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Vernalis to acquire the privately held UK biotech company Ionix Pharmaceuticals

06 July 2005

- Adds promising development stage pain programme IX-1003 -

Vernalis plc (LSE: VER, NASDAQ: VNLS) announced today that it has entered into an agreement to acquire the privately held UK company Ionix Pharmaceuticals Limited in a share-based transaction valuing Ionix at approximately £12.5 million. Completion of the transaction, which is not subject to approval by Vernalis' shareholders, is expected before the end of July.

Ionix's principal asset is IX-1003, a proprietary intranasal formulation of buprenorphine for acute post-operative pain. Buprenorphine is a well known opiate analgesic and the intranasal formulation is being developed to provide rapid pain relief whilst potentially reducing some side effects associated with opiates. The IX-1003 programme, which has completed phase I testing and is expected to commence phase II testing in 2H 2005, is partnered with Reckitt Benckiser Healthcare who will pay the development costs for this clinical study.

Ionix retained an option to co-promote IX-1003 in the US and will receive milestones and royalties through the development and commercialisation of the product. Should Vernalis exercise the Ionix option to co-promote IX-1003 at the end of the phase II trial, it will contribute to a proportion of the costs for future development and commercialisation in return for a share of profits.

Reckitt Benckiser also partner with Ionix on two pre-clinical programmes, IX-1004 for the treatment of chronic pain and IX-1005 for the treatment of opiate addiction. All three product candidates are based upon proprietary intranasal formulation technology for the delivery of buprenorphine, which is manufactured and marketed globally by Reckitt Benckiser and its licensees in other dosage forms.

Ionix also has proprietary technology and intellectual property in the field of ion channel drug discovery, which Vernalis will continue to investigate.

Commenting on the transaction, Simon Sturge, CEO of Vernalis, said, “Ionix is a good strategic fit and adds a clinical programme that has the potential to provide a convenient alternative to other opiate analgesics currently on the market. It gives Vernalis an additional programme with co-promotion rights for our emerging sales and marketing infrastructure in the US . We look forward to co-promoting these products as we continue on our path to become a sustainable, self-funding, R&D-driven biotechnology company.”

Transaction details

In consideration for Vernalis acquiring the entire issued share capital of Ionix, Vernalis will issue to Ionix's shareholders 19,685,040 ordinary shares, representing approximately 9% of the enlarged issued share capital of Vernalis and valuing Ionix at £12.5 million. Of the 19,685,040 million shares, 17,847,769 million (90%) will be issued on completion of the transaction with the remaining shares being issued in July 2006, subject to reduction for any warranty or indemnity claims.

A cash payment of £5 million will be paid to existing Ionix shareholders on the receipt of the first marketing authorisation for IX-1003, subject to reduction for any warranty or indemnity claims.

As a result of the transaction, Funds advised by Apax Partners, Ionix's lead investor, will initially receive 15,245,564 of new Vernalis ordinary shares which will bring their holding in Vernalis to 27,389,243 ordinary shares, representing 12.6% of the enlarged issued share capital of Vernalis.

Ionix will be restructured prior to completion of the acquisition. Its existing premises on the Cambridge Science Park will be returned to the Landlord on completion of this transaction and Ionix staff will be made redundant, with the exception of six employees who will be retained by Vernalis to progress the newly acquired R&D programmes. Ionix will be acquired by Vernalis with no cash or liabilities, including any liabilities in respect of the property and redundancy programme. The unaudited gross assets of Ionix at 31 December 2004 were £7.0 million and the unaudited loss for the 12 months to 31 December 2004 was £7.7 million. The net assets of Ionix to be acquired by Vernalis following the restructuring are estimated to be £0.9 million.

The enlarged Vernalis will have a robust financial position, a marketed migraine treatment, frovatriptan, and a pipeline of product candidates comprising six clinical-stage products including a phase III programme for frovatriptan in menstrually related migraine patients; a phase II programme with V10153, and four phase I programmes. Vernalis expects progress during 2005 to include the initiation of three phase II studies, V10153 in acute ischaemic stroke, IX-1003 in acute post-operative pain and V2006 in Parkinson's disease, as well as regulatory submission of frovatriptan for menstrually related migraine in the first half of 2006.

- ends -

Enquiries:
Vernalis plc                     +44 (0) 118 977 3133
Simon Sturge, Chief Executive
Tony Weir, Chief Financial Officer
Julia Wilson, Head of Corporate Communications

Brunswick Group            +44 (0) 20 7404 5959
Jon Coles
Wendel Verbeek

Notes for Editors:

About Vernalis
Vernalis is a UK-based biotechnology company with a marketed migraine product, frovatriptan, and a development pipeline focused on central nervous system disorders and oncology. The company has five products in clinical development and collaborations with leading, global pharmaceutical companies including Novartis, Biogen Idec and Serono.  Vernalis is establishing a US commercial operation to co-promote frovatriptan alongside its North American licensing partner, Endo Pharmaceuticals, propelling the company towards its goal of becoming a sustainable, self-funding, R&D-driven biotechnology company. For further information about Vernalis, please visit www.vernalis.com

About Ionix
Ionix Pharmaceuticals, based in Cambridge UK , is a specialist in the discovery and development of new analgesic medicines for the treatment of acute and chronic pain. Combining novel drug delivery systems, proprietary drug targets and state-of-the-art chemistry, the company is developing medicines that are designed to alleviate pain associated with trauma, operative procedures, and debilitating diseases such as arthritis, diabetes and multiple sclerosis. Ionix Pharmaceuticals is a privately held company and was founded in 2001. For further information about Ionix, please visit www.ionixpharma.com

Safe Harbour statement: this news release may contain forward-looking statements that reflect the Company's current expectations regarding future events. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors including the success of the Company's research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies, the uncertainties related to the regulatory process , the successful integration of completed mergers and acquisitions and achievement of expected synergies from such transactions, and the ability of the Company to identify and consummate suitable strategic and business combination transactions.

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