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Xenova Group PLC (XEN)

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Tuesday 19 February, 2002

Xenova Group PLC

Final Results

Xenova Group PLC
19 February 2002



                                Xenova Group plc
            Preliminary Results for the Year Ended 31 December 2001


Slough, UK, 19th February 2002 - Xenova Group plc (Nasdaq NM: XNVA; London Stock
Exchange: XEN) today announces its results for the year to 31 December 2001.


Highlights


  • North American collaboration with QLT Inc for P-gp inhibitor XR9576
    (tariquidar) worth £71.9m (US$105m) including milestones, excluding
    royalties



  • £7.9m (US$11.5m) upfront payment plus milestones and royalties from North
    American licensing deal with Millennium Pharmaceuticals, Inc for novel DNA
    targeting agent programme



  • Collaborations by joint venture Phogen with Genencor (up to £15m (US$21m))
    and Cell Genesys (undisclosed) for VP22 technology



  • Start of combined 'Prime-Boost' Phase II trials for cancer programme
    vaccines TA-CIN and TA-HPV



  • Anti-nicotine addiction vaccine TA-NIC entry to Phase I clinical trials



  • Merger with Cantab completed April 2001



Financial Highlights



  • Cash and liquid resources at 31 December 2001 £24.0m (2000: £12.2m)



  • Cash received of £14.8m from new licensing deals



  • Significant cost savings post Cantab merger



Commenting, David Oxlade, Chief Executive Officer of Xenova Group plc said: '
2001 was a year of major change and substantial progress for Xenova.  The
integration of Cantab with Xenova was successfully accomplished and has resulted
in a company with a broad cancer-focused pipeline of early to late stage
products, a streamlined cost base and a strong list of collaborative partners,
to which we were delighted to add QLT and Millennium during the course of the
year.  Xenova enters 2002 soundly financed, broadly based and confident of
further good progress during the year.'



Chief Executive's Review



Following the merger with Cantab, Xenova has focused its resources on the
discovery and development of commercially attractive, novel small molecule and
biologic drug candidates, primarily in the therapeutic areas of cancer and
immune disease.



Product Development

Drug Candidates

XR9576 (tariquidar) - Xenova's P-glycoprotein modulator, which targets the
reversal of multi-drug resistance in cancer, completed a series of three open
label Phase IIa clinical trials in early 2001.  The successful results of a
trial in which XR9576 was given with doxorubicin were reported in late 2000.
The results of two other Phase IIa trials, in which XR9576 was given with
paclitaxel or vinorelbine (two widely used cytotoxic drugs), were reported in
May at the annual meeting of the American Society of Clinical Oncology and
showed that XR9576 was well tolerated and that it is a potent P-glycoprotein
antagonist.  These trials also confirmed that, at the dose levels studied, no
clinically significant pharmacokinetic interaction was observed, that the
administration of XR5976 with paclitaxel, vinorelbine and doxorubicin was well
tolerated and that the cytotoxics can be used in combination with XR9576 at, or
close to their normal clinical dose.  Positive responses, which were noted in
several of the patients in the studies, provided anecdotal evidence of efficacy.



In August Xenova announced the signing of an exclusive licence agreement with
QLT Inc for the development and marketing of XR9576 in the United States, Canada
and Mexico.  Under the terms of this agreement, QLT has assumed responsibility
for the further development of XR9576, including Phase III trials, all
regulatory filings and the manufacture and sale of XR9576 within those
territories covered by the agreement.  QLT made an immediate upfront licence
payment to Xenova of US$10m (£6.9m) and will provide up to $45m (£30.8m) in
funding for development activities related to Phase III clinical studies for
XR9576 in North America and Europe.  Milestones of up to US$50m (£34.2m) and
royalties in the range of 15 to 22 per cent depending on the level of North
American sales are also receivable by Xenova.



Xenova retains substantially all rights to XR9576 outside the United States,
Canada and Mexico, including European and Rest of World marketing rights.



FDA permission has been obtained to proceed with Phase III clinical trials and
it is anticipated that these trials will begin in mid 2002.



XR11576 (MLN576) - Along with compounds XR5944 and XR11612, XR11576 forms part
of Xenova's programme of novel DNA targeting agents, whose method of action
involves dual inhibition of topoisomerases I and II.  The programme is being
developed for the treatment of solid tumours in cancer.  XR11576 is an oral
agent, which completed pharmacological and toxicity testing during 2001 prior to
entry into Phase I clinical development.  Patient dosing for an open label,
Phase I trial, which is being carried out at centres in the UK and the
Netherlands, began in February 2002.  Like XR11576, XR11612 is orally
bioavailable and has shown increased potency in preclinical trials.  It is being
developed as a back-up compound to XR11576. XR5944 has shown exceptionally high
potency as a cytotoxic in preclinical studies with a number of cell lines and
xenograft models.  XR5944 is an intravenous agent which is structurally distinct
from XR11576, and has been shown to be unaffected by atypical multi-drug
resistance. All three compounds are the product of Xenova's in-house research
and development.



It was announced in December 2001 that Xenova has entered into a licence
agreement with Millennium Pharmaceuticals Inc for the development and North
American commercialisation of these novel compounds.  Under the terms of the
agreement, Millennium has acquired development and exclusive marketing rights to
the programme in North America, in exchange for an upfront payment of US$11.5m
(£7.9m) as well as future milestone payments and royalties following the
achievement of specific development and sales goals.  Xenova continues to have
responsibility for performing development activities associated with the
programme to the end of Phase II trials, which will be funded by Millennium from
2003.  Following completion of Phase II trials, Millennium will assume
responsibility for the programme's further development and commercialisation in
North America, while Xenova has responsibility for its further development and
commercialisation rights in Europe and the Rest of the World.



TA-HPV and TA-CIN - TA-HPV is a vaccinia viral vector, carrying human
papillomavirus genes, which is being developed to treat cervical cancer.   A
series of Phase II trials is currently underway and the results of one of these
were reported in September 2001.  In this trial forty-four per cent of patients
were judged to show an objective clinical response at six months and a further
twenty-two per cent showed significant symptom relief.



TA-CIN is a therapeutic vaccine which is being developed for the treatment of
cervical intraepithelial neoplasia.  The successful results of a Phase I safety
and immunogenicity study were reported in October 2001.



Preclinical studies have demonstrated that a combination of TA-HPV and TA-CIN
results in an immune response that is significantly stronger than that observed
in either product alone.  The start of a Phase II combined 'Prime-Boost' trial
was announced in October 2001.  In this open-label, physician-sponsored trial,
primer followed by a booster dose are being given to up to 30 women with human
papillomavirus associated conditions at 3 centres in the UK.  Results of these
trials are expected in the second half of 2002.



TA-CD - TA-CD is a therapeutic vaccine which is under development for the
treatment of cocaine addiction.  The successful results of a four-dose Phase IIa
trial for TA-CD were announced in July 2001, and showed TA-CD to be well
tolerated and able to generate higher and earlier antibody titres than those
seen in an earlier three-dose Phase I trial, potentially benefiting the patient
by establishing a more rapid therapeutic effect.  An attenuation of the usual
euphoric effects of cocaine was reported amongst patients who admitted using
cocaine during the study, providing anecdotal evidence of the benefit TA-CD may
provide.  It is expected that TA-CD will enter a new Phase II dose escalation
study and a Phase II cocaine administration study, funded by the US National
Institute on Drug Abuse, both of which are anticipated to begin in mid 2002.



TA-NIC - TA-NIC is a therapeutic vaccine which is under development for the
treatment of nicotine addiction.  TA-NIC entered a Phase I study to assess the
vaccine's safety, tolerability and immunogenicity in September 2001.  It is
anticipated that preliminary results from this study will be available in the
second half of 2002.



TA-HSV - TA-HSV was under development for the treatment of genital herpes and
utilised Xenova's proprietary DISC technology.  This technology involves
disabling a herpes virus by removing a gene, allowing a single cycle of
replication but preventing replicated viruses from spreading to other cells.
The results of a Phase II clinical efficacy trial for the therapeutic vaccine,
TA-HSV, which was conducted in collaboration with Xenova's programme partner,
GlaxoSmithKline, were announced in October 2001.  Analysis of the results showed
that the trial did not meet its clinical endpoints.  Further development of
TA-HSV is not planned.



DISC-PRO - DISC-PRO is a prophylactic vaccine which is in development for the
prevention of oro-facial and genital herpes.  During the course of a Phase I
study, DISC-PRO was found to be well-tolerated and immunogenic.  It is intended
to seek a corporate partner for this programme ahead of entering Phase III
clinical trials.



DISC-GMCSF - DISC-GMCSF is a gene therapy product which is being developed to
enhance the immune response to tumours.  Preclinical data relating to DISC-GMCSF
were published in September 2001 and showed DISC-GMCSF to be safe with no
adverse reactions reported.  DISC-GMCSF is currently in a Phase I trial for
patients with metastatic melanoma.  Results of this trial are expected in the
second half of 2002.



DISC-VET - DISC-VET is a programme to develop Xenova's DISC technology for the
treatment of animal disease and is applicable to multiple disease targets.
DISC-BHV is a vaccine which is designed for the prevention of infectious bovine
rhinotracheitis, an upper respiratory tract infection in cattle, caused by the
bovine herpes virus.  DISC-BHV has been shown to be safe and to offer protection
against disease symptoms. Xenova's partner, Pfizer Animal Health, entered
DISC-BHV into development in January 2001.



Early Development Programmes



PAI-1 Inhibitors (Anti-Thrombotic)  - Research continued throughout 2001 on this
programme, which is based on compounds from Xenova's in-house research.  These
compounds are active in both venous and arterial models of thrombosis and are
orally absorbed.  A paper by Xenova, detailing the successful synthesis and
biological activities of a series of inhibitors of PAI-1, based on a Xenova
compound known as XR5118, was published in 2001 in the journal Biorganic and
Medicinal Letters (2001; 11: 2589-2592). Xenova established a partnership with
Lilly for this preclinical research area in February 1998.



PAI-1 Inhibitors (Anti-Cancer) - Research is also continuing on this programme
in which Xenova is collaborating with the Institute of Cancer Research.  PAI-1
has been shown to play a role in the spread of cancer. Papers published by
Xenova in 2001 have shown that antibodies to PAI-1 alter the invasive and
migratory properties of human cancer cells in vitro (Clinical and Experimental
Metastasis, (2001; 18: 445-453)) and that low molecular weight inhibitors of PAI
-1 suppress tumour cell invasion and angiogenesis in vitro and reduce tumour
growth in vivo (Clinical Cancer Research (2001; 7 (Suppl): 3670)).



Multi-Drug Resistance Protein (MRP) - Research continued during 2001 and Xenova
has developed the assays needed to find a drug candidate for this programme.  It
is expected that compounds will enter preclinical development during 2002.  Like
P-gp, MRP acts as a pump and expels small molecules such as cytotoxics from
cells.  Xenova is also exploring the potential application of MRP inhibitors in
asthma.



OX40/OX40L - OX40 and OX40L are a pair of interacting cell-surface proteins.  A
product candidate, OX40L, has shown efficacy in several disease models including
cancer.  Xenova's partner, Celltech, is developing an antibody based product
against OX40 for the treatment of autoimmune disease.  A paper relating to the
successful development of an immunoassay for OX40 was published by Xenova in
2001.



M3 - Work is currently in progress with several preclinical models to evaluate
the potential efficacy of M3, a virally-derived, broad-spectrum chemokine
binding protein which has potential application in many disease areas, including
cancer and immune-inflammatory disease.



MEN.B - In collaboration with the Institute for Infections and Immunity at
Nottingham University (UK), Xenova is developing a vaccine for the prevention of
disease caused by infection with meningitis group B.  The programme is currently
at the lead product evaluation stage.



VP22 - VP22 is a transport protein which transports genes, proteins and certain
classes of therapeutic small molecules, such as antisense drugs, into cells and
which targets the delivery to the nucleus of cells.  Xenova is currently
investigating the potential of VP22 in drug delivery and gene therapy through
Phogen, a 50/50 funded joint venture with Marie Curie Cancer Care.



In August 2001 Phogen signed a licensing agreement, potentially worth up to £15m
($21m) in licence, option and research payments, plus undisclosed royalties,
with Genencor International, Inc for the application of VP22 technology to the
development of a limited number of therapeutic vaccines for certain infectious
viral diseases.  In October 2001, Phogen signed a research collaboration
agreement with Cell Genesys, Inc in the field of gene therapy and relating to
products for cancer and cardiovascular disease.



Management



As announced in October 2001, Commercial Director Nick Hart and Dr Stephen
Inglis, Research Director, Biologics both resigned from the Board effective 31
December 2001.  The Board thanks both Nick Hart and Stephen Inglis for their
considerable contribution to the successful integration of Cantab with Xenova
and wishes them well in their future careers.



Patents



Xenova has received notification from the US Patent and Trademark Office Board
of Patent Appeals and Interferences of the Board's final decision in relation to
an interference proceeding concerning two of Xenova's granted US patents
covering DISC virus vaccines.  The Board's final decision terminates the
interference proceedings and leaves Xenova's patents in force.



Financial Summary



Acquisition of Cantab Pharmaceuticals plc



On 6 April 2001, the Group announced the successful completion of the merger
with Cantab.  Xenova shares, issued as consideration to Cantab shareholders to
acquire 100% of Cantab, were valued at 49p on 5 April 2001, valuing Cantab at
£34.2m ($49.9m).  With £16.8m ($24.5m) of cash and liquid resources, this
effectively valued the technology and other assets in Cantab at £17.4m ($25.4m).



In addition to acquiring Cantab Pharmaceuticals plc and its UK trading company
Cantab Pharmaceuticals Research Limited, (now renamed Xenova Research Limited),
the Group acquired as part of this transaction a 45% share in Phogen Limited, a
joint venture company with Marie Curie Cancer Care.



Operating Performance



The acquired Cantab business was consolidated into the Group's results from 6
April 2001, and has contributed to a net loss per share of 13p, which compares
with a net loss per share for 2000 of 15p.



In the year to 31 December 2001 the Group's revenue, including that from the
acquired Cantab business, increased to £1.8m ($2.6m) (2000: £0.1m, $0.1m).
Revenues in the year include revenues derived from the new licence agreement on
XR9576/tariquidar with QLT (£0.6m ($0.9m)) and the completion of Phase II
clinical trial work with GlaxoSmithKline in respect of the TA-HSV programme
(£0.7m ($1.1m)), which was terminated in December 2001.  In accordance with the
revenue recognition policy set out in Note 1, a further £6.3m ($9.3m) of upfront
licence fees received from QLT in August 2001 and all of the £7.9m ($11.5m) of
upfront licence fees received from Millennium in December 2001 have been
deferred. The upfront licence fees from QLT and Millennium are non-refundable.



Total research and development (R&D) expenditure of £15.4m ($22.4m) (2000:
£7.4m, $10.8m) includes the preclinical development of the novel DNA-targeting
agent programme, which has been licensed to Millennium, the completion of Phase
II clinical development of tariquidar, which has now been licensed to QLT and
the expenditure in respect of the acquired Cantab business of £7.0m ($10.2m).



Total administrative expenses of £4.9m ($7.1m) have increased by £2.8m ($4.1m)
from the prior year primarily due to the remaining administrative costs
associated with the acquired Cantab business of £1.0m ($1.5m), exceptional
reorganisation costs of £1.0m ($1.4m) and amortisation costs of £0.9m ($1.3m).
These amortisation costs relate to the amortisation of goodwill arising upon
acquisition of the Cantab business of £11.7m ($17.1m), which is being amortised
over the 10 year estimated useful life of the business.



Total net operating expenses for the second half of the year increased to £11.2m
($16.3m), up from £8.9m ($13.1m) in the first half year, following the inclusion
of Cantab for the whole period and the impact of a reorganisation and strategic
review announced in June 2001.



The increased net interest income reflects the increased cash and liquid
resources balance held throughout the period.  Following the rise since 31
December 2000 in the listed market price of the 88,668 Cubist Pharmaceuticals
shares held by the Group, £0.5m ($0.7m) has been written back to the profit and
loss account to recognise their year end market price.



Reorganisation



Since April 2001, the Group has consolidated all head office functions and
administrative services in order to maximise the cost savings for the enlarged
Group.  Surplus building space has been and will continue to be sublet to
minimise the Group's ongoing commitments.



As part of the strategic review of both the research and development pipeline
and other activities, announced on 21 June 2001, approximately 25% or 47
positions have been lost across both the head office and research and
development functions. Included within the exceptional reorganisation costs for
the year is £1.0m ($1.4m) comprising severance payments.



As a result of both integration measures already undertaken, excluding
exceptional items and goodwill amortisation, and cost reductions resulting from
product partnering activities, the Group has made an estimated £6.2m ($9.1m) in
cost savings this year when compared to the costs of the separate Xenova and
Cantab businesses in 2000.



Cash and liquid resources



Cash and liquid resources at 31 December 2001 totalled £24.0m ($35.0m) (2000:
£12.2m $17.9m). The Group had cash of £21.8m ($31.9m) and liquid resources of
£2.2m ($3.2m) at 31 December 2001 (2000: cash £10.5m ($15.3m), liquid resources
£1.7m ($2.5m)) following both exceptional facilities relocation expenditure of
£2.7m ($3.9m) and Cantab-related transaction costs paid of £1.8m ($2.6m).
Transaction costs paid by both Cantab and Xenova totalled £3.5m ($5.1m)).



Included in liquid resources is an investment in Cubist which subsequent to the
year end fell in value, following an announcement by Cubist of clinical trial
data, such that at 17 January 2002 the share price was $17 valuing the
investment held at £1.0m, representing a decline from the valuation at 31
December 2001 of £1.2m.



Revenue recognition policy



In accordance with emerging best practice on revenue recognition, the Group has
adopted a modified accounting policy from 1 January 2001, as set out in Note 1.
This policy states that licence fees and milestone payments will be spread over
the life of the relevant agreement in proportion to the work performed by the
Group, but be limited to the non refundable amounts actually received.



Share capital



The number of shares in issue rose to 139.0 million as at 31 December 2001 from
69.2 million at 31 December 2000, due principally to the issue of 69.8 million
shares in consideration for the Cantab business acquired.



A total of 11.8 million warrants, resulting from the July 2000 Placing and Open
Offer, and exercisable at 85p up to 31 October 2001, were not exercised and so
lapsed at that date.



The Directors do not propose a dividend for 2001 (2000: nil).



                                     -ends-



                        (See attached Notes to Editors)

Contacts:
UK:                                                     US:
Xenova Group plc                                        Trout Group/BMC Communications
Tel: +44 (0)1753 706600                                 Tel: 001 212 477 9007
David A Oxlade, Chief Executive Officer                 Press: Brad Miles (Ext 17)
                                                        Lauren Tortorete (Ext 20)
Daniel Abrams, Group Finance Director                   Investors: Jonathan Fassberg (Ext 16)
                                                        Lee Stern (Ext 22)
Hilary Reid Evans, Corporate Communications

Financial Dynamics
Tel: +44 (0)207 831 3113
David Yates/FionaNoblet



                                Notes to Editors

Xenova Group plc's product pipeline focuses principally on the therapeutic areas
of cancer and immune system disorders.  Xenova currently has a broad pipeline of
eight products in clinical development.  Xenova's lead programme is a
P-glycoprotein antagonist for the treatment of multi-drug resistance in cancer,
known as tariquidar or XR9576.  Tariquidar has completed a successful series of
three Phase IIa clinical trials and is expected to enter Phase III clinical
development in the first half of 2002.  Tariquidar was partnered for the North
American market with QLT Inc in August 2001. The Group has a well-established
track record in the identification, development and partnering of innovative
products and technologies and has partnerships with other major pharmaceutical
companies including Lilly, Pfizer, Celltech and Millennium Pharmaceuticals.


For further information about Xenova and its products please visit the Xenova
website at www.xenova.co.uk


For Xenova: Disclaimer to take advantage of the 'Safe Harbor' provisions of the
US Private Securities Litigation Reform Act of 1995. This press release contains
'forward-looking statements,' including statements about the discovery,
development and commercialisation of products. Various risks may cause Xenova's
actual results to differ materially from those expressed or implied by the
forward looking statements, including: adverse results in our drug discovery and
clinical development programs; failure to obtain patent protection for our
discoveries; commercial limitations imposed by patents owned or controlled by
third parties; our dependence upon strategic alliance partners to develop and
commercialise products and services; difficulties or delays in obtaining
regulatory approvals to market products and services resulting from our
development efforts; the requirement for substantial funding to conduct research
and development and to expand commercialisation activities; and product
initiatives by competitors.  For a further list and description of the risks and
uncertainties we face, see the reports we have filed with the Securities and
Exchange Commission.  We disclaim any intention or obligation to update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.


Consolidated Profit and Loss Account (unaudited)


                                                           Unaudited     Unaudited     Unaudited       Audited
                                                                Year          Year    Six months          Year
                                                               Ended         Ended         Ended         Ended
                                                         31 December   31 December   31 December   31 December
                                                                2001          2001          2001          2000
                                                                $000          £000          £000          £000
                                                Notes
                                                               _____         _____         _____         _____
Turnover (including share of joint venture)
   Continuing operations                          1              842           577           577            78
   Acquisitions                                                1,898         1,300           796
   Less: share of joint venture revenue                        (138)          (95)          (92)             -

                                                               _____         _____         _____         _____
Turnover                                                       2,602         1,782         1,281            78

Operating expenses
Research and development costs
    Continuing operations                                   (12,264)       (8,400)       (4,621)       (7,422)
    Acquisitions                                            (10,182)       (6,974)       (4,110)             -

                                                               _____         _____         _____         _____
                                                            (22,446)      (15,374)       (8,731)       (7,422)

Administrative expenses                                        _____         _____         _____         _____
    Continuing operations                                    (2,860)       (1,959)         (874)       (2,033)
    Continuing operations: exceptional
    reorganisation costs                                        (91)          (62)             -             -
                                                               _____         _____         _____         _____
                                                             (2,951)       (2,021)         (874)       (2,033)

    Acquisitions                                             (1,463)       (1,002)         (742)             -
    Acquisitions: exceptional reorganisation      2          (1,421)         (973)         (377)             -
      costs
    Acquisitions: amortisation of goodwill        2          (1,283)         (879)         (586)             -

                                                               _____         _____         _____         _____
                                                             (4,167)       (2,854)       (1,705)             -
                                                               _____         _____         _____         _____
Total administrative expenses                                (7,118)       (4,875)       (2,579)       (2,033)

Other operating income - acquisitions                            168           115           115             -

Total net operating expenses                                (29,396)      (20,134)      (11,195)       (9,455)

Group operating loss
    Continuing operations                                   (14,372)       (9,844)       (4,918)       (9,377)
    Acquisitions                                            (12,422)       (8,508)       (4,996)             -

                                                               _____         _____         _____         _____
                                                            (26,794)      (18,352)       (9,914)       (9,377)

    Acquisitions: share of operating loss of                    (48)          (33)           (4)             -
      joint venture
                                                               _____         _____         _____         _____
Total operating loss: Group and share of joint              (26,842)      (18,385)       (9,918)       (9,377)
venture



Loss on sale of businesses:
   Adjustment to consideration                                     -             -             -       (1,279)

                                                               _____         _____         _____         _____
Loss on ordinary activities before interest                 (26,842)      (18,385)       (9,918)      (10,656)


Interest (net)                                                 1,101           754           354           661
Amounts written back on / (from) investments      3              676           463         (212)             -

                                                               _____         _____         _____         _____
Loss on ordinary activities before taxation                 (25,065)      (17,168)       (9,776)       (9,995)

Tax on loss on ordinary activities                4            2,623         1,797           890           690

                                                               _____         _____         _____         _____

Loss on ordinary activities after taxation                  (22,442)      (15,371)       (8,886)       (9,305)
attributable to members of Xenova Group plc
                                                               _____         _____         _____         _____

Loss per share (basic and diluted)                             (18c)         (13p)          (6p)         (15p)

                                                               _____         _____         _____         _____


Shares used in computing net loss per share                  121,596       121,596       139,045        60,486
(thousands)
                                                               _____         _____         _____         _____





      Statement of Total Recognised Gains and Losses (unaudited)


                                                       Unaudited       Unaudited     Unaudited         Audited
                                                            Year            Year    Six Months            Year
                                                           Ended           Ended         Ended           Ended
                                                     31 December     31 December   31 December     31 December
                                                            2001            2001          2001            2000
                                                            $000            £000          £000            £000

                                                           _____           _____         _____           _____

Loss attributable to Xenova Group plc                   (22,398)        (15,341)       (8,885)         (9,305)
Loss attributable to joint venture                          (44)            (30)           (1)               -

                                                           _____           _____         _____           _____
Total loss attributable to members of Xenova Group      (22,442)        (15,371)       (8,886)         (9,305)
plc

Translation difference                                         -               -           (2)              54

                                                           _____           _____         _____           _____

Total recognised gains and losses in the period         (22,442)        (15,371)       (8,888)         (9,251)
attributable to members of Xenova Group plc
                                                           _____           _____         _____           _____



US Dollar amounts have been translated at the closing rate on 31 December 2001
(£1.00: $1.46) solely for information.





     Consolidated Balance Sheet (unaudited)


                                                          Unaudited     Unaudited       Unaudited       Audited
                                                              As at         As at           As at         As at
                                                        31 December   31 December         30 June   31 December
                                                               2001          2001            2001          2000
                                             Notes             $000          £000            £000          £000

                                                              _____         _____           _____         _____

Fixed assets
   Intangible assets                           2             15,765        10,798          11,379             -
   Tangible assets                                           13,996         9,586           9,880           543

                                                              _____         _____           _____         _____
                                                             29,761        20,384          21,259           543
Current assets
   Debtors:
   Due within one year                                        6,037         4,135           5,552         1,510

                                                              _____         _____           _____         _____
                                                              6,037         4,135           5,552         1,510

   Investments                                 3              3,189         2,184           2,396         1,721
   Cash at bank and in hand                                  31,851        21,816          15,676        10,512

                                                              _____         _____           _____         _____
                                                             41,077        28,135          23,624        13,743

Creditors: amounts falling due within one      7           (26,893)      (18,420)         (5,703)       (2,390)
year
                                                              _____         _____           _____         _____
Net current assets                                           14,184         9,715          17,921        11,353



Total assets less current liabilities                        43,945        30,099          39,180        11,896


Creditors: amounts falling due after more                     (323)         (221)           (367)             -
than one year

Provisions for liabilities and charges                         (15)          (10)            (25)          (20)

Investment in joint venture:
    Share of gross assets                                       639           438              40             -
    Share of gross liabilities                                (730)         (500)           (101)             -
    Goodwill arising on acquisition                              44            30              32             -

                                                              _____         _____           _____         _____
                                                               (47)          (32)            (29)             -
                                                              _____         _____           _____         _____

Total net assets                                             43,560        29,836          38,759        11,876

                                                              _____         _____           _____         _____

Capital and reserves

Called up share capital                                      20,300        13,904          13,062         6,924
Shares to be issued                                               -             -           4,127             -
Share premium account                                       107,850        73,870          73,925        74,781
Merger reserve                                               39,738        27,218          23,933             -
Other reserves                                               26,137        17,902          17,902        17,902
Profit and loss account                                   (150,465)     (103,058)        (94,190)      (87,731)
                                                              _____         _____           _____         _____
Shareholders' funds - equity interests         5             43,560        29,836          38,759        11,876
                                                              _____         _____           _____         _____



US Dollar amounts have been translated at the closing rate on 31 December 2001
(£1.00: $1.46) solely for information.


      Consolidated Cash Flow Statement (unaudited)

                                                           Unaudited     Unaudited     Unaudited       Audited
                                                                Year          Year    Six months          Year
                                                               Ended         Ended         Ended         Ended
                                                         31 December   31 December   31 December   31 December
                                                                2001          2001          2001          2000
                                              Notes             $000          £000          £000          £000

                                                               _____         _____         _____         _____

Net cash outflow / (inflow) from operating      6            (5,600)       (3,836)         4,308       (9,354)
Activities

Returns on investments and servicing of
Finance
Interest received                                              1,494         1,023           647           606
Interest element of finance lease rental                        (22)          (15)          (10)             -
payments
                                                               _____         _____         _____         _____
Net cash inflow from returns on investments                    1,472         1,008           637           606
and servicing of finance

Taxation                                                       2,730         1,870         1,870             -

Capital expenditure and financial
investment

Purchase of tangible fixed assets                            (4,084)       (2,797)         (573)         (303)

                                                               _____         _____         _____         _____


Net cash outflow from capital expenditure                    (4,084)       (2,797)         (573)         (303)
and financial investment

Acquisitions and disposals


Purchase of subsidiary undertakings                          (1,121)         (768)             -             -
Cash at bank and in hand acquired with                        24,560        16,822             -             -
subsidiary
                                                               _____         _____         _____         _____
Net cash inflow for acquisitions                              23,439        16,054             -             -


Management of liquid resources
Net sale of Investments                                            -             -             -           514

                                                               _____         _____         _____         _____
Net cash inflow/(outflow) before financing                    17,957        12,299         6,242       (8,537)

Financing
Issue of ordinary share capital                                   13             9             -        10,252
Expenses on issue of shares                                  (1,342)         (919)          (55)         (772)
Capital element of finance lease rental                        (127)          (87)          (47)             -
payments
                                                               _____         _____         _____         _____
Net cash (outflow)/inflow from financing                     (1,456)         (997)         (102)         9,480

                                                               _____         _____         _____         _____

Increase in cash during the period                            16,501        11,302         6,140           943

                                                               _____         _____         _____         _____



US Dollar amounts have been translated at the closing rate on 31 December 2001
(£1.00: $1.46) solely for information.





Reconciliation of Net Cash Flow to Movement in Net Funds (unaudited)


                                                            Unaudited     Unaudited     Unaudited       Audited

                                                                 Year          Year    Six Months          Year

                                                                Ended         Ended         Ended         Ended

                                                          31 December   31 December 31 December     31 December

                                                                 2001          2001          2001          2000

                                                                 $000          £000          £000          £000

                                                                _____         _____         _____         _____

Increase in cash during the period                             16,501        11,302         6,140           943
Capital element of finance lease payments                         127            87            47             -
Change in liquid resources                                          -             -             -         (514)

                                                                _____         _____         _____         _____
Change in net funds resulting from cash flows                  16,628        11,389         6,187           429

Finance leases acquired with subsidiary operations              (148)         (101)             -             -
Movement in value of liquid investments                           676           463         (212)         1,721
Translation difference                                              3             2             -             2

                                                                _____         _____         _____         _____
Change in net funds                                            17,159        11,753         5,975         2,152

Net funds at 1 January / 30 June                               17,860        12,233        18,011        10,081

                                                                _____         _____         _____         _____

Net funds at 31 December                                       35,019        23,986        23,986        12,233

                                                                _____         _____         _____         _____



US Dollar amounts have been translated at the closing rate on 31 December 2001
(£1.00: $1.46) solely for information.







Notes to the Preliminary Announcement



1           Basis of preparation



These unaudited statements, which do not constitute statutory accounts within
the meaning of Section 240 of the Companies Act 1985, have been prepared using
the accounting policies set out in the Group's 2000 Annual Report and Accounts
except as set out below. The 2000 Annual Report and Accounts received an
unqualified auditor's report and have been delivered to the Registrar of
Companies.



Following the introduction of Financial Reporting Standard 18 - 'Accounting
policies' (FRS18), a review of the Group's accounting policies has been
performed and will continue to be performed on a regular basis. As a result of
this review, other than as noted below, there have been no changes to the
Group's accounting policies in 2001.



These consolidated financial statements have been prepared to include the
revenues, costs and cash flows of the Cantab Pharmaceuticals Plc ('Cantab')
group from 6 April 2001, using acquisition accounting principles (Note 2).



Following the acquisition of Cantab the Group has adopted the following
accounting policy in respect of intangible fixed assets. Goodwill arising from
the purchase of subsidiary undertakings, representing the difference between the
fair value of the purchase consideration and the fair value of the net assets
acquired, is capitalised as an intangible asset and amortised on a straight line
basis over its estimated useful economic life. Goodwill similarly arising on the
acquisition of associates or joint ventures is recorded as part of the related
investment.



Other intangible fixed assets, including acquired intellectual property, are
capitalised at cost and amortised on a straight line basis over the estimated
useful economic life of the asset, having taken into account the risk factors
associated with developing a pharmaceutical product.



In accordance with emerging best practice on revenue recognition, the Group has
adopted a modified accounting policy from 1 January 2001. This policy states
that licence fees and milestone payments are spread over the life of the
relevant agreement in proportion to the work performed by the Group, but is
limited to the non refundable amounts received. The estimation techniques used
to spread the revenue reflect both the scientific and commercial risks of
individual contracts. Ordinarily, revenue is spread using a technique, which
first adjusts the total contract revenue based upon the estimated probability of
receipt given the commercial nature and scientific stage of development of the
programme. In limited cases, revenue in respect of contracts deemed to be of
higher scientific or commercial risk is spread using a contingency adjusted
technique to reflect the increased uncertainty of future receipts. The revenue
recognized in 2000, under the former policy of recognizing such payments in full
on receipt, would not have been materially different under the revised
accounting policy adopted from 2001.



2            Acquisition of Cantab Pharmaceuticals plc group



On 6 April 2001 the Group announced the merger with Cantab. Under the terms of
the offer made to Cantab shareholders, 11 shares in Xenova Group plc have been
issued in exchange for 7 shares held in Cantab, valuing Cantab on 5 April 2001
at £34.2m based upon a closing Xenova Group Plc share price of 49p.



Details of the book value and provisional fair value of the assets and
liabilities of Cantab as at 6 April 2001 are set out below:


                                                                Book values     Adjustments   Fair values

                                                                         £000          £000          £000

                                                                        _____         _____         _____
Fixed assets
    Tangible                                                            7,463             -         7,463
    Intangible                                                          1,415       (1,415)             -
Debtors                                                                 3,686             -         3,686
Cash and liquid investments                                            16,822             -        16,822
Creditors falling due within one year                                 (4,243)             -       (4,243)
Creditors falling due after more than one year                          (438)             -         (438)
Investment in joint venture - share of gross liabilities                 (32)             -          (32)

                                                                        _____         _____         _____
Net assets acquired                                                    24,673       (1,415)        23,258

Satisfied by:
Shares issued and to be issued                                                                     34,197
Expenses of acquisition                                                                               768

                                                                                                    _____
Total consideration                                                                                34,965

                                                                                                    _____

Goodwill arising on acquisition                                                                    11,707

                                                                                                    _____





There have been no accounting policy adjustments made to the balance sheet
values stated at 6 April 2001. Intangible assets acquired comprised licence fees
which have not been capitalised separately from goodwill. In addition to the
£768,000 of acquisition expenses paid, share issue costs of £919,000 were
incurred.



In accordance with the accounting policy set out in the basis of preparation
note, the goodwill arising on the acquisition has been capitalised and amortised
over the 10 year estimated useful life of the acquired business.



In addition to acquiring 100% of Cantab Pharmaceuticals plc and the UK trading
company Cantab Research Limited (now renamed Xenova Research Limited), the Group
acquired as part of this transaction, a 45% share in Phogen, a joint venture
with Marie Curie Cancer Cure.



As part of the strategic review of both the research and development pipeline
and other activities, announced on 21 June 2001, approximately 25% or 47
positions have been lost across both the head office and research and
development functions. Included within the administrative expenses is £1.0m in
respect of the severance payments.



The audited consolidated results of the Cantab Pharmaceuticals plc group for the
year ended 31 December 2000, including the Group's share of Phogen, included
revenues of £8,403,000, an operating loss of £6,452,000 and a net loss of
£3,913,000. Consolidated net assets of the Cantab group at 31 December 2000
stood at £28,374,000 of which £15,257,000 comprised cash and liquid resources.



3            Amounts written back on investments



The £463,000 written back on investments reflects the unrealised gain on the
Group's holding of 88,668 Cubist Pharmaceutical shares following a rise in the
listed market price since 31 December 2000 (Note 9).



4            Taxation



Following the changes introduced as part of the Finance Act 2000 in respect of
Scientific Research Allowances (now renamed 'Research and Development
Allowances'), the Group has recognised an R&D tax credit  of £2,292,000 in
respect of the year that will be received in 2002 (2001: £1,879,000).



5            Reconciliation of movement in shareholders' funds


                                                                  Unaudited        Unaudited          Audited
                                                                       Year       Six Months             Year
                                                                      Ended            Ended            Ended
                                                                31 December      31 December      31 December
                                                                       2001             2001             2000
                                                                       £000             £000             £000

                                                                      _____            _____            _____

At start of period                                                   11,876           38,759           11,620


Allotments of shares in the period                                        9                -           10,252

Issue of shares in respect of acquisition                            34,197            4,127                -

Shares to be issued                                                       -          (4,127)                -

Expenses on issue of shares                                           (919)             (55)            (772)

Shares to be issued under long term incentive
Scheme                                                                   44               20               27

Retained loss for the period                                       (15,371)          (8,886)          (9,305)

Exchange movement                                                         -              (2)               54

                                                                      _____            _____            _____

At end of period                                                     29,836           29,836           11,876

                                                                      _____            _____            _____





6                Reconciliation of operating loss to net cash outflow from
                 operating activities


                                                                  Unaudited        Unaudited          Audited
                                                                       Year       Six Months             Year
                                                                      Ended            Ended            Ended
                                                                31 December      31 December      31 December
                                                                       2001             2001             2000
                                                                       £000             £000             £000

                                                                      _____            _____            _____

Group operating loss                                               (18,352)          (9,914)          (9,377)


Depreciation and amortisation                                         2,080            1,278              212

Provision for liabilities and charges                                  (10)             (15)               20

Loss on disposal of tangible fixed assets                                16               16                -

Decrease / (increase) in debtors                                        734              154            (253)

(Decrease)/Increase in creditors (excluding                         (2,573)          (1,456)               17
deferred income)

Increase in deferred income                                          14,225           14,225                -

Charge for long term incentive scheme                                    44               20               27
                                                                      _____            _____            _____

Net cash outflow from operating activities                          (3,836)            4,308          (9,354)

                                                                      _____            _____            _____



Cash outflow in respect of exceptional reorganisation costs was £1,035,000
(2000: Nil)



7            Creditors



Included within creditors is £14.2m (2000: Nil) in respect of deferred revenue.



8          Going concern



The Group is an emerging pharmaceutical business and as such expects to absorb
cash until products are commercialised. The Directors have a reasonable
expectation that the Group has, or can reasonably expect to obtain, adequate
cash resources to enable it to continue in operational existence for the
foreseeable future, and have therefore prepared the financial statements on the
going concern basis.





9            Subsequent events



Included in liquid resources is an investment in Cubist which subsequent to the
year end fell in value, following an announcement by Cubist of clinical trial
data, such that at 17 January 2002 the share price was $17 valuing the
investment held at £1.0m, representing a decline from the valuation at 31
December 2001 of £1.2m.





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