Alizyme is a pharmaceutical development companyfocussed on products for diseases with high unmetmedical need and substantial market opportunity,including obesity and related diseases andgastrointestinal disorders.

It is our ambition to deliver real solutions to the peoplethat suffer from these diseases.

19 Financial Section19 Directors’ Report21 Combined Code Report 26 Remuneration Report

of the Board of Directors32 Auditors’ Report33 Consolidated Profit

& Loss Account34 Consolidated Balance Sheet35 Company Balance Sheet36 Consolidated Cash

Flow Statement38 Notes to Financial Statements48 Glossary of Terms

Contents

1 Overview4 Inflammatory Bowel Disease6 Obesity8 Irritable Bowel Syndrome

10 Mucositis12 Chairman’s Statement14 Chief Executive’s Review

of Operations18 Board of Directors

01

Despite all the advances in science and medicine, there are many major diseases that are not adequately treated with current therapies.Alizyme is focussed on developing prescription products to meet the needs of patients.

Alizyme has made substantialadvances in its developmentprogrammes, with three of themnow in clinical development.This progress offers potential therapies for patients in the future and further value for Alizyme’s shareholders.

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Alizyme’s Disease Focus

Alizyme’s Product Opportunities

“A product that can deliver an anti-inflammatory steroid to act at the site of the disease and avoid the usual side effects could offer major benefits to ulcerative colitis sufferers.”

Dr Richard Thompson St Thomas’ Hospital, London

Many IBD sufferers will have two or three flare-ups of the disease each year.

Oral steroids are usually effective for a flare-up, but their use is limited by side effects.

Patients relapse because the current drugsused to maintain inflammation-free periodslack the necessary efficacy.

DRUG NAME

PROGRESS & STATUS THIS DRUG IS CURRENTLY IN A PHASE II TRIAL FOR MILD TO MODERATEULCERATIVE COLITIS.

ALIZYME’S PHASE I PROGRAMMEDEMONSTRATED CONSISTENTTARGETED RELEASE OF THE DRUG IN THE COLON.

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ATL-2502 (COLAL-PRED™)

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“The rapid growth in obesity, which is fuelled by a mismatch between exercise and energy intake in which fat plays an important role, represents a major threat to health and a serious drain on healthcare resources.”

Dr Gary Frost Head of Nutrition & Dietetics, Hammersmith Hospital, London

One in five adults in England is now clinicallyobese; the number has almost trebled in thelast 20 years.

Deaths linked to obesity shorten life by 9 years on average.

Numbers of diabetics in the UK are expected to double by 2010 as a result of increasing obesity.

Diabetes control is improved by a modestweight-loss of 5–15%.

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DRUG NAME

PROGRESS & STATUS THIS DRUG IS CURRENTLYBEING PREPARED FOR A PHASE II TRIAL IN OBESE PATIENTS.

ATL-962 COMPLETED A PHASE IbCLINICAL TRIAL DEMONSTRATING SAFETY, TOLERABILITY AND PRELIMINARY EVIDENCE OF EFFICACY.

ATL-962

“Irritable bowel syndrome is a debilitating and painful condition, which can place severe restrictions on the lives of sufferers. I would welcome improved drugs to help the large numbers of patients I see with this condition.”

Dr Stephen Middleton Addenbrooke’s Hospital, Cambridge

IBS is the second most common cause ofabsenteeism from work.

In the USA, IBS accounts for over 10% of visits to GPs and half of all referrals togastroenterologists.

The condition is usually chronic and there arecurrently few drugs which are effective fortreating or managing the condition.

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DRUG NAME

PROGRESS & STATUS THIS DRUG IS NOW BEINGPREPARED FOR ENTRY INTOPHASE IIb.

ATL-1251 SUCCESSFULLYCOMPLETED A PHASE IIaCLINICAL TRIAL.

ATL-1251

“During my chemotherapy, I suffered badly from mucositis of my mouth andgut. I could not eat or drink comfortably. An effective treatment would have made my chemo much more bearable and could have helped my recovery.”

Jane Wrench cancer patient

The consequences of mucositis can besignificant; it is often a dose-limiting side effect of cancer therapies and cancompromise the outcome of treatment.

There are currently no drugs approved for the treatment of mucositis.

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DRUG NAME

PROGRESS & STATUS THIS DRUG IS EXPECTED TOENTER PHASE I CLINICALTRIALS IN MID 2001.

ATL-101 IS CURRENTLY IN PRE-CLINICAL DEVELOPMENT.

ATL-101

2000 was a year of transformation for Alizyme, with significant progressacross the product development portfolio, the largest fundraising in the Company’s history and a move to the Official List and trading on the London Stock Exchange.

Chairman’s Statement

During the year, substantial progresswas made in Alizyme’s productdevelopment portfolio. Trials conductedresulted in proof of concept beingobtained for the irritable bowelsyndrome drug ATL-1251 in its PhaseIIa clinical trial and for the obesitydrug, ATL-962, in a Phase Ib clinicaltrial. In addition, Alizyme obtainedoutright ownership of SmithKlineBeecham plc’s rights to ATL-1251 and secured an agreement thatbought out all royalty provisions due to SmithKline Beecham plc. Theinflammatory bowel disease product,ATL-2502 (now called COLAL-PRED™)moved into Phase II in ulcerativecolitis patients. Finally, manufacturingissues relating to the mucositis drug, ATL-101, were resolved and pre-clinical development is now proceeding.

The progress of Alizyme’s productopportunities through several keydevelopment milestones, coupled with various external events such ascompetitor product withdrawals, has enhanced the potential value of these programmes. This gives the management the confidence toincrease investment in these productopportunities and to build more valuefor the shareholders.

In August, Alizyme completed itslargest fundraising to date, providingthe financial resources necessary totake the programmes through thenext stages of product developmentand to capitalise on the progressmade during the year. This fundraisingnot only provides the means to carryAlizyme’s development programmesfurther, but also enabled the Companyto move from AiM, which had served it well during the early years of itsdevelopment, to the Official List andtrading on the London Stock Exchange.

Going forward, the Board is consideringadditional options for continueddevelopment of Alizyme and its productportfolio. The pharmaceutical industry is going through some major strategicchanges and your Board will seek tocapitalise on the opportunities forAlizyme that these changes could create.

During the year, the Company hasincreased the number of bothinstitutional and private shareholders,including new international investors.This has benefited the Companysignificantly, by increasing its profile and the liquidity of its shares in the market.

The increasing support of the shareholders,throughout the year and particularlyduring the fundraising, has helped in thetransformation of the Company. I wouldlike to thank them all for their supportand also to thank the staff of Alizyme fortheir hard work and commitment.

Sir Brian Richards CBEChairman30 March 2001

The pharmaceutical industryis going through some majorstrategic changes and yourBoard will seek to capitaliseon the opportunities forAlizyme that these changescould create.

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“During the year, the Company has increased the number of both institutional and privateshareholders, including new international investors.”Sir Brian Richards CBE, Chairman

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The progress of Alizyme’sproduct opportunitiesthrough several keydevelopment milestones,coupled with variousexternal events such as competitor productwithdrawals, has enhancedthe potential value of these programmes.

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Chief Executive’s Review of OperationsThe Company has reached a new level of maturity as a result of theprogress made during 2000.

take back the compound after the Phase IIaclinical study. In May, SmithKline Beechamplc agreed to assign all its rights andpatents on this compound to Alizyme.Subsequently in November, Alizyme boughtout its remaining royalty obligation for a £3 million one-off payment, payable only after first approval of this compound in amajor market. Alizyme now owns thisproduct outright and is in a position tonegotiate potentially more favourableterms with a licensing partner.

Obesity (ATL-962)ATL-962 inhibits the enzyme lipase, whichis responsible for breaking down fat in thediet, thus blocking the absorption of fat intothe body. This compound is the only lipaseinhibitor known to be in development, other than Roche’s Xenical®, which is beingmarketed for the treatment of obesity and which is also being developed for the management of Type II diabetes.

Our obesity drug, ATL-962, has made major progress during 2000. It progressedthrough the final stages of pre-clinical

development, obtained Ethics Committeeapproval to conduct a Phase Ia clinical trialand then progressed into a repeat-dosePhase Ib trial. This was completedsuccessfully in January 2001, demonstratingsafety and tolerability of repeat doses. Most importantly, this trial demonstratedpreliminary efficacy, providing proof ofconcept for this drug. The level of activityand safety observed has justified furtherinvestment to prepare for entering into aPhase II clinical trial in obese patientsbefore the end of 2001.

The progress of this programme has servedto demonstrate the capabilities of Alizyme.Moving a compound from discoverythrough to initial clinical trials and proof of concept in less than two years is aremarkable achievement and is a credit to the efforts of all those in Alizyme and of our collaborators and contractors on this programme.

Inflammatory Bowel Disease (ATL-2502)Anti-inflammatory steroids are an establishedtherapy for IBD, but their use is limited to

short periods, because of the side effectsattributable to absorbed drug. By combiningan effective steroid with delivery to the siteof the disease, using COLAL™, Alizyme aimsto develop a product with reduced sideeffects and which can be used for longerperiods to control this condition. Our use ofan approved steroid for this product shouldresult in a comparatively short and focusseddevelopment programme.

Alizyme’s product involving a steroid ester,ATL-2502, in combination with COLAL™,has made considerable progress during the year. The Phase I clinical programmewas completed, demonstrating consistentrelease of the compound in the colon and proof of concept. An application has beenmade for the Trademark, COLAL-PRED™, for this product, and this will be used in future communications.

Moving a compound from discovery through toinitial clinical trials and proof of concept in lessthan two years is a remarkable achievement.

Research and DevelopmentAlizyme’s product portfolio is distinguishedby its targeting of markets which are poorlyserved by existing therapies, and whichinvolve high numbers of patients. Thecompetitive positioning of Alizyme’sproduct opportunities was enhanced duringthe year, as they made progress throughdevelopment. The more advancedprogrammes are reaching a stage wherethey are becoming increasingly attractive to potential partners. Alizyme will seek tocontinue to add value to these products,whilst intending to secure appropriatepartnerships upon acceptable terms.

Irritable Bowel Syndrome (ATL-1251)ATL-1251 (renzapride) interacts with two of the key receptors (5-HT3 antagonist/5-HT4 agonist) implicated in IBS. Alizyme is initially developing this compound fortreatment of constipation-predominant IBS,through exploiting its 5-HT4 agonist property.

The year saw the achievement of a number of key steps in the progress of this programme. Most notable was the

successful completion of the placebo-controlled, multi-centre Phase IIa study in constipation predominant IBS patients.This trial was the first time that ATL-1251had been tested in this patient population.The results demonstrated a level of efficacy, in both male and female patients,comparable with that of other compoundsbeing developed, or approved, for thiscondition. Additionally, ATL-1251demonstrated acceptable safety and tolerability.

These results are encouraging and haveresulted in plans to move forward intoPhase IIb clinical trials in this patient group.Furthermore, Alizyme is now justified inevaluating this compound’s combinationmechanism of action, by exploring itsactivity in mixed symptom patients, whosuffer alternating periods of diarrhoea and constipation.

The year also saw considerable changes in Alizyme’s commercial arrangementsregarding this compound. Previously,SmithKline Beecham plc had the right to

“The competitive positioning of Alizyme’s product opportunities was enhanced during the year, as they made progress through development.”

Dr Richard Palmer, CEO

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The outlook for the year ahead is very encouraging. The progress of our programmes and the improved cash position, mean that we can look forward positively to increasing shareholder value further.

Following the success of the Phase Iprogramme, approval to carry out a Phase II clinical trial in mild to moderateulcerative colitis patients was obtained,from the Medicines Control Agency, in theform of a CTX. This trial is in progress and is expected to report in mid-2001.

Mucositis (ATL-101)Alizyme’s product opportunity for thetreatment of mucositis, a serious consequenceof the damage to the gastrointestinal tractcaused by cancer therapy, is a plant-derivedlectin which, when administered orally,stimulates the growth of the cells that linethe gastrointestinal tract.

Following the resolution of themanufacturing problems experienced in1999, scale up of manufacture of thenatural material was enhanced with theacquisition of a licence for processtechnology from the KatholiekeUniversiteit, Leuven, Belgium. In parallelAlizyme has also made significant progresswith recombinant production methods.

No adverse toxicological events have been observed in pre-clinical developmentstudies. As a result, this has necessitatedmanufacture of larger quantities of drugthan were anticipated, to undertake studies at higher doses to meet regulatoryrequirements in pre-clinical development.Entry of this compound into a Phase Iaclinical trial is expected to occur around themiddle of 2001, with entry into phase IIclinical trials in cancer patients expected at the beginning of 2002.

COLAL™COLAL™ is an oral drug delivery technologywhich allows the release of drugs specificallyin the colon. The Phase I programme withCOLAL-PRED™ completed in 2000 confirmingthe specificity and reproducibility of thisdelivery system. The identification of commercial sources of amylose and theapproval of the CTX for COLAL-PRED™, has allowed further investment in thistechnology’s development and explorationof other actives applicable to this technology.

Research ProgrammesDuring the year, Programme AZM-119,targeting second generation lipase inhibitorsfor treatment of obesity and Type II diabetes,continued to generate active chemicalleads and further patent applications.Alizyme now has three patent families anda further three patent applications, in thelipase inhibitor area. In addition, the recentstrengthening of the Company’s cashposition, will now allow further evaluationof several compounds with developmentpotential, with a view to identifyingadditional novel lipase inhibitors withdifferentiated product profiles.

Programmes AZM-134 (GLP-1 mimetics)and AZM-145 (novel diabetes treatment)continued to evaluate a number ofapproaches to generating lead compounds.

Financial ResultsThe loss for the year of £5,635,000 wasincreased by 36% compared to 1999. Thisincrease was due to increased investment in the product development programmes as they have moved forward. Excluding the

one-off cost of moving to the Official List,the percentage spent directly on R&Dincreased from 84% to 85%.

The end of year cash balance of £22.4million was higher than last year, due to the successful exercise of warrants in June, which raised £2.8 million and thesubsequent placing and open offer inAugust, which raised £21.2 million beforeexpenses. Cash balances will be sufficientfor the Group’s planned needs beyond the end of 2002.

ProspectsThe progress made by the Group in 2000has not meant any change in the businessmodel, culture or operating principles,which have been the basis on which theCompany has been built. The outlook forthe year ahead is very encouraging. Theprogress of our programmes and theimproved cash position, mean that we can look forward positively to increasingshareholder value further, to leveraging the value created and to being in a stronger position regarding out-licensing

negotiations. This will be very important forthe Company as potential partners becomeincreasingly aware of the attractions ofAlizyme’s product opportunities.

Finally, I would like to add my thanks tothose of the Chairman, to everyone in the Alizyme team and to those of youassociated in so many ways with Alizyme,for your contribution to making 2000 sucha year of transformation for the Company.

Dr. Richard PalmerChief Executive Officer30 March 2001

The end of year cashbalance of £22.4 millionwas higher than last year,due to the successfulexercise of warrants in June, which raised £2.8 million and thesubsequent placing andopen offer in August.

Chief Executive’s Review of Operations continued"16 17

The Directors present their annual report and audited financial statements for Alizyme plc and its subsidiary for the year ended 31December 2000.

Principal activitiesThe Group’s principal activity is the discovery, development and commercialisation of pharmaceutical products for the treatment of obesity,diseases related to obesity (such as diabetes) and disorders of the gastrointestinal tract.

Research and developmentResearch and development undertaken by the Group amounted to £5,200,000 (1999 – £3,639,000), all of which was written offduring the year.

Results and dividendsThe Group’s loss for the year after taxation was £5,635,000 (1999– £4,134,000) which is to be set against reserves. The Directors do notrecommend the payment of a dividend (1999– £nil).

Supplier payment policyIt is the Group’s policy to settle debts with its creditors on a timely basis, taking into consideration the terms and conditions offered by eachsupplier. The number of supplier days outstanding at the year end, based on the average monthly outstanding creditor balances, was 33days (1999– 43 days).

Employee involvementThe Group places considerable importance on the contribution that is made by its employees and is committed to open and effectivecommunication and involvement with them. Their contribution is a key element to the future success of the Group and accordingly theemployees are given the opportunity of participating in the Company’s share capital by joining one or more of the share option schemesoperated by the Company. Details of share options issued under these plans are set out in note 15b to the financial statements.

Directors and Directors’ interestsThe Directors who served during the year were as follows:

Executive Directors Non-Executive DirectorsDr Richard Palmer BSc PhD (Chief Executive Officer) Sir Brian Richards CBE BSc PhD (Chairman)Tim McCarthy MBA FCCA (Finance Director) John Gordon MA FCADr Trevor Jarman BSc PhD (Director, Business Development) Stewart Siddall CBE BSc

William Edge MA MBA

i) All the Directors of the Company are also Directors of Alizyme Therapeutics Limited, the subsidiary undertaking. All the Directors servedon the Board of the subsidiary undertaking throughout the year.

ii) Directors’ interestsDetails of the Directors’ interests in the share capital of the Company together with details of share options granted to them are disclosed inthe Remuneration Report of the Board of Directors on pages 26 to 31.

iii) Retirement of DirectorsIn accordance with the Articles of Association, Dr Richard Palmer and Tim McCarthy retire at the forthcoming Annual General Meeting andbeing eligible, offer themselves for re-election.

Share Option SchemesThe Company has three Share Option Schemes; the Alizyme plc Unapproved Share Option Scheme, The Alizyme plc 1996 UnapprovedExecutive Share Option Scheme and The Alizyme plc 1996 Inland Revenue Approved Executive Share Option Scheme. In addition, thesubsidiary Alizyme Therapeutics Limited operates the Alizyme Therapeutics Limited Unapproved Share Option Scheme, a scheme whichruns in parallel with the Alizyme plc Unapproved Share Option Scheme.

Further details of the share option schemes are set out in note 15b to the financial statements and in respect of share options held byDirectors, on pages 26 to 31 of the Remuneration Report of the Board of Directors.

Directors’ ReportFor the year ended 31 December 2000

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Board of Directors

Sir Brian Mansel Richards CBE BSc PhD(Age 68, Non-Executive Chairman)Sir Brian Richards has been non-executiveChairman of Alizyme since its founding. Hehas had a distinguished career in researchand development with major pharmaceuticalcompanies and as founder and/or non-executive director of a number ofbiotechnology companies.

Dr Richard Michael John Palmer BSc PhD(Age 49, Chief Executive Officer)Dr Palmer has been Chief Executive Officerof Alizyme since March1997 and alsoretains overall responsibility for researchand development. Previously at Wellcomeand Glaxo Wellcome, he has over 25 years’ experience of research anddevelopment management.

Timothy Paul McCarthy MBA FCCA (Age 44, Finance Director)Mr McCarthy is a co-founder of Alizyme and is responsible for all financial, investorrelations and company secretariat matters. He has held senior financial positions in a number of multinational companies and hasbeen instrumental in the development of anumber of other biotechnology companies.

Dr Trevor Rodney Jarman BSc PhD (Age 53, Director, Business Development)Dr Jarman is a co-founder of Alizyme and is responsible for the Company’s partneringand collaboration activities. He specialises in business development based on advances in science and technology.

Sidney Stewart Siddall CBE BSc (Age 64, Non-Executive Director)Mr Siddall has over 30 years’ experience in the pharmaceutical industry. He wasPresident of the Association of the BritishPharmaceutical Industry from 1992-1994and has been a non-executive director of anumber of other biotechnology companies.

John Edwin Gordon MA FCA (Age 61, Non-Executive Director)Mr Gordon has an accountancy andcorporate finance background. He is the designated senior independent non-executive Director, chairman of the audit and remuneration committees and is a non-executive director of a number of other companies.

William Edge MA MBA (Age 64, Non-Executive Director)Mr Edge has extensive experience in the pharmaceutical industry and as a venture capitalist. He is a non-executive director of a number of companies and is an advisor to several investment funds.

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From left to right:

Stewart SiddallTrevor JarmanWilliam EdgeSir Brian RichardsRichard PalmerTim McCarthyJohn Gordon

Combined Code ReportThe Board is committed to maintaining the highest standards of corporate governance. The Board follows the rules on corporategovernance required for companies listed on the Official List of the UK Listing Authority. Those rules are contained in a code of corporategovernance known as the Combined Code.

The following sets out the main principles of good governance of the Combined Code that have been followed by the Board of Alizyme andhow those principles have been applied.

Statement of application of the Principles of Good Governance and compliance with the Code of Best PracticeHaving reviewed the Code and with the exception of the item listed below, the Directors believe that the Company and the Group havecomplied throughout the year with the Provisions of the Code of Best Practice, as set out in section 1 of the Combined Code.

As disclosed in previous years, the non-executive Directors hold shares in the Company. Certain non-executive Directors also hold options to subscribe for shares in the Company. The Board considers that this was necessary to attract and retain a high calibre of non-executiveDirector. It is satisfied that the non-executive Directors exercise independent judgement and are independent of management.

An explanation as to how the Principles of the Combined Code have been applied is set out below and, in connection with Directors’remuneration, in the Remuneration Report of the Board of Directors.

The BoardThe Board of Directors has overall responsibility for the Group. Its aim is to represent the interests of the Group’s shareholders and to provideleadership and control in order to ensure the growth and development of a successful business.

The Board currently consists of a non-executive Chairman, three further non-executive Directors and three executive Directors.

There is a clear separation of the roles of Chairman and Chief Executive Officer. The Chairman is responsible for overseeing the running ofthe Board, ensuring that no individual or group dominates the Board’s decision making and ensuring that the non-executive Directors areproperly briefed on matters. The Chief Executive Officer has responsibility for implementing the strategy of the Board and managing theday-to-day business activities of the Group through his chairmanship of the Executive Committee.

There is a strong independent non-executive element to the Board who maintain an independent judgement in respect of strategy,performance and standards of conduct. New non-executive Directors receive an appropriate introduction to the business, meeting with theexecutive management team for detailed discussions on the activities of the Group. John Gordon performs the role of the recognised seniorindependent non-executive Director, to whom any concerns that arise may be conveyed. All Directors have access to the advice and servicesof the Company Secretary and should they wish to, may take independent advice, at the expense of the Company.

The Board meets monthly to consider matters specifically reserved for its consideration; setting and monitoring the Group’s strategy,financing arrangements, appraising investment opportunities, approving major transactions, reviewing the operating performance of theGroup and reporting to shareholders. To ensure that Directors are properly briefed on issues arising at Board meetings, procedures havebeen established for distributing Board papers with appropriate information in advance of meetings. The adequacy of that information isconsidered prior to making decisions and the Directors may make further enquiries when considering proposals, as they deem appropriate.

Combined Code ReportFor the year ended 31 December 2000

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Directors’ Report continued

Substantial shareholdingsAs of 12 March 2001, Alizyme plc had been notified, in accordance with Sections 198 to 208 of the Companies Act 1985 of the followinginterests of more than 3% in its issued ordinary share capital:

Shareholder Number of shares Percentage holding

Mercury Asset Management 8,143,710 10.29%

The AiM Trust plc 5,494,896 6.94%

The Equitable Life Assurance Society 4,304,074 5.44%

Biopharma Equities Holdings 2,950,889 3.73%

Activest BioPharm 2,601,001 3.29%

Annual General MeetingThe notice convening the Annual General Meeting of the Company is set out in the separate shareholders’ circular together with details of items of business. The meeting will be held at 10.30am on 2 May 2001 at Buchanan Communications Limited, 107 Cheapside, London, EC2V 6DT.

AuditorsA resolution to reappoint Arthur Andersen as auditors and to authorise the Directors to determine the auditors’ remuneration will beproposed at the Annual General Meeting.

By order of the Board, Alizyme plc, Granta Park, Great Abington, Cambridge, CB1 6GS, United Kingdom.

Tim McCarthy Company Secretary30 March 2001

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Executive CommitteeThe Executive Committee has responsibility for running the day-to-day operations of the Group and implementing the Board’s operationalstrategy. It is chaired by the Chief Executive Officer, Dr Richard Palmer, and consists of the executive Directors of the Group. The othermembers of the Committee are Tim McCarthy, Finance Director, and Dr Trevor Jarman, Director, Business Development.

Scientific and Medical Advisory BoardThe role of the Scientific and Medical Advisory Board is to advise and assist the Group on new scientific developments in its specific areasand to discuss and review the Group’s research and development strategy. It consists of eminent international experts in the fields of obesityand gastrointestinal disorders. The Committee meets twice a year and consists of the following members;

Prof. Stephen Bloom (Imperial College School of Medicine, Hammersmith, London)Prof. John Blundell (Dept. Psychology, University of Leeds)Prof. Derek Jewell (Radcliffe Royal Infirmary, Oxford)Prof. Harold Hodson (University of Sussex)Prof. Andrew Prentice(School of Hygiene and Tropical Medicine, London)

Communication with shareholdersThe Board attaches great importance to communications with both institutional and private shareholders.

Regular communication is maintained with all shareholders through Company announcements, the Annual Report and Accounts,Preliminary Results and the Interim Report. The Company posts copies of announcements to all shareholders and provides shareholders with the opportunity to meet the Company at exhibitions for both institutional and private investors.

The Directors seek to build on a mutual understanding of objectives between the Company and its shareholders, especially considering thelong-term nature of the business. Institutional shareholders are in contact with the Directors through presentations and meetings to discussissues and to give feedback regularly throughout the year.

With private shareholders this is not always practical. The Board has therefore sought to use the Company’s Annual General Meeting(“AGM”) as the opportunity to meet private investors. Private shareholders are encouraged to attend the AGM after which the ChiefExecutive Officer gives a presentation on the activities of the Group. Following this there is also an opportunity to ask questions of Directorson a formal and informal basis and to discuss development of the business. In particular there is also an opportunity to ask questions of theChairmen of the Audit, Remuneration and Appointment Committees.

In addition the Company operates a web site which can be found at www.alizyme.com. It contains further details on the Group and itsactivities, details of Regulatory News Service (“RNS”) and press announcements, Preliminary Results and the Interim Report, and details on the Company’s share price, share trading activity and share graphs.

The Company continues to observe a problem of communicating with shareholders who hold their investments through nomineecompanies. The Company understands that the administrators of nominee companies do not always provide facilities to forward theCompany’s reports and announcements to the beneficial share owners. In response to this and to ensure share owners are kept informed of the Group’s activities, the Company encourages share owners with nominee accounts to provide it with details of their name and addressin order to arrange for announcements to be forwarded directly to them.

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Combined Code Report continued

The Board delegates the responsibility for considering and implementing items not specifically reserved for it, to the following committees:

Audit CommitteeThe Audit Committee is responsible for monitoring and reporting of the Group’s financial performance and reviewing the Group’s AnnualReport and Accounts and Interim and Preliminary Statements before their submission to the Board. In addition the Committee is responsiblefor reviewing the scope and cost effectiveness of the audit undertaken by the auditors and their independence and objectivity.

The Committee consists of non-executive Directors: John Gordon (Chairman), Sir Brian Richards and William Edge.

It meets as often as required, but at least twice a year. The Committee also holds meetings with the Group’s auditors, Arthur Andersen, toreview their reports in relation to the financial statements and internal control systems.

The Committee is authorised to seek such information of the executive Directors and senior employees as it requires. It is also authorised toobtain outside legal and other independent forms of advice if it considers it necessary, for which the Company reimburses expenses incurred.

Appointments CommitteeThe purpose of the Appointments Committee is to make recommendations to the Board and oversee the selection and appointment processin relation to Directors and senior management. The Committee is authorised by the Board to obtain outside legal or other independentprofessional advice, as it considers necessary, for which the Company reimburses expenses incurred.

The Committee currently consists of: the Chairman of the Company, Sir Brian Richards, a non-executive Director, Stewart Siddall, and theChief Executive Officer, Dr Richard Palmer.

Remuneration CommitteeThe Remuneration Committee is responsible for making recommendations to the Board on the Company’s policy for remunerationpackages for each of the executive Directors, senior management and the other employees of the Group, having due regard to theinterests of shareholders.

In making such recommendations to the Board, the Committee must ensure that those recommendations reflect a policy such that allexecutive Directors, senior management and employees have every encouragement to enhance their own performance, and that of theGroup and to ensure that they are fairly, but responsibly, rewarded for their individual contributions. The Committee’s responsibility extendsto recommending to the Board annual remuneration, terms of service, entitlement to share options and compensation on termination ofcontracts of service, consulting with the Finance Director or Chief Executive Officer as appropriate.

It is the responsibility of the Board as a whole to determine non-executive Director remuneration and not the Committee.

Membership of the Remuneration Committee consists of the non-executive Directors of the Company as appointed by the Board to theCommittee. Currently its members are John Gordon (Chairman), Sir Brian Richards, Stewart Siddall and William Edge.

The Committee meets at least once a year and as deemed appropriate. It is authorised by the Board to seek outside legal and otherindependent professional advice if it considers it necessary, for which the Company reimburses expenses incurred.

The Combined Code specifies that it is the Board which must report on the remuneration of its members and not the Committee.Accordingly the Remuneration Committee has reported to the Board on the remuneration of the Directors of the Company and in turn the Board presents its report on pages 26 to 31.

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The Board complies with principle D.2 of the Combined Code having a continuous process for identifying, evaluating and managing thesignificant risks the Group faces. The Board regularly reviews the process which has continued to be applied to the date of the approval ofthis report and which is in accordance with Internal Control: Guidance for Directors on the Combined Code, published in September 1999.Assessments consider the external environment, the industry in which the Group operates, the internal environment and non-financial riskssuch as operational and legal risks. The risks identified are ranked based on significance and likelihood of occurrence. The Board reviews thecontrols in place to mitigate those risks and improvements are made where required. The Board undertook a formal assessment inSeptember 2000 and no improvements were deemed necessary.

Given the Group’s relatively small size, the Board does not consider it either necessary or practical to have its own internal audit function atpresent. The Board will continue to monitor the requirement to have an internal audit function.

Compliance with the BioIndustry Association (“BIA”) Code of Best PracticeThe BIA, of which Alizyme is a member, adopted a code of best practice on 20 October 1999 (the “BIA Code”). The BIA Code includesprinciples and provisions relating to corporate governance matters, access to external advice, confidentiality, dealings in a company’s sharesand standards of public announcements. It is intended to operate by reference to the particular circumstances of bioscience companies insupport of the Combined Code, Principles of Good Governance and Code of Best Practice (the Turnbull Report).

The BIA Code was obligatory for all BIA members as from 1 January 2000. The Board of Alizyme comply with the principles in the BIA Codeand maintain procedures to support compliance with its specific provisions, according to the particular circumstances of Alizyme.

Directors’ ResponsibilitiesFinancial statementsCompany law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state ofaffairs of the Company and Group and of the profit or loss of the Group for that period.

In preparing the financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently;make judgements and estimates that are reasonable and prudent; and state whether applicable accounting standards have been followed,subject to any material departures disclosed and explained in the financial statements.

Going concernCompany law requires the Board of Directors to assess whether the Group has adequate resources to continue operations for theforeseeable future.

Following the successful placing and open offer in August 2000 and after making enquiries, the Directors have a reasonable expectationthat the Company and the Group will have adequate resources to continue in operational existence for the foreseeable future. For thisreason, they continue to adopt the going concern basis in preparing the financial statements.

Other mattersThe Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financialposition of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 1985. Theyare also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention anddetection of fraud and other irregularities.

25

Combined Code Report continued

The Company also distributes announcements electronically. Shareholders and other interested parties wishing to receive announcementsvia e-mail are invited to forward their request together with details of their e-mail address to info@alizyme.co.uk.

Internal Financial ControlThe Board acknowledges its responsibility for safeguarding the shareholders’ investments and the Group’s assets. In applying this principle,the Board recognises that it has overall responsibility for ensuring that the Group maintains a system of internal control to provide it withreasonable assurance regarding effective and efficient operations, internal financial control and compliance with laws and regulations.

Through the auditors and the Audit Committee, the Directors have reviewed the effectiveness of the internal controls. The key features ofthe internal control system that operated throughout the period covered by the financial statements are described below.

• Control procedures and environment - the Group has an organisational structure with clearly drawn lines of accountability and authority.Employees are required to follow clearly laid out internal procedures and policies appropriate to the business and their position within thebusiness, and the management promotes the highest levels of professionalism and ethical standards.

• Identification and evaluation of risks - the Group employs Directors and senior executives with the appropriate knowledge and experiencerequired for a bio-pharmaceutical Group. Identification and evaluation of risk is a continuous procedure running in parallel with thedevelopment of the Group’s research and development portfolio. An annual review of risks is undertaken as part of the annual strategicand budgeting exercise.

• Financial information - the Group prepares annually detailed budgets and working capital forecasts which are based upon the strategy ofthe Group and which are approved by the Board. Detailed management accounts are prepared each month which are compared tobudgets and any variances investigated thoroughly. Each month a detailed working capital re-forecast is undertaken, and a summary isprovided to the Board.

• Management of liquid resources - the Board is very risk averse when investing the Group’s surplus cash funds and accordingly investmentsare made only in money market deposits. Clear written instructions setting out the parameters for investing funds are given by theCompany at the time of each investment.

• Monitoring - the Board monitors the monthly activities of the Group through the supply of information from various areas of the businessas contained in the Board papers. The Executive Committee performs a more detailed review, taking corrective action if required. TheBoard, through the Audit Committee, reviews the effectiveness of the internal systems of control. However, any system of internalfinancial control can provide only reasonable and not absolute assurance with respect to the preparation of financial information and thesafeguarding of assets.

The Turnbull ReportDuring September 1999 the Turnbull Working Party on Internal Control published its final guidance (the “Turnbull Report”) for companieslisted on the Official List of the UK Listing Authority.

The purpose of the Turnbull Report is to help the management of listed companies report on:

• how the Company has applied Principle D.2 of the Combined Code that calls for companies to maintain a sound system of internal control;

• whether the Company has complied with the Code Provision that requires a review of the effectiveness of the system of internal control tobe conducted at least annually; and

• whether the Company has complied with the Code Provision that requires the management to review the need to have an internal auditfunction from time to time.

24

ii) Annual performance incentiveEmployees are awarded an annual bonus, at the discretion of and as recommended to the Board by the Remuneration Committee. Bonusawards are reviewed at the end of the financial year and based upon the Group’s overall performance together with individual achievementsagainst objectives that are set at the beginning of the year. Those objectives are intended to deliver excellence and align individualachievements with the Board’s strategy for the Group and shareholder interests. The awards are limited to a maximum of 50% of basicsalary for executive Directors, 25% of basic salary for senior managers and 10% for other employees.

iii) Pensions and other benefitsThe Group does not operate a Group pension scheme. Instead the Group makes contributions representing between 10% and 15%,depending on seniority and length of service, of the basic salary of employees, to their individual private pension arrangements.

Other benefits provided are life assurance, permanent health insurance and private medical insurance. No company car is provided. Instead,the Group contributes 10% of the basic salary towards the cost of executive Directors and senior managers running their own cars. The costof petrol is also provided.

iv) Share optionsThe Group operates a number of share option schemes that enable employees to participate in the success of and growth in the share priceof the Company. Options are granted for a period of seven years and may only be exercised in certain circumstances, as set out below. Theyare subject to meeting various performance criteria including the Company’s share price outperforming the FTSE All Share Index.

Full details of the Directors’ remuneration, interests in the ordinary shares of the Company together with options granted are set out below:

Directors’ remunerationThe Directors received the following remuneration during the year:

Fees/Basic Taxable Annual Pension 2000 1999salary benefits bonus contributions Total Total

Name of Director £000’s £000’s £000’s £000’s £000’s £000’s

Executive Directors

Dr Richard Palmer 135 32 68 20 255 234

Tim McCarthy 101 15 51 15 182 168

Dr Trevor Jarman 97 15 41 15 168 157

Non-Executive Directors

Sir Brian Richards 34 - - - 34 34

Stewart Siddall (i) 21 - - - 21 21

John Gordon 21 - - - 21 21

William Edge 21 - - - 21 21

Aggregate emoluments 430 62 160 50 702 656

(i) Stewart Siddall’s fees were paid to Siddall Pharmaceutical Associates Limited, a private company controlled by Mr Siddall.

27

Remuneration Report of the Board of DirectorsFor the year ended 31 December 2000

It is the responsibility of the Board of Directors to agree the remuneration policy and remuneration of executive Directors and, in the case of Alizyme, of senior management and employees. The responsibility for considering matters of remuneration and remuneration policyremains with the Remuneration Committee, which reports and provides recommendations to the Board of Directors. In accordance with the Combined Code, the Board is required to either accept or reject those recommendations.

The Board presents its report on the remuneration policies of the Group and remuneration of Directors for the year ended 31 December 2000.

Best PracticeThe Company has complied throughout the year with Section A of the Best Practice Provision for Directors’ remuneration annexed to the UK Listing Authority’s Listing Rules which concerns the membership and operation of the Remuneration Committee. In preparing its report, the Board has also given full consideration to the provisions of Schedule B of the Combined Code which prescribes the content of this report.

The Remuneration CommitteeThe main responsibilities of the Remuneration Committee are to make recommendations to the Board on the Company’s policy onremuneration and to make recommendations on the specific remuneration, benefits and terms of employment of the Chief Executive Officer,executive Directors, senior managers and employees (the “employees”).

Policy on executive remunerationIn forming the Group’s policy on remuneration the Board has given full consideration to Schedule A of the Combined Code appended to theListing Rules of the UK Listing Authority, that sets out the guidelines for dealing with the design of performance-related remuneration.

The Board’s policy has been designed to ensure that employees should receive appropriate incentive and reward given their performance,responsibility and experience. In determining this, the Board has regard to:

• ensuring that the Group’s remuneration policy attracts, retains and motivates employees of the quality required for the continuedbusiness, while avoiding remunerating those employees more than is necessary;

• ensuring that employees’ remuneration is consistent with the compensation of employees holding comparable positions in othercompanies, but being aware of the relative performances of those companies;

• ensuring that the Company’s policy is sensitive to the salary and employment terms across the Group, especially when determining annualsalary increases; and

• ensuring that the policy aligns the interests of employees with those of the shareholders.

Remuneration packageEmployees’ remuneration packages are considered annually and comprise a number of elements. Packages are reviewed towards the end ofeach financial year. Before packages are finally decided upon for the following year, the Chairman of the Board undertakes an appraisal ofeach of the executive Directors against their objectives for the year and considers the contribution of each individual to the Group. TheRemuneration Committee considers the Chairman’s appraisals when making their recommendations to the Board of Directors.

The remuneration package of employees comprises:

i) Basic salaryBasic salaries are reviewed annually on 1 January. The review process is undertaken having regard to the development of the Group and the contribution that individuals will continue to make. Consideration is also given to the need to retain and motivate individuals andinformation on the salary levels in comparable organisations. In this respect the Remuneration Committee draws on the findings of anumber of external salary surveys and undertakes its own research.

26

Directors’ share optionsThe Company operates a number of share option schemes from which it has granted share options to Directors. Details of options to acquireordinary shares in the Company granted to the Directors are as follows:

a) Alizyme plc Unapproved Share Option Scheme

Number of options during the year Exercise Date from which ExpiryDirector At 1 January 2000 and 31 December 2000 price exercisable date

Dr Richard Palmer 250,000 40p 18/07/1996 20/06/2003

Tim McCarthy 625,000 30p 18/07/1996 19/06/2003

350,000 80p 18/07/1996 19/06/2003

Dr Trevor Jarman 625,000 30p 18/07/1996 19/06/2003

350,000 80p 18/07/1996 19/06/2003

Sir Brian Richards 175,000 30p 18/07/1996 19/06/2003

100,000 80p 18/07/1996 19/06/2003

John Gordon 50,000 80p 18/07/1996 19/06/2003

Stewart Siddall 125,000 30p 18/07/1996 19/06/2003

75,000 80p 18/07/1996 19/06/2003

No share options were granted, exercised or cancelled during the year.

b)Alizyme Therapeutics Limited Unapproved Share Option Scheme

Number of options during the year Exercise Date from which ExpiryDirector At 1 January 2000 and 31 December 2000 price exercisable date

Dr Richard Palmer 50,000 £2.00 (i) 10/06/2003

Tim McCarthy 125,000 £1.50 (i) 21/04/2003

45,000 £4.00 (i) 10/06/2003

25,000 £4.00 (i) 19/06/2003

Dr Trevor Jarman 125,000 £1.50 (i) 21/04/2003

45,000 £4.00 (i) 10/06/2003

25,000 £4.00 (i) 19/06/2003

Sir Brian Richards 35,000 £1.50 (i) 21/04/2003

10,000 £4.00 (i) 10/06/2003

10,000 £4.00 (i) 19/06/2003

John Gordon 10,000 £4.00 (i) 19/06/2003

Stewart Siddall 25,000 £1.50 (i) 21/04/2003

7,500 £4.00 (i) 10/06/2003

7,500 £4.00 (i) 19/06/2003

29

Remuneration Report of the Board of Directors continued

Executive Director notice periodsWith the exception of Dr Trevor Jarman, service contracts for the executive Directors can be terminated by either party by giving twelvemonths’ written notice. Dr Jarman’s service contract provides for a notice period of six months.

Non-Executive remunerationThe non-executive Directors received fees for performing their duties as Directors that are determined by the Board as a whole. They do nothave service contracts. The non-executive Directors who served throughout the year have letters of appointment under which their servicescan be terminated by either party giving three months’ notice. In the case of William Edge his service may be terminated by either party bygiving one month’s written notice.

The Chairman received an annual fee of £26,250 (1999–£26,250) and £2,625 (1999–£2,625) for each of the committees he providedservices to. He sat on three committees. The other non-executive Directors received an annual fee of £15,750 (1999–£15,750) and£2,625 (1999–£2,625) for each committee to which they provided services. Each sat on two committees.

Directors’ shareholdingsThe Directors held the following interests in the ordinary shares of the Company during the year:

WarrantsOrdinary shares of 2p each exercisable by 30 June 2000

Number Number Number of Numberof shares Acquired in of shares warrants of warrants

1 January 2000 31 December 1 January 31 DecemberDirector 2000 2000 2000 2000

Dr Richard Palmer (i) 75,695 13,514 89,209 13,514 -

Tim McCarthy (ii) 776,827 70,528 847,355 70,528 -

Dr Trevor Jarman (iii) 126,847 3,757 130,604 6,757 -

Sir Brian Richards (iv) 283,973 35,400 319,373 12,820 -

John Gordon (v) 258,000 73,875 331,875 37,000 -

Stewart Siddall 50,000 - 50,000 - -

William Edge (vi) 258,693 75,180 333,873 50,540 -

(i) Includes 13,514 shares registered in the name of Mrs Palmer.

(ii) Includes 15,000 ordinary shares registered in the name of Mrs McCarthy and 821,505 ordinary shares registered in the name ofUnnamed Limited, a private company controlled by Mr McCarthy.

(iii) Includes 25,604 ordinary shares registered in the name of Mrs Jarman.

(iv) Includes 50,000 ordinary shares registered in the name of the Dr Brian Richards 1995 UK Settlement, of which Sir Brian Richards is the settlor.

(v) Includes 178,875 ordinary shares registered in the name of Capel-Cure Sharp Nominees Limited, in which Mr Gordon has abeneficial interest.

(vi) Includes 188,063 ordinary shares registered in the name of Rowan Nominees Limited.

28

d) The Alizyme plc 1996 Inland Revenue Approved Executive Share Option SchemeNo share options have been issued under The Alizyme plc 1996 Inland Revenue Approved Executive Share Option Scheme.

The market price of the shares of the Company at 31 December 2000 was 131.5p and the range during the financial year was 44.5p to 261p.

Pension entitlementsThe Group made pension contributions during the year to the personal pension arrangements of the following Directors:

2000 1999Name of Director £000’s £000’s

Dr Richard Palmer 20 19

Tim McCarthy 15 14

Dr Trevor Jarman 15 14

Totals 50 47

Contributions amounting to £20,000 (1999–£19,000) were made in respect of the highest paid Director.

31

Remuneration Report of the Board of Directors continued

No share options were granted, cancelled or exercised during the year.

A Director who exercises his options granted under the Alizyme plc Unapproved Share Option Scheme may not exercise an equivalentnumber of options granted under the Alizyme Therapeutics Limited Unapproved Share Option Scheme.

(i) Options may only be exercised within seven years after the date of grant, provided that the shares of Alizyme Therapeutics Limited(“ATL”) have been admitted to a stock exchange (including admission to trading on the Alternative Investment Market of the London StockExchange); the whole or majority of the business of ATL has been disposed of or ceased; there has been a change in control of ATL; ATL iswound up; or a scheme for the reconstruction or amalgamation of ATL is sanctioned by the Courts. As at 31 December 2000, none of theseevents had occurred.

c) The Alizyme plc 1996 Unapproved Executive Share Option Scheme

Number of options during the year

Date fromAt 1 January Granted Lapsed At 31 December Exercise which Expiry

Director 2000 2000 price exercisable date

Dr Richard Palmer 100,000 - - 100,000 60p (i) 06/11/2003

100,000 - - 100,000 60p (i) 05/04/2004

300,000 - - 300,000 30p (i) 28/04/2005

150,000 - - 150,000 38p (i) 20/07/2006

- 100,000 - 100,000 64p (i) 26/01/2007

- 129,655(ii) - 129,655 145p (i) 20/09/2007

Tim McCarthy 100,000 - - 100,000 60p (i) 18/07/2003

50,000 - - 50,000 32.5p (i) 12/05/2005

150,000 - - 150,000 38p (i) 20/07/2006

- 20,000 - 20,000 64p (i) 26/01/2007

- 110,000 - 110,000 145p (i) 20/09/2007

Dr Trevor Jarman 100,000 - - 100,000 60p (i) 18/07/2003

50,000 - - 50,000 32.5p (i) 12/05/2005

75,000 - - 75,000 38p (i) 20/07/2006

- 10,000 - 10,000 64p (i) 26/01/2007

- 75,000 - 75,000 145p (i) 20/09/2007

No share options were cancelled or exercised during the year.

(i) Options cannot be exercised unless the share price of the Company’s ordinary shares has increased by an amount more than the increasein the FTSE All Share Index, ending on the third anniversary of the date of grant of such options or any longer period not exceeding sevenyears from the date of grant.(ii) Previously reported as 500,000 options granted on 21 September 2000 with an exercise price of 145p. 370,345 of such options did nottake valid effect in accordance with the rules of the scheme and, accordingly, the number of options granted to Dr Palmer on such date islimited to 129,655.

30

2000 1999Notes £000’s £000’s

Turnover - -

Research and development costs (5,200) (3,639)

Management and administrative expenses (1,104) (687)

Operating loss (6,304) (4,326)

Interest receivable 3 669 192

Loss on ordinary activities before taxation 6 (5,635) (4,134)

Taxation on loss on ordinary activities 7 - -

Loss for the financial year (5,635) (4,134)

Dividends - -

Retained loss for the year attributed to the members of Alizyme plc 16 (5,635) (4,134)

Loss per share for the year – basic and diluted 8 (9.0p) (9.9p)

There were no recognised gains or losses other than the retained loss for the current and prior year.

All amounts relate to continuing activities.

The accompanying notes form an integral part of this Consolidated Profit and Loss Account.

Consolidated Profit and Loss AccountFor the year ended 31 December 2000

33

Auditors’ Report

To the Shareholders of Alizyme plcWe have audited the accounts on pages 33 to 46 which have been prepared under the historical cost convention and the accountingpolicies set out on page 38. We have also examined the amounts disclosed relating to the emoluments, share options and pension benefitsof the Directors which form part of the Remuneration Report of the Board of Directors on pages 26 to 31.

Respective responsibilities of Directors and auditorsThe Directors are responsible for preparing the Annual Report, including as described on page 25, preparing the accounts in accordancewith applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial Services Authority and by our profession’s ethicalguidance.

We report to you our opinion as to whether the accounts give a true and fair view and are properly prepared in accordance with theCompanies Act. We also report to you if, in our opinion, the Directors’ Report is not consistent with the accounts, if the Company has not keptproper accounting records, if we have not received all the information and explanations we require for our audit, or if information specifiedby law or the Listing Rules regarding Directors’ remuneration and transactions with the Company and the Group is not disclosed.

We review whether the corporate governance statement on page 21 reflects the Company’s compliance with the seven provisions of theCombined Code specified for our review by the Financial Services Authority, and we report if it does not. We are not required to considerwhether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Company’scorporate governance procedures or its risks and control procedures.

We read the other information contained in the Annual Report, including the corporate governance statement and consider whether it isconsistent with the audited accounts. We consider the implications for our report if we become aware of any apparent misstatements ormaterial inconsistencies with the accounts.

Basis of opinionWe conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on atest basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimatesand judgements made by the Directors in the preparation of the accounts and of whether the accounting policies are appropriate to thecircumstances of the Company and of the Group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provideus with sufficient evidence to give reasonable assurance that the accounts are free from material misstatement, whether caused by fraud orother irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts.

OpinionIn our opinion the accounts give a true and fair view of the state of affairs of the Company and of the Group at 31 December 2000 and ofthe Group’s loss and cash flows for the year then ended and have been properly prepared in accordance with the Companies Act 1985.

Arthur AndersenChartered Accountants and Registered AuditorsBetjeman House104 Hills RoadCambridgeCB2 1LH

30 March 2001

32

2000 1999Notes £000’s £000’s

Fixed assets

Investments 10 179 179

Current assets

Debtors 11 15,064 9,948

Liquid resources (short term cash deposits) 22,014 4,258

Cash at bank and in hand 349 29

37,427 14,235

Creditors: Amounts falling due within one year 12 (301) (79)

Net current assets 37,126 14,156

Net assets 37,305 14,335

Capital and reserves

Called-up share capital 15 1,577 991

Share premium account 16 35,755 13,380

Profit and loss account 16 (27) (36)

Equity shareholders’ funds 37,305 14,335

Approved by the Board of Directors and signed on its behalf by:

Sir Brian RichardsChairman

30 March 2001

The accompanying notes form an integral part of this Company Balance Sheet.

Company Balance Sheet As at 31 December 2000

35

Consolidated Balance Sheet As at 31 December 2000

2000 1999Notes £000’s £000’s

Fixed assets

Tangible assets 9 112 21

Current assets

Debtors 11 253 242

Liquid resources (short term cash deposits) 22,014 4,258

Cash at bank and in hand 342 29

22,609 4,529

Creditors: Amounts falling due within one year 12 (2,114) (1,306)

Net current assets 20,495 3,223

Provisions for liabilities and charges 14 (37) -

Net assets 20,570 3,244

Capital and reserves

Called-up share capital 15 1,577 991

Share premium account 16 35,755 13,380

Capital reserve 16 1,530 1,530

Profit and loss account 16 (18,292) (12,657)

Equity shareholders’ funds 17 20,570 3,244

Approved by the Board of Directors and signed on its behalf by:

Sir Brian RichardsChairman

30 March 2001

The accompanying notes form an integral part of this Consolidated Balance Sheet.

34

Notes to the Consolidated Cash Flow Statement At 1 January 2000 Cash flow At 31 December 2000

Analysis and reconciliation of net funds £000’s £000’s £000’s

Cash at bank and in hand 29 313 342

Liquid resources (short term cash deposits) 4,258 17,756 22,014

Total cash and short term deposits 4,287 18,069 22,356

Reconciliation of net cash flow to movement in net funds £000’s

Increase in cash in the year 313

Cash outflow from increase in liquid resources 17,756

Movement in net funds in the year 18,069

Net funds at 1 January 2000 4,287

Net funds at 31 December 2000 22,356

37

Consolidated Cash Flow StatementFor the year ended 31 December 2000

2000 1999£000’s £000’s

Operating loss (6,304) (4,326)

Depreciation charge 26 33

Decrease in debtors 51 74

Increase/(decrease) in creditors 808 (41)

Increase in provision 37 -

Net cash outflow from operating activities (5,382) (4,260)

Returns on investments and servicing of finance

Interest received 607 192

Net cash inflow from returns on investments and servicing of finance 607 192

Capital expenditure and financial investment

Purchase of tangible fixed assets (117) (10)

Net cash outflow from investing activities (117) (10)

Cash outflow before management of liquid resources and financing (4,892) (4,078)

Management of liquid resources

Cash placed on money market deposits (17,756) (535)

Net cash outflow from management of liquid resources (17,756) (535)

Financing

Issue of ordinary share capital after expenses 22,961 4,635

Net cash inflow from financing 22,961 4,635

Increase in cash 313 22

The accompanying notes form an integral part of this Consolidated Cash Flow Statement.

36

2 Turnover and loss on ordinary activities before taxationNo turnover arose during the current or preceding year.

The loss before taxation and net assets derive from the Group’s principal activity in the United Kingdom.

2000 19993 Interest receivable £000’s £000’s

Interest receivable on short term cash deposits 669 192

4 Staff costs 2000 1999

The average monthly number of employees (including executive Directors) was: Number Number

Research and development 8 8

Management and administration 4 4

12 12

2000 1999

Their aggregate remuneration comprised: £000’s £000’s

Wages and salaries 906 840

Social security costs 116 103

Other pension costs (see note 19) 87 82

1,109 1,025

5 Directors’ remuneration

Aggregate remuneration 2000 1999

The total amounts for Directors’ remuneration and other benefits were as follows: £000’s £000’s

Emoluments 652 609

Money purchase contributions to Directors’ pension arrangements 50 47

702 656

Further details concerning the Directors’ remuneration, shareholdings and share options which form part of these financial statements, is setout in the Remuneration Report of the Board of Directors on pages 26 to 31.

39

Notes to Financial Statements31 December 2000

1 Accounting PoliciesA summary of the principal accounting policies, all of which have been applied consistently throughout the year and the preceding year isset out below.

Basis of accountingThe financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards.

Basis of consolidationThe Group financial statements consolidate the financial statements of Alizyme plc and its subsidiary undertaking, Alizyme TherapeuticsLimited, up to 31 December 2000.

No separate profit and loss account is presented for Alizyme plc, as permitted by Section 230 of the Companies Act 1985. The Company’sprofit for the year was £9,000 (1999–loss £83,000).

Research and developmentResearch and development expenditure is written off as incurred.

TaxationCorporation tax payable is provided on taxable profits at the current rate.

Deferred taxation is provided using the liability method on all timing differences only to the extent that they are expected to reverse in thefuture without being replaced, except that the deferred tax effects of timing differences arising from pensions and other post-retirementbenefits are always recognised in full.

Tangible fixed assetsTangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is provided on all tangible fixedassets, at rates calculated to write off the cost, less estimated residual value, of each asset on a straight-line basis over its expected usefullife, as follows:

Computer equipment 3 yearsOffice fixtures and fittings 3 years Office equipment 3 years

Residual value is calculated on prices prevailing at the date of acquisition.

InvestmentsFixed asset investments are shown at cost less provision for impairment.

Liquid resourcesLiquid resources comprise short term cash deposits.

Pension costsThe Group does not maintain any pension plans, but makes defined contributions to the personal pension arrangements of all itsexecutive Directors and employees. The amount charged to the profit and loss account in respect of pension costs is the contributionpayable in the year.

LeasesRentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis.

Foreign currencyTransactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. Any gain or lossarising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the Profit andLoss account.

38

OfficeComputer fixtures and Office

equipment fittings equipment Total9 Tangible fixed assets £000’s £000’s £000’s £000’s

Group

Cost:

At 1 January 2000 82 19 35 136

Additions 23 73 21 117

At 31 December 2000 105 92 56 253

Depreciation:

At 1 January 2000 70 19 26 115

Charge for the year 12 8 6 26

At 31 December 2000 82 27 32 141

Net book value:

At 1 January 2000 12 - 9 21

At 31 December 2000 23 65 24 112

The Company has no tangible fixed assets.

10 Fixed asset investmentsThe Company owns 100% of the share capital of Alizyme Therapeutics Limited, a company registered in England which has been includedin the consolidated results. The principal activity of Alizyme Therapeutics Limited is the same as that of the Company, being the discovery,development and commercialisation of pharmaceutical products, including the treatment of obesity, diseases related to obesity (such asdiabetes) and disorders of the gastrointestinal tract.

Subsidiary undertaking £000’s

Cost at beginning and end of year 179

Group Company

2000 1999 2000 199911 Debtors: Amounts falling due within one year: £000’s £000’s £000’s £000’s

Amounts owed by Group undertakings - - 14,979 9,924

Other debtors 57 64 11 4

Prepayments and accrued income 196 178 74 20

253 242 15,064 9,948

41

Notes to Financial Statements continued

6 Loss on ordinary activities before taxation 2000 1999

Loss on ordinary activities before taxation is stated after charging: £000’s £000’s

Depreciation of owned tangible fixed assets 26 33

Research and development 5,200 3,639

Operating lease rentals

– land and buildings 45 37

– other - 3

Auditors’ remuneration

– audit work 13 13

– other 31 45

7 Tax on loss on ordinary activitiesThere are trading losses of approximately £18,600,000 (1999–£13,100,000) available to carry forward against future tax liabilities.

8 Loss per shareThe basic and diluted loss per share for the year end 31 December 2000 is based on the loss of £5,635,000 (31 December 1999 - loss of£4,134,000) and on 62,900,000 ordinary shares (1999 - 41,676,000 ordinary shares), being the weighted average number of ordinaryshares in issue and ranking for dividend during the year.

In accordance with Financial Reporting Standard No. 14 “Earnings per share”, no potential ordinary shares have been included in thecalculation of fully diluted earnings per share because they would not increase the net loss per share.

40

14 Provisions for liabilities and charges2000 1999

£000’s £000’s

Provision for NI on share option gains 37 -

A provision of £37,000 has been recognised for National Insurance contributions that will be payable if gains are realised upon the exercise of share options issued after 6 April 1999. The provision is based upon the closing share price of the Company on 31 December 2000 andallocated over the performance period of each employee, where the performance period is the period during which the employee mustperform the services necessary to become unconditionally entitled to the options.

Any liability that may arise will not be payable after 26 January 2007.

15 Called-up share capital2000 1999

a) Ordinary shares of 2p each £000’s £000’s

Authorised:

250,000,000 ordinary shares of 2p each 5,000 5,000

Allotted, called-up and fully paid:

78,827,000 ordinary shares of 2p each (1999–49,562,000) 1,577 991

During the year 21,203,049 shares with a nominal value of 2p were issued through a placing and open offer. In addition, 7,054,816 shareswere issued in order to satisfy the exercise of warrants and 182,481 shares were issued to SmithKline Beecham plc. The remaining 825,000shares were issued as a result of the exercise of share options under the Alizyme plc Unapproved Share Option Scheme (see note 15b).

43

Notes to Financial Statements continued

Group Company

2000 1999 2000 199912 Creditors: Amounts falling due within one year £000’s £000’s £000’s £000’s

Trade creditors 897 617 177 28

Other taxation and social security costs 137 134 - -

Accruals and deferred income 1,080 555 124 51

2,114 1,306 301 79

13 Financial instrumentsThe Group’s financial instruments comprise cash and liquid resources and various items such as prepayments, trade creditors and accruals,which arise directly from the Group’s operations. It is, and has been throughout the period under review, the Group’s policy that nospeculative trading in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk and liquidity risk. The Board reviews and agrees policiesfor managing each of these risks and they are summarised below. These policies have remained unchanged since the beginning of 2000.

i) Interest rate riskThe Group has no financial assets other than sterling cash deposits of £22,014,000 (1999–£4,258,000) which are part of the financingarrangements of the Group. The sterling cash deposits comprise deposits placed on the money market for periods of up to three months andat call. The Group seeks to maximise interest receipts within these parameters.

ii) Liquidity riskThe Group’s policy throughout the year regarding liquidity has been to maximise the return on funds placed on deposit but to minimise theassociated risk by placing funds in low risk cash deposits.

The Group held the following financial assets at 31 December 2000 £’000

Assets held as part of the financing arrangements of the Group:

Sterling cash deposits 22,014

Cash 342

22,356

The sterling cash deposits comprise deposits placed on money markets for periods up to three months and at call. The weighted averageinterest rate on these cash deposits is 5.86% and the weighted average time for which the rate is fixed is 27 days.

The Group held financial liabilities at the year end of short term creditors, such as trade creditors and accruals, and a provision for NationalInsurance on share option gains.

iii) Borrowing facilitiesThe Group has no borrowing facilities available to it.

iv) Fair value of financial assetsThe Directors consider there to be no material difference between the book value and the fair value of the Group’s financial instruments atthe Balance Sheet date.

v) Market price riskThe Group’s exposure to market price risk comprises interest rate exposure. Group funds are invested in money market cash deposits with theobjective of maintaining a balance between accessibility of funds and competitive rates of return. In practice, this has meant that nodeposits were made with a maturity greater than 61 days during the year.

42

15 Called-up share capital (continued)At At

1 January Options Options 31 December DateAlizyme Therapeutics 2000 granted lapsed 2000 Exercise when ExpiryLimited Scheme Number Number Number Number price exercisable date

Alizyme Therapeutics Limited Unapproved Share Option Scheme

585,000 - (25,000) 560,000 £1.50 18/07/96 21/04/03

56,250 - - 56,250 £2.00 18/07/96 10/06/03

340,000 - (15,000) 325,000 £4.00 18/07/96 10/06/03 to

19/06/03

981,250 - (40,000) 941,250

Beeson Gregory Limited and Smithkline Beecham plc hold options over 200,000 and 416,666 ordinary shares of Alizyme plc respectively,with exercise prices of 60p and 240p, which expire on 20 June 2002 and 31 December 2001.

c) WarrantsOn 23 July 1999, the Company issued 7,054,973 Units in a placing and open offer. Each unit comprised two ordinary shares and onewarrant. Each warrant entitles the warrant holder to subscribe for one ordinary share in the Company at a price of 40 pence up until30 June 2000.

At 31 December 2000, all 7,054,973 warrants had been exercised.

Capital Share premium Profit andReserve account loss account Total

16 Reserves £000’s £000’s £000’s £000’s

Group:

At 1 January 2000 1,530 13,380 (12,657) 2,253

Share issues after expenses - 22,375 - 22,375

Retained loss for the year - - (5,635) (5,635)

At 31 December 2000 1,530 35,755 (18,292) 18,993

Share premium Profit andaccount loss account Total

£000’s £000’s £000’s

Company:

At 1 January 2000 13,380 (36) 13,344

Share issues after expenses 22,375 - 22,375

Retained profit for the year - 9 9

At 31 December 2000 35,755 (27) 35,728

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Notes to Financial Statements continued

15 Called-up share capital (continued)

b) Share optionsThere are four share option schemes, three concerning options over the ordinary shares of Alizyme plc and one concerning options over theordinary shares of Alizyme Therapeutics Limited. The Directors and employees of the Group hold options under three share option schemes.The movements in the schemes during the year were as follows:

Alizyme plc Schemes:At At

1 January Options Options Options 31 December Date2000 granted exercised lapsed 2000 Exercise when Expiry

Number Number Number Number Number price exercisable date

The Alizyme plc 1996 Unapproved Executive Share Option Scheme (i)

466,000 - - - 466,000 60p (i) 18/07/03

to 12/05/05

300,000 - - - 300,000 30p (i) 28/04/05

206,000 - - - 206,000 32.5p (i) 12/05/05

to 12/11/05

600,000 - - - 600,000 38p (i) 20/07/06

- 200,000 - - 200,000 64p (i) 26/01/07

- 660,655 - - 660,655 145p (i) 20/09/07

Alizyme plc Unapproved Share Option Scheme (ii)

2,925,000 - (750,000) - 2,175,000 30p 18/07/96 19/06/03

1,700,000 - (75,000) - 1,625,000 80p 18/07/96 19/06/03

281,250 - - - 281,250 40p 18/07/96 20/06/03

6,478,250 860,655 (825,000) - 6,531,905

No share options exist nor have any been issued or cancelled in respect of The Alizyme plc 1996 Inland Revenue Approved Executive ShareOption Scheme.

(i) Options granted under The Alizyme plc 1996 Unapproved Executive Share Option Scheme are subject to an exercise condition that anoption cannot be exercised unless the share price of the Company’s ordinary shares have increased by an amount more than the increase in the FTSE All Share Index over a given period.

(ii) The Alizyme plc Unapproved Share Option Scheme runs in parallel with the Alizyme Therapeutics Limited Unapproved Share OptionScheme, such that a participant who exercises options granted under one of these schemes may not exercise options granted under theother. These two schemes were established with the intention of rewarding participants in the event the Company was floated or thebusiness was disposed of. No further options will be granted under these schemes.

44

Financial Advisor Nomura International plcNomura House1 St Martin’s-le-GrandLondon EC1A 4NP

Solicitors Simmons & SimmonsCity PointOne Ropemaker StreetLondon EC2Y 9SS

Patent Attorneys Kilburn & Strode20 Red Lion StreetLondon WC1R 4PJ

Auditors Arthur AndersenBetjeman House104 Hills RoadCambridge CB2 1LH

Bankers Barclays Bank PLCPO Box 215 Bene’t StreetCambridge CB4 3UT

Financial Public Relations Buchanan Communications Limited107 CheapsideLondon EC2V 6DT

Company Registrar Capita IRG plcBalfour House390/398 High RoadIlfordEssex IG1 1NQ

47

Corporate Advisors Notes to Financial Statements continued

17 Reconciliation of movements in Group shareholders’ funds2000 1999

£000’s £000’s

Loss for the year (5,635) (4,134)

New ordinary shares issued net of expenses 22,961 4,635

Net addition to shareholders’ funds 17,326 501

Opening shareholders’ funds 3,244 2,743

Closing shareholders’ funds 20,570 3,244

18 Financial commitmentsAnnual commitments under non-cancellable operating leases are as follows:

Group Company Group Company2000 2000 1999 1999

£000’s £000’s £000’s £000’s

Land and buildings with an expiry date:

– within one year - - 14 -

– between two and five years 62 - - -

Research and development with an expiry date:

– within one year 589 - 628 -

– between two and five years - - - -

19 Pension arrangementsThe Group does not maintain any pension plans but makes defined contributions to the private pension arrangements of all its executiveDirectors and employees.

Contributions in the year to 31 December 2000 were £87,000 (1999–£82,000).

20 Contingent liabilitiesIn May 2000 the Group acquired the rights to ATL-1251 (renzapride) from SmithKline Beecham plc. On 13 November 2000, the Grouprenegotiated the commercial terms of that agreement and SmithKline Beecham plc agreed to forgo royalty payments from the Group inconsideration for receiving a one-off payment of £3,000,000. The payment will only be made after first regulatory approval of the productfor sale in a major market.

46

Glossary of Terms

agonist a compound that binds to a receptor on a cell and which, as a consequence, evokes an active response

antagonist a compound that binds to a receptor on a cell and which, as a consequence, prevents a response to an agonist

Body Mass the classification of overweight andIndex (BMI) obesity is based on the measurement

of body mass index. BMI = Weight (kg)/Height (m)2

colon that part of the large intestine extending from the caecum to the rectum

constipation the condition in which bowel movements are delayed or inadequate resulting inundue retention of faeces in the colon

CTX clinical trials exemption; authoritygiven by the Medicines Control Agencyfollowing application to test drugproducts in patients

diabetes a range of conditions characterised by high blood sugar and glucose intolerance

generic a drug product, other than the original,where the drug is not covered by apatent

GLP-1 glucagon-like peptide-1; a hormone which is released by the gut in response to food intake, that directly stimulates insulin release, thus controlling blood glucose levels

5-HT3 or 4

sub-classes of the receptor for receptor 5-hydroxy tryptamine, a

neurotransmitter substance found in the body

hydrolysis the breakdown of a substance byreaction with water

IBD inflammatory bowel disease; diseases of unknown cause which are characterised by chronic inflammation of the gastrointestinal tract

IBS irritable bowel syndrome; a disturbed state of intestinal motility for which no cause can be found

lipase an enzyme that catalyses the hydrolysisof fat

lipase inhibitor a substance that blocks the action of lipase enzyme

mimetic a compound which imitates the action of the parent molecule in biological testsand in humans

mucositis inflammation of the cells of the mucousmembranes that line the hollow organs of the body. e.g. the mouth andgastrointestinal tract

obesity a state of excess body fat; a patient with BMI in excess of 30 is consideredclinically obese

Phase I the first safety test of a new drug in clinical trials man, usually conducted in healthy

volunteers

Phase II early efficacy and safety trials conductedclinical trials in limited numbers of patients. They

include dose-ranging studies to establishan appropriate range of doses

Phase III major efficacy and safety trials in large clinical trials numbers of patients in multiple trial centres

pre-clinical activities prior to testing in humansdevelopment including pilot manufacture, toxicology,

metabolism studies

recombinant the manufacture of a protein in a microprocess organism resulting from procedures

and techniques to isolate, manipulateand join together segments of DNA

steroids a class of drugs used to treat inflammatory diseases such as IBD

toxicology the study of the adverse effects of substances on biological systems, and of their detection and treatment

ulcerative a chronic inflammatory disease of the colitis colon and/or rectum D

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48

Granta ParkGreat AbingtonCambridgeCB1 6GSUnited Kingdom

T +44 (0)1223 896000F +44 (0)1223 896001www.alizyme.co.uk

Alizyme plc