Directors’ Report

The Directors present their annual report on the affairs of the Group, together with the audited financial statements for the year ended 30 June 2009.

Principal Activities

Sinclair Pharma plc is an international specialty pharmaceutical company. Its sales and marketing operations are already present in France, Italy, and Spain, and a complementary marketing partner network spans 94 countries.

Business Review

The Group is required to produce a business review complying with the requirements of the Companies Act 2006. In addition to the principal risks and uncertainties and key performance indicators laid out below, there can be found further information about the business, its strategy, structure, products and the markets in which it competes, and future developments within pages 1 to 18 of this report.

Principal risks and uncertainties

Sinclair Pharma plc is a business that depends on product revenues through its own sales and marketing operations and marketing partners, a successful pipeline to build future revenues, other business development activities to generate future revenues, and good management of the finances of the Group. The main risks associated with these factors are outlined below. Information on financial risk management is set out in note 3 to the financial statements.

Risk associated with commercialised success of products

The Group’s revenues are, and will be, principally from sales of its products. There can be no assurance that current product revenues can be maintained or increased in the future. Product sales may be affected by adverse market conditions or other factors including: pricing pressures from governments or other authorities, competition from other products, the withdrawal of a product because of a regulatory or other reason, or the financial or commercial failure of a marketing partner. Manufacturing of the majority of Sinclair products is outsourced and supply may be interrupted or products may be recalled should safety or other issues arise.

Competition and intellectual property risk

The position of Sinclair’s products in the market is dependent on its ability to obtain and maintain patent and/or trademark protection for its products, preserve its trade secrets, defend and enforce its rights against infringement and operate without infringing the proprietary or intellectual property rights of third parties. The validity and enforceability of patents and/or trademarks may involve complex legal and factual issues resulting in uncertainty as to the extent of the protection provided. The Group’s intellectual property may become invalid or expire before or during commercialisation of the product.

Risk associated with pipeline products

Sinclair is currently seeking and will seek in the future, regulatory approval for its pipeline products. Approval of these products within the target timeframe or at any time is a risk, as the Company cannot guarantee the safety, efficacy and regulatory pathway of these products. Once approved, the commercial success of pipeline products cannot be guaranteed and the returns on the product may not be sufficient to cover the costs incurred through its development. The Group may choose to halt development of certain pipeline products in adverse financial conditions.

Key performance indicators
The Group measures its performance according to a wide range of key performance indicators (‘KPIs’). The main financial KPI’s at a group level are as follows:

KPI:

2009

2008

Definition, method of calculation and analysis

EBITDA

£2.3m
Before exceptional
items

£1.3m
Before
exceptional
items

EBITDA is total earnings of the Group before interest income and expenses, tax charges and credits, depreciation and amortisation charges.

The goal of the Company is to become a sustainably profitable specialty pharmaceutical company. 2009 is our second profitable year, with 80% EBITDA growth on 2008.

Revenues and revenue growth

International operations

Country operations

£18.0m

£16.5m

Revenue growth is the percentage movement in revenue from the prior year.

International operations grew by 9% in the year, helped by a £2.6m increase in licence fee income.

Country operations revenue declined by 10% in the year due to a restructuring in the UK (£1.1m fall) and a poor performance in Italy.

Gross margin

68.1%

64.2%

Gross margin is the ratio of gross profit after all direct costs to total revenue.

Sinclair aims to achieve an overall gross margin for the Group in excess of 65%. The 2009 margin improved through higher proportion of licence fees.

Results, Earnings and Dividends
The loss for the financial year was £3,621,000 (2008: profit of £3,338,000). The Directors do not recommend a dividend (2008: £nil).

Going concern

The Directors are satisfied, after making appropriate enquiries and further to the announcement on 12 October of the firm placing and open offer, that the Group has adequate resources to continue in business for the foreseeable future and accordingly considers that it is appropriate to adopt the going concern basis in preparing the Financial Statements (refer note 2).

Directors
The Directors of the Company who served during the year were:

Mr RS Harris

Mr G Cook

Dr MJ Flynn

Mr JAP Randall

Ms PA Freer

Mr J‑C Tschudin

Non‑Executive Chairman    (resigned 8 December 2008)

Non‑Executive Chairman

Chief Executive Officer

Chief Financial Officer

Senior Independent Director

Non‑Executive Director

Biographies of the current Directors are detailed on pages 19 to 20. Ms Freer retires by rotation, and will be available for reappointment at the AGM. Details of the resolution to reappoint her will be contained in the AGM notice.

Dr Flynn has announced that he will be retiring at the forthcoming AGM and he will therefore step down from the board following the AGM. The Board have announced the appointment of Mr Christopher Spooner as Chief Executive Officer to replace Dr Flynn following his retirement.

Directors’ Interests
The interests of the Directors in the Group’s share capital at the date of this report, at 30 June 2009 and at the start of the year were as follows:

Dr MJ Flynn’s holding includes 2,410,000 shares held by his wife (2008: 2,410,000).

Mr JAP Randall’s holding inc ludes 22,500 shares held by his wife (2008: 22,500).

Mr G Cook’s holding includes 100,000 shares held by his wife (2008: 100,000).

Details of the Directors’ share options, warrants and interests in shares held by the ESOT are included in the Directors’ Remuneration Report on pages 31 to 37.

Additional information for shareholders
Following the implementation of the EU Takeover Directive into UK law, the following description provides the required information for shareholders where not already provided elsewhere in this report.

Structure of the Company’s capital
The Company’s share capital comprises a single class of 1p ordinary shares, each carrying one vote and all ranking equally with each other. At 30 June 2009, the authorised share capital was £1,250,000 comprising 125,000,000 1p ordinary shares. 103,335,448 (2008: 93,478,980) 1p ordinary shares were allotted and fully paid. There are no restrictions on the transfer of shares in the Company or on voting rights.

Authority to issue and buy back shares
Each year at the AGM the Directors seek authority to allot shares and buy back shares. The authorities, when granted, last for 15 months or until the conclusion of the next AGM if sooner. At the last AGM held on 8 December 2008, shareholders gave authority for the Directors to allot relevant securities up to £312,232 and to allot for cash equity securities having a nominal amount not exceeding in aggregate £93,970 (being 10% of the issued share capital). Shareholders also gave authority for the Directors to make market purchases of up to 9,396,974 shares (being 10% of the issued share capital).

Substantial Shareholdings
At 15 October 2009, the Company has been notified (or are otherwise aware) of the following interests in 3% or more of the ordinary share capital.

Significant agreements
The Companies Act 2006 requires the Company to disclose any significant agreements which take effect, alter or terminate upon a change of control of the Company. The Company is not party to any such agreement.

Directors and officers liability insurance
The Company has in place qualifying third party indemnity insurance for all Directors.

Health and safety
The Company acknowledges that the key to successful Health & Safety management requires an effective policy, organisation and arrangements, which reflect the commitment of senior management. To sustain that commitment we will continually measure, monitor and revise where necessary an annual plan to ensure that Health and Safety standards are adequate.

• It is the policy of the Company to ensure, so far as is reasonably practicable, the health, safety and welfare of all the employees working for the Company. Equally, the Company accepts a similar responsibility for the Health and Safety of other persons who may be affected by our actions. Every employee has a legal and moral obligation to see that their acts or omissions do not place other employees, members of the public or colleagues in jeopardy.
• The Company regards all Health and Safety legislation as the bare minimum and expects management to achieve their managerial targets without compromising Health and Safety.
• The Company will provide, so far as is reasonably practicable, safe places and systems of work, safe plant and machinery, safe handling of materials and substances, the provision of adequate safety equipment and ensure that appropriate information, instruction and training is given.
• The Company will ensure that suitable and sufficient risk assessments are completed as required by statutory legislation and all recommendations implemented. When this has been undertaken all relevant employees will be provided with sufficient information to enable them to complete their work activity safely.
• The Company will ensure continued consultation with the workforce to enable all viewpoints and recommendations to be discussed at regular intervals.

Research and development

The Group actively reviews technical development in its markets with a view of taking advantage of the available opportunities to maintain and improve its competitive position. The Group has continued to invest in the development of new pharmaceutical products during the year, details of which can be found in the Business Review on pages 10 to 18.

Payment to Suppliers

It is the Group’s policy to abide by the payment terms agreed with suppliers whenever it is satisfied that the supplier has provided goods and services in accordance with agreed terms and conditions. The Group’s creditor days outstanding at 30 June 2009 were 88 days, (2008: 77 days).

Employees

Our most important asset is our employees. We are committed to developing policies that encourage all employees to achieve their greatest potential and to continue to contribute to the success of the Group. We seek to develop employees’ potential by encouraging them to attend seminars, training courses, and providing help in seeking necessary professional qualifications to further their careers. We operate equal opportunities in recruitment, training and promotion regardless of gender, ethnic origin, nationality or disability.

Every employee qualifies for our share option plans. The conditions and restrictions on qualifying employees are set out on pages 31 to 37 of the Directors Remuneration Report. This ensures that employees are able to share the success of the business as it grows and have a sense of ownership. Additionally, we have adaptable personnel policies, enabling flexible working practices.

Disabled employees

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

Charitable and political donations

There were no charitable or political donations during the year (2008: £nil).

Post balance sheet events

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

Corporate governance

The Company’s statement on Corporate Governance is included in the Corporate Governance report on pages 26 to 30.

Independent Auditors

PricewaterhouseCoopers LLP have expressed their willingness to continue in office as auditors and a resolution proposing their re‑appointment and authorising the Directors to determine their remuneration will be proposed at the AGM.

Annual General Meeting

Details of the Annual General Meeting (AGM) of the Company will be posted to shareholders in due course, including the notice convening the AGM, together with explanatory information concerning the resolutions to be proposed.

By order of the Board

Alan Olby ACA

Company Secretary

30 October 2009

To the top↑