Chiroscience Group Plc Preliminary Results For the year ended February 28, 1999.

LONDON--(BW HealthWire)--April 29, 1999--

Chiroscience Group plc today announced its 1999 year end results. -0-

                              Highlights

Financial
                   Feb 1999        Feb 1999    Feb 1998   Improvement
                  $ million         (pound)    (pound)    (pound)
                                    million     million    million

Revenues             66              41.2        26.2       15.0
R&D Investment      (46.8)          (29.2)      (36.4)       7.2
Operating Loss      (28)            (17.5)      (25.7)       8.2
Net Loss            (27.6)          (17.2)(a)   (23.3)       6.1

Loss per share      (25.3(cent)    (15.8p)     (22.3p)      6.5p

- Continued strong revenue growth, up 57%, and reduced operating

loss, down 32%, demonstrate the path to profitability.

- Chirocaine gains product license in Sweden and is granted

approvable status by the US FDA for anesthesia and pain

management. Product rights returned by Zeneca following its

merger with Astra, with a compensation payment to Chiroscience of

(pound)10 million ($16 million) plus a commitment to fund further

elements of Chirocaine's commercialization.

- Excellent progress with MMP inhibitors for cancer and

inflammatory diseases, with the lead drug in trials in cancer

patients; PDE4 inhibitors for asthma and the Needle-free

lidocaine injector in pain management continue to advance.

Note: US dollar equivalents are provided for reader convenience only at the exchange rate of (pound)1 = US $1.6025.

- Gene discoveries from Seattle genome science in osteoporosis and

auto-immune disease provide Chiroscience with new proprietary

targets for drug discovery.

- ChiroTech continues excellent progress with sales up 88% to

(pound)30.1 million ($48.2 million) and pre-tax profits up 76% to

(pound)12.5 million ($20 million). Ascot PLC invests (pound)30

million ($48.1 million) to acquire 30% stake in ChiroTech.

- Rapigene receives notice of approval in Europe for three key

patents related to the Masscode system.

(a) In accordance with FRS4, no gain has been recognized at this

time on the net (pound)29.1 million received from Ascot in

respect of the September 1, 1998 sale of 30% of ChiroTech .

Hugh Collum, Chairman of Chiroscience commented:

"I am delighted to have been invited to become Chiroscience's Chairman and have been impressed by the quality of the Company and the commitment of the team on both sides of the Atlantic.

Chiroscience has demonstrated excellent progress across a number of fronts during the last year but towards the end of 1998 was impacted by the merger of Astra with Zeneca, the marketing partner for its lead product Chirocaine. The Group has handled this potentially difficult situation well and has successfully negotiated the return of the Chirocaine product rights on attractive terms. Negotiations with potential partners are being pursued vigorously and I am in no doubt that certainty over the future commercialization of Chirocaine will allow investors to assess the significant additional value that lies within the Group."

Dr. John Padfield, Chief Executive of Chiroscience, commented:

"We have continued to build a soundly based pharmaceuticals business and I believe that these results highlight the financial strength which also underpins the Group.

I am excited by the progress we have made in MMP inhibitors particularly for cancer with Bristol-Myers Squibb, and in PDE4 inhibitors with Schering-Plough. Due to the Zeneca and Astra situation we faced a challenging end to the year, but we were encouraged by the competition authorities' support for Chirocaine. As we finalize our commercialization strategy for Chirocaine, the Group looks forward to moving towards profitability."

This document is intended to provide information on Chiroscience to interested members of the public and not to provide product information to health professionals.

NOTES FOR EDITORS

Chiroscience is an emerging pharmaceutical company with two distinct parts; Chiroscience R&D, the company's core pharmaceutical products business, and the specialist service businesses, ChiroTech and Rapigene. Chiroscience R&D uses its `gene-to-drug' skills base to discover and develop innovative small-molecule pharmaceuticals for the treatment of inflammation, pain, cancer, osteoporosis and auto-immune disease. Chirocaine, its long-acting local anaesthetic is close to market. ChiroTech is a profitable business that is a world leader in the provision of specialist chiral chemistry services and products. Its customer base of major pharmaceutical companies is growing rapidly. Strategic alliances with a number of global partners have broadened the range of products and services that ChiroTech can offer. Rapigene is commercializing its Masscode system for high-throughput genetic measurement and analysis. Rapigene intends to use Masscode systems to offer a rapid, cost-effective analytical service to life science customers

Chiroscience Group plc is listed on the London Stock Exchange and is based in Cambridge and Stevenage, UK, and Seattle, Washington, USA.

Trademarks

Chirocaine, ChiroTech, Rapigene, Masscode, ChiroCats, ChiroChem and ChiroSure are registered trademarks and tradenames of Chiroscience Group plc or its subsidiary undertakings. Enantyum is a trademark of Laboratories Menarini SA and Ziagen is a trademark of Glaxo Wellcome plc.

INTRODUCTION

Chiroscience is an emerging pharmaceutical company with two distinct parts; Chiroscience R&D, the company's core pharmaceutical products business and its specialist service businesses, ChiroTech and Rapigene.

CHIROSCIENCE R&D

Pharmaceutical research and development is Chiroscience's core activity. It operates as a single integrated unit from its two key sites Cambridge, UK and Seattle, USA. Chiroscience R&D employs some 280 staff, 200 in the UK and 80 in the US. Chiroscience has built a "gene to drug" skills base within its research and development activities which the Group believes is necessary to succeed in today's competitive environment.

Chirocaine

Chiroscience R&D's flagship product, Chirocaine, the long-acting local anaesthetic and pain management product, has been the Group's main area of focus.

The Group put in place its partnering strategy for Chirocaine in the form of licensing agreements with Zeneca, in March 1998, for all markets excluding Japan and with Maruishi, in September 1998, for the Japanese market. The product is due to begin clinical trials in Japan later in 1999.

The first European license was obtained in Sweden in December 1998 giving claims for safety and efficacy in a broad range of indications. Discussions are underway with the Swedish authorities to see how the marketability of the product could be further enhanced through amended or additional claims. The product files are now being updated ready to commence the Mutual Recognition process in mid-year. This timeline should lead to national licenses for the product towards the turn of year, with first launches expected in 1H 2000. Approval through the European Mutual recognition process will facilitate Chirocaine gaining product licenses in other countries.

The product was deemed `approvable' for the US market by the FDA in February 1999 and the final decision on approval is awaited. The review process in the US proceeded faster than anticipated and the Advisory Committee of the Food and Drug Administration (`FDA') sought only to clarify the Group's approach in defining the safety benefits of the product and the relative warnings to be applied to long-acting local anesthetics. The endorsement of this approach has set the scene for the product labeling discussions to be concluded so that the product can be launched later this year.

This progress with Chirocaine has to some extent been overshadowed by the earlier announcement in December 1998 of the merger of Zeneca with Astra. The European and US competition authorities determined that AstraZeneca would have too strong a market position in long-acting local anesthetics. As a result, Zeneca's rights to Chirocaine have now been returned to Chiroscience.

The Group was able to negotiate a very favorable conclusion to its licensing agreement with Zeneca, which is designed to ensure that Chirocaine's competitive position in the marketplace is maintained. Zeneca has paid Chiroscience (pound)10 million compensation for the loss of earnings that might result from any delay in the launch of Chirocaine. Additionally, Zeneca is funding and resourcing most of the ongoing marketing, clinical, manufacturing, product development and regulatory filing activities in order to ensure that the progress of Chirocaine will not be slowed.

Chirocaine represents a very important opportunity for the Group and is expected to provide significant income for Chiroscience starting next year. Chiroscience's confidence in Chirocaine is based on the product's distinct clinical characteristics that should allow it to gain a major share of the growing long acting local anesthetics market in both surgery and pain management. Chiroscience believes that other products with which Chirocaine will compete have either efficacy or safety limitations which restrict their ability to capitalize on the growing use of local anesthetics in pain management. Chirocaine's suitability for use in pain management is extremely important commercially given the greater quantities used per patient and the greater pricing flexibility that exists in this market.

Discussions are well advanced with potential new marketing partners and it remains the target to launch the product in the USA before the end of 1999. Chirocaine's commercial opportunity is safeguarded by a strong patent estate that extends for a further 15 years. The optimal commercialization strategy will maximize the range of opportunities for Chirocaine, particularly in the areas where Chiroscience believes its benefits are greatest. These include surgery, where it has both potency and safety benefits and, particularly, in pain management where its breadth of claims give it a competitive advantage.

Moreover, the investment made by Chiroscience in developing Chirocaine has already been fully recouped prior to the product's launch. This has arisen through a combination of the (pound)15 million equity injection from Zeneca in March 1998, the recent (pound)10 million compensation payment from Zeneca and the (pound)3 million licensing payments from Maruishi.

MMPi Programs

Chiroscience has made significant investment in developing its leading position in the field of matrix metalloproteinase inhibitors (MMPi's). MMP's are implicated in cell and tissue growth and remodeling and therefore inhibitors of these enzymes could have utility in treating cancer, arthritis and a number of other important diseases. Their use in blocking angiogenesis -the growth of new blood vessels to tumors- is considered to be of particular importance. Chiroscience believes that it has a significant competitive advantage in the field of MMPi's through a combination of:

- strong medicinal chemistry skills to generate highly selective

inhibitors;

- a very strong patent portfolio across a broad range of chemical

types, comprising 4 patents which have been granted and 25 patent

applications;

- a growing understanding of the underlying cause of the joint pain

seen with some MMP inhibitors. Chiroscience's scientists have

recently validated a second animal model, which shows a clear

difference between our second generation MMP inhibitors, and

several of the first generation MMP inhibitors in their potential

to cause joint pain.

Cancer - D2163 (now BMS 275291)

Early in 1998 Bristol-Myers Squibb ("BMS") licensed the oncology rights to Chiroscience's MMP program, including the lead compound D2163.

BMS 275291 has been through a rigorous pre-clinical research and Phase I safety program in human subjects up to doses of 1200mg per day and it has now entered initial studies in cancer patients in two centers in the USA. If these trials are successful, the compound will move into combined Phase II/III trials. BMS now fund all of the development work on this product, including certain internal costs of Chiroscience. Milestone payments are due upon the achievement of development goals.

Inflammation - D1927 and Follow-On Candidate

The MMP inhibitor D1927 was originally part of the oncology deal with BMS. However, given the excellent progress being made with BMS 275291 and the structural similarity of the two compounds, BMS elected to develop only the former compound for cancer and the rights to D1927 have now reverted to Chiroscience for all fields outside oncology.

In Phase I clinical trials, the compound is well-absorbed and well-tolerated and is being progressed through repeat-dosing Phase I clinical trials which started in April 1999. D1927 has shown excellent activity in key arthritis models. The likely end-points for the drug are either rheumatoid arthritis or the related diseases of psoriasis and inflammatory bowel disease.

A further development program will commence on a selective third-generation inhibitor of MMP's later this year.

PDE 4 Program

The research and development collaboration with Schering-Plough (S-P) set out to use Chiroscience's medicinal chemistry skills to design selective inhibitors of the PDE 4 enzyme. This collaboration continues to make good progress. S-P has all rights to compounds in this program, which are of value in the treatment of asthma and other inflammatory endpoints. As part of the collaboration S-P has funded a major chemistry effort within Chiroscience for the last 18 months and this has been extended through 1999. One of these PDE 4 inhibitors (D4396) has already completed a number of pre-clinical studies and, on successful completion of the pre-clinical phase, is projected to enter clinical trials next year. In addition S-P will pay Chiroscience development milestones and royalties as products move through the clinic and on to the market.

Needle-free Lidocaine The development of the short-acting local anaesthetic, lidocaine, in the needle-free injector invented by Powderject continues to progress. Chiroscience is responsible for the clinical development and regulatory filings for the product, while Powderject is responsible for the design and manufacture of the injector and formulation of the drug itself. The parties share all financial returns from the product equally, and partnering discussions are in progress.

Powderject is currently fine-tuning the commercial device and when this is complete pivotal Phase III trials will commence in adults in the UK. Pediatric trials are timed for later in 1999 following the completion of the current Phase II program.

Other Development Programs

Dexketoprofen, the quick-onset analgesic invented by the Group and developed and sold by Menarini , has now been launched in Italy and the UK as well as the original Spanish market. Chiroscience earns a small manufacturing return on this product.

The development of d-threo-methylphenidate by Medeva, for attention deficit disorder, continues although the product will only now be developed in a timed-release form rather than an immediate release form as originally intended. The regulatory filing for this product is likely to be made in 2002. Chiroscience will receive royalties if the product launches.

A number of other drug development opportunities are being pursued. One is in conjunction with the drug-delivery company, Penwest. This project could represent a rapid and valuable addition to the pipeline. Additional information about this program will be provided once proof-of-principle is confirmed.

CHIROTECH TECHNOLOGY LIMITED

ChiroTech is an acknowledged leader in the provision of specialist chiral chemistry services and products worldwide. It was established as a separate company in March 1998 after trading as a division of Chiroscience for some years. ChiroTech employs 55 people, principally research scientists supported by marketing, operations and logistics specialists. In order to meet growing customer demand for its products the company expects its headcount to rise to 80 in 1999. ChiroTech operates from laboratories and offices on the Cambridge Science Park and a pilot plant nearby.

Trading

ChiroTech had an exceptional year in 1998/99. Sales rose 88% to (pound)30.1 million. The average growth in revenues over the last four years has been almost 100% per annum. Operating profits of (pound)12.5 million were achieved - a 76% increase over the (pound)7.1 million recorded in the previous year. Almost all sales were to pharmaceutical customers, with a small amount to flavors & fragrance businesses.

ChiroTech's major source of revenues was the sale of multi-ton quantities of (-) lactam for (pound)24.4 million. These sales included (pound)5 million in respect of raw materials which were not included in the prior year's sales of (pound)12.4 million which were on a turnkey basis. (-) Lactam is a key intermediate used in the manufacture of Ziagen, Glaxo-Wellcome's recently launched reverse transcriptase inhibitor for the treatment of AIDS. Sales of (-) lactam to February 1999 reflected the preparations for Ziagen's launch. We understand that the market acceptance of Ziagen has been positive. Future sales of (-) lactam depend on Ziagen's success.

ChiroTech increased sales in other business areas from (pound)3.6 million in 1998 to (pound)5.7 million with the best performance coming from bulk chiral intermediates in the Advanced Chiral Products product group.

Partnering

ChiroTech aims to be able to provide chemistry services to meet all stages of a product's life cycle. In the case of pharmaceutical research and development, this encompasses discovering new compounds, developing product scale-up processes, manufacturing clinical trial materials, and once the product is on the market, bulk drug supply. During 1998 ChiroTech took two significant steps towards achieving its aims.

In September Chiroscience sold 30% of ChiroTech's issued share capital to Ascot plc for (pound)30 million. A crucial element of this transaction was a long-term manufacturing agreement between ChiroTech and Mitchell Cotts, Ascot's fine-chemicals business. ChiroTech can now offer customers a valid `one-stop shop' approach including a credible large-scale manufacturing facility to handle development programs once they grow beyond laboratory or pilot plant scale.

The second deal was the establishment of Chirochem Discovery Services LLC ("Chirochem"), a joint venture with the California-based computational chemistry company, CombiChem Inc. Chirochem intends to design, synthesize and market targeted chiral chemistry libraries of chemical compounds for use by medicinal chemists or research scientists in the pharmaceutical and other sectors. Chirochem is a 50:50 joint venture with costs, revenues and financing being provided equally to and by the parties.

Chirochem intends to produce libraries of compounds which are ready to use as a starting point for drug development. The first libraries will be launched this summer.

Technologies

ChiroTech constantly seeks to keep ahead of its competitors in terms of its technology. A research group is dedicated to developing and in-licensing new techniques. Recently, ChiroTech licensed new asymmetric catalysts from Stanford University and negotiations continue over the acquisition of three other catalyst or ligand systems. These proprietary technologies will be used across the product groups and allow ChiroTech to gain long-term revenue streams either through royalty agreements or product supply.

RAPIGENE

Seattle-based Rapigene is the company formed to further develop and commercialize the proprietary genetic analysis technologies acquired as part of the purchase of Darwin Molecular in 1996 - the bulk of Darwin is now integrated within the Chiroscience R&D business. Rapigene's primary focus is on providing genotyping services to a range of life science based customers. The company plans to open a highly automated facility dedicated to providing these genotyping services in mid-1999 and as a result Rapigene expects to increase its number of employees during the course of this year.

Business

The pharmaceutical and agricultural industries are undergoing a genomics revolution requiring an increasing understanding of genetic variation, particularly individual variations known as Single Nucleotide Polymorphisms (SNP's). This means that growing volumes of genetic material will have to be analyzed more precisely and at lower cost. The ability to perform assays on genetic material, such as the analysis of gene expression and the genotyping of clinical trial patients, both rapidly and economically, opens up a considerable business opportunity.

Technology

Rapigene's principal technology is its proprietary Masscode analytical system based on a unique technique which uses small molecules specifically tagged to DNA to provide quantitative analysis in a mass spectrometer. DNA variations can then be measured down to the level of a single base-pair change - a SNP. The Masscode system offers great benefits over rival systems, such as fluorescent tagging (which has low throughput and is difficult to analyze with precision) or so called "gene-chips" (which are expensive for each sample measured). The Masscode system encompasses technology for controlling and measuring multiple parallel DNA assays using 100 or more proprietary small-molecule tags and offers speed, precision and the ability to analyze material in a multi-dimensional fashion.

Chiroscience's collaboration with BMS in the oncology area was the first commercial use of these technologies.

Rapigene's other proprietary technologies include DNA arrays, tips and buffers which offer improvements over other similar array systems and these, together with certain other technologies, are likely to be commercialized by potential partners.

Intellectual Property

A range of patents and patent applications protects Rapigene's technologies. Three of the Masscode system patents have received notice of allowance in Europe and Rapigene believes it has a level of protection for its technologies that will allow it to compete successfully in a rapidly evolving marketplace.

OPERATING AND FINANCIAL REVIEW

With effect from March 1998 the Group's structure was revised to mirror its actual operating activities. ChiroTech and Rapigene have each been established as standalone subsidiaries with their own assets and staffing. The core Chiroscience R&D business has been brought together in a structure aimed to facilitate an integrated R&D effort between the US and the UK.

Changes of accounting policy

The Group adopted several new accounting standards during the year, including those affecting the treatment of goodwill on acquisitions, the earnings per share calculation, disclosures on foreign currency and derivative exposures and the carrying value of fixed assets. The only changes to prior year figures resulting from the adoption of these new accounting standards are in the EPS calculations where those shown for prior years have been restated.

Profit & Loss Account

Revenues

Revenues for the year increased by 57% to (pound)41.2 million (1998: (pound)26.2 million). ChiroTech generated revenues of (pound)30.1 million (1998: (pound)16.0). Rapigene earned its first revenues of (pound)0.2 million and the Chiroscience R&D business increased its revenues to (pound)10.9 million from (pound)10.2 million in 1998. These revenues arose from milestones and access fees ((pound)3.3 million, principally from Maruishi), product sales ((pound)3.0 million being dexketoprofen and contract revenues from the Stevenage pilot plant) and (pound)4.6 million of funded research from collaborative partners such as Bristol-Myers Squibb, Schering-Plough and Zeneca.

Expenses

Expenses in the year decreased by 10% to (pound)38.0 million (1998: (pound)42.5 million) largely as a result of lower external costs and increased collaborative funding. Research and development expenses decreased to (pound)29.2 million (1998: (pound)36.4 million), with (pound)2.1 million arising in ChiroTech, (pound)1.7 million in Rapigene and the remainder in Chiroscience R&D. Of this expenditure (pound)7.2 million related to expenditure on external work such as clinical trials (1998: (pound)15.4 million).

Sales, marketing, operating and administration costs were (pound)8.8 million (1998: (pound)6.1 million) including an exceptional charge in the year in respect of settling a claim with a former director.

Operating Results

The consolidated operating loss for the Group was (pound)17.5 million, a decrease of (pound)8.2 million from 1998 levels. Excluding the exceptional charge described above, this operating loss reduced by 37%. This consolidated loss is comprised of an operating profit from ChiroTech of (pound)12.5 million (1998: (pound)7.1 million), a loss of (pound)23.1 million from the Chiroscience R&D operations (1998: (pound)29.5 million), a loss of (pound)2.2 million in Rapigene and the (pound)4.7 million cost of central activities (1998: (pound)3.3 million), including the (pound)1.4 million to a former director.

Investment income earned on cash reserves and short term investments was (pound)3.0 million, compared to (pound)2.4 million in the prior year. An interest payable expense of (pound)1.5 million arose, being the dividend payable by ChiroTech to Ascot for the period.

Taxation

There was a charge to taxation for the year of (pound)1 million, relating to the Ascot holding in ChiroTech and unrelieved withholding taxes. Tax losses available to offset future profits increased by (pound)2.5 million to (pound)89.6 million at the year end. The Group will continue to show a charge to taxation, since neither group relief nor consortium relief can be applied against Ascot's share of ChiroTech's profits.

Loss per share & share capital

The loss per share for the year was 15.8p compared to 22.3p in 1998. Losses decreased by 26% and the average number of shares rose by 4.6 million or 4% to 108.9 million.

The issued share capital of Chiroscience Group plc increased by 5.3 million shares in the year to 112.9 million issued shares at the year-end. 1.8 million shares were issued in the year to meet the exercise of share options, generating cash proceeds of (pound)2.2 million and 3.5 million shares were issued to Zeneca PLC for cash proceeds of (pound)15 million.

Balance Sheet

The net assets of the Group were almost unchanged over the year, reflecting the net loss of (pound)17.2 million balanced by receipts from share issues.

The Group's principal long-term assets - the intangible assets representing the future value of the discovery pipeline and related intellectual property - are not valued or included in the net assets.

Cash Balances & Cashflow

Cash and investments at the year-end were (pound)55.1 million, an increase of (pound)28.4 million in the year. This increase was a result of share issues ((pound)17.2 million), the sale of ChiroTech shares ((pound)29.1 million) offset by net capital acquisitions ((pound)6.9 million) and operating outflows of (pound)11.0 million. The `burn-rate', being the net cash used by the business, was approximately (pound)1.5 million per month (1998: (pound)2.1 million). The termination payment from Zeneca of (pound)10 million was received in April which has subsequently further strengthened the cash position.

THE OUTLOOK FOR 1999/2000

The current financial year is expected to see further progress across all segments of Chiroscience's activities.

Chiroscience R&D

The key focus for Chiroscience R&D will be to conclude successfully the partnering discussions for Chirocaine in order to commercialize the product. The Group hopes to receive final regulatory approval for Chirocaine from the FDA around the middle of the year and towards the end of the year to gain further approvals in Europe through Mutual Recognition.

Clinical progress is expected from the D1927 and follow-on MMPi projects and from both of the Group's major funded programs. The collaboration with BMS developing MMPi's for cancer should see BMS275291 make further progress in the clinic. In the asthma field S-P is expected to start clinical work with the collaboration's lead product, an inhibitor of PDE 4 enzymes, next year. The clinical development team anticipates commencing the pivotal Phase III clinical trials with needle-free lidocaine.

Two new drug discovery programs in inflammation will be initiated and the key bone and immune gene discoveries will be the subject of further research to elucidate and validate the biological pathways they control. This in turn will lead to the generation of drugs designed to interact with these pathways.

ChiroTech

ChiroTech will continue to strengthen its position, taking advantage of its existing and extended proprietary technology base. The progress of Ziagen, in which ChiroTech's (-) lactam product is a key intermediate, will be monitored carefully. ChiroTech is now diversifying beyond its dependence on Glaxo Wellcome with a number of strong customer orders and new relationships. This trend is expected to gather further momentum during the current financial year. The forecast growth in ChiroTech's business means that investment in improved pilot plant facilities will be needed.

Rapigene

The next twelve months will be an important period for Rapigene. During this period the company will start its genotyping services business. In addition it is expected that the value of its proprietary technology can be leveraged further through partnership agreements. Licenses to pharmaceutical companies and partnerships with equipment manufacturers are all seen as additional potential sources of revenue for Rapigene. In order to build a sustainable service business, Rapigene may need to consider partnering with complementary companies.

For tabular results, please contact Taylor Rafferty Associates at 212/889-4350.