LifeCycle Pharma: Interim Report For the 9 Months Ended 30 September 2007

LifeCycle Pharma A/S (OMX: LCP): LCP-Tacro, LifeCycle Pharma’s proprietary, once-daily tacrolimus tablet for the treatment of organ transplant patients, has demonstrated a best in class profile when compared to both Prograf® and Advagraf®, the only two other tacrolimus products currently marketed. Interim results from the ongoing Phase II clinical trial in kidney transplant patients show that LCP-Tacro has a superior profile when compared to Prograf, including better pharmacokinetics, once-a-day tablet formulation and higher bioavailability. In addition, the completed Phase I head-to-head clinical trial of LCP-Tacro versus Advagraf for the prevention of organ rejection after transplantation confirmed that LCP-Tacro has approximately 50% higher bioavailability, a flatter product profile, and potential for administration at lower daily doses when compared to Advagraf. Dear Shareholder, For the third quarter of 2007, LifeCycle Pharma reported a net loss of DKK 2.2 million (approximately EUR 0.3 million) compared to a net loss of DKK 36.9 million (approximately EUR 5.0 million) for the same period in 2006. Combined with the net loss for the first half of 2007, Lifecycle Pharma has reported a net loss of DKK 87.9 million (approximately EUR 11.8 million) for the first nine months of 2007. The corresponding net loss for the first nine months of 2006 was DKK 101.0 million (approximately EUR 13.6 million). During the first nine months of 2007, LifeCycle Pharma recognized DKK 60.7 million (approximately EUR 8.1 million) in revenues compared to DKK 4.0 million (approximately EUR 0.5 million) in the same period of 2006. Milestone payments of USD 9 million under the LCP-FenoChol collaboration with Sciele Pharma were recognized as revenues in the third quarter of 2007. For the first nine months of 2007, LifeCycle Pharma’s research and development costs amounted to DKK 120.6 million (approximately EUR 16.2 million) compared to DKK 87.9 million (approximately EUR 11.8 million) during the same period in 2006. The higher research and development costs reflect the increased activity in the company’s pipeline, primarily the costs related to the clinical trials carried out, including two Phase II clinical studies for LCP-Tacro and LCP-AtorFen, but also costs related to the increased number of employees working within research and development. Administrative expenses increased from DKK 16.8 million (approximately EUR 2.2 million) in the first nine months of 2006 to DKK 38.1 million (approximately EUR 5.1 million) in the first nine months of 2007. This increase is attributable to the general strengthening of administrative functions following the company’s IPO in November 2006, leading to increased personnel expenses and warrant compensation costs. Further, the company has established an investor relation function and a subsidiary in the US. At 30 September 2007, LifeCycle Pharma had cash and cash equivalents of DKK 397.4 million (approximately EUR 53.3 million). Outlook for 2007 Based on the results for the nine months ended 30 September 2007, LifeCycle Pharma has improved its financial guidance for the year. In earlier disclosed financial guidance for 2007, expressed in the Annual Report for 2006, Lifecycle Pharma projected an operating loss of DKK 260 to 285 million and a net loss in the range of DKK 255 to 280 million. Even though the company has already fulfilled most of the clinical and regulatory milestones set up for 2007, it has been able to demonstrate significant cost savings compared to the original guidance. Accordingly, the company is now projecting an operating loss for 2007 of DKK 160 to 185 million and a net loss in the range of DKK 145 to 170 million. The improved expectations for the year’s result arise from general savings in the clinical studies and a lower USD-rate than anticipated, combined with higher financial income, and the ability of meeting the company’s business and scientific milestones with a lower number of employees than anticipated. Further, the cash position is positively affected by higher proceeds from the exercise of employee warrants. Previously, the company’s cash position at year end was expected to be in the range of DKK 215 to 240 million. Based on the above changes in the financial guidance, the company is now expecting a 31 December 2007 cash position in the range of DKK 315 to 340 million. The above estimates are subject to possible change primarily due to the timing and variation of clinical activities, related costs and fluctuating exchange rates. Also, no further outlicense agreements are expected this year. Highlights for the Third Quarter of 2007 During the third quarter of 2007, LifeCycle Pharma continued the positive development from the first half year and achieved the following major business and scientific milestones: On 12 July 2007, LifeCycle Pharma announced the initiation of a US Phase II clinical trial program using LCP-AtorFen, a fixed-dose combination of atorvastatin and fenofibrate, for the treatment of patients with mixed dyslipidemia. LCP-AtorFen will be a powerful and safe treatment of high cholesterol levels, addressing three primary cardiovascular risk factors: low density lipoprotein cholesterol (LDL-C), high density lipoprotein cholesterol (HDL-C) and triglycerides (TG). In August 2007, LifeCycle Pharma received US FDA approval for its novel formulation of fenofibrate in 120 mg and 40 mg dosage strengths for the treatment of hyperlipidemia and hypertriglyceridemia. This fenofibrate utilizes LifeCycle Pharma’s MeltDose technology which is designed to provide enhanced absorption and greater bioavailability for certain orally delivered products. The FDA approval triggered a milestone payment to LifeCycle Pharma of USD 4 million, which, together with the upfront payment of USD 5 million received when signing the agreement with Sciele Pharma, was recognized as revenues in the third quarter of 2007. Subsequent Events On 26 October 2007, LifeCycle Pharma announced positive interim Phase II clinical trial results for LCP-Tacro for the treatment of kidney transplant patients. The interim results based on 10 patients showed that LCP-Tacro had a superior profile when compared to Prograf, including better pharmacokinetics (PK), once-a-day tablet formulation and higher bioavailability. Prograf is currently marketed worldwide by Astellas Pharma as twice-a-day capsules of tacrolimus. On 7 November 2007, LifeCycle Pharma announced results from a Phase I head-to-head clinical trial comparing LCP-Tacro to Advagraf, currently marketed in a few European countries as a once-daily capsule version of tacrolimus. The results of the trial, which was designed as a multi-dose trial enrolling 19 healthy volunteers, confirmed that LCP-Tacro has approximately 50% higher bioavailability, a flatter product profile (i.e. a lower Cmax/Cmin, or peak-to-trough ratio), and potential for administration at lower daily doses when compared to Advagraf. On 20 November 2007, LifeCycle Pharma announced that it had completed patient enrollment in its Phase II clinical trial of LCP-AtorFen for the treatment of mixed dyslipidemia to compare LCP-AtorFen with Lipitor® (40 mg atorvastatin calcium tablets) and Tricor® (145 mg fenofibrate tablets). In addition, the company announced that it has initiated a 52-week, open-label extension study in order to capture additional safety and efficacy data on the use of LCP-AtorFen in patients with mixed dyslipidemia. Product Pipeline During the third quarter of 2007 LifeCycle Pharma continued to develop its broad portfolio of products in various stages of development. As per end of September 2007 the clinical pipeline includes six product candidates. 1. LCP-FenoChol (containing 120 mg / 40 mg active substance) is a tablet formulation of fenofibrate, a cholesterol-lowering therapeutic substance, indicated for the treatment of hyperlipidemia and hypertriglyceridemia. LCP-FenoChol was approved by the US FDA in August 2007. Under the existing Iicense agreement with Sciele Pharma, Inc. regarding the rights to market fenofibrate in 120 mg and 40 mg strengths in the US, Canada, and Mexico, Sciele Pharma has expressed that they expect to launch the product before year end. 2. LCP-Tacro (organ transplant) is being developed as a proprietary, best-in-class (once-daily) tacrolimus tablet. Tacrolimus is a market leading immunosuppressant used to prevent the body from rejecting a transplanted organ. Positive interim Phase II data for LCP-Tacro for the treatment of kidney transplant patients demonstrates a superior profile for LCP-Tacro when compared to Prograf, including better pharmacokinetics (PK), once-a-day tablet formulation and higher bioavailability. The study is designed as a three sequence, open-label, multi-center, prospective, conversion study in stable kidney transplant patients to assess and compare the pharmacokinetics and safety of LCP-Tacro tablets once-a-day versus Prograf capsules twice-a-day. Phase II clinical data are expected by year end 2007 or early 2008. LifeCycle Pharma has completed a Phase I head-to-head clinical trial comparing LCP-Tacro to Advagraf, currently marketed in Europe by Astellas Pharma as a once-daily capsule version of tacrolimus. The data confirmed that LCP-Tacro demonstrated approximately 50% higher bioavailability, flatter product profile and potential for administration at lower daily doses when compared to Advagraf. A Phase II clinical study in liver transplant recipients has been initiated and the treatment of the first patients with LCP-Tacro is planned for the end of November 2007. 3. LCP-Tacro (autoimmune) is designed to be a strong immunosuppressant that LifeCycle Pharma believes may be effica?cious not only in preventing organ rejection after transplantation but also in a number of autoimmune diseases. In many of these disease categories, patients today risk disability or death. Physicians can currently, often as last resorts, only offer expensive, injectable antibody therapy, long-term, high-dose steroid therapy or other drugs with severe side effects. The efficacy of tacrolimus has been shown in several of these indications, but Lifecycle Pharma believes the usage of tacrolimus has been hampered by the inconve?nience, variability and unwanted side effects associ?ated with the current formulation. Issues that the company believes could be eliminated with LCP-Tacro. Based on the positive results from the clinical programmes with LCP-Tacro, LifeCycle Pharma is currently evaluating development and registration strategies for a number of potential indications, and expects to initiate Phase II studies in one autoimmune therapy area before the end of 2007. Where appropriate, LifeCycle Pharma may seek orphan drug status. 4. LCP-AtorFen is a fixed-dose combination therapy for the treatment of high cholesterol levels, combining atorvastatin (the active ingredient of Lipi?tor® currently marketed by Pfizer) and the lowest dose of fenofibrate without food effect. LCP-AtorFen is designed to be a once daily tablet offering a powerful and safe treatment of high cholesterol levels, addressing three primary cardiovascular risk factors: low density lipoprotein cholesterol (LDL-C), high density lipoprotein cholesterol (HDL-C) and triglycerides (TG). 220 patients has been enrolled in a Phase II double-blind, randomized, active controlled study to compare LCP-AtorFen with Lipitor and Tricor in patients with mixed dyslipidemia over 12 weeks followed by an open-label extension study for one year. 5. LCP-Lerc is an oral formulation of lercanidipine, a Calcium Channel Blocker (CCB) used in the treatment of hypertension. The product is being developed in collaboration with Recordati as a follow-on product to Zanidip/Lercadip. By applying LifeCycle Pharma’s MeltDose technology to lercanidipine, thereby forming LCP-Lerc, the intention is to increase bioavailability in order to reduce the dose needed and the food effect so that patients can take the product without regard to meals. LCP-Lerc has successfully completed Phase I. Assuming progress as currently expected, an application for marketing authorization (MAA) is expected to be submitted by Recordati in 2008. 6. LCP-Feno (containing 145 mg / 48 mg active substance) is being developed as a potential AB-rated, substitutable version of Tricor 145 mg and 48 mg, which is currently marketed in the US by Abbott and in Europe by Solvay under the name Lipanthyl. The AB rated product is defined by the FDA as therapeutically equivalent to the branded one, meaning that is has the same expected clinical effect and safety profile when given as defined in the product labelling. LifeCycle Pharma has entered into collaboration with Sandoz for the US market and with Mylan for the European market. Our partners are currently considering when to initiate clinical studies for LCP-Feno. Key Figures The following key figures and financial ratios have been calculated in accordance with the recommendations of the Association of Danish Financial Analysts. Key figures comply with the requirements under IFRS and the Danish financial reporting requirements. All key figures and financial ratios are in conformity with the current accounting policies. The figures have been stated in thousands, except for the financial ratios.  Key Figures       9 Months ended 30 September Third Quarter 2007   2006 2007   2006 (Unaudited) DKK'000 DKK'000 DKK'000 DKK'000   Income Statement Revenue 60,702 3,990 53,668 1,782 Research and development costs (120,601) (87,887) (46,464) (29,037) Administrative expenses (38,087) (16,753) (12,662) (9,354) Operating loss (97,986) (100,650) (5,458) (36,609) Net financial income / (expenses) 10,068 (358) 3,221 (333) Net loss for the period (87,918) (101,008) (2,237) (36,942)     Balance Sheet Cash and cash equivalents 397,369 7,387 397,369 7,387 Total assets 448,184 51,418 448,184 51,418 Share capital 31,771 17,720 31,771 17,720 Total equity 393,176 (1,610) 393,176 (1,610)     Cash Flow Statement Cash flow from operating activities (69,191) (83,380) (26,231) (26,811) Cash flow from investing activities (2,570) (7,088) (513) (1,757) Cash flow from financing activities 4,472 10,631 6,973 (459) Cash and cash equivalents at period end 397,369 7,387 397,369 7,387     Financial Ratios (in DKK) Basic and diluted EPS (2.88) (5.70) (0.07) (2.08) Weighted average number of shares 30,573,731 17,719,381 30,800,894 17,719,816 Average number of employees (FTEs) 58 42 69 45 Assets/equity 1.14 (31.93) 1.14 (31.93) Financial Review LifeCycle Pharma publishes its financial statements in Danish Kroner (DKK). Solely for the convenience of the reader, this Interim Report contains a conversion of certain DKK amounts into Euro (EUR) at a specified rate. These converted amounts should not be construed as representations that the DKK amounts actually represent such EUR amounts or could be converted into EUR at the rate indicated or at any other rate. Unless otherwise indicated, conversion herein of financial information into EUR has been made using the Danish Central Bank’s spot rate on 30 September 2007, which was EUR 1.00 = DKK 7.4544. Revenues In the third quarter of 2007, LifeCycle Pharma recognized DKK 53.7 million in revenues, generated under the company’s collaboration agreements. Total revenues for the first nine months of 2007 amounts DKK 60.7 million compared to DKK 4.0 million in the same period of 2006. Upon market approval of LCP-FenoChol by the FDA, LifeCycle Pharma earned full right to the upfront milestone payment of USD 5 million received from Sciele Pharma when signing the license agreement. This approval was received in August 2007 and the USD 5 million was, together with an additional milestone payment of USD 4 million triggered by the approval, recognized as revenue in the third quarter of 2007. Research and Development Costs Research and development costs were DKK 120.6 million for the first nine months of 2007 compared to DKK 87.9 million for the same period 2006. The higher research and development costs reflect the increased activity in the company’s pipeline, primarily the costs related to the clinical trials carried out, but also costs related to the increased number of employees working within research and development. Over the course of 2007, the number of employees working within research and development has increased from 35 to 56. Further, LifeCycle Pharma has established a subsidiary in the US to monitor the clinical activities in the US and to maintain a close contact to the US authorities and market. Currently, all our clinical trials are being conducted in the US and Canada. Administrative Expenses Administrative expenses were DKK 38.1 million in the first nine months of 2007 compared to DKK 16.8 million in the similar period of 2006. This increase is attributable to the general strengthening of administrative functions following the company’s IPO in November 2006, leading to increased personnel expenses and warrant compensation costs. Further, the company has established an investor relation function and a subsidiary in the US. Warrant Compensation Costs During the first nine months of 2007, a total of DKK 13.6 million was recognized as share-based compensation. DKK 4.7 million was recognized for the third quarter. The comparable figures for 2006 were DKK 6.9 million for the first nine months, of which DKK 4.5 million were recognized in the third quarter. The warrant compensation costs for the first nine months of 2007 were allocated to research and development costs at DKK 5.6 million and to administrative expenses at DKK 8.0 million. Operating Loss LifeCycle Pharma’s operating loss for the first nine months of 2007 was DKK 98.0 million compared to DKK 100.7 million in the corresponding period of 2006. The operating loss for the third quarter was DKK 5.5 million compared to DKK 36.6 million in the third quarter of 2006. Financial Income During the first nine months of 2007, the company recognized net financial income of DKK 10.1 million compared to net financial expenses of DKK 0.4 million in the first nine months of 2006. The increasing financial income is a reflection of the interest on the net proceeds from the company’s IPO in November 2006. Net Loss Net loss for the first nine months of 2007 was DKK 87.9 million compared to DKK 101.0 million in the same period 2006. Cash Flow As of 30 September 2007, the balance sheet reflects cash and cash equivalents of DKK 397.4 million compared to DKK 464.7 million as of 31 December 2006. This represents a decrease of DKK 67.3 million, primarily related to the company’s operating activities for the period. The operating activities required cash flows of DKK 69.2 million compared to DKK 83.4 million in the corresponding period of 2006. The operating cash flow for the first nine months of 2007 is, however, positively affected by the revenues which were significantly higher in 2007 compared to 2006. Balance Sheet As of 30 September 2007, total assets were DKK 448.2 million compared to DKK 507.1 million at the end of 2006. Shareholders’ equity equalled DKK 393.2 million as of 30 September 2007 compared to DKK 458.1 million at the end of 2006. The forward looking statements and targets contained herein are based on LifeCycle Pharma A/S’s management’s current view and assumptions. Such statements involve known and unknown risks and uncertainties that may cause actual results, performance or events to differ materially from those anticipated herein. LifeCycle Pharma A/S expressly disclaim any obligation or undertaking to update or revise any forward looking statements, targets or estimates contained in this interim report to reflect any change in events, conditions, assumptions or circulations on which any such statements are based unless so required by applicable law. Executive Management’s and the Board of Directors’ Statement on the Interim Report The Executive Management and the Board of Directors have today considered and adopted the Interim Report of LifeCycle Pharma A/S for the 9 months ended 30 September 2007. The Interim Report is prepared in accordance with the Copenhagen Stock Exchange’s financial reporting requirements for listed companies. The Interim Report is in compliance with International Accounting Standard No. 34 (IAS 34), "Interim Financial Reporting” and additional Danish disclosure requirements for financial reporting of listed companies. We consider the applied accounting policies to be appropriate and, in our opinion, the Interim Report gives a true and fair view of the assets and liabilities, financial position, results of operation and cash flow of the Group. Horsholm, 27 November 2007           Executive Management     Flemming 0rnskov Michael Wolff Jensen       Board of Directors     Claus Braestrup Kurt Anker Nielsen Thomas Dyrberg (Chairman)     Jean Deleage Gerard Soula Income Statement         9 Months ended 30 September Third Quarter 9 Months ended 30 September Third Quarter 2007   2006 2007   2006 2007   2006 2007   2006 DKK'000 DKK'000 DKK'000 DKK'000 EUR'000 EUR'000 EUR'000 EUR'000 Revenue 60,702 3,990 53,668 1,782 8,143 535 7,200 239 Research and development costs (120,601) (87,887) (46,464) (29,037) (16,178) (11,790) (6,233) (3,895) Administrative expenses (38,087) (16,753) (12,662) (9,354) (5,109) (2,247) (1,699) (1,255) Operating loss (97,986) (100,650) (5,458) (36,609) (13,144) (13,502) (732) (4,911) Financial income 14,018 764 5,421 128 1,881 102 727 17 Financial expenses (3,950) (1,122) (2,200) (461) (531) (150) (295) (62) Loss before tax (87,918) (101,008) (2,237) (36,942) (11,794) (13,550) (300) (4,956) Tax for the period - - - - - - - - Net loss for the period (87,918) (101,008) (2,237) (36,942) (11,794) (13,550) (300) (4,956) Basic and diluted EPS (in DKK / EUR) (2.88) (5.70) (0.07) (2.08) (0.39) (0.76) (0.01) (0.28) Weighted average number of shares 30,573,731 17,719,381 30,800,894 17,719,816 30,573,731 17,719,381 30,800,894 17,719,816 Balance Sheet – Assets         30 September 31 December 30 September 30 September 31 December 30 September 2007 2006 2006 2007 2006 2006 DKK'000 DKK'000 DKK'000 EUR'000 EUR'000 EUR'000 Licenses and rights 742 779 792 100 105 106 Intangible assets 742 779 792 100 105 106 Property, plant and equipment 21,300 23,264 15,632 2,857 3,120 2,097 Leasehold improvements 5,288 5,848 6,068 709 785 814 Prepayments for property, plant and equipment - - 9,426 - - 1,264 Property, plant and equipment 26,588 29,112 31,126 3,566 3,905 4,175 Non-current assets 27,330 29,891 31,918 3,666 4,010 4,281 Trade receivables 4,022 6,707 2,685 540 900 360 Other receivables 18,018 5,430 4,165 2,417 728 559 Prepayments 1,445 371 5,263 194 50 706 Receivables 23,485 12,508 12,113 3,151 1,678 1,625 Cash and cash equivalents 397,369 464,658 7,387 53,307 62,333 991 Current assets 420,854 477,166 19,500 56,458 64,011 2,616 Assets 448,184 507,057 51,418 60,124 68,021 6,897 Balance Sheet – Equity and Liabilities         30 September 31 December 30 September 30 September 31 December 30 September 2007 2006 2006 2007 2006 2006 DKK'000 DKK'000 DKK'000 EUR'000 EUR'000 EUR'000   Share capital 31,771 30,370 17,720 4,262 4,074 2,377 Share premium 724,645 717,039 229,567 97,210 96,190 30,796 Other reserves 431 - - 58 - - Retained earnings/loss (363,671) (289,326) (248,897) (48,786) (38,813) (33,389)   Equity 393,176 458,083 (1,610) 52,744 61,451 (216)     Finance lease 20,859 24,665 25,075 2,798 3,309 3,364   Non-current liabilities 20,859 24,665 25,075 2,798 3,309 3,364     Finance lease 5,352 6,081 5,956 718 816 799 Trade payables 17,720 11,957 17,738 2,377 1,604 2,380 Deferred revenue - 373 746 - 50 100 Debt to shareholders - 166 - - 22 - Other payables 11,077 5,732 3,513 1,487 769 470   Current liabilities 34,149 24,309 27,953 4,582 3,261 3,749   Liabilities 55,008 48,974 53,028 7,380 6,570 7,113   Equity and liabilities 448,184 507,057 51,418 60,124 68,021 6,897 Cash Flow Statement   9 months ended 30 September 9 months ended 30 September 2007   2006 2007   2006 DKK'000 DKK'000 EUR'000 EUR'000   Operating loss (97,986) (100,650) (13,144) (13,502)   Share-based payment 13,573 6,932 1,821 930 Depreciation and amortization 5,130 3,416 688 458 Changes in working capital (138) 7,280 (19) 977   Cash flow from operating activities before interest (79,421) (83,022) (10,654) (11,137)   Interest received 13,245 764 1,777 102 Interest paid (3,015) (1,122) (404) (150) Corporate tax paid - - - -   Cash flow from operating activities (69,191) (83,380) (9,281) (11,185)     Purchase of property, plant and equipment (2,570) (7,088) (345) (950)   Cash flow from investing activities (2,570) (7,088) (345) (950)     Proceeds from bank borrowings and finance lease - 4,245 - 569 Installments on bank borrowings and finance lease (4,535) (3,539) (608) (475) Proceeds from issuance of shares, net 9,007 9,925 1,208 1,331   Cash flow from financing activities 4,472 10,631 600 1,425     Increase/(decrease) in cash and cash equivalents (67,289) (79,837) (9,026) (10,710) Cash and cash equivalents at beginning of period 464,658 87,224 62,333 11,701   Cash and cash equivalents at end of period 397,369 7,387 53,307 991     Cash and cash equivalents at end of period comprise:   Restricted bank deposit 1,443 - 194 - Deposit on demand and cash 395,926 7,387 53,113 991   397,369 7,387 53,307 991 Statement of Changes in Equity               Number of shares Share capital Share premium Other reserves Retained earnings Total Total   DKK'000 DKK'000 DKK'000 DKK'000 DKK'000 EUR'000   Equity as of 1 January 2006 4,428,569 4,429 242,822 0 (154,821) 92,430 12,399   Comprehensive income: Net loss for the period (101,008) (101,008) (13,550)   Total comprehensive income (101,008) (13,550)   Warrant exercises 1,385 1 42 43 6   Share-based payment 6,932 6,932 930   Bonus Shares 13,289,862 13,290 (13,290) 0 0   Costs related to capital increases     (7)     (7) (1)   Equity as of 30 September 2006 17,719,816 17,720 229,567 0 (248,897) (1,610) (216)   Comprehensive income: Net loss for the period (46,705) (46,705) (6,265)   Total comprehensive income (46,705) (6,265)   Issuance of shares 12,650,000 12,650 543,950 556,600 74,667   Share-based payment 6,276 6,276 842   Costs related to capital increases     (56,478)     (56,478) (7,577)   Equity as of 31 December 2006 30,369,816 30,370 717,039 0 (289,326) 458,083 61,451   Comprehensive income: Net loss for the period (87,918) (87,918) (11,794)   Total comprehensive income (87,918) (11,794)   Warrant exercises 1,400,889 1,401 7,663 9,064 1,216   Share-based payment 13,573 13,573 1,821   Costs related to capital increases (57) (57) (8)   Exchange rate adjustment of investments in subsidiaries 431   431 58   Equity as of 30 September 2007 31,770,705 31,771 724,645 431 (363,671) 393,176 52,744 The share capital is not available for distribution, while other reserves are distributable for dividend purposes subject to the provision of the Danish Public Company Act. Note 1. Accounting Policies The interim report has been prepared in accordance with the Copenhagen Stock Exchange’s financial reporting requirements for listed companies. The interim report is in compliance with International Accounting Standard No. 34 (IAS 34), "Interim Financial Reporting”. Effective from 1 January 2007, the group has adopted the new and amended standards issued by the International Accounting Standards Board with effective dates as of 1 January 2007. The adoption of these new and amended standards has not affected the financial reporting of the group for any periods presented in this interim report. Except for the adoption of the new and amended standards issued by the IASB, the accounting policies used for the interim report are consistent with the accounting policies used in the company’s latest annual report, which was prepared in accordance with the IFRS as adopted by the EU and the additional Danish disclosure requirements for financial reporting of listed companies. The interim report has been prepared in Danish Kroner (DKK), which is the functional currency of the company and the group. Note 2. Warrants LifeCycle Pharma has established warrant programs for board members, members of executive management, employees, consultants and advisors. All warrants have been issued by the company’s shareholders or by the board of directors pursuant to valid authorizations in LifeCycle Pharma’s articles of association. Vesting Conditions Warrants issued during the period 2003 to 2005 vest in general at 1/36 per month from the date of grant. However, some warrants are not subject to vesting conditions, but vest in full at the time of grant. Effective from 2006, warrants generally vest at 1/48 per month from the date of grant. However, some warrants are not subject to vesting conditions but vest in full at the time of grant. Warrants granted prior to 1 July 2004 cease to vest upon termination of the employment relationship regardless of the reason for such termination. Warrants granted after 1 July 2004 cease to vest from the date of termination in the event that (i) a warrant holder resigns without this being due to the company’s breach of contract, or (ii) if LifeCycle Pharma terminates the employment relationship where the employee has given the company good reason to do so. The warrant holder will, however, be entitled to exercise vested warrants in the first coming exercise period after termination. Exercise of warrants issued to board members, consultants and other advisors are conditional upon the warrant holder being connected to LifeCycle Pharma on the date of exercise. However, if the warrant holder’s position has been terminated without this being attributable to the warrant holder’s actions or omissions, the warrant holder shall be entitled to exercise vested warrants in the pre-determined exercise periods. Exercise Periods Vested warrants may generally be exercised during two three-week periods following publication of LifeCycle Pharma’s preliminary annual report and LifeCycle Pharma’s interim report for the first six months of the relevant financial year, respectively. Adjustments Warrant holders are entitled to an adjustment of the number of warrants issued and/or the exercise price applicable in the event of certain changes to LifeCycle Pharma’s share capital at a price other than the market price and in the event of payments of dividends in a given year in excess of 10% of the company’s equity. The number of warrants issued and the applicable exercise price was adjusted on 27 July 2006 to take into account the issue of bonus shares in the ratio 1:3, as resolved at the general meeting on 27 July 2006. Please refer to LifeCycle Pharma’s latest annual report for additional details of the company’s warrant programs. Warrant Activity The following table specifies the warrant activity during the first nine months of 2007:           Employees Executive management Board of directors Other external Total             Outstanding as of 1 January 2006 1,237,796 1,140,500 373,528 42,000 2,793,824   Granted in the period 572,000 1,564,757 - 8,000 2,144,757   Exercised in the period (5,540) - - - (5,540)   Cancelled in the period (26,460) (211,250) - - (237,710)   Outstanding as of 30 September 2006 1,777,796 2,494,007 373,528 50,000 4,695,331   Granted in the period 96,000 32,381 - - 128,381   Change between categories 870,966 (650,966) (323,528) 103,528 -   Outstanding as of 31 December 2006 2,744,762 1,875,422 50,000 153,528 4,823,712   Granted in the period 590,000 - 55,000 - 645,000   Exercised in the period (718,077) (654,580) - (28,232) (1,400,889)   Cancelled in the period (50,181) - - - (50,181)   Outstanding as of 30 September 2007 2,566,504 1,220,842 105,000 125,296 4,017,642 In total, as of 30 September 2007, a total of 4,017,642 warrants were outstanding with a weighted average exercise price of DKK 34.24. 2,355,357 of these warrants had vested as of 30 September 2007. For comparison, as of 30 September 2006, a total of 4,695,331 warrants were outstanding with a weighted average exercise price of DKK 22.81. Warrant Compensation Costs Warrant compensation costs are calculated at the date of grant by use of the Black-Scholes valuation model with the following assumptions: (i) a volatility of 35%, determined as the average of the stock price volatility for a group of Danish an European pharma and biotech companies over 3 years; (ii) no payment of dividends; (iii) a risk free interest rate equalling the interest rate on a 5-year government bond on the date of grant; and (iv) a life of the warrants determined as the average of the date of becoming exercisable and the date of expiry. Warrant compensation costs are recognized in the income statement over the vesting period of the warrants granted. During the first nine months of 2007, a total of DKK 13.6 million was recognized as share-based compensation, of which DKK 4.7 million was recognized for the third quarter. The comparable figures for the first nine months of 2006 were 6.9 million of which DKK 4.6 million was recognized in the third quarter. The warrant compensation costs for the first nine months of 2007 were allocated to research and development costs at DKK 5.6 million and to administrative expenses at DKK 8.0 million.