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Vanguard Medica (VER)

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Tuesday 22 February, 2000

Vanguard Medica

Trading Update

Vanguard Medica Group PLC
22 February 2000


Dear Shareholder

We are writing to you again this year to update you on some of the major
areas of activity in the Company.  You will no doubt remember two major
events of the past year: our agreement with Cancer Research Ventures (CRV)
which will give us access to novel treatments for cancer, and the
acquisition of Cerebrus Pharmaceuticals last December.

Cerebrus Pharmaceuticals, based in Winnersh, Berkshire is a research
organisation with a highly talented team of 70 researchers working primarily
on new ways to treat diseases that involve the central nervous system (CNS).
Obesity and Parkinson's disease are the focus of the most advanced research
programmes.

Over the past two months we have been working to integrate the Vanguard and
Cerebrus organisations and to ensure that we prioritise our resources on the
best opportunities.

Cashburn
The acquisition of Cerebrus has re-emphasised the importance of prudent
management of our financial resources for the benefit of the business and
our shareholders.  As part of the integration exercise we have carried out a
thorough review of our current and future cash requirements and have already
implemented a number of measures to reduce our combined cashburn.

We have stopped work on the Cerebrus research project in cerebral malaria
and on sabcomeline and have also scaled back the activity on a number of
development programmes pending the outcome of discussions with partners.
This will help us to achieve an appropriate level of R&D expenditure for the
combined business this year.

The funding from F. Hoffmann-La Roche Ltd (Roche) under the collaboration on
our obesity programme represents a substantial financial contribution to the
research activities at our Winnersh site.  Our success in concluding this
collaboration, and the potential for further funding on our Parkinsonism
project and earlier stage programmes in our research portfolio emphasises
the quality of the work at Winnersh and the potential for future revenue
flows from this investment.  We expect to achieve further rationalisation
and savings during 2000.


Following a detailed review last month our research and development
portfolio looks as follows:

Obesity
Worldwide there has been a dramatic rise in the proportion of the population
classified as clinically obese.  In Britain, 15% of the population is now
classified as obese compared to only 8% in 1980.  In the USA, the problem is
more serious and 58 million Americans (up to a third of the adult
population) are estimated to be obese, with childhood obesity also showing a
dramatic rise.  Being overweight increases the risk of death and disease,
notably hypertension (raised blood pressure), stroke, diabetes, vascular
disease, some forms of cancer and osteoarthritis.  It has been estimated
that 50% of deaths in Americans aged 20-74 are attributable directly or
indirectly to obesity.

In December 1999, we announced an important new collaboration with Roche,
currently the leading pharmaceutical company in sales of prescription drugs
for the treatment of obesity.  Under the terms of this agreement, Roche has
taken up worldwide rights to our novel research programme for the treatment
of obesity and related disorders.  We will receive funding for the current
programme through a series of milestone payments during the research and
development phase, and future royalties.

This CNS project focuses on the important role which certain serotonin
receptors in the brain play in the normal control of food intake.  It is
believed that drugs which stimulate this receptor system will be an
effective new approach to the clinical treatment of obesity.  We have
discovered a series of potent and selective serotonin receptor agonists
which have shown encouraging results in pre-clinical studies designed to
demonstrate weight loss.  At its research laboratories in Basle, chemists
and pharmacologists within Roche are now working in parallel with our
research team on the programme.  Under current plans the project is
expected to move into Phase I clinical studies at the end of next year.

Parkinson's Disease
Parkinson's disease is a chronic, progressive and irreversible disease which
gradually destroys part of the brain which controls balance and fine muscle
movement.  Symptoms include shaking of the limbs, poor balance and an
inability to move.  It is most often diagnosed in patients aged between 50-
70.  The disease affects over a million people in the US and up to 100,000
in the UK and it is not well controlled by current therapies.

Our research team has discovered several series of selective adenosine A2A
receptor antagonists in a novel approach to the treatment of Parkinson's
disease.  To date a number of these compounds have shown promising activity
in models of the disease, suggesting that it may be possible to treat
symptoms without causing the involuntary movements that are one of the major
side effects of the current dopamine replacement therapies.

Following significant recent advances in this programme, the Company is
entering into discussions on potential research and development
collaborations with a number of multi-national pharmaceutical companies
which are interested in our progress in this area.  It is anticipated that a
selected compound will go forward into clinical development during 2001.

Collaboration with Cancer Research Ventures
The collaboration with Cancer Research Ventures Limited ('CRV') opens up
valuable opportunities for us in the rapidly emerging field of new cancer
treatments.  CRV is establishing a network of contacts with major cancer
research institutions around the world, with the objective of building a
portfolio of collaborations with leading researchers in oncology.  We are
currently evaluating a number of compounds for our cancer portfolio.

VML 600 - Hepatitis C and Liver Cancer
Four million Americans are known to be infected with the Hepatitis C virus
(HCV) and the World Health Organisation estimates that up to 170 million
people worldwide may be infected.  Around 15% of patients make a full
recovery from the virus but most chronically infected patients suffer from
cirrhosis of the liver and 20 - 30% develop liver cancer or liver failure
(HCV is the leading cause for liver transplantation in the US).  The most
common route of transmission of HCV is through intravenous drug use, sexual
transmission and, in the past, through blood transfusions with untreated
blood.  No vaccine is currently available.

In December 1998 we signed an agreement with 3M Pharmaceuticals to develop
their compound, known as VML 600 in our portfolio, as a potential treatment
for Hepatitis C.  This is one of the most promising of a series of compounds
designed by 3M to assist the body's immune system in fighting viral
infections.  We have now commenced a Phase IIa study in patients in Europe
with a further study anticipated to start in the US shortly.  Under the
terms of the original agreement we expect to review the results with our
partner in the second half of 2001 at which point we will decide on future
plans for the further development of this compound.

VML 670 (CEB 1555)  - Emesis (nausea and vomiting)
Cancer chemotherapy often requires patients to take repeated courses of
relatively toxic drugs in order to kill cancerous cells.  Severe nausea and
vomiting is a common side effect of this type of cancer treatment which is
distressing to patients and may lead to them failing to complete potentially
life-saving treatment.

Acute emesis usually occurs within 24 hours of the treatment, and can be
treated with existing drugs such as ZofranTM or KytrilTM.  However it is
also common for patients to experience delayed emesis for up to five days
after chemotherapy and this is generally considered to be less well treated
by existing anti-emetics.  Our compound, a selective 5-HT1A receptor
agonist, was licensed into the Cerebrus portfolio through a collaboration
with Lilly, the multi-national pharmaceutical company, in October 1998.  In
pre-clinical models it appears to be effective at inhibiting vomiting, both
immediately after chemotherapy treatment and during the delayed period.  Pre-
clinical and Phase I clinical studies have shown VML 670 to have a safety
profile suitable for progression to the next stage, a preliminary evaluation
of its efficacy.

VML 588 - Endothelin A receptor antagonist
We signed an agreement with Roche in September 1998 to develop this compound
in two specialist acute care indications, the treatment of sub-arachnoid
haemorrhage (SAH) and the prevention of acute renal failure (ARF).  Since
then we have carried out pre-clinical and Phase I studies and have recently
obtained agreement from the FDA to undertake clinical studies in patients
who are at high risk of ARF during major surgery.  We are also working to
generate further pre-clinical data.  We are discussing the issues relating
to the development and commercialisation of this compound with our partner,
Roche.  In the meantime we will not initiate any further studies.  We will
make a further announcement on this project at the appropriate time.

Asthma - VML 530
VML 530, was licensed from Abbott in October 1997, as a potential oral
treatment for asthma.  Our pre-clinical programme and Phase I studies over
the last two years have highlighted the need for additional work on the
formulation of the compound which is on-going.  Once this has been completed
the clinical development options will be reviewed.

Sabcomeline (CEB 2424)
We agreed with SmithKline Beecham ('SB') that they will take back the rights
to sabcomeline (Memric), a compound which Cerebrus licensed from SB prior to
the acquisition of Cerebrus.

Frovatriptan
We are carrying out additional pre-clinical studies with frovatriptan as
agreed with the FDA in the United States and outlined in our announcement of
26 October 1999.  Some additional data have now been submitted to the FDA
and are currently under review. We anticipate receiving further feedback
from the FDA during the second quarter of this year.  A further study is
underway and we anticipate that this additional data will be ready for
submission in Q4 2000, as previously communicated.  The timing and outcome
of the review of the NDA remain uncertain.

We submitted a separate Marketing Authorisation Application ('MAA') for
Europe to the French regulatory authorities on 17 February 1999 as the first
step in the approval process in Europe.  As part of the on-going review we
are currently involved in final discussions with the French authorities on
the wording of the prescribing information prior to submission to the other
European regulatory authorities under the Mutual Recognition procedure.

The Board
Dr Colin Dourish (Vice President Research) was appointed to the Board on 3
December 1999 and Dr John Hutchison (Vice President Development) will be
joining the Board later this month.  To reflect the importance of corporate
development activities, Simon Cartmell will now become Vice President
Corporate Development (previously Chief Operating Officer).  Dr Sally
Waterman remains on the board of Vanguard Medica Limited board in the new
role of Vice President Operations.

As previously announced, Dr Gary Acton has announced his intention to resign
as a director in April 2000.  Nick Heightman will retire as a Director of
Vanguard Medica Group plc at the Annual General Meeting on 19 May 2000 but
will remain on the board of Vanguard Medica Limited, with responsibilities
which include the international frovatriptan programme.

Dr Roger Brimblecombe plans to retire as Non-executive Chairman, also at the
Annual General Meeting. We would like to express our thanks to Dr
Brimblecombe, one of the founders of the Company and Chairman since 1991,
for his tremendous contribution.  The Nominations Committee is currently
working with an external consultant and review a short list of suitable
candidates for the position of Non-executive Chairman.

The Company intends to seek approval to change its name to Vernalis Group
plc at the Annual General Meeting.

We hope the above information is helpful and you can contact our Investor
Relations office direct from our award winning website
(www.vanguardmedica.com) or call with any enquiries.  We look forward to
providing you with further information in the our preliminary financial
results statement for the year ended 31 December 1999 which will be
announced on 14 March and in our Annual Report which will be published in
mid April.

Yours sincerely


Robert Mansfield
Chief Executive Officer
On behalf of the Board of Vanguard Medica Group plc