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Directors' Report

The Directors present their annual report on the affairs of the Group, together with the audited financial statements for the year ended 30 June 2008.

BUSINESS REVIEW AND FUTURE DEVELOPMENTS

Sinclair Pharma plc is an international specialty pharmaceutical company. Its sales and marketing operation is already present in France,Italy, the UK, Spain and Portugal, and a complementary marketing partner network spans more than 80 countries.

Sinclair has proven expertise in acquiring or developing commercially attractive and undervalued products, registering these products and bringing them to market within a short time frame. The Company focuses on niche therapeutic areas and its current portfolio includes products for dermatological conditions and oral health.

In addition to the risk factors and key performance indicators laid out below, there can be found further information about the business, its strategy, structure, products and the markets in which it competes, and future developments within pages 4 to 19 of this report.

Principal risks and uncertainties
Sinclair Pharma plc is a business that depends on product revenues through its own sales and marketing operations and marketing partners, a successful pipeline to build future revenues, other business development activities to generate future revenues, and good management of the finances of the Group. The main risks associated with these factors are outlined below. Information on financial risk management is set out in note 2 to the financial statements.

Risk associated with commercialised success of products

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

Risk associated with pipeline products

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

Competition and intellectual property risk

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

Key performance indicators
Sinclair measures its performance according to a wide range of criteria. The main criteria are as follows:

Results, earnings and dividends

The profit for the financial year was £3,338,000 (2007: loss of £4,206,000). The Directors do not recommend a dividend (2007: £nil).

Directors

Biographies of the current Directors are detailed on pages 18 and 19. Dr Flynn and Mr Harris retire by rotation, and Dr Flynn will be available for reappointment at the AGM. Mr Harris has decided to step down from the Board at the AGM, and accordingly will not offer himself for re-election. Details of the resolution to reappoint Dr Flynn are contained in the AGM notice.

Directors' interests

The interests of the Directors in the Group's share capital at the date of this report, at 30 June 2008 and at the start of the year were as follows:

Dr MJ Flynn's holding includes 3,030,259 shares held by his wife (2007: 2,490,000).
Mr RS Harris's holding of 43,478 shares is held by his wife (2007: 43,478).
Mr JAP Randall's holding includes 22,500 shares held by his wife (2007: nil).
Mr G Cook's holding of 100,000 shares is held by his wife (2007: 100,000).

Details of the Directors' share options, warrants and interests in shares held by the ESOT are included in the Directors' Remuneration Report on pages 28 to 33.

Structure of the Company's capital

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

Authority to issue and buy back shares

Each year at the AGM the Directors seek authority to allot shares and buy back shares. The authorities, when granted, last for 15 months or until the conclusion of the next AGM if sooner. At the last AGM held on 3 December 2007, shareholders gave authority for the Directors to allot relevant securities up to £311,597 and to allot for cash, equity securities having a nominal amount not exceeding in aggregate £93,479 (being 10% of the issued share capital). Shareholders also gave authority for the Directors to make market purchases of up to 9,347,898 shares (being 10% of the issued share capital). The Company did not make use of these authorities during the year.

Substantial shareholdings

At 13 October 2008, the Company has been notified (or are otherwise aware) of the following interests in 3% or more of the ordinary share capital.

Significant agreements

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

Directors and officers liability insurance

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

Health and safety

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

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

Research and development

The Group actively reviews technical developments in its markets with a view to taking advantage of the available opportunities to maintain and improve its competitive position. The Group has continued to invest in the development of new products during the year, details of which can be found in the Business Review on pages 10 to 15.

Payment to suppliers

It is the Group's policy to abide by the payment terms agreed with suppliers whenever it is satisfied that the supplier has provided goods and services in accordance with agreed terms and conditions. The Group's creditors days outstanding at 30 June 2008 were 77 days, (2007: 88 days). The Company has negligible trade creditors.

Employees

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

Every employee qualifies for our share option plans. The conditions and restrictions on qualifying employees are set out on pages 28 and 30 of the Directors' Remuneration Report. This ensures that employees are able to share the success of the business as it grows and have a sense of ownership. Additionally, we have adaptable personnel policies, enabling flexible working practices including internet access from home using broadband and wireless technology.

Disabled employees

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

Charitable and political donations

There were no charitable or political donations during the year (2007: £nil).

Statement of Directors' responsibilities in respect of the Annual Report, the Directors' Remuneration Report and the financial statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, issued by the IASB. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period.

In preparing those 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;
• state that the financial statements comply with IFRS as adopted by the European Union, and IFRS issued by the IASB; and
• prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Company and Group will continue in business, in which case there should be supporting assumptions or qualifications as necessary.

The Directors confirm that they have complied with the above requirements in preparing the financial statements.

The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website (www.sinclairpharma.com) and legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Statement as to Disclosure of Information to Auditors

The Directors, in office at the date of this Report, have each confirmed that:

• so far as they are aware, there is no relevant audit information of which the Company's auditors are unaware; and
• each Director has taken all the steps that he/she ought to have taken as a Director to make himself/herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

This information is given and should be interpreted in accordance with the provisions of Section 234ZA of the Companies Act 1985.

Independent Auditors

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

Annual General Meeting

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

By order of the Board

ALAN OLBY

Company Secretary
31 October 2008