJect Pharmaceuticals plc

Based on its proprietary position and unique blend of benefits PowderJect has the opportunity to establish powder injection as an industry standard, and build a strong and enduring healthcare brand. Market trends should further drive uptake of PowderJect’s products, strengthening the brand.

Powder injection’s unique blend of Healthcare trends should benefits can set an industry standard strengthen PowderJect’s brand Powder injection benefits key healthcare An expanding drug delivery marketplace, stakeholders – patients, health workers and increasing consumer awareness and pharmaceutical companies – providing an growing focus on healthcare worker opportunity to establish an industry standard. safety could all help drive demand for Powder injection’s combination of benefits is the PowderJect system. Calls for more unique. As well as the obvious advantages consumer-focused medicines, such as of needle-free, pain-free medicines, the call for effective, user-friendly vaccine PowderJect offers commercial benefits. initiatives by the US Centers for Disease The stability of powder-form medicines Control and Prevention, will further assist removes the need for refrigerated cold PowderJect build a powerful brand. chain logistics improving new channels of PowderJect’s proprietary position ensures access to treatment, such as the internet. no direct competition for many years, Pharmaco-economic advantages include giving the window to establish a strong improved healthcare worker safety and healthcare brand. easy disposal of non-hazardous materials. Combined with the ability to alter drugs’ pharmacokinetics and to dramatically increase the effectiveness of next generation medicines such as DNA vaccines, PowderJect has the opportunity to establish powder injection as a pharmaceutical industry standard. 11 PowderJect Pharmaceuticals plc branded medicines 12 PowderJect Pharmaceuticals plc

Financial highlights Turnover £000 1996 305 For the year ended 31 March 2000 1997 461 1998 3,122 1999 5,838 2000 2,749

Loss before tax £000 1996 479 1997 3,610 1998 4,708 1999 9,388 2000 18,354

R&D expenditure £000 1996 292 1997 2,472 1998 7,309 1999 14,170 2000 21,624

Cash and short-term 1996 1,512 investments £000 1997 5,038 1998 20,459 1999 84,088 2000 62,062

Net cash outflow from 1996 698 operating activities £000 1997 2,743 1998 7,124 1999 6,877 2000 20,213 13 PowderJect Pharmaceuticals plc

Chairman’s statement

Dr Paul Drayson, Chairman

Chairman’s statement Extensive database of clinical last year, we rescheduled our pivotal Phase III The last year has been a period of strong experience studies to begin next year in line with our achievement and investment in our core For a young company, PowderJect has built revised development strategy. The decision technology. Firstly, we have continued to a robust pipeline of products and extensive to include paediatric applications will ensure progress our product pipeline, focusing database of clinical experience: we have that the benefits to patients of pain-free on preparing PowderJect Lidocaine for now given over 4,000 administrations to anaesthesia will be available to both adults Phase III trials, as well as advancing our over 1,000 subjects with 10 different and children and will maximise the market major collaborations and further building our products/applications. This year has seen potential of this product. clinical experience as we prepare to bring further progress. We undertook a PowderJect Alprostadil response profile our technology to the market. Secondly, programme of 11 clinical trials and similar to commercial product we have strengthened the infrastructure completed our twenty-fifth clinical study. Our We achieved an important proof of concept and supply chain required to commercialise clinical evidence shows that powder injection with PowderJect Alprostadil, demonstrating our revolutionary new delivery technique. is both well tolerated and effective when that at the appropriate operating conditions Thirdly, we have taken the first steps in appropriately configured for the intended our treatment for male erectile dysfunction extending our strategy of making medicines application. Consequently we are extremely achieves a pharmacological response in work better, by discovering and patenting confident in our technology platform. Recent patients. At the upper end of the dose range innovative DNA based medicines that advances allowing us to model performance tested, the response profile was similar to perform well in the PowderJect system. and predict delivery system behaviour that of the commercial product Caverject™, Financially, losses were £18.4 million combined with clinical experience with our with rapid onset of action and erections (1999: £9.4 million) and we are still on commercial device has allowed us to maintained for 20 minutes (median). target to meet our two-year cash outflow improve device configurations. Development work is required to optimise target. Our position remains sound with During the year we passed a number of the configuration of the product prior to £62.1 million in cash and short-term clinical milestones and have made headway further clinical trials. investments. Investment in research with, and added to, the remainder of our and development grew to £21.6 million Serono moves lead product into clinical product pipeline: (1999: £14.2 million). Revenues decreased development to £2.7 million (1999: £5.8 million), partly PowderJect Lidocaine on track for Our collaboration with Serono, which covers due to the timing of receipt of milestone Phase III in 2001 five therapeutic proteins, is progressing well, payments. Net operating cash outflow With PowderJect Lidocaine we completed and the lead programme has now reached increased as expected to £20.2 million our first clinical study in children, and have an important development milestone and (1999: £6.9 million), and capital expenditure advanced our programme of configuration in will advance into clinical development. was £4.7 million (1999: £2.8 million). preparation for Phase III trials, with an adult Achieving this milestone with our lead study ongoing currently. With the technical product, PowderJect FSH (follicle stimulating risks identified and managed and a data hormone), triggered a £1 million payment to driven configuration process in place, we are confident we can achieve success in this programme. As announced in December 14 PowderJect Pharmaceuticals plc Chairman’s statement

PowderJect. The decision to move into the study in the field of malaria reconfirmed the Diagnostics’ second successful year clinic was based on the completion of initial ability of DNA vaccines delivered by the Last year we reported on a new area of testing, and further demonstrates the PowderJect system to activate the cellular business for PowderJect, clinical diagnostics. strength of powder injection in delivering arm of the immune system, which is believed This year we have made good progress in large complex biomolecules. Delivery of to be key in achieving a balanced immune this field, with successful clinical studies in protein drugs represents a significant market response to fight diseases such as HIV, glucose monitoring and immuno-diagnosis. opportunity. Last year, sales of Serono’s malaria and cancer. In addition, early stage Building on our encouraging immunological leading FSH product, Gonal-F®, accounted research demonstrated that PowderJect diagnostic results, we plan to clinically for $350 million, an increase of over 40% on DNA vaccination offers qualities demanded evaluate our HIV skin test in the coming year. the previous year. of an effective vaccine for HIV. Building the foundations for Glaxo Wellcome purchased fifth DNA New agreement signed with Baxter commercialisation vaccine licence On the commercial front, we continue Building up to full scale manufacturing, We have made clinical and commercial to make progress. We were pleased to meeting regulatory requirements and progress in our DNA vaccine collaboration announce that we have recently signed establishing quality standards demand with Glaxo Wellcome. Earlier this year we an agreement with Baxter International Inc focus, skill and experience. Our progress in announced that Glaxo Wellcome purchased to investigate the delivery of a scaling up capacity ahead of launch is on a fifth DNA vaccine licence as part of our therapeutic protein. schedule. During the year we manufactured ongoing collaboration, and continues with all approximately 100,000 PowderJect doses, AdProTech vaccine adjuvant of the options covered by our original and we now have the capacity to agreement signed agreement. This decision, reflecting the manufacture supplies for approximately Recently, we have established an results achieved with our unique technology, 1 million PowderJect administrations per agreement with AdProTech giving us rights resulted in a payment of $1.75 million to year, in preparation for scale-up to to their innovative adjuvant technology. PowderJect. In addition, our lead commercial quantities. PowderJect has been This agreement covers relevant fields of collaborative programme, PowderJect building its infrastructure over many years DNA vaccination, offering PowderJect Hepatitis B DNA vaccine, continues to push and during the last year we have formalised the potential to further enhance the forward. We successfully completed a study our network of manufacturing suppliers. efficacy of DNA vaccines delivered via demonstrating the safety of our vaccination As part of this process we have selected the PowderJect system. approach, and initiated a further clinical the world-class medical device company study at the Mayo Clinic in patients who PowderJect conventional flu vaccine Bespak for the commercial supply of did not respond to commercially available prepared for clinical study PowderJect Lidocaine devices, as well hepatitis B vaccine. We planned to begin our first conventional as signing a long-term commercial-scale vaccine clinical study with PowderJect flu manufacturing agreement with BOC World-leading position in DNA vaccines vaccine. Unfortunately, our antigen supplier, covering the helium micro-cylinders that This year has seen confirmation of our Parkedale, experienced problems with the power the PowderJect device. We now offer leading position in DNA vaccination, an FDA. Our preparations remain in place and our clients an advanced delivery technology important new technology offering the we are also investigating alternative sources with an impressive supporting infrastructure. possibility of therapeutic as well as of influenza antigen. We have also strengthened our team by prophylactic vaccines. Results of a clinical recruiting many of the highly skilled Chairman’s statement 15 PowderJect Pharmaceuticals plc

individuals we need to commercialise PowderJect DNA vaccine that protects Patent protection strengthening our technology, in particular process against different variants of the disease. our ‘lock’ on powder injection to development, clinical manufacturing and We have also developed and filed a patent at least 2019 commercial specialists. While headcount on a unique DNA vaccine design concept, During the year we received further notice of increased fairly rapidly to 31 March 2000, which when studied in a widely accepted our status as an innovator company: the up approximately 50% to 225 (1999: 154), model of HIV resulted in an unprecedentedly issue of 28 patents. We now have 60 patent we now see this growth slowing. high cellular immune response of the type families in total. As our scientists have that may protect against infection. Therefore, continued to solve the technical challenges As part of our strategy of leveraging in addition to our ownership of the delivery arising as we progress to market, we have external expertise to progress our technology method, the formulation and the device been able to file on new patentable material, to market, we have strengthened our system, we are now extending our franchise strengthening our ‘lock’ on the field of long-standing relationship with PA Consulting to include ownership of the medicine itself. powder injection, with our coverage Group. This strategic collaboration allows us We will continue to exploit our lead in DNA extending to at least 2019. to benefit from PA’s significant experience vaccines, where the use of PowderJect’s in industrialising drug delivery devices. Market review technology allows us to progress candidates In addition, PA will take a strategic equity During the second half of the year our share rapidly for study. While this work is higher investment in PowderJect through the price has been badly hit by adverse market risk than our drug delivery technology purchase of PowderJect Ordinary Shares conditions and concern about competition development, it offers great potential to by cash subscription, which represents from other technologies. I would like to tackle major diseases. independent validation of the strength of our reassure shareholders that PowderJect is in consumer-focused drug delivery technology. Worldwide 15 academic groups and an excellent position to build a sustainable This partnership with PA will provide vaccine research companies are now using long-term business based on a significant additional resources required to develop PowderJect technology in the search for market opportunity, to confirm that there our growing product portfolio. new vaccines and you will now find powder continues to be no competition offering the injection mentioned in the latest immunology same unique benefits as our powder Extending our franchise to include textbooks. We anticipate that involving injection technology and to state that I am ownership of the medicine PowderJect in the cutting edge of vaccine confident of leading this company to bring I am very pleased to report that this year for research will provide exciting new the revolutionary PowderJect technology to the first time, our scientific research has commercial opportunities for us in the future. market. My confidence in PowderJect is well demonstrated how PowderJect’s unique founded. The Company has exclusive rights delivery technology can be used as a tool for Recognition of PowderJect’s for many years to an entire field of discovering completely new DNA based innovative technology pharmaceutical delivery that will completely medicines. By combining this research tool In the past year PowderJect’s innovative change the injection of medicines and create with our inhouse immunology expertise we science has been recognised through the a substantial market. This view of the future have developed and filed patents on a receipt of several awards, including is backed by real experience. Our clinical limited number of new PowderJect DNA recognition as a Technology Pioneer at trials give us solid proof of principle for our vaccines. This is exemplified by our patent Davos 2000 and the award of Millennium delivery system, and major pharmaceutical filing on an influenza conserved gene (DNA) Product status by the Design Council. companies have already contracted with that remains constant between strains of the The quality of our science has also been us to develop medicines based on virus, thereby offering the potential of a recognised by publications in leading PowderJect’s technology targeting markets scientific journals such as the Journal worth billions of dollars in total. of Immunology. 16 PowderJect Pharmaceuticals plc Chairman’s statement

Recently other drug delivery technologies, Clearly, delivering an asthma drug directly Furthermore, we have leveraged our such as liquid jet injection technology, into the lungs in a formulation that is quickly scientific advantage into a strong commercial have been the focus of some attention. absorbed is a great example of the value position. PowderJect has a global patent These technologies have a role to play in the of advanced drug delivery. PowderJect’s ‘lock’ for many years on the whole field of marketplace. However, liquid injection does vision is to do the same for a wide range of powder injection. No company has a lock on not provide the benefits achieved by precise medicines that would otherwise be limited in inhalation or liquid jet injection; the market is PowderJect delivery of advanced powder their usefulness from having to be injected as fragmented among many companies formulations. Some commentators have liquids. Removing the water that makes up competing for business. This allows us to questioned whether the long lead-times over 90% of liquid injection formulations offer our clients a particularly attractive associated with reformulating medicines allows us to target the drug or vaccine at commercial proposition: exclusive rights to as powders for PowderJect are worth it. the right part of the body, rather than the field of powder injection for their They are. Let me explain why, using inhalers injecting it where there is enough room. molecule or field of interest. Our clients know as an example. We apply state-of-the-art science in device that their molecule is not going to face engineering and pharmaceutical formulation imminent competition from any other powder Having been an asthmatic since I was a to the challenge of injecting the molecule in injection type system. This is reflected in the child, I have personally experienced the the right quantity, to the right part of the scope and magnitude of the development dramatic improvement to my life that inhalers body, whether it be DNA vaccines into agreements we have reached with our have made. Back in the early 1960s the only the immune cells of the outer skin layer, pharmaceutical company partners. available treatments for sudden asthma or alprostadil into the tip of the penis. PowderJect is therefore in an excellent attacks were either a tablet, which took far Our mission is to make medicines work commercial position. Our strategy is to too long to work, or a liquid injection that, better. Maximising the effectiveness of the create a new market segment based on although fast acting, I absolutely hated. medicine, whilst minimising its side effects. powder injection of medicines, to be first into The new inhalers introduced around 1970 This approach allows us to improve the this market with strong PowderJect brand meant that at last a pharmaceutical performance of certain medicines and offer products and to lead this market as we grow product existed that provided an effective, others in patient-friendly formats that are it. In this way we will build a solid sustainable emergency treatment for my condition that pain-free, easy to self administer and long-term business. I could administer myself. It was, quite require no refrigeration or reconstitution. literally, a life saver. Furthermore it was I make the above points to stress three The lesson is clear. In the pharmaceutical the combination of the inhaler device and things. Firstly, the great potential of this business, product innovation that drives the reformulation of the drug that made technology to improve the lives of patients. improved medical outcomes, strong the pharmaceutical product so effective. Secondly, to explain to you my personal pharmacoeconomics and increased patient It delivered the right amount of drug commitment to bring this technology to benefit are what count. Patients and doctors directly to the lungs for maximum effect. market and thirdly to highlight the substantial rightly demand the best product that That product, thirty years later is still value we are building within your Company pharmaceutical science can provide, without improving people’s lives, including my own. as we progress towards the market. compromise. That’s what we aim to deliver. Today, there are many inhaler medicines on It’s that simple. the market with the worldwide market for these therapies estimated to be worth over $10 billion this year. Chairman’s statement 17 PowderJect Pharmaceuticals plc

While the development of some of our Longer term as the human genome is responded to the challenges of the last products has taken longer than expected sequenced, and the function of genes six months by being even more focused we have now overcome many of the (DNA) identified, we envisage that there will and determined. I should also like to express challenges causing these delays. We have be an increasing flow of candidate medicines my gratitude to shareholders for their the technology to develop our broad range based upon DNA or on the proteins that continued support. of innovative medicines. We are confident of the genes encode. All of these candidate Overall, PowderJect has had a challenging progress going forward. medicines will require effective delivery but successful year with a number of key and this will be a significant development Outlook accomplishments. I believe that, in time, challenge for the industry. We believe that There will be several key drivers for the this will prove to have been a pivotal year by establishing PowderJect’s delivery Company over the next year. In particular where the strengths of the business technology as the most attractive for DNA we aim to make clinical progress in our were tested and proved to be sound. and protein delivery, with the path to market, collaborations with Glaxo Wellcome and Significant challenges remain in transitioning supply chain and growing consumer brand Serono and add further partners to our client PowderJect from a development-stage in place, we will be perfectly placed to list. Other important milestones will include organisation to a profitable global become the standard method of delivery. preparing PowderJect Lidocaine for pivotal pharmaceutical company, however we are Phase III studies and undertaking clinical Regarding Board matters, we have confident in our ability to reach our goal. trials in our protein programmes. continued to develop our Board composition I look forward to updating shareholders on to reflect the changing nature of the In the medium term as the biopharmaceutical progress at our AGM. Company as it grows. We welcomed a new industry continues to restructure and Non-Executive Director, Richard Spizzirri, consolidate and the drug delivery and to PowderJect earlier this year. Richard has vaccine markets expand, we see extensive experience as a board director of opportunities for us to establish powder late-stage bio-pharmaceutical companies injection as an industry standard through in the US. Richard brings to PowderJect further strategic collaborations, acquisitions outstanding strategic vision and a wealth or joint ventures. This process will take time of experience in corporate development. and careful management to ensure that our During the year, James Noble stepped pipeline remains manageable and contains Dr Paul Drayson down from the Board. I would like to the correct balance of products to maximise Chairman record our appreciation for the commitment, shareholder value. To help drive this process judgment and expertise James brought we have strengthened our commercial to PowderJect. department during the last year. In addition, we continue to review and evolve our PowderJect has a world-class team of portfolio of development programmes to people who have worked extremely hard prioritise our most attractive opportunities over the past year to deliver these results. and balance risk. I would like to thank them for their commitment and professionalism. I am proud of the way the PowderJect team has 18 PowderJect Pharmaceuticals plc

Operating review PowderJect has had another fruitful year. We have successfully completed a number of important clinical trials and our lead programmes, particularly our collaborations with Glaxo Wellcome and Serono, are progressing well.

PowderJect has a history of firsts in the field of DNA vaccination: first in the world to elicit a protective immune response in humans, and first in Europe to study DNA vaccination in healthy volunteers.

PowderJect/Glaxo Wellcome DNA PowderJect DNA vaccines During the year PowderJect also vaccine collaboration At the end of 1998 PowderJect achieved a collaborated on an academic DNA vaccine We were extremely pleased to announce world first: our hepatitis B DNA vaccine clinical trial. The study explored a new in March this year that Glaxo Wellcome became the first DNA vaccine ever to elicit immuno-therapeutic strategy for treating purchased a further DNA vaccine licence protective immunity in humans. We also cancer involving the use of a DNA vaccine as part of our ongoing collaboration. confirmed that the vaccine induced a to focus the immune system on eliminating Glaxo Wellcome also continues with all of the balanced immune response, stimulating both the disease. Initial data from this Phase I options covered by our original agreement. the cellular and antibody arms of the study in patients with advanced skin cancer This decision, reflecting the success immune system, which is thought to be (melanoma) demonstrate that the DNA achieved with our technology, resulted in important for developing effective vaccine delivered via the PowderJect a payment of $1.75 million to PowderJect. prophylactic vaccines against infectious system was safe and well tolerated. This brings the number of Glaxo Wellcome’s diseases and therapeutic vaccines that treat During the dosing period of the study, we licences to five, with options over six further disease. Therefore we were very pleased became aware that a fragment of the DNA vaccines. this year to achieve another first: the first vaccine construct was inappropriate in European DNA vaccine clinical study in this application, and although PowderJect The lead product in our collaboration, healthy volunteers. The Phase I trial in the and all of the parties involved agreed that PowderJect Hepatitis B DNA Vaccine, field of malaria, conducted in collaboration there should not be any risk to patients, we continued to make good progress during the with Professor Adrian Hill at Oxford agreed to err on the side of caution and year. As part of this programme we have University, reconfirmed the efficacy of closed the study. recently begun a clinical study at the Mayo DNA vaccines delivered via the PowderJect Clinic, in patients who did not respond to In addition to our advances in the clinic, system at activating the cellular arm of previous vaccination with commercially we have also made progress in earlier stage the immune system. We now have data available hepatitis B vaccine or whose studies. Research in a widely accepted demonstrating good cellular responses to antibody titres are waning. laboratory model of HIV demonstrated that PowderJect DNA vaccines for both viral and DNA vaccination via the PowderJect system We have also successfully completed a parasitic pathogens, highlighting the strength results in an unprecedentedly high cellular clinical study examining particle distribution of our technology in this new approach immune response of the type that may in the skin. The results demonstrate that to vaccination. protect against infection. This killer T cell following DNA vaccination via the response is thought to be important for PowderJect system the ongoing natural effective vaccines against some of the world’s process of skin shedding and renewal most insidious diseases, such as malaria, removes the particle-form vaccine from cancer and HIV. The research explored two the epidermis within days. Removal of key aspects of HIV infection: regular mutation the DNA vaccine, combined with the of the virus which can result in new variants tolerability shown by our preclinical that avoid the immune system, and results, clearly highlights the safety of transmission which can occur through both our immunisation approach. sexual contact and needle-use. The results demonstrate that PowderJect DNA vaccination offers the qualities demanded of an effective vaccine for HIV: protection against different virus variants and two major routes of transmission used by the virus. Operating review 19 PowderJect Pharmaceuticals plc

PowderJect is leveraging its leading position in DNA vaccination to develop proprietary technologies that enhance this next generation of vaccines.

Our successes this year highlight epitope (part of an antigen that is recognised PowderJect conventional vaccines PowderJect’s world-leading position in by the immune system). We also aim to Our conventional vaccine programmes the field of DNA vaccines. We aim to further leverage our immunology skills by have also made good headway this year, capitalise further on the potential value of developing a limited number of DNA with preparations in place for our first clinical this new area of medicine by exploiting our vaccines. These fit well with our consumer- trial. We planned to enter the clinic with our immunological expertise. This year we focused product strategy, as exemplified by PowderJect influenza vaccine this year, but revealed that our research interest in the field our proprietary flu DNA vaccine that offers our antigen supplier, Parkedale, experienced extends beyond powder injection and the potential to protect against different problems with the FDA. However, our plans encompasses a novel technique of DNA strains of the disease. This early stage remain in place and we will conduct the vaccine construction that has been shown to development work utilises our existing clinical study as soon as supply issues enhance the immune response. PowderJect expertise and therefore consumes limited are addressed. has pending patents covering this broadly resources, but has the potential to reap applicable technique, which involves fusing significant rewards. core hepatitis B antigen to a disease specific

Vaccine pipeline Feasibility Preclinical Phase I Phase II Phase III Conventional vaccines Influenza vaccine Hepatitis B vaccine Diphtheria/tetanus vaccine Aventis Pasteur vaccine1 Celltech/Medeva Hepagene vaccine1

DNA vaccines Hepatitis B prophylaxis (GW)1 Hepatitis B therapeutic (GW)1 Prophylaxis No. 2 (GW)1 HIV therapy (GW)1 Therapeutic No. 3 (GW)1 Therapeutic No. 4 (GW)1 Tumour antigen No. 1 (GW)1 Tumour antigen No. 2 (GW)1 Influenza Herpes Simplex Virus Malaria2 Tumour2 1 Partnered programmes 2 Academic collaborations 20 PowderJect Pharmaceuticals plc Operating review

The strength of PowderJect’s technology in delivering large biomolecules is demonstrated by the recent progress with PowderJect FSH which is part of the Company’s multi-protein collaboration with Serono.

We have also made good scientific progress The second area of progress involved This decision follows excellent study results in two important areas that could result in PowderJect scientists achieving another first achieved with the collaboration’s lead better vaccines delivered by the PowderJect for the Company. They demonstrated that product PowderJect FSH (follicle stimulating system. Scientists have long explored powder immunisation of the skin’s outer hormone). Serono’s leading FSH product, the use of adjuvants to increase vaccine layer, the epidermis, can protect against Gonal-F® (recombinant gonadotrophin), is the efficacy, but the approach was not routinely pathogens, such as flu and HIV, that are world’s leading drug for fertility treatment. accepted because of adjuvant toxicity. transmitted through the mucosal tissue Our collaboration with Serono, which we However, promising new results demonstrate (the moist membrane lining body cavities signed in February last year, covers five that powder injection of adjuvant-containing such as the mouth, respiratory tract and therapeutic proteins, including products vaccines can be well tolerated at doses that vagina). This research opens up the in the fields of reproductive health and would be toxic when delivered traditionally. possibility of generating mucosal immune immunology. The positive results achieved This raises the prospect of improving safety responses to vaccines delivered into the in our development programme to date are and/or efficacy by using potent adjuvants skin in PowderJect’s convenient consumer- reflected in the decision by Serono to move in PowderJect vaccines that would be focused format, reinforcing the great the lead therapeutic protein into clinical unacceptably toxic as liquid injections potential of epidermal immunisation via development. Over the coming year, we look administered subcutaneously the PowderJect system. forward to the continued development of the or intramuscularly. PowderJect/Serono collaboration other proteins covered by our agreement. We were extremely pleased to announce recently that our collaboration with Serono reached an important development milestone, with the lead programme progressing into clinical development. Achievement of this milestone triggers a payment of £1 million to PowderJect.

Drugs pipeline Feasibility Preclinical Phase I Phase II Phase III Generic drugs Alprostadil Insulin Lidocaine dermal1 Lidocaine oral1 Calcitonin

Proprietary drugs Levobupivacaine1 Acute migraine1 Prostate cancer1 Growth deficiency Gonal-F®(Serono)1 Immunology (Serono)1 1 Partnered programmes Operating review 21 PowderJect Pharmaceuticals plc

The broad applicability of powder injection opens up a large potential market, delivering drugs, biopharmaceuticals, vaccines, DNA vaccines and diagnostics.

PowderJect’s drug development programmes are moving ahead, with PowderJect Alprostadil achieving proof-of- concept in patients and PowderJect Lidocaine beginning configuration studies in preparation for pivotal Phase III trials.

PowderJect proteins Our in-house development programmes, Finally, clinical trial results of our first The delivery of proteins and peptides concentrating on a generic technology paediatric Phase II study identified a set of represents an important market platform for the delivery of proteins and operating conditions that provide effective opportunity for PowderJect, with advances peptides, have also borne fruit. By focusing anaesthesia in children, which match the in biotechnology resulting in a significant on calcitonin and various generic formulation conditions shown previously to be effective increase in the number of these drugs approaches, we have identified new efficient, in adults at the same sensitive site, the coming to market. These biomolecules commercially scalable processes for the antecubital fossa (inside of the elbow). typically have more specific biological production of peptide and large protein As paediatric trials in this field are more activity than traditional small molecule formulations, with the required physical complex than adult studies, this decision synthetic drugs, offering the potential of more properties and chemical stability for will extend our development timelines effective treatment with reduced side-effects. powder injection. We aim to utilise the somewhat. However, we believe that The greater structural complexity of protein refined technology resulting from this this is more than balanced by the market and peptide molecules means that they programme during the coming year potential. Phase III clinical trials for present the industry greater challenges in in a further clinical study with our most PowderJect Lidocaine, including paediatrics, processing, formulation and delivery. advanced biomolecule: PowderJect are planned to begin in 2001. Leading up Consequently, the majority of these large Calcitonin, our osteoporosis treatment. to the commencement of these pivotal trials molecules are currently administered PowderJect Lidocaine we will conduct a series of configuration by needle and syringe, often with the We announced in December last year an studies to define the device operating complications of refrigerated storage important change of strategy for our lead conditions to take forward into the studies. and complex handling. These often product PowderJect Lidocaine, which we We have already made good progress in expensive to produce, potent treatments are developing in partnership with Celltech this programme during the last few months. are ideally suited to powder injection. Group Plc. For compelling commercial Configuration studies in adults have already The advantages offered by our technology reasons, the decision was taken to include begun, with a trial ongoing currently, and in this field are reflected in our commercial paediatric indications in our first regulatory paediatric studies are scheduled to begin progress this year. We are exploring a filing, whereas our original strategy focused later this financial year. number of partnering opportunities and on adults as our lead indication. A number have recently signed an agreement with PowderJect Alprostadil of factors contributed to this decision. Baxter International Inc to investigate the At the end of 1999, following earlier positive Firstly, feedback from the market indicated delivery of a therapeutic protein. studies in healthy volunteers, we reported that paediatrics is a significant market preliminary results of a Phase II trial in opportunity for PowderJect Lidocaine. patients with our treatment for male erectile Both market research and prospective dysfunction (MED), PowderJect Alprostadil. marketing partners confirmed this Further analysis of the results confirms opportunity. Secondly, discussions with our initial conclusion: at the appropriate regulators both in the US and Europe operating conditions PowderJect Alprostadil suggested that because of the significant potential for use in children, paediatric safety data would be required in an initial filing. 22 PowderJect Pharmaceuticals plc Operating review

PowderJect has an extremely large commercial opportunity in the rapidly growing drug delivery market, which is expected to grow from about $11 billion in 1998 to $35-38 billion in 2008.

PowderJect’s HIV skin test and glucose monitoring system both have the potential to offer significant product advantages in major markets.

achieves a pharmacological effect in MED PowderJect Diagnostics for HIV, suggests that our approach could sufferers. Experts consider this type of Last year we reported on a new area of work in HIV-infected humans. Based on response appropriate for further testing in application for our innovative technology: these results we aim to undertake a key the home setting, away from the clinical clinical diagnostics. Since then we have Phase I clinical study in HIV-infected conditions of the study. At the upper end made good progress in assessing the clinical individuals later in the year. of the dose range tested, the profile of the feasibility of the PowderJect system in this PowderJect has also moved forward with response was similar to that obtained with field. Our research programmes have its blood-free, pain-free glucose monitoring the commercially available Caverject™, focused primarily on two areas of system for diabetics. A clinical study in over which is injected via a needle into the base application: 250 subjects built on the clinical proof of of the penis. Onset of action was rapid – human immunodeficiency virus (HIV) principle work reported last year. The study (10 minutes) with patients maintaining an skin test used a multi-use PowderJect delivery erection on average (median) for 20 minutes. device and monitoring system, which – glucose monitoring. Following this important proof of concept, has the potential to enable easy glucose we have undertaken a significant market Most of the currently available HIV tests self-measurement by diabetics. The results research programme to identify the product detect HIV antibodies, which generally demonstrated a good correlation between characteristics necessary to ensure a appear within three months of infection, interstitial fluid glucose levels, measured by successful product launch. The MED market but may take up to six months in some the PowderJect test, and blood glucose. has changed dramatically over the past few individuals. This means attaining a positive Additionally, the clinical study highlighted the years, with oral drug therapies becoming result can take a significant amount of time consumer-oriented approach of the pain-free available and increasing the treatment and negative results can only be confirmed PowderJect method: nearly all subjects options available to both physicians and after many months, which can result in preferred the PowderJect test, with no-one patients. With the change in therapies, the great anxiety. PowderJect’s skin test offers expressing a preference for the finger prick overall market size has grown to almost the potential of more rapid diagnosis, which method. This is particularly important, $1 billion, with analysts predicting four-fold would allow patients to start treatment much because many diabetics do not test their growth over the next three years. Due to sooner, thereby dramatically improving their glucose levels as frequently as recommended problems with drug-drug interactions, prognosis. Our test for in vivo diagnosis (several times per day), partly because of the slow onset, and lack of efficacy in certain of HIV infection involves monitoring the discomfort associated with the current finger populations, approximately 30% of the functional cytotoxic T-lymphocyte (CTL) prick method. market is treated with non-oral immune response. As this cellular immune The outlook for PowderJect diagnostics is pharmaceutical therapies. response occurs much earlier in the very positive. The commercial opportunity infection, the PowderJect test could enable in both of the areas investigated this year is earlier detection of disease compared with substantial. The total HIV diagnostics and current antibody tests. monitoring market in the US alone is During the year we completed estimated to be in excess of $500 million encouraging research demonstrating while the 1999 worldwide market for whole the feasibility of our immuno-diagnostic blood glucose monitoring was predicted approach. A clinical trial involving stage-IV to reach $3.3 billion, up 13% from the melanoma patients demonstrated that the previous year. PowderJect approach can detect a disease- specific CTL response. In addition, research in SIV, a widely accepted laboratory model Operating review 23 PowderJect Pharmaceuticals plc

PowderJect is constantly evolving the technique of powder injection, with preliminary work now complete on the next generation of devices, which offer even greater potential benefits.

PowderJect delivery technology These advances allow us to model with a proprietary technology to produce This year we have made significant performance and give us the ability to predict particles that are ideal for powder injection. advances in the optimisation of the delivery system behaviour. The development These particles can be produced cost- PowderJect delivery system, with efforts and testing of the first commercial system effectively with the correct characteristics concentrated on the system functionality of in clinical trials has enabled us to increase for loading a variety of pharmaceuticals, this innovative technology. We have achieved our understanding of the interactions and including small molecules, peptides, proteins this through the use and development of dependencies of formulation, gas dynamics and vaccines. sophisticated modelling and analytical and particle penetration. By characterising Patent progress techniques, such as Computational Fluid commercially produced devices using PowderJect’s business strategy is to establish Dynamics (CFD), Particle Image Velocimetry the advanced modelling and analytical powder injection as an industry standard on (PIV) and Particle Penetration Modelling techniques described above we have which to build a global healthcare brand. (PPM). By harnessing the power of these improved device configurations. Achieving A key element in this strategy is the advanced tools our scientists and engineers this increased control is part of the process Company’s strong intellectual property can model the complex gas dynamics in the of optimising PowderJect Lidocaine in position, comprising of extensive patents PowderJect delivery device using CFD, preparation for pivotal Phase III trials, and protecting the technique of powder injection, measure actual fluid dynamics and particle will help us move forward with our entire as well as design and trademark registrations entrainment velocities utilising PIV and product portfolio. on which to base the PowderJect brand. predict particle penetration into human skin As part of our ongoing programme to with PPM. This year we have added significant new refine the technique of powder injection, layers of protection to all areas of our patent Using these techniques we have: we have developed initial prototypes of a portfolio helping to further extend our lock next generation system. This early work – identified configuration improvements to on the field of powder injection. We have is extremely encouraging, with our next the commercial dermal delivery system for also added important new patents covering generation system offering the potential our lead product, lidocaine second-generation devices, various aspects additional benefits of exceptionally low of conventional and nucleic acid-based – more specifically defined the noise, smaller devices and enhanced immunisation (DNA vaccination) and new particle/formulation requirements for product performance. formulation techniques. With these new optimum particle delivery and penetration Smart particle™ formulations filings, the Company’s patent estate now of a range of therapies In addition to advances in refining the numbers 60 discrete patent families, and – identified conditions for further targeting PowderJect delivery device, our Smart we intend to continue to expand this the penetration of drug particles particle™ formulation programme has also portfolio in the coming year. moved forward. This strategic programme – improved distribution of particles across focuses on developing advanced formulation our target delivery area. technologies to enhance the performance of medicines delivered by powder injection. During the last year we have seen the benefits of this approach, with improvements in bioavailability and the potential to optimise formulations for a range of therapies. As part of our strategy to build this type of expertise, we entered an agreement with ProMetic Biosciences Inc last year which provides us 24 PowderJect Pharmaceuticals plc Operating review

PowderJect now has 60 discrete patent PowderJect is well advanced in families putting a lock on the entire field establishing the infrastructure, people of powder injection, with design and and strategic partnerships required to trademark registrations providing a basis commercialise the revolutionary technique for branding PowderJect’s unique of powder injection. technology.

In addition to new filings, PowderJect is very DNA vaccines, conventional vaccines and Operational progress pleased to have been awarded several diagnostics. Several of these segments, As we move closer to the market, we are important patents in the US and Europe. particularly the delivery of biopharmaceuticals putting in place the necessary infrastructure For example, a new European patent was and vaccines, are predicted to enjoy to support the commercialisation of our granted on our seminal oral and mucosal significant growth in the near future. technology. In January 2000, we announced powder injection devices, and US patents Biopharmaceuticals are typically delivered the expansion of our partnership with were awarded on several different powder by needle and syringe, and the conversion The BOC Group Plc. This long-term injection devices as well as the use of certain of these products to less invasive, more agreement provides the framework for nucleic acid constructs for use in cancer patient-friendly delivery methods is expected establishing commercial-scale micro-cylinder immunotherapeutics. to drive market growth of 50% by 2005. manufacturing to support the launch of Another segment, conventional vaccines, PowderJect’s lead products. PowderJect As part of our strategy to brand our is also traditionally administered by needle and BOC have successfully collaborated proprietary technology, we have pursued and syringe. The market for conventional since 1996, to design, develop, and design registration protection on our major vaccines is estimated to grow from about establish the pilot-scale manufacturing device configurations. This year we have $4 billion to $20 billion over the next capacity for the proprietary helium micro- been awarded registrations covering our 10 years. Throughout all of PowderJect’s cylinder that acts as the PowderJect device’s dermal powder delivery devices and a US market segments, healthcare trends moving internal power source. The micro-cylinder design patent covering our reusable device toward prevention of accidental needle-stick pilot plant, located at BOC’s Morden site has configuration. We have also made good injuries and more consumer-oriented been qualified at a scale sufficient to support progress in trademark registration, with products should enable our needle-free, all of our clinical trial requirements. several secured in the US, UK and Europe patient-friendly delivery method to capture during the last year. In December 1999, we selected Bespak Plc significant market share. as our supplier for Dermal PowderJect Market outlook An excellent example of the market Lidocaine. Bespak will produce the delivery PowderJect has an extremely large potential for our products is PowderJect device’s plastic mouldings and assemble commercial opportunity in the rapidly FSH‚ which is the lead product in them with BOC micro-cylinders and pre-filled growing drug delivery market. This market is PowderJect’s collaboration with Serono. drug cassettes supplied by PowderJect. expected to grow from about $11 billion in Recombinant gonadotrophin preparations We are particularly pleased to complete the 1998 to $35-$38 billion in 2008. PowderJect administered by needle and syringe injection supply chain for our lead product with this is uniquely positioned in the drug delivery are widely used as a treatment for infertility, strategic relationship with Bespak, who have universe because it participates in all the with Serono’s Gonal-F®, the world’s leading world-class experience in the scale-up and major market segments: traditional small drug in this field, accounting for sales of manufacture of medical devices. molecule drugs, biopharmaceuticals, approximately $350 million in 1999, an increase of over 40% on the previous year. Operating review 25 PowderJect Pharmaceuticals plc

The future for PowderJect holds significant promise, with the prospect of progressing existing collaborations with pharmaceutical partners and market conditions providing the opportunity to get closer to the marketplace.

One of the key elements of the PowderJect continued to expand our facilities to meet the Interest in PowderJect’s technology from manufacturing infrastructure is the capability requirements of our development pipeline. both the vaccine and pharmaceutical sectors we have established to reproducibly produce In November 1999, we completed the continues unabated and we look forward to unit doses of small quantities of powder-form initial qualification of the $2.1 million facility further collaborations that will drive revenue pharmaceuticals. This is a core competence expansion at Middleton (Madison) to support and provide further validation of the for PowderJect and consequently we have DNA vaccine Phase I/II programmes. PowderJect technology platform. As the invested significant resources in this area Continuing expansion at that site will be biopharmaceutical industry continues to over the last year and reached several completed in June 2000. restructure and consolidate and the drug important milestones. In particular, the delivery market expands, we also see PowderJect continues to recruit the high pilot-scale filling system for lidocaine, opportunities for us to get closer to the calibre people needed to commercialise our which is in place to support clinical trials, marketplace and further build the PowerJect products and drive our business forward. has demonstrated the process capability brand, through collaboration, acquisition, We have significantly strengthened the required for commercial production. joint venture or in-licensing. This process will commercial side of our business and In addition, the commercial system to take careful management to ensure that our have also boosted our scale up capability automate and scale up the pilot process has pipeline remains manageable and contains through the recruitment of experienced been designed and is under construction. the correct balance of products to maximise process development and clinical We have also demonstrated the feasibility value. To help drive this process we have manufacturing specialists. of developing a proprietary filling process, begun a comprehensive review of our which will enable the cost-effective Future outlook development programmes to prioritise those commercial-scale production of reproducible The next year holds significant promise for that can rapidly progress toward significant low doses of potent compounds. PowderJect. On our existing pipeline, we are market opportunities. looking forward to continued development of As part of the process of developing our our lead product, PowderJect Lidocaine. commercialisation strategy, we have Additional trials in children will give us the expanded our long-standing relationship foundation we require as we assemble the with the leading technology consultants, manufacturing infrastructure and move PA Consulting Group. This strategic towards the pivotal clinical trials needed to collaboration is progressing well, with PA register this product. We believe our providing us with significant expertise in late- collaboration with Serono will continue to stage development and commercialisation move forward as our lead protein product, of drug delivery technologies. Additionally, PowderJect FSH‚ moves into the clinic and under the terms of the collaboration, additional Serono products move PA took a strategic equity investment into development. On the DNA vaccine in PowderJect through the purchase side, we look forward to continued clinical of PowderJect Ordinary Shares by progress in our collaboration with Glaxo cash subscription. Wellcome. We also expect to continue our In the vaccines field, PowderJect signed an conventional vaccine advance into the clinic agreement with AdProTech giving us rights and that this area of our product pipeline will to their innovative adjuvant technology, move forward quickly. offering the potential to further enhance the efficacy of our DNA vaccines. In addition we 26 PowderJect Pharmaceuticals plc

Reference section How the PowderJect system works

Dermal PowderJect device with key components

Actuation pin

Safety catch

Powdered drug cassette

Silencer Actuation cover BOC helium micro cylinder

Nozzle

Drugs, vaccines or diagnostics in The dermal PowderJect system uses a particle form can be painlessly and helium gas jet to accelerate drug or effectively delivered into the body when vaccine particles to a velocity sufficient they are appropriately formulated and to deliver them to the target tissue. travelling at a sufficiently high velocity. Generating a high velocity injection The core technology Actuation of the PowderJect system opens PowderJect’s core technology involves the a microcylinder to release helium gas at high high velocity injection of particle formulated pressure. The helium flows down the device drugs or vaccines into any physically to a drug cassette that holds the powdered accessible tissue. PowderJect systems may drug or vaccine between two plastic provide therapy or prevention of disease by membranes. At the designed pressure, optimal delivery of small molecules, peptides, both membranes burst open virtually proteins or DNA. The basic principle is that instantaneously allowing the rapidly solid form particles can be painlessly and expanding gas to sweep the powder down effectively delivered into the body if they are the device nozzle accelerating it to speeds appropriately formulated and travelling at of up to 600–900 metres per second. sufficiently high velocity. This principle can be When the helium gas containing the particles applied to deliver any drug or vaccine that leaves the nozzle and hits the skin surface, can be formulated into solid particles having the particles have sufficient momentum the appropriate characteristics of size to penetrate the skin. The helium gas is distribution, density and strength. By using reflected into a silencer. Individual particles the appropriate PowderJect system, this of powder pass through the outer barrier technique may be employed to deliver a layer of the skin (stratum corneum), range of drugs into the skin (intradermal), penetrating to the required level in the tissue. into the tissues of the mouth or vagina The drug dissolves to either act locally or (transmucosal) or directly into other tissues diffuses into the blood stream to deliver via catheter or minimally invasive surgical its beneficial effect. entry. PowderJect’s initial focus is on the intradermal and buccal transmucosal routes but systems for delivery by means of a catheter to internal organs and for direct delivery to the eye are also intended. Reference section 27 PowderJect Pharmaceuticals plc

Oral PowderJect device Reusable dermal PowderJect device with its key components

Safety tab Actuation mechanism Disposable cartridge Actuation pin Actuation button

Nozzle Dust cover

Shock tube Micro cylinder Filter Silencer Expansion chamber

Membrane

Actuation ring Gas exhaust ports Dome Powdered drug

The PowderJect system can be For applications that require a longer course For delivery into enclosed spaces such as modified to suit different needs. of therapy a reusable system is more the mouth, other natural body orifices or Current prototypes include a dermal appropriate and economical because only minimally invasive surgical openings, a and oral device for delivery into the the helium energy source and drug cassette prototype device called the oral PowderJect skin and mucosal membranes need to be replaced for each injection. system is being developed. This device, respectively. Reusable and A design is shown above in which the helium pictured above, has many of the same disposable devices are suited cylinder and the accelerating nozzle are elements but instead of using the helium flow to different dosing regimes. positioned side by side and a protective to accelerate the particles, it uses the energy cover is provided to enclose the system of the shock wave to invert a dome shaped PowderJect system configurations between uses. This configuration captures membrane. The powdered drug is held on For preclinical and initial clinical research, all the operational features of the linear single the external concave surface of this flexible PowderJect has from its inception employed use disposable system but is designed to membrane. Inversion of the dome refillable and reusable hand fabricated be more transportable and to be used over accelerates the particles to sufficient prototypes. In late 1998, a commercial many months to deliver drugs such as fertility momentum that they may penetrate tissue configuration comprised of moulded plastic treatment. Reusable PowderJect system while the strong membrane retains the gas parts and a single use welded aluminium concepts are being refined and designs for inside the system from which it is vented helium microcylinder was completed and economical manufacturing are being finalised slowly after delivery. has been refined based upon results of that incorporate the improvements indicated clinical testing. by extensive clinical experience with the single use disposable systems. 28 PowderJect Pharmaceuticals plc

Reference section How PowderJect vaccines work

DNA vaccination with the PowderJect system efficiently delivers DNA directly into the cell Sectional diagram of the skin showing (intracellularly) to elicit a protective or therapeutic immune response using over 1,000 fold delivery of PowderJect particles to the less DNA than liquid injection epidermis (Not to scale)

DNA vaccine delivery Extracellular Gold Antigen Presenting Cell Particle Delivery particle coated Nucleus with DNA MHC Stratum Corneum

DNA µ Transcribed Epidermis: 50 m to RNA Translated to Protein Processed Antigens presented into antigen to the immune system peptides MHC-Antigen Stratu invoke humoral and m presentation Basale cellular response Dermis: 1-2mm

The PowderJect system can be The PowderJect system can be The PowderJect system delivers modified to ensure delivery to the modified for use with DNA vaccines an intradermal injection. optimal target tissue, for example the to ensure they are delivered into Targeted delivery to skin layers extracellular delivery of conventional the cell (intracellularly). Skin consists of several layers. Beneath the vaccines to the epidermis. DNA vaccine delivery outer keratinous stratum corneum, which Drug and conventional vaccine delivery DNA must enter the cell (intracellular delivery) consists of dead cells and is the body’s main In the case of conventional drugs, the object if it is to have its effect. PowderJect’s DNA barrier to drug delivery, is an outer epidermis of the PowderJect system is to deliver the delivery process involves coating a desired and an inner dermis. The epidermis is a thin drug in therapeutically effective quantities into DNA expression construct onto microscopic epithelial membrane. The dermis is a thicker the target tissue where it either acts locally or gold particles and then using a powder layer and is comprised of connective tissue. is absorbed via the blood capillaries or lymph injection device to accelerate the coated A deep extension of the dermis, the in the treated tissues into the systemic gold particles so that they penetrate the subcutaneous layer, anchors the skin to circulation of the body to have its desired skin, and a proportion enter directly into the underlying tissues. effect. It is not intended that the drug should the cells, avoiding the need for cell uptake. Most drugs with a systemic action, such as be delivered directly into cells. The process of transferring DNA into cells proteins and peptides, are ideally delivered is known as transfection. In this case, the to the border of the epidermis and dermis in particles are formulated to be much smaller order to access the area with the highest than cell size so that they can penetrate the density of blood capillaries. Conventional cell membranes without disrupting the cells. and DNA vaccines are ideally delivered into Once inside, the DNA directs the cell to the epidermis. manufacture a specific protein, for example, a protein from an infectious agent that can The PowderJect system delivers an intra- trigger an immune response. Phase I dermal injection. The depth of penetration of clinical trials have now demonstrated the the drug particles is optimised by adjusting immunological effect of administration the momentum density of the particles of DNA vaccines in human volunteers. within the gas flow. Particle mass and area PowderJect’s technology advantage is are controlled through formulation and the optimisation of delivery to the depth processing of the drug. Velocity is controlled in the skin at which the natural antigen within the device by three parameters: nozzle presenting cells are most numerous. geometry, membrane burst strength and gas The expression and natural display of pressure. the antigenic proteins by transfected cells is highly effective because it appears to closely mimic a natural infection. Reference section 29 PowderJect Pharmaceuticals plc

PowderJect DNA vaccines invoke both cellular and humoral immunity like attenuated live organism vaccines without the risk of causing disease. These may well be used for therapy Process of cellular immune response as well as prophylaxis. 1) Antigen presenting cells bind the antigens from Cellular immune response the invading pathogen. Antigen MHC class I presentation MHC Presenting Cell 2) Antigens are presented to T cells by the major Class I histocompatibility complex (MHC 1). mT Cell 3) Antigens are recognised as either self or non-self. Cellular immune response is stimulated. 4) T Cells mediate the destruction of the pathogen CD8 T Cell infected cells. MHC Class I 5) Memory T cells and antibodies can recognise Peptides presentation foreign antigens previously presented for elimination, thus protecting the body from infection or diseases Memory T Cells from the same agent (e.g. chicken pox). However, fight infections immunity is not always permanent (e.g. tetanus).

How conventional vaccines work How DNA vaccines work Conventional vaccines work by harnessing DNA vaccines represent one of the next the body’s immune system to fight disease. generations of vaccine technologies. On vaccination, the immune response is They work by providing the instructions to triggered in the same way as if infected by a enable the body to manufacture the desired live pathogen (or disease causing organism). antigen. The evidence from current research in a wide variety of laboratory models and Once vaccinated or infected, the immune PowderJect Phase I clinical trials clearly system becomes primed so that the next demonstrates that DNA-based immunisation time it is challenged by the same live invokes both humoral and cellular responses. pathogen, for example tetanus, cholera, etc, it can mount an immune response with Hepatitis B sufficient rapidity to destroy the organism Hepatitis B virus infection of humans causes before it can cause harm. This is because in an acute liver disease that most often a previously infected or vaccinated individual resolves without any permanent damage to antibodies and/or T cells have already been the liver. On occasion, however, the acute activated which recognise the pathogen phase is replaced by a slowly developing immediately. chronic stage that ultimately can lead to liver cirrhosis and primary liver cancer. These two The immune response can be subdivided very different end-points reflect the difference into the cellular immune response and the in how the infected individual’s immune humoral immune response. In the cellular response handles the infection. Although response, pathogens are destroyed by both kinds of patients generate antibody and T cells and in the humoral response, they are cell mediated immune responses, there is a destroyed by antibodies. The sequence of qualitative difference in the response such events following vaccination (or infection by that the immune response in some disease) is illustrated above and overleaf for individuals is insufficient to resolve the each response. disease and they progress to the chronic disease states. It is thought that the critical deficiency in those who progress to chronic infection, in some, is part of the cell mediated immune response. 30 PowderJect Pharmaceuticals plc Reference section

Earlier sub-unit vaccines based on first generation Process of antibody immune response recombinant technology elicit a humoral response. 1) Antigens bind antibodies on the surface of B cells. Together with help from antigen specific T cells, the Humoral immune response antibody response is stimulated. (antibodies) Antigen Presenting Cell 2) Antibodies mediate destruction of the pathogen. MHC class II presentation CD4 T Cell

Processed into peptides

Cytokines Protein

B Cell Circulating antibodies are sentinels against future infection

Conventional vaccination for hepatitis B The epidermis is composed of a thin layer The current commercial recombinant (50 microns) of epithelial cells located hepatitis B vaccine is administered by a immediately beneath the stratum corneum needle and syringe injection into the muscle or surface barrier layer of the skin. The skin of the upper arm. The vaccine dose is thus contains a network of powerful dendritic deposited between muscle cells and is only immune cells called Langerhans cells that very inefficiently taken-up by immune reactive are responsible for surveillance of invading cells. This injection induces an antibody pathogens. response in naïve individuals, that is able to The PowderJect system is able to enhance prevent virus infection later in life. It does not, the performance of vaccines by delivering however, elicit a very effective cell mediated vaccines directly into cells of the epidermis. immune response. Traditionally, vaccines have been PowderJect hepatitis B administered by needle to subcutaneous DNA vaccination tissues or muscle sites which are much less In contrast, DNA immunisation with the efficient at eliciting an immune response. PowderJect delivery system induces both PowderJect has developed enabling particle an antibody and a cell mediated immune formulations and a delivery technology that response and thus, elicits an immune is specifically designed to deliver DNA response that is similar to that induced by vaccines into the cytoplasm of immune virus infection but without any risk of causing cells of the skin. infection. This is not so surprising since both virus infection of liver cells and PowderJect DNA immunisation of epidermal cells both result in the intracellular expression, processing and presentation to the immune system of hepatitis antigens. The success of the PowderJect DNA delivery system is in part due to the direct intracellular delivery of the DNA but is also due to the fact that the epidermis of the skin is one of the body’s most potent immune organs. The skin is thus, an excellent target for vaccine delivery. 31 PowderJect Pharmaceuticals plc

Reference section PowderJect strategy

Establish a global industry standard Balance in-house and and build a strong healthcare brand partnered programmes PowderJect is in a very strong position in To develop the strong products on which to the pharmaceutical industry. The Company base the PowderJect brand, the Company ‘owns’ the unique drug delivery technique aims to progress a balanced portfolio to of powder injection, which offers a range of the market. This balance is achieved important benefits. PowderJect’s strategy with a mixture of in-house and partnered is to capitalise on these advantages and programmes. In-house programmes based establish powder injection as an industry on approved generic drugs offer the standard. The Company’s proprietary opportunity to maximise potential returns, position provides the opportunity to develop while those based on partners’ proprietary a global healthcare brand, and to create compounds minimise development risk to a significant market segment based on PowderJect. strong products. Develop commercially attractive Healthcare trends should drive partnered programmes the PowderJect brand PowderJect’s carefully crafted patent Trends in the healthcare market are portfolio protects the revolutionary technique expected to help build the PowderJect of powder injection. Combining this brand. Increasing patient awareness proprietary position with the Company’s and education driven in part by clinical database, which demonstrates direct-to-consumer advertising in the US the strengths of the technology, allows as well as extensive health information on PowderJect to secure attractive terms with the internet and in the popular media could partners. Working with partners provides lead to substantial patient demand for many advantages: they provide relevant PowderJect products. The benefit of expertise, development resources and easy administration, allowing healthcare significant cash inflow from licence, at home and self-administration of certain milestone and R&D payments. medicines could drive further demand. PowderJect aims to establish powder The pharmaco-economic advantages injection as an industry standard, building of healthcare worker safety, easy disposal a world-class brand based on this of non-hazardous materials, removal of unique technology. expensive cool chain logistics and for certain medicines significantly improved performance should also help build market penetration. In addition, US legislation on prevention of accidental needle stick injuries, now enacted in seven states, could play an important part in the uptake of the PowderJect system. 32 PowderJect Pharmaceuticals plc

Board of Directors

Executive Directors

Dr Paul Drayson BSc PhD Gordon Saul AB MBA Steven Harris BSc ACA Chairman and Chief Executive (Aged 40) Business Development Director (Aged 38) Finance Director (Aged 33) Dr Drayson spent four years at Austin Rover Gordon Saul joined PowderJect as Steven Harris is a Chartered Accountant. Group and spent five years at Trebor Group Business Development Director in February He was appointed as Finance Director of in new process/product development and 1996 from ALZA Corporation. At ALZA, PowderJect in April 1997 following six years marketing. From 1986 to 1991 he was he was Director of Commercial Development of audit and corporate finance experience Managing Director of Lambourn Food and his responsibilities included in-licensing with Price Waterhouse and then three years Company, a Trebor Group subsidiary. products, compounds and drug delivery as Financial Controller at Desoutter Limited, He led a management buy out of Lambourn technologies. Prior to joining ALZA, a subsidiary of Atlas Copco AB. backed by 3i plc, subsequently acquired Mr Saul was responsible for all business Charles Swingland BSc a competing own label business and development activities for Advanced Solicitor, General Counsel successfully sold the combined operation. Cardiovascular Systems, a division of and Company Secretary (Aged 47) Dr Drayson co-founded PowderJect in Eli Lilly & Co. Charles Swingland is a solicitor and has July 1993. Dr Terry Burkoth AB PhD FNIH advised the Group since its formation in Science and Technology Director (Aged 59) 1993. He joined the Group as General Dr Burkoth joined PowderJect in February Counsel and Company Secretary in 1996 from ALZA Corporation. From 1987 February 1996 and was appointed to to 1996 he was Vice President, Product the board in May 1997. He qualified as a Development and a Principal Scientist at solicitor with Goodman Derrick in the City ALZA Corporation, a leading drug delivery of London in 1979, where he subsequently company. Prior to ALZA, Dr Burkoth worked became a partner in the firm. at Sandoz – Zoecon as Vice President, Product Development. Board of Directors 33 PowderJect Pharmaceuticals plc

Non-Executive Directors

Professor John Bell B Med Sci BA BM Professor Brian Bellhouse MA DPhil Richard Spizzirri LLB (Aged 57) BCh DM FRCP (Aged 63) A graduate of Harvard Law School, Deputy Chairman (Aged 47) Professor Bellhouse is Head of the Mr Spizzirri became a Partner at Davis Polk Professor Bell is the Nuffield Professor of Medical Engineering Unit at the University & Wardwell in 1967 and Senior Counsel Clinical Medicine at the John Radcliffe of Oxford and Director of the PowderJect in 1994, specialising in mergers and Hospital in Oxford, having previously held Centre for Gene and Drug Delivery acquisitions, leveraged buy-outs, corporate a post at Stanford University in California. Research. He is a fellow of Magdalen finance, venture capital and R&D He is responsible for a group of 350 College, Oxford. His research interests partnerships. He has extensive experience scientists and clinicians whose research lie mainly in Medical Engineering and he as a board director, particularly in the life covers the fields of human genetics, has more than 100 papers and 30 patents sciences sector, with previous directorships diabetes, rheumatoid arthritis and renal describing his work. Professor Bellhouse at Centocor Inc and Sugen Inc and current medicine. He is chairman of the Wellcome co-founded PowderJect in July 1993. positions at Advanced Polymer Systems, Trust Centre for Human Genetics. the French genomics company Valigene Philip Carne BA (Aged 61) Professor Bell joined the Board of and a New York Medical School vaccine Mr Carne was, from 1985 to 1999, PowderJect as a Non-Executive Director company. Mr Spizzirri is also a director of Chairman of Ethicon Medical Products, in September 1993. several technology companies including which is a part of Johnson & Johnson and a number of internet start-ups. He was is the worldwide leader in surgical sutures appointed to the Board in March 2000. and minimally invasive surgical devices. With a degree in Languages from Larry Ellberger BA BS (Aged 52) Cambridge University, Mr Carne first Larry Ellberger was Chief Financial Officer joined Procter & Gamble, then General and a Senior Vice President of strategic Foods Corporation, pursuing marketing planning and development for WR Grace. assignments in Europe and Latin America. Prior to joining WR Grace in May 1995, He then moved to Johnson & Johnson, Mr Ellberger worked at American Cyanamid, where during a 25 year career he managed a multinational life sciences company, where companies in Colombia, Australia and the he was Vice President and Director of the United States, and then became Group Corporate Development and Planning Chairman for J&J’s medical businesses in Division. He was previously a Director Asia, Europe and Latin America, in addition of Applied Solar Energy Corporation. to his role as Ethicon Chairman. Mr Carne He joined the Board of PowderJect as was appointed in April 1999. a Non-Executive Director in June 1997. 34 PowderJect Pharmaceuticals plc

Financial review

Profit and loss account Cash flows The Group loss for the year ended 31 March 2000 increased to The net cash position at 31 March 2000 was £62.1 million £18.4 million (1999: £9.4 million). This reflects the planned increase in (1999: £84.1 million). This includes an overdraft of £2.4 million. R & D expenditure of £7.4 million to £21.6 million (1999: £14.2 million) The overdraft is a cash book position only and no bank loans and the increase in administrative expenses of £0.3 million to or bank overdrafts are in place at the year end or thereafter. £3.4 million (1999: £3.1 million). The increase in R & D expenditure In the previous year, the cash position was significantly increased was driven mainly by the increase in R & D headcount. by the placing and open offer of shares which raised £52.0 million after expenses and the issue of shares to Glaxo Wellcome and Turnover for the year decreased to £2.7 million (1999: £5.8 million). Ares-Serono for £12.1 million and £6.1 million respectively. Income during the year arose primarily from the collaborative This year, the cash balance (including short-term investments) agreements with Glaxo Wellcome and Ares-Serono. Turnover was has decreased by £22.0 million. This is mainly due to a less than expected. This was due to timing of milestone payments net cash outflow from operating activities of £20.2 million and unlike last year we did not sign a large collaboration agreement. (1999: £6.9 million) which has arisen primarily as a result of Headcount has increased by 71 to 225 (1999: 154) as the Group the increase in R & D expenditure. continued to recruit for its R & D expansion. Headcount is not Other factors contributing to the cash outflow include capital expected to continue to increase at the same rate as in previous expenditure on tangible fixed assets of £4.7 million (1999: years as critical mass has now been achieved for the Group’s future £2.8 million), fees and expenses paid in connection with resource requirement. the placement and open offer of shares in the prior year of Net interest receivable has increased to £3.9 million (1999: £1.4 million (1999: £0.4 million) and interest received of £2.0 million). This is mainly due to the higher average cash £4.0 million (1999: £2.2 million). balances throughout the year following the placement and open The Company remains on track to meet its two year operating cash offer which was completed in March 1999. outflow and capital expenditure target. This was set at £47 million Balance sheet and cash flow when the net cash position was £84.1 million. Tangible fixed assets Treasury policies Tangible fixed assets have increased by £3.6 million to £7.7 million Treasury policies and significant treasury transactions are reviewed (1999: £4.1 million). This is mainly due to capital expenditure in and approved by the Board. The Group’s aim is to secure returns respect of the supply chain for the manufacture of Dermal in line with prevailing market rates while minimising the risk of PowderJect Lidocaine. Much of the remainder of the increase capital loss. relates to continued investment in the Group’s manufacturing and operating facilities. Credit risk is controlled by limiting the Group’s credit exposures to institutions maintaining a very high credit quality AA rating and short-term F1 rating as defined by IBCA. In addition, specific credit limits are applied to individual institutions. 35 PowderJect Pharmaceuticals plc

Report of the Remuneration Committee

The Remuneration Committee Long-term incentives The Remuneration Committee (the ‘Committee’) is made up of three The Board believes that the long-term incentive schemes (the share Non-Executive Directors of the Company Mr P Carne, Mr R Spizzirri option schemes) provide a strong incentive for retaining and recruiting and Prof J Bell. Mr P Carne replaced Mr L Ellberger as Chairman of high calibre individuals, ensure that the performance of executives the Committee on 16 March 2000 and Mr R Spizzirri was appointed is focused on creating long-term shareholder value and allow the on the same date. Mr Noble resigned from the Board on 17 April Company’s cash reserves to be conserved. 2000. The main responsibilities of the Committee are to set the The current scheme enables the Executive Directors and managers Company’s overall policy on executive remuneration and to decide to participate in share price growth. The scheme is divided into the specific remuneration, benefits and terms of employment for two parts known as CSOP A and CSOP B. CSOP A has been each Executive Director, including the Chairman and Chief Executive, approved by the Inland Revenue and CSOP B is unapproved. and a number of other senior managers. Options granted under the scheme have either a seven or ten year Policy on Executive Directors’ remuneration life and can be exercised no earlier than three years from the date The objectives of the Committee’s policies are to ensure that of the grant. Grants of options are at or above the market price Executive Directors receive compensation which is appropriate of the Company’s shares on the date of the grant. Options are to their performance, scale of responsibility and experience. subject to the satisfaction of demanding share price performance Remuneration packages should also allow the Group to attract targets prior to exercise. and retain executives of the necessary calibre while, at the In order to promote sustained performance, the Remuneration same time, motivating them to achieve the highest level of Committee has implemented a policy for the phased granting of Company performance in line with the best interests of options on an annual basis. Options are granted to all employees on shareholders. To determine the elements and level of remuneration hire and thereafter on an annual basis in either January or July of appropriate to each Director, the Committee reviews surveys on each year. The number of shares over which an individual employee executive pay, obtains external professional advice and considers is granted an option is based on salary and seniority but is also linked individual performance. to the results of individual performance appraisals. Components of Executive Directors’ remuneration Pensions and other benefits Executive Directors’ remuneration currently comprises annual salary, On 27 March 1998, the Remuneration Committee approved the bonus, pension, health insurance and a long-term incentive in the establishment of a group pension scheme which all UK based form of share options. The Executive Directors receive no other employees of the Company, including Executive Directors, are form of remuneration. entitled to join. Annual salary The scheme is a defined contribution or money purchase scheme The salaries of Executive Directors are set by the Committee and are which means that the benefits are determined directly by the value effective from 1 July each year. In determining the appropriate salary of contributions paid in respect of each member and the investment level for each Director, the Committee considers both the nature and performance achieved on those contributions. status of the Company’s operations, and the responsibilities and performance of each Director. The Committee also compares the The scheme allows for the Group to contribute a maximum of 5% of Company’s remuneration packages with those jobs of similar type salary, subject to the relevant employee contributing 5% of salary to and seniority in companies whose activities are comparable with the scheme. The Group has no obligation to the pension scheme PowderJect, and with which it competes for staff. beyond the payment of contributions. Only one Executive Director participates in the Group pension scheme. Contributions made by the Group in respect of Mr Harris amounted to £6,250 for the year (1999: £4,521). The Company operates a 401K scheme in the US. Other benefits are offered to all employees, including the payment of life insurance and health insurance premiums. All the Executive Directors participate in both these schemes. 36 PowderJect Pharmaceuticals plc Report of the Remuneration Committee

Executive Directors’ service contracts Non-Executive Directors’ remuneration PowderJect’s purpose in entering into service contracts with Non-Executive Directors do not have service contracts but letters of Executive Directors is to enable the recruitment of high quality engagement. Non-executive directorships can be terminated at any executives and to obtain protection from their sudden departure to time by a resolution of the members of the Company and one-third competitor companies. In addition, service contracts are an important of Non-Executives are required to retire each year. Non-Executive element in maintaining maximum protection for the Group’s Directors do not receive any remuneration from the Company other intellectual property rights and other commercially sensitive than their fees for services as members of the Board and additional information. The maximum notice period required for the termination fees if they serve on committees of the Board. The level of fees is of an Executive Director’s service contract is one year by both the determined by the Chairman in consultation with the Executive Company and the Director. Directors and professional advisers. Directors’ remuneration 2000 1999 Salary/fees Bonus3 Benefits Total Total £000 £000 £000 £000 £000 Executive Dr P Drayson (Chairman) 315 19 1 335 322 Prof B Bellhouse1 –––– 25 Dr T Burkoth 154 242 1 179 155 Mr S Harris 125 8 – 133 136 Mr G Saul 156 202 3 179 158 Mr C Swingland 150 9 1 160 145 Non-executive Prof J Bell (Deputy Chairman) 37 – – 37 33 Prof B Bellhouse1 63 – – 63 29 Mr P Carne 24 – – 24 – Mr L Ellberger 40 – – 40 – Mr J Noble 30 – – 30 26 Mr R Spizzirri 2 – – 2 – Mr J Gordon – – – – 23 Total 1,096 806 1,182 1,052

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. Prof Bellhouse was an Executive Director from 1 April 1998 – 1 October 1998 until his resignation and his reappointment as a Non-Executive Director on 1 October 1998.

2See note 1 on page 37.

3The bonus payment was performance related except for £15,439 in respect of Dr T Burkoth and £11,040 in respect of Mr G Saul (see note 1 on page 37 for explanation). The total aggregate emoluments and gains on share options of the highest paid Director amounted to £2,067,000. This includes a gain on exercise of options of £1,888,000. Report of the Remuneration Committee 37 PowderJect Pharmaceuticals plc

Directors’ options now vested, those previously granted to Mr Swingland continue to New share options were granted during the year to Dr Burkoth, vest on a monthly basis over four years from grant and those Mr Harris, Mr Saul and Mr Swingland under the annual grant policy. previously granted to Mr Harris continue to vest on an annual basis Share options previously granted to Dr Burkoth and Mr Saul have over four years from grant.

At 1 April Granted in Exercised in At 31 March Market value Date from 1999 the year the year 2000 Exercise on date which Number Number Number Number price of exercise exercisable Expiry date Dr T Burkoth 1,256,000 – 239,000 1,017,000 10.0p1 800p 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 1,030,000 – 171,200 858,800 10.0p1 800p 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 – 37,556 868.5p – 19 Jan 2003 18 Jan 2010 Mr C Swingland 1,130,000 – 226,000 904,000 39.2p 800p 1 July 1999 30 Jun 2003 Mr C Swingland – 35,294 – 35,294 868.5p – 19 Jan 2003 18 Jan 2010 Total 4,065,750 139,818 636,200 3,569,368

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. For Dr T Burkoth this amounts to £15,439 and for Mr Saul £11,040.

The total gains on the exercise of share options were £4,960,000 CSOP B prior to 5 April 1999 must be exercised between three and (1999: £1,790,000). This included gains for Dr T Burkoth of seven years from the date on which the options were granted. Those £1,888,000, Mr Saul £1,352,000 and Mr Swingland £1,720,000. granted under CSOP B after that date or CSOP A must be exercised The gains are calculated as the difference between the exercise between three and ten years from the date on which the options price and the market price at the date of exercise. Cash bonuses were granted. of £15,439 and £11,060 respectively were paid to Dr Burkoth and The mid-market price of the Company’s shares at 31 March 2000 Mr Saul to compensate for the difference between the nominal value was 657.5p (1999: 905p). During the year, the mid-market price of of 10p and the exercise price of 3.54p per share (see note 1 above). the Company’s shares ranged from 623.5p to 1005p (1999: 375p to The options granted under the PowderJect Research Limited 997.5p). The price at the date of flotation in June 1997 was 185p. Executive Share Option Scheme, the Unapproved Scheme and Directors’ interest in shares The Directors of the Company who have beneficial interests in the ordinary shares of the Company are: At 31 March At 31 March 2000 1999 Number Number Dr P Drayson (Chairman) 7,197,213 8,467,311 Prof B Bellhouse 3,386,925 4,233,656 Prof J Bell 452,000 565,000 Mr J Noble 108,250 101,250 Mr P Carne 15,000 – Dr T Burkoth – 100,000 Mr G Saul – 100,000 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 and the other Directors undertook not to sell shares or exercise options held at that time until 16 June 2000. As at the date of publication of this report, there have been no changes in Directors’ interests since 31 March 2000. 38 PowderJect Pharmaceuticals plc Report of the Remuneration Committee

Share option schemes Options granted on or after 15 July 1998 become exercisable in At 31 March 2000 the Company had four Share Option Schemes. three equal tranches following share price increases of 30%, 60% and 90%. In addition, some options contain additional performance The PowderJect Research Limited Executive Share Option targets linked to the achievement of goals related to specific projects Scheme (the “PRL Scheme”) within the Group. This scheme has been closed without prejudice to existing option holders. Options over 2,880,550 shares remain outstanding In order to help attract suitably experienced employees, a (including Directors) following the exercise of options over 959,200 dispensation has been obtained from the ABI to allow the grant shares. Options under this scheme were granted to both UK and of options to new employees on the commencement of their US employees. employment, instead of the requirement to wait for a 42 day period following the announcement of interim or final results as set out in The PowderJect Pharmaceuticals plc Company Share Option Plan the ABI guidelines. Minor changes were made to the rules of both (the “Unapproved Plan”) schemes to reflect this greater flexibility. The change to the rules of This scheme has also been closed without prejudice to existing CSOP A has been approved by the Inland Revenue. The scheme option holders. Options over 1,639,766 shares remain outstanding rules do not require shareholder approval for changes of this nature. (including Directors) following the exercise of options over 224,156 shares. 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 1997 in order to hold shares in the Company for the benefit of employees of The PowderJect Pharmaceuticals Company Share Option Plan the Group and their immediate families. The Trust is based in Jersey Parts A and B (respectively “CSOP A” and “CSOP B”) and administered by PowderJect Pharmaceuticals Employees’ Share These are the plans under which new options are granted. CSOP A Scheme Trustees Limited. is approved by the Inland Revenue and CSOP B is unapproved. During the year options over 86,029 shares were granted under As at 31 March 2000, the Trustees held 410,476 ordinary shares CSOP A and over 556,285 shares were granted under CSOP B, in the Company of which 166,910 shares have been allocated to bringing the total, after lapses, outstanding under each scheme to employees under the Restricted Share Scheme. The Trustees 205,051 shares and 1,773,620 shares respectively. Options under made no purchases, sales or allocations of shares during the year. CSOP B are granted to both UK and US employees. Those under The nominal value of the shares held at the year end were 10.0p CSOP A are granted to UK employees only. each and the mid-market value of the shares at 31 March 2000 was 657.5p each. No option granted under CSOP A or CSOP B is exercisable until three years after the date of grant and all contain performance targets The Restricted Share Scheme is administered by the Remuneration as a condition of exercise of the option. The performance target Committee in conjunction with the independent Trustees of the Trust. requires sustained growth in the share price from the option exercise The purpose of the scheme is to enable share allocations to be made price. Options granted under these schemes prior to 15 July 1998 out of the Trust to individual employees at the discretion of the only become exercisable following a doubling of the share price. Remuneration Committee.

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 Report of the Remuneration Committee 39 PowderJect Pharmaceuticals plc

Options outstanding at 31 March 2000 (Including Directors) Weighted average Weighted Range of remaining exercise price exercise price contractual life Number (Pence) (Pence) (Years) PRL Scheme 2,880,550 20.0 10 – 39.5 2.9 Unapproved Plan 748,766 72.2 39.2 – 102 4.0 891,000 54.0 54 4.0 CSOP B 802,149 194.4 185 – 206.5 4.6 415,186 452.3 407.5 – 985 5.4 556,285 840.9 634.5 – 969.5 9.6 CSOP A 64,522 198.7 195.5 – 206.5 7.8 54,500 568.2 407.5 – 951.5 8.6 86,029 854.8 643.5 – 969.5 9.4 Total 6,498,987 167.5 4.3 The options outstanding at 31 March 2000 are normally capable of being exercised over varying periods up to March 2010. There has been no change in the exercise price of any outstanding options during the financial period. Since 31 March 2000, a further 21,845 options have been granted. Options exercisable (including Directors) Weighted exercise price Number (Pence) At 31 March 1999 1,881,083 10.0 At 31 March 2000 3,143,179 23.5 The options above are exercisable according to their terms, however certain option holders are subject to a lock up agreement which restricts their ability to exercise the options until 16 June 2000. On behalf of the Board Philip Carne Chairman of the Remuneration Committee 12 June 2000 40 PowderJect Pharmaceuticals plc

Corporate governance

The Directors have set out below the means by which they seek All Directors receive appropriate training on first appointment and to apply current best practice corporate governance procedures have access to the advice and services of the Company Secretary. within the Group and the extent to which the Group has complied The Board has established a procedure for Directors to take, with the Listing Rules of the Financial Services Authority relating to if necessary, in order to obtain independent professional advice the provisions of the Principles of Good Governance and Code of at the Company’s expense. Best Practice (the ‘Combined Code’) as published in 1998. Principal board committees Board of Directors Audit Committee The Board of Directors comprises five Executive and five The Audit Committee comprises three independent Non-Executive Non-Executive Directors. Mr P Carne was appointed to the Board Directors. They are Mr L Ellberger (Chairman), Prof J Bell and on 12 April 1999. Mr. R Spizzirri was appointed to the Board Mr R Spizzirri. Mr L Ellberger replaces Mr J Noble as Chairman. on 16 March 2000 and Mr. J Noble resigned with effect from Mr J Noble resigned on 17 April 2000. Mr R Spizzirri was appointed 17 April 2000. All Directors bring strong independent judgement on 16 March 2000. The Committee meets at least twice a year and considerable knowledge and experience to bear on issues and monitors the adequacy of the Group’s internal financial controls, of strategy, performance, resources and standards of conduct. accounting policies and financial reporting. It reviews the results of the annual risk self assessment process which the Group undertakes and The Board is keeping under review the combined role of Chairman the Group’s interim and annual reports prior to their submission for and Chief Executive. approval by the full Board. It also provides a forum through which the With the exception of Prof B Bellhouse who was previously an Group’s external auditors report to the Board. Executive Director, the Non-Executive Directors are independent. The Committee meets at least once a year with the Group’s Mr L Ellberger has been considered to be independent since external auditors in the absence of any Executive Directors. 1 October 1999 when he ceased to represent the interests of W R Grace, a major shareholder. The Non-Executive Directors are Nomination Committee not invited to participate in the Company’s Share Option Scheme This comprises the Chairman and the Non-Executive Directors. It is and their service is non-pensionable. chaired by Prof J Bell and meets as required to select and propose to the Board suitable candidates for appointment as Executive and Prof J Bell, Deputy Chairman, is the senior independent Non-Executive Directors. Non-Executive Director. Remuneration Committee The Board meets at least once every two months and has adopted This comprises three independent Non-Executive Directors. a formal schedule of matters specifically reserved to it for decision. Mr P Carne replaces Mr L Ellberger as Chairman who resigned This includes overall Group strategy, financing arrangements, material to chair the Audit Committee. Prof J Bell and Mr R Spizzirri are acquisitions and divestments, approval of the annual budget, major the remaining members. Mr J Noble resigned on 17 April 2000. capital expenditure projects, risk management and treasury policies The Committee’s report to shareholders appears on pages 35 to 39. and the establishment and monitoring of internal controls. At each meeting, the Board reviews the progress of the Group towards its The Committee meets at least twice a year. objectives, particularly in respect of the development projects and monitors financial performance against budget and the Chairman ensures that all Directors are properly briefed on issues arising at Board meetings. Corporate governance 41 PowderJect Pharmaceuticals plc

Relationships with investors Internal control Institutional investors Internal control is defined in the Combined Code as ‘all controls, The Company has designated various members of the Board as its including financial, operational and compliance controls and risk principal spokespersons with institutional investors, analysts, press management’. and other interested parties. In accordance with the provisions of the Combined Code, the Private investors Directors are responsible for the Company’s system of internal All shareholders are sent copies of Annual and Interim Reports and, control and for reviewing its effectiveness. In response to the where appropriate, circulars and prospectuses are given notice to extended requirements of the Combined Code in respect of internal enable them to attend the Company’s Annual General Meeting. control, the Company has reviewed and updated its assessment Shareholders whose shares are held by nominees may receive of the risks affecting the business and the policies and procedures copies of such communications on request. by which these risks are managed. The Company has an internet website (http://www.powderject.com) The key features of the Group’s internal control system are: which includes information relating to the products and technology, • clear statements on mission, group goals and strategy; press releases and share price. • effectively communicated and clearly identified business objectives; The Combined Code • appropriate organisational structure, which is subject to periodic The Combined Code incorporates recommendations of best practice review to ensure that changing business needs are continuously in respect of the control and reporting functions of the Board. It sets served, which identifies responsibilities and reporting structures; out principles under the headings of: • integrated financial approval and reporting procedures which enable progress against business objectives to be monitored and • Directors; performance against plan to be compared each month; • Directors’ remuneration; • developmental framework of policies and procedures to ensure • Relations with shareholders; pre-clinical, clinical and manufacturing activities are carried out in • Accountability and audit. accordance with good laboratory practice (GLP), good clinical Detailed provisions in respect of each principle are provided within the practice (GCP) and good manufacturing practice (GMP); Code. These require Directors to report in the Annual Report on: • policies in respect of business conduct and ethical values clearly communicated to employees; • Directors’ remuneration; • system of self assessment and identification of risks and controls in • Directors’ responsibility for the accounts; place to manage those risks reported to the Board twice a year. • Going concern; • Internal control. There has been no change to the first three of these reporting requirements. The requirement to report on internal control was extended to include non-financial internal controls as well as financial internal controls. During 1999, the Institute of Chartered Accountants in England and Wales agreed with the Financial Services Authority that it would provide guidance to assist listed companies to implement the requirements in the Combined Code relating to internal control. The procedures described below have been operated by the Board prior to the year end in order to implement the requirements of the Code with respect to internal control in the coming year. 42 PowderJect Pharmaceuticals plc Corporate governance

Internal financial control Going concern The Board has continued to adopt the transitional arrangements PowderJect is a development stage pharmaceutical group. permitted by the Financial Services Authority and is reporting on The Group does not yet have any product sales and expects to its review of internal financial control. consume cash until products are commercialised. The Directors have a reasonable expectation that the Company and the Group has The Board, through the Audit Committee has reviewed the adequate cash resources to continue in operation for the foreseeable effectiveness of the Group’s system of internal financial control future. For this reason, they continue to adopt the going concern throughout the year. Such a system can provide only reasonable basis in preparing the financial statements. and not absolute assurance against misstatement or loss. Statement of compliance The key features of the Group’s internal financial control system The Board is committed to the highest standards of Corporate include: Governance and considers that it has complied with all the relevant • Appropriate organisational and reporting structure to ensure principles and provisions set out in the Combined Code (as annexed clear identification of management responsibilities. to the Listing Rules) throughout the period under review, except • Integrated financial approval and reporting procedures which in respect of the provisions relating to the requirement to separate enable progress against business objectives to be monitored the roles of Chairman and Chief Executive Officer, and that until and performance against plan to be compared each month. 1 October 1999 the Remuneration Committee was chaired by • System of self assessment and identification of risks and controls in a non-independent Non-Executive Director. place to manage those risks reported to the Board twice a year. By order of the Board The BioIndustry Association (BIA) Code of Best Practice Charles Swingland The BIA has recently published a Code of Best Practice with which Company Secretary member companies are required to comply. The Code consists of 12 June 2000 eight principles which are broad statements of best practice for the guidance of bioscience companies. Principles are accompanied by code provisions which are mainly more detailed non-exhaustive illustrations of the application of the principles. The principles are set out under the headings: • Board composition; • Board information; • access to external advice; • unpublished price sensitive information; • public announcements about products; • public announcements about regulatory process; • effect of announcements on patients and others; • use of scientific or technical terms in public announcements. The Company seeks to comply with best practice prescribed in the BIA Code. The Board considers that the Company has applied the principles of the BIA Code. 43 PowderJect Pharmaceuticals plc

Report of the Directors

The Directors present their report and the audited financial statements Dividend for the year ended 31 March 2000. The Directors do not recommend payment of a dividend (1999: £nil). Review of the business and future developments Year 2000 The Group’s principal activity is the development of needle-free During the year, the Company established procedures to evaluate powder injection of drugs, biopharmaceuticals, vaccines and the impact of the year 2000 date change on its information systems diagnostics. A review of the Group’s activities and future and performed remedial work. The costs of this work were all developments is contained within the Chairman’s Statement, charged to the profit and loss account in 1999 and were not the operational reviews and in the Financial Review. significant. At the time of signing the financial statements, no adverse effects on the Company’s business due to the year 2000 date Research and development change have been identified. The Group continues to carry out research and development in the areas of device development and product development. Euro Total research and development expenditure during the year was The introduction of the Euro as a functional currency on 1 January £21.6 million (1999: £14.2 million). 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 2 June 2000, the Directors had been notified of the following disclosable holdings representing 3%, or more, of the issued share capital of the Company. % of Shareholder Number issued shares Dr P Drayson1 7,197,213 9.7 Glaxo Group Limited 4,936,297 6.6 Hill Samuel 4,647,385 6.2 Norwich Union Group 3,925,575 5.3 Prudential plc 3,638,489 4.9 Prof B Bellhouse 3,386,925 4.5 Sherdley Limited3 2,401,250 3.2 Vardale Limited4 2,401,250 3.2 HSBC Global Custody Nominee UK Limited 2,284,225 3.1 Norville Limited2 2,260,000 3.0

1Dr P Drayson holds 3,434,442 ordinary shares beneficially, and his wife, Mrs E Drayson, holds 2,323,331 ordinary shares beneficially. 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.

2Prof B Bellhouse is a discretionary object of the trust owning Norville Limited. 3Dr P Drayson is a discretionary object of the trust owning Sherdley Limited. 4Mrs E Drayson is a discretionary object of the trust owning Vardale Limited. Directors The Directors of the Company during the year were: Executive Non-Executive Dr P Drayson (Chairman) Prof J Bell (Deputy Chairman) Dr T Burkoth Prof B Bellhouse Mr S Harris Mr P Carne (appointed 12 April 1999) Mr G Saul Mr L Ellberger Mr C Swingland Mr J Noble (resigned 17 April 2000) Mr R Spizzirri (appointed 16 March 2000) Biographical details of the Directors are given on pages 32 and 33. 44 PowderJect Pharmaceuticals plc Report of the Directors

Reappointment Directors’ interests in contracts At the forthcoming Annual General Meeting Mr Ellberger, Mr Harris Other than the arrangements referred to in note 30 of the financial and Mr Swingland will retire by rotation and, being eligible, will be statements, none of the Directors had an interest in any contract of proposed for reappointment. Mr R Spizzirri, who was appointed to significance to which the Company or a subsidiary undertaking was the Board on 16 March 2000, offers himself for reappointment. a party during the financial year. Service contracts Directors’ responsibilities Details of Executive Directors’ service contracts are given in Company law requires the Directors to prepare financial statements the Report of the Remuneration Committee on page 36. As for each financial year which give a true and fair view of the state of Non-Executive Directors, Prof J Bell, Mr R Spizzirri, Mr L Ellberger, affairs of the Company and the Group and of the profit or loss of the Prof B Bellhouse and Mr P Carne do not have service contracts Company and the Group for that period. In preparing those financial with the Company. statements, the Directors are required to: Directors’ interests • select suitable accounting policies and then apply them Details of the interests of the Directors and their families in the consistently; ordinary shares of the Company, as disclosed in the Register of • make judgements and estimates that are reasonable and prudent; Directors’ interests, are given in the Report of the Remuneration • state whether applicable accounting standards have been followed, Committee on page 37. subject to any material departures disclosed and explained in the financial statements; Share option schemes • prepare the financial statements on the going concern basis unless Details of the Company’s share option schemes are given on it is inappropriate to presume that the Company and the Group will pages 38 and 39. continue in business. Charitable and political contributions The Directors are responsible for keeping proper accounting records The Company made no contributions to charitable or political which disclose with reasonable accuracy at any time the financial organisations. position of the Company and the Group to enable them to ensure Payment of creditors that the financial statements comply with the Companies Act 1985. It is the policy of the Company to agree terms of payment when They are also responsible for safeguarding the assets of the orders for goods and services are placed and to pay in accordance Company and the Group and hence for taking reasonable steps for with those terms. Trade creditor days at the year end were nil for the the prevention and detection of fraud and other irregularities. Company (1999: nil). Annual general meeting Employment policies The notice convening the Annual General Meeting (AGM) of It is the policy of the Group that there should be no unfair the Company is set out on pages 64 and 65, together with an discrimination in recruiting and promoting staff, including applicants explanation of the items of business on page 63. The AGM will who are disabled. Should any employee become disabled, be held at 10.00 am on 28 July 2000 at The Conference Forum, every practical effort is made to provide continued employment. The Marsh Centre, London E1 8DX. The Directors are committed to maintaining and developing Auditors communication and consultation processes with employees, who PricewaterhouseCoopers have expressed their willingness to in turn are encouraged to become aware of and involve themselves continue as auditors and their reappointment is proposed. It is also in the performance of the Group. Employees are encouraged directly proposed that the Directors be given authority to set the auditors’ through the share option schemes, performance reviews, and training remuneration. and development opportunities. By order of the Board Health, safety and the environment PowderJect is committed to high standards and aims for continuous Dr Paul Drayson improvement in health, safety and environmental performance. Chairman The Group has an excellent health and safety record and, in its seven 12 June 2000 year life, has not been required to report any accidents to the Health Company registered number 3321428 and Safety Executive. The Group is keen to reduce the environmental impact of its activities. Waste materials are recycled, where possible, and hazardous waste is catalogued and handled by licensed, specialist disposal companies. 45 PowderJect Pharmaceuticals plc

Report of the auditors To the members of PowderJect Pharmaceuticals plc

We have audited the financial statements on pages 46 to 62. Basis of audit opinion We conducted our audit in accordance with Auditing Standards Respective responsibilities of directors and auditors issued by the Auditing Practices Board. An audit includes The directors are responsible for preparing the Annual Report. examination, on a test basis, of evidence relevant to the amounts As described on page 44, this includes responsibility for preparing the and disclosures in the financial statements. It also includes an financial statements, in accordance with applicable United Kingdom assessment of the significant estimates and judgements made accounting standards. Our responsibilities, as independent auditors, by the Directors in the preparation of the financial statements, and are established in the United Kingdom by statute, the Auditing of whether the accounting policies are appropriate to the Company’s Practices Board, the Listing Rules of the Financial Services Authority circumstances, consistently applied and adequately disclosed. and our profession’s ethical guidance. We planned and performed our audit so as to obtain all the We report to you our opinion as to whether the financial statements information and explanations which we considered necessary in order give a true and fair view and are properly prepared in accordance to provide us with sufficient evidence to give reasonable assurance with the United Kingdom Companies Act. We also report to you if, that the financial statements are free from material misstatement, in our opinion, the directors’ report is not consistent with the financial whether caused by fraud or other irregularity or error. In forming our statements, if the Company has not kept proper accounting records, opinion we also evaluated the overall adequacy of the presentation if we have not received all the information and explanations we require of information in the financial statements. for our audit, or if information specified by law or the Listing Rules regarding directors’ remuneration and transactions is not disclosed. Opinion In our opinion the financial statements give a true and fair view of We read the other information contained in the Annual Report the state of affairs of the Company and the Group at 31 March and consider the implications for our report if we become aware 2000 and of the loss and cash flows of the Group for the year then of any apparent misstatements or material inconsistencies with the ended and have been properly prepared in accordance with the financial statements. Companies Act 1985. We review whether the statement on page 42 reflects the Company’s compliance with the seven provisions of the Combined Code specified for our review by the Financial Services Authority, and we report if it does not. We are not required to consider 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. PricewaterhouseCoopers Chartered Accountants and Registered Auditors Uxbridge 12 June 2000 46 PowderJect Pharmaceuticals plc

Consolidated profit and loss account For the year ended 31 March 2000

2000 1999 Note £000 £000 Turnover 2 2,749 5,838 Research and development (21,624) (14,170) Administrative expenses (3,370) (3,098) Total operating expenses (24,994) (17,268) Group operating loss 3 (22,245) (11,430) Net interest receivable 4 3,891 2,042 Loss on ordinary activities before and after taxation (18,354) (9,388) Retained loss for the financial year 21 (18,354) (9,388) Basic and diluted loss per share 8 24.94p 14.67p All results are in respect of continuing operations.

Statement of total recognised gains and losses

2000 1999 Note £000 £000 Loss for the year (18,354) (9,388) Exchange movements 21 11 117 Total recognised gains and losses for the year (18,343) (9,271) The notes on pages 49 to 62 form part of these financial statements. 47 PowderJect Pharmaceuticals plc

Consolidated and company balance sheets As at 31 March 2000

Group Group Company Company 2000 1999 2000 1999 Note £000 £000 £000 £000 Fixed assets Intangible assets 9 452 787 – – Tangible assets 10 7,722 4,059 – – Investments 11 503 503 58,594 3,678 8,677 5,349 58,594 3,678 Current assets Debtors – due within one year 13 1,221 415 50 29,767 – due after more than one year 13 65 64 – – 1,286 479 50 29,767 Investments 14 62,747 81,386 62,747 81,386 Cash at bank and in hand 1,696 2,702 – 11 65,729 84,567 62,797 111,164 Creditors: amounts falling due within one year 15 (6,828) (4,771) (2,435) (87) Net current assets 58,901 79,796 60,362 111,077

Total assets less current liabilities 67,578 85,145 118,956 114,755

Creditors: amounts falling due after more than one year 16 (54) (120) – –

Provisions for liabilities and charges 18 (283) – – – 67,241 85,025 118,956 114,755 Capital and reserves Called up share capital 20 7,454 7,334 7,454 7,334 Share premium account 20 104,850 104,411 104,850 104,411 Other reserves 21 615 615 – – Profit and loss account 21 (45,678) (27,335) 6,652 3,010 Total shareholders’ funds – equity interests 22 67,241 85,025 118,956 114,755 The notes on pages 49 to 62 form part of these financial statements. Approved by the Board and signed on its behalf by:

Dr Paul Drayson Chairman 12 June 2000 48 PowderJect Pharmaceuticals plc

Consolidated cash flow statement For the year ended 31 March 2000

2000 1999 Note £000 £000 Net cash outflow from operating activities 23 (20,213) (6,877) Returns on investments and servicing of finance Interest received 3,984 2,163 Interest paid (7) (5) Interest element of finance lease rental payments (23) (6) Net cash inflow from returns on investments and servicing of finance 3,954 2,152 Capital expenditure and financial investment Purchase of tangible fixed assets (4,742) (2,817) Purchase of intangible fixed assets – (200) Purchase of other fixed asset investments 11 (100) – Purchase of own shares by Employee Trust Company – (306) Net cash outflow from capital expenditure and financial investment (4,842) (3,323) Acquisitions Purchase of subsidiary undertaking Acquisition of Psiox: Consideration for shares 12 – – Settlement of acquired creditors 12 – (446) Purchase of intangible fixed assets 12 – (505) Cash acquired with subsidiary 12 – 1 Net cash outflow for acquisitions – (950) Net cash outflow before use of liquid resources and financing (21,101) (8,998) Management of liquid resources1 Cash withdrawn from/(placed on) fixed term deposit 25 18,639 (62,394) Net cash outflow before financing (2,462) (71,392) Financing Issue of ordinary share capital 509 73,004 Fees and expenses paid in connection with the issue of shares 20 (1,363) (419) Capital element of finance lease rental payment (56) (16) Net cash (outflow)/inflow from financing (910) 72,569 (Decrease)/increase in cash during period 24 (3,372) 1,177 The notes on pages 49 to 62 form part of these financial statements.

1PowderJect Pharmaceuticals plc includes as liquid resources term deposits of less than one year. 49 PowderJect Pharmaceuticals plc

Notes to the financial statements

1 Group accounting policies Accounting for acquisitions Historical cost convention Newly acquired subsidiary undertakings are consolidated from the The financial statements have been prepared under the historical cost effective date of their acquisition, the date when control passes. convention and in accordance with applicable accounting standards. Goodwill Basis of preparation On the acquisition of a business or intangible assets, fair values are The consolidated financial information includes the financial attributed to the net assets acquired. Goodwill arising on acquisitions information of the Company and its subsidiary undertakings, since 1 April 1998 is capitalised and amortised over its estimated PowderJect Research Limited, PowderJect Technologies Inc, useful life which does not exceed 20 years. The carrying value of PowderJect Technologies BV, PowderJect Technologies Limited, goodwill is subject to review when appropriate and any impairment is PowderJect Vaccines Inc, PowderJect Pharmaceuticals Employees’ charged to the profit and loss account. Share Scheme Trustees Ltd, PowderJect Therapeutics Inc, Progenica Prior to this, the Group’s policy was to eliminate goodwill arising on Limited, and PowderJect Diagnostics Inc. acquisitions against reserves. Under the transitional arrangements All intercompany accounts and transactions have been eliminated. of Financial Reporting Standard 10 (FRS10) – ‘Goodwill and intangible assets’ reinstatement of goodwill is not required. Consequently, Research and development such goodwill has not been reinstated and any such goodwill will Research and development expenditure is charged to the remain eliminated against reserves until the disposal or termination consolidated profit and loss account in the period in which it is of the business acquired. The profit or loss on the subsequent incurred. Tangible fixed assets used for research and development disposal or termination will be calculated after charging the amount are depreciated in accordance with the Group’s policy. of any such goodwill. Turnover Intangible fixed assets Turnover represents earned income from collaborative agreements, Intangible fixed assets other than goodwill, which comprise licences licence fees, option fees, revenue grants and customers in respect and rights are stated at cost less a provision for amortisation. of goods supplied and services rendered. All amounts exclude Amortisation is calculated to write off the cost of intangible assets in Value Added Tax. equal annual instalments over the lower of their legal and estimated Revenues from collaborative research agreements which are useful lives, but no longer than 20 years. The carrying values related to time are recognised evenly over the period specified of intangible assets are subject to review when appropriate in the respective agreements. Revenues from collaborative research and any impairment is charged to the profit and loss account. agreements which are related to the achievement of specified The amortisation periods currently being used are five and ten years. objectives are recognised when those objectives have been met. Prior to April 1998, acquired intangibles were eliminated in the The balance of advance payments are treated as deferred income. balance sheet against reserves in the year of acquisition. Acquired Grants intangibles not meeting the recognition criteria specified in FRS10 Grants for capital expenditure are deferred and released to revenue have not been reinstated. over the expected useful life of the relevant asset by equal annual amounts. Grants for revenue expenditure are credited to revenue in the same period in which the revenue expenditure to which they relate is charged. 50 PowderJect Pharmaceuticals plc Notes to the financial statements

1 Group accounting policies (continued) Employee Trust Company Investments Where appropriate, transactions relating to shares in the Employee Fixed asset investments are stated at cost less provision required for Trust Company are treated as recommended by the consensus any impairment in value. reached in Urgent Issues Task Force (UITF) 13 ‘Employees share ownership plans’ and UITF 17 ‘Employee share schemes’. A UITF 17 Tangible fixed assets charge is recognised in the profit and loss account where options Depreciation is calculated so as to write off the cost of tangible fixed or other share awards are granted to employees and there is a assets on a straight line basis over the expected useful economic difference between the fair value at the date of grant of shares or lives of the assets concerned. The principal annual rates used for this options on shares and the consideration to be received. The timing purpose are: of the charge is dictated by the conditions of the allocation. Leasehold improvements Term of lease Shares in the Company owned by the Trust are capitalised at cost Computer equipment 25% and are included in fixed asset investments. Office equipment 15% Foreign currencies Transactions denominated in foreign currencies are translated at the Laboratory equipment 15% rate of exchange on the day the transaction occurs. Monetary assets Depreciation is not charged on assets in the course of construction. and liabilities denominated in a foreign currency are translated at the exchange rate ruling on the balance sheet date. Exchange differences Leased assets are included in the profit and loss account. Leasing agreements which transfer to the Group substantially all the risks and benefits of ownership of an asset are treated as finance The accounts of overseas subsidiary undertakings are translated into leases, as if the asset had been purchased outright. The assets are sterling in the consolidated accounts on the following basis: profit and included in tangible fixed assets and the capital element of the leasing loss account items are translated at the average rate of exchange for commitments is shown as obligations under finance leases. Assets the financial year. Assets and liabilities are translated at the rate of held under finance leases are depreciated over the shorter of the exchange ruling on the balance sheet date. Exchange differences lease term and the useful economic lives of the assets. The interest arising on the retranslation of opening assets and liabilities are taken element of the lease rental is charged to the profit and loss account directly to reserves. as it is incurred. Deferred taxation All other leases are operating leases and the annual rentals are Provision is made for deferred taxation using the liability method to charged to the profit and loss account on a straight-line basis over take account of timing differences between the incidence of income the lease term. and expenditure for taxation and accounting purposes to the extent that it is probable that an asset or liability is expected to crystallise. Pension costs The Group operates a defined contribution pension scheme in the UK. Employer’s contributions are charged to the profit and loss account as they are incurred. The Group has no obligation to the pension scheme beyond the payment of contributions and does not offer any other post retirement benefits. Notes to the financial statements 51 PowderJect Pharmaceuticals plc

2 Segmental information The Group has only one class of business Turnover Loss before tax Net assets 2000 1999 2000 1999 2000 1999 £000 £000 £000 £000 £000 £000 UK 1,091 3,326 (10,650) (9,552) 2,848 (26) North America 1,658 2,512 (11,595) (1,878) 2,331 963 2,749 5,838 (22,245) (11,430) 5,179 937 Net interest receivable – – 3,891 2,042 – – Non-operating assets – – – – 62,062 84,088 2,749 5,838 (18,354) (9,388) 67,241 85,025 There is no material difference between turnover, results and net assets analysed by geographical origin and geographical destination.

3 Operating loss 2000 1999 £000 £000 Operating loss is stated after charging/(crediting): Staff costs (note 5) 9,034 5,483 Depreciation: owned assets 1,169 528 assets under finance lease 62 10 Amortisation of intangible assets 167 147 Impairment of intangible fixed assets 168 – Diminution in value of fixed asset investments 100 – Loss on disposal of fixed assets 1 – Auditors’ remuneration: audit services 47 40 non audit services 79 101 Foreign exchange gains (90) (3) Operating lease rentals: land and buildings 629 583 Auditors’ remuneration for audit services includes fees for the holding company for the year ended 31 March 2000 of £9,525 (1999: £8,725). Fees paid to PricewaterhouseCoopers in the year ended 31 March 2000 in respect of non-audit services relate primarily to tax advice and review of the implementation of a new accounting system.

4 Net interest receivable 2000 1999 £000 £000 Interest payable on finance leases (23) (6) Interest payable on bank loans and overdrafts (7) (5) Total interest payable (30) (11) Interest receivable 3,921 2,053 3,891 2,042 52 PowderJect Pharmaceuticals plc Notes to the financial statements

5 Employee information The average number of persons employed, including Executive Directors, by the Group in the UK during the year was 80 (1999: 53) and in the US was 119 (1999: 77). The Group had 225 employees at 31 March 2000 (1999: 154), and an average for the year of 199 (1999: 130). The split of employees by function is: 2000 1999 Number Number Research and development 185 117 Administration 14 13 Total 199 130

2000 1999 £000 £000 Staff costs including Executive Directors Wages and salaries 8,256 5,046 Social security costs 695 401 Other pension costs (note 29) 83 36 9,034 5,483 Full details of all outstanding share options at the year end are included in the Report of the Remuneration Committee on pages 35 to 39 and form part of these financial statements. The basis for classification of headcount has been modified and the effect reflected on employee numbers in the prior year figures. There is no material impact on the classification of costs within the profit and loss account.

6 Directors’ emoluments 2000 1999 £000 £000 Aggregate emoluments 1,182 1,052 Aggregate gains made on exercise of share options 4,960 1,790 Company contributions to money purchase pension schemes 6 5 6,148 2,847 Highest paid Director Aggregate emoluments 179 158 Gain on share options 1,888 895 2,067 1,053 The contributions paid in 2000 to the money purchase pension scheme relate to one Director. Further details of Directors’ remuneration, share options and interests are included in the Report of the Remuneration Committee on pages 36 and 37.

7 Taxation No liability to corporation tax arose as a result of the losses incurred throughout the Group. Notes to the financial statements 53 PowderJect Pharmaceuticals plc

8 Loss per share Year to Year to 31 March 31 March 2000 1999 Basic and diluted loss per share 24.94p 14.67p The calculation of the basic and diluted loss per share is based on: Loss for the year (in £’000) 18,354 9,388 Weighted average number of shares (in thousands) 73,589 63,984 There is no difference between the basic and diluted loss per share since the effect of including exercisable options would be to reduce the loss per share.

9 Intangible fixed assets Goodwill Licence Product rights Total £000 £000 £000 £000 Cost At 1 April and 31 March 2000 229 200 505 934 Amortisation At 1 April 1999 42 12 93 147 Charge for the year 46 20 101 167 Impairment – 168 – 168 At 31 March 2000 88 200 194 482 Net book value at 31 March 2000 141 – 311 452 Net book value at 31 March 1999 187 188 412 787 Financial Reporting Standard 10 (FRS10) ‘Goodwill and intangible assets’, requires an impairment review to be carried out at the end of the first financial year following acquisition. Accordingly an impairment review of the intangible assets acquired during 1999 was undertaken. The goodwill arising on the acquisition of Psiox Inc is being amortised on a straight line basis over five years, being its useful economic life. The carrying value of the licence has been reviewed and in accordance with FRS11 ‘Impairment of fixed assets and goodwill’, an impairment of £168,000 has been provided bringing the carrying value of the licence to nil. This reflects the current operational view of the likelihood of future use but will be subject to review in later years. In the prior year, the Group secured the rights to acquire low cost, high quality alprostadil the active ingredient in several impotence therapies, from Oxford Asymmetry International plc as set out in note 12. The cost of these rights is being amortised on a straight line basis over five years, being its useful economic life. 54 PowderJect Pharmaceuticals plc Notes to the financial statements

10 Tangible fixed assets Laboratory and Assets in the Leasehold Computer office course of improvements equipment equipment construction Total Group £000 £000 £000 £000 £000 Cost At 1 April 1999 1,903 696 2,289 – 4,888 Additions 117 337 3,741 658 4,853 Exchange differences 23 5 25 6 59 Disposals – (5) – – (5) At 31 March 2000 2,043 1,033 6,055 664 9,795 Depreciation At 1 April 1999 63 263 503 – 829 Charge for the year 302 249 680 – 1,231 Exchange differences 4 3 10 – 17 Disposals – (4) – – (4) At 31 March 2000 369 511 1,193 – 2,073 Net book value at 31 March 2000 1,674 522 4,862 664 7,722 Net book value at 31 March 1999 1,840 433 1,786 – 4,059

Assets held under a finance lease, capitalised and included under laboratory and office equipment are set out below. 2000 1999 £000 £000 Cost 191 191 Cumulative depreciation (72) (10) Net book value 119 181

11 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 £000 £000 £000 £000 £000 £000 Cost At 1 April 1999 503 – 503 3,678 – 3,678 Additions – 100 100 –– – New loan ––––54,916 54,916 At 31 March 2000 503 100 603 3,678 54,916 58,594 Provision At 1 April 1999 –––––– Provided during the year – 100 100 – – – At 31 March 2000 – 100 100 – – – Net book amount at 31 March 2000 503 – 503 3,678 54,916 58,594 Net book amount at 31 March 1999 503 – 503 3,678 – 3,678 During the year, an equity stake was taken in one of our collaborators. This was fully provided against on conclusion of the collaboration. The new loan replaces short-term funding arrangements for the UK and overseas subsidiaries. Notes to the financial statements 55 PowderJect Pharmaceuticals plc

11 Investments held as fixed assets (continued) 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. Percentage of nominal Country of operation value of ordinary Subsidiary undertakings and incorporation 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% PowderJect Diagnostics Inc USA 100%

*Voting rights equate to ownership. The principal operating companies of the Group are PowderJect Technologies Limited, PowderJect Technologies Inc, PowderJect Vaccines Inc, PowderJect Therapeutics Inc and Progenica Limited. The principal activity of all these companies is scientific research and development. 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 410,476 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. 56 PowderJect Pharmaceuticals plc Notes to the financial statements

12 Acquisition of Psiox Inc in April 1998 PowderJect Alprostadil, the product for the treatment of male erectile dysfunction, commonly known as impotence, was being developed through a business venture with PharmaSciences Inc called Psiox Inc (renamed PowderJect Therapeutics Inc). On 20 April 1998 it was announced that the Group had strengthened its commercial opportunity in this growing market by securing rights to acquire low cost, high quality alprostadil, the active ingredient in several impotence therapies, from Oxford Asymmetry International plc, and purchasing the outstanding stake in Psiox Inc from PharmaSciences Inc. Total payments made were $1.6 million (£0.9 million) of which $850,000 (£0.5 million) was in respect of the Oxford Asymmetry rights acquired from PharmaSciences Inc and $750,000 (£0.4 million) in respect of the reimbursement to PharmaSciences Inc of expenses incurred and capital contributions made. The remaining 50% of the shares in Psiox Inc were acquired for nil consideration. In addition, PharmaSciences Inc subscribed for 189,266 new ordinary shares in Powderject Pharmaceuticals plc at 505p per share on 17 April 1998, a total consideration of £955,793. The following table sets out the effect of the subscription for 50% of the shares of Psiox Inc on the consolidated accounts of the Group (fair values are equivalent to book values): 50% Existing acquired 50% share Total £000 £000 £000 Net liabilities of Psiox Inc at date of acquisition by PowderJect Technologies BV: Cash 112 Creditors: amounts due to PharmaSciences Group (223) (223) (446) Other creditors (7) (7) (14) (229) (229) (458) Less: amounts due to PharmaSciences Group settled by cash consideration 446 Less: existing 50% share held by PowderJect Technologies BV 229 Fair value of net assets acquired 217 Goodwill arising on acquisition (note 9) 229 446 Satisfied by: consideration for shares – Payment to settle amount due to PharmaSciences Group 446 446 In accordance with the purchase agreement £446,000 due to the PharmaSciences Group was paid immediately following the acquisition. The goodwill arising on the acquisition has been capitalised in accordance with FRS10 ‘Goodwill and Intangible Assets’ (see note 9).

13 Debtors Group Group Company Company 2000 1999 2000 1999 Debtors due within one year £000 £000 £000 £000 Trade debtors 119 8 – – Amounts owed by Group undertakings – – – 29,654 Other debtors 859 31 – – Prepayments and accrued income 243 376 50 113 1,221 415 50 29,767 Debtors due after more than one year Other debtors 65 64 – – 1,286 479 50 29,767 Notes to the financial statements 57 PowderJect Pharmaceuticals plc

14 Investments held as current assets Group Group Company Company 2000 1999 2000 1999 £000 £000 £000 £000 62,747 81,386 62,747 81,386 This represents cash placed on fixed term deposits.

15 Creditors: amounts falling due within one year Group Group Company Company 2000 1999 2000 1999 £000 £000 £000 £000 Bank loans and overdrafts 2,381 – 2,381 – Trade creditors 2,323 926 – – Other creditors – 1,354 – – Taxation and social security 395 229 – – Accruals 1,494 1,625 54 87 Deferred income 170 582 – – Obligations under finance lease (note 17) 65 55 – – 6,828 4,771 2,435 87 Amounts disclosed under bank loans and overdrafts represent a cash book position only. There are no bank loans or overdrafts in place at the year end or thereafter.

16 Creditors: amounts falling due after more than one year Group Group 2000 1999 £000 £000 Obligations under finance lease (note 17) 54 120

17 Obligations under finance lease Obligations under finance lease are analysed as follows: Group Group 2000 1999 £000 £000 Obligations under finance lease comprise rentals due: Within one year 65 55 Between one and two years 54 65 Between two and five years – 55 Finance lease rental obligations 119 175 58 PowderJect Pharmaceuticals plc Notes to the financial statements

18 Provisions for liabilities and charges Group 2000 £000 At 1 April 1999 – Transferred from accruals 240 Charge for the year 43 At 31 March 2000 283 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.

19 Deferred taxation Due to the availability of tax losses, no provision has been made for deferred tax.

20 Share capital and share premium 2000 1999 Group and Company Number £000 Number £000 Authorised Ordinary shares of 10p each 85,000,000 8,500 85,000,000 8,500 Allotted, called up and fully paid Ordinary shares of 10p each 74,544,330 7,454 73,339,695 7,334

Share Share Total Number of capital premium increase Description shares £000 £000 £000 At 1 April 1999 73,339,695 7,334 104,411 – Issue of shares on exercise of options 1,204,635 120 389 509 Share placement expense not incurred – – 501 50 At 31 March 2000 74,544,330 7,454 104,850 559

1Of the total expense of £1,879,000 due in respect of the placement of shares in March 1999, £1,363,000 has been paid in the current year, £47,000 remains payable and £50,000 no longer falls due for payment.

21 Reserves Profit and Profit and Other loss Other loss reserves account reserves account 2000 2000 1999 1999 Group £000 £000 £000 £000 At 1 April 615 (27,335) 237 (18,064) Loss for the year – (18,354) – (9,388) Exchange movements –11 – 117 Share scheme adjustment ––6151 – Capital contribution ––(237)2 – At 31 March 615 (45,678) 615 (27,335)

1Shares were allocated from the Employee Trust Company in 1999. In accordance with UITF 17, Employee Share Schemes, a charge was recognised in the profit and loss on the difference between the fair value at the date of allocation of shares and the consideration to be received for them. The credit was taken to other reserves.

2The movement in capitalised contributions represents the repayment of contributions received by Psiox Inc, from PharmaSciences Inc, as part of the acquisition of Psiox Inc as set out in note 12. Notes to the financial statements 59 PowderJect Pharmaceuticals plc

21 Reserves (continued) Profit and Profit and loss account loss account 2000 1999 Company £000 £000 At 1 April 3,010 1,108 Profit for the year 3,642 1,902 At 31 March 6,652 3,010 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 £3,642,000 (1999: £1,902,000). As at 31 March 2000, the cumulative amount of goodwill eliminated against reserves was £8,621,000 (1999: £8,621,000).

22 Reconciliation of movements in shareholders’ funds 2000 1999 Group £000 £000 Opening shareholders’ funds 85,025 22,793 Loss for the year (18,354) (9,388) Net proceeds of share issues 509 71,125 Share placement expense not incurred 50 – Exchange movement 11 117 Share scheme adjustment (note 21) – 615 Capital contribution (note 21) – (237) Net (reduction in)/additions to shareholders’ funds (17,784) 62,232 Closing shareholders’ funds 67,241 85,025

2000 1999 Company £000 £000 Opening shareholders’ funds 114,755 41,728 Profit for the year 3,642 1,902 Net proceeds of share issues 509 71,125 Share placement expense not realised 50 – Net additions to shareholders’ funds 4,201 73,027 Closing shareholders’ funds 118,956 114,755 60 PowderJect Pharmaceuticals plc Notes to the financial statements

23 Reconciliation of operating loss to net cash outflow from operating activities 2000 1999 £000 £000 Operating loss (22,245) (11,430) Depreciation 1,231 538 Amortisation and impairment 335 147 Loss on disposal of fixed assets 1 10 Share scheme adjustment – 615 Provision against fixed asset investments 100 – (Increase)/decrease in debtors (867) 2,748 Increase in creditors 1,232 495 Net cash outflow from operating activities (20,213) (6,877)

24 Reconciliation of movement in cash to movement in net funds 2000 1999 Note £000 £000 (Decrease)/increase in cash in the year (3,372) 1,177 Cash outflow from change in lease financing 56 16 Cash (withdrawn from)/placed on fixed term deposit (18,639) 62,394 Change in net funds resulting from cash flows (21,955) 63,587 New finance lease – (191) Exchange movement on cash (15) 58 Movements in net funds in the year (21,970) 63,454 Net funds at the beginning of the year 83,913 20,459 Net funds as at the end of the year 25 61,943 83,913

25 Analysis of changes in net funds At At 1 April Exchange 31 March 1999 Cash flow movement 2000 £000 £000 £000 £000 Cash at bank and in hand 2,702 (991) (15) 1,696 Overdraft – (2,381) – (2,381) Sub-total 2,702 (3,372) (15) (685) Current asset investments 81,386 (18,639) – 62,747 Sub-total 84,088 (22,011) (15) 62,062 Finance lease (175) 56 – (119) Total 83,913 (21,955) (15) 61,943 Notes to the financial statements 61 PowderJect Pharmaceuticals plc

26 Financial instruments The Group does not have any committed borrowing facilities due to the significant cash balances that the Group holds which are adequate to fund its current activities. The Group places the majority of its cash on short-term deposit (note 14). 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 34. The Group’s principal currency exposure is the US dollar/£ Sterling transitional exposure arising from the Group’s activities at its US subsidiaries at Madison and Fremont. 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. The Group has not hedged any of its transactions during the year. The Group does not trade in financial instruments. Short-term debtors and creditors have been excluded from all the following disclosures, other than the currency risk disclosures.

Interest rate risk of financial assets Cash at Cash at bank and Short-term Total bank and Short-term Total in hand deposits 2000 in hand deposits 1999 £000 £000 £000 £000 £000 £000 Sterling 694 62,747 63,441 1,216 81,386 82,602 Dollars 1,002 – 1,002 1,486 – 1,486 At 31 March 1,696 62,747 64,443 2,702 81,386 84,088 Floating rate 1,696 – 1,696 2,702 – 2,702 Fixed rate – 62,747 62,747 – 81,386 81,386 At 31 March 1,696 62,747 64,443 2,702 81,386 84,088 The fixed rate short-term deposits (note 14) are placed with banks on a rolling basis. Contracts in place at 31 March 2000 had a weighted average annualised rate of interest of 6.3% (1999: 5.3%). 64% (1999: 98%) of the short-term deposits held at 31 March 2000 were for periods of one month or less with the remainder for periods up to eight months. Floating rate cash earns interest based on prevailing market rates. Financial liabilities The Group’s only financial liabilities, other than short-term trade creditors and accruals, is the finance lease taken out in the prior year. Details of the maturity of this finance lease, which is denominated in US$, are set out in note 17. Finance charges allocated to future periods in respect of this lease were £18,000 at 31 March 2000. As set out in note 15, £2,381,000 has been disclosed under bank loans and overdrafts. This is a cash book position only. There are no bank loans or overdrafts in place with the bank at the year end. Fair value The fair value of deposits is deemed to be the book values as the short-term nature of the deposits makes the differences arising due to timing immaterial. The fair value of the finance lease is the amount at which the finance lease 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 value has been calculated by discounting expected cash flows at prevailing interest and exchange rates. On this basis the fair value of the finance lease disclosed in note 17 is £110,000 (book value £119,000). Currency analysis of the Group’s net assets As at 31 March the currency analysis of the Group’s net assets was: 2000 1999 £000 £000 Sterling 63,908 82,624 Dollars 3,333 2,401 Total 67,241 85,025 With the exception of intercompany balances and transactions, which are eliminated on consolidation, all monetary assets and liabilities are denominated in local currency. 62 PowderJect Pharmaceuticals plc Notes to the financial statements

27 Operating lease commitments At 31 March 2000, the Group had annual commitments under non-cancellable operating leases as set out below: Land and Land and buildings Other buildings 2000 2000 1999 £000 £000 £000 Expiring: Between two and five years 306 11 – After five years 312 – 688 618 11 688

28 Capital commitments Capital commitments at 31 March 2000 contracted but not provided for by the Group and Company were respectively £6,000 and £nil (1999: Group £nil, Company £nil).

29 Pension commitments 2000 1999 £000 £000 Charge for the year 83 36 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 charge for the year represents contributions payable by the Group to the schemes. Contributions are charged to the profit and loss account as they are incurred. Contributions amounting to £16,000 remain payable at the year end (1999: £nil). The Group has no exposure to any other post-retirement benefit obligations.

30 Related party transactions There were no related party transactions in the year ended 31 March 2000. In the prior year, £1,000 was paid to Quercus Management Limited, a company controlled by Dr J Gordon, formerly a Non-Executive Director, for professional consultancy services provided by S E Adams.

31 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

Annual general meeting

Explanatory notes The following formal Notice of PowderJect Pharmaceuticals’ 2000 Annual General Meeting (AGM) asks our Shareholders to approve a number of items of business. The explanatory notes below summarise the purpose of each resolution to be passed:

Ordinary Resolutions Resolution 1: Report and Accounts For each financial year, the Directors are required to lay the Directors’ Report, the audited accounts and the Auditors’ Report before the Company in general meeting. Resolutions 2 to 5: Reappointment of Directors The Company’s Articles of Association require that one-third of the Directors of the Company must retire by rotation and, if they are eligible and so wish, such Directors may stand for reappointment. Accordingly, Mr Ellberger, Mr Harris and Mr Swingland will retire and offer themselves for reappointment. Resolutions 2, 3 and 4 propose such reappointments. The Company’s Articles of Association state that any Director appointed by the Board shall hold office only until the next Annual General Meeting and then must seek reappointment. Mr R Spizzirri who was appointed to the Board on 16 March 2000 offers himself for reappointment. Resolution 5 proposes such reappointment. Resolution 6: Reappointment of Auditors At each general meeting at which the accounts are laid before Shareholders, the Company is required to appoint Auditors to serve until the next such meeting. Resolution 6 proposes the reappointment of PricewaterhouseCoopers as the Company’s Auditors and that the Directors be authorised to determine their remuneration. Resolution 7: Report of the Remuneration Committee In line with recommendations in the Combined Code and developing practice, the Board is seeking approval of the remuneration policy of the Remuneration Committee as set out in the Report of the Remuneration Committee (on pages 35 to 39 of the Annual Report). Resolutions 8 and 9: Amendments to Company Share Option Plan Rule 3.1 of both Part A and Part B of the PowderJect Pharmaceuticals plc Company Share Option Plan restricts the grant of options to 1 2 ⁄2% of issued share capital of the Company in the four years following flotation. This flow restriction was originally included to reflect ABI guidelines. Following changes to the ABI guidelines this flow rate restriction is no longer recommended and consequently shareholders are asked to approve its removal from the rules of the Plan. Rules 3.3 and 3.4 of both Part A and Part B of the PowderJect Pharmaceuticals plc Company Share Option Plan restrict the grant of options to 3% of issued share capital in any rolling three year period. This flow restriction was originally included to reflect ABI guidelines. Following changes to the ABI guidelines this flow rate restriction is no longer recommended and consequently shareholders are asked to approve its removal from the rules of the Plan. Grants of options under the Plan are phased to ensure that the overall maximum limit recommended by the ABI of 10% of issued share capital in any rolling 10 year period is adhered to. Resolution 10: Directors’ authority to allot shares This resolution asks Shareholders to renew the Directors’ general authority to allot unissued shares, should it be desirable to do so. In accordance with relevant guidelines this authority is to be limited to a maximum nominal amount of £2,484,811 (24,848,110 shares), equivalent to one-third of the Company’s issued share capital as at 31 March 2000.

Special Resolutions Resolution 11: Partial disapplication of pre-emption rights If the Directors wish to allot unissued shares for cash, the Companies Act 1985 requires that these shares are offered first to Shareholders in proportion to their existing holdings. This is known as Shareholders’ pre-emption rights. There may be occasions however when, in order to act in the best interests of the Company, the Directors need the flexibility to finance business opportunities as they arise. Therefore this resolution asks Shareholders to renew the Directors’ authority to issue a limited number of shares for cash, up to a nominal amount of £372,721 (3,727,210 shares), equivalent to 5% of the Company’s issued share capital as at 31 March 2000, without the shares first being offered to Shareholders. Resolution 12: Alteration to Articles of Association This resolution updates the Company’s Articles of Association with a view to incorporating certain principles of good corporate governance. At present the retirement by rotation provisions require one-third of the Directors to retire and submit themselves for reappointment. The change will require all Directors to submit themselves for reappointment at least every three years notwithstanding that the retirement by rotation provisions in our present Articles of Association would not have required such reappointment. 64 PowderJect Pharmaceuticals plc

Notice of meeting

Notice is hereby given that the Annual General Meeting of PowderJect Pharmaceuticals plc will be held at The Conference Forum, The Marsh Centre, London E1 8DX on Friday 28 July 2000 at 10.00 am to consider and if thought fit to pass the following resolutions as Ordinary Resolutions and Special Resolutions as specified: Ordinary Resolutions 1 To receive and adopt the audited accounts for the year ended 31 March 2000 and the Report of the Directors and Auditors thereon. 2 To reappoint Mr L Ellberger, who is retiring by rotation in accordance with the Articles of Association of the Company, as a Director of the Company. 3 To reappoint Mr S Harris, who is retiring by rotation in accordance with the Articles of Association of the Company, as a Director of the Company. 4 To reappoint Mr C Swingland, who is retiring by rotation in accordance with the Articles of Association of the Company, as a Director of the Company. 5 To reappoint Mr R Spizzirri, who was appointed during the year and is retiring in accordance with the Articles of Association of the Company, as a Director of the Company. 6 To reappoint PricewaterhouseCoopers, Chartered Accountants, as auditors of the Company until the conclusion of the next Annual General Meeting and to authorise the Directors to determine their remuneration. 7 To receive and adopt the Report of the Remuneration Committee for the year ended 31 March 2000. 8 That the Directors be and they are hereby authorised to delete Rule 3.1 of both Part A and Part B of the PowderJect Pharmaceuticals plc Company Share Option Plan and to do all such things as may be necessary to carry such amendments into effect, including with respect to Part A, making any amendments necessary to maintain Inland Revenue approval. 9 That the Directors be and they are hereby authorised to delete Rules 3.3 and 3.4 of both Part A and Part B of the PowderJect Pharmaceuticals plc Company Share Option Plan and to do all such things as may be necessary to carry such amendments into effect, including with respect to Part A, making any amendments necessary to maintain Inland Revenue approval. 10 That the Directors be and they are hereby generally and unconditionally authorised for the purpose of Section 80 of the Companies Act 1985 (the ‘Act’) to exercise all the powers of the Company to allot ordinary shares of 10 pence each of the Company up to a maximum nominal amount of £2,484,811 (being the aggregate nominal value of one-third of the issued ordinary share capital of the Company as at 31 March 2000), provided that this authority shall (unless previously revoked or varied) expire at the conclusion of the next Annual General Meeting of the Company or 15 months from the date of passing this resolution, whichever is the earlier, save that the Company may, before such expiry or the expiry of any renewal of this authority make an offer or agreement which would or might require relevant securities (within the meaning of the Act) to be allotted after such expiry and the Directors may allot any such relevant securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. This authority is in substitution for and to the exclusion of any and all authorities previously conferred on the Directors for the purposes of Section 80 of the Act other than to the extent utilised by the Directors prior to the date of this resolution. Special Resolutions 11 That, subject to the passing of resolution 10 above and in substitution for and to the exclusion of any and all authorities previously conferred on the Directors for the purposes of Section 89 of the Companies Act 1985 (“the Act”) other than to the extent utilised by the Directors prior to the date of this resolution, the Directors be and are hereby generally empowered pursuant to Section 95 of the Act to allot equity securities (as defined for the purposes of Sections 89 to 96 of the Act) for cash pursuant to the general authority conferred on them by resolution number 10 above as if Section 89(1) of the Act did not apply to any such allotment subject to the terms of the following restrictions and provisions: (a) that this authorisation be limited to: (i) the allotment of equity securities in connection with an issue or offer by way of rights in favour of holders of ordinary shares where the equity securities attributable to the interests of such holders of ordinary shares on a fixed record date are proportionate (as nearly as may be) to the respective numbers of shares held by them but subject to such exclusions and other arrangements as the Directors may deem necessary or expedient to deal with any legal or practical problems under the laws of any overseas territory or the requirements of any regulatory body or any other stock exchange in any territory or in relation to fractional entitlements; or (ii) the allotment (otherwise than pursuant to sub paragraph (i) of this resolution) of equity securities up to an aggregate nominal amount of £372,721 (being the aggregate nominal value of 5% of the issued share capital of the Company as at 31 March 2000); (b) that this authorisation shall (unless previously revoked or varied) expire at the conclusion of the next Annual General Meeting of the Company, or 15 months from the date of passing this resolution, whichever is the earlier, save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such offer or agreement as if the authority conferred hereby had not expired. Notice of meeting 65 PowderJect Pharmaceuticals plc

Special Resolutions (continued) 12 That the Articles of Association of the Company be amended by substituting for the existing Article 102 the new Article 102 as follows: “102. At every Annual General Meeting of the Company one-third of the Directors shall retire from office or, if their number is not three or a multiple of three, the number nearest to but not more than one-third shall retire from office but, if there is only one Director who is subject to retirement by rotation, he shall retire. In addition, each Director shall retire from office at the third Annual General Meeting after he was appointed or reappointed, if he would not otherwise fall within the Directors to retire by rotation in accordance with the foregoing provisions of this article.” By order of the Board Florey House The Oxford Science Park Oxford OX4 4GA Charles Swingland Company Secretary 12 June 2000

Notes (a) A member of the Company entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and, on a poll, to vote in his place. A proxy need not also be a member of the Company. Completion and return of a Form of Proxy will not preclude a member of the Company from attending and voting at the meeting should he so decide. (b) To be valid at the meeting, the enclosed Form of Proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, must be deposited at the offices of Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 3UH, not less than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting. (c) Copies of the following documents will be available for inspection at the Company’s registered office during normal business hours on any weekday (Saturday and public holidays excepted): (i) the Directors’ service contracts; (ii) the register of Directors’ interests in the share capital of the Company. Such documents will also be available for inspection at the place of the Annual General Meeting for at least 15 minutes prior to the meeting as well as during the meeting. (d) Only those members registered in the Register of Members of the Company as at the close of business on 26 July 2000 shall be entitled to attend and vote at the AGM. Transactions (including CREST transactions) after that time will not affect entitlements to attend and vote at the meeting. 66 PowderJect Pharmaceuticals plc

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 Robert Fleming & Co. Limited Patent agents 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 West London Office Bankers 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 New Broad Street House Website 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 67 PowderJect Pharmaceuticals plc

Glossary of terms

Antibody A protein manufactured by lymphocytes (a type of white blood cell) to neutralise an antigen (foreign protein) in the body. The formation of antibodies against a foreign protein is part of the body’s normal defence system. Antigen A substance which stimulates the production of antibodies. Antigen presenting cell A cell playing a key role in mediating both the humoral and cellular immune response (see pages 29 and 30 for mechanism of action). Biopharmaceutical Relating to biotechnology and pharmaceutical compounds. Blood capillaries Extremely narrow blood vessels of 5 – 20µm diameter. Buccal transmucosal A path of drug delivery across the mucous membranes of the mouth or inner cheek. Catheter A system used for introducing drugs or instrumentation into the bloodstream comprising a plastic tube and needle overlaid by a biocompatible plastic sheath which may remain in the patient’s vein once the needle is withdrawn. Cellular immune response Immune response mediated by T cells and memory cells (see page 29 for mechanism of action). Connective tissue Tissue that supports, binds and separates more specialised tissues or organs and functions as a packing element of the body. CTX Clinical trial exemption, permission by the MCA in the UK to test new medical products in patients. Cytoplasm Jelly like substance which surrounds the nucleus of the cell. Cytokines Protein molecules, released by cells when activated by antigen, that are involved in cell-to-cell communications acting as enhancing mediators for immune responses through interaction with specific cell-surface receptors on leucocytes. Drug A therapeutic compound, DNA or vaccine. Drug formulation A drug combination with other ingredients to make the drug available in a form that can be administered. Dermis The layer of living tissue that lies below the epidermis. DNA Deoxyribonucleic acid, the genetic material of living things. Efficacy The ability of a drug to produce the desired therapeutic effect. Epidermis The upper layer of the skin. Epithelial membrane The tissue that covers the external surface of the body and lines hollow structures. Extracellular Situated or occurring outside cells. FDA The United States Food and Drug Administration. Generic drug/compound A drug/compound which is not patented or on which patent protection has expired and which may therefore be manufactured and supplied by companies other than the original patentee. Genes The biological units of heredity. Genes are made up of DNA. GCP Good clinical practice, a system of guidelines to ensure clinical trial quality. GLP Good laboratory practice, a system of guidelines to ensure pre-clinical and laboratory quality. GMP Good manufacturing practice, a system of guidelines to ensure manufacturing quality. Hepatitis B A virus which is spread by infected blood or blood products and which infects the liver. HIV Human immuno-deficiency virus, responsible for causing AIDS. Humoral immune response Immune response mediated by antibodies (see page 30 for mechanism of action). Interstitial fluid Fluid in the spaces between cells. Intracellular Situated or occurring inside cells. Intra-dermal Within the dermis or the skin. Intravenous Directly in to a vein. In vitro Biological phenomena that are made to occur in a laboratory in an artificial environment. In vivo Biological phenomena that occur or are observed occurring within the bodies of living organisms. 68 PowderJect Pharmaceuticals plc Glossary of terms

Langerhans cells Dendritic cells in the skin that detect and present foreign materials to the immune system. Lymph The fluid present within the vessels of the lymphatic system. It consists of the fluid that bathes the tissues, which is derived from the blood and is drained by the lymphatic vessels. Lymphatic system A network of vessels that conveys electrolytes, water, proteins, etc. in the form of lymph from the tissue fluids to the blood stream. MHC Major histocompatibility complex – a protein structure associated with antigen presenting cells and involved in the mediation of both the cellular and humoral immune response (see pages 29 and 30 for mechanism of action). Osteoporosis Loss of bone mineral, resulting in bones that are brittle and liable to fracture. Paediatric Relating to children. Pathogen Any disease producing organism. Peptide/Polypeptide Molecule consisting of amino acids sufficiently small so as not to have tertiary structure. Peptides can be either individually biologically active or a segment of a protein. Phase I clinical trials Clinical trials normally conducted in healthy human volunteers following pre-clinical studies, usually to assess the safety and pharmacokinetics of a drug candidate. Phase II clinical trials Clinical trials to assess short-term safety and preliminary efficacy in a limited number of patients with the relevant disease and to determine appropriate dose ranges and regimens. Phase III clinical trials Clinical trials to undertake a comprehensive evaluation of safety and efficacy in patients with the relevant disease under practical conditions. PowderJect® System PowderJect’s proprietary pain-free dry powder injection system. Pre-clinical studies Studies performed before administration to man to determine, inter alia, safety, pharmacological activity and product quality. Prophylactic Tending or intending to prevent the occurrence of disease. Protein Large complex molecule consisting of amino acids having defined tertiary structure typically required for biological activity. Recombinant A descriptive term for a protein encoded by a section of DNA from one organism that has been artificially spliced into the existing DNA of another organism for its production. RNA Ribonucleic acid. Small molecules Class of compounds including lidocaine and alprostadil. Used to distinguish from DNA vaccines, conventional vaccines and proteins. Stratum corneum Outermost layer of the skin and the principle barrier to drug delivery into the body through the skin and water loss from the body. Stratum basale A cellular layer in skin at the border of the epidermis and dermis. Subcutaneous Beneath the skin. Subcutaneous layer The layer or space in skin beneath the dermis. Systemic Transiting the whole body, present in the whole body via the circulatory system for general or local effect. Therapeutic Capable of treatment of disease. Transdermal Across the skin. Transmucosal Across the mucosal surface. Vaccine A suspension of dead, attenuated, or otherwise modified micro-organisms or antigens derived from organisms or synthesised for innoculation to produce immunity to a disease by stimulating the production of antibodies. Notes to the financial statements 69 PowderJect Pharmaceuticals plc

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