Midatech Pharma Plc (Form: 20-F, Received: 04/24/2018 06:07:50)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

☐	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

☐	SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report_________________

Commission File Number 001-37652

____________________________________________________________

MIDATECH PHARMA PLC

(Exact name of registrant as specified in its charter)

____________________________________________________________

England and Wales

(Jurisdiction of incorporation or organization)

65 Innovation Drive

Milton Park

Abingdon, Oxfordshire, OX14 4RQ, United Kingdom

(Address of principal executive offices)

James N. Phillips, Chief Executive Officer

65 Innovation Drive

Milton Park

Abingdon, Oxfordshire, OX14 4RQ, United Kingdom

Tel: +44 (0)1235 888 300

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class		Name of each exchange on which registered
Ordinary Shares, nominal value 005p each

American Depositary Shares, each representing two ordinary shares		NASDAQ Capital Market

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

____________________________________________________________

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2017 was: 61,084,135 ordinary shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. YES ☐ NO ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☐ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer ”, and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☒

Emerging growth company ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐

International Financial Reporting Standards as issued by

the International Accounting Standards Board ☒

Other ☐

If “ Other ” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS	7
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE	7
ITEM 3. KEY INFORMATION	7
ITEM 4. INFORMATION ON THE GROUP	44
ITEM 4A. UNRESOLVED STAFF COMMENTS	79
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS	79
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	93
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	106
ITEM 8. FINANCIAL INFORMATION	107
ITEM 9. THE OFFER AND LISTING	108
ITEM 10. ADDITIONAL INFORMATION	110
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	114
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	115

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	118
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	118
ITEM 15. CONTROLS AND PROCEDURES	118
ITEM 16. [RESERVED]
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT	119
ITEM 16B. CODE OF ETHICS	120
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES	120
ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES	120
ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	120
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	121
ITEM 16G. CORPORATE GOVERNANCE	121
ITEM 16H. MINE SAFETY DISCLOSURE	121

PART III

ITEM 17. FINANCIAL STATEMENTS	122
ITEM 18. FINANCIAL STATEMENTS	122
ITEM 19. EXHIBITS	123
SIGNATURES	126

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GENERAL INFORMATION

Midatech Pharma PLC is a public limited company organized under the laws of England and Wales under registered number 09216368. In this annual report, references to “ we, ” “ us, ” “ our, ” “ the Group, “ Company, ” “ company ” or “ Midatech ” means Midatech Pharma PLC and its consolidated subsidiaries.

On December 4, 2015, Midatech acquired DARA BioSciences, Inc. ( “ DARA ” ) through a merger transaction (the “ Merger ” ) in which the stockholders of DARA Biosciences, Inc. received (i) American depositary shares ( “ Depositary Shares ” ) representing the ordinary shares of Midatech, nominal value 0.005p per share (the “ Ordinary Shares ” ) and (ii) contingent value rights which represents the right to receive contingent payments if specified milestones are achieved within agreed time periods. Immediately following the closing of the Merger, DARA became a wholly owned subsidiary of Midatech and changed its named to “ Midatech Pharma US Inc. ” ( “ Midatech US ” ). Where this annual report (i) provides information for dates prior to December 4, 2015, such information does not include the historical information of DARA, (ii) refers to DARA, it is referencing the DARA entity prior to December 4, 2015 and (iii) references Midatech US, it is referencing the former DARA entity from December 4, 2015 on.

Our principal executive offices are located at 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire OX14 4RQ, United Kingdom. The telephone number at our principal executive office is +44 1235 888 300.

We maintain an Internet website at www.midatechpharma.com. None of the information contained on our website, or on any other website linked to our website, will be incorporated in this annual report by reference or otherwise be deemed to be a part of this annual report.

The trademarks, trade names and service marks appearing in this Annual Report on Form 20-F are the property of their respective owners.

PRESENTATION OF FINANCIAL AND OTHER DATA

The consolidated financial statement data as of December 31, 2017, 2016 and 2015 and for the years ended December 31, 2017, 2016 and 2015 have been derived from our consolidated financial statements, as presented at the end of this annual report, which have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and as adopted by the European Union.

Midatech prepares its consolidated financial statements in British pounds sterling. In this annual report, references to “ GBP, ” “£ , ” “ pence ” or “ p ” are each to British pounds sterling (or units thereof), and references to “ $, ” “ USD, ” “ US$ ” and “ United States dollar ” are each to the United States dollar. Except as otherwise stated, all monetary amounts in this annual report are presented in Great Britain pounds sterling. Solely for the convenience of the reader, unless otherwise indicated, all British pounds sterling amounts as of and for the year ended December 31, 2017 have been translated into United States dollars at the rate at December 29, 2017, of £ 1.00 to $1.3529, based on noon buying rates published by the Federal Reserve Bank of New York for the British pound sterling on such date. These translations should not be considered representations that any such amounts have been, could have been or could be converted into United States dollars at that or any other exchange rate as of that or any other date.

References to a particular “ fiscal ” year are to our fiscal year ended December 31 of such year. References to years not specified as being fiscal years are to calendar years.

As reference, the following provides a description of the different phases of clinical trials, as may be used in this annual report:

Phase I clinical trials involve the assessment of the safety, pharmacodynamics and pharmacokinetics of a drug candidate in a small group of healthy human subjects (typically 20 to 100 patients), or in certain indications such as cancer, patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.

Phase II clinical trials involve the assessment in patients of a drug to determine its safety, dose range, possible side effects and preliminary efficacy (typically 100 to 300 patients).

Phase III is a clinical trial involving the assessment of the efficacy and safety of a drug, usually in comparison with a marketed product or a placebo, in the patient population for which it is intended (typically 1,000 to 3,000 patients).

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains certain forward-looking information about Midatech that is intended to be covered by the safe harbor for “ forward-looking statements ” provided by the Private Securities Litigation Reform Act of 1995. These statements may be made directly in this annual report or may be incorporated into this annual report by reference to other documents. Representatives of Midatech may also make forward-looking statements. Forward-looking statements are statements that are not historical facts. Words such as “ expect, ” “ believe, ” “ will, ” “ may, ” “ anticipate, ” “ plan, ” “ estimate, ” “ intend, ” “ should, ” “ can, ” “ likely, ” “ could ” and similar expressions are intended to identify forward-looking statements. Forward-looking statements appear in a number of places throughout this annual report and include statements regarding Midatech’s intentions, beliefs, assumptions, projections, outlook, analyses or current expectations concerning, among other things, Midatech’s intellectual property position, success integrating Midatech US and other acquisitions, research and development projects, results of operations, cash needs, capital expenditures, financial condition, liquidity, prospects, growth and strategies, regulatory approvals and clearances, the markets and industry in which Midatech operates and the trends and competition that may affect the markets, industry or Midatech.

These forward-looking statements are based on currently available competitive, financial and economic data together with management ’ s views and assumptions regarding future events and business performance as of the time the statements are made and are subject to risks and uncertainties. Midatech wishes to caution you that there are some known and unknown factors that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements, including but not limited to risks related to:

Midatech’s estimates regarding losses, expenses, future revenues, capital requirements and needs for additional financing;

Midatech’s ability to successfully test, manufacture, produce or commercialize products for conditions using the nanoparticle, nano-inclusion and sustained release drug delivery platforms;

Midatech’s compliance with covenants contained in the terms of the agreements governing its indebtedness;

the successful commercialization and manufacturing of Midatech’s licensed products, products originally licensed to Midatech US, and any future product Midatech may commercialize;

the success and timing of Midatech’s preclinical studies and clinical trials;

shifts in Midatech ’ s business and commercial strategy;

the filing and timing of regulatory filings, including Investigational New Drug applications, with respect to any of Midatech’s products and the receipt of any regulatory approvals;

the anticipated medical or other benefits of Midatech’s products;

the difficulties in obtaining and maintaining regulatory approval of Midatech’s product candidates, and the labeling under any approval Midatech may obtain;

the success and timing of the potential commercial development of Midatech’s product candidates and any product candidates Midatech may acquire in the future;

Midatech’s plans and ability to develop and commercialize Midatech’s product candidates and any product candidates Midatech acquires in the future;

the rate and degree of market acceptance of any of Midatech’s product candidates;

the successful development of Midatech’s commercialization capabilities, including its internal sales and marketing capabilities;

obtaining and maintaining intellectual property protection for Midatech’s product candidates and Midatech’s proprietary technology;

the success of competing therapies and products that are or become available;

the success of any future acquisitions;

Midatech’s ability to continue as a going concern;

the difficulties of integrating any future acquisitions into Midatech’s own business;

the outcome of the Company ’ s remediation plan and approach to the material weaknesses in internal control over financial reporting;

cybersecurity and other cyber incidents;

industry trends;

the impact of government laws and regulations;

regulatory, economic and political developments in the United Kingdom, the European Union, the United States and other foreign countries;

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the difficulties doing business internationally;

the ownership of Midatech’s Ordinary Shares and Depositary Shares;

the status of Midatech’s ongoing leadership transition and Midatech’s failure to recruit or retain key scientific or management personnel or to retain Midatech’s executive officers;

the impact and costs and expenses of any litigation Midatech may be subject to now or in the future; and

the performance of third parties, including joint venture partners, Midatech’s sales force, Midatech’s collaborators, third-party suppliers and parties to Midatech’s licensing agreements.

Any forward-looking statements that Midatech makes in this annual report speak only as of the date of such statement, and Midatech undertakes no obligation to update such statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data. You should, however, review the factors and risks Midatech describes in the reports it will file from time to time with the SEC after the date of this annual report. See “ Item 10. Additional Information-H. Documents on Display . ”

You should also read carefully the factors described in “ Item 3. Key Information-D. Risk Factors ” and elsewhere in this annual report to better understand the risks and uncertainties inherent in Midatech’s business and underlying any forward-looking statements. As a result of these factors, Midatech cannot assure you that the forward-looking statements in this annual report will prove to be accurate. Furthermore, if Midatech’s forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by Midatech or any other person that Midatech will achieve its objectives and plans in any specified timeframe, or at all.

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PART I

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.

Not Applicable.

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE.

Not Applicable.

ITEM 3.

KEY INFORMATION.

A.	Selected Financial Data.

Midatech prepares its consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European Union. The following table sets forth certain of Midatech’s consolidated financial data. The selected historical consolidated financial data as of December 31, 2017, 2016 and 2015 and for the years ended December 31, 2017, 2016 and 2015 is derived from Midatech’s consolidated financial statements, which are included elsewhere in this annual report. The selected historical consolidated financial data as of December 31, 2014 and 2013 and for the years ended December 31, 2014 and 2013 have been derived from Midatech’ consolidated financial statements, which are not presented herein.

The selected historical financial data presented below should be read in conjunction with “ Item 5. Operating and Financial Review and Prospects ” and Midatech’s financial statements and the related notes thereto, which are included elsewhere in this annual report. The selected historical financial information in this section is not intended to replace Midatech’s financial statements and the related notes thereto.

Acquisitions of Q Chip Limited and DARA BioSciences, Inc.

On December 8, 2014, Midatech acquired Q Chip Limited, a company incorporated under the laws of England and Wales, subsequently renamed Midatech Pharma (Wales) Limited (“Midatech Wales”). Midatech’s financial and operating data for fiscal 2014 includes the results of Midatech Wales from the date of Midatech’s acquisition of Midatech Wales.

On December 4, 2015, Midatech acquired DARA and subsequently changed its name to Midatech US. Midatech’s financial and operating data for fiscal 2015 and 2014 includes the results of Midatech US from the date of Midatech’s acquisition of DARA.

Thus Midatech ’ s financial and operating data are not fully comparable in this annual report.

Consolidated Statement of Comprehensive Income Data

(£’s in thousands, except share and per share data; all from continuing operations)	As of and for the Year Ended December 31,
	2017			2016			2015			2014			2013

Revenue		6,758			6,376			775			157			147
Loss from operations		(17,578	)		(30,586	)		(12,918	)		(9,947	)		(4,499	)
Loss before tax		(17,329	)		(29,322	)		(11,232	)		(10,100	)		(4,883	)
Loss for the year attributable to the owners of the parent		(16,064	)		(20,162	)		(10,099	)		(9,082	)		(4,084	)
Total other comprehensive (loss) income, net of tax		(1,233	)		3,228			399			(151	)		5
Total comprehensive loss attributable to the owners of the parent		(17,297	)		(16,934	)		(9,700	)		(9,233	)		(4,079	)
Loss Per Share Data:
Basic and diluted loss per ordinary share-pence		(31p	)		(56p	)		(36p	)		(101p	)		(71p	)
Cash dividends declared per ordinary share		-			-			-
Weighted average number of ordinary shares used		51,317,320			36,072,752			28,229,814			9,026,347			5,715,576

Consolidated Statement of Financial Position Data:
Non-Current assets		30,641			34,386			43,710			15,035			1,079
Current assets		18,583			22,303			20,331			31,628			4,095
Cash and cash equivalents		13,204			17,608			16,175			30,325			2,387
Total assets		49,224			56,689			64,041			46,663			5,174
Non-Current liabilities		6,185			1,620			8,055			1,842			2,119
Borrowings		6,185			1,620			1,508			1,488			2,119
Current liabilities		8,363			9,345			9,099			2,832			2,295
Total liabilities		14,548			10,965			17,154			4,674			4,414
Total equity		34,676			45,724			46,887			41,989			760
Total equity and liabilities		49,224			56,689			64,041			46,663			5,174

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Exchange Rates

Midatech ’ s financial reporting currency is the British pound sterling. Fluctuations in the exchange rate between the British pound sterling and the United States dollar will affect the United States dollar amounts received by owners of Depositary Shares on conversion of dividends, if any, paid in British pound sterling on the Ordinary Shares and will affect the United States dollar price of the Depositary Shares on the NASDAQ Capital Market.

The following table shows, for the periods indicated, information concerning the exchange rate between the British pound sterling and the United States dollar. This information is provided solely for your information, and Midatech does not represent that the British pound sterling could be converted into United States dollars at these rates or at any other rate. These rates may differ from the actual rates used in the preparation of the consolidated financial statements included in this annual report and other financial data appearing in this annual report.

The data provided in the following table is expressed in United States dollars per British pound sterling and is based on noon buying rates published by the Federal Reserve Bank of New York for the British pound sterling. On March 30, 2018, the noon buying rate was £ 1.00 = $1.4027.

	High ($)		Low ($)
Recent Monthly Data
March 2018		1.4236		1.3755
February 2018		1.4247		1.3794
January 2018		1.4264		1.3513
December 2017		1.3529		1.3316
November 2017		1.3506		1.3067
October 2017		1.3304		1.3063

	Average Rate ($) (1)
Annual Data (12-month period ended December 31)
2017		1.3444
2016		1.3444
2015		1.5250
2014		1.6461
2013		1.5667

_____________

(1)

The average rates were calculated by taking the simple average of the daily noon buying rates, as published by the Federal Reserve Bank of New York, on the last day of each month during the period.

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B.	Capitalization and Indebtedness

Not Applicable

C.	Reasons for the Offer and Use of Proceeds

Not Applicable

D.	Risk Factors

Our business has significant risks. In addition to the other information included in this annual report, including the matters addressed in the section of the annual report entitled “Cautionary Note Regarding Forward-Looking Statements” and in our financial statements and the related notes, you should consider carefully the risks described below. The risks and uncertainties described below are not the only risks and uncertainties we may face. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial could also negatively affect our business, financial condition, results of operations, prospects, profits and stock prices. If any of the risks described below actually occur, our business, financial condition, results of operations, prospects, profits and stock prices could be materially adversely affected.

Risks Related to Midatech’s Financial Operations and Capital Needs

Midatech (including its predecessor entity, Midatech Limited) has incurred significant losses since its inception and anticipates that it will continue to incur losses in the future.

Midatech is an early-stage biopharmaceutical company. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. Prior to the acquisition of DARA in December 2015, Midatech had not generated any revenue from product sales, and it continues to incur significant development and other expenses related to its ongoing operations. As a result, Midatech is not profitable and has incurred substantial losses since its inception. For the year ended December 31, 2017, Midatech had a net loss of £ 17 million, and an accumulated deficit of £ 75 million.

Midatech expects to continue to incur losses for the foreseeable future, and expects these losses to increase as it continues its development of, and seeks regulatory approvals for, its product candidates, and begins to commercialize any approved products. For example, recent challenges have temporarily slowed Midatech’s development program progression and reduced its ability to invest in key programs.

Midatech may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its business. The size of Midatech ’ s future net losses will depend, in part, on the rate of future growth of its expenses and its ability to generate revenues, particularly from Midatech US operations. If any of Midatech ’ s or its subsidiaries products fail to develop a market, or if any of their product candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, Midatech may never become profitable. Even if Midatech achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. Midatech ’ s prior losses and expected future losses have had and will continue to have an adverse effect on its stockholders ’ equity and working capital.

A substantial part of Midatech’s operations are in early-stage development with no source of revenue and there is no assurance that Midatech will successfully develop and commercialize its product candidates or ever become profitable.

Midatech is at a relatively early stage of its commercial development. To date, Midatech has not generated any revenue from its product candidates. Midatech ’ s ability to generate revenue and become and remain profitable depends, in part, on its ability to successfully commercialize products, including any of its product candidates, or other product candidates it may in-license or acquire. Even if Midatech were to successfully achieve regulatory approval of its product candidates, Midatech does not know when any of the product candidates will generate revenue, if at all. Midatech ’ s ability to generate revenue from its current or future product candidates also depends on a number of additional factors, including its ability to:

successfully complete development activities, including preclinical development and clinical trials for its product candidates;

complete and submit new drug applications to the European Medicines Agency (the “ EMA ” ), the Medicines and Healthcare Products Regulatory Agency in the United Kingdom (the “ MHRA ” ), the United States Food and Drug Administration (the “ FDA ” ), and any other foreign regulatory authorities, and obtain regulatory approval for testing and for products for which there is a commercial market;

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set a commercially viable price for its products;

obtain commercial qualities of its products at acceptable cost levels;

develop a commercial organization capable of sales, marketing and distribution in its markets; and

obtain adequate reimbursement from third-parties, including government, departments and healthcare payors

In addition, because of the numerous risks and uncertainties associated with product development, including that Midatech ’ s product candidates may not advance through development or achieve the endpoints of applicable clinical trials, Midatech is unable to predict the timing or amount of increased expenses, or when or if it will be able to achieve or maintain profitability. Even if Midatech is able to complete the process described above, it anticipates incurring significant costs associated with commercializing these products.

Even if Midatech is able to generate revenues from the sale of its products, it may not become profitable and may need to obtain additional funding to continue operations. If Midatech fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and may be forced to reduce its operations.

Potential investors should be aware of the risks associated with an investment in companies with limited trading histories. There can be no assurance that Midatech will operate profitably, produce a reasonable return, if any, on investment, or remain solvent. If Midatech ’ s strategy proves unsuccessful, stockholders could lose all or part of their investment.

If Midatech requires or seeks to raise additional capital to fund its operations and it fails to obtain necessary financing, Midatech may be unable to complete the development and commercialization of its product candidates.

Midatech expects to continue to spend substantial amounts of its cash resources going forward in order to advance the clinical development of its product candidates and launch and commercialize any product candidates for which it receives regulatory approval. Midatech does not believe its existing balances of cash and cash equivalents will be sufficient to satisfy its working capital needs and other liquidity requirements associated with its existing operations over the next 12 months, and believes that additional financing will be required over the next twelve months, including for the further development and commercialization of its product candidates from time to time.

Until such time as Midatech can generate a sufficient amount of revenue from its products, if ever, it expects that it may finance future cash needs through, among things, public or private equity or debt offerings. Such offerings may take place in the United Kingdom, the United States or other foreign countries. Additional capital may not be available on reasonable terms, if at all. If Midatech is unable to raise additional capital in sufficient amounts or on terms acceptable to it, Midatech may have to significantly delay, scale back or discontinue the development or commercialization of one or more of its product candidates. If Midatech raises additional funds through the issuance of additional debt or equity securities, such issuance could result in dilution to Midatech ’ s existing stockholders and/or increased fixed payment obligations. Furthermore, these securities may have rights senior to those of Midatech ’ s Ordinary Shares and could contain covenants that would restrict its operations and potentially impair its competitiveness, such as limitations on Midatech ’ s ability to incur additional debt, limitations on Midatech ’ s ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact Midatech ’ s ability to conduct its business. Any of these events could significantly harm Midatech ’ s business, financial condition and prospects.

Midatech ’ s forecast of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “ Item 3.D Risk Factors ” section. Midatech has based this estimate on assumptions that may prove to be wrong, and it could utilize its available capital resources sooner than it currently expects. Midatech ’ s future funding requirements, both near and long-term, will depend on many factors, including, but not limited to:

the further growth in sales of Zuplenz or products acquired in connection with the acquisition of DARA or any additional acquisitions and the commercialization of other assets, including those licensed from Novartis Pharma AG (“Novartis”);

the initiation, progress, timing, costs and results of clinical trials for Midatech’s product candidates and future product candidates it may in-license or acquire;

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the attainment of milestones and the need to make any royalty payments on any of Midatech’s product candidates or any other future product candidates, including Zuplenz and any product candidates derived from Midatech’s license with Novartis;

the number and characteristics of product candidates Midatech in-licenses or acquires and develops;

the outcome, timing and cost of regulatory approvals by the EMA, the MHRA, the FDA and any other comparable foreign regulatory authorities, including the potential for such regulatory authorities to require that Midatech performs more studies, or more costly studies, than those it currently expects;

the cost of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights;

the effect of competing technological and market developments;

the cost of establishing sales, marketing and distribution capabilities for any product candidates for which Midatech may receive regulatory approval; and

Midatech’s need to repay amounts due under its senior secured credit agreement with an affiliate of MidCap Financial Services, LLC (“MidCap”), dated December 29, 2017 (the “Credit Agreement”).

If a lack of available capital means that Midatech is unable to expand its operations or otherwise capitalize on its business opportunities, its business, financial condition and results of operations could be materially adversely affected.

Midatech may not have sufficient cash flow from its business to service its debt under the Credit Agreement.

Midatech’s ability to make scheduled payments of the principal of, to pay interest on, or to refinance, its indebtedness, including the borrowings under the Credit Agreement, depends on its future performance, which is subject to economic, financial, competitive and other factors beyond its control. Midatech’s business may not generate cash flow from operations in the future sufficient to service its debt and make necessary capital expenditures. If Midatech is unable to generate such cash flow, it may be required to adopt one or more alternatives, such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Midatech’s ability to refinance its indebtedness will depend on the capital markets and its financial condition at such time. Midatech may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on its debt obligations.

Midatech’s cash flows and capital resources may be insufficient to make required payments on its indebtedness and future indebtedness.

On December 29, 2017, Midatech entered into the Credit Agreement with MidCap, which provided Midatech with $15 million in debt financing, comprised of three tranches, which mature on December 29, 2021. Borrowings under the Credit Agreement will bear interest at a rate equal to the greater of (i) the LIBOR rate or (ii) 1.25%, in each case plus an applicable margin of 7.50%. To date, Midatech has borrowed $7 million under the Credit Agreement. Such indebtedness could have important consequences to Midatech. For example, it could:

make it difficult for Midatech to satisfy its other debt obligations;

make Midatech more vulnerable to general adverse economic and industry conditions;

limit Midatech’s ability to obtain additional financing for working capital, capital expenditures, acquisitions and other general corporate requirements;

limit Midatech’s ability to make large investments or acquisitions;

expose Midatech to interest rate fluctuations because the interest rate on the debt under the MidCap Credit Agreement is variable;

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require Midatech to dedicate a portion of our cash flow from operations to payments on its debt, thereby reducing the availability of our cash flow for operations and other purposes;

limit Midatech’s flexibility in planning for, or reacting to, changes in its business and the industry in which it operates; and

place Midatech at a competitive disadvantage compared to competitors that may have proportionately less debt and greater financial resources.

In addition, Midatech’s ability to make scheduled payments or refinance its obligations depends on its successful financial and operating performance, cash flows and capital resources, which in turn depend upon prevailing economic conditions and certain financial, business and other factors, many of which are beyond Midatech’s control. These factors include, among others:

economic and demand factors affecting Midatech’s industry;

pricing pressures;

increased operating costs;

competitive conditions; and

other operating difficulties.

If Midatech’s cash flows and capital resources are insufficient to fund its debt service obligations, Midatech may be forced to reduce or delay capital expenditures, sell material assets or operations, as well as consider other strategic alternatives, obtain additional capital or restructure its debt. In the event that Midatech is required to dispose of material assets or operations to meet its debt service and other obligations, the value realized on such assets or operations will depend on market conditions and the availability of buyers. Accordingly, any such sale may not, among other things, be for a sufficient dollar amount to fund its debt service obligations. Midatech’s obligations pursuant to the Credit Agreement are secured by first priority security interests in substantially all of its assets. The foregoing encumbrances may limit Midatech’s ability to dispose of material assets or operations. Midatech also may not be able to restructure its indebtedness on favorable economic terms, if at all. Midatech may incur additional indebtedness in the future, including pursuant to the Credit Agreement. Midatech’s incurrence of additional indebtedness would intensify the risks described above.

The Credit Agreement contains various covenants limiting the discretion of our management in operating our business.

The Credit Agreement contains, subject to certain carve-outs, various restrictive covenants that limit management's discretion in operating its business. In particular, these instruments limit Midatech’s ability to, among other things:

incur additional debt;

grant liens on assets;

make investments, including capital expenditures and acquisitions;

sell or acquire assets outside the ordinary course of business; and

make fundamental business changes.

If Midatech fails to comply with the restrictions in the Credit Agreement, a default may allow the creditors under the relevant instruments to accelerate the related debt and to exercise their remedies under these agreements, which will typically include the right to declare the principal amount of that debt, together with accrued and unpaid interest and other related amounts including penalties, immediately due and payable, to exercise any remedies the creditors may have to foreclose on assets that are subject to liens securing that debt and to terminate any commitments they had made to supply further funds.

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The vote by the United Kingdom electorate in favor of the United Kingdom’s exit from the European Union could lead to increased market volatility and could adversely impact the market price for Midatech’s Ordinary Shares and Depositary Shares, make it more difficult for Midatech to do business in Europe or have other adverse effects on its business, results of operations and financial condition.

On June 23, 2016, the United Kingdom government held an in-or-out referendum on the United Kingdom ’ s membership of the European Union in which voters approved the United Kingdom ’ s exit from the European Union (commonly referred to as “ Brexit ” ). On March 29, 2017, the United Kingdom formally initiated its withdrawal from the European Union by triggering Article 50 of the Treaty of Lisbon. As a result of the triggering of Article 50, the process of negotiation, which is expected to take at least two years, has commenced between the United Kingdom and European Union member states to determine the terms of the United Kingdom’s withdrawal and arrangements for the United Kingdom’s future relationship with the European Union. This negotiation period could be extended by a unanimous decision of the European Council, in agreement with the United Kingdom. The referendum has created significant uncertainty about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union laws to replace or replicate in the event of a withdrawal. From a regulatory perspective, the United Kingdom’s withdrawal could bear significant complexity and risks. A basic requirement related to the grant of a marketing authorization for a medicinal product in the European Union is that the applicant is established in the European Union. Following the withdrawal of the United Kingdom from the European Union, marketing authorizations previously granted to applicants established in the United Kingdom may no longer be valid. Moreover, depending upon the exact terms of the United Kingdom’s withdrawal, the scope of a marketing authorization for a medicinal product granted by the European Commission pursuant to the centralized procedure might not, in the future, include the United Kingdom. In these circumstances, an authorization granted by competent United Kingdom authorities would be required to place medicinal products on the United Kingdom market. In addition, the laws and regulations that will apply after the United Kingdom withdraws from the European Union would affect the manufacturing sites that hold a certification issued by the United Kingdom competent authorities, and vice versa. Midatech’s capability to rely on these manufacturing sites for products intended for the European Union market would also depend upon the exact terms of the United Kingdom withdrawal. A significant portion of Midatech’s manufacturing infrastructure is located in Spain, which is a member of the European Union. When the United Kingdom ceases to be a member of the European Union, Midatech’s ability to integrate its United Kingdom and Spanish operations could be adversely affected. For example, depending on the terms of Brexit, Midatech could become subject to export tariffs and regulatory restrictions that could increase the costs and time related to doing business in Spain.

The referendum has also given rise to calls for the governments of other European Union Member States to consider withdrawal from the European Union. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could significantly increase the complexity of Midatech’s activities in the European Union and in the United Kingdom, could depress Midatech’s economic activity and restrict its access to capital, which could have a material adverse effect on its business, financial condition and results of operations and reduce the price of its Ordinary Shares.

Midatech recognized material intangible asset impairment losses as of December 31, 2016 and 2017 and may be required to recognize additional non-cash impairment losses in the future.

As of December 31, 2016, Midatech recognized an impairment loss for marketing and intangible product rights of £ 11.4 million, which arose as a result of the underperformance of Oravig in comparison to forecast sales at the time of acquisition. The underperformance was caused in part by the heavily genericized market in which Oravig is sold. There was no goodwill impairment as of December 31, 2016, and there was no impairment to any of Midatech ’ s intangible assets or goodwill for the year ended December 31, 2015.

Additionally, as of December 31, 2017, in connection with its decision to discontinue development of its program for Opsisporin and the resultant reduction in sales forecasts, Midatech recognized an impairment loss for in-process research and development of Opsisporin, resulting in a charge to the income statement of £1.50 million. While Opsisporin is currently outside of Midatech’s strategic focus, pre-clinical proof of concept studies have been completed and Midatech believes that the Opsisporin still has merit and development may be restarted when Midatech has more available resources.

These impairment charges discussed above and any additional impairment charges could materially increase Midatech ’ s expenses and reduce Midatech ’ s profitability. The process of testing goodwill and intangible assets for impairment involves numerous judgments, assumptions and estimates made by Midatech ’ s management including expected future profitability, cash flows and the fair values of assets and liabilities, which inherently reflect a high degree of uncertainty and may be affected by significant variability. If the business climate deteriorates, including the markets in which certain of Midatech’s products are sold, then actual results may not be consistent with these judgments, assumptions and estimates, and Midatech ’ s goodwill and intangible assets may become impaired in future periods. This would in turn have an adverse impact on Midatech’s financial position and results of operations.

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Risks Related to Midatech’s Business and Industry

Midatech’s future success is dependent on product development, regulatory approval and commercialization of its products, product candidates and any product candidates it may acquire in the future.

While Midatech has acquired products that have received regulatory approval and has begun commercialization, Midatech must continue to conduct clinical trials and research and development for its additional product candidates, and there can be no assurance that any of Midatech ’ s targeted developments will be successful. Midatech must develop functional products that address specific market needs. It must therefore engage in new development activities, which may not produce innovative, commercially viable results in a timely manner or at all. In addition, Midatech may not be able to develop new technologies or identify specific market needs that are addressable by its technologies, or technologies available to it. Midatech may encounter delays and incur additional development and production costs and expenses, over and above those expected, in order to develop technologies and products suitable for licensing. If Midatech ’ s development program is curtailed due to any of the above issues, this may have a material adverse effect on Midatech ’ s business and financial conditions.

Midatech ’ s business is dependent on its ability to complete the development of, obtain regulatory approval for and/or commercialize its products and product candidates in a timely manner. Midatech cannot commercialize a product without first obtaining regulatory approval from the appropriate regulatory authorities in a country. Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, Midatech must demonstrate with substantial evidence gathered in preclinical and well-controlled clinical studies that the product candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate. The process to develop, obtain regulatory approval for and commercialize product candidates is long, complex and costly. Even if a product candidate were to successfully obtain approval from the EMA, the MHRA, the FDA and/or comparable foreign regulatory authorities, any approval might contain significant limitations related to use restrictions for certain age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If Midatech is unable to obtain regulatory approval for its product candidates in one or more jurisdictions, or any approval contains significant limitations, it may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of any other product candidate that it is currently developing or that it may in-license or acquire in the future. Furthermore, even if Midatech obtains approval for a product candidate from the regulatory authorities, it is likely that it will need to expand its commercial operations, establish commercially viable pricing and obtain approval for adequate reimbursement from third parties and government departments and healthcare payors for such products. If Midatech is unable to successfully commercialize its current product candidates, it may not be able to earn sufficient revenues to continue its business

Clinical drug development involves a risky, lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of any preclinical studies and early clinical trials of Midatech ’ s product candidates may not be predictive of the results of later-stage clinical trials, even after seeing promising results in earlier clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry, including many with greater resources and experience than Midatech, have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. For example, in May 2016, Midatech announced that the results of its Phase IIa dosing study of Midatech ’ s transbuccal insulin delivery system, which delivered insulin through the mouth, were unfavorable compared to the traditional sub-cutaneous, or through the skin, insulin delivery system. Midatech ’ s future clinical trial results for its other products and programs may also be unsuccessful.

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Midatech is about to embark on a clinical trials program for its Q-Octreotide product, which is expected to commence its first-in-human study in the first half of 2018. Other clinical development programs are also expected to commence during 2018. Midatech may experience delays in its ongoing or future clinical trials and it does not know whether planned clinical trials will begin or enroll subjects on time, need to be redesigned or be completed on schedule, if at all. Clinical trials may be delayed, suspended or prematurely terminated for a variety of reasons, such as:

delay or failure in reaching agreement with the applicable regulatory authorities on a trial design that Midatech is able to execute;

delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical study;

delay or failure in reaching agreement on acceptable terms with prospective contract research organizations (“CROs”), and clinical trial providers and sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

delay or failure in obtaining institutional review board (“IRB”), approval, or the approval of other reviewing entities, including foreign regulatory authorities, to conduct a clinical trial at each site;

failure to recruit, or subsequent withdrawal of, clinical trial sites from Midatech’s clinical trials as a result of changing standards of care or the ineligibility of a site to participate in Midatech’s clinical trials;

delay or failure in recruiting and enrolling suitable subjects to participate in a trial;

delay or failure in having subjects complete a trial or return for post-treatment follow-up;

clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;

inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication;

failure of Midatech’s third party clinical trial managers or clinical sites to satisfy its contractual duties or meet expected deadlines;

failure to receive the recommendation of health technology assessment bodies such as the US Agency for Healthcare Research and Quality, and other relevant international bodies or agencies responsible for pricing and utilization determinations;

delay or failure in adding new clinical trial sites;

ambiguous or negative interim results, or results that are inconsistent with earlier results;

feedback from the EMA, the MHRA, the FDA, the IRB, data safety monitoring boards, or other regulatory authority, or results from earlier stage or concurrent preclinical and clinical studies, which might require modification to the protocol for a given study;

decisions by the EMA, the MHRA, the FDA, the IRB, other regulatory authorities, or us, or recommendation by a data safety monitoring board or other regulatory authority, to suspend or terminate a clinical trial at any time for safety issues or for any other reason;

unacceptable risk-benefit profile or unforeseen safety issues or adverse side effects;

failure to demonstrate a benefit from using a drug over existing marketed products;

manufacturing issues, including problems with manufacturing or obtaining from third parties sufficient quantities of raw materials, active pharmaceutical ingredients (“API”), or product candidates for use in clinical trials; and

changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

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Patient and/or volunteer enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, the ability to obtain and maintain patient consents, whether enrolled subjects drop out before completion, competing clinical trials, and clinicians’ and patients’ perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications Midatech is investigating. Furthermore, Midatech relies on contract research organizations and clinical trial sites to ensure the proper and timely conduct of its clinical trials and while it has agreements governing their activities, it has limited influence over their actual performance.

If Midatech experiences delays in the completion of, or termination of, any ongoing or future clinical trial of its product candidates, the commercial prospects of its product candidates will be harmed, and its ability to generate product revenues from any of these product candidates will be delayed. In addition, any delays in completing Midatech’s clinical trials may increase its costs, slow down its product candidate development and approval process and jeopardize its ability to commence product sales and generate revenues. Any of these occurrences may harm its business, financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of Midatech’s product candidates.

The regulatory approval processes in the United States and Europe are lengthy, time consuming and inherently unpredictable, and if Midatech is ultimately unable to obtain regulatory approval for its product candidates, its business may be substantially harmed.

The time required to obtain approval for a product candidate by the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities is unpredictable, but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities.

In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate ’ s clinical development and may vary among jurisdictions. It is possible that none of its existing product candidates or any product candidates it may in-license or acquire and seek to develop in the future will ever obtain regulatory approval.

Midatech ’ s product candidates could fail to receive regulatory approval from the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities for many reasons, including:

disagreement with the design or implementation of Midatech ’ s clinical trials;

failure to demonstrate that a product candidate is safe and effective for its proposed indication;

failure of clinical trial results to meet the level of statistical significance required for approval;

failure to demonstrate that a product candidate ’ s clinical and other benefits outweigh its safety risks;

disagreement with Midatech ’ s interpretation of data from preclinical studies or clinical trials;

the insufficiency of data collected from clinical trials of Midatech ’ s product candidates to support the submission and filing of a new drug application or other submission or to obtain regulatory approval;

disapproval of the manufacturing processes or facilities of third party manufacturers, if any, with whom Midatech contracts for clinical and commercial supplies; or

changes in the approval policies or regulations that render Midatech ’ s preclinical and clinical data insufficient for approval.

In addition, the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities may require more information, including additional preclinical or clinical data to support approval, which may delay or prevent approval and Midatech ’ s commercialization plans, or Midatech may decide to abandon the development program. If Midatech were to obtain approval, regulatory authorities may approve any of its product candidates for fewer or more limited indications than it requests, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. In addition, if Midatech ’ s product candidate produces undesirable side effects or safety issues, the regulatory authorities (the FDA, MHRA, EMA or a comparable foreign regulatory authority) may require the establishment of Risk Evaluation and Mitigation Strategy (“REMS”) which may, for instance, restrict distribution of Midatech ’ s products and impose burdensome implementation requirements on it. Any of the foregoing scenarios could materially harm the commercial prospects for Midatech ’ s product candidates.

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Midatech’s product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval and limit the commercial profile of an approved label, and such side effects or other properties could result in significant negative consequences following any marketing approval of any of Midatech’s products or product candidates.

Undesirable side effects caused by any of Midatech ’ s product candidates could cause it or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the EMA, the MHRA, the FDA or other comparable foreign regulatory authority. Results of Midatech ’ s trials could reveal a high and unacceptable severity and prevalence of side effects or risks associated with a product candidate’s use. In such an event, Midatech ’ s trials could be suspended or terminated and the regulatory authorities could order it to cease further development of or deny approval of its product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled subjects to complete the trial or result in potential product liability claims. Any of these occurrences may harm Midatech ’ s business, financial condition and prospects significantly.

Additionally, if undesirable side effects of Midatech ’ s products are identified following marketing approval, a number of potentially significant negative consequences could result, including:

Midatech may suspend marketing of such product;

Midatech may be obliged to conduct a product recall or product withdrawal;

regulatory authorities may withdraw approvals of such product or may require additional warnings on the label;

Midatech may be required to develop a REMS for each product or, if a strategy is already in place, to incorporate additional requirements under the REMS, or to develop a similar strategy as required by a comparable foreign regulatory authority;

Midatech may be required to conduct additional post-market studies;

Midatech may record significant inventory impairment charges to write down the value of inventories to estimated net realizable value; and

Midatech could be sued and held liable for harm caused to subjects or patients.

Consequently, Midatech ’ s reputation and business may suffer.

Any of these events could prevent Midatech from achieving or maintaining market acceptance of the particular product or product candidate, if approved, and could significantly harm its business, results of operations and prospects.

Even if its product candidates receive regulatory approval, Midatech’s products may still face future development, manufacturing and regulatory difficulties.

Midatech ’ s products, and any of its product candidates once they receive regulatory approval, are subject to the ongoing requirements of the EMA, the MHPA, the FDA and other regulatory agencies governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of any product is closely monitored by the EMA, the MHRA, the FDA and other regulatory authorities after approval. If the EMA, the MHRA, the FDA or other regulatory authorities become aware of new safety information after approval of any of Midatech ’ s products or product candidates, regulatory authorities may require labeling changes or establishment of a risk mitigation strategy or similar strategy, impose significant restrictions on a product ’ s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance.

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In addition, manufacturers of drug and biological products and their facilities are subject to continual review and periodic inspections by the EMA, the MHRA, the FDA and other governmental regulatory authorities for compliance with current good manufacturing practices ( “ cGMP ” ) regulations. If Midatech or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or Midatech, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If Midatech, its products, product candidates or the manufacturing facilities for its products or product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

issue warning letter or untitled letters;

mandate modifications to, or the withdrawal of, marketing and promotional materials or require Midatech to provide corrective information to healthcare practitioners;

require Midatech to enter into a consent decree, which can include the imposition of various fines against Midatech, reimbursements of inspection costs, required due dates for specific actions and penalties for noncompliance;

seek an injunction or impose civil or criminal penalties or monetary fines;

suspend or withdraw its regulatory approval;

suspend any ongoing clinical studies;

refuse to approve pending applications or supplements to applications filed by us;

suspend or impose restrictions on operations, the products, manufacturing or Midatech itself;

require Midatech to change its product labeling; or

seize or detain products, refuse to permit the import or export of products or require Midatech to initiate a product recall.

The occurrence of any of these events or penalties described above may inhibit Midatech ’ s ability to commercialize its products and generate revenue.

Any advertising and promotion of any product or any future product Midatech may commercialize will be heavily scrutinized.

Advertising and promotion of any of Midatech ’ s products or any future product Midatech may commercialize will be heavily scrutinized by various regulatory authorities in the jurisdictions in which the product is promoted. Violations of applicable advertising and promotion laws and regulations, including promotion of Midatech ’ s products for unapproved (or off-label) uses, are subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA and comparable foreign regulatory authorities.

In the United States, engaging in impermissible promotion of Midatech ’ s products for off-label uses can subject Midatech to false claims litigation under federal and state statutes, which, if successful, could result in civil and criminal penalties and fines and agreements that materially restrict the manner in which a company promotes or distributes drug products. These false claims statutes include the federal civil False Claims Act, which allows the federal government or any individual to bring a lawsuit against a pharmaceutical company, on behalf of the federal government, alleging the submission of false or fraudulent claims, or causing the submission of such false or fraudulent claims, for payment of government funds, and any successful individual could share in any judgment or settlement funds. In recent years, False Claims Act lawsuits against pharmaceutical companies have led to several substantial civil and criminal settlements based on certain sales practices promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical company will have to defend a false claim action, pay treble damages and penalties, or agree to comply with burdensome reporting and compliance obligations pursuant to a Corporate Integrity Agreement or other settlement agreement with the U.S. Department of Health and Human Services Office of Inspector General to avoid exclusion from the Medicare, Medicaid, and other federal and state healthcare programs. If Midatech does not lawfully promote its approved products, it may become subject to such litigation and, if it is not successful in defending against such actions, those actions may have a material adverse effect on its business, financial condition and results of operations. Equivalent laws and potential consequences exist in foreign jurisdictions.

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Advertising and promotion of Midatech’s products will be similarly subject to close scrutiny in the European Union. Allegations of off-label promotion of the Group’s products could lead to imposition of administrative measures, fines and imprisonment and limitations or restrictions on permitted communications concerning the advertising and promotion of its products.

Midatech’s future commercialization strategy may include possible revenue generation from product royalty revenue, which could expose Midatech to risks.

Midatech ’ s future commercialization strategy may include possible revenue generation from product royalty deals. The right to receive possible product royalty revenues in the future may be challenged by the customer or licensee or there may be legal restrictions on the payment of royalties on product sales. Remittance of royalty revenues to Midatech may be restricted from certain territories or subject to withholding taxes that Midatech may not be able to recover or offset.

The commercial success of Midatech’s products is not guaranteed.

There can be no assurance that any of Midatech ’ s products or its product candidates currently in development will be successfully developed into any commercially viable product or products and/or be manufactured in commercial quantities at an acceptable cost or be marketed successfully and profitably. If Midatech, or its partners, encounters delays at any stage, and fails successfully to address such delays, it may have a material adverse effect on Midatech ’ s business, financial condition and prospects. In addition, Midatech ’ s success will depend on the market ’ s acceptance of its products and there can be no guarantee that this acceptance will be forthcoming or that Midatech ’ s technologies will succeed as an alternative to competing products. The development of a market for Midatech ’ s products is affected by many factors, some of which are beyond Midatech ’ s control, including the emergence of newer, more effective technologies and products, and the cost of Midatech ’ s products themselves, including the availability of products for which healthcare reimbursement is available. Notwithstanding the technical merits of a product developed or acquired by Midatech, there can be no guarantee that the customer base of Midatech ’ s distributors for the products will purchase or continue to purchase the particular product. Demand for Midatech ’ s products may also decrease if competitor products are introduced with perceived advantages over Midatech ’ s products or product candidates, or governments amend their policies on limiting drug costs or reimbursement practice or other healthcare reform measures within public health provision or private insurance-based models. If a market fails to develop or develops more slowly than anticipated, Midatech may be unable to recover the costs it may have incurred in the development of particular products and may never achieve profitable revenues from that product. In addition, Midatech cannot guarantee that it will continue to identify, develop, manufacture or market its products if market conditions do not support the continuation of such product.

Midatech’s ability to generate revenues or profits from Zuplenz or products originally licensed to DARA will be dependent upon the ability of Midatech’s sales force to successfully interact with healthcare professionals. Any challenges that the sales force encounters in engaging with healthcare practitioners, or any failure of Midatech’s marketing strategy to achieve the desired results, could have a material adverse effect on Midatech’s financial condition, operating results and stock price.

Midatech ’ s ability to successfully interact with healthcare professionals and to market its product portfolio, and to generate revenues or profits from its products, will depend upon successful operation of the sales force. There can be no assurances that the sales representatives will achieve the desired results or that they will be successful in marketing Midatech ’ s products. If the sales force does not effectively market Midatech ’ s products as desired, Midatech ’ s financial condition, results of operations and stock price could be materially adversely affected.

If Midatech is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell its products and product candidates, it may be unable to generate any revenue.

Midatech is in the early stage of its commercial operations and has only a limited operating history on which to base an evaluation of its current business and prospects. In order to market any products that may be approved by the EMA, the MHRA, the FDA and other comparable foreign regulatory authorities, Midatech must maintain and build on its current sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. If Midatech is unable to establish and maintain adequate sales, marketing and distribution capabilities, whether independently or with third parties, it may not be able to generate product revenue and may not become profitable. Midatech will be competing with many companies that currently have extensive and well-funded sales and marketing operations. Without enhancements to its internal commercial organization or the support of a third party to perform sales and marketing functions, Midatech may be unable to compete successfully against these more established companies.

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Some of Midatech’s revenues are derived from licensing or collaboration agreements with other organizations and Midatech’s commercial success may be subject to the capabilities of those organizations to successfully perform pursuant to the licensing and collaboration agreements. Additionally, if Midatech fails to fulfill its obligations pursuant to such agreements, these agreements may be subject to termination.

Some of Midatech ’ s revenues are derived from licensing or collaboration agreements with other biopharmaceutical companies, research institutes and universities. Midatech ’ s success is dependent on these commercial arrangements and on similar arrangements for future exploitation of product candidates in development that have not yet been partnered. Midatech ’ s collaborators have substantial responsibility for some of the development and commercialization of Midatech ’ s product candidates. Certain of Midatech ’ s collaborators also have significant discretion over the resources they devote to these efforts. Midatech ’ s success from any such collaboration, therefore, will in part depend on the ability and efforts of those third parties. Midatech cannot guarantee that these collaborators will devote sufficient resources to collaborations with Midatech or that Midatech ’ s product candidates can be developed and commercialized without these collaborators. In addition, there can be no assurance that any company that enters into agreements with Midatech will not pursue alternative technologies, either on its own or in collaboration with others, including Midatech ’ s competitors, as a means of developing treatments for the conditions targeted by those products which Midatech has licensed. Some of Midatech ’ s collaboration agreements are contracted, and are likely to be contracted in the future, with partners who are in strong negotiating positions and who have greater financial resources than Midatech. While Midatech seeks to negotiate contracts on terms that it considers are the most beneficial to it, a number of existing contracts contain, and Midatech expects that future contracts may contain, what could be considered potentially onerous terms for Midatech, such as (in some cases) on-demand termination, uncapped indemnities, extensive warranties and broad confidentiality restrictions (in terms of scope and time).

If claims on liability and indemnity were to be successfully made under such contracts (i) Midatech could be liable for substantial damage awards that may significantly exceed its liability insurance coverage by unknown but significant amounts; (ii) such claims could result in early termination of contracts; and/or (iii) Midatech could incur financial penalties, all of which could materially and adversely affect Midatech ’ s financial condition.

Further, if Midatech fails to meet its obligations under its licensing agreements or collaboration agreements, Midatech ’ s licensors or collaborators may have the right to terminate these agreements. Any uncured, material breach under the licenses or collaboration agreements could result in Midatech ’ s loss of its rights and may lead to a complete termination of its product development and any commercialization efforts for the applicable product candidate.

The pharmaceutical and biotechnology industries are highly competitive.

The development and commercialization of new drug products is highly competitive. Midatech ’ s business faces competition from a range of major and specialty pharmaceutical and biotechnology companies worldwide with respect to its products and product candidates, and will face competition in the future with respect to any product candidates that it may seek to develop or commercialize. In addition to developing its product candidates, Midatech ’ s focus is on the commercialization of the following oncology supportive care and oncology treatment pharmaceutical products:

Zuplenz, the only FDA-approved oral soluble film indicated for moderately emetogenic chemotherapy-induced nausea and vomiting (“CINV”), radiotherapy-induced nausea and vomiting ( “ RINV ” ), and post-operative nausea and vomiting (“PONV”);

Gelclair, an FDA-cleared oral gel barrier device indicated for the management and relief of pain due to oral mucositis;

Oravig, an orally dissolving buccal tablet approved for oral thrush; and

Soltamox, an FDA-approved oral liquid solution of tamoxifen citrate, for the treatment and prevention of breast cancer.

Sales of Oravig in 2016 did not meet the level expected when the DARA business was acquired, resulting in an impairment as of December 31, 2016, for marketing and intangible product rights of £ 11.4 million. The market in which this product is sold is heavily genericized and Oravig has struggled to gain significant market share.

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There are a number of pharmaceutical and biotechnology companies that currently market and sell products or are pursuing development of products similar to Midatech ’ s technology, products and product candidates. With respect to its product candidates, from a technology perspective, Midatech believes other companies using gold nanoparticle technologies include CytImmune Sciences, Inc., and Nanospectra Biosciences, Inc. In oncology, there are marketed nanodrugs on the market including a paclitaxel protein-bound particles for injectable suspension, known by its brand name Abraxane and marketed by Celgene Corporation for breast and various other cancers, doxorubicin HCI liposome injection, known by its brand name Doxil and marketed by Janssen Products for ovarian cancer, lyso-thermosensitive liposomal doxorubicin, known by its brand name ThermoDox and marketed by Celsion Corporation for breast and liver cancer, as well as a number of drugs in development for various cancers at Phase I or II. Midatech’s Q-Sphera technology for biodegradable sustained-release formulation takes a microsphere-based approach that is based on a unique combination of microfluidics and 3-D printing. It enables next generation formulation and engineering. The Company believe other companies in the sustained release space include GP Pharm, S.A., Peptron, Inc., Graybug, Inc. and Nanomi B.V. In addition, Dr. Reddy’s and Mylan are both believed to be developing a sustained release octreotide injection.

With respect to the products Midatech commercializes in the U.S., Gelclair competes with similarly categorized products, as well as “ Magic Mouthwash, ” which is most often compounded by independent pharmacies. While Zuplenz and Solatamox both compete with oral generics in their respective markets. With respect to Oravig, the oral thrush market is currently serviced only by generic products, such as nystatin.

Some of these competitive products and therapies are based on scientific approaches that are the same or similar to Midatech ’ s approach, and others are based on entirely different approaches. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Midatech ’ s competitors in the biotechnology and pharmaceutical industries may have superior research and development capabilities, products, manufacturing capability or sales and marketing expertise. Many of Midatech ’ s competitors may have significantly greater financial and human resources and may have more experience in research and development.

As a result of these factors, Midatech ’ s competitors may obtain regulatory approval of their products more rapidly than Midatech is able to or may obtain patent protection of other intellectual property rights that limit Midatech ’ s ability to develop or commercialize its product candidates. Midatech ’ s competitors may also develop products that are more effective, more widely used and less costly than its own products, and may be more successful in manufacturing and marketing their products.

Midatech anticipates that it will face increased competition in the future as new companies enter Midatech ’ s markets and alternative products and technologies become available. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of Midatech ’ s competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with Midatech in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, its programs.

The success of any products Midatech may commercialize will depend on the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community.

Any products that Midatech acquires or brings to the market may not gain market acceptance by physicians, patients, healthcare payers and others in the medical community. If these products do not achieve an adequate level of acceptance, Midatech may not generate material product revenues and may not become profitable. The degree of market acceptance of Midatech ’ s products and product candidates, if approved for commercial sale, will depend on a number of factors, including, but not limited to:

the acceptance of Midatech’s products by patients and the medical community and the availability, perceived advantages and relative cost, safety and efficacy of alternative and competing treatments;

the effectiveness of Midatech’s marketing, sales and distribution strategy and operations;

the prevalence and severity of any side effects;

price;

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the ability of Midatech’s third-party manufacturers to manufacture commercial supplies of its products, to remain in good standing with regulatory agencies, and to develop, validate and maintain commercially viable manufacturing processes that are, to the extent required, compliant with cGMP regulations;

the degree to which the approved labeling supports promotional initiatives for commercial success;

the efficacy and potential advantages of alternative treatments;

a continued acceptable safety profile of Midatech’s products and product candidates;

any new or unexpected results from additional clinical trials or further analysis of clinical data of completed clinical trials by us or Midatech’s competitors;

our ability to enforce Midatech’s intellectual property rights;

our ability to avoid third-party patent interference or patent-infringement claims;

maintaining compliance with all applicable regulatory requirements;

the willingness of physicians to prescribe Midatech ’ s products; and

sufficient coverage or reimbursement by the Centers for Medicare and Medicaid Services (“CMS”), other governmental agencies who have authority to approve pricing or reimbursement rates, and third party payors and the willingness and ability of patients to pay for Midatech’s products.

Midatech’s products, and any product candidates it may commercialize, may become subject to unfavorable pricing regulation, third party regulation, third party reimbursement practices or healthcare reform initiatives, which could harm Midatech’s business.

Midatech ’ s ability to market and commercialize its products successfully will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Midatech’s future revenues and profitability will be adversely affected if these third party payors do not sufficiently cover and reimburse the cost of its products and related procedures or services. If these entities do not provide sufficient coverage and reimbursement for any drug products Midatech markets, these products may be too costly for general use, and physicians may prescribe them less frequently.

The Medicare program and certain government pricing programs, including the Medicaid drug rebate program, the Public Health Service’s 340B drug pricing program, or the 340B program, and the pricing program under Section 603 of the Veterans Health Care Act of 1992 impact the revenues Midatech may derive from current and future products that it may commercialize. Any future legislation or regulatory actions altering these programs or imposing new compliance requirements could have a significant adverse effect on Midatech’s business. There have been, and Midatech expects there will continue to be, a number of legislative and regulatory actions and proposals to control and reduce health care costs. These measures may, among other things: negatively impact the level of reimbursement for pharmaceutical products; require higher levels of cost-sharing by beneficiaries; change the discounts required to be provided by pharmaceutical manufacturers to government payors and/or providers; extend government discounts to additional government programs and/or providers; or reduce the level of reimbursement for health care services and other non-drug items. Any such measures could indirectly impact demand for pharmaceutical products because they can cause payors and providers to apply heightened scrutiny and/or austerity actions to their entire operations, including pharmacy budgets.

Also, the trend toward managed health care in the U.S., as well as the implementation of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the “Affordable Care Act”), and the concurrent growth of organizations such as managed care organizations, accountable care organizations and integrated delivery networks, may result in increased pricing pressures for pharmaceutical products, including any products that may be offered by us in the future. Moreover, legislative and regulatory changes to the Affordable Care Act, including possible repeal, remain possible under the Trump Administration. Certain changes, such as the removal of the ACA’s individual health insurance mandate, have already been made by the U.S. Congress via enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Cuts Act”), and the effects of such legislative changes to the Affordable Care Act are unknown. In addition, third-party payors, in an effort to control costs, are increasingly making patients responsible for a higher percentage of the total cost of drugs in the outpatient setting. This can lower the demand for Midatech’s products if the increased patient cost sharing obligations are more than they can afford. Individual states’ responses to ongoing financial pressures could also result in measures designed to limit reimbursement, restrict access, or impose broader or deeper discounts on branded pharmaceutical products utilized for Medicaid patients. Midatech is are unable to predict what changes in legislation or regulation relating to the health care industry or third-party coverage and reimbursement, including possible repeal of the Affordable Care Act, may be enacted in the future or what effect such legislation or regulation would have on Midatech’s business.

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There may be significant delays in obtaining coverage and reimbursement for any drug for which Midatech obtains approval, and coverage may be more limited than the purposes for which the drug is approved by the EMA, the MHRA, the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers Midatech’s costs, including research, development, manufacturing, selling and distribution costs. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover Midatech’s costs and may only be temporary.

Midatech may experience pricing pressure on the price of its products, or any products candidates it may commercialize, due to social or political pressure to lower the cost of drugs, which could reduce Midatech’s revenue and future profitability.

Midatech may experience downward pricing pressure on the price of its products, and any product candidates it may commercialize, due to social or political pressure to lower the cost of drugs, which could reduce its revenue and future profitability. Recent events have resulted in increased public and governmental scrutiny of the cost of drugs. In particular, U.S. federal prosecutors have issued subpoenas to pharmaceutical companies seeking information about drug pricing practices. In addition, the U.S. Senate is publicly investigating a number of pharmaceutical companies relating to drug-price increases and pricing practices. Midatech’s revenue and future profitability could be negatively affected if these inquiries were to result in legislative or regulatory proposals that limit its ability to increase the prices of its products or any product candidates it may commercialize.

In addition, recently legislation has been introduced in the U.S. Congress that would require certain pharmaceutical manufacturers to justify price increases of more than 10% in a 12-month period, and a large number of individual states have introduced legislation aimed at drug pricing regulation, transparency or both. Midatech’s revenue and future profitability could be negatively affected by the passage of these laws or similar federal or state legislation. Pressure from social activist groups and future government regulations may also put downward pressure on the price of drugs, which could result in downward pressure on the prices of Midatech’s products, or any product candidates it may commercialize, in the future.

Currently enacted and future legislation in the United Kingdom, United States and other foreign jurisdictions may increase the difficulty and cost for Midatech to obtain marketing approval of and commercialize its products and product candidates and affect the prices it may obtain.

In the United Kingdom, United States and other foreign jurisdictions, legislative and regulatory changes and proposed changes regarding the healthcare system could prevent or delay marketing approval of Midatech ’ s product candidates, restrict or regulate post-approval activities and affect its ability to profitably sell any products or product candidates for which it obtains marketing approval.

In the United States, in recent years, Congress has considered reductions in Medicare reimbursement levels for drugs administered by physicians. CMS also has authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price Midatech can receive for those products. While Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payors.

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In March 2010, President Obama signed into law the Affordable Care Act. This law substantially changes the way healthcare is financed by both governmental and private insurers in the United States, and significantly impacts the pharmaceutical industry. The Affordable Care Act is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms. The Affordable Care Act expanded manufacturers ’ rebate liability under the Medicaid program from fee-for-service Medicaid utilization to include the utilization of Medicaid managed care organizations as well; increased the minimum Medicaid rebate due for most innovator drugs in general from 15.1% of average manufacturer price to 23.1% of average manufacturer price; and capped the total rebate amount for innovator drugs at 100% of average manufacturer price. The Affordable Care Act and subsequent legislation also changed the definition of AMP. The Affordable Care Act requires pharmaceutical manufacturers of branded prescription drugs to pay a branded prescription drug fee to the federal government. Each such manufacturer pays a prorated share of the branded prescription drug fee of $4.0 billion in 2017, based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law. Substantial new provisions affecting compliance have also been enacted, which may affect Midatech ’ s business practices with healthcare practitioners if its product candidates are approved and marketed in the United States. The Affordable Care Act also expanded the 340B program to include additional types of covered entities. Final CMS regulations to implement the changes to the Medicaid drug rebate program under the Affordable Care Act became effective on April 1, 2016. If not repealed or amended, it is likely that the Affordable Care Act will continue the pressure on pharmaceutical pricing, especially under the Medicare and Medicaid programs, and may also increase Midatech’s regulatory burdens and operating costs.

In addition, other legislative changes have been adopted since the Affordable Care Act was enacted. Beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average, to 2025. This could cause Medicare Part D Plans to seek lower prices from manufacturers. Even if favorable coverage and reimbursement status is attained for Midatech’s products, less favorable coverage policies and reimbursement rates may be implemented in the future.

As previously noted, in December 2017, the Tax Cuts Act repealed the Affordable Care Act’s penalties against individuals for failure to purchase health insurance, commonly known as the individual mandate, effective January 1, 2019. The repeal of the individual mandate will likely cause fewer Americans to be insured in the future, as compared with the prior version of the law. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole.” Congress could consider other legislation to repeal or replace certain elements of the Affordable Care Act. Midatech ultimately cannot predict with any assurance the ultimate effect of changes to the Affordable Care Act on Midatech, nor can Midatech provide any assurance that recent or future changes to the Affordable Care Act provisions will not have an adverse effect on its business, financial condition, results of operations, cash flows and the trading price of its Ordinary Shares or Depositary Shares, as well as anticipated revenue from product candidates that Midatech may successfully develop and for which Midatech may obtain marketing approval. The scope of potential future legislation to further amend the Affordable Care Act provisions is highly uncertain in many respects, as is the effect of such future legislation on Midatech ’ s business and prospects. It is possible that some of the Affordable Care Act provisions that generally are not favorable for the research-based pharmaceutical industry could also be repealed along with Affordable Care Act coverage expansion provisions.

In Europe, members of the European Union, or signatories thereto, are obliged to integrate directives into their national laws. European Union regulations, as in other European Union Member States, become immediately and directly enforceable in the member territories. These include without limitation:

Directive 2001/83/EC of 6 November 2001 on the European Community code as regards medicinal products for human use;

Commission Directive 2003/94/EC of October 8, 2003 enforcing principles and guidelines of good manufacturing practice as they related to medicinal products and investigational medicinal products for human use;

Commission Directive 2005/28/EC of April 8, 2005 establishing the principles and guidelines for good clinical practice relating to investigational medicinal products for human use, and the authorization requirements for the manufacturing or import thereof; and

Council Directive 89/105/EEC, of December 21, 1988, addressing the transparency of measures that regulate pricing of medicinal products for human use and their inclusion in national health insurance systems.

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In the United Kingdom, the regulation of medicinal products derives from European Union legislation, particularly Directive 2001/83/EC on the European Community code relating to medicinal products for human use, and Regulation (EC) 726/2004 on the authorization and supervision of medicinal products and establishing the EMA. This legislation has been adopted in the United Kingdom by the Human Medicines Regulations 2012 (SI 2012/1916) and applied through the MHRA, which is the executive agency of the Department of Health implementing pharmaceutical legislation in the United Kingdom. Accordingly, the terms of Brexit, which are negotiated between the United Kingdom and the European member states, may alter such regulation.

In the European Union, marketing approvals can be submitted through the national, mutual recognition or decentralized procedures. For marketing authorizations submitted through the centralized procedure, the EMA is responsible. The EMA advises the European Commission in relation to decisions on marketing authorizations.

Reimbursement in the European Union is typically controlled by statutory stipulations and controls on pharmaceutical pricing. Healthcare is broadly divided into public and private health. Products that are not to be supplied through the countries ’ public health services are typically less subject to price controls. All medicines validly prescribed on a public health prescription are in principle reimbursed from that country ’ s public funds.

In many European Union member states and signatories, a separate cost/benefit analysis may be required or requested (not a legal requirement) in order for prescribed products to be reimbursed. In the United Kingdom, most new medicines undergo an assessment by the United Kingdom National Institute for Health and Care Excellence (“NICE”), which will issue guidance on if and how to use the product in the National Health Service (the “ NHS ” ), in England and Wales. This decision is largely based on the opinion of NICE regarding clinical effectiveness and cost effectiveness relative to alternative therapies. NICE appraisals follow a comprehensive and inclusive process including consultations with and contributions from stakeholders. Clinicians are expected to take NICE ’ s guidance into account when making prescribing decisions. Where NICE issues a positive recommendation, NHS bodies are required to make funding available to cover the cost of the product as a treatment option, consistent with NICE ’ s guidance. In contrast, products which are not recommended by NICE are generally not funded on a routine basis.

Midatech cannot be sure whether additional legislative changes will be enacted, or whether the FDA or other jurisdictional regulations, guidance or interpretations will be changed, or what the impact of such changes (or in some instances, current regulations, guidance or interpretations) on the marketing approvals of its products or product candidates, if any, may be.

Midatech is subject to environmental laws and regulations in the United Kingdom, the European Union, and the United States that govern the use, storage, handling and disposal of hazardous materials and other waste products.

Midatech is subject to English law, the European Union ’ s laws and regulations, and European Union and United States environmental laws and regulations governing the use, storage, handling and disposal of hazardous materials and other waste products. Midatech has health and safety policies and procedures in place to assess the risks associated with use of hazardous materials, and the assessment includes information for employees on how the substances should be used to avoid contamination of the environment and inadvertent exposure to themselves and their colleagues. Despite its precautions for handling and disposing of these materials, Midatech cannot eliminate the risk of accidental contamination or injury. In the event of a hazardous waste spill or other accident, Midatech could be liable for damages, penalties or other forms of censure. If Midatech fails to comply with any laws or regulations, or if an accident occurs, Midatech may have to pay significant penalties and may be held liable for any damages that result. This liability could exceed Midatech ’ s financial resources and could harm its reputation. Midatech may also have to incur significant additional costs to comply with current or future environmental laws and regulations. Midatech ’ s failure to comply with any government regulation applicable to its laboratory and the materials used in its laboratory may adversely affect its ability to develop, produce, market or partner any products it may commercialize or develop.

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Midatech’s success depends in part on its ability to protect its rights in its intellectual property, which cannot be assured.

Midatech ’ s success and ability to compete effectively are in large part dependent upon exploitation of proprietary technologies and products that Midatech has developed internally or has acquired or in- licensed. To date, Midatech has relied on copyright, trademark and trade secret laws, as well as confidentiality procedures, non-compete and/or work for hire invention assignment agreements and licensing arrangements with its employees, consultants, contractors, customers and vendors, to establish and protect its rights to its technology and, to the best extent possible, control the access to and distribution of its technology, software, documentation and other proprietary information, all of which offer only limited protection. Where Midatech has the right to do so under its agreements, it seeks to protect its proprietary position by filing patent applications in the United States, the United Kingdom and worldwide related to its novel technologies and products that are important to its business. The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of Midatech ’ s patents, including those patent rights licensed to Midatech by third parties, are highly uncertain. There can be no assurance that:

the scope of Midatech ’ s patents provides and will provide Midatech with exclusivity with respect to any or all of its products and technologies, as well as any other technologies and/or products that address the same problems as Midatech ’ s technologies and products by a different means, whether in the same manner as Midatech or not;

pending or future patent applications will be issued as patents;

Midatech ’ s patents, and/or those patents to which Midatech is licensed, are and will remain valid and enforceable and will not be subject to invalidity or revocation proceedings and that such proceedings will not result in a complete or partial loss of rights;

Midatech ’ s entitlement to exploit patents from time to time (including patents registered solely in Midatech or its affiliates ’ name or in the joint names of Midatech or an affiliate and a third party or patents which are licensed to Midatech) is and will be sufficient to protect Midatech ’ s core intellectual property rights against third parties, its commercial activities from competition or to support comprehensively its ability to develop and market its proposed products either now or in the future;

the lack of any particular patents or rights to exploit any particular patents, and the scope of Midatech ’ s patents, will not have a material adverse effect on Midatech ’ s ability to develop and market its proposed products, either now or in the future;

Midatech has or will have the resources to pursue any infringer of: (i) patents registered in its name (whether solely or jointly with a third party) from time to time; or (ii) patents licensed to Midatech where Midatech or an affiliate has the financial responsibility to bring such infringement actions pursuant to the relevant license agreement;

Midatech will develop technologies or products which are patentable, either alone or in conjunction with third parties;

the ownership, scope or validity of any patents registered in Midatech ’ s name (either solely or jointly) from time to time will not be challenged by third parties, including parties with whom Midatech, or any affiliate, has entered into collaboration projects or co-ownership arrangements and that any such challenge will not be successful;

any patent or patent application owned solely or jointly by Midatech will not be challenged on grounds that Midatech failed to identify the correct inventors or that Midatech failed to comply with its duty of disclosure to the United States Patent and Trademark Office or any equivalent office in a foreign jurisdiction having a disclosure requirement;

any issued patent in Midatech ’ s sole or joint name from time to time will not be challenged in one or more post-grant proceedings, including but not limited to inter partes review, derivation proceedings, interferences, and that like; and that any such challenge will not result in a complete or partial loss of rights to such issued patent or patents;

any patent applications in Midatech ’ s sole or joint name from time to time will not be opposed by any third party, including parties to collaboration, co-existence and any other contractual relationship with Midatech or any of its members;

the license agreements between Midatech and third parties are and will be valid and subsisting in the future or until their expiry dates, and that Midatech has complied with its contractual obligations under the license agreements;

all intellectual property capable of being commercialized that is or has been generated pursuant to collaboration agreements between Midatech and third parties will be or has been identified;

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all intellectual property generated pursuant to collaboration agreements and to which Midatech has a contractual entitlement or generated by employees has been lawfully assigned into Midatech ’ s sole name (or to one of its subsidiaries);

in respect of all intellectual property generated pursuant to a collaboration agreement between Midatech and a third party to which Midatech and that third party have a joint contractual entitlement, that such intellectual property has been lawfully assigned into joint names and the rights between Midatech and that third party are properly regulated by a co-ownership agreement; and

beyond contractual warranties, the licensors of intellectual property to Midatech or affiliate own the relevant patents and that those patents have not and will not be the subject of, or subject to, infringement, invalidity or revocation actions.

The steps Midatech has taken to protect its proprietary rights may not be adequate to preclude misappropriation of its proprietary information or infringement of its intellectual property rights, both inside and outside of the United Kingdom and United States. The rights already granted under any of Midatech ’ s currently issued patents and those that may be granted under future issued patents may not provide Midatech with the proprietary protection or competitive advantages it is seeking. If Midatech is unable to obtain and maintain patent protection for its technology and products, or if the scope of the patent protection obtained is not sufficient, Midatech ’ s competitors could develop and commercialize technology and products similar or superior to Midatech, and Midatech ’ s ability to successfully commercialize Midatech ’ s technology and products may be adversely affected.

With respect to patent rights, Midatech does not know whether any of the pending patent applications for any of its licensed compounds will result in the issuance of patents that protect its technology or products, or which will effectively prevent others from commercializing competitive technologies and products. Although Midatech has a number of issued patents covering its technology, its pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Further, the examination process may require Midatech to narrow the claims, which may limit the scope of patent protection that may be obtained. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that Midatech owns or has licensed from third parties may be challenged in the courts or patent offices in the European Union, United Kingdom, the United States and other foreign jurisdictions. Overall, such challenges may result in the loss of patent protection, the narrowing of claims in such patents, or the invalidity or unenforceability of such patents, which could limit Midatech ’ s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for its technology and products. Protecting against the unauthorized use of Midatech ’ s patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third party infringement or misappropriation of Midatech ’ s intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

The patent prosecution process is expensive and time-consuming, and Midatech may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Midatech will fail to identify patentable aspects of inventions made in the course of its development and commercialization activities before it is too late to obtain patent protection on them. Further, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Midatech expects to seek extensions of patent terms where they are available in any countries where it is prosecuting patents. However, the applicable authorities, including the FDA in the United States, and any equivalent regulatory authority in other countries, may not agree with Midatech ’ s assessment of whether such extensions are available, and may refuse to grant extensions to its patents, or may grant more limited extensions than it requests. If this occurs, Midatech ’ s competitors may be able to take advantage of its investment in development and clinical trials by referencing its clinical and preclinical data and launch their product earlier than might otherwise be the case. Changes in either the patent laws or interpretation of the patent laws in the European Union, the United Kingdom, the United States and other countries may diminish the value of Midatech ’ s patents or narrow the scope of its patent protection. The laws of foreign countries may not protect Midatech ’ s rights to the same extent as the laws of the United Kingdom or the United States, and these foreign laws may also be subject to change. Publication of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications typically are not published until 18 months after filing or, in some cases, not at all. Therefore, Midatech cannot be certain that it was the first to make the inventions claimed in its owned or licensed patents or pending patent applications, or that it was the first to file for patent protection of such inventions.

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Previously, in the United States, assuming the other requirements for patentability are met, the first to make the claimed invention was entitled to the patent. Outside the United States, the first to file a patent application is entitled to the patent. In March 2013, the United States transitioned to a “ first to file ” system in which the first inventor to file a patent application will be entitled to the patent. Under either the previous or current system, third parties will be allowed to submit prior art prior to the issuance of a patent by the United States Patent and Trademark Office, and may become involved in opposition, derivation, reexamination, inter-partes review or interference proceedings challenging Midatech ’ s patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, Midatech ’ s patent rights, which could adversely affect its competitive position with respect to third parties.

Midatech’s commercial success depends, in part, upon Midatech not infringing intellectual property rights owned by others.

Although Midatech believes that it has proprietary platforms for its technologies and products, Midatech cannot determine with certainty whether any existing third party patents or the issuance of any third party patents in the future would require it to alter its technology, obtain licenses or cease certain activities. Midatech may become subject to claims by third parties that its technology infringes their intellectual property rights, in which case it will have no option other than to defend the allegation, which may be possible to resolve through negotiation or which might result in court proceedings. An adverse outcome in any of these circumstances is that Midatech might be subject to significant liabilities, be required to cease using a technology or to pay license fees (both prospectively and retrospectively); and may be subject to the payment of significant damages. Midatech could incur substantial costs in any litigation or other proceedings relating to patent rights, even if it is resolved in Midatech ’ s favor. If the proceedings occur in the United States, it is likely that Midatech will be responsible for its own legal costs, no matter the outcome of the litigation. In contrast, in the United Kingdom, the losing party typically is ordered to pay the winning party ’ s costs, although it is rare to have a complete recovery of all costs from the losing side. Some of Midatech ’ s competitors may be able to sustain the costs of complex litigation more effectively or for a longer time than Midatech can because of their substantially greater resources. In addition, uncertainties or threatened or actual disputes relating to any patent, patent application or other intellectual property right (including confidential information) could have a material adverse effect on Midatech ’ s ability to market a product, enter into collaborations in respect of the affected products, or raise additional funds.

The policing of unauthorized use of Midatech ’ s patented technologies and products is difficult and expensive. There can be no assurance that the steps Midatech takes will prevent misappropriation of, or prevent an unauthorized third party from obtaining or using, the technologies, know-how and products Midatech relies on. In addition, effective protection may be unavailable or limited in some jurisdictions. Any misappropriation of Midatech ’ s proprietary technology, products and intellectual property could have a negative impact on Midatech ’ s business and its operating results. Litigation may be necessary in the future to enforce or protect Midatech ’ s rights or to determine the validity or scope of the proprietary rights of others. Litigation could cause Midatech to incur substantial costs and divert resources and management attention away from its daily business and there can be no guarantees as to the outcome of any such litigation. In addition, a defendant in any such litigation may counterclaim against Midatech, resulting in additional time and expense to defend against such a counterclaim, which defense may not be successful.

Midatech may become involved in lawsuits to protect or enforce its intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe Midatech ’ s patents or misappropriate or otherwise violate its intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend Midatech ’ s intellectual property rights, to protect its trade secrets or to determine the validity and scope of its own intellectual property rights or the proprietary rights of others. This can be expensive and time consuming. Many of Midatech ’ s current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than it can. Accordingly, despite Midatech ’ s efforts, it may not be able to prevent third parties from infringing upon or misappropriating its intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm Midatech ’ s business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by or licensed to Midatech is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that Midatech ’ s patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of Midatech ’ s patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Midatech ’ s confidential information could be compromised by disclosure during this type of litigation.

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Third parties may initiate legal proceedings alleging that Midatech is infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of Midatech’s business.

Midatech ’ s commercial success depends upon Midatech ’ s ability and the ability of its collaborators to develop, manufacture, market and sell its product candidates, and to use its proprietary technologies without infringing the proprietary rights of third parties. Midatech may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to its products and technology. Third parties may assert infringement claims against Midatech based on existing patents or patents that may be granted in the future. If Midatech is found to infringe a third party ’ s intellectual property rights, it could be required to obtain a license from such third party to continue developing and commercializing its products and technology. However, Midatech may not be able to obtain any required license on commercially reasonable terms or at all. Even if Midatech is able to obtain a license, it may be non-exclusive, thereby giving its competitors access to the same technologies licensed to it. Midatech could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, Midatech could be found liable for monetary damages. A finding of infringement could prevent Midatech from commercializing its products or product candidates or force it to cease some of its business operations, which could materially harm its business. Any claims by third parties that Midatech has misappropriated their confidential information or trade secrets could have a similar negative impact on its business.

Midatech may be subject to claims that its employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Many of Midatech ’ s employees, including its senior management, were previously employed at other biotechnology or pharmaceutical companies. Some of these employees, including members of Midatech ’ s senior management, executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although Midatech tries to ensure that its employees do not use the proprietary information or know-how of others in their work for Midatech, Midatech may be subject to claims that it or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee ’ s former employer. Midatech is not aware of any threatened or pending claims related to these matters or concerning the agreements with its senior management, but in the future litigation may be necessary to defend against such claims. If Midatech fails in defending any such claims, in addition to paying monetary damages, it may lose valuable intellectual property rights or personnel. Even if Midatech is successful in defending against such claims, litigation could result in substantial costs and be a potential distraction to management.

If Midatech were unable to protect the confidentiality of its trade secrets, its business and competitive position could be harmed.

In addition to seeking patents for some of Midatech ’ s technology and products, Midatech also relies on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain its competitive position. Midatech seeks to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as its employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. Midatech also enters into confidentiality and invention or patent assignment agreements with its employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose Midatech ’ s proprietary information, including Midatech ’ s trade secrets, and Midatech may not be able to obtain adequate remedies for such breaches. In addition, a court may determine that Midatech failed to take adequate steps to protect its trade secrets, in which case it may not be possible to enforce its trade secret rights. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some may be less willing or unwilling to protect trade secrets. If any of Midatech ’ s trade secrets were to be lawfully obtained or independently developed by a competitor, Midatech would have no right to prevent such competitor from using that technology or information to compete with it, which could harm Midatech ’ s competitive position.

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Midatech may face product liability claims stemming from its products.

In carrying out its activities, Midatech may potentially face contractual and statutory claims, or other types of claims from customers, suppliers and/or investors. In addition, Midatech is exposed to potential product liability risks that are inherent in the research, development, production and supply of its products. Subjects enrolled in Midatech ’ s clinical trials, consumers, healthcare providers or other persons administering or selling products based on Midatech ’ s and its collaborators ’ technology may be able to bring claims against Midatech based on the use of such products. If Midatech cannot successfully defend itself against claims that its product candidates or products caused injuries, Midatech could incur substantial costs and liabilities. Irrespective of their merits or actual outcome, liability claims may result in:

decreased demand for any product candidates or product that Midatech may develop;

significant negative media attention and injury to Midatech ’ s reputation;

significant costs to defend the related litigation;

substantial monetary awards to trial subjects or patients;

loss of revenue;

diversion of management and scientific resources from Midatech ’ s business operations; and

the inability to commercialize any products that Midatech may develop.

Midatech has obtained product liability insurance coverage with a £ 8.0 million annual aggregate coverage. Midatech ’ s insurance coverage may not be sufficient to cover all of its product liability related expenses or losses and may not cover it for any expenses or losses it may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, Midatech may not be able to maintain insurance coverage at a reasonable cost, in sufficient amounts or upon adequate terms to protect it against losses due to product liability. If Midatech determines that it is prudent to increase its product liability coverage based on sales of its products, Midatech may be unable to obtain this increased product liability insurance on commercially reasonable terms or at all. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects, including side effects that may be less severe than those of Midatech ’ s products. A successful product liability claim or series of claims brought against Midatech could cause the price of the Ordinary Shares and/or Depositary Shares to decline and, if judgments exceed Midatech ’ s insurance coverage, could decrease its cash and have a material adverse effect its business, results of operations, financial condition and prospects.

Midatech’s products may be faced with recalls.

Midatech may be faced with the necessity of recalling one or more products or batches of products from the market. This necessity may also occur if no de facto product property exists that makes a recall obligatory, in particular a side effect or defect, but rather if such a property is merely suspected of being present. A recall may result in loss of revenue, damage to reputation and consequential fall in cash flow, and product supply interruption, among other things. Affected products could not be sold any longer, and moreover, trust among, in particular, doctors and patients could be affected, which could lead to reductions in sales or profits. Further, options for refinancing on the capital market could be negatively affected or even excluded.

Midatech relies on third parties to conduct its preclinical and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, Midatech may not be able to obtain regulatory approval for or commercialize its product candidates and its business could be substantially harmed.

Midatech is, and may continue to be, reliant on other parties for the successful development and commercialization of many of its products. Midatech relies upon CROs for the conduct of its clinical studies. Midatech relies on these parties for execution of its preclinical and clinical trials, and controls only certain aspects of their activities. Nevertheless, Midatech is responsible for ensuring that each of its studies is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and Midatech ’ s reliance on the CROs or collaboration partners does not relieve it of its regulatory responsibilities. Midatech also relies on third parties to assist in conducting its preclinical studies in accordance with Good Laboratory Practices and requirements with respect to animal welfare. Midatech and its CROs or collaboration partners are required to comply with Good Clinical Practices ( “ GCP ” ), which are regulations and guidelines enforced by the MHRA, the FDA, the EMA and comparable foreign regulatory authorities for all of its products in clinical development. Regulatory authorities enforce these GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If Midatech or any of its CROs or partners fail to comply with applicable GCP, the clinical data generated in Midatech ’ s clinical trials may be deemed unreliable and the EMA, the MHPA, the FDA or comparable foreign regulatory authorities may require Midatech to perform additional clinical trials before approving its marketing applications. Midatech cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of its clinical trials comply with GCP requirements. In addition, Midatech ’ s clinical trials must be conducted with product produced under cGMP requirements. Failure to comply with these regulations may require Midatech to repeat preclinical and clinical trials, which would delay the regulatory approval process.

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Midatech ’ s CROs are not its employees, and except for remedies available to it under such agreements with such CROs, Midatech cannot control whether or not they devote sufficient time and resources to its on-going clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to Midatech ’ s clinical protocols, regulatory requirements or for other reasons, then Midatech ’ s clinical trials may be extended, delayed or terminated and it may not be able to obtain regulatory approval for or successfully commercialize its product candidates. As a result, Midatech ’ s results of operations and the commercial prospects for its product candidates would be harmed, its costs could increase and its ability to generate revenues could be delayed.

Because Midatech has relied on third parties, its internal capacity to perform these functions is limited. Outsourcing these functions involves risk that third parties may not perform to Midatech ’ s standards, may not produce results in a timely manner or may fail to perform at all. In addition, the use of third party service providers requires Midatech to disclose its proprietary information to these parties, which could increase the risk that this information will be misappropriated. Midatech currently has a small number of employees, which limits the internal resources it has available to identify and monitor its third party providers. To the extent it is unable to identify and successfully manage the performance of third party service providers in the future, Midatech ’ s business may be adversely affected. Though Midatech carefully manages its relationships with its CROs, there can be no assurance that it will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse impact on Midatech ’ s business, financial condition and prospects.

Midatech is dependent on third party suppliers, and if it experiences problems with any of these third parties, the manufacturing of its product candidates or products could be delayed, which could harm its results of operations.

Midatech is also dependent upon certain qualified suppliers, of which there are a limited number, for the supply of raw materials, components, devices and manufacturing equipment. Additionally, these suppliers may also have downstream suppliers who supply materials, components, devices and manufacturing equipment, which may indirectly impact Midatech’s business operations. Midatech may also become dependent in the future on third party contract manufacturing organizations for the production of its product candidates for commercial sale. Thus, the success of Midatech ’ s business may be adversely affected by the underperformance of third parties, exploitation by third parties of Midatech ’ s commercial dependence and by unforeseen interruptions to third parties ’ businesses. Although the existence of several alternative suppliers for each function mitigates the risks associated with this dependence, as does the availability of commercial insurance in respect of the impact of accidental events, the failure of a third party to properly to carry out their contractual duties or regulatory obligations could be highly disruptive to Midatech ’ s business. Supply chain failures can result in significant clinical or commercial supply interruptions which could materially hamper Midatech’s ability to conduct clinical trials or to supply adequate commercial supplies, and efforts to qualify new suppliers can be costly and time consuming. Further, any action taken by a third party that is detrimental to Midatech ’ s reputation could have a negative impact on Midatech ’ s ability to register its trademarks and/or market and sell its products.

In the future, Midatech intends to license certain of its products to other companies for later stages of development and subsequent marketing, and consequently Midatech will be increasingly reliant on securing and retaining such partners once its products advance through the development process. There can be no assurance that Midatech will be able to secure such partners or that, once secured, Midatech ’ s partners will continue to make the necessary and timely investments in its products to complete their development in the expected time and achieve commercial success.

Midatech is exposed to risks related to its partnerships in joint ventures.

Midatech participates in, and may expand through, joint ventures. There are certain risks associated with joint venture partners, including the risk that joint venture partners may:

have economic or business interests or goals that are inconsistent with those of Midatech and be in a position to take or influence actions contrary to Midatech ’ s interests and plans, which may create impasses on decisions and affect Midatech ’ s ability to implement its strategies;

veto proposals in respect of joint venture operations;

be unable or unwilling to fulfill their obligations under the joint venture or other agreements; or

experience financial or other difficulties.

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Any joint venture arrangements may expose Midatech to the risk that disputes develop between Midatech and joint venture partners, with any litigation or arbitration resulting from any such disputes increasing the Midatech ’ s expenses and distracting management resources. In addition, there can be no assurance that Midatech will always have a controlling interest in any joint venture in which it currently participates or into which it may enter in the future. As such, joint ventures may disproportionately divert financial and management resources, which may have a material adverse effect on Midatech ’ s business, financial condition, operating results or prospects.

Midatech’s counterparties may become insolvent.

There is a risk that parties with whom Midatech trades or has other business relationships with (including partners, joint venturers, customers, suppliers, subcontractors and other parties) may become insolvent. This may be due to general economic conditions or factors specific to that company. In the event that a party with whom Midatech trades becomes insolvent, this could have an adverse impact on the revenues and profitability of Midatech.

Midatech may lose its sterile production license and may encounter unexpected difficulties in the scale-up of production to viable clinical trial or commercialization levels.

Midatech completed a major upgrade of its infrastructure in Spain in September 2014 by integrating a separated sterile production unit within the manufacturing containment area. Through integrating the separated sterile production unit within the manufacturing facility, Midatech can produce clinical candidate compounds under sterile conditions, allowing Midatech to clinically test and evaluate candidate gold nanoparticles-based cancer therapies, which are administered by intravenous injection. A further upgrade was completed in December 2016 with the addition of a non-sterile production unit for Midatech ’ s sustained release products. The Spanish regulatory authority grants Midatech requisite licenses necessary for the activities that occur at this facility. If the Spanish regulatory authority were to revoke or fail to issue the requisite licenses, Midatech may need to outsource its requirements of the sterile production and cGMP manufacturing, which will increase Midatech ’ s reliance on third parties to manufacture the candidate compounds to the required standards, and will be therefore be at risk of underperformance and unforeseen interruptions, which could adversely affect Midatech ’ s business and financial performance.

Because of the complex nature of Midatech ’ s product candidates, it may not be able to manufacture the product candidates in a timely manner at cost or in quantities necessary to successfully commercialize Midatech ’ s products. Certain of Midatech ’ s product candidates have historically only been manufactured in small quantities. Later stage development and commercial supply of such products will require Midatech to scale up the manufacture of its products. There can be no assurance that this can be successfully completed or that, if completed, it will result in commercially acceptable manufacturing costs.

Midatech’s relationships with customers and third-party payors are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose it to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any of Midatech ’ s products or any product candidate for which Midatech obtains marketing approval. Midatech ’ s arrangements with third party payors and customers exposes it to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which it markets, sells and distributes its products for which it obtains marketing approval. For example, in the United States, restrictions under applicable federal and state healthcare laws and regulations include the following:

the federal healthcare anti-kickback statute;

the federal civil False Claims;

the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act;

the federal Physician Payment Sunshine Act, being implemented as the Open Payments Program; and

analogous state laws and regulations, such as state anti-kickback and false claims laws.

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Midatech, through Midatech US, has initiated participation in the federal Medicaid Rebate Program established by the Omnibus Budget Reconciliation Act of 1990, as subsequently amended, including by the Affordable Care Act, as well as several state supplemental rebate programs, in connection with the sale of Soltamox and would anticipate participating in these programs with respect to future pharmaceutical products, including Oravig and Zuplenz. Though to date invoices for rebates have not been material, under the Medicaid rebate program, Midatech anticipates paying a rebate to each state Medicaid program for its products that are reimbursed by those programs. Federal law requires that any company that participates in the Medicaid rebate program extend comparable discounts to qualified purchasers under the Public Health Service Act pharmaceutical pricing program, which requires Midatech to sell its products to certain customers at prices lower than Midatech otherwise might be able to charge. If products are made available to authorized users of the Federal Supply Schedule, additional pricing laws and requirements apply. Pharmaceutical companies have been prosecuted under federal and state false claims laws in connection with allegedly inaccurate information submitted to the Medicaid Rebate Program or for knowingly submitting or using allegedly inaccurate pricing information in connection with federal pricing and discount programs.

Pricing and rebate calculations vary among products and programs. The calculations are complex and may be subject to interpretation by Midatech or its contractors, governmental or regulatory agencies and the courts. Midatech ’ s methodologies for calculating these prices could be challenged under false claims laws or other laws. Midatech or its contractors could make a mistake in calculating reported prices and required discounts, revisions to those prices and discounts, or determining whether a revision is necessary, which could result in retroactive rebates (and interest, if any). Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. If this were to occur, Midatech could face, in addition to prosecution under federal and state false claims laws, substantial liability and civil monetary penalties, exclusion of Midatech ’ s products from reimbursement under government programs, criminal fines or imprisonment or the entry into a corporate integrity agreement, deferred prosecution agreement, or similar arrangement.

In the United Kingdom and other European Union member states, comparable regulations and laws exist in order to maintain a fair healthcare market. The United Kingdom Bribery Act 2010 may also have jurisdiction in relation to unlawful payments or kickbacks in the United Kingdom and elsewhere.

The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increase the possibility that a healthcare or pharmaceutical company may fail to comply fully with one or more of these requirements. Efforts to ensure that Midatech ’ s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that Midatech ’ s business practices may not comply with applicable fraud and abuse or other healthcare laws and regulations. If Midatech ’ s operations, including activities conducted by Midatech ’ s sales team in the promotion of Midatech ’ s licensed or co-promoted products, are found to be in violation of any of these laws or any other governmental regulations that may apply to us, Midatech may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid in the United States, and the curtailment or restructuring of Midatech ’ s operations. If any of the physicians or other providers or entities with whom Midatech expects to do business is found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Even if Midatech is not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm Midatech’s financial condition and divert resources and the attention of its management from operating its business.

Midatech is subject to cybersecurity risks and other cyber incidents, including the misappropriation of Midatech’s information and other breaches of information security that may result in disruption and the incurrence of costs in an effort to minimize those risks.

In the normal course of conducting its business, Midatech collects and stores sensitive data on its networks, including intellectual property, personal information of its employees, and its proprietary business information and that of its customers, vendors and business partners. Despite the security measures Midatech has in place and any additional measures it may implement in the future to safeguard its systems and to mitigate potential security risks, Midatech’s facilities and systems, and those of its third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism or other events. Any steps Midatech takes to deter and mitigate these risks may not be successful and may cause Midatech to incur increasing costs. Any disruption of its systems or security breach or event resulting in the misappropriation, loss or other unauthorized disclosure of confidential information, whether by Midatech directly or by its third-party service providers, could damage Midatech’s reputation, result in the incurrence of costs, expose Midatech to the risks of litigation and liability, result in regulatory penalties under laws that protect privacy of personal information, disrupt Midatech’s business or otherwise affect its results of operations.

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Midatech is currently undergoing a leadership transition and this transition, along with the possibility that Midatech may in the future be unable to retain and recruit qualified scientists, ke y executives, ke y emplo y ees or key consultants, may delay its development efforts or otherwise harm its business.

On March 15, 2018, Midatech announced that Dr. James Phillips, its Chief Executive Officer and a member of the Board of Directors, would step down at the end of May 2018. Dr. Craig Cook, currently Midatech’s Chief Operating Officer and Head of Research and Development, has been appointed by the Board of Directors to succeed Dr. Phillips, effective as of June 1, 2018. While Midatech has confidence in Dr. Cook and its remaining leadership team, the uncertainty inherent in this ongoing leadership transition may be difficult to manage, may cause concerns from third parties with whom Midatech does business, and may increase the likelihood of turnover of other key officers and employees.

In addition, Midatech ’ s future development and prospects depend to a large degree on the experience, performance and continued service of its senior management team, including members of its Board of Directors. Midatech has invested in its management team at all levels. Midatech has entered into contractual arrangements with its directors and senior management team with the aim of securing the services of each of them. However, retention of these services or the identification of suitable replacements cannot be guaranteed. There can be no guarantee that the services of the current directors and senior management team will be retained, or that suitably skilled and qualified individuals can be identified and employed, which may adversely impact Midatech ’ s ability to develop its technologies and/or provide its services at the time requested by its customers or its ability to market its services and technologies, and otherwise to grow its business, could be impaired. The loss of the services of any of the directors or other members of the senior management team and the costs of recruiting replacements may have a material adverse effect on Midatech and its commercial and financial performance.

The ability to continue to attract and retain employees with the appropriate expertise and skills also cannot be guaranteed. Finding and hiring any additional personnel and replacements could be costly and might require Midatech to grant significant equity awards or other incentive compensation, which could adversely impact its financial results, and there can be no assurance that Midatech will have sufficient financial resources to do so. Effective product development and innovation, upon which Midatech ’ s success is dependent, is in turn dependent upon attracting and retaining talented technical and scientific personnel, who represent a significant asset and serve as the source of Midatech ’ s technological and product innovations. If Midatech is unable to hire, train and retain such personnel in a timely manner, the development and introduction of Midatech ’ s products could be delayed and its ability to sell its products and otherwise to grow its business will be impaired and the delay and inability may have a detrimental effect upon the performance of Midatech.

Midatech’s employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on its business.

Midatech is exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with applicable regulations, provide accurate information to regulatory authorities, comply with manufacturing standards, comply with healthcare fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to Midatech. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Midatech ’ s reputation. Midatech has adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions Midatech has taken to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Midatech and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business and results of operations, including the imposition of significant fines or other sanctions.

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Unexpected facility shutdowns or system failures may occur and Midatech’s disaster recovery plans may not be sufficient.

Midatech depends on the performance, reliability and availability of its properties, plant, machinery, laboratory equipment and information technology systems. Midatech may not be able to access its facilities as a result of events beyond its control, such as extreme weather conditions, flood, fire, theft, terrorism and acts of God. Any damage to or failure of its equipment and/or systems could also result in disruptions to Midatech ’ s operations. A complete or partial failure of Midatech ’ s information technology systems, or those of its CROs and other third parties on which it relies, or corruption of data could result in Midatech being unable to access information that it needs in order to meet its obligations to its customers or a breach of confidentiality with respect to Midatech ’ s or its customers ’ proprietary information. If such an event were to occur and cause interruptions in Midatech ’ s operations, it could result in a material disruption of its drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in Midatech ’ s regulatory approval efforts and significantly increase Midatech ’ s costs to recover or reproduce the data. Midatech ’ s disaster recovery plans may not adequately address every potential event and its insurance policies may not cover any loss in full or in part (including losses resulting from business interruptions) or damage that it suffers fully or at all. The occurrence of one or more of these events could have a material adverse effect on Midatech ’ s business, financial position, reputation or prospects, and might lead to a claim for damages.

Midatech’s business may be adversely affected by economic conditions and current economic weakness.

Any economic downturn either globally, regionally or locally in any country in which Midatech operates may have an adverse effect on the demand for Midatech ’ s products. A more prolonged economic downturn may lead to an overall decline in Midatech ’ s sales, limiting Midatech ’ s ability to generate a profit and positive cash flow. The markets in which Midatech offers its products are directly affected by many national and international factors that are beyond Midatech ’ s control, such as political, economic, currency, social and other factors.

Midatech is exposed to the risks of doing business internationally.

In addition to operations in the United States, Midatech also currently operates in a number of countries in Europe. Midatech ’ s international operations are subject to a number of risks inherent in operating in different countries. These include, but are not limited to, risks regarding:

currency exchange rate fluctuations;

restrictions on repatriation of earnings;

efforts to develop an international sales, marketing and distribution organization, which may increase Midatech ’ s expenses, divert management ’ s attention from the acquisition or development of product candidates or cause it to forgo profitable licensing opportunities in these geographies;

unexpected changes in foreign laws and regulatory requirements, including pharmaceutical regulations;

difficulty of effective enforcement of contractual provisions in local jurisdictions;

inadequate intellectual property (including confidentiality) protection in foreign countries;

trade-protection measures, import or export licensing requirements and fines, penalties or suspension or revocation of export privileges; and

changes in a specific country ’ s or a region ’ s political or economic conditions, particularly in emerging markets.

The occurrence of any of these events or conditions could adversely affect Midatech ’ s ability to increase or maintain its operations in various countries.

Midatech has undertaken, and may in the future undertake, additional strategic acquisitions. Failure to integrate acquisitions could adversely affect Midatech’s value.

One of the ways Midatech has grown its pipeline and business is through strategic acquisitions, such as its acquisition of DARA and the acquisition of Zuplenz from Galena Biopharma, Inc. Midatech may, from time to time, evaluate additional acquisition opportunities, and may, in the future, strategically make further acquisitions of, and investments in, businesses and technologies when it believes the opportunity is advantageous to its prospects. There can be no assurance that in the future Midatech will be able to find appropriate acquisitions or investments. In connection with these acquisitions or investments, Midatech may:

issue stock that would dilute its stockholders ’ percentage of ownership;

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be obligated to make milestone or other contingent or non-contingent payments;

incur debt and assume liabilities; and

incur amortization expenses related to intangible assets or incur large and immediate write-offs.

Midatech also may be unable to find suitable acquisition candidates and may not be able to complete acquisitions on favorable terms, if at all. If Midatech does complete an acquisition, this may not ultimately strengthen its competitive position or ensure that it will not be viewed negatively by customers, financial markets or investors. Further, acquisitions, including the acquisition of DARA, could also pose numerous additional risks to Midatech ’ s operations, including:

problems integrating the purchased business, products or technologies, including the failure to achieve the expected benefits and synergies;

increases to Midatech ’ s expenses;

the failure to have discovered undisclosed liabilities of the acquired asset or company;

diversion of management ’ s attention from their day-to-day responsibilities;

harm to Midatech ’ s operating results or financial condition;

entrance into markets in which Midatech has limited or no prior experience; and

potential loss of key employees, particularly those of the acquired entity.

Midatech may not be able to complete one or more acquisitions or effectively integrate the operations, products or personnel gained through any such acquisition without a material adverse effect on its business, financial condition and results of operations.

Midatech is exposed to risks related to currency exchange rates.

Midatech conducts a significant portion of its operations outside of the United Kingdom. Because Midatech uses the British pound sterling as its financial statement reporting currency, changes in currency exchange rates have had and could have a significant effect on its operating results when its operating results are translated from U.S. dollars or Euros into British pound sterling. Exchange rate fluctuations between local currencies and the British pound sterling create risk in several ways, including the following: weakening of the British pound sterling, as seen, for example, following the Brexit referendum, may increase the British pound sterling cost of overseas research and development expenses and the cost of sourced product components outside the United Kingdom; strengthening of the British pound sterling may decrease the value of Midatech ’ s revenues denominated in other currencies; the exchange rates on non-sterling transactions and cash deposits can distort Midatech ’ s financial results; and commercial pricing and profit margins are affected by currency fluctuations. Future changes in currency exchange rates could have a material adverse effect on Midatech ’ s financial results.

Risks Related to Ownership of Midatech’s Securities

The price of Midatech’s Ordinary Shares and American Depositary Shares may be volatile.

Each Depositary Share represents two Ordinary Shares. A public market has only been established for the Depositary Shares since December 2015, and such a market may not be sustained. Both the United States and United Kingdom stock markets have experienced significant volatility, including in pharmaceutical and biotechnology stocks. In particular, the closing price of Midatech ’ s Ordinary Shares on the AIM Market of the London Stock Exchange ( “ AIM ” ) has fluctuated between £ 0.36 and £ 3.30 between December 8, 2014 and December 31, 2017, and the closing price of Midatech ’ s Depositary Shares on The NASDAQ Capital Market (“NASDAQ”) has fluctuated between $0.83 and $8.09 between December 7, 2015 and December 31, 2017. The volatility of pharmaceutical and biotechnology stocks does not often relate to the operating performance of the companies represented by the stock. Other price fluctuations are, or may be, directly attributable to financial performance.

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Factors that could cause volatility in the market price of each Ordinary Share and the Depositary Shares include:

the success of competitive products or technologies;

regulatory actions with respect to Midatech’s products or its competitors’ products;

actual or anticipated changes in Midatech’s growth rate relative to its competitors;

announcements by Midatech or its competitors of new products, significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

the progress of preclinical development, laboratory testing and clinical trials of Midatech’s product candidates or those of its competitors;

the results from Midatech’s clinical programs and any future trials it may conduct;

developments in the clinical trials of potentially similar competitive products;

EMA, FDA or international regulatory or legal developments;

failure of any of Midatech’s product candidates, if approved, to achieve commercial success;

developments or disputes concerning patent applications, issued patents or other proprietary intellectual property rights;

the recruitment or departure of key personnel;

the level of expenses related to any of Midatech’s product candidates or clinical development programs;

litigation or public concern about the safety of Midatech’s products;

actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

actual and anticipated fluctuations in Midatech’s operating results;

variations in Midatech’s financial results or those of companies that are perceived to be similar to it;

share price and volume fluctuations attributable to inconsistent trading volume levels of Midatech’s shares;

announcement or expectation of additional financing efforts;

rumors relating to Midatech or its competitors;

sales of Ordinary Shares or Depositary Shares by Midatech, its insiders or its other shareholders;

changes in the structure of healthcare payment systems;

market conditions in the pharmaceutical and biotechnology sectors;

third party reimbursement policies;

Brexit and any resulting economic or currency volatility;

developments concerning current or future collaborations, strategic alliances, joint ventures or similar relationships; and

reviews of long-term values of Midatech’s assets, which could lead to impairment charges that could reduce its earnings.

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In addition, the stock market in general, NASDAQ and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of Midatech’s Ordinary Shares, regardless of its actual operating performance. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of Midatech’s Ordinary Shares and Depositary Shares.

Forecasting sales of Midatech’s products and product candidates, if approved, may be difficult, and if its revenue projections are inaccurate, Midatech’s business may be harmed and its stock price may decline.

Sales of Midatech’s products and product candidates will be difficult to forecast. Factors that increase the difficulty of forecasting sales of each of its current and future products include the following:

the cost and availability of reimbursement for the product;

treatment guidelines issued by government and non-government agencies in the United States, the United Kingdom and other foreign jurisdictions;

the timing of market entry relative to competitive products;

the availability of alternative therapies;

the price of the product relative to alternative therapies, including generic versions of products that compete with Midatech’s products;

the rates of returns and rebates;

uncertainty about the pace of acceptance of the product;

the ability of Midatech’s third-party manufacturers to manufacture and deliver the product in commercially sufficient quantities;

the ability of Midatech’s third-party distributors and wholesalers to process orders in a timely manner and satisfy their obligations to it;

the extent and success of Midatech’s marketing efforts; and

potential side effects or unfavorable publicity concerning Midatech’s products or similar products.

The extent to which any of these or other factors individually or in the aggregate may impact future sales of Midatech’s products is uncertain and difficult to predict. Midatech’s management must make forecasting decisions regarding future revenue in the course of business planning despite this uncertainty, and actual results of operations may deviate materially from projected results. If its revenues from product sales are lower than Midatech anticipates, it will incur costs in the short term that will result in losses that are unavoidable. A shortfall in revenue would have a direct impact on Midatech’s expected cash flow, its stock price and on its business generally. Furthermore, to the extent that any projections Midatech disclosed publicly regarding future product sales or its financial performance are incorrect, including as a result of the challenges in forecasting such sales, its stock price could be adversely affected, and Midatech could be subject to an increased risk of litigation. In addition, fluctuations in Midatech’s results can adversely and significantly affect the market price of the Ordinary Shares and Depositary Shares.

Midatech may be subject to securities litigation, which is expensive and could divert management attention.

The market price of the Ordinary Shares and Depositary Shares may be volatile, and in the past, some companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. Midatech may be the target of this type of litigation in the future. Securities litigation against Midatech could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm Midatech’s business.

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Depositary Shares may not be as liquid as Ordinary Shares.

Some companies that have issued American depositary shares on United States stock exchanges have experienced lower levels of liquidity in their American depositary shares than is the case for their ordinary shares listed on their domestic exchange. Although the Depositary Shares now trade on NASDAQ, an active trading market for the Depositary Shares may not be sustained. It may be difficult for holders to sell their Depositary Shares without depressing the market price for the Depositary Shares or at all. As a result of these and other factors, holders of Depositary Shares may not be able to sell their Depositary Shares. In addition, such holders may incur higher transaction costs when buying and selling Depositary Shares than they would incur in buying and selling common stock.

Further, an inactive market may also impair Midatech’s ability to raise capital by selling Depositary Shares and Ordinary Shares and may impair its ability to enter into strategic partnerships or acquire companies or products by using its Ordinary Shares as consideration.

The Ordinary Shares and Depositary Shares trade on two different markets and this may result in price variations and regulatory compliance issues.

Depositary Shares representing the Ordinary Shares are listed for trading on NASDAQ and the Ordinary Shares are traded on AIM. Trading in Midatech’s securities on these markets is made in different currencies and at different times, including as a result of different time zones, different trading days and different public holidays in the U.S. and the United Kingdom. Consequently, the effective trading prices of Midatech’s securities on these two markets may differ. Any decrease in the trading price of Midatech’s securities on one of these markets could cause a decrease in the trading price of Midatech’s securities on the other market.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about Midatech’s business, Midatech’s stock price and trading volume could decline.

The trading market for the Ordinary Shares and Depositary Shares will depend in part on the research and reports that securities or industry analysts publish about Midatech and its business. If one or more of the analysts who cover Midatech downgrade its stock or publish inaccurate or unfavorable research about its business, the price of the Ordinary Shares and Depositary Shares would likely decline. If one or more of these analysts cease coverage of Midatech or fail to publish reports on Midatech regularly, demand for Midatech’s securities could decrease, which might cause the price of the Ordinary Shares and Depositary Shares and Midatech’s trading volume to decline.

The rights of holders of Depositary Shares are not the same as the rights of holders of Ordinary Shares.

Midatech is a public limited company organized under the laws of England and Wales. The Depositary Shares represent a beneficial ownership interest in Ordinary Shares. The rights of holders of Depositary Shares will be governed by English law, Midatech ’ s constitutional documents, the listing rules of AIM (the “ AIM Rules ” ), and the deposit agreement pursuant to which the Depositary Shares are issued. The rights and terms of the Depositary Shares are designed to replicate, to the extent reasonably practicable, the rights attendant to the Ordinary Shares, for which there is currently no active trading market in the United States. However, because of aspects of British law, Midatech ’ s constitutional documents and the terms of the deposit agreement, the rights of holders of Depositary Shares will not be identical to and, in some respects, may be less favorable than, the rights of holders of Ordinary Shares.

Holders of Depositary Shares may not receive distributions on Ordinary Shares represented by Depositary Shares or any value for them if it is illegal or impractical to make them available to holders of Depositary Shares.

The depositary of the Depositary Shares has agreed to pay to holders of such shares distributions with respect to cash or other distributions it or the custodian receives on Ordinary Shares or other deposited securities after deducting its agreed fees and expenses. Holders of Depositary Shares will receive these distributions in proportion to the number of Ordinary Shares their Depositary Shares represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of Depositary Shares. Midatech has no obligation to take any other action to permit the distribution of its Depositary Shares, Ordinary Shares, rights or anything else to holders of its Depositary Shares. As a result, such holders may not receive the distributions made on Ordinary Shares or any value from them if it is illegal or impractical for Midatech to make them available to them. These restrictions may have a material adverse effect on the value of the Depositary Shares.

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Holders of Depositary Shares may be subject to limitations on transfer of their Depositary Shares.

Holders of Depositary Shares are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of your Depositary Shares generally when Midatech ’ s books or the books of the depositary are closed, or at any time if Midatech or the depositary deems it advisable to do so because of any requirement of law or government or governmental body, or under any provision of the deposit agreement, or for any other reason.

Securities traded on AIM may carry a higher risk than shares traded on other exchanges that may impact the value of your investment.

The Ordinary Shares are currently traded on the AIM. Investment in equities traded on AIM is perceived to carry a higher risk than an investment in equities quoted on exchanges with more stringent listing requirements, such as the London Stock Exchange, New York Stock Exchange or NASDAQ. This is because AIM imposes less stringent corporate governance and ongoing reporting requirements than those other exchanges. In addition, AIM requires only semi-annual, rather than quarterly, financial reporting. You should be aware that the value of the Ordinary Shares may be influenced by many factors, some of which may be specific to Midatech and some of which may affect AIM-listed companies generally, including the depth and liquidity of the market, Midatech’s performance, a large or small volume of trading in the Ordinary Shares, legislative changes and general economic, political or regulatory conditions, and that the prices may be volatile and subject to extensive fluctuations. Therefore, the market price of the Ordinary Shares underlying the Depositary Shares may not reflect the underlying value of Midatech.

It may be difficult for investors to bring any action or enforce any judgment obtained in the United States against Midatech or members of Midatech’s Board of Directors, which may limit the remedies otherwise available to them.

Midatech is incorporated as a public limited company in England and Wales. In addition, all of the members of the Midatech Board of Directors are nationals and residents of countries, including the United Kingdom, outside of the United States. Most or all of the assets of these individuals are located outside the United States. As a result, it may be difficult or impossible for investors to bring an action against Midatech or against these individuals in the United States if they believe their rights have been infringed under the securities laws or otherwise. In addition, a United Kingdom court may prevent investors from enforcing a judgment of a United States court against Midatech or these individuals based on the securities laws of the United States or any state thereof. A United Kingdom court may not allow investors to bring an action against Midatech or its directors based on the securities laws of the United States or any state thereof.

Midatech has no present intention to pay dividends on its Ordinary Shares in the foreseeable future and, consequently, investors’ only opportunity to achieve a return on their investment during that time may be if the price of Depositary Shares appreciates.

Midatech has no present intention to pay dividends on its Ordinary Shares in the foreseeable future. Any determination by Midatech ’ s Board of Directors to pay dividends will depend on many factors, including its financial condition, results of operations, legal requirements and other factors. Accordingly, if the price of the Depositary Shares falls in the foreseeable future and an investor sells its Depositary Shares, such investor will lose money on their investment, without the likelihood that this loss will be offset in part or at all by cash dividends.

Midatech is a “foreign private issuer” under the rules and regulations of the SEC and, as a result, is exempt from a number of rules under the Exchange Act and is permitted to file less information with the SEC than a company incorporated in the United States.

Midatech is incorporated as a public limited company in England and Wales and is deemed to be a “ foreign private issuer ” under the rules and regulations of the SEC. As a foreign private issuer, Midatech is exempt from certain rules under the Exchange Act that would otherwise apply if Midatech were a company incorporated in the United States, including:

the requirement to file periodic reports and financial statements with the SEC as frequently or as promptly as United States companies with securities registered under the Exchange Act;

the requirement to file financial statements prepared in accordance with GAAP;

the proxy rules, which impose certain disclosure and procedural requirements for proxy solicitations; and

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the requirement to comply with Regulation FD, which imposes certain restrictions on the selective disclosure of material information.

In addition, Midatech ’ s officers, directors and principal shareholders are exempt from the reporting and “ short-swing ” profit recovery provisions of Section 16 of the Exchange Act and the related rules with respect to their purchases and sales of Ordinary Shares and Depositary Shares. Accordingly, an investor may receive less information about Midatech than it would receive about a public company incorporated in the United States and may be afforded less protection under the United States federal securities laws than investors would be if Midatech were incorporated in the United States.

Additional reporting requirements may apply if Midatech loses its status as a foreign private issuer.

If Midatech loses its status as a foreign private issuer at some future time, then it will no longer be exempt from such rules and, among other things, will be required to file periodic reports and financial statements as if it were a company incorporated in the United States. The costs incurred in fulfilling these additional regulatory requirements could be substantial.

As a foreign private issuer, Midatech is not required to comply with many of the corporate governance standards of NASDAQ applicable to companies incorporated in the United States.

Midatech’s Board of Directors is required to maintain an audit committee comprised solely of three or more directors satisfying the independence standards of NASDAQ applicable to audit committee members. As a foreign private issuer, however, Midatech is not required to comply with most of the other corporate governance rules of NASDAQ, including the requirement to maintain a majority of independent directors, and nominating and compensation committees of its Board of Directors comprised solely of independent directors. Although the AIM Rules and the United Kingdom Corporate Governance Code have comparable requirements, holders of Depositary Shares may not be afforded the benefits of the corporate governance standards of NASDAQ to the same extent applicable to companies incorporated in the United States.

Midatech is an “emerging growth company” and it cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make its securities less attractive to investors.

Midatech is an “ emerging growth company, ” as defined under the Jumpstart Our Business Startups Act. Midatech will remain an “ emerging growth company ” for up to five years; provided, however, that if Midatech ’ s annual gross revenues exceed $1.0 billion, or its non-convertible debt issued within a three-year period or revenues exceeds $1 billion, or the market value of its common shares that are held by non-affiliates exceeds $700 million on the last day of the second fiscal quarter of any given fiscal year, Midatech would cease to be an emerging growth company as of the following fiscal year. As an emerging growth company, Midatech is not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ” ), it has reduced disclosure obligations, including with regard to its financial statements and executive compensation, and it is exempt from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Midatech’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Midatech is subject to the periodic reporting requirements of the Exchange Act. Midatech designs is disclosure controls and procedures to reasonably assure that information it is required to disclose in reports it files or submits under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Midatech believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in its control system, misstatements or insufficient disclosure due to error or fraud may occur and Midatech may not detect them.

Any failure to maintain effective internal controls and procedures over financial reporting could severely inhibit Midatech ’ s ability to accurately report its financial condition, results of operations or cash flows. If Midatech is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public accounting firm determines it has a material weakness or significant deficiency in its internal control over financial reporting once that firm begin its Section 404 reviews, Midatech could lose investor confidence in the accuracy and completeness of its financial statements and reports, the market price of the Ordinary Shares and/or Depositary Shares could decline, and Midatech could be subject to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in its internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict Midatech ’ s future access to the capital markets.

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Midatech’s auditors have included an emphasis-of-matter paragraph in their audit report, and Midatech’s ability to continue as a going concern is dependent upon its ability to obtain additional capital.

Midatech’s independent registered public accounting firm has included an emphasis-of-matter paragraph in its audit report reflecting substantial doubt about Midatech’s ability to continue as a going concern. The Group has experienced net losses and significant cash outflows from cash used in operating activities over the past years as it develops its portfolio. As at December 31, 2017, the Group had total equity of £34.7 million, which includes an accumulated deficit of £74.7 million, it incurred a net loss for the year to December 31, 2017 of £16.1 million and used cash in operating activities of £13.0 million for the same period. As at December 31, 2017, the Group had cash and cash equivalents of £13.2 million.

The future viability of the Group is dependent on its ability to generate cash from operating activities, to raise additional capital to finance its operations and to successfully obtain regulatory approval to allow marketing of the Group's development products. The Group's failure to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies.

The Board of Directors have prepared cash flow forecasts and considered the cash flow requirement for the Group for the next five years. These forecasts show that further financing is likely to be required during the course of the next 12 months, assuming, inter alia, that all development programs continue as currently planned. This requirement for additional financing represents a material uncertainty that may cause significant doubt upon the Group’s ability to continue as a going concern, however, the Board of Directors is examining a range of non-dilutive, financing options to meet this near-term cash need that, if successful, would enable the Group to deliver on these key value-driving programs without requiring equity finance in the short-term.

If the Board of Directors conclude that such funding is unlikely to be available within the required timeframe, expenditure, particularly in respect of the development programs, could be delayed, thereby extending the cash runway beyond the period of 12 months from the date of approval of these financial statements. Therefore, after considering the uncertainties the Board of Directors considers it is appropriate to continue to adopt the going concern basis in preparing Midatech’s consolidated financial statements. Midatech’s consolidated financial statements contemplate that it will continue as a going concern and do not contain any adjustments that might result if it were unable to continue as a going concern. Midatech’s ability to continue as a going concern is dependent upon its ability to obtain additional capital.

Midatech is incurring increased costs as a result of operating as a public company, and management will be required to devote substantial time to new compliance initiatives.

As a public company in the United Kingdom and United States, Midatech is incurring significant legal, accounting and other expenses that it did not incur as a private company, and these expenses may increase even more after Midatech is no longer an “ emerging growth company. ” Midatech will be subject to the reporting requirements of the AIM Rules, the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Protection Act, as well as rules adopted, and to be adopted, by the SEC and the NASDAQ Stock Market. Midatech ’ s management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, Midatech expects these rules and regulations to substantially increase its legal and financial compliance costs and to make some activities more time-consuming and costly. For example, Midatech expect these rules and regulations to make it more difficult and more expensive for it to obtain director and officer liability insurance and it may be required to incur substantial costs to maintain the sufficient coverage. The Company cannot predict or estimate the amount or timing of additional costs it may incur to respond to these requirements. The impact of these requirements could also make it more difficult for Midatech to attract and retain qualified persons to serve on its Board of Directors, its board committees or as executive officers.

Regulations related to “conflict minerals” may cause Midatech to incur additional expenses and could limit the supply and increase the cost of certain metals used in manufacturing its products.

In August 2012, the SEC adopted a rule requiring disclosures of specified minerals, known as conflict minerals, that are necessary to the functionality or production of products manufactured or contracted to be manufactured by US public companies. The conflict minerals rule requires companies annually to diligence, disclose and report whether or not such minerals originate from the Democratic Republic of Congo and other specified countries. The rule could affect sourcing at competitive prices and availability in sufficient quantities of certain minerals used in the manufacture of Midatech’s products, including gold. The number of suppliers who provide conflict-free minerals may be limited. In addition, there may be material costs associated with complying with the disclosure requirements, such as costs related to determining the source of certain minerals used in Midatech’s products, as well as costs of possible changes to products, processes, or sources of supply as a consequence of such verification activities. Since Midatech’s supply chain is complex, it may not be able to sufficiently verify the origins of the relevant minerals used in its products through the due diligence procedures that it implements, which may harm its reputation. In addition, Midatech may encounter challenges to satisfy those customers who require that all of the components of its products be certified as conflict-free, which could place it at a competitive disadvantage if it is unable to do so.

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Midatech intends to operate so as to be treated exclusively as a resident of the United Kingdom for tax purposes, but the relevant tax authorities may treat it as also being a resident of another jurisdiction for tax purposes.

Midatech is a public limited company incorporated under the laws of England and Wales. Under current English law, the decisions of the English courts and the published practice of Her Majesty’s Revenue and Customs (“HM Revenue and Customs”) suggest that Midatech is likely to be regarded as being a United Kingdom resident and should remain so if, as Midatech intends that, (i) all major meetings of its Board of Directors and most routine meetings are held in the United Kingdom with a majority of directors present in the United Kingdom for those meetings; (ii) at those meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting Midatech and its subsidiaries; (iii) those meetings are properly minuted; (iv) at least some of the directors of Midatech, together with supporting staff, are based in the United Kingdom; and (v) Midatech has permanent staffed office premises in the United Kingdom sufficient to discharge its functions.

Even if Midatech is considered by HM Revenue and Customs as resident in the United Kingdom for United Kingdom tax purposes, as expected, it would nevertheless not be treated as resident in the United Kingdom if (a) it were concurrently resident in another jurisdiction (applying the tax residence rules of that jurisdiction) that has a double tax treaty with the United Kingdom and (b) there is a tiebreaker provision in that tax treaty which allocates exclusive residence to that other jurisdiction. Because this analysis is highly factual and may depend on future changes in Midatech ’ s management and organizational structure, there can be no assurance regarding the final determination of Midatech ’ s tax residence. Should Midatech be treated as resident for tax purposes in another jurisdiction other than the United Kingdom, it would be subject to taxation in such jurisdiction in accordance with such jurisdiction ’ s laws, which could result in additional costs and expenses.

Midatech may be a passive foreign investment company, referred to as a PFIC, for U.S. federal income tax purposes in 2018 or in any subsequent year. This may result in adverse U.S. federal income tax consequences for U.S. taxpayers that are holders of Midatech’s securities.

Midatech will be treated as a PFIC for U.S. federal income tax purposes in any taxable year in which either (1) at least 75% of Midatech’s gross income is “passive income” or (2) on average at least 50% of Midatech’s assets by value produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive income. Passive income also includes amounts derived by reason of the temporary investment of funds, including those raised in a public offering. In determining whether a non-U.S. corporation is a PFIC, a proportionate share of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account. Midatech does not believe it was a PFIC for 2017 but there can be no assurance that it was not a PFIC in 2017 and will not be a PFIC in subsequent years, as its operating results for any such years may cause it to be a PFIC. If Midatech is a PFIC in 2018, or any subsequent year, and a U.S. shareholder does not make an election to treat us as a “qualified electing fund,” referred to as a QEF, or make a “mark-to-market” election, then “excess distributions” to a U.S. shareholder, and any gain realized on the sale or other disposition of Midatech’s securities will be subject to special rules. Under these rules: (1) the excess distribution or gain would be allocated ratably over the U.S. shareholder’s holding period for the securities; (2) the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which Midatech was a PFIC would be taxed as ordinary income; and (3) the amount allocated to each of the other taxable years would be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax attributable to each such other taxable year. In addition, if the United States Internal Revenue Service (the “IRS”) determines that Midatech is a PFIC for a year with respect to which Midatech has determined that it was not a PFIC, it may be too late for a U.S. shareholder to make a timely QEF or mark-to-market election. U.S. shareholders who hold or have held Midatech’s securities during a period when it was or is a PFIC will be subject to the foregoing rules, even if it ceases to be a PFIC in subsequent years, subject to exceptions for U.S. shareholders who made a timely QEF or mark-to-market election. A U.S. shareholder can make a QEF election by completing the relevant portions of and filing IRS Form 8621 in accordance with the instructions thereto. If applicable, upon request, Midatech will annually furnish U.S. shareholders with information needed in order to complete IRS Form 8621 (which form would be required to be filed with the IRS on an annual basis by the U.S. shareholder) and to make and maintain a valid QEF election for any year in which Midatech or any of its subsidiaries are a PFIC.

Comprehensive tax reform legislation could adversely affect Midatech’s business and financial condition.

On December 22, 2017, the Tax Cuts Act, was signed into law. The Tax Cuts Act, among other things, contains significant changes to corporate taxation, including, but not limited to, (i) reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, (ii) limitation of the deduction for interest and (iii) limitation of the deduction for net operating losses to 80% of current year taxable income in respect of net operating losses generated during or after 2018 and elimination of net operating loss carrybacks. Certain provisions of the Tax Cuts Act could have an adverse effect on the financial condition of the Company or its affiliates. The interpretations of many provisions of the Tax Cuts Act are still unclear. We cannot predict when or to what extent any U.S. federal tax laws, regulations, interpretations, or rulings clarifying the Tax Cuts Act will be issued or the impact of any such guidance on the Company. Midatech will continue to examine the impact the Tax Cuts Act may have on its business and operations.

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ITEM 4.

INFORMATION ON THE GROUP.

A.	History and Development of the Group

Overview

Midatech was originally formed as a limited liability company under the laws of England and Wales in 2000 under the name Midatech Limited. Midatech Limited acquired its base nanoparticle technology through an assignment of worldwide commercialization rights and joint ownership of patent rights from the Consejo Superior de Investigaciones Cientificas ( “ CSIC ” ) in Madrid, Spain. Midatech Limited subsequently advanced and developed this gold nanoparticle ( “ GNP ” ) platform technology to enhance the delivery of medicines in major therapeutic indications where clinical therapeutic options are limited, with a particular focus on certain cancers such as liver and brain (glioblastoma).

Midatech Pharma PLC was incorporated on September 12, 2014 under the laws of England and Wales, to be the holding company of Midatech Limited and Midatech Wales, under registered number 09216368. On December 8, 2014, Midatech completed its initial public offering of its Ordinary Shares in the United Kingdom.

On December 8, 2014, Midatech acquired Midatech Wales (formerly known as Q Chip) and its subsidiaries in exchange for approximately 5.4 million Ordinary Shares. Founded in 2003 with the acquisition of core intellectual property around micro-fluidics from Cardiff University, Midatech Wales develops a complementary technology and products that allow sustained release of substances over extended periods of time. As well as developing products in its own right, Midatech considers that this technology will provide a platform to incorporate Midatech ’ s GNP compounds for sustained and extended release.

On December 4, 2015, Midatech acquired DARA and its subsidiaries pursuant to an Agreement and Plan of Merger entered into on June 4, 2015. As a result, DARA became a wholly owned subsidiary of Midatech, and was subsequently renamed Midatech US. For more information, see “ Item 4.B - Business Overview-Acquisition of DARA BioSciences . ”

On December 24, 2015, Midatech acquired Zuplenz ® (ondansetron) Oral Soluble Film ( “ Zuplenz ” ), a marketed anti-emetic oral soluble film from Galena Biopharma, Inc. (“Galena”) for the prevention of chemotherapy-induced nausea and vomiting, radiotherapy-induced nausea and vomiting, and post-operative nausea and vomiting. For more information, see “ Item 4.B - Business Overview-Acquisition of Zuplenz . ”

Midatech ’ s principal executive office and registered offices are located at 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire, United Kingdom OX14 4RQ and its telephone number is +44 1235 888 300. Midatech ’ s corporate website is located at www.midatechpharma.com. Information contained on Midatech ’ s website is not part of, or incorporated in, this annual report. Midatech ’ s authorized representative in the United States is David Benharris, President of Midatech US. Midatech ’ s agent for service in the United States is Midatech US, located at 8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615. Midatech ’ s Ordinary Shares are traded on AIM, a market operated by the London Stock Exchange plc, under the symbol “ MTPH, ” and its Depositary Shares are traded on the NASDAQ Capital Market under the symbol “ MTP. ”

Capital Expenditures

The Group’s capital expenditures amounted to £0.71 million, £ 1.37 million and £ 1.02 million for the years ended December 31, 2017, 2016 and 2015, respectively.

For the year ended December 31, 2017, the Group ’ s principal capital expenditures largely related to investment in, further development of, and equipment for, the Group’s manufacturing facility in Bilbao, Spain costing £0.51 million.

For the year ended December 31, 2016, the Group ’ s principal capital expenditures related to investment in the Group ’ s sustained release technology, including:

further expansion of the Group ’ s manufacturing facilities in Bilbao, Spain to enable the manufacture of material based around the Group ’ s sustained release technology costing £ 0.85 million; and

additional equipment purchased for the Group ’ s sustained release development facility, costing £ 0.24 million.

Capital expenditure in the year ended December 31, 2015 included expenditures on the following three significant programs:

the fit-out and equipping of new laboratory and office facilities at the Group ’ s headquarters facility near Oxford, United Kingdom, costing £ 0.42 million;

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an upgrade of the Group ’ s information technology infrastructure, including the acquisition of a new accounting and enterprise resource planning software, costing £ 0.14 million; and

ongoing development of commercial scale manufacturing equipment for the Group ’ s sustained release technology, costing £ 0.18 million.

B.	Business Overview

Business Overview

Overview . Midatech is an international specialty pharmaceutical company focused on developing and commercializing products in oncology and immunotherapy. Midatech ’ s strategy is to internally develop oncology products and collaborate with partners in other therapy areas, and to drive growth both organically and through strategic acquisitions. The Group’s research and development activities are supported by three breakthrough drug delivery technologies: Q-Sphera for sustained release delivery platform, Midatech’s proprietary gold nanoparticle (“GNP”) platform technology, and Midatech’s nano-inclusion technology platform for local delivery of therapeutics. Midatech is commercializing oncology treatment and supportive care products through its United States commercial organization, Midatech US. In Europe, Midatech is advancing a pipeline of novel clinical and pre-clinical product candidates based on its platform technology, through its fully integrated research and development capabilities, with a clear focus on its primary therapeutic area of rare cancers.

Midatech has three complementary novel micro- and nanotechnology platforms: ‘Midacore’ gold nanoparticles (“GNP”) for targeted delivery, “Q-Sphera” for sustained release (“SR”) applications, and Nano Inclusion (“NI”) for local delivery. The technologies are designed to repurpose and reformulate existing therapeutic drugs, thus decreasing regulatory risk, with the aim of improving key safety, efficacy, and biodistribution parameters of the parent agent. Each platform has the ability to be used in several disease areas including oncology and immunotherapy/immune-oncology.

Midatech ’ s three platform technologies are designed to enable targeted delivery and sustained release of existing therapeutic drugs to the “right place” at the “right time.” Midatech’s core technology platform, ‘Midacore,’ is based on a patented form of GNPs, which are developed with the aim of repurposing, re-engineering and improving key parameters of existing and new drugs. GNPs may have a number of key advantages in their use as drug delivery vehicles, driven chiefly by their small size and multivalency attributes. Multivalency enables targeting due to the ability to bind several targeting and therapeutic agents to a single nanoparticle. Small size and charge enables the transport and release of water insoluble and lipid soluble compounds at disease sites that are otherwise very difficult to reach. In addition, these ultra-small gold nanoparticles are bio-inert, non-toxic, non-immunogenic and are thus very compatible with the body’s immune system, and eliminated via the kidneys and liver. This may optimize their distribution, and enable targeting of individual cell types with specific targeting agents to safely deliver a therapeutic payload directly into the tumor cell and reduce the collateral damage on normal, off-target cells. Midatech believes that the GNP platform both enhances efficacy and reduces dose limiting toxicity and side effects that otherwise may damage healthy tissue, and has potential uses in multiple disease areas including oncology, immunology/auto-immunology and neurology.

Midatech ’ s second platform of patented sustained release technology (acquired through its 2014 acquisition of Q Chip Limited, a company incorporated under the laws of England and Wales, and since renamed Midatech Pharma (Wales) Limited ( “ Midatech Wales ” )), Q-Sphera, involves the consistent and precise encapsulation of active drug compounds within polymer microspheres. Q-Sphera platform was designed to address several problems associated with traditional polymer-depot based drug delivery. Midatech’s proprietary approach is unusual in that it utilizes solvent evaporation instead of solvent extraction. The key advantage that the Q-Sphera approach offers is product monodispersity with very tight particle size distributions and usable product yield. Traditional emulsion polymer processes are more wasteful in that they produce large quantities of unusable particles that are either too large or too small). Additionally, these emulsion processes use large volumes of unfavorable organic solvents (such as ethyl acetate and dichloromethane), and particles produced from these solvent solutions must be rigorously washed to remove residual traces of solvent. The microspheres are designed to release the active drug compound into the body in a highly controlled manner over a prolonged period of time. Midatech believes that sustained release technology can provide the required capacity to sustain the optimal range of drug concentrations over several months, which has wide medical applicability with diverse pharmaceutically active molecules in oncology and other areas.

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Midatech’s third technology platform is its nano-inclusion (“NI”) technology used for local delivery of therapeutics. Many of the small molecule chemotherapeutics that are indicated for solid tumor treatment have minimal solubility in water or aqueous buffers at biological pH, which can limit the available routes of administration for a drug. Midatech has developed its NI technology to increase the solubility of cancer therapeutics by incorporating them into the interior of hosting inclusion complexes that surround the therapeutic and “carry” it as a water-soluble agent in the body. The complexes comprise a hydrophobic inner surface and a hydrophilic outer surface, and as a result are capable of forming host-guest complexes. This increases the aqueous solubility of several classes of small molecule cancer therapeutics, where the complexes solubilize these agents and enable parenteral administration directly into tumors, including Midatech’s program, seeking to deliver therapeutics directly into brain tumors by convection enhanced delivery, a process undertaken by a series of catheters being fixed directly into the substance of the tumor.

Midatech has focused its cancer programs to prioritize potential treatments for carcinoid cancer, liver cancer and brain cancers. The liver and brain cancer markets are candidates for orphan designations. A disease or condition designated as “orphan” is defined as a disease or condition that affects fewer than 200,000 people in the United States or for which treatments have not been developed for commercial or technical reasons. On February 22, 2018, Midatech announced that the EMA granted Orphan Drug Designation for its drug candidate, MTD119, a targeted therapy using Midatech’s GNP technology for hepatocellular carcinoma, a common type of liver cancer. Midatech is also pursuing orphan drug designation for its MTX110 program. Sponsors, like Midatech, that obtain orphan drug designation benefit from development assistance and are eligible for ten years of European market exclusivity, or seven years of market exclusivity in the US, once the medicine is on the market.

Midatech US . On December 4, 2015, Midatech completed the acquisition of DARA BioSciences, Inc., since renamed Midatech US. Midatech US is a specialty pharmaceutical company primarily focused on the commercialization of oncology treatment and supportive care pharmaceutical products. The strategic acquisition of Midatech US provides Midatech with a commercial arm in the United States (including a field sales organization, with access to a portfolio of products and a revenue stream in Midatech ’ s targeted therapeutic area of oncology. Midatech US holds exclusive U.S. marketing rights to Soltamox ® (tamoxifen citrate) oral solution, which has been approved by the FDA for the prevention and treatment of breast cancer, Gelclair ® oral rinse gel barrier device, a FDA-cleared oral gel, whose key ingredients are sodium hyaluronate and polyvinylpyrrolidone, for the treatment of certain approved indications in the United States, including the management of pain due to oral mucositis, and Oravig ® (miconazole). Midatech US licensed the United States rights to Soltamox from Rosemont Pharmaceuticals, Ltd. (“Rosemont”), a United Kingdom-based manufacturer and a subsidiary of Perrigo Company plc, Gelclair from Helsinn Healthcare SA ( “ Helsinn ” ), in Switzerland, and Oravig from Vectans S.A. ( “ Vectans ” ), in France.

Prior to this acquisition, DARA had entered into an agreement with Alamo Pharma Services ( “ Alamo ” ) pursuant to which Alamo provided it with a dedicated national sales team of 20 sales representatives to promote its commercial products. In addition, DARA signed an agreement, exclusive to the oncology market, with Mission Pharmacal ( “ Mission ” ), Alamo ’ s parent company, to share in the costs and expenses of the sales force. The Alamo sales team, in addition to promoting Midatech US ’ s products Gelclair ®, Zuplenz®, Oravig® and Soltamox® , was also promoting two Mission products: Ferralet ® 90 (for anemia), and Aquoral ® (for cancer related dry mouth). The agreements with Alamo and Mission were terminated as of March 31, 2018, and as of April 1, 2018, the sales force, currently consisting of 15 oncology supportive care specialists, have been hired as direct employees of Midatech.

Products and Collaborations . Midatech is currently commercializing the following oncology treatment and supportive care products through Midatech US:

Zuplenz ® (ondansetron) Oral Soluble Film (“Zuplenz”), the only FDA-approved oral soluble film indicated for moderately emetogenic chemotherapy-induced nausea and vomiting (“CINV”), , radiotherapy-induced nausea and vomiting (“RONV”), and post-operative nausea and vomiting (“PONV”);

Gelclair ® bioadherent oral gel, an FDA-cleared gel barrier device indicated for the management and relief of pain due to oral mucositis;

Oravig ® (miconazole), an orally dissolving buccal tablet approved for the treatment of oral thrush; and

Soltamox ® , an FDA-approved oral liquid solution of tamoxifen citrate, for the treatment and prevention of breast cancer.

In Europe, Midatech is advancing a pipeline of multiple clinical and preclinical product candidates based on its proprietary drug delivery platforms, for diseases for which there are currently limited or no treatment available.

In addition, Midatech is collaborating with a number of universities and pharmaceutical companies to develop its platform technologies into a broad number of products in order to achieve a range of potential revenue opportunities.

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Intellectual Property . Midatech has developed a strong intellectual property base and has a wide intellectual property portfolio of 97 granted patents, 56 applications in process and 34 patent families (a set of patents to protect a single invention in various countries ( “ Patent Families ” )) covering a range of diverse technologies.

Midatech operates an in-house Good Manufacturing Practice (“cGMP,” a United States Food and Drug Administration (“FDA”) quality control regulation) nanoparticle manufacturing facility in Bilbao, Spain, which aids in the rapid execution of projects and the retention of control over manufacturing quality, reducing any possible reliance on external manufacturing partners. The site currently has sufficient capacity for manufacturing materials for volumes required in clinical trials. The Group is currently reviewing options for full commercial scale manufacturing.

Revenue . The commercial operations of Midatech US were incorporated into the Midatech results from December 4, 2015, the date of the completion of Midatech ’ s acquisition of DARA. All revenue from Midatech US is attributed to the United States market. Revenue for the whole of the Group is set out below:

	Year ended December 31,
( £’ s in thousands)	2017		2016		2015
Revenue (United States)		6,609		5,850		677
Revenue (Europe) (1)		149		526		98
Total Revenue		6,758		6,376		775

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(1)

Including the United Kingdom.

Jumpstart Our Business Startups Act of 2012. As a company with less than $1 billion in revenue during our its last fiscal year, Midatech qualifies as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012 (the “JOBS Act). An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

an exemption from compliance with the auditor attestation requirement on the effectiveness of our internal controls over financial reporting;

an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

reduced disclosure about the company’s executive compensation arrangements; and

exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements.

Midatech may take advantage of these provisions until December 31, 2021 or such earlier time that it is no longer an emerging growth company. Midatech would cease to be an emerging growth company if it has more than $1 billion in annual revenues, has more than $700 million in market value of its share capital held by non-affiliates or issues more than $1 billion of non-convertible debt over a three-year period. Midatech may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. Midatech has taken advantage of some reduced reporting burdens in this Form 20-F. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. Midatech has irrevocably elected not to avail itself of delayed adoption of new or revised accounting standards and, therefore, it will be subject to the same requirements to adopt new or revised accounting standards as other public companies that are not emerging growth companies.

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Recent Developments

Midatech’s Strategy

Midatech ’ s business and commercialization strategy is based on maturing its proprietary technology platforms with a clear focus on its key therapeutic areas of oncology and immunotherapy. This is expected to drive a commercial pipeline of products with improved essential parameters, over and above the currently marketed source compound, including safety, tolerability, efficacy and compliance profiles. Midatech believes that its management team has significant industry and technical experience and is highly capable of and committed to building the value of Midatech.

As noted above, Midatech has focused its cancer programs to prioritize potential treatments for liver and brain cancers, both of which are candidates for orphan designation. Midatech previously explored using its GNP platform technology in the treatment of other non-orphan cancer designations, including ovarian cancer, however Midatech believes that its current focus on fewer, more promising, near term programs, could maximize the possibility of its products successfully being brought to market, though no assurance can be made of this.

Midatech is primarily focused on:

Advance R&D . Progress development of in-house oncology product candidates, through value-driving inflexion points and towards commercialization.

US Commercial. Continue to grow sales of licensed, commercialized products, through Midatech US.

Partner Products . Although not a primary focus, we have historically worked on, and will continue to explore opportunities for, the development and commercialization of Midatech’s partner-supported and licensed products which may add to future value.

Midatech ’ s long-term strategy intends to build a profitable and commercially focused enterprise, as follows:

In-House Products Commercialization. Midatech anticipates, from around 2020, that its own products will reach market in the specialized orphan sector, in order to drive sales and revenue growth from Midatech ’ s own product launches.

Commercial Operations . Currently the main revenue growth driver is Midatech’s existing in-licensed commercial product portfolio.

Partner Licensing and Royalty Deals. From 2018, revenue growth is anticipated to be supported by licensing transactions from potential partners who may wish to license Midatech’s in-house developed products for commercialization in geographies or therapeutic areas that it does not seek to enter, with possible product royalties realized from 2020 onwards.

Acquisitional. In support of and in addition to above, Midatech may from time to time seek value accretive and synergistic target companies, products and portfolios that would accelerate its own product recurring revenues and profitability via products in market. Any such significant acquisitions would only be made in the short-term if based on non-dilutive financing.

Midatech also aims to expand its vertical integration by leveraging its integrated manufacturing capabilities.

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Midatech’s Platform Technologies

Central to Midatech ’ s business are its three complementary platform technologies that enable the targeted delivery, sustained release, or local delivery of existing therapeutic drugs. Individually, these platforms are expected to offer unique advantages that address current therapeutic challenges. Midatech ’ s first technology, gold nanoparticle ‘GNP’, also known as ‘Midacore,’ may provide improved targeting of individual tumors with specific targeting agents and delivering a therapeutic payload into the tumor cell, while at the same time decreasing the side effect profile associated with off-target effects of chemotherapeutics. Midatech ’ s second technology, sustained release ‘SR’ ‘Q-Sphera’ used for selected applications, ensures consistently sized monodispersed polymer microparticles that may be engineered for precise and sustained release drug delivery. Midatech’s third platform, nano-inclusion ‘NI’ technology, used for local delivery of therapeutics, allows for the delivery of water insoluble drugs into the body via water soluble complexes without the efficacy of the active drug compound being affected. Collectively, Midatech believes that these technologies provide a platform to deliver therapeutic molecules to the right place at the right time.

Gold Nanoparticle (GNP) Drug Conjugate Technology - Midacore®

Midatech ’ s core primary platform technology is based on GNP drug conjugates, a class of ultra-small carbohydrate-coated GNPs. These nanoparticles may be used to improve key safety, efficacy and biodistribution parameters when bound to existing, approved drugs and new drugs. The focus of this technology is to target specific tumor cells with specific targeting agents and thereby deliver a therapeutic payload directly to the tumor cell and reducing collateral effects on normal, off-target cells. Since the middle of 2013, Midatech has increasingly focused research and development activities principally on liver and brain cancer. GNP drug conjugates are being developed and evaluated for targeting and cytotoxic potential with respect to these cancers.

Base GNPs are comprised of a core of gold metal atoms to which an organic layer of carbohydrates (such as glucose, galactose or lactose) are attached. The carbohydrate layer stabilizes the metallic core (passivation) and makes the particle both water-soluble and biocompatible. Linkers for active agents (such as chemotherapeutics and other therapies) and peptides (such as tumor-targeting sequences) are interspaced between the carbohydrates. This process involves intricate yet controlled and reproducible synthesis that produces multi-component particles that may deliver multiple molecules of a drug to the targeted site.

The effective hydrodynamic diameter of a GNP is approximately 5 nm (the gold core is about 100 atoms of gold and 1.6-1.8 nm in diameter), which Midatech believes is ten-fold smaller than any other delivery vehicle currently in clinical trials. This is comparable with the size of a small globular protein such as hemoglobin, the protein that carries oxygen through the body and which has a diameter of 5.5 nm. By comparison, a strand of DNA, one of the building blocks of human life, is about 2 nm in diameter and a typical human hair is approximately 80,000 nm in width.

Midatech may be able to leverage its patent protected GNP platform technology in multiple therapeutic areas through the development of (i) patentable new chemical entities (NCEs) or (ii) using the particles as carriers of existing pharmaceutical compounds. This can result in new nanoconjugates that may have inherent advantages over existing treatments.

Midatech believes the key potential advantages of its core GNP platform technology include the small size and its multivalency nature, which allows several components (at up to 44 binding sites) to be attached together. This contributes to various properties of the GNP construct, including:

Advantages of Multivalency.

Targeting: multivalency enables binding of several targeting and therapeutic agents to a single nanoparticle.

Therapeutics: binding of several active payload moieties conjugated to form small (~5nm) medicines for targeted delivery.

Solubility: binding of glycan corona enables water solubility and the transport of water insoluble and lipid soluble compounds to disease sites.

Releasability: ligands are aided to release the active compound inside the cell

Advantages of Size :

Mobility: small size (~1.5 nm) and defined charge allows transport to disease sites otherwise very difficult reach.

Compatibility: ultra-small gold nanoparticles are bio-inert, non-toxic, non-immunogenic, and do not generate an immune response.

Excretability: size of drug conjugates allows elimination via the kidneys and liver.

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Midatech is also conducting research using its GNP technology, chemically linked to molecules of self-peptide or small antigen, as an enabling platform to boost the potential of an Antigen Specific Immunotherapy (“ASI”) administered antigen to generate a tolerogenic rather than immunogenic response. Such a response could lead to a much-improved safety profile, and potential use in disease prevention and children, because ASI does not compromise the immune system. Antigen bearing GNPs when delivered into the skin appear to preferentially target specific immune cells, can migrate into the epidermis where there is a very high concentration of these specific immune cells (a property not seen with larger nanoparticles), and can distribute rapidly to lymphoid tissues around the body. It is believed that the GNPs can be immunotolerogenic or immunostimulatory depending on what motifs are attached to them. Midatech ’ s research and development in this area is still in the early stages, but with support from a European Union program grant, Midatech is exploring the potential of small GNPs to enhance the efficacy of ASI. Discovery, preclinical and toxicology work was conducted between 2012 and 2015, and the program commenced a “ first-in-human ” study during 2016 in the United Kingdom and Sweden, with trial results expected in 2018. This study has been approved by the Medicines and Healthcare Products Regulatory Agency in the United Kingdom, referred to as the MHRA, and approval by the Swedish Medical Products Agency is pending.

The potential GNP modified immune mechanisms are also being actively researched for potential application in oncology immunotherapy, however these programs are at an early stage.

Sustained Release Technology – Q Sphera®

Midatech ’ s second technology platform includes precisely and consistently manufactured, sustained release technology which may enable active drug compounds to be released into the body in a highly controlled manner over a prolonged period of time, from a number of weeks to three months, and potentially longer. The sustained release technology encapsulates active drug compounds within polymer micro spheres. Each micro sphere is between 30-70 µ m in size (by way of example, the width of the average human hair is approximately 80 µ m), with scope to reduce the size through minor modifications to the technology. Each microsphere is manufactured individually in a consistent, semi-continuous flow process which enables the precise engineering of microsphere characteristics such as the surface porosity and internal morphology. Midatech’s Q-Sphera platform was designed to address several problems associated with the traditional microencapsulation and polymer-depot based drug delivery. The approach Midatech takes is unusual in that it does not rely on solvent evaporation. Instead, a solvent extraction method is utilized. The key advantage that the Q-Sphera approach offers is product monodispersity. Very tight particle size distributions can be produced, which increases the usable product yield. Emulsion processes such as those used to manufacture Sandostatin LAR ®, are more wasteful in that they produce large quantities of unusable particles (i.e., either too large or too small). Additionally, these emulsion processes use large volumes of unfavorable organic solvents (such as ethyl acetate and dichloromethane). Particles produced from these solvent solutions must be rigorously washed to remove residual traces of solvent.

The Q-Sphera approach to forming particles by “desolvation” is applicable to many polymer types, however as PLGAs are ubiquitous in drug-delivery, MTP formulation work has concentrated on these materials. The polymers Midatech uses most frequently are linear poly-esters of lactic (“PLA”) and glycolic acids (i.e., polylactide-co-glycolide, or “PLGA”) that are insoluble and unstable in water due to simple hydrolysis. Each of these can be processed into any shape or size and they are soluble in a wide range of solvents. In addition, the rate of drug release can be easily controlled through altering the physico-chemical properties of the polymer(s). In the body, hydrolysis is the dominant mechanism for the controlled degradation of the polymer microparticles. This is also the reason that the microspheres cannot be provided as a pre-mixed, ready-to-use suspension product. They must be stored dry, (i.e., freeze-dried) to remove traces of water. Such characteristics impact the release profile in a predictable way. Release of the active drug compound occurs by controlled hydrolysis of the polymer.

The basic rationale of the sustained release drug delivery system is to optimize the biopharmaceutical, pharmacokinetic and pharmacodynamic profile of a drug. Accordingly, its utility is maximized over an extended period of time, side effects are reduced and cure or control of the condition is achieved using the smallest quantity of drug administered by the most suitable route and duration. This may be achieved by the sustained release product releasing the drug such that therapeutic concentrations are achieved quickly and the release of drugs occurs over a predefined period, potentially ranging from a number of days to up to three months, and potentially longer. The potential advantages of the sustained release drug delivery system over conventional dosage forms include: improved patient compliance due to less frequent drug administration; regulating the amount of drug in a patient’s system at one time and reducing fluctuation in steady-state drug levels with less overshooting or undershooting of target concentrations; maximum utilization of the drug; increased safety margin and a reduction in healthcare costs through improved therapy and manufacturing.

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Polymer Microspheres. Midatech’s polymer microsphere platform is being developed to enable sustained release delivery solutions for peptide and small-molecule therapeutics through precise definition of the properties of polymer microparticles into which active compounds can be incorporated. Microspheres are small, spherical particles that can be utilized as a time release drug capsule. This technology contributes to Midatech’s oncology franchise as well as potential applications in endocrinology and other disease areas.

Midatech’s proprietary microsphere engineering platform can use a wide range of biomaterials to encapsulate drug candidates into micron sized particles (of diameter ~25μm). Long-acting treatment is achieved using formulations of biodegradable polymers (including polylactides) to control the release of API over a perio d of up to three months (and potentially longer) following a single injection. Monodisperse microspheres may be readily injected via minimally invasive needles as fine as 30 gauge. In formulating small molecules, biopharmaceuticals and pegylated species, Midatech focuses on developing products that provide high drug loading, with minimal initial burst release, which is essential to the development of safe and effective therapies. This requires precise control over particle size, morphology and drug kinetics. This microsphere manufacturing enables emulsion-free synthesis with both product monodispersity and processing efficiency.

Midatech has shown that the encapsulation process is compatible with many classes of therapeutics, small molecules, and peptides, including octreotide, cyclosporine, leuprolide (and several related GnRHR agonists), exenatide, P9, AGN-3, and small molecules dexamethasone, PP-001, tivozanib, and dithranol. The majority of Midatech’s SR products have required formulations that release drug payloads over one to three months. Markets of focus for such preparations include oncology, endocrinology, ophthalmology and neuroscience. Sustained release programs are underway in oncology and endocrinology with a lead program in carcinoid, a neuro hormone cancer, and acromegaly, an endocrine disorder in which the body produces too much growth hormone.

Nano-Inclusion (NI) Technology

Midatech’s third technology platform is its NI technology used for local delivery of therapeutics. Many of the small molecule chemotherapeutics that are indicated for solid tumor treatment have minimal solubility in water or aqueous buffers at biological pH, which limits the available routes of administration for a drug. In some instances, this insolubility can be addressed by formulation in mixtures of water and a biocompatible solvent. However, for the treatment of cancers of the brain, such as glioblastoma, local infusion of a solvent is undesirable and dangerous. Midatech has identified a promising, but inadequately soluble, hydroxamic acid drug histone deacetylase inhibitor (“HDACi”), panobinostat, that has potential as a potent therapeutic for glioblastoma and Diffuse Intrinsic Pontine Glioma (“DIPG”) , but until recently has not been formulated for parenteral administration. Midatech’s know-how in NI technology may increase the solubility of cancer therapeutics by incorporating them into the interior of hosting inclusion complexes that surround the therapeutic and “carry” it as a water-soluble agent in the body, all at a nanoscale. This allows drugs to be delivered directly into brain tumors by convection enhanced delivery, a process undertaken by a series of catheters being fixed directly into the substance of the tumor. Specifically, the complexes comprise hydrophobic inner surface and hydrophilic outer surface that enables solubilization of drugs through the formation of host-guest complexes. The hydrophobic, poorly water-soluble small molecule drug associates with inner, more hydrophobic surface; and the larger hydrophilic outer surface remains solvated by water molecules. The nanometer aggregation complexes are particularly stable, depending upon the strength of the host-guest interaction, and provide a significant increase in the aqueous solubility of the compound at biological pH. The advantages include the delivery of water insoluble drugs into the body, unaffected efficacy of the guest compound, solubility in water at millimolar concentrations, and delivery via catheter systems directly into brain tumor (or other tumors). This enables additional administration routes and choices for patients and physicians.

Midatech’s Commercial Stage Products

In connection with the acquisition of DARA, Midatech, through Midatech US, has an exclusive license to Soltamox and Oravig, and an exclusive license to distribute, promote and market Gelclair. In addition, Midatech also holds the exclusive license to Zuplenz. Each of these licenses pertains to commercialization in the United States, with the exception of Midatech’s agreement with respect to Oravig, which contains an option to seek regulatory approval in Canada. During 2017, Midatech also co-promoted two Mission products, Ferralet 90 and Aquarol, which co-promotion terminated as of March 31, 2018.

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Gelclair

In 2012, Midatech US’s predecessor-in-interest, DARA, entered into a distribution and license agreement with Helsinn, granting it an exclusive license to distribute, promote, market and sell Gelclair for the management and relief of pain due to all approved indications in the United States. Gelclair, a unique oral gel barrier whose key ingredients are polyvinlypyrrolidone (PVP) and sodium hyaluronate (hyaluronic acid), is an FDA-cleared device indicated for the management of pain and relief of pain arising from oral mucositis and other oral lesions of various etiologies, including oral mucositis/stomatitis (caused by chemotherapy or radiation therapy) irritation due to oral surgery, traumatic ulcers caused by braces or ill-fitting dentures, disease and diffuse aphthous ulcers. Gelclair is protected by a United States issued patent which expires in 2021. Under the license agreement with Helsinn, Midatech US may be obligated to meet minimum sales thresholds during the ten-year term of the agreement. DARA launched Gelclair in the United States in April 2013.

In December 2017, Midatech US initiated a Phase IV clinical trial to study the effects of Gelclair on various aspects of oral mucositis, which is a common side effect experienced by patients undergoing stem cell transplants. Oral mucositis is a painful inflammation of the surface of the mouth, which can lead to the need for supplemental prescription pain products, such as opioids, parenteral nutritional therapy and which may result in lengthy discharge times for patients from stem cell treatment units, potentially resulting in increased health costs. The clinical trial is a blinded, randomized, controlled study designed to investigate the efficacy and tolerability of Gelclair and the ideal timing of the initiation of therapy for the management of oral mucositis in allogenic stem cell transplant recipients receiving high-dose chemotherapy. Midatech anticipates the trial will complete in early 2019.

Zuplenz

In December 2015, Midatech acquired from Galena certain assets related to Zuplenz (ondansetron) Oral Soluble Film. Zuplenz was approved by the FDA in adult patients for the prevention of highly and moderately emetogenic CINV, RINV, and PONV, and in pediatric patients for moderately emetogenic CINV. Nausea and vomiting are two of the most common side-effects experienced by post-surgery patients and it is estimated that up to 90% of chemotherapy and up to 80% of radiotherapy patients will experience CINV and RINV, respectively. Midatech launched Zuplenz in April 2016.

The active pharmaceutical ingredient (“API”) in Zuplenz, ondansetron, is used to prevent nausea and vomiting caused by cancer chemotherapy, radiation therapy, and surgery. Ondansetron belongs to a class of medications called serotonin 5-HT3 receptor antagonists and works by blocking the action of serotonin, a natural substance that may cause nausea and vomiting. Zuplenz utilizes Aquestive Therapeutics’ (formerly MonoSol RX ’ s (“MonoSol”)) proprietary PharmFilm ® technology, an oral soluble film that dissolves on the tongue in less than thirty seconds. This rapidly dissolving, oral soluble film eliminates the burden of swallowing pills during periods of emesis and in cases of oral irritation, therefore potentially increasing patient adherence and reducing emergency room visits and hospitalization due to a lack of patient compliance or the patient ’ s inability to keep the medication down without vomiting. Zuplenz is supplied in both 4 mg and 8 mg ondansetron doses with a safety profile equivalent to other products in the class. Zuplenz has issued and pending United States patent applications with an anticipated expiration date of 2029.

MonoSol will exclusively manufacture Zuplenz for marketing by Midatech US in the United States through its expanded commercial organization.

Oravig

Oravig ® (miconazole) is an FDA-approved prescription drug. Oravig is an azole antifungal indicated for the local treatment of oropharyngeal candidiasis, commonly known as oral thrush, in adults. Oravig is the first and only orally-dissolving buccal tablet approved for oral thrush in adults, which is associated with radiotherapy, chemotherapy and human immunodeficiency virus patients. Oravig was launched by Midatech US in the fourth quarter of 2015.

In March 2015, Midatech US’s predecessor-in-interest, DARA, entered into a commercialization agreement with Onxeo, giving it the exclusive, sublicensable, rights to distribute, promote, market and sell Oravig in the United States, as well as the right to seek regulatory approval for Oravig in Canada with the resulting exclusive, sublicensable rights to distribute, promote, market and sell Oravig there. In July of 2017, Onxeo sold Oravig to Vectans S.A. Prior to March 31, 2018, Mission utilized their existing primary care sales force to promote Oravig within that market segment. As of April 1, 2018, the promotion of Oravig is conducted directly by Midatech US. In consideration for receiving the exclusive rights to Oravig, Midatech US is required to make certain milestone payments to Vectans upon the achievement of defined sales thresholds.

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Soltamox

Soltamox ® (tamoxifen citrate) oral solution is an FDA-approved drug primarily used to treat breast cancer and prevent its recurrence. Soltamox is the only liquid formulation of tamoxifen available for sale in the United States. Oral liquids can provide an effective alternative to solid dose formulations for those patients with dysphagia, or difficulty swallowing, or those who simply prefer to take drug products in liquid form. Those suffering from dysphagia often have difficulty or experience pain when using oral tablet or capsule products and can benefit from liquid formulations of drugs. In addition, breast cancer patients receiving chemotherapeutic agents are subject to oral mucositis, which may make liquid medical formulations preferable.

Soltamox is used primarily for the chronic treatment of breast cancer or for cancer prevention in certain susceptible breast cancer subgroups. The National Cancer Institute estimated that in 2017, 252,710 women would be diagnosed with breast cancer and 40,610 women would die as a result of the disease. Tamoxifen therapy is currently indicated by the FDA for breast cancer patients for five years. The FDA requires a Boxed Warning on all tamoxifen products, including Soltamox, presenting significant risk information on uterine malignances, stroke and pulmonary embolism. This warning can be found in the full Soltamox prescribing information at www.soltamox.com .

Midatech US is party to an exclusive license and distribution agreement with Rosemont for rights to market Soltamox in the United States. Soltamox was launched by DARA in the United States in the fourth quarter of 2012. Previously, Soltamox was marketed only in the United Kingdom and Ireland by Rosemont. Soltamox is protected by a United States issued patent which expires in June 2018. Under the license agreement with Rosemont, Midatech US is obligated to maintain minimum annual purchases of the product through 2018.

Midatech’s Product Candidates

Midatech is currently focused on research and development in a number of therapeutic areas to which its three technology platforms (GNP drug conjugates, sustained release and NI technology) are being applied. The following summarizes the status of Midatech ’ s most advanced product candidates.

MTD201 (Q-Octreotide) for Carcinoid Cancer

Midatech’s MTD201 program uses its sustained release platform to formulate a long-acting dose of the somatostatin analogue Octreotide, an existing, immediate-release injection product used to decrease the symptoms of carcinoid cancer, or reduced production of growth hormone in people suffering acromegaly. It is the most important form of treatment for carcinoid syndrome that occurs with carcinoid tumors (hormone producing cell tumors in the body) . Midatech has developed a sustained release version of this product, called Q-Octreotide, which, if approved, is expected to compete with market leader Sandostatin LAR Depot (“Sandostatin”), marketed by Novartis Pharmaceuticals Corporation (“Novartis”). The Group believes that Q-Octreotide will have several potential competitive advantages with respect to the patient experience, clinical use and cost. The product is entering a global market that exceeds $2 billion annually, and Midatech believes that, if data is confirmed with respect to Q-Octreotide, it could capture up to approximately 5%, or $100 million, of market share.

Acromegaly: Acromegaly is a hormonal disorder caused by excessive production of growth hormone during adulthood. This results in an increase in bone size in the hands, feet, and face. It typically affects middle-aged adults and is usually not recognized immediately, however if not treated it can lead to serious illness that can potentially become life threatening. Initial symptoms of acromegaly are enlarged hands and feet (e.g., a ring no longer fits or an adult’s shoe size has progressively increased). Additional symptoms include gradual changes in the shape of the face, an enlarged nose, thickened lips, and increasing space between the teeth. Morbidity and mortality rates are high in those with acromegaly, typically due to associated cardiovascular, cerebrovascular, respiratory disorders, and malignancies. For acromegaly caused by pituitary tumors (which account for over 95% of cases), trans-sphenoidal surgery is the first line treatment. This is curative in approximately 50-60% of cases. For those with persistent acromegaly, somatostatin analogues are the preferred therapy, particularly since the long-acting formulations limit treatment to just once a month.

Neuroendocrine tumors and Carcinoid Syndrome : Neuroendocrine tumors (“NETs”) are slow growing tumors that arise from neuroendocrine cells. They can be either “non-functioning”, in which they lack hormone production, or “functioning”, in which the tumor produces an abundance of bioactive hormones leading to carcinoid syndrome. Signs and symptoms of carcinoid syndrome include flushing of the face, severe debilitating diarrhea, and asthma attacks. Somatostatin analogues such as octreotide are used to treat advanced NETs of the midgut or unknown primary tumor location, and control the hormone related side effects of inoperable carcinoid tumors with features of the carcinoid syndrome, such as number of daily stools and daily flushing episodes.

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During the last year, Midatech has completed the formulation of Q-Octreotide and the clinical trial manufacture, and has completed pre-clinical testing. On January 10, 2018, Midatech received confirmation from Polish regulators that Midatech’s first in-human study of Q-Octreotide was approved. Midatech expects with Phase I results due in the second half of 2018, followed by a second pivotal study with results expected in the first half of 2019. Following receipt of these results, if the product shows interchangeability with Sandostatin, the Group expects to make a regulatory submission with the FDA in 2020. Midatech is currently conducting initial pre-marketing preparation and branding work.

MTX110 for DIPG Childhood Brain Cancer

DIPG is a rare, fatal childhood brainstem tumor, with overall median survival of approximately nine months, despite decades of clinical trial research. On the basis of generally accepted prevalence statistics, there are up to 300 cases per year in each of the United States and Europe, and up to 1,000 cases globally. The only current standard of care is palliative focal radiotherapy and chemotherapy, and, as such, new therapeutic strategies are currently needed. One of the potential reasons for the failure of treatment is the blood-brain and blood-tumor barriers, which exclude potentially effective therapeutic agents. Direct delivery by convection-enhanced techniques can overcome these barriers and ensure adequate drug exposure to tumor cells, however, the drugs must be water soluble at physiological pH in order to be delivered to the brain by convection-enhanced techniques. Midatech has sought the most potent compounds against DIPG cell lines, selected the best candidate of these compounds, and using Midatech’s NI technology, solubilized it to enable administration via convection-enhanced techniques.

Midatech’s MTX110 compound repurposes and solubizes a known HDACi chemotherapeutic, panobinostat, which the Company sublicenses from Novartis. Midatech’s NI technology platform enables local delivery of panobinostat directly to the tumor via a catheter system called Convection Enhanced Delivery (“CED”), diffusing into it and around it. This technique allows for elevated drug concentrations to be delivered to the tumor, while at the same time minimizing systemic toxicity and peripheral side effects. In pre-clinical test models, panobinostat has demonstrated high potency against DIPG tumor cell lines. In one such study, it was the most effective of 83 anticancer agents tested in several DIPG cell lines. Although effective in both in vitro and in vivo models, panobinostat given orally does not cross the blood-brain barrier effectively thus necessitating an alternate means of delivery. Using direct delivery via CED of MTX110, Midatech’s soluble form of panobinostat, bypasses the blood brain barrier and ensures adequate drug exposure to tumor cells. MTX110 molecular targeting and intratumoral delivery provides significant potential for treatment of DIPG.

In February 2016, Midatech conducted a first experimental research treatment on a compassionate use basis in a child diagnosed with DIPG. Subsequently, five additional children have been treated on a compassionate use basis. In these patients, MTX110 has to date been well tolerated, and holds promise as a potential therapeutic treatment for this universally fatal disease. In January 2018, Midatech received approval from the FDA of its investigational new drug (“IND”) application for MTX110 to conduct a first-in-human study of MTX110 at specialist centers at University of California San Francisco, and Memorial Sloan Kettering in New York. IRB approval is expected in the second quarter of 2018, at which point the study can formally commence. This study is a combined Phase I and II study, with the Phase I component estimated to be completed in the second half of 2019, and the Phase II component in 2020. If successful, Midatech will seek expedited approval from regulators. Additional studies are planned for the United Kingdom and Europe.

MTD119 for Liver Cancer

MTD119 is a targeted therapy treatment using Midatech’s GNP technology for hepatocellular carcinoma, which accounts for the majority of liver cancers and, according to the World Health Organization, is the third leading cause of cancer deaths with almost 800,000 deaths in 2015. Where surgical intervention is unsuccessful or not possible the prognosis of median survival is less than one year. For this group of patients, the only option is chemotherapy. According to Fierce Pharma , the current standard of care, Sorafenib (Nexavar), which is co-marketed by Bayer AG and Onyx Pharmaceuticals Inc., has projected 2018 annual sales of approximately $1.5 billion.

Midatech developed a GNP construct for HCC based on a gold nanoparticle core covered with a combination of carbohydrate galactose ligands and the potent tubulin inhibitor DM1 (mertansine), which inhibits microtubule assembly and disrupts mitosis in malignant cells. This combination of various motifs together with chemotherapeutics may make it possible to alter the biodistribution of toxic chemotherapeutics to focus on the tumor and spare normal tissues. This shift in biodistribution can significantly improve the therapeutic index of treatments for this disease. Preclinical models have shown a clear impact of the GNP technology on the safety and efficacy of DM1. The pre-clinical program for MTD119 was completed in July 2017, with studies demonstrating potent anti-tumor activity in vivo in all efficacy models. Peak reduction in tumor growth due to MTD119 suggests that it has the potential to be more effective than Sorafenib, and with improved overall survival. The specific targeting of maytansine to tumor cells by MTD119 also resulted in significantly improved tolerability. To confirm these findings in further animal models and to prepare for a potential IND submission, Midatech has entered formal IND application enabling studies, with completion of the first pilot animal studies expected in the first half of 2018 and completion of the remainder of the studies expected in the fourth quarter of 2018 or the first quarter of 2019. Data from these studies will allow Midatech to review the data for efficacious dose levels versus toxic dose levels, optimum or alternative dosing regimes if necessary, and related efficacy in tumor models. Assuming favorable data, Midatech hopes to complete an IND submission to the FDA in the first half of 2019, for first-in-human studies in the second half of 2019. On February 22, 2018, Midatech announced that the EMA granted orphan drug designation for MTD119. Midatech believes MTD119 has the potential for orphan drug designation and accelerated approval in the United States.

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Immunotherapy Projects

In immunotherapy, Midatech’s nanotechnology is being developed for applications in immuno-oncology, as well as autoimmune disease. In these applications, Midatech’s GNP Midacore technology is used as a carrier technology to deliver immuno-active peptides to antigen presenting cells (“APGs”). Depending on the peptide’s used to bind to the GNP, this immune activity can either stimulate the immune response, for example to fight cancer or infections, or dampen the immune response, such as in auto-immune diseases like diabetes where the body’s immune system is attacking itself.

MTR111 (for GBM) and MTR116 (for DIPG) are programs looking to develop peptide vaccines against brain cancers in adults and children, respectively. GNP peptide vaccines are thought to enhance the induction of effective, mutation-specific, cytotoxic T-cell- and T-helper-cell-mediated immune responses in HLA compatible patients. In vivo studies are ongoing in collaboration with University of California San Francisco for children with DIPG, and Dana Farber for GBM in adults. The data generated from these studies may provide a basis for the further clinical development of GNP vaccine-based or cell-based immunotherapeutic approaches. With such programs, it is conceivable that programs can enter the clinic with minimal toxicology data due to the fundamental differences between animal and human immune systems. This provides the opportunity for these programs to be in the clinic phases during the course of 2019 and 2020.

MTX102 is a program for the antigen specific immunotherapy of Type 1 diabetes. The program, part of a European Union-funded consortium, is currently in first-in-human studies and is expected to be completed in the first half of 2019. In this program, Midatech’s GNP technology is chemically linked to molecules of self-peptide or small antigen, as an enabling platform to leverage the potential of an Antigen Specific Immunotherapy (“ASI”) administered antigen to generate a tolerogenic rather than immunogenic response. Such a response could lead to a much-improved safety profile, and potential use in disease prevention and children, because ASI does not compromise the immune system. Antigen bearing GNPs when delivered into the skin appear to preferentially target specific immune cells, can migrate into the epidermis where there is a very high concentration of these specific immune cells (a property not seen with larger nanoparticles), and can distribute rapidly to lymphoid tissues around the body. Discovery, preclinical and toxicology work was conducted between 2012 and 2015, and the program commenced a “ first-in-human ” study during 2016 in the United Kingdom and Sweden, with trial results expected in 2019.

Other Pipeline Candidates

In addition to the product candidates mentioned above, Midatech has other candidates that it is working on. MTR103 is a program for Gliobastoma Multiforme (“GBM”). The World Health Organization estimates that there are approximately 240,000 cases of brain and nervous system tumors globally each year, with GBM being the most common and most lethal of these, with typical survival rates of one to two years, despite treatment of surgery, radiotherapy and chemotherapy. MTR103 is currently in pre-clinical studies. Midatech intends to seek orphan drug designation pending successful completion of the ongoing pre-clinical program, which is now focusing on local delivery, directly into the tumor.

Commercial Agreements, Strategic Partnerships and Collaborations

Midatech is currently collaborating with a number of biopharmaceutical companies, research institutes and universities on several of its development programs involving its core technologies.

Agreements, Partnerships and Collaboration

Consejo Superior De Investigaciones Cientificas. In June 2002, Consejo Superior de Investigaciones Cientificas (“ CSIC”), and Midatech Limited, the Company’s predecessor entity, entered into a patent and know-how agreement, whereby CSIC granted Midatech Limited an exclusive license to exploit its patent and know-how rights in any field and anywhere in the world where those patents are registered, and to make applications to register such patents throughout the world in CSIC and Midatech Limited ’ s joint names, provided that CSIC may use the patents and know-how for the purpose of performing a research agreement between CSIC and Midatech Limited, to deal in products supplied to it by Midatech Limited and to perform research for its own non-commercial purposes. CSIC also assigned to Midatech Limited PCT Application Number PCT/GB01/04633. The agreement between the parties was amended on October 14, 2004 so as to specifically include magnetic nanoparticles in the scope of the license and rights granted to Midatech Limited. The patents and know-how are considered by Midatech to be core to its business.

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Pursuant to the terms of the agreement, CSIC is obliged to reassign the patents into Midatech Limited ’ s sole name within 14 days of Midatech accomplishing one of the following:

concluding a license agreement with a third party in respect of any of the intellectual property rights comprising the subject matter of the agreement;

demonstrating therapeutic and/or diagnostic efficacy in an animal model derived from research sponsored by Midatech (or its affiliated companies);

demonstration of a diagnostic product in Phase I clinical trials arising from intellectual property rights; or

selling products made by Midatech, affiliated companies or licensees exploiting the intellectual property rights comprising the subject matter of the agreement which generate net sales royalties or net revenue royalties for CSIC.

As of the December 31, 2017, Midatech had accomplished all of the above milestones other than milestone related to the sale of products, and may therefore request that the relevant patents are assigned to it.

Midatech Limited is under an obligation to pay the following royalties to CSIC in prescribed circumstances following the commercialization of the relevant intellectual property:

Cumulative Sales Amount	Royalty
Net Sales to € 1 million		6	%
Net Sales between € 1 million and € 9,999,999		5	%
Net Sales between € 10 million and € 99,999,999		4	%
Net Sales € 100 million and above		3	%

As of December 31, 2017, no royalties have been due or payable to CSIC.

Either party may terminate the agreement upon the insolvency of the other party or a material breach that is not remedied within 30 days ’ notice.

Zuplenz Licensing Agreements. Pursuant to the terms of that certain Asset Purchase Agreement dated December 17, 2015, by and between Midatech and Galena, Midatech acquired all of Galena ’ s rights and obligations under that certain License and Supply Agreement (the “ MonoSol License Agreement ” ) dated July 14, 2014, by and between Galena and MonoSol (as amended by that certain License and Supply Transfer Agreement dated December 16, 2015 (the “ Amendment ” )), as well as certain other assets and contracts related to Zuplenz ® (ondansetron) Oral Soluble Film. Pursuant to the terms of these agreements, Midatech has licensed from MonoSol all United States commercial rights to Zuplenz, a product approved by the FDA in adult patients for the prevention of highly and moderately emetogenic CINV, RINV, and PONV. Zuplenz is also approved for pediatric patients with moderately emetogenic CINV. Under the terms of the License and Supply Agreement, Midatech has also received all rights to the New Drug Application (“NDA”) for Zuplenz and assumed responsibility for the commercialization of Zuplenz and for all regulatory and reporting matters in the United States Additionally, Midatech has agreed that, until net sales of Zuplenz exceed a specified minimum amount or a competing product has been approved by the FDA and is placed into the market for sale, Midatech will maintain a specified minimum number of field sales force personnel on specified terms. The minimum number of field sales force personnel was reduced pursuant to the Amendment. Under the MonoSol License Agreement, MonoSol has the exclusive right to supply all of Midatech ’ s requirements for Zuplenz, subject to certain conditions.

Upon entry into the Asset Purchase Agreement, Midatech paid Galena $3.75 million. Midatech also agreed to pay to Galena up to an aggregate of $26 million, consisting of four one-time payments related to quarterly sales achieved in calendar years 2016 and 2017 and annual sales achieved from 2018 to 2022 exceeding specified target sales. As at December 31, 2017, no sales threshold had been achieved. As Midatech is now responsible for certain of Galena ’ s obligations under the MonoSol License Agreement, Midatech is required to pay a double-digit royalty on future net sales of Zuplenz.

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The term of the MonoSol License Agreement is ten years, after which the license may be extended at Midatech ’ s option on an annual basis. The agreement contains standard termination provisions allow either Midatech or MonoSol to terminate the agreement upon the other party ’ s material breach or bankruptcy. Additionally, MonoSol may terminate the agreement if Midatech fails to make milestone or royalty payments or if Midatech fails to use commercially reasonable efforts to maintain the NDA. Midatech may terminate the agreement for any reason.

EE-ASI Consortium Agreement. In June 2012, Midatech Limited entered into a consortium agreement with Cardiff University in Wales, Inserm-Transfert SA in Paris, France, Nanopass Technologies Ltd. in Israel, Leiden University Medical Center in the Netherlands, King ’ s College London in London, England, Institut National de la Sante et de aa Recherche Medicale, Marseille in Paris, France, and Linkopings University in Sweden. Pursuant to this agreement, the parties share and collaborate on various products and technology that is combined with the ultimate goal of integrating an antigen delivery system, to be used in clinical trials as a method of investigational medical product delivery.

All parties have joint ownership over any intellectual property rights which may arise. The portion of ownership is determined in proportion to a party ’ s contribution. Commercialization rights are to be determined on a fair and reasonable basis. Under the collaboration agreement, Midatech Limited contributed approximately € 815,000 towards the consortium costs, of total requested European Union contribution of € 6.0 million.

The project has received funds from the European Commission, which are distributed by a coordinator according to the consortium budget. The parties receive portions of this contribution, as determined by the consortium budget.

Novartis License Agreement. On June 6, 2017, Midatech’s subsidiary, Midatech Limited, entered into a License Agreement (the “Novartis Agreement”) with Novartis, pursuant to which Novartis granted it a worldwide, sublicenseable license to research, develop and commercialize, under Novartis patents, the Novartis oncology compound panobinostat, used for the treatment of brain cancer in humans, administered by convection enhanced delivery.

Under the terms of the Novartis Agreement, Midatech Limited was required to make an upfront flat fee payment in the low seven figures in United States dollars and milestone payments to Novartis of up to an aggregate of $48 million if certain regulatory and commercial events are achieved. Midatech Limited must also make royalty payments based on expected sales of the licensed product, with rates ranging from the mid-teens to mid-twenties based on net sales of the licensed products. Pursuant to the terms of the Novartis Agreement, the license will continue until the expiration of the royalty term (as defined in the Novartis Agreement) for the last licensed product, unless earlier terminated pursuant to its terms.

Agreements Related to Midatech US

Pursuant to the December 4, 2015 merger with DARA, Midatech US, DARA’s successor-in-interest, has assumed all of DARA’s rights and obligations under each of the below-referenced agreements.

Helsinn Distribution and Licence Agreement. On September 7, 2012, DARA entered into a Distribution and Licence Agreement (the “ Licence Agreement ” ) with Helsinn Healthcare SA ( “ Helsinn ” ), pursuant to which Helsinn granted DARA an exclusive license to distribute, promote, market and sell Gelclair ® for the management and relief of pain due to all approved indications in the United States. Pursuant to the December 4, 2015 merger with DARA, Midatech US has assumed all of DARA ’ s rights and obligations under the Licence Agreement. Under the terms of the Licence Agreement, if Helsinn develops Gelclair for an additional indication in the United States, Midatech US has the first right to negotiate the terms to allow it to distribute, promote, market and sell Gelclair for that indication. Helsinn is responsible for the manufacturing and supply of Gelclair to Midatech US based on mutually agreed upon forecasts and purchase orders from Midatech US.

Under the terms of the Licence Agreement, Midatech US is required to make continuing royalty payments in the low double digits based on net sales. Midatech US must make an additional six-figure payment if certain cumulative sales targets are reached. In addition, if Gelclair is further developed for certain additional indications, Midatech US must make an additional six-figure payment to Helsinn.

The Licence Agreement will remain in effect until September 7, 2022, unless terminated earlier or extended. Either party may terminate the Licence Agreement at any time upon breach or bankruptcy of the other party. In addition, Helsinn may choose to terminate the Licence Agreement if Midatech US fails to meet certain minimum annual sales requirements.

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Oravig Commercialization Agreement. On March 9, 2015, DARA entered into a commercialization agreement (the “ Commercialization Agreement ” ) with Onxeo S.A. ( “ Onxeo ” ), giving DARA the exclusive, sublicensable, rights to distribute, promote, market and sell Oravig ® , in the United States as well as the right to seek regulatory approval for Oravig in Canada with the resulting exclusive, sublicensable rights to distribute, promote, market and sell Oravig there. Onxeo also transferred to DARA the NDA for Oravig. In July of 2017, Onxeo sold Oravig to Vectans S.A. (“Vectans). Oravig is the first and only orally dissolving buccal tablet approved for oral thrush in adults, and it was launched by DARA in the United States in the fourth quarter of 2015. Pursuant to the terms of the Commercialization Agreement and related supply agreement, Vectans supplies Oravig to Midatech US.

Under the terms of the Commercialization Agreement, Midatech US is required to make certain milestone payments based on Midatech US ’ s achievement of certain net sales of Oravig. If Midatech US enters into any agreement or sublicense with a third-party to commercialize or promote Oravig and if Midatech US receives any upfront, milestone or similar amount from its co-promotion partner, Midatech will pay to Vectans a double-digit royalty on any payments received from those third-parties above a set threshold.

Pursuant to the terms of the Commercialization Agreement, the Oravig license will continue until the agreement is terminated. The agreement contains standard termination provisions that allow either party to terminate the agreement upon the other party ’ s material breach or bankruptcy. Additionally, Vectans may terminate the agreement if, subject to certain exceptions, Midatech US fails to make the milestone payments or if Midatech US does not make certain payments to Vectans for supplying Oravig. Vectans may also, subject to certain exceptions, terminate the agreement if Midatech US fails to use commercially reasonable efforts to execute its commercial responsibilities for the product and to maintain the NDA.

Financing Agreements

Silicon Valley Bank Credit Agreement

On February 23, 2017, Midatech, Midatech Ltd., Midatech Wales, and Midatech US, as the original borrowers and original guarantors, and Silicon Valley Bank, entered into a senior secured £ 6.0 million loan agreement (the “SVB Loan Agreement ” ), with three tranches available to the Company upon the achievement of certain development milestones. In connection with its entry into the MidCap Credit Facility discussed below, the Company terminated the SVB Credit Agreement. Midatech never drew down on the credit facilities available under the SVB Credit Agreement.

MidCap Credit Agreement

On December 29, 2017, Midatech, Midatech US, DARA Therapeutics, Inc., a wholly-owned subsidiary of Midatech US, Midatech Wales and Midatech Limited, as the borrowers, and MidCap Financial Trust, as administrative agent and lender, entered into an agreement (the “MidCap Credit Agreement”) providing the borrowers with a four-year senior secured $15 million credit facility (the “MidCap Credit Facility”). The loans under the MidCap Credit Facility are secured by a security interest in all of the borrowers’ assets. Upon entry into the MidCap Credit Agreement, the borrowers received an initial tranche of $7 million. A second tranche of $3 million will become available to the Company upon the achievement of certain milestones related to MTD 201 and the sale to the lenders of certain warrants to purchase Ordinary Shares. A third tranche of $5 million will become available to the Company upon the approval of MTX110 for testing, manufacturing and commercial sale in the United States by the FDA for the treatment of DIPG and the sale to the lenders of certain warrants to purchase Ordinary Shares. In connection with the entry into the MidCap Credit Agreement, Midatech granted to MidCap 247,881 warrants to purchase ordinary shares, which was equal to 2% of the amount funded divided by an exercise price of £0.42. The exercise price was calculated based on the average closing price of Midatech’s ordinary shares on AIM for the 30-day period prior to the date of grant.

Borrowings under the MidCap Credit Facility will bear interest at a rate equal to the greater of (i) the LIBOR rate or (ii) 1.25%, in each case plus an applicable margin of 7.50%. The MidCap Credit Facility matures on December 29, 2021 and Midatech is subject to certain prepayment fees based on the time of prepayment.

See Note 20 to Midatech ’ s consolidated financial statements for the year ended December 31, 2017 for more information.

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Commercial Operations

Midatech has built the commercial infrastructure necessary to effectively support the commercialization of its in-licensed products (including Soltamox, Oravig, Gelclair and Zuplenz) and provide the platform on which to build once its internal product candidates are launched in the United States first and thereafter in Europe. The commercial infrastructure includes a targeted sales force to establish relationships with a focused group of oncologists, oncology nurses, pharmacists and other medical professionals. In addition, Midatech US currently contracts with Alamo to provide a dedicated national sales team, currently consisting of 20 sales representatives and five field managers. Midatech ’ s sales force is supported by sales management, internal sales support, an internal marketing group and distribution support. Additionally, the sales and marketing teams manage relationships with key accounts such as managed care organizations, group-purchasing organizations, hospital systems, oncology group networks, and government accounts. To maintain the appropriate commercial infrastructure, Midatech will have to continue to invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that Midatech ’ s product candidates will be approved and Midatech could invest resources and then later learn that a particular product candidate is not being approved.

Research and Development

Midatech devotes significant resources to research and development, incurring £10.19 million, £7.80 million (reclassified) and £8.71 million (reclassified) of related expenses during the years ended December 31, 2017, 2016 and 2015.

Midatech has GNP research and development laboratories in Oxfordshire, United Kingdom and Bilbao Spain, as well as a polymer micro-sphere laboratory in Cardiff, Wales used for development purposes only of its sustained release technology.

The research and development staffing for these three sites comprises approximately 18 Ph.D. scientists, 25 MSc scientists and 20 BSc scientists.

Intellectual Property

Midatech ’ s success depends in large part on its ability to obtain and maintain proprietary protection for its products, product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing its proprietary rights. Midatech strives to protect the proprietary technology that it believes is important to its business by, among other methods, seeking and maintaining patents, where available, that are intended to cover its product, product candidates, compositions and formulations, their methods of use and processes for their manufacture and any other inventions that are commercially important to the development of Midatech ’ s business. Midatech also relies on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain its proprietary and competitive position.

Midatech has developed a strong intellectual property base globally, comprising patents, know-how, and trade secrets. Currently, the Group has 97 granted patents, 56 applications in process, in each case covering all major world markets, and over 34 separate Patent Families covering all major regions. Midatech continues to strengthen its patent portfolio by strategically submitting new patents and divisional patent applications based on its active research and development activities. Central to Midatech ’ s business are two platform intellectual property technologies that are designed to enable the targeted delivery, i.e. right place, and controlled sustained release, i.e. right time, of existing therapeutic drugs. These technologies have broad applications in multiple therapeutic areas and offer the potential to create multiple revenue opportunities:

Drug conjugate technology: Midatech ’ s core platform is a pioneering drug conjugate delivery system based on GNPs (a class of carbohydrate-coated gold nanoparticles) combined with approved drugs for targeted release at specific organs, cells or sites of disease;

Sustained release technology: Midatech ’ s second platform involves the consistent and precise encapsulation of active drug compounds within polymer microspheres that are designed to release drugs and drug compounds into the body in a highly controlled manner over a prolonged period of time; and

Nano-Inclusion Technology: Midatech’s third platform is its nano-inclusion technology used for local delivery of therapeutics. Midatech’s know-how in nano-inclusion technology can increase the solubility of cancer therapeutics by incorporating them into the interior of hosting inclusion complexes that surround the therapeutic and “carry” it as a water-soluble agent in the body.

These technologies can be used alone or potentially in combination, that is, by encapsulating GNPs into polymer microspheres, the rate of release of the targeted therapeutic molecules could be controlled and substantially extended.

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Patent rights have been granted in all the major world markets, including Europe, the United States and Japan, or the Key Markets. They confer a broad position of exclusivity for metal-core glycated-nanoparticles, including Midatech ’ s GNPs. Midatech ’ s granted patents in its patent family 1 (expiring 2021) provide the foundation to the portfolio with product, process and use claims that encompass the GNPs used in all of Midatech ’ s major programs and technology platforms, including oncology, nanoparticle technology and sustained release technology. The granted patents and pending patent applications in over 34 patent families are owned solely by Midatech, co-owned with other parties or in-licensed to Midatech. These include:

Oncology including Nano-inclusion technology. 8 patent families, which have predicted expiration dates ranging from 2025 to 2036. These patent rights include 11 granted patents and 14 pending applications in Key Markets relating to products and methods for treating and imaging cancers. In addition to the radiative and immune-based therapies contemplated by many of these patent families, Midatech ’ s pipeline of GNP-drug conjugates for oncology benefits from protection by the foundation GNP patents of patent family 1.

Nanoparticle technology. 15 patent families, with expiration dates ranging from 2021 to 2036. These patent families include 60 granted patents and 23 pending patent applications in Key Markets protecting products in Midatech ’ s pipeline.

Sustained release technology. 11 patent families which protect devices, methods and formulations for sustained release drug delivery. Midatech ’ s pipeline products Q-Octreotide and Opsisporin are protected 26 granted and 19 pending international applications.

Midatech also has in its portfolio several vaccine and infectious disease related patent families. These relate to GNPs for immune-based therapy and antibiotic-GNP conjugates. Midatech acquired through the Q Chip transaction patent applications directed to the apparatus and methods of “ Q Sphera ” technology, which employs a piezoelectric droplet generator to form polymeric microparticles that encapsulate a drug for sustained release. The combination of Midatech ’ s GNP technology with Midatech Wales ’ sustained release technology has provided possibilities for new formulations of GNP-drug conjugates. Midatech ’ s GNPs, when encapsulated in Midatech Wales ’ microparticles, enjoy patent protection conferred by the existing granted patents.

In addition, Midatech acquired a number of issued United States and foreign patents and pending patent applications in connection with its acquisition of DARA.

The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the filing date of a non-provisional patent application. In the United States, a patent ’ s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the United States Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent.

The term of a United States patent that covers a drug, biological product or medical device approved pursuant to a pre-market approval may also be eligible for patent term extension when FDA approval is granted, provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug, provided that statutory and regulatory requirements are met. Thus, in the future, if and when Midatech ’ s product candidates receive approval by the FDA or foreign regulatory authorities, it expects to apply for patent term extensions on issued patents covering those products, depending upon the length of the clinical trials for each drug and other factors. The expiration dates of Midatech ’ s patents and patent applications referred to above are without regard to potential patent term extension or other market exclusivity that may be available to it.

In addition to patents, Midatech may rely, in some circumstances, on trade secrets to protect its technology and maintain its competitive position. However, trade secrets can be difficult to protect. Midatech seeks to protect its proprietary technology and processes, in part, by confidentiality agreements with its employees, corporate and scientific collaborators, consultants, scientific advisors, contractors and other third parties. Midatech also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of Midatech’s information technology systems.

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Government Regulations

Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union and the United Kingdom, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of pharmaceutical products. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure of substantial time and financial resources.

Review and Approval of Drugs in the United States

In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (the “ FDCA ” ) and implementing regulations. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, exclusion from participation in government sponsored insurance programs such as Medicare, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice ( “ DOJ ” ) or other governmental entities.

An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

completion of preclinical laboratory tests, animal studies and formulation studies in compliance with the FDA ’ s good laboratory practice ( “ GLP ” ) regulations;

submission to the FDA of an investigational new drug application, which must take effect before human clinical trials may begin;

approval of clinical protocols by an independent institutional review board (“IRB”), representing each clinical site before each site may enroll subjects;

potential initiation and completion of successive clinical trials that establish safety dose ranges;

performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (“GCP”) to establish the safety and efficacy of the proposed drug product for each indication;

preparation and submission to the FDA of a new drug application (“NDA”) or a biologics license application (“BLA”);

review of the submission by an FDA advisory committee, where appropriate or if applicable;

satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;

satisfactory completion of FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data;

payment of user fees and securing FDA approval of the NDA or BLA; and

agree to comply with any post-approval requirements, including Risk Evaluation and Mitigation Strategies (“REMS”), and post-approval studies required by the FDA.

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Preclinical Studies

Preclinical studies include laboratory evaluation of the purity and stability of the manufactured drug substance or API and the formulated drug or drug product, as well as in vitro and animal studies to assess the safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations. The results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, are submitted to the FDA as part of an IND. Some long-term preclinical testing, such as animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted.

Human Clinical Trials in Support of an NDA

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the inclusion and exclusion criteria, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the clinical trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.

In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct a continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health for public dissemination on their ClinicalTrials.gov website.

Human clinical trials are typically conducted in three sequential phases, Phase I, Phase II and Phase III, which may overlap or be combined.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the protocol or investigator brochure. Phase I, Phase II and Phase III clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB ’ s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites to assure compliance with GCP and the integrity of the clinical data submitted.

Submission of an NDA to the FDA

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical studies and clinical trials, together with detailed information relating to the product ’ s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications. Under federal law, the submission of most NDAs is additionally subject to an application user fee, currently approximately $2.0 million, and the sponsor of an approved NDA is also subject to annual product and establishment user fees, currently exceeding $97,750 per product and $512,200 per establishment. These fees are typically increased annually.

The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA ’ s receipt of the submission whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing, and most applications for “ priority review ” products are meant to be reviewed within six months of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

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Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is or will be manufactured. These pre-approval inspections cover all facilities associated with an NDA submission, including drug component manufacturing (such as active pharmaceutical ingredients) ( “ API ” ), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

In addition, as a condition of approval, the FDA may require an applicant to develop a REMS. REMS use risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans for healthcare professionals, and elements to assure safe use ( “ ETASU ” ). ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of a product.

The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Fast Track, Breakthrough Therapy and Priority Review Designations

The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are fast track designation, breakthrough therapy designation and priority review designation.

Specifically, the FDA may designate a product for fast track review if it is intended, whether alone or in combination with one or more other drugs, for the treatment of a serious or life-threatening disease or condition, and it demonstrates the potential to address unmet medical needs for such a disease or condition. For fast track products, sponsors may have greater interactions with the FDA and the FDA may initiate review of sections of a fast track product ’ s NDA before the application is complete. This rolling review may be available if the FDA determines, after preliminary evaluation of clinical data submitted by the sponsor, that a fast track product may be effective. The sponsor must also provide, and the FDA must approve, a schedule for the submission of the remaining information and the sponsor must pay applicable user fees. However, the FDA ’ s time period goal for reviewing a fast track application does not begin until the last section of the NDA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

In 2012, Congress enacted the Food and Drug Administration Safety and Innovation Act ( “ FDASIA ” ). This law established a new regulatory scheme allowing for expedited review of products designated as “ breakthrough therapies. ” A product may be designated as a breakthrough therapy if it is intended, either alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The FDA may take certain actions with respect to breakthrough therapies, including holding meetings with the sponsor throughout the development process; providing timely advice to the product sponsor regarding development and approval; involving more senior staff in the review process; assigning a cross-disciplinary project lead for the review team; and taking other steps to design the clinical trials in an efficient manner.

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The FDA may designate a product for priority review if it is a drug that treats a serious condition and, if approved, would provide a significant improvement in safety or effectiveness. The FDA determines, on a case- by-case basis, whether the proposed drug represents a significant improvement when compared with other available therapies. Significant improvement may be illustrated by evidence of increased effectiveness in the treatment of a condition, elimination or substantial reduction of a treatment-limiting drug reaction, documented enhancement of patient compliance that may lead to improvement in serious outcomes, and evidence of safety and effectiveness in a new subpopulation. A priority designation is intended to direct overall attention and resources to the evaluation of such applications, and to shorten the FDA ’ s goal for taking action on a marketing application from ten months to six months.

Accelerated Approval Pathway

The FDA may grant accelerated approval to a drug for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the drug has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a drug when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality ( “ IMM ” ), and that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Drugs granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval.

For the purposes of accelerated approval, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug, such as an effect on IMM. The FDA has limited experience with accelerated approvals based on intermediate clinical endpoints, but has indicated that such endpoints generally may support accelerated approval where the therapeutic effect measured by the endpoint is not itself a clinical benefit and basis for traditional approval, if there is a basis for concluding that the therapeutic effect is reasonably likely to predict the ultimate clinical benefit of a drug.

The accelerated approval pathway is most often used in settings in which the course of a disease is long and an extended period of time is required to measure the intended clinical benefit of a drug, even if the effect on the surrogate or intermediate clinical endpoint occurs rapidly. For example, accelerated approval has been used extensively in the development and approval of drugs for treatment of a variety of cancers in which the goal of therapy is generally to improve survival or decrease morbidity and the duration of the typical disease course requires lengthy and sometimes large clinical trials to demonstrate a clinical or survival benefit.

The accelerated approval pathway is usually contingent on a sponsor ’ s agreement to conduct, in a diligent manner, additional post-approval confirmatory studies to verify and describe the drug ’ s clinical benefit. As a result, a drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase IV or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the FDA.

The FDA’s Decision on an NDA

On the basis of the FDA ’ s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA ’ s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

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If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase IV clinical trials, be conducted to further assess the drug ’ s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, many types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

Post-Approval Requirements

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls;

fines, warning letters or holds on post-approval clinical trials;

refusal of the FDA to approve pending NDAs or supplements to approved NDAs, or suspension or revocation of product license approvals;

product seizure or detention, or refusal to permit the import or export of products; or

injunctions or the imposition of civil or criminal penalties.

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act ( “ PDMA ” ), which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

Abbreviated New Drug Applications for Generic Drugs

In 1984, with passage of the Hatch-Waxman amendments to the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application ( “ ANDA ” ) to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug ( “ RLD ” ).

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Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug. At the same time, the FDA must also determine that the generic drug is “ bioequivalent ” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “ the rate and extent of absorption of the drug do not show a significant difference from the rate and extent of absorption of the listed drug. ”

Upon approval of an ANDA, the FDA indicates whether the generic product is “ therapeutically equivalent ” to the RLD in its publication “ Approved Drug Products with Therapeutic Equivalence Evaluations, ” also referred to as the “ Orange Book. ” Physicians and pharmacists consider a therapeutic equivalent generic drug to be fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA ’ s designation of therapeutic equivalence often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

Under the Hatch-Waxman amendments, the FDA may not approve an ANDA until any applicable period of non-patent exclusivity for the RLD has expired. The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing a new chemical entity. In cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication.

Hatch-Waxman Patent Certification and the 30-Month Stay

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant ’ s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval. To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.

Specifically, the applicant must certify with respect to each patent that:

the required patent information has not been filed;

the listed patent has expired;

the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or

the listed patent is invalid, unenforceable or will not be infringed by the new product.

A certification that the new product will not infringe the already approved product ’ s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired (other than method of use patents involving indications for which the ANDA applicant is not seeking approval).

If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months after the receipt of the Paragraph IV notice, expiration of the patent or a decision in the infringement case that is favorable to the ANDA applicant.

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Pediatric Studies and Exclusivity

Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of the FDASIA in 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests and other information required by regulation. The applicant, the FDA, and the FDA ’ s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA ’ s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot approve another application.

Orphan Drug Designation and Exclusivity

Under the Orphan Drug Act, the FDA may designate a drug product as an “ orphan drug ” if it is intended to treat a rare disease or condition (generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product). A company must request orphan product designation before submitting an NDA. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product with orphan status receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will be receiving orphan product exclusivity. Orphan product exclusivity means that the FDA may not approve any other applications for the same product for the same indication for seven years, except in certain limited circumstances. Competitors may receive approval of different products for the indication for which the orphan product has exclusivity and may obtain approval for the same product but for a different indication. If a drug or drug product designated as an orphan product ultimately receives marketing approval for an indication broader than what was designated in its orphan product application, it may not be entitled to exclusivity.

Patent Term Restoration and Extension

The term of a United States patent that covers a drug, biological product or medical device approved pursuant to a PMA may also be eligible for patent term extension when FDA approval is granted, provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The Hatch-Waxman Act permits a patent term extension of up to five years beyond the expiration date set for the patent. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be granted an extension and only those claims reading on the approved drug may be extended. Similar provisions are available in Europe and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug, provided that statutory and regulatory requirements are met. The United States Patent and Trade Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.

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Regulation Outside the United States

In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

Regulation and Marketing Authorization in the European Union

The process governing approval of medicinal products in the European Union follows essentially the same lines as in the United States and, likewise, generally involves satisfactorily completing each of the following:

preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable European Union Good Laboratory Practice regulations;

submission to the relevant national authorities of a clinical trial application ( “ CTA ” ) which must be approved before human clinical trials may begin;

performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;

submission to the relevant competent authorities of a marketing authorization application ( “ MAA ” ) which includes the data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labelling;

satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced current cGMP;

potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and

review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product.

Preclinical Studies

Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds for testing must comply with the relevant European Union regulations and requirements. The results of the preclinical tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.

Clinical Trial Approval

Requirements for the conduct of clinical trials in the European Union, including GCP, are implemented in the Clinical Trials Directive 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to Directive 2001/20/EC and Directive 2005/28/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, approval must be obtained from the competent national authority of a European Union member state in which a study is planned to be conducted, or in multiple member states if the clinical trial is to be conducted in a number of member states. To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier ( “ IMPD ” ) and further supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.

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In April 2014, the European Union legislator passed the Clinical Trials Regulation, (EU) No 536/2014, which replaced the current Clinical Trials Directive 2001/20/EC. To ensure that the rules for clinical trials are identical throughout the European Union, the new European Union clinical trials legislation was passed as a regulation that is directly applicable in all European Union member states. Although Regulation (EU) No 536/2014 was adopted and entered into force in 2014, the timing of its application depends on confirmation of full functionality of the European Union portal and database through an independent audit. Regulation (EU) No 536/2014 becomes applicable six months after the European Commission publishes notice of this confirmation. The development of the portal and database is progressing, and a revised project shows that the auditable version should be available for audit in early 2019, as required by the Clinical Trial Regulation. EMA will provide more precise information on timelines after the audit.

Regulation (EU) No 536/2014 simplifies the approval of clinical trial in the European Union. The main characteristics of the regulation include:

a streamlined application procedure via a single entry point, the European Union portal;

a single set of documents to be prepared and submitted for the application as well as simplified reporting procedures that will spare sponsors from submitting broadly identical information separately to various bodies and different member states;

a harmonized procedure for the assessment of applications for clinical trials, which is divided in two parts. Part I is assessed jointly by all member states concerned. Part II is assessed separately by each member state concerned;

strictly defined deadlines for the assessment of clinical trial application; and

the involvement of the ethics committees in the assessment procedure in accordance with the national law of the member state concerned but within the overall timelines defined by the Regulation (EU) No 536/2014.

Marketing Authorization

Authorization to market a product in the member states of the European Union proceeds under one of four procedures: a centralized authorization procedure, a mutual recognition procedure, a decentralized procedure or a national procedure.

Centralized Authorization Procedure

The centralized procedure enables applicants to obtain a marketing authorization that is valid in all European Union member states based on a single application. Certain medicinal products, including products developed by means of biotechnological processes, must undergo the centralized authorization procedure for marketing authorization, which, if granted by the European Commission, is automatically valid in all 28 European Union member states. The EMA and the European Commission administer this centralized authorization procedure pursuant to Regulation (EC) No 726/2004.

Pursuant to Regulation (EC) No 726/2004, this procedure is mandatory for:

medicinal products developed by means of one of the following biotechnological processes:

recombinant DNA technology;

controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed mammalian cells; and

hybridoma and monoclonal antibody methods;

advanced therapy medicinal products as defined in Article 2 of Regulation (EC) No. 1394/2007 on advanced therapy medicinal products;

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medicinal products for human use containing a new active substance that, on the date of effectiveness of this regulation, was not authorized in the European Union, and for which the therapeutic indication is the treatment of any of the following diseases:

acquired immune deficiency syndrome (AIDS);

cancer;

neurodegenerative disorder;

diabetes;

auto-immune diseases and other immune dysfunctions; and

viral diseases; and

medicinal products that are designated as orphan medicinal products pursuant to Regulation (EC) No 141/2000.

The centralized authorization procedure is optional for other medicinal products if they contain a new active substance or if the applicant shows that the medicinal product concerned constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization is in the interest of patients in the European Union.

Administrative Procedure . Under the centralized authorization procedure, the EMA ’ s Committee for Human Medicinal Products ( “ CHMP ” ) serves as the scientific committee that renders opinions about the safety, efficacy and quality of medicinal products for human use on behalf of the EMA. The CHMP is composed of experts nominated by each member state ’ s national authority for medicinal products, with expert appointed to act as Rapporteur for the co-ordination of the evaluation with the possible assistance of a further member of the Committee acting as a Co-Rapporteur. After approval, the Rapporteur(s) continue to monitor the product throughout its life cycle. The CHMP has 210 days to adopt an opinion as to whether a marketing authorization should be granted. The process usually takes longer in case additional information is requested, which triggers clock-stops in the procedural timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a number of experts. When an application is submitted for a marketing authorization in respect of a drug that is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation, the applicant may pursuant to Article 14(9) Regulation (EC) No 726/2004 request an accelerated assessment procedure. If the CHMP accepts such request, the time-limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time-limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. Once the procedure is completed, a European Public Assessment Report ( “ EPAR ” ) is produced. If the opinion is negative, information is given as to the grounds on which this conclusion was reached. After the adoption of the CHMP opinion, a decision on the MAA must be adopted by the European Commission, after consulting the European Union member states, which in total can take more than 60 days.

Conditional Approval . In specific circumstances, European Union legislation (Article 14(7) Regulation (EC) No 726/2004 and Regulation (EC) No 507/2006 on Conditional Marketing Authorisations for Medicinal Products for Human Use) enables applicants to obtain a conditional marketing authorization prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional approvals may be granted for product candidates (including medicines designated as orphan medicinal products) if (1) the risk-benefit balance of the product candidate is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs and (4) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.

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Marketing Authorization under Exceptional Circumstances . Under Article 14(8) Regulation (EC) No 726/2004, products for which the applicant can demonstrate that comprehensive data (in line with the requirements laid down in Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation) might be eligible for marketing authorization under exceptional circumstances. This type of authorization is reviewed annually to reassess the risk-benefit balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization under exceptional circumstances is aimed at the provision of information on the safe and effective use of the product and will normally not lead to the completion of a full dossier/approval.

Market Authorizations Granted by Authorities of European Union Member States

In general, if the centralized procedure is not followed, there are three alternative procedures as prescribed in Directive 2001/83/EC:

The decentralized procedure allows applicants to file identical applications to several European Union member states and receive simultaneous national approvals based on the recognition by European Union member states of an assessment by a reference member state.

The national procedure is only available for products intended to be authorized in a single European Union member state.

A mutual recognition procedure similar to the decentralized procedure is available when a marketing authorization has already been obtained in at least one European Union member state.

A marketing authorization may be granted only to an applicant established in the European Union.

Pediatric Studies

Prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan ( “ PIP ” ), covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver, a class waiver, or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA ( “ PDCO ” ) may grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly population.

Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.

Periods of Authorization and Renewals

A marketing authorization is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization which is not followed by the actual placing of the drug on the European Union market (in case of centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause).

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Orphan Drug Designation and Exclusivity

The European Commission, following an evaluation by the EMA ’ s Committee for Orphan Medicinal Products, has designated SMT C1100 as an orphan medicinal product (EU orphan designation number: EU/3/08/591). Pursuant to Regulation (EC) No 141/2000 and Regulation (EC) No. 847/2000, the European Commission can grant such orphan medicinal product designation to products for which the sponsor can establish that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 people in the European Union, or a life threatening, seriously debilitating or serious and chronic condition in the European Union and that without incentives it is unlikely that sales of the drug in the European Union would generate a sufficient return to justify the necessary investment. In addition, the sponsor must establish that there is no other satisfactory method approved in the European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients.

Orphan drug designation is not a marketing authorization. It is a designation that provides a number of benefits, including fee reductions, regulatory assistance, and the possibility to apply for a centralized European Union marketing authorization, as well as ten years of market exclusivity following a marketing authorization. During this market exclusivity period, neither the EMA, the European Commission nor the member states can accept an application or grant a marketing authorization for a ‘ similar medicinal product. A “ similar medicinal product ” is defined as a medicinal product containing a similar active substance or substances as those contained in an authorized orphan medicinal product and that is intended for the same therapeutic indication. The market exclusivity period for the authorized therapeutic indication may be reduced to six years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity. In addition, a competing similar medicinal product may in limited circumstances be authorized prior to the expiration of the market exclusivity period, including if it is shown to be safer, more effective or otherwise clinically superior to the already approved orphan drug. Furthermore, a product can lose orphan designation, and the related benefits, prior to us obtaining a marketing authorization if it is demonstrated that the orphan designation criteria are no longer met.

Regulatory Data Protection

European Union legislation also provides for a system of regulatory data and market exclusivity. According to Article 14(11) of Regulation (EC) No 726/2004, as amended, and Article 10(1) of Directive 2001/83/EC, as amended, upon receiving marketing authorization, new chemical entities approved on the basis of complete independent data package benefit from eight years of data exclusivity and an additional two years of market exclusivity. Data exclusivity prevents regulatory authorities in the European Union from referencing the innovator ’ s data to assess a generic (abbreviated) application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator ’ s data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity and the innovator is able to gain the period of data exclusivity, another company nevertheless could also market another version of the drug if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical test, preclinical tests and clinical trials. However, products designated as orphan medicinal products enjoy, upon receiving marketing authorization, a period of ten years of orphan market exclusivity. Depending upon the timing and duration of the European Union marketing authorization process, products may be eligible for up to five years ’ supplementary protection certificates ( “ SPCs ” ), pursuant to Regulation (EC) No 469/2009. Such SPCs extend the rights under the basic patent for the drug.

Regulatory Requirements After a Marketing Authorization has been Obtained

If Midatech obtains authorization for a medicinal product in the European Union, it will be required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products:

Pharmacovigilance and other requirements

Midatech will, for example, have to comply with the European Union ’ s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. Other requirements relate, for example, to the manufacturing of products and APIs in accordance with good manufacturing practice standards. European Union regulators may conduct inspections to verify its compliance with applicable requirements, and we will have to continue to expend time, money and effort to remain compliant. Non-compliance with European Union requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties in the European Union. Similarly, failure to comply with the European Union ’ s requirements regarding the protection of individual personal data can also lead to significant penalties and sanctions. Individual European Union member states may also impose various sanctions and penalties in case we do not comply with locally applicable requirements.

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Manufacturing

The manufacturing of authorized drugs, for which a separate manufacturer ’ s license is mandatory, must be conducted in strict compliance with the EMA ’ s Good Manufacturing Practices ( “ GMP ” ) requirements and comparable requirements of other regulatory bodies in the European Union, which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. The EMA enforces its current GMP requirements through mandatory registration of facilities and inspections of those facilities. The EMA may have a coordinating role for these inspections while the responsibility for carrying them out rests with the member states competent authority under whose responsibility the manufacturer falls. Failure to comply with these requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil and criminal penalties.

Marketing and Promotion

The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union under Directive 2001/83/EC. The applicable regulations aim to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately reflects the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member state. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.

Patent Term Extension

In order to compensate the patentee for delays in obtaining a marketing authorization for a patented product, a supplementary certificate, or SPC, may be granted extending the exclusivity period for that specific product by up to five years. Applications for SPCs must be made to the relevant patent office in each European Union member state and the granted certificates are valid only in the member state of grant. An application has to be made by the patent owner within six months of the first marketing authorization being granted in the European Union (assuming the patent in question has not expired, lapsed or been revoked) or within six months of the grant of the patent (if the marketing authorization is granted first). In the context of SPCs, the term “ product ” means the active ingredient or combination of active ingredients for a medicinal product and the term “ patent ” means a patent protecting such a product or a new manufacturing process or application for it. The duration of an SPC is calculated as the difference between the patent ’ s filing date and the date of the first marketing authorization, minus five years, subject to a maximum term of five years.

A six-month pediatric extension of an SPC may be obtained where the patentee has carried out an agreed pediatric investigation plan, the authorized product information includes information on the results of the studies and the product is authorized in all member states of the European Union.

Pharmaceutical Coverage, Pricing and Reimbursement

Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor ’ s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.

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In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of Midatech’s drug candidate to currently available therapies (so called health technology assessment) in order to obtain reimbursement or pricing approval. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, there can be considerably pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various European Union member states, and parallel distribution (arbitrage between low-priced and high-priced member states), can further reduce prices. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.

Healthcare Law and Regulation

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations include the following:

the federal Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid;

the federal False Claims Act imposes civil penalties, and provides for civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

the federal Health Insurance Portability and Accountability Act of 1996 ( “ HIPAA ” ) imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;

the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;

the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals and physician ownership and investment interests; and

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.

Some state laws require pharmaceutical companies to comply with the pharmaceutical industry ’ s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

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Competition

Midatech ’ s drug conjugate platform is among the latest generation of nanomedicine technology. Liposomes, an artificially prepared spherical vehicle composed of a lipid bilayer that can be used as vehicle for the administration of nutrients and drugs, followed by various polymeric nanoparticles, were the first nanotechnologies, and now inorganic nanoparticles like Midatech GNPs are emerging as the fastest growing sector within the nanomedicine market. The speed and nature of technological change means that physical science is always evolving and new competition and alternatives are always a possibility, however Midatech believes that it has established competitive advantage over its peers. As a result of the combination of its platform technology, intellectual property and proprietary know-how, Midatech has a protected position in the nanoparticle space which allows the potential for highly differentiated drugs serving high unmet needs like orphan oncology to be rapidly and independently manufactured and scaled.

Competitive Dynamics

Barriers to entry for competitors are high. The significant level of capital, scientific capabilities, and infrastructure required to achieve what Midatech has achieved to date may deter new entrants. A high degree of specialization and expertise in equivalent drug conjugate and sustained release technologies and relevant therapeutic areas is essential for any competitor to succeed, which Midatech has built up over many years since inception. The power of suppliers is relatively low given Midatech ’ s development manufacturing capability. The power of buyers, i.e. pharmaceutical companies, is important insofar as they may be partners for the commercialization and distribution of Midatech’s pipeline products; however, in the oncology therapy area, the intention is that Midatech will commercialize itself in the United States, the major global market, although Midatech will partner in territories outside the United States. Even for large pharmaceutical companies, the know-how, manufacturing, and effort involved in developing alternative products to Midatech would potentially see them engage as partners rather than as competitors. Competitive pressures or substitutes for Midatech compounds come from conventional small molecules or biologics (such as antibody drug conjugates). There is a growing trend for drugs to be produced using biotechnologies and it is likely that the main threat in the future will come from this class, albeit the costs of production and development are much higher, and the regulatory pathways more complex.

Competitive Technology

The main competing nanotechnologies are liposomes, polymers, carbon assemblies and other inorganic/metallic platforms. Carbon assemblies are not widely used in healthcare applications. Most nano activity has traditionally involved liposomes and polymers. More recently, the focus has moved to include inorganic nanoparticles using solid cores whereas Midatech is one of a few companies using gold. To the best of Midatech ’ s knowledge, it is the only company using non-colloidal gold (colloidal gold is defined as larger GNPs 10-15 nm and more, whereas Midatech ’ s core GNP construct is less than 2 nm) and is sufficiently progressed with the technology to be undertaking Phase II clinical trials. Midatech believes it is therefore well positioned versus the other technologies and companies providing a differentiated platform that imparts favorable characteristics in drug delivery, including targeting and mobility, solubility (for otherwise non soluble compounds), stability (of peptides), compatibility (inert and biocompatible) and highly controlled delivery and release in the cell.

Competitive Therapeutic Areas

Much of the historical and current focus and activity of the nanomedicine market is oncology. Within this domain, Midatech believes it is well positioned given the Group ’ s focus on selected orphan oncology applications where unmet needs persist, an accelerated regulatory process is possible and fewer companies compete (reflecting the challenges that need to be addressed). The other Midatech therapeutic areas (ophthalmology and neuroscience) are less active than oncology, which Midatech believes allows the advantages of GNP technology to be leveraged beyond the capabilities of other technologies, such as peptide stability, the ability to cross membranes (e.g. blood brain barrier) and excretability. Similarly, with the Midatech sustained release technology, the ability to address shortcomings of other controlled technologies such as burst, lag, release profile and consistency enables Midatech to pursue unmet opportunities such as sustained release octreotide, which to date has no generic competition despite being off patent for many years. Midatech’s NI technology conjugates solubilize cancer drugs that could otherwise not be administered directly into tumors.

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Competitive Companies

From a technology perspective, Midatech believes other companies using GNP technologies include CytImmune Sciences, Inc., and Nanospectra Biosciences, Inc. Some companies use larger colloidal GNPs of 10 to 15nm or bigger, whereas Midatech typically uses non-colloidal gold cores smaller than 2nm.

Midatech ’ s Q Sphera technology for biodegradable sustained-release formulation takes a microsphere-based approach that is based on printing individual microspheres. It enables next-generation formulation and engineering. Midatech believes other companies in the sustained release space include GP Pharm, S.A., Peptron, Inc., Graybug, Inc. and Nanomi B.V., and Dr. Reddy’s and Mylan are developing sustained release octreotide formulations.

In oncology, research on nanomedicines over the past ten years has resulted in two FDA-approved antibody drug conjugates (brentuximab vedotin and trastuzumab emtansine), and four FDA-approved nanoparticle-based drug delivery platforms (Abraxane, Doxil (and its related variant, Thermodox), DaunoXome and Marqibo). With respect to these:

brentuximab vedotin, marketed as Adectris by Seattle Genetics and Millennium Pharmaceuticals/Takeda Oncology, is an antibody drug conjugate directed to the protein CD30, and is used to treat lymphoma;

trastuzumab emtansine, marketed as Kadcyla by Genentech Inc., a subsidiary of F. Hoffman-La Roche AG, is an antibody drug conjugate used for the treatment of metastatic breast cancer;

Abraxane, marketed by Celgene Corporation, consists of paclitaxel protein-bound particles for injectable suspension, and is used for treating breast, lung, pancreatic and various other cancers;

Doxil, marketed by Janssen Products, is a doxorubicin HCI liposome injection used for ovarian cancer, Kaposi’s sarcoma (a form of cancer that develops from the cells that line lymph or blood vessels) and multiple myeloma;

ThermoDox, a variant of Doxil, is marketed by Celsion Corporation, is a lyso-thermosensitive liposomal doxorubicin, and is used for treating breast and liver cancer. A variant of ThermoDox, called DaunoXome, marketed by Galen Pharmaceuticals, is a liposomal daunorubicin, and is used to treat Karposi’s sarcoma;

Marquibo, marketed by Spectrum Pharmaceuticals, is a liposome-encapsulated vincristine, and is used to treat certain forms of leukemia.

There are also a number of drugs in development for various cancers at Phase I, Phase II and Phase III.

Midatech is pursuing orphan/rare oncology indications using its GNP technology, its Q Sphera sustained release technology, and its nano-inclusion technology, where therapies in development and on the market are limited.

With respect to the products Midatech commercializes in the United States, Gelclair competes with similarly categorized products, as well as a compounded, drug prescription product known as “ Magic Mouthwash, ” which is most often compounded by independent pharmacies. Zuplenz and Soltamox both compete with oral generics in their respective markets. With respect to Oravig, the oral thrush market is currently serviced only by generic products.

Manufacturing

GNP Drug Conjugate Platform

Midatech has a manufacturing facility in Bilbao, Spain. The facility received cGMP certification and it is considered by Midatech to be unique in Europe as a cGMP certified manufacturing facility for solid core inorganic nanoparticles with sufficient capacity for producing clinical trial materials. Midatech established this state-of-the-art manufacturing facility in order to control the production and development of its GNP production. Midatech completed a significant upgrade to the site in September 2014, creating an integrated but separate unit for production of sterile candidate compounds within the GNP manufacturing facility in order to clinically test and evaluate candidate GNP-based cancer vaccines and GNP-chemotherapeutics. The facility extends over 750 square meters and includes a manufacturing suite, quality control laboratories, research laboratories, administrative space and has room for future expansion. The facility also enables Midatech to undertake research and preclinical activities. The facility is located near Bilbao ’ s international airport and a number of educational institutions in the region, from which Midatech benefits by way of post-graduate talent recruitment. The institutions include The Centre for Cooperative Research in Biomaterials in San Sebastian, Spain, which is focused on nanotechnology.

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NanoFacturing

In December 2014, a consortium led by Midatech Espa ñ a, was awarded € 7.9 million (payable in installments) of grant funding from Horizon 2020, the European Union research and innovation program backed by the European Commission aimed at securing Europe ’ s global competitiveness. Of the total amount, € 3.4 million is for the Group directly, with the balance going to consortium partners that will be involved in the scale-up of Midatech ’ s GNP manufacturing capacity . The project for intermediate scale up was assigned to Midatech Pharma España and has been completed. A further scale up to commercial systems was assigned to one of the consortium partners and is on schedule for completion within the overall scope of the project. A consortium of nine partners was selected to receive the funding, including Midatech as lead proposer, for the proposal of “ NanoFacturing-The Development of Medium- and Large-Scale Sustainable Manufacturing Process Platforms for Clinically Compliant Solid Core Nanopharmaceuticals. ” The project had been evaluated by five independent experts and resulted in the consortium being selected to be awarded one of only three grants available out of 18 competing bids.

NanoFacturing is a scalable manufacturing platform to be developed by Midatech to support the wide range of nanopharmaceutical products being developed in Europe. It aims to address the small and medium scale needs of early phase clinical trials and niche applications, while also supporting the development of clinically compliant, sustainable large-scale manufacturing processes capable of taking these products through Phase III trials into commercial manufacture and supply into large potential markets. This larger scale manufacturing system, referred to above is to be made available to potential users across the European Union for development of their own products and is a key deliverable of the Nanofacturing pilot program. Currently at an advanced stage, it is on schedule to be completed by the end of 2018.

The project focuses on, inter alia, (i) creating cGMP pilot lines for up-scaling manufacturing; (ii) taking nanomaterials already successfully produced at proof-of-concept/milligram levels and facilitating their scale-up to kilogram quantities; and (iii) providing large-scale and cGMP production for clinical trials and nanomedicine production. The project will develop a GNP-based drug conjugate delivery system towards commercialization, including inter alia: (i) the synthetic processes, functional specifications and best practices to ensure efficient translation of agents from discovery through to first in man; and (ii) proof-of-concept studies and beyond to Phase III trials and commercialization, according to industrial and regulatory standards.

GNP Production

Midatech ’ s GNPs are manufactured in a proprietary process in which the nanoparticles self-assemble at room temperature. The main manufacturing unit was certified in February 2011 to operate to standards of cGMP and the newly refurbished facility has been licensed for the production of sterile material. The facility houses two “ Class C ” clean rooms appropriate for manufacture of pharmaceutical grade material. The site has capacity for manufacturing enough material for clinical trials. The process is engineered to be easily scalable and so capacity can be expanded quickly if needed for larger trials and potential subsequent sales. The manufacturing facility gives Midatech complete control over GNP quality and supply. In addition to quality control issues, in-house development of manufacturing capabilities adds additional value to Midatech through revenue gained from retaining manufacturing rights. Midatech believes that other early stage nanotechnology companies outsource manufacturing to partners due to the complexity and relatively high cost involved with setting up a manufacturing operation. Midatech believes that although outsourcing lowers up-front investment, it gives away control over manufacturing, which can frequently lead to quality issues and supply constraints, especially when production needs to be scaled up.

While the manufacture of nanoparticles at Midatech Espa ñ a uses proprietary technology, the raw materials used for this manufacture are principally readily available chemical raw materials, which can be obtained from a number of standard suppliers. As routine practice, Midatech Espa ñ a uses two independent supply companies which are effectively interchangeable in order to mitigate the risk of failure in the supply chain. Specific ligand compounds are routinely supplied by a validated company in Spain under a Quality Agreement, but other companies in the United Kingdom have been used to synthesize these components on occasion, to ensure low risk of supply failure. Midatech Espa ñ a can also manufacture these components in house if necessary.

Manufacture of Sterile Injectables for Human Studies

In order to be in a position to clinically test and evaluate candidate GNP-based cancer vaccines and GNP-chemotherapeutics, which are administered by intravenous injection, clinical candidate compounds have to be produced under sterile conditions. To that end, Midatech completed a major upgrade of its infrastructure by integrating a separated sterile production unit within the cGMP manufacturing containment area. The Spanish regulatory authority has granted the required licenses for European compliance.

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Sustained Release Platform

Following the expansion of the Bilbao, Spain facility during 2016, manufacturing of cGMP grade materials within Midatech ’ s sustained release platform is now undertaken in-house. The sustained release part of the facility was inspected by the Spanish Agency of Medicines and Medical Devices (AEMPS) in December 2016. In 2018, the first sustained release product, Q-Octreotide, was produced at the Bilbao facility for use in the forthcoming pivotal regulatory program which commenced in 2018. The Spanish regulatory authority has granted the required licenses for European compliance.

Nano-Inclusion Technology Platform

Bulk manufacturing of Midatech’s NI products is done in-house at its Bilbao facility under aseptic cGMP conditions, following which it is sent to selected CMO partners for final fill and finish, and lyophilisation. Stability and thus storage of the final product is several years.

Environmental Matters

Midatech may from time to time be subject to various environmental, health and safety laws and regulations, including those governing air emissions, water and wastewater discharges, noise emissions, the use, management and disposal of hazardous, radioactive and biological materials and wastes and the cleanup of contaminated sites. Midatech believes that its business, operations and facilities are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. Based on information currently available to Midatech, it does not expect environmental costs and contingencies to have a material adverse effect on it. The operation of its manufacturing facility, however, entails risks in these areas. Significant expenditures could be required in the future if these facilities are required to comply with new or more stringent environmental or health and safety laws, regulations or requirements.

Seasonality

Midatech’s business does not generally reflect any significant degree of seasonality; however, sales of our commercial products have been historically lower in our second fiscal quarter as compared to our other fiscal quarters, which management believes reflects insurer and wholesaler year-end and budget cycles.

C.	Organizational Structure

Midatech is organized under the laws of England and Wales. Midatech has three wholly owned subsidiaries, as well as several indirectly owned subsidiaries and joint ventures. The following table sets forth a description of the Group.

Subsidiaries	Country of Incorporation	Voting Interest
Subsidiaries of Midatech Pharma PLC
Midatech Pharma (Wales) Limited	England and Wales	100%
Midatech Limited	England and Wales	100%
Midatech Pharma US Inc.	United States (Delaware)	100%
Midatech Pharma Pty Limited	Australia	100%
Joint Ventures with Midatech Limited
MidaSol Therapeutics GP (1)(3)	Cayman Islands	50%
Syntara LLC (2)(3)	United States (Delaware)	50%
Subsidiaries of Midatech Limited
Midatech Pharma Espa ñ a SL	Spain	100%
Pharmida AG (3)	Switzerland	100%
Subsidiaries of Midatech Pharma US Inc.
DARA Therapeutics, Inc.	United States (North Carolina)	100%

_____________

(1)	Joint venture between Midatech Limited and Aquestive Therapeutics, formerly known as MonoSol.

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(2)

Joint venture between Midatech Limited and Immunotope Inc. The percentage ownership of the entity is determined by reference to the partnership agreement and varies from time to time depending on capital committed. While 50% is the economic interest, Midatech Limited can currently direct 49% of the voting rights.

(3)	Dormant entities.

D.	Property, Plant and Equipment

Midatech ’ s headquarters, which houses its corporate offices, is located in Oxfordshire, United Kingdom. Midatech leases approximately 543 square meters (approximately 1,782 square feet) in this facility. Midatech ’ s lease for this space expires in February 2020.

Midatech also leases approximately 513 square meters (approximately 5,524 square feet) of a manufacturing facility in Bilbao, Spain, which lease expires in March 2021, and approximately 265 square meters (approximately 2,854 square feet) for a sustainable release research laboratory in Cardiff, Wales, which lease expires in April 2020. Midatech’s manufacturing facility is subject to extensive environmental, health and safety laws and regulations governing, among other things, the use, storage, registration, handling, emission and disposal of chemicals, waste materials and sewage; chemicals, air, water and ground contamination; air emissions and the cleanup of contaminated sites, including any contamination that results from spills due to Midatech’s failure to properly dispose of chemicals, waste materials and sewage.

As a result of acquiring DARA, Midatech acquired a lease for 7,250 square feet (approximately 2,210 square meters) of office space in Raleigh, North Carolina. The lease expired on March 31, 2018. Subsequently, Midatech entered into an Office Service Agreement (the “Office Service Agreement”) with Regus Management Group, LLC for space located at 8601 Six Forks Rd., Suite 400, Raleigh, North Carolina. The Office Service Agreement calls for rent in the amount of $1,892 per month and expires on September 30, 2018.

Midatech believes that its facilities are sufficient to meet its current needs and that suitable additional space will be available as and when needed.

ITEM 4A.

UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

A.	Operating Results.

This section begins with an overview of the principal factors and trends affecting Midatech ’ s results of operations. The overview is followed by a discussion of the components of Midatech ’ s income statement and Midatech ’ s critical accounting policies and estimates that it believes are important to understanding the assumptions and judgments reflected in its reported financial results. Midatech then presents an analysis of its results of operations for the last three fiscal years. Midatech does not report in segments.

The following discussion should be read in conjunction with Midatech ’ s consolidated financial statements included in Item 18 of this annual report and “ Item 3.D - Key Information - Risk Factors . ” Midatech ’ s financial statements and the financial information discussed below have been prepared in accordance with IFRS.

Principal Factors Affecting Results of Operations

Midatech considers the currency exchange rate between the British pound sterling, Euros and the United States dollar and certain other factors affecting the comparability of results of operations between periods as those most likely to influence its financial condition and results of operations.

Currency Exchange Rate

Midatech reports its financial results in British pounds sterling and its cash reserves are also largely denominated in British pounds sterling; however, costs from its Spanish operation are denominated in Euros and revenues and costs from its United States operations are denominated in United States dollars, which subjects Midatech to currency exchange risks. A strong Euro or United States dollar against the British pound sterling would result in these Euros or United States dollars denominated costs needing a greater amount of cash to settle the cost.

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During the periods set forth in the Midatech financial statements, included elsewhere in this annual report, and in particular during 2016 and 2017, there has been considerable volatility in the British pound sterling against the Euro and the United States dollar. The Euro started 2016 close to an historic low but significantly strengthened during that year, particularly following the Brexit vote in June 2016, resulting in higher British pound sterling equivalent costs being charged to the consolidated financial statements. Similarly, the British pound depreciated significantly against the United States dollar reaching an historic low in 2016 following the Brexit vote, again resulting in higher British pound sterling equivalent costs being charged to the consolidated financial statements, however, it also resulted in higher revenue being recorded in the income statement. During 2017, volatility in the British pound sterling was still significant as currency markets fluctuated over the prospect of the United Kingdom and European Union reaching a deal over Brexit. While expectations for 2018 are for a more stable British pound sterling, no assurances can be given. At this time, Midatech does not consider the exposure sufficient to utilize derivatives to manage the forward exchange risk. Certain other costs are denominated in other currencies; however, these are not considered material.

Acquisition Transactions

On December 4, 2015, Midatech acquired Midatech US (formerly known as DARA). Operating results for Midatech US are only included in Midatech ’ s operating results for less than one month in fiscal 2015. Accordingly, the results for fiscal 2015 are not directly comparable to the results for fiscal 2016 and 2017.

Components of Income Statement Items

Revenue

Revenue from the sales of goods by Midatech US is recognized when the significant risks and rewards of ownership are transferred to the buyer and it is probable the previously agreed upon payment will be received. These criteria are considered to be met when the goods are delivered to the buyer.

Sales to wholesalers provide for selling prices that are fixed on the date of sale, although Midatech US offers certain allowances to group purchasing organizations and governmental programs. The wholesalers take title to the product, bear the risk and rewards and have ownership of the inventory. The Group has sufficient experience with their material wholesaler distribution channel to estimate product returns from its wholesalers while the wholesalers are still holding inventory.

We recognize sales allowances as a reduction of revenues in the same period the related revenue is recognized. Sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with wholesale distributors and the levels of inventory within the distribution channels that may result in future discounts taken. We must make significant judgments in determining these allowances. If actual results differ from our estimates, we will be required to make adjustments to these allowances in the future, which could have an effect on revenue in the period of adjustment. The following briefly describes the nature of each provision and how such provisions are estimated:

Payment discounts are reductions to invoiced amounts offered to customers for payment within a specified period and are estimated upon shipment utilizing historical customer payment experience.

The returns provision is based on management's experience of returns by product and is booked as a percentage of product sales recognized during the period. These recognized sales include shipments that have occurred out of wholesalers as well as direct shipments made by us to other third-party purchasers. Actual returns by products inform the assumptions used to calculate future returns provisions and related reserves are adjusted accordingly. The returns reserve is recorded as a reduction of revenue in the same period the related product sales revenue is recognized and is included in accrued expenses.

Generally, credits may be issued to wholesalers for decreases that are made to selling prices for the value of inventory that is owned by the wholesaler at the date of the price reduction. Price adjustment credits are estimated at the time the price reduction occurs and the amount is calculated based on the level of the wholesaler inventory at the time of the reduction.

There are arrangements with certain parties establishing prices for products for which the parties independently select a wholesaler from which to purchase. Such parties are referred to as indirect customers. A chargeback represents the difference between the sales invoice price to the wholesaler and the indirect customer's contract price, which is lower. Provisions for estimating chargebacks are calculated primarily using historical chargeback experience, contract pricing and sales information provided by wholesalers and chains, among other factors. We recognize chargebacks in the same period the related revenue is recognized.

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The Group ’ s income streams also include milestone income from research and development contracts and the sale of goods. Milestone income is recognized as revenue in the accounting period in which the milestones are achieved. Milestones are agreed on a project by project basis and will be evidenced by set deliverables.

Operating Expenses

Midatech classifies its operating expenses into three categories: (i) research and development, (ii) distribution costs, sales and marketing and (iii) administrative costs. These categories correspond to different functional areas within Midatech.

Midatech ’ s operating expenses primarily consist of personnel costs, contract research and development costs, professional service fees and depreciation. Personnel costs for each category of operating expenses include salaries, bonuses, social security, health insurance, other employee benefits and share-based compensation for personnel in that category. Midatech allocates share-based compensation expense resulting from the amortization of the fair value of options. Central overheads, such as rent, computer and other technology costs, are not allocated out to departments.

Reclassification of 2016 and 2015 comparative operating costs. As the nature of the operations of the Group have changed over the last two years, management has reviewed how costs are presented on the income statement. In order to give a clearer and more meaningful picture of activity within the business, certain costs, previously shown within administrative costs, were reallocated to either research and development costs, or distribution costs, sales and marketing. Comparative figures for 2016 and 2015 were reclassified using the same allocation basis as the 2017 results.

	2016 reclassified		2016 original		2015 reclassified		2015 original
		£’000		£’000		£’000		£’000

Research and development costs		7,796		6,684		8,710		5,920
Distribution costs, sales and marketing		12,510		9,523		605		374
Administrative costs		5,123		9,222		4,908		7,929
		25,429		25,429		14,223		14,223

Research and Development Costs . Research and development costs consist of costs that are directly attributable to Midatech’s research and development programs associated with the products described above, including the cost of operating the Spanish manufacturing facility, which produces material exclusively for preclinical and clinical studies. This includes costs of third party CROs, research specialist professional services providers, chemicals and other consumables used in the research and manufacturing process, depreciation of assets related to the research and development function, and payroll costs of staff directly assigned to the research and manufacturing operations.

Distribution Costs, Sales and Marketing . This category includes all costs directly associated with the commercial sales operation of the United States sales and marketing operation, including staff costs of sales personnel including sales management and marketing costs associated with the commercial business. Distribution costs, sales and marketing also includes depreciation of assets related to the commercial sales operation and amortization of intangible assets such as product and marketing rights.

Administrative Costs . All other costs are classified as administrative costs. These primarily consist of personnel costs for our executive, finance, corporate development and administrative personnel, as well as legal, accounting and other professional service fees, other corporate expenses, merger and acquisition costs and initial public offering costs that are charged to the consolidated statement of comprehensive income. Administrative costs also include depreciation of administrative assets.

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Impairment of intangible assets. In 2017 and 2016, the charge arising from impairment of intangible assets is shown separately on the face of the income statement. There was no impairment charge in 2015.

Finance Income

Finance income includes all interest receivable on cash deposits. In 2017, 2016 and 2015, finance income also included a gain on an equity settled derivative financial liability. The Group assumed fully vested warrants and share options on the acquisition of DARA. The number of Ordinary Shares to be issued when exercised is fixed, however the exercise prices are denominated in United States Dollars, which is different from the functional currency of the parent company. Therefore, the warrants and share options are classified as equity settled derivative financial liabilities in the consolidated statement of financial position with any gains or losses being recognized through finance income or finance expense in the consolidated statement of comprehensive income.

Finance Expense

Finance expenses include all interest payable on borrowings and loan instruments, and related arrangement fees.

Taxation

Taxation represents tax credits receivable by Group companies in respect of qualifying research and development costs incurred.

Critical Accounting Estimates and Judgments

The preparation of Midatech ’ s consolidated financial statements requires Midatech to make estimates, assumptions and judgments that can have a significant impact on the reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities, at the respective dates of its financial statements. Midatech bases its estimates, assumptions and judgments on historical experience and various other factors that it believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management evaluates estimates, assumptions and judgments on a regular basis and makes changes accordingly, and discusses critical accounting estimates with the Board of Directors.

The following are considered to be critical accounting policies because they are important to the portrayal of the financial condition or results of operations of the group and they require critical management estimates and judgments about matters that are uncertain.

Business Combinations

Midatech determines and allocates the purchase price of an acquired business to the assets acquired and liabilities assumed as of the business combination date. The purchase price allocation process requires the use of significant estimates and assumptions, including the estimated fair value of the acquired intangible assets.

While Midatech uses its best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the date of acquisition, estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimates in valuing certain of the intangible assets the Midatech Group have acquired or may acquire in the future include but are not limited to:

future expected cash flows from in-process research and development;

the fair value of the property, plant and equipment; and

discount rates.

Judgement has also been applied in the distinction of an asset purchase and business combination with regard to the Zuplenz acquisition. Judgement was applied in assessing the inputs, processes and outputs relevant to the acquisition to arrive at the conclusion that the treatment should be a business combination.

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Impairment of Goodwill and Intangible Assets

Goodwill and intangibles not yet ready for use are tested for impairment at the cash generating unit level on an annual basis at the year end and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a cash generating unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit - Intangible assets available for use are also tested if an event occurs or circumstances change that would more likely than not reduce the fair value of the asset below its carrying value.

Application of the goodwill impairment test requires judgment, including the identification of cash generating units, assignment of assets and liabilities to such units, assignment of goodwill to such units and determination of the fair value of a unit and for intangible assets not yet ready for use the fair value of the asset. The fair value of each cash generating unit or asset is estimated using the income approach, on a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the business, estimation of the useful life over which cash flows will occur and determination of our weighted-average cost of capital. The carrying value of Midatech ’ s goodwill was £13.4 million, £ 14.5 million and £ 12.5 million as of December 31, 2017, 2016 and 2015, respectively, and intangibles not yet ready for use was £ 10.1 million, £ 10.8 million and £ 10.8 million as of December 31, 2017, 2016 and 2015, respectively. In addition, Midatech had intangibles relating to product and marketing rights of £4.1 million, £ 5.9 million and £ 18.1 million as of December 31, 2017, 2016, and 2015, respectively.

The estimates used to calculate the fair value of a cash generating unit change from year to year based on operating results and market conditions. Changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment for each such unit. Based on the analysis performed, there was an impairment as of December 31, 2017, for in-process research and development, relating to Midatech’s decision to suspend development of the Opsisporin program, as it is outside of the Group’s current strategic focus. Further, as previously disclosed, there was also an impairment as of December 31, 2016, for marketing and product rights intangible of £ 11.4 million, caused by poor sales performance of the Oravig product. The market in which this product is sold is heavily genericized and Oravig has struggled to gain significant market share. Associated with this impairment was the release of a deferred tax asset offsetting the impairment charge. See Note 13 to Midatech ’ s consolidated financial statements for the year ended December 31, 2017 for more information. There was no impairment to any of the intangible assets for the year ended December 31, 2015. There was no impairment to goodwill for the years ended December 31, 2017, 2016 or 2015.

Share-Based Payments

Midatech accounts for share-based payment transactions for employees in accordance with IFRS 2, Share- Based Payment , which requires it to measure the cost of employee services received in exchange for the options on Midatech ’ s ordinary shares, based on the fair value of the award on the grant date. Midatech selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of its share-based awards without market conditions. For performance-based options that include vesting conditions relating to the market performance of its ordinary shares, a Monte Carlo pricing model was used in order to reflect the valuation impact of price hurdles that have to be met as conditions to vesting.

The resulting cost of an equity incentive award is recognized as expense over the requisite service period of the award, which is usually the vesting period. Compensation expense is recognized over the vesting period using the straight-line method and classified in the consolidated statements of comprehensive income.

The assumptions used for estimating fair value for share-based payment transactions are disclosed in Note 28 to Midatech ’ s consolidated financial statements for the year ended December 31, 2017 and are estimated as follows:

volatility is estimated based on the average annualized volatility of a number of publicly traded peer companies in the biotech sector;

the estimated life of the option is estimated to be until the first exercise period, which is typically the month after the option vests; and

the dividend return is estimated by reference to our historical dividend payments. Currently, this is estimated to be zero as no dividend has been paid in the prior periods.

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Income Taxes

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

In 2017 there were £38.4 million of gross unutilized tax losses carried forward compared to £27.0 million in 2016 and £23.3 million in 2015. Deferred tax assets of £2.6 million, £3.7 million and £1.6 million as at December 31, 2017, 2016 and 2015 respectively have been recognized because they qualify for offset against the deferred tax liabilities arising on the acquisitions of Midatech Wales and Midatech Pharma US. The remaining potential deferred tax asset of £9.5 million and £8.1 million as at December 31, 2017 and 2016 respectively, has not been provided in these accounts due to uncertainty as to the whether the asset would be recovered.

Intangible Asset Recognition

Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical and preclinical activities, drug development and manufacturing costs, and third-party service fees, including for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are periodically recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses.

Recently Issued and Adopted Accounting Pronouncements

New Standards and Interpretations Not Yet Adopted

A number of new standards, amendments to standards, and interpretations are not effective for 2017, and therefore have not been applied in preparing Midatech ’ s financial statements.

IFRS 9 Financial Instruments. In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted.

IFRS 9 requires the Group to record expected credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group expects to apply the simplified approach and record lifetime expected losses on all trade receivables.

The Group has adopted the new standard on the required effective date. The Company expects no significant impact on its statement of financial position and equity.

IFRS 15 Revenue from Contracts with Customers. IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS 15 amends revenue recognition requirements and establishes principles for reporting information the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customer. The standard replaces IAS 18 Revenue and IAS 11 Construction Contracts and Related Interpretations.

The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, 2018. The Group plans to adopt IFRS 15 using a modified retrospective approach on January 1, 2018.

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The Group has performed an assessment of the impact of IFRS 15 and has concluded that:

The Group’s “Revenue” is largely derived from the sale of pharmaceutical products and services, where control transfers to customers and performance obligations are satisfied at the time of shipment to receipt of the products by the customer or when the services are performed. There is no expectation for IFRS 15 to significantly change the timing or amount of revenue recognized under these arrangements; and

Grant Revenue is outside the scope of IFRS 15.

As noted above, the Group will implement the new standard as of January 1, 2018 and will apply the modified retrospective method, which requires the recognition of the cumulative effect of initially applying IFRS 15 as at January 1, 2018, to retained earnings and not restate prior years. However, since the results of the Group’s impact assessment indicates that IFRS 15 is not expected to significantly change the amount or timing of revenue recognition in 2017 or prior periods, an insignificant cumulative adjustment to increase retained earnings will be made.

IFRS 16 Leases. IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of ‘ low-value ’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

IFRS 16 is effective for annual periods beginning on or after January 1, 2019, subject to endorsement by the European Union. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard ’ s transition provisions permit certain reliefs.

During 2017 the Group assessed the potential effect of IFRS 16 on its consolidated financial statements. Refer to Note 26 to Midatech ’ s consolidated financial statements for the year ended December 31, 2017 for further information.

The current undiscounted operating lease commitments of £848,000 as of December, 31 2017, provide, subject to the provision of the standard, an indicator of the impact of the implementation of IFRS 16 on the Group’s consolidated balance sheet.

Upon adoption of the new standard, a portion of the annual operating lease costs, which is currently fully recognized as a functional expense, will be recorded as interest expense. In addition, the portion of the annual lease payments recognized in the cash flow statement as a reduction of the lease liability will be recognized as an outflow from operating activities. Given the leases involved and assuming the current low interest rate environment continues, the Group does not currently expect these effects to be significant.

The other standards, interpretations and amendments issued by the IASB but not yet effective are not expected to have a material impact on the Group’s consolidated financial statements.

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Results of Operations

Year Ended December 31, 2017 Compared to Year Ended December 31, 2016

The following table summarizes Midatech ’ s consolidated results of operations for the years ended December 31, 2017 and 2016:

	Year Ended December 31,
	2017			2016
	(£ in thousands)

Revenue		6,758			6,376
Grant revenue		840			547
Total revenue		7,598			6,923
Cost of Sales		(926	)		(667	)
Gross Profit		6,672			6,256
Research and development costs (2016 reclassified)		(10,185	)		(7,796	)
Distribution costs, sales and marketing (2016 reclassified)		(9,417	)		(12,510	)
Administrative costs (2016 reclassified)		(3,148	)		(5,123	)
Impairment of intangible assets		(1,500	)		(11,413	)
Loss from operations		(17,578	)		(30,586	)
Finance income		415			1,337
Finance expense		(166	)		(73	)
Loss before tax		(17,329	)		(29,322	)
Taxation		1,265			9,160
Loss for the year attributable to the owners of the parent		(16,064	)		(20,162	)

Revenue . For the year ended December 31, 2017, Midatech generated consolidated Revenues of £ 6.76 million, as compared to £ 6.38 million in 2016, an increase of 6%.

The increase in revenue for 2017 was due to continued growth in US product sales across the portfolio, as net sales from products for the year were up 18% to £6.61 million from £5.60 million in 2016.

Cost of sales . For the year ended December 31, 2017, cost of sales increased 39% to £ 0.93 million from £ 0.67 million in 2016. Cost of sales comprises the purchase of stock for resale and royalty payments to third parties.

Research and Development Costs . Midatech incurred research and development costs of £ 10.19 million in 2017, as opposed to £7.80 million (reclassified) in 2016, an increase of 31%, primarily due to higher levels of development activity associated with the three lead programs, MTD201, MTX110 and MTD119.

Distribution costs, sales and marketing . Costs of £ 9.42 million incurred in the year ended December 31, 2017, compared to £12.51 million (reclassified) in 2016, a decrease of 25%. This reflects a reduction in the amortization of product and marketing rights with £1.57 million charged in 2017 compared to £ 3.58 million in 2016.

Administrative costs . For the year ended December 31, 2017, Midatech ’ s administrative costs were £ 3.15 million, as opposed to £5.12 million (reclassified) in 2016, a decrease of 38%, primarily as a result of no bonus payments being made during 2017, and lower Board costs.

Impairment of intangible assets . A charge of £1 .50 million arose in the year ended December 31, 2017 due to the impairment of the Opsisporin in-process research and development intangible asset. Revenue forecasts associated with this asset were reduced following an extensive search for a development partner and a consequent decision to suspend development of the product as it is outside of the Group’s current strategic focus. A charge of £11.41 million arose in the year ended December 31, 2016 due to the impairment of the Oravig marketing and product rights intangible asset, caused by poor sales performance as the product struggled to gain significant market share in a heavily genericized market.

Finance Income . Overall, finance income of £ 0.42 million was credited to the income statement in 2017 compared to £ 1.34 million in 2016, a reduction of £0.92 million. Included within finance income for 2017 was a gain of £0.40 million arising on the revaluation of an equity settled derivative financial liability compared to a gain of £ 1.17 million in 2016. The liability represents the fair value of consideration for former DARA share options and warrants assumed by Midatech and is largely a function of the Midatech share price. The reduction in the value in 2017 and 2016 was due to a number of options and warrants lapsing during the year and also due to the reduction in the share price between the start of the year and the year end. The balance of finance income in 2017 and 2016 and for all prior years related to interest received on bank deposits.

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Finance Expense . Finance expenses of £ 0.17 million were charged in 2017, as compared to £ 0.07 million in 2016, an increase of £0.10 million. The increase is due to loan interest and arrangement fees relating to the MidCap Credit Agreement being charged in 2017 as well as increased interest charged on government loan notes in Midatech España. The 2016 charge primarily related to interest on government loan notes in Midatech Espa ñ a.

Taxation . Midatech is a recipient of tax credits from HM Revenue and Customs in respect of certain qualifying research and development expenditures. The research and development tax credit in 2017 was £1.25 million, as compared to £1.94 million in 2016, reflecting a lower level of qualifying activity in 2017 compared to 2016. In addition, deferred tax of £7.25 million was credited to the income statement in 2016 of which £4.6 million was as a result of the impairment charge in respect of Oravig, discussed above and the amortization on the group’s intangible assets.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

The following table summarizes Midatech ’ s consolidated results of operations for the years ended December 31, 2016 and 2015:

	Year Ended December 31,
	2016			2015
	(£ in thousands)

Revenue		6,376			775
Grant revenue		547			600
Total revenue		6,923			1,375
Cost of Sales		(667	)		(70	)
Gross Profit		6,256			1,305
Research and development costs (2016 reclassified)		(7,796	)		(8,710	)
Distribution costs, sales and marketing (2016 reclassified)		(12,510	)		(605	)
Administrative costs (2016 reclassified)		(5,123	)		(4,908	)
Impairment of intangible asset		(11,413	)		-
Loss from operations		(30,586	)		(12,918	)
Finance income		1,337			1,691
Finance expense		(73	)		(5	)
Loss before tax		(29,322	)		(11,232	)
Taxation		9,160			1,133
Loss for the year attributable to the owners of the parent		(20,162	)		(10,099	)

Revenue . For the year ended December 31, 2016, Midatech generated consolidated Revenues of £ 6.38 million, as compared to £ 0.78 million in 2015, an increase of 718%.

The increase in revenue for 2016 was due to the addition of a full year of results for the Midatech US business and continued growth in sales across the product portfolio, as well as revenue generated from research collaborations with third party pharmaceutical and biotech organizations.

Cost of sales . For the year ended December 31, 2016, cost of sales increased 857% to £ 0.67 million from £ 0.07 million in 2015. Cost of sales comprises the purchase of stock for resale and royalty payments to third parties and the increase was broadly in line with the increase in revenue.

Research and Development Costs . Midatech incurred research and development costs of £ 7.80 million in 2016, as opposed to £ 8.71 million in 2015 (reclassified for both years), a decrease of 10%, primarily due to lower staff costs allocated to the research and development programs.

Distribution costs, sales and marketing . Costs of £ 12.51 million were incurred in the year ended December 31, 2016, compared to £ 0.61 million in 2015 (reclassified for both years), an increase of 1,951%. This reflects the consolidation of a full year of the Midatech US business. Included within distribution costs, sales and marketing is amortization of marketing and product rights of £ 3.56 million.

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Administrative costs . For the year ended December 31, 2016, Midatech ’ s administrative costs were £ 5.12 million, as opposed to £ 4.91 million in 2015 (reclassified for both years), an increase of 4%, primarily as a result of the addition of a full year of results for the Midatech US business as well as costs associated with the fund raise during 2016.

Impairment of intangible assets . A charge of £ 11.41 million of this increase was a one-off charge due to the impairment of the Oravig marketing and product rights intangible asset, caused by poor sales performance as the product struggled to gain significant market share in a heavily genericized market.

Finance Income . Overall, finance income of £ 1.34 million was credited to the income statement in 2016 compared to £ 1.69 million in 2015, a reduction of £ 0.35 million, or 21%. Included within finance income for 2016 was a gain of £ 1.17 million arising on the revaluation of an equity settled derivative financial liability. A gain of £ 1.64 million due to a previous revaluation of this liability was credited to the income statement in 2015. The liability represents the fair value of consideration for former DARA share options and warrants assumed by Midatech and is largely a function of the Midatech share price. The reduction in the value in 2016 was due to a number of options and warrants lapsing during the year and also due to the reduction in the share price between the start of the year and the year end. The balance of finance income in 2016 and for all prior years related to interest received on bank deposits.

Finance Expense . Finance expenses of £ 0.07 million were charged in 2016, as compared to £ 0.005 million in 2015, an increase of £ 0.065 million. The 2016 charge primarily related to interest on government loan notes in Midatech Espa ñ a.

Taxation . Midatech is a recipient of tax credits from Her Majesty’s Revenue and Customs in respect of certain qualifying research and development expenditures. The research and development tax credit in 2016 was £1.94 million, as compared to £1.00 million in 2015, reflecting a higher level of qualifying activity in 2016. In addition, deferred tax of £7.25 million was credited to the income statement in 2016 of which £4.6 million was as a result of the impairment charge in respect of Oravig, discussed above and the amortization on the group’s intangible assets.

B.	Liquidity and Capital Resources.

Overview

The Group has incurred significant net losses and has had negative cash flows from operations during each period from inception through December 31, 2017, and had an accumulated deficit of £ 74.65 million at December 31, 2017. Management expects operating losses and negative cash flows to continue for the foreseeable future. In the event that current cash reserves are found to be insufficient to achieve breakeven, then additional funding will have to be obtained, which may include public or private equity or debt offerings. Additional capital may not be available on reasonable terms, if at all. If Midatech is unable to raise additional capital in sufficient amounts or on terms acceptable to it, it may have to significantly delay, scale back or discontinue the development or commercialization of its product candidates or its acquisition strategy, as well as consider other strategic alternatives. Furthermore, Midatech will continue to assess the market value of certain of the Group’s assets so that non-dilutive funding could be available, if required, to drive long term value for the Group without a reliance on equity funding. If Midatech raises additional funds through the issuance of additional debt or equity securities, it could result in dilution to Midatech ’ s existing stockholders, increased fixed payment obligations and these securities may have rights senior to those of Ordinary Shares (including the Depositary Shares) and could contain covenants that would restrict Midatech ’ s operations and potentially impair its competitiveness, such as limitations on its ability to incur additional debt, limitations on its ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact its ability to conduct its business. Any of these events could significantly harm Midatech ’ s business, financial condition and prospects.

As of December 31, 2017, Midatech has cash and cash equivalents of £ 13.2 million.

Historically, Midatech has financed its operations primarily from the net proceeds of private share placings. In December 2014, Midatech received net proceeds of £ 30.6 million from the issuance and sale of 11,985,019 of its Ordinary Shares in its initial public offering and associated listing on AIM. In October 2016 Midatech received net proceeds of £ 15.6 million from the issuance and sale of 15,157,044 of its Ordinary Shares in a placing and open offer outside of the United States. In September 2017, Midatech received net proceeds of £5.7 million from the issuance and sale of 12,314,679 Ordinary Shares in a placing outside of the United States.

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As discussed above, on December 29, 2017, Midatech entered into the MidCap Credit Facility. Under the terms of the MidCap Credit Facility, Midatech received an initial tranche of $7 million, which Midatech has drawn down on. The loans under the MidCap Facility mature on December 29, 2021.

Additionally, as discussed above, on February 27, 2017, Midatech announced that it had entered into a senior secured £ 6.0 million loan agreement with Silicon Valley Bank (the “SVB Facility ” ). Under the terms of the SVB Facility, Midatech was initially eligible to draw down an £ 2.0 million. Two further conditional tranches of £ 2.0 million each were eligible to become available on achievement of certain clinical development milestones. The loans receivable under the Facility were repayable by June 2020. In connection with its entry into the MidCap Facility, the Company terminated the SVB Facility. The Company never drew down on the Silicon Valley Bank facility.

Until Midatech ’ s acquisition of the rights to Zuplenz and DARA in December 2015, the Group did not have any products in the market and its revenue was derived from ad hoc research collaborations with partner organizations and grant income. The Group has yet to generate a profit and, excluding share issues, cash flows have been consistently negative from the date of incorporation.

Midatech ’ s current commercialization strategy is to grow the Midatech US operations, such that it becomes profitable and cash generative, and can partially support the rest of the Group. Following this, Midatech will target revenue from sales of its own product candidates; however, this is not expected to materialize until approximately 2020, at the earliest. Midatech is subject to all of the risks incident in the development of new biopharmaceutical products, and it may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its business.

Midatech does not believe its existing balances of cash and cash equivalents will be sufficient to satisfy its working capital needs and other liquidity requirements associated with its existing operations over the next 12 months, and believes that additional financing will be required over the next twelve months. The Board of Directors have prepared cash flow forecasts and considered the cash flow requirement for the Group for a period including twelve months from the date of approval of this financial information. These forecasts show that further financing will be required during the course of the next 12 months. This requirement for additional financing in the short term represents a material uncertainty that may cast significant doubt upon the Group’s ability to continue as a going concern.

In addition to utilizing the existing cash reserves, as well as drawing on the Credit Facility, the Company is evaluating a number of near-term funding options available to it. Midatech believes that it will eventually generate sufficient income from product revenue, royalties and license deals to become self-funding. Midatech believes that current cash reserves will assist in its development by:

providing resources to progress research and development on Midatech ’ s target products, including Q-Octreotide, and to further develop its technology platforms;

enhancing Midatech ’ s profile among current and prospective partners, suppliers and customers;

providing the potential to access capital to fund Midatech ’ s future growth and support further any potential expansion plans;

providing a platform for potential further acquisitions of companies, products and intellectual property; and

providing opportunities for Midatech to attract, retain and incentivize high caliber employees.

Midatech ’ s forecast of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the timing of clinical trials. Midatech has based this estimate on assumptions that may prove to be wrong, and it could utilize its available capital resources sooner than it currently expects. If Midatech lacks sufficient capital to expand its operations or otherwise capitalize on its business opportunities, its business, financial condition and results of operations could be materially adversely affected.

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Cash Flows

The following table presents a summary of the primary sources and uses of cash for the years ended December 31, 2017, 2016 and 2015:

	Year ended December 31,
	2017			2016			2015
	(£’s in thousands)
Cash used in operating activities		(12,971	)		(13,086	)		(12,421	)
Cash used in investing activities		(1,470	)		(1,202	)		(1,533	)
Cash provided (used) by financing activities		10,277			15,255			(219	)
Net increase (decrease) in cash and equivalents		4,146			967			(14,173	)

Operating Activities

Cash flows from Operating Activities before Changes in Working Capital . Net cash outflow from operating activities before changes in working capital was £ 12.97 million at December 31, 2017, as opposed to £ 14.62 million during the same period in 2016. This reduced cash outflow of £1.65 million, or 11%, is primarily due to reduced trading losses resulting from higher revenue in the year.

Net cash outflow from operating activities before changes in working capital was £ 14.62 million at December 31, 2016, as opposed to £ 12.18 million during the same period in 2015. This increased cash outflow of £ 2.44 million, or 20%, is primarily a result of the increased expenditures during the period, including the costs of a full year of operations for the Midatech US business.

Cash Used in Operations. Working capital has increased in cash flow terms by £1.44 million for the year ended December 31, 2017, compared to an increase of £0.12 million for 2016. The increase in 2017 largely comprised an increase in US trade receivables.

The following table presents a summary of the cash used in operations for the years ended December 31, 2017, 2016 and 2015.

	Year Ended December 31,
	2017			2016			2015
	(£’s in thousands)
Cash flows from operating activities before changes in working capital		(12,791	)		(14,615	)		(12,176	)
Changes in working capital		(1,437	)		(121	)		(891	)
Cash used in operations		(14,408	)		(14,736	)		(13,067	)

Taxes Received . Research and development tax credits of £ 1.46 million were received in 2017, as opposed to £ 1.65 million in 2016. This related to claims submitted in the prior financial year.

Research and development tax credits of £ 1.65 million were received in 2016, as opposed to £ 0.65 million in 2015. This related to claims submitted in the prior financial year.

Investing Activities

Purchase of property, plant and equipment . Purchase of property, plant and equipment of £ 0.71 million occurred in the year ended December 31, 2017, compared to £ 1.35 million for the same period in 2016. This was largely related to the final costs of the expansion of the manufacturing plant in Spain

Purchase of property, plant and equipment of £ 1.35 million occurred in the year ended December 31, 2016, compared to £ 0.92 million for the same period in 2015. This was largely related to the further expansion of the Group ’ s manufacturing facilities in Bilbao, Spain to enable the manufacture of material based around the Group ’ s sustained release technology costing £ 0.85 million. In addition, £ 0.24 million was spent on the purchase of new equipment for the Group ’ s sustained release development facility in Cardiff, United Kingdom.

Cash Equivalents Acquired with Subsidiary

As part of the DARA acquisition, Midatech acquired $3.45 million in cash (approximately £ 2.29 million) in 2015. There were no such acquisitions in 2016 or 2017.

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Financing Activities

Repayment of Borrowings. In 2017, Midatech repaid borrowings of £ 0.55 million, as opposed to £ 0.24 million in 2016, relating primarily to the repayment of loans received from Spanish governmental agencies.

In 2016, Midatech repaid borrowings of £ 0.24 million, as opposed to £ 0.17 million in 2015, relating to loans received from Spanish governmental agencies used to fund the acquisition of, and initial fit-out of, Midatech ’ s Spanish manufacturing facility.

Loan Finance Raised. As noted above, for the year ended December 31, 2017, the Group entered into the MidCap Credit Agreement, providing the Group with the MidCap Credit Facility, a four-year senior secured $15 million credit facility. The loans under the MidCap Credit Facility are secured by a security interest in all of the borrowers’ assets. Upon entry into the MidCap Credit Agreement, the borrowers received an initial tranche of $7 million (approximately £5.2 million). A second tranche of $3 million will become available to the Group upon the achievement of certain milestones related to MTD 201 and the sale to the lenders of certain warrants to purchase Ordinary Shares. A third tranche of $5 million will become available to the Group upon the approval of MTX110 for testing, manufacturing and commercial sale in the United States by the FDA for the treatment of DIPG and the sale to the lenders of certain warrants to purchase Ordinary Shares. For the years ended December 31, 2016 and 2015, Midatech did not raise any loan finance.

Shares Issued Net of Costs. Midatech raised £ 5.73 million and £ 15.57 million for the years ended December 31, 2017 and 2016, respectively, in cash, largely from two non-public share placings during each year. There were no fundraising activities in 2015.

The first 2017 share placing (the “2017 Placing ” ) was a placing of new Ordinary Shares with existing and new investors, the proceeds of which were used as additional working capital to invest in progressing Midatech’s lead development programs. The second 2017 placing was an open offer to all existing Midatech shareholders (the “2017 Open Offering ” ) who did not participate in the Placing to subscribe for new Ordinary Shares. The 2017 Placing and the 2017 Open Offering raised £6.16 million (before expenses) in the aggregate.

The first 2016 share placing (the “2016 Placing ” ) was a placing of new ordinary shares with existing and new investors, the proceeds of which were used to invest in expanding and advancing Midatech ’ s development pipeline. The second 2016 placing was an open offer to all existing Midatech shareholders (the “2016 Open Offering ” ) who did not participate in the Placing to subscribe for new ordinary shares. The 2016 Placing and the 2016 Open Offering raised £ 16.67 million (before expenses) in the aggregate.

For the year ended December 31, 2017, Midatech issued 12,314,679 Ordinary Shares as part of the 2017 Placing and 2017 Open Offering and 70,000 Ordinary Shares to be purchased by the Midatech Pharma Share Incentive Plan, an employee share incentive trust.

For the year ended December 31, 2016, Midatech issued 15,157,044 Ordinary Shares as part of the 2016 Placing and 2016 Open Offering.

For the year ended December 31, 2015, Midatech issued 5,422,028 Ordinary Shares, primarily related to its acquisition of DARA, which did not result in any net cash inflows.

Cash and Cash Equivalents at Year End

Cash decreased for the year ended December 31, 2017 by £ 4.15 million, compared to an increase of £0.97 million in the corresponding period in 2016. This decrease in 2017 was due to ongoing trading losses only being partially offset by debt and equity fundraising activities during the year. As at December 31, 2017 Midatech had cash and cash equivalents of £ 13.20 million compared to £ 17.61 million as at December 31, 2016.

Cash increased for the year ended December 31, 2016 by £ 0.97 million, compared to a decrease of £ 14.17 million in the corresponding period in 2015. This increase in 2016 was due to cash received in the share issue referred to above being offset by operational cash outflows. As at December 31, 2016 Midatech had cash and cash equivalents of £ 17.61 million compared to £ 16.18 million as at December 31, 2015.

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C.	Research and Development, Patents and Licenses, Etc.

For the years ended December 31, 2017, 2016 and 2015, Midatech ’ s research and development expenses were £ 10.19 million, £7.80 (reclassified) and £8.71 (reclassified), respectively. For more information regarding Midatech ’ s research and development program, see “ Item 4. Information on the Company-B. Business Overview-Research and Development . ”

D.	Trend Information.

Other than as disclosed elsewhere in this annual report, Midatech is not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material adverse effect on its revenues, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E.	Off-Balance Sheet Arrangements.

As of December 31, 2017, Midatech did not have any off-balance sheet arrangements as defined in Item 5.E.2 of Form 20-F.

F.	Tabular Disclosure of Contractual Obligations.

The following table summarizes Midatech ’ s contractual obligations as of December 31, 2017:

	Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(£’s in thousands)
Bank Loans		6,607		479		3,510		2,618		-
Government Research Loans		1,370		311		4,649		363		47
Finance Leases		71		41		30		-		-
Operating Leases		848		457		391		-		-

Total		8,896		1,288		4,580		2,981		47

Long-Term Debt Obligations relates to bank loans secured to fund the purchase of capital equipment used in Midatech ’ s Spanish manufacturing facility.

Capital Lease Obligations are related to a single finance lease for analytical equipment used in Midatech ’ s Spanish manufacturing facility.

Operating Lease Obligations are related to Midatech ’ s premises in the UK, Spain and US.

Government Research Loans relates to five tranches of government loans received by Midatech Pharma Espa ñ a SL for the finance of research, technical innovation and the construction of their laboratory. The loans are term loans which carry sub-market interest rates, and they are repayable over periods through to 2022. The loans carry default interest rates in the event of scheduled repayments not being met. The loans are discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognized.

G.	Safe Harbor

Certain of the statements included in this annual report and the documents incorporated herein by reference may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For Midatech ’ s cautionary statement on the forward-looking statements in this annual report, see “ Cautionary Note Regarding Forward-Looking Statements on page 5 of this annual report.

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ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A.	Directors and Senior Management

The following table sets forth certain information about Midatech ’ s directors and executive officers. The professional address of each of the directors is care of Midatech Pharma PLC, 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire, OX14 4RQ, United Kingdom.

Name	Age at 12/31/2017	Position/Title
Directors:
James Phillips, MB, ChB (3) (4) (6)	55	Chief Executive Officer, Director
Nicholas Robbins-Cherry (3) (4)	48	Chief Financial Officer, Director
Rolf Stahel (2) (3)	73	Non-Executive Chairman of the Board of Directors
John Johnston (1) (3) (4)	59	Non-Executive Director
Michele Luzi (2) (3)	60	Non-Executive Director
Pavlo (Paul) Protopapa (1) (3)	51	Non-Executive Director
Simon Turton, Ph.D. (1) (2) (3)	50	Senior Independent Non-Executive Director
Sijmen (Simon) de Vries, M.D. (2) (3)	58	Non-Executive Director
Executive Officers (5):
Craig Cook, MB, BCH (5)	51	Chief Operating Officer and Chief Medical Officer
David Benharris	53	President, Midatech Pharma US, Inc.

__________________________

(1)	Audit Committee member

(2)	Remuneration Committee member

(3)	Nominations Committee member

(4)	Disclosure Committee member

(5)	Other than directors who are also executive officers.

(6)	Dr. Phillips will resign from his positions with the Company (and its subsidiaries) on May 31, 2018. Dr. Cook will become Chief Executive Officer and a director of Midatech as of June 1, 2018.

A description of the business experience and present position of each director and executive officer is provided below.

Directors

James Phillips, MB, ChB has served as Midatech ’ s Chief Executive Officer (including his service to Midatech ’ s predecessor entity) since May 2013. Dr. Phillips was appointed to Midatech Limited ’ s Board of Directors on May 1, 2013 and has served as a member of Midatech ’ s Board of Directors since September 12, 2014. Since 2009, Dr. Phillips has also served as a consultant to Phillips Pharma Enterprise Ltd. Prior to joining Midatech, Dr. Phillips founded and led Talisker Pharma Ltd., a specialty pharmaceutical company, in 2004 which was acquired by EUSA Pharma Inc. in 2006. Following the acquisition, Dr. Phillips was appointed President of Europe and Senior Vice President, Corporate Development, until its acquisition in 2012 by Jazz Pharmaceuticals. Dr. Phillips initially held senior positions at Johnson & Johnson (NYSE: JNJ) and Novartis International AG (NYSE: NVS), where he was in clinical and business development and was a director of the $1.3 billion arthritis, bone, gastrointestinal, hematology and infectious diseases business unit and a member of the company ’ s Clinical Leadership Team. Prior to that, Dr. Phillips was the interim Chief Executive Officer of Bone Medical Ltd. (ASX: BNE). Dr. Phillips, a physician by training, is currently a non-executive director of Herantis Pharma PLC (NASDAQ First North: HRTIS) and, Insense Ltd, a private company, and, until joining Midatech, was Chairman of the Board of Directors of Prosonix Limited.

Nicholas Robbins-Cherry has served as Midatech ’ s Chief Financial Officer (including his service to Midatech ’ s predecessor entity) since February 2014. Mr. Robbins-Cherry was appointed to Midatech ’ s Board of Directors on September 12, 2014. Prior to joining Midatech, Mr. Robbins-Cherry served as the Financing Director of The Marketing Practice Limited from January 2013 to January 2014. Prior to that, he served in various positions, most recently as the Finance Director, of CACI Limited from February 2008 to January 2013. Mr. Robbins-Cherry is a chartered accountant and has a Master’s of Business Administration and Bachelors of Science in Pharmacology.

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Rolf Stahel has served as Midatech ’ s Non-Executive Chairman of the Board and director (including his service to Midatech ’ s predecessor entity) since March 1, 2014. Since December 2016 Mr. Stahel served as the Non-Executive Chairman and a director of Ampha Limited. Between 2009 and 2016, Mr. Stahel served as the Non-Executive Chairman and a director of Connexios Sciences Pvt. Ltd., and between April 2014 and March 2017 he served as Non-Executive Chairman and a director of Ergomed Group plc (AIM: ERGO). Mr. Stahel is also the sole shareholder and founder of Chesyl Pharma Ltd. from March 1994 to March 2003, Mr. Stahel served as the Chief Executive Officer and a director of Shire Pharmaceuticals Group plc (NASDAQ: SHPG). Prior to that time, Mr. Stahel worked in various positions with Wellcome plc, the predecessor to GlaxoSmithKline plc (NYSE: GSK), for 27 years. Mr. Stahel has previously served as the Non-Executive Chairman of EUSA, Cosmos Pharmaceuticals SpA (SIX: COPN), PowderMed Ltd. and Newron Pharmaceuticals SpA (SWX: NWRN).

John Johnston has served as a non-executive member of Midatech ’ s Board of Director since November 13, 2014. Since December 2014, Mr. Johnston has served as the Non-Executive Chairman of Constellation Healthcare Technologies, Inc. (AIM: CHT). Mr. Johnston served as Managing Director of Institutional Sales at Nomura Code Securities Ltd, a brokerage company, from April 2011 to April 2013. From 2008 to 2011, he served as Director of Sales and Trading at the investment bank Seymour Pierce. In 2003, Mr. Johnston founded Revera Asset Management, where he oversaw an investment trust, a unit trust and a hedge fund, which he ran until 2007. From 2000 to 2003, Mr. Johnston served as Director of Small Companies Technology and Venture Capital Trusts at Legg Mason (NYSE: LM). Prior to that, he served as Head of Small Companies with Murray Johnstone from 1998 to 2000. From 1992 to 1997, Mr. Johnston was Head of Small Companies at Scottish Amicable, before spending a year at Ivory & Sime, again as Head of Small Companies from 1997 to 1998. Mr. Johnston began his investment career at the Royal Bank of Scotland in 1981, working in the Trustee and Investment department, before moving to General Accident in 1985, holding the position of Head of Retail Funds before his move to Scottish Amicable. Mr. Johnston is currently non-executive director of MaxCyte, Inc. (AIM: MXCT), Flowgroup plc and Action Hotels.

Michele Luzi has served as a non-executive member of Midatech ’ s Board of Directors since August 2010 (including his service to Midatech ’ s predecessor entity). Mr. Luzi has served in various capacities since 1990 with Bain & Company, Inc., most recently as a partner. Prior to joining Bain & Company, Mr. Luzi worked in international management positions with Pirelli and also worked in Agusta and with the Italian Trade Commission. Mr. Luzi previously served as director of Bain & Company Global between 2006 and 2009. Mr. Luzi also serves on the board of a number of private companies.

Pavlo (Paul) Protopapa has served as a non-executive member of Midatech ’ s Board of Director since December 2013 (including his service to Midatech ’ s predecessor entity). Mr. Protopapa is the founder and Managing Partner of Ippon Capital, a private equity company based in Geneva, Switzerland. Mr. Protopapa founded Ippon Capital in 2013. Since 2013, Mr. Protopapa has served as the Chairman and Chief Executive Officer of Spacecode Holdings, a technology provider in healthcare and luxury goods, which he co-founded in 2005 with Dr. Cook. Prior to that, Mr. Protopapa served as Chief Financial Officer of the Steinmetz Diamond Group from 1997 to 2012. Mr. Protopapa also previously served as a director of Socure Inc., a SaaS-based internet security company.

Simon Turton, Ph.D . has served as a non-executive member of Midatech ’ s Board of Director since December 2014. Dr. Turton served as Chairman of Q Chip and OpsiRx Pharmaceuticals from March 2014 until their acquisition by Midatech in December 2014. Since January 2015, he has served as the Managing Director of Gensmile Limited. In 2002, Dr. Turton joined Warburg Pincus ’ , most recently as head of healthcare investing activities in Europe, until June 2011. Dr. Turton has previously served on the board of Archimedes Pharma, Eurand, ProStrakan Group plc and Tornier, Inc. (NASDAQ: TRNX). Dr. Turton has a Master’s of Business Administration from INSEAD and a Ph.D. in pharmacy from the University of London.

Sijmen (Simon) de Vries, M.D . has served as a non-executive member of Midatech ’ s Board of Director since October 2004 (including his service to Midatech ’ s predecessor entity). Since November 2008, Dr. de Vries has served as of the Chief Executive Officer of Pharming Group NV (Euronext: PHARM). Prior to that, Dr. de Vries served as Chief Executive Officer of 4-Antibody and Morphochem AG. Prior to this he worked at Novartis Pharma, Novartis Ophthalmics and at SmithKline Beecham Pharmaceuticals Plc, where he held senior business and commercial positions. Dr. de Vries holds an M.D. degree from the University of Amsterdam and a Masters of Business Administration in General Management from Ashridge Management College (UK).

Executive Officers

Craig Cook, MB, BCH has served as Midatech ’ s Chief Operating Officer and Chief Medical Officer (including Midatech ’ s predecessor entity) since January 2014. Prior to this, from May 2005 to December 2013, Dr. Cook served as Chief Executive Officer of Spacecode Technologies, which he co-founded in 2005 with Mr. Protopapa. In addition, from November 2011 to May 2014, he served as a partner at Sedation Solutions. Dr. Cook has previously held positions at Eli Lilly and Company (NYSE: LLY), Novartis International AG (NYSE: NVS), Johnson and Johnson (NYSE: JNJ) and Serono Biotech. He is also a founder of Swisscare Health residential care group in the United Kingdom. Dr. Cook was also a lead advisor for Ippon Capital SA ’ s life sciences practice. Dr. Cook is a qualified physician and has a Bachelor’s of Science in pharmacology, a diploma in anesthesiology and a Masters of Business Administration.

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David Benharris has served as the President of Midatech US since January 2016. Prior to that, he served as DARA ’ s Senior Vice President, Commercial and Business Operations from March 2015 to December 2015, and prior to that served as DARA ’ s Vice President, Marketing and Business Development from January 2012 to February 2015. Before joining DARA, Mr. Benharris was a Business Director with EMD Serono, Inc. from August 2009 to January 2012.

For the biographical information of Dr. James Phillips, Midatech ’ s Chief Executive Officer, and Nicholas Robbins-Cherry, Midatech ’ s Chief Financial Officer, see “ Item 6.A. Directors and Senior Management-Directors ” beginning on page 99.

B.	Compensation

The following section reports the remuneration to Midatech ’ s Board of Directors and describes its compensation policies and actual compensation for its executive officers as well as our use of equity incentives.

As part of a broader commitment to reduce costs across the business during 2017, the Board of Directors unanimously agreed to reduce the base salaries for the executive directors (Dr. Phillips and Mr. Robbins-Cherry) and remuneration for the non-executive directors, effective from October 1, 2017. As result of this, the base salary for the Chief Executive was reduced by 16%, and the base salaries for the Chief Financial Officer [and Chief Operating Officer] were reduced by 12%. The remuneration of the Non-Executive Directors was reduced by 20%. These reductions will be reversed at such time as the Company’s share price returns to a closing price of £1.00.

Compensation of Non-Executive Directors

The non-executive directors of Midatech (consisting of Messrs. Stahel, Johnston, Luzi, Protopapa, Turton and de Vries) receive a fee for their services as a director, which is approved by the Midatech Board of Directors, giving due consideration to the time commitment and responsibilities of their roles and of current market rates for comparable organizations and appointments. Non-executive directors are reimbursed for travelling and other incidental expenses incurred on Midatech business in accordance with the Midatech expenses policy.

The following table summarizes the compensation paid to Midatech ’ s non-employee directors during 2017 (including for any service on any subsidiary of Midatech), and reflects the reduction in non-executive director remuneration noted above.

Name	Fees Earned or Paid in Cash (£)(1)		All Other Compensation (£)		Total (£)
Rolf Stahel		50,000		49,980 (2)		99,980
John Johnston		36,100 (3)		-		36,100
Michele Luzi		36,100 (3)		-		36,100
Pavlo Protopapa		36,100		-		36,100
Simon Turton		36,100 (3)		-		36,100
Sijmen de Vries		36,100		-		36,100

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(1)

Includes annual fees, committee chairpersonship fees and meeting fees.

(2)

Includes fees paid to Mr. Stahel in connection with a consultancy agreement with Chesyl Pharma Limited, a company wholly owned by Mr. Stahel.

(3)

A portion of the compensation paid to each of Messrs. Johnston, Luzi and Turton for their services on the Board are paid to consulting firms owned by each of Mr. Johnston and Mr. Turton, respectively; however, Midatech does not receive any consulting services from Messrs. Johnston or Turton or their respective consulting firms.

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The following table sets forth, as of December 31, 2017, the aggregate number of option awards held by Midatech ’ s current non-executive directors:

Name	Number of Options	Grant Date	Exercise Price per Share (£)	Expiration Date
Michele Luzi (1)	18,796 (2)	4/20/2012	4.19	4/20/2022
Sijmen de Vries	3,000 (2)	12/31/2008	1.425	12/31/2018
	4,000 (2)	4/20/2012	4.19	4/20/2022
	10,000 (3)	6/30/2014	0.075	6/30/2024

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(1)	Stock options held by Mr. Luzi were granted as part of a prior investment in Midatech Limited in 2011 and not for service as a non-executive director.

(2)	The stock options are fully vested.

(3)

The stock options vest in the following installments: (i) 50% of the stock options vest when Midatech ’ s share price is £ 5.31 share, (ii) a further 25% of the stock options vest when Midatech ’ s share price is £ 13.72 a share and (iii) the remaining 25% of the stock options vest when Midatech ’ s share price is £ 18.86 a share.

All stock options were granted with an exercise price at or above market value on the date of grant. The majority of stock options only vest when Midatech ’ s share price achieves certain targets.

Deed of Indemnity

Under a deed poll declared by Midatech on August 5, 2015 (the “ Deed of Indemnity ” ), the Midatech Board of Directors and its Company Secretary are indemnified against costs and liabilities incurred in connection with their office, other than any liability owed by such person to Midatech itself (or any of its associated entities) and other than indemnification for liabilities in certain circumstances, which are prohibited by virtue of the United Kingdom Companies Act 2006. The Deed of Indemnity provides that a director may also be lent sums to finance any relevant defense costs, provided that, in the event such proceedings involve criminal or civil matters in which the person is convicted or has a judgment made against him or her, then such loan must be repaid.

Letters of Appointment

Each non-executive director (other than Mr. Stahel) has been appointed to serve on the Midatech Board of Directors pursuant to a letter of appointment. The initial term of appointment for each director is three years, unless terminated earlier by either party upon one month ’ s prior notice or in accordance with the terms of the letters of appointment. The appointment is subject to Midatech ’ s articles of association, and is subject to confirmation at any annual general meeting of Midatech.

Each director (other than Mr. Stahel) is paid an annual fee of £30,400 (reduced from £ 38,000 with effect from October 1, 2017), which covers all duties, including committee service or service on the board of a Midatech subsidiary, with the exception of committee chairmanships and certain additional responsibilities, such as taking on the role of senior independent director. In addition, Midatech reimburses each director for reasonable and properly documented expenses incurred in performing their duties. Midatech also grants each director a deed of indemnity against certain liabilities that may be incurred as a result of their service, to the extent permitted by the United Kingdom Companies Act 2006.

In addition, without the prior written consent of Midatech, for a period of six months following a director ’ s termination from service, such director will not, whether as a principal or agent and whether alone or jointly with, or as a director, manager, partner, shareholder, employee consultant of, any other person, carry on or be engaged, concerned or interested in any business which is similar to or which is (or intends to be) in competition with any business being carried on by Midatech or any subsidiary, as applicable.

Rolf Stahel Letter of Appointment

Pursuant to a term of appointment dated April 15, 2014, as amended on December 2, 2014 (the “ Stahel Appointment Agreement ” ), Rolf Stahel was appointed non-executive Chairman of Midatech ’ s Board of Directors, with effect from March 1, 2014. The initial term of appointment for Mr. Stahel expired on February 28, 2015 but Mr. Stahel was subsequently re-elected by the directors of Midatech with the current term expiring on April 13, 2018. In addition, his appointment may be terminated:

by either party giving at least three months prior written notice;

by the Midatech Board of Directors reasonably determining that Mr. Stahel ’ s acceptance of any other employment, engagement, appointment, interest or involvement with any business or person competes or conflicts with his appointment and would result in a serious conflict of interest or Mr. Stahel reasonably determines such interest would result in a serious conflict of interest, and Mr. Stahel accepts such employment, engagement, appointment, interest or involvement; or

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in accordance with Midatech ’ s articles of association or applicable law.

Pursuant to the terms of the Stahel Appointment Agreement, Mr. Stahel is paid an annual fee of £40,000 (reduced from £ 50,000 with effect from October 1, 2017). Mr. Stahel is also paid an additional fee of £ 40,000 under a consultancy agreement (reduced from £50,000 with effect from October 1, 2017). Mr. Stahel is entitled to additional payments depending upon the amount of time he devotes to Midatech under the Consultancy Agreement. See “ Item 7.B. Related Party Transactions-Agreement with Chesyl Pharma Limited . ” In addition, in connection with the execution of the Stahel Appointment Agreement, Midatech granted to Mr. Stahel options to acquire shares of Ordinary Shares at a price of 0.075p per share, which he subsequently exercised (all per share and share amounts for Mr. Stahel have been adjusted to account for a two-for-one stock split of Ordinary Shares on November 28, 2014). Mr. Stahel, in accepting the options, agreed to certain restrictions on any disposal and voting rights of such shares. As to 61,221 of such shares held by Mr. Stahel, the restrictions on transfer of those shares ceased to apply on March 1, 2018. As to 244,880 of such shares held by Mr. Stahel, Mr. Stahel is prohibited from disposing of such shares unless and until the Company reaches certain milestones set forth in the Stahel Appointment Letter. Such shares that are subject to disposal restrictions are unable to be voted upon by Mr. Stahel during the periods described above in respect of the amount of such shares which remain under restriction.

In addition, Midatech also is obligated to take out a reasonable directors and officers liability insurance policy, which applies to Mr. Stahel. Midatech also agreed to reimburse Mr. Stahel for reasonable and documented expenses accrued in the course of performing his duties and provide him with up to £ 7,500 in professional advice in connection with performing his duties. The Stahel Appointment Agreement includes provisions related to the non-disclosure of information and assignment of inventions. Among other things, these provisions obligate Mr. Stahel from disclosing any of Midatech ’ s proprietary and confidential information received during the course of employment and to assign to Midatech any inventions conceived or developed during the course of their employment.

In the event Midatech terminates the agreement with Mr. Stahel at any time in accordance with the provisions of the articles of association or applicable laws, Mr. Stahel will have no right to damages or compensation if he:

is found guilty of any misconduct, gross negligence or dishonesty or acts in a manner which is materially adverse to the interests of Midatech;

commits any serious or repeated breach or non-observance of his obligations to Midatech;

becomes bankrupt, has an interim order made against him under the United Kingdom Insolvency Act 1986 or makes any composition or enters into any deed of arrangement with his creditors or the equivalent of any of these under any other jurisdictions;

becomes of unsound mind, becomes a patient under any statute relating to mental health or is unable, due to any accident, illness or injury, to undertake his duties for Midatech for a period of more than six consecutive months;

is convicted of a criminal offense (other than a motoring offense for which a non-custodial penalty is imposed);

is disqualified by law or an order of a court of competent jurisdiction from holding office; or

has failed to submit his resignation as Chairman and as a director of Midatech when required to so pursuant to the terms of the Stahel Appointment Agreement.

In the event Midatech terminates the agreement at any time with immediate effect (other than pursuant to the preceding paragraph), Midatech will pay to Mr. Stahel all fees which are due to him for the following 12 months.

Mr. Stahel may resign from his positions at any time if Midatech (i) is guilty of any gross negligence which affects him or any dishonesty towards or concerning him or (ii) becomes insolvent, makes any composition or enters into any deed of arrangement with its creditors or the equivalent. If Mr. Stahel resigns due to these reasons, Midatech will pay to Mr. Stahel all fees which are due to him for the following 12 months. Further, in the event that Mr. Stahel is unable, due to an accident, illness or injury, to undertake his duties for Midatech in accordance with the terms of the Stahel Appointment Agreement for a period of more than six consecutive months, he may resign at any time without any rights to damages or compensation. Mr. Stahel is also required to resign in connection with the Midatech Board of Directors determination that his acceptance of any other employment, engagement, appointment, interest or involvement with any business or person competes or conflicts with his appointment and would result in a serious conflict of interest or Mr. Stahel reasonably determines such interest would result in a serious conflict of interest, and Mr. Stahel accepts such employment, engagement, appointment, interest or involvement, without any rights to damages or compensation. If Mr. Stahel resigns for any other reason, he must provide 12 months written notice.

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Compensation of Executive Officers

The following table summarizes the compensation paid to Midatech ’ s executive officers during 2017 (including for any service on any subsidiary of Midatech) and reflect the reductions to salary noted above.

Name	Salary (£)	Bonus (1)(£)	All Other Compensation (2)(£)	Total (£)
Dr. James Phillips	299,157	-	10,000	309,157
Chief Executive Officer
Nicholas Robbins-Cherry	177,350	-	11,000	188,350
Chief Financial Officer
All executive officers as a group (4 persons)	887,066	-	41,056	928,122

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(1)

The Service Agreements also include a bonus target for Dr. Phillips and Mr. Robbins-Cherry of 50% and 33%, respectively, of their annual base salary, which bonus is payable upon attainment of objectives as determined in the subjective judgment of Midatech ’ s Board of Directors or a committee thereof, taking into account various factors without any preassigned weighting. For 2017, the executive officers did not receive a bonus.

(2)	The amounts reflect the value of benefits payable pursuant to pension plans.

The following table sets forth, as of December 31, 2017, the aggregate number of option awards held by Midatech ’ s executive officers:

Name	Number of Options			Grant Date	Exercise Price per Share (£)			Expiration Date
James Phillips		400,000	(1)	6/30/2014		0.075		6/30/2024
		200,000	(2)	5/9/2014		0.075		5/1/2023
		250,000	(3)	10/31/2016		2.68		12/2/2025
		490,000	(3)	12/19/2016		1.21		12/7/2026
		400,000	(4)	12/15/2017		0.46		15/12/2027
Nick Robbins-Cherry		60,000	(1)	6/30/2014		0.075		6/30/2024
		125,000	(3)	10/31/2016		2.68		12/2/2025
		168,000	(3)	12/19/2016		1.21		12/7/2026
		202,000	(4)	12/15/2017		0.46		15/12/2027
All executive officers as a group (4 persons)		3,386,000	(1) (5)	(6)		(7	)	(8)

_________

(1)

Stock options held by Messrs. Phillips, Robbins-Cherry and Cook vest in the following installments: (i) 50% of the stock options vest when Midatech ’ s share price is £ 5.31 share, (ii) a further 25% of the stock options vest when Midatech ’ s share price is £ 13.72 a share and (iii) the remaining 25% of the stock options vest when Midatech ’ s share price is £ 18.86 a share. In connection with the acquisition of DARA, stock options issued to Mr. Benharris exercisable for shares of DARA common stock were assumed by Midatech and became exercisable for Ordinary Shares (subject to certain adjustments based upon the exchange ratio for DARA common stock in the merger). All Ordinary Shares issuable upon exercise of such options are to be delivered in the form of Depositary Shares.

(2)	The stock options are fully vested.

(3)	25% of the options vest 12 months after the grant date, followed by vesting of 12 equal quarterly tranches, over a subsequent three-year period.

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(4)	25% of the options are eligible to vest 12 months after the grant date, followed by 12 equal quarterly tranches, over a subsequent three-year period. All vesting subject to the Company’s Ordinary Share price returning to a closing price of £1.00 at any time during the life of the option.

(5)	1,055,250 stock options are fully vested.

(6)	The grant dates range from May 9, 2014 to December 15, 2017.

(7)	The exercise price of the options range from £ 0.075 to £ 2.68.

(8)	The stock options expire between May 1, 2023 and December 15, 2027.

Agreements with Current Executive Officers

James N. Phillips and Nicholas Robbins Cherry Service Agreements . Midatech has entered into a service agreement (collectively, the “ Service Agreements ” ) with each of Dr. James Phillips and Nicholas Robbins-Cherry, each entered into on December 2, 2014. The Service Agreement with Dr. Phillips was effective from May 1, 2013, and for Mr. Robbins-Cherry from February 4, 2014. The Service Agreements provide for base salaries, incentive compensation benefits, and, in certain circumstances, severance benefits. Dr. Phillips ’ Service Agreement may be terminated upon one years ’ prior notice, and Mr. Robbins-Cherry ’ s Service Agreement may be terminated on six months ’ prior notice.

The Service Agreements with each of Dr. Phillips and Mr. Robbins-Cherry provided for initial base salaries of £ 219,085 and £ 125,000, respectively. Dr. Phillips ’ base salary is subject to increase each April 1 by the percentage increase, if any, in the “ All Items Index of Retail Prices ” published by the United Kingdom Office for Nation Statistics over the previous year. The base salaries of each of Dr. Phillips and Mr. Robbins-Cherry are reviewed annually to consider any increase in salary. In the first half of 2017, the salary of Dr. Phillips was increased to £ 292,000 and the salary of Mr. Robbins-Cherry was increased to £ 176,000. As noted above, with effect from October 1, 2017, the salary of Dr. Phillips was decreased to £245,000 and the salary of Mr. Robbins-Cherry was decreased to £155,000 . The Service Agreements also include a bonus target for Dr. Phillips and Mr. Robbins-Cherry of 50% and 33%, respectively, of their annual base salary, which bonus is payable upon attainment of objectives as determined in the subjective judgment of Midatech ’ s Board of Directors or a committee thereof, taking into account various factors without any preassigned weighting. No bonus was paid in respect of the year ended December 31, 2017. In addition to base salary and bonus, the Service Agreements provide for additional benefits, such as a 10% pension contribution, life insurance, medical insurance, vacation benefits and any other additional benefits as determined by the Midatech Board of Directors from time to time.

Pursuant to the terms of the Service Agreements, each executive has also agreed that, for a period of six months following his termination, he will not directly or indirectly compete with Midatech. The Service Agreements include provisions related to the non-disclosure of information and assignment of inventions. Among other things, these provisions prohibit each executive officer from disclosing any of Midatech ’ s proprietary and confidential information received during the course of employment and obligate each executive officer to assign to Midatech any inventions conceived or developed during the course of their employment. The Service Agreements also include confidentiality, non-solicitation, non-poaching and non-disparagement provisions.

The Service Agreements also provide the executive officers with certain payments and/or benefits upon certain terminations of employment. If the executive is terminated due to his inability to perform his duties due to illness or other incapacity for a continuous period of three months, or an aggregate period exceeding 100 working days in any period of 12-months, Midatech may, notwithstanding any other provision of the Service Agreement, terminate the executive ’ s employment upon six months ’ written notice. During that period, the executive will not be entitled to receive his salary or any bonus payment, but will be entitled to any benefits owed under the Service Agreement. Further, notwithstanding any notice requirements for termination set forth in the Service Agreements, Midatech may, at any time and in its absolute discretion, terminate the Service Agreement and provide the executive with a payment in lieu of any required notice. The payment will comprise of the executive ’ s base salary, but will not include any bonus or other benefits, and shall be subject to any tax or insurance deductions. Notwithstanding the foregoing, Midatech may terminate the Service Agreement without notice or payment in lieu thereof if the executive:

is guilty of serious misconduct or any other misconduct which affects, or is likely to affect, prejudicially the interests of Midatech or any of its subsidiaries;

fails or neglects to efficiently and diligently discharge his duties or commits any serious or repeated breach or non-observance of any of the provisions of the Service Agreement or any share dealing code adopted by Midatech or any of its subsidiaries;

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has an interim receiving order made against him, becomes bankrupt or makes any composition or enters into any deed of arrangement with his creditors;

is charged with an arrestable criminal offense (other than a road traffic offense in the United Kingdom or elsewhere for which a fine or non-custodial penalty is imposed);

is disqualified from holding office in any company by reason of an order of a court of competent jurisdiction;

becomes of unsound mind or becomes a patient under any statute relating to mental health;

is convicted of an offense under the United Kingdom ’ s Criminal Justice Act 1993 in relation to insider dealings or under any other present or future statutory enactment or regulations relating to insider dealings;

is in breach of the Model Code on directors ’ dealings in listed securities, including securities trading on AIM, published by the London Stock Exchange; or

commits any other act warranting summary termination at common law including, but not limited to, any act justifying dismissal without notice in the terms of Midatech ’ s generally applicable disciplinary rules.

Settlement Agreement . In connection with Dr. Phillips’ resignation as Midatech’s Chief Executive Officer and a member of the Board of Directors, on March 14th, 2018, Midatech entered into a Settlement Agreement (the “Settlement Agreement”) with him. Pursuant to the terms of the Settlement Agreement, Dr. Phillips’ employment and service on the Group’s Boards of Directors will be terminated effective May 31, 2018 (the “Termination Date”). In consideration for Dr. Phillips’ termination as CEO, the Company also agreed to pay Dr. Phillips a one-time payment of £99,000, plus payment for any accrued but unpaid vacation days. Further, Dr. Phillip may continue to exercise any stock options that have vested as of the Termination Date until the earlier of (i) May 31, 2022 or (ii) the date the relevant options expire in accordance with its terms. Additionally, the Company may pay Dr. Phillips a bonus ranging from £10,000 to £100,000 based on the Company’s achievement of certain strategic targets on or before September 30, 2018. In addition, subject to certain conditions, Midatech and Dr. Phillips may enter into a consultancy agreement, pursuant to which Dr. Phillips would provide Midatech with certain services. Prior to the Termination Date of May 31, 2022, the Company will continue to pay Dr. Phillips his base salary and provide contractual benefits.

Craig Cook. Midatech has entered into a contract of employment (the “ Contract of Employment ” ) with Craig Cook. The Contract of Employment was effective as of July 1, 2014, and provides for Mr. Cook ’ s base salary, incentive compensation benefits, and compensation surrounding a termination of his employment. The Contract of Employment may be terminated by either Dr. Cook or Midatech with six months prior notice.

The Contract of Employment provides for an initial base salary and also includes a bonus target of 33% of Dr. Cook ’ s annual base salary, which bonus is payable upon attainment of objectives as determined in the subjective judgment of Midatech ’ s Board of Directors or a committee thereof, taking into account various factors without any preassigned weighting. In addition to base salary and bonus, the Contract of Employment provides for additional benefits, such as a 10% pension contribution, life insurance, medical insurance, vacation benefits and any other additional benefits as determined by the Midatech Board of Directors from time to time.

Dr. Cook has also agreed that, for a period of six months following his termination, he will not do any work, whether paid or unpaid on his own behalf or for any third party without Midatech ’ s consent. The Contract of Employment includes provisions related to the non-disclosure of information and assignment of inventions. Among other things, these provisions prohibit Dr. Cook from disclosing any of Midatech ’ s proprietary and confidential information received during the course of employment and require Dr. Cook to assign to Midatech any inventions conceived or developed during the course of his employment. The Contract of Employment also includes confidentiality and non-solicitation provisions.

The Contract of Employment provides that Midatech will pay Dr. Cook his normal salary during any notice period prior to termination. Midatech is also permitted to terminate Dr. Cook ’ s employment effective immediately, without notice or payment, if Dr. Cook is found guilty of any fundamental or repudiatory breach of contract or any breach of the disciplinary rules applicable to Dr. Cook.

In connection with Dr. Cook’s promotion to Chief Executive Officer of Midatech effective June 1, 2018, it is anticipated Dr. Cook will enter into an employment agreement commensurate with his new position.

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David Benharris . Midatech has also entered into an Executive Employment Agreement (the “ Employment Agreement ” ) with David Benharris, effective January 1, 2016. Mr. Benharris ’ employment under the Employment Agreement is “ at-will, ” meaning that it may be terminated by either Midatech or Mr. Benharris at any time, for any reason.

The Employment Agreement provides for an initial annual base salary of $280,000 per year, which may be increased from time to time by Midatech ’ s Board of Directors. Under the terms of the Employment Agreement, Mr. Benharris is also eligible for an annual target bonus of 50% of his annual base salary, which may be awarded based on the achievement of personal objectives and company objectives that the Midatech Board of Directors may set from year-to-year. Mr. Benharris is also eligible under the Employment Agreement to receive those benefits provided to other Midatech executives living in the United States and as determined by the Board of Directors. Pursuant to the Employment Agreement, Mr. Benharris is also provided with a company vehicle, which is leased by Midatech.

Mr. Benharris has also agreed that for the term of the Employment Agreement, and for a period following his termination of up to one year, the length of which depends on the circumstances of his termination, he will not directly or indirectly compete with Midatech. The Employment Agreement also contains a provision prohibiting Mr. Benharris from disclosing confidential information during and after his term of employment with Midatech.

Notwithstanding the fact that the Employment Agreement may be terminated by either Midatech or Mr. Benharris at any time, for any reason, the Employment Agreement provides Mr. Benharris with certain payments and benefits upon termination of his employment. If Midatech terminates the Employment Agreement for Cause (as such term is defined in the Employment Agreement), upon Mr. Benharris ’ death or Permanent Disability (as such term is defined in the Employment Agreement), or upon a liquidation or dissolution of Midatech, or if Mr. Benharris terminates his employment without Good Reason (as such term is defined in the Employment Agreement), then Midatech has no obligations to Mr. Benharris, other than to pay any unpaid base salary due to him through the date of such termination. If Mr. Benharris terminates the Employment Agreement for Good Reason or Midatech terminates the Employment Agreement without Cause, Mr. Benharris will be entitled to (i) a payment equal to six months of his then-current base salary and (ii) reimbursement for continued health insurance coverage on the same terms as applied immediately prior to his termination for the shorter of a period of six months or until Mr. Benharris obtains reasonably comparable coverage.

Additionally, in recognition of Mr. Benharris ’ prior employment agreement with DARA, dated January 19, 2015, Midatech agreed that if, prior to January 19, 2018, Mr. Benharris terminated his employment for Good Reason or Midatech terminated his employment in accordance with the terms of the Employment Agreement, Mr. Benharris would have been entitled to the greater of (i) a payment equal to his then-current annual base salary or (ii) a payment equal to the aggregate amount of his then-current annual base salary that would have otherwise been payable over the remaining balance of the term ending on January 19, 2018. Mr. Benharris would also have received reimbursement for continued health insurance coverage on the same terms as applied immediately prior to his termination until January 19, 2018, unless he obtained reasonably comparable coverage prior to that date. Mr. Benharris continues in his employment as of the date hereof and such provisions are no longer applicable.

C.	Board Practices

Board of Directors

Midatech ’ s Board of Directors is currently comprised of eight directors, two of whom are executive directors and six non-executive directors, reflecting a blend of different experience and backgrounds. The roles of Chairman of the Board of Directors (which is a non-executive position) and Chief Executive Officer have been split and there is a clear division of responsibility between the two. With a view towards maintaining the independence of the Board of Directors, no remuneration is paid to either the Chairman or non-executive directors in the form of shares.

Although adherence to the United Kingdom Corporate Governance Code is not compulsory, the Board of Directors apply certain aspects of such code to the extent appropriate to Midatech ’ s size, resources and stage of development.

The Board of Directors is responsible for inter alia , approving interim and annual financial statements, formulating and monitoring Midatech ’ s strategy, approving financial plans and reviewing performance, as well as complying with legal, regulatory and corporate governance matters. There is a schedule of matters reserved for the Board of Directors.

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The Board of Directors meets regularly to consider strategy, performance and the framework of internal controls. To enable the Board of Directors to discharge its duties, all directors receive appropriate and timely information. Briefing papers are distributed to all directors in advance of board meetings.

Board Committees

Midatech has established audit, nomination, remuneration and disclosure committees of the Board of Directors with formally delegated duties and responsibilities. From time to time separate committees may be set up by the Board of Directors to consider specific issues when the need arises.

Audit Committee

The Audit Committee consists of three members: Pavlo Protopapa (Chairman), Simon Turton and John Johnston. The Board of Directors has determined that Messrs. Protopapa, Turton and Johnston are independent under Rule 10A-3 of the Exchange Act and the applicable rules of the NASDAQ Stock Market and that Mr. Protopapa qualifies as an “ audit committee financial expert ” as defined under in Item 16A of Form 20-F.

The Audit Committee of the Board of Directors assists the Board of Directors in discharging its responsibilities with regard to financial reporting, external and internal audits and controls, including reviewing and monitoring the integrity of the Midatech annual and interim financial statements, advising on the appointment of external auditors, reviewing and monitoring the extent of the non-audit work undertaken by external auditors, overseeing Midatech ’ s relationship with its external auditors, reviewing the effectiveness of the external audit process and reviewing the effectiveness of Midatech ’ s internal control review function. The ultimate responsibility for reviewing and approving the annual report and accounts and the half-yearly reports remains with the Board.

The Audit Committee meets not less than twice a year and otherwise as required.

Nomination Committee

The Nomination Committee is chaired by Rolf Stahel and is comprised of all other members of the Board of Directors. The Nomination Committee assists the Board of Directors in discharging its responsibilities relating to the composition and make-up of the Board of Directors and any committees of the Board of Directors. It is responsible for periodically reviewing the Board of Director ’ s structure and identifying potential candidates to be appointed as directors or committee members as the need may arise. The Nomination Committee is responsible for evaluating the balance of skills, knowledge and experience and the size, structure and composition of the Board of Directors and committees of the Board of Directors, retirements and appointments of additional and replacement directors and committee members and will make appropriate recommendations to the Board of Directors on such matters.

The Nomination Committee meets not less than once a year and otherwise as required.

Remuneration Committee

The Remuneration Committee consists of four members: Sijmen de Vries (Chairman), Simon Turton, Rolf Stahel and Michele Luzi. The Board of Directors has determined that Messrs. de Vries, Turton, Stahel and Luzi are independent under applicable rules of the NASDAQ Stock Market.

The Remuneration Committee of the Board of Directors is responsible, within agreed terms of reference, for establishing a formal and transparent procedure for developing policy on executive remuneration and setting the remuneration packages of individual directors. This includes agreeing with the Board of Directors on the framework for remuneration of the executive directors, the company secretary and such other members of the executive management of Midatech as it is designated to consider. It is also responsible for determining the total individual remuneration packages of each director including, where appropriate, bonuses, incentive payments and share options. No director may be involved in any decision as to his/her own remuneration. The Remuneration Committee ensures compliance with the United Kingdom Corporate Governance Code in relation to remuneration wherever possible.

The Remuneration Committee meets not less than twice a year and otherwise as required.

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Disclosure Committee

The Disclosure Committee consists of four members: Dr. Jim Phillips (Chairman), Nicholas Robbins-Cherry, Pavlo Protopapa and John Johnston. The Disclosure Committee is responsible, within agreed terms of reference, for ensuring compliance with the AIM Rules and disclosure of information. The Disclosure Committee works closely with the Board of Directors to ensure that Midatech ’ s nominated adviser is provided with any information it reasonably requests or requires in order for it to carry out its responsibilities under the AIM Rules and the AIM Rules for Nominated Advisers.

The Disclosure Committee meets at least four times a year and otherwise as required.

Service Contracts

Except as described above under “ -B. Compensation of Non-Executive Directors ” and “ -B. Compensation of Executive Officers , ” Midatech does not have service contracts with any member of its Board of Directors or its executive officers.

Employees

The number of Midatech employees by geographic location and function as of the end of the period for the fiscal years ended December 31, 2017, 2016 and 2015 was as follows:

	As of December 31,
	2017		2016		2015
Business functional area:
Research and development		62		57		52
Sales and marketing		6		8		7
General and administration		17		19		23

Total		85		84		82

	As of December 31,
	2017		2016		2015
Geography:
United Kingdom		39		37		40
North America		12		14		14
Spain		34		28		28

Total		85		79		82

To Midatech ’ s knowledge, none of its employees are represented by labor unions or covered by collective bargaining agreements. Midatech considers its relationship with its employees to be good.

Midatech Pharma Espa ñ a employment conditions, rules and regulations are governed by a union-based document. The contents of this document are re-negotiated with the central government every two years and stipulate professional grades relating to position descriptions and the salary bands associated with those grades. Each member of staff is assigned a grade commensurate with their position and responsibilities within the company and compliance with such document is obligatory.

E.	Share Ownership

Information with respect to share ownership of members of Midatech ’ s Board of Directors and its executive officers is included in “ Item 7. Major Shareholders and Related Party Transactions . ”

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Equity Benefit Plans

Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme

In connection with Midatech ’ s initial public offering in December 2014, Midatech ’ s Board of Directors established the Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme (the “ 2014 EMI Scheme ” ), to allow it to grant options to purchase Ordinary Shares to qualifying employees and directors of Midatech and its subsidiaries ( “ Plan Participants ” ), for the purpose of attracting, rewarding and retaining such persons. As of December 31, 2017, Midatech had reserved 4,529,894 of its Ordinary Shares for issuance pursuant to the 2014 EMI Scheme, subject to certain adjustments set forth in the plan.

Administration . The overall responsibility for the operation and administration of the 2014 EMI Scheme is vested in the Midatech Board of Directors.

Eligibility . In order to be eligible to participate as a Plan Participant in the 2014 EMI Scheme, a person must be an employee or director of Midatech or any of its subsidiaries whose “ committed time ” amounts to at least 25 hours a week or, if less, 75% of his or her “ working time, ” as each of those terms are defined under the HM Revenue and Customs rules set out in Schedule 5 to the Income Tax (Earnings and Pensions) Act 2003 of the United Kingdom ( “ Schedule 5 ” ). The Midatech Board of Directors may exercise its discretion in selecting the Plan Participants to whom stock options will be granted under the 2014 EMI Scheme.

Grant of Options . Options may be granted from time to time by the Midatech Board of Directors, other than when grants are not permitted under the Model Code, AIM Rules or there are other restrictions with regards to the Ordinary Shares. No payment will be made for the grant of a stock option.

Form of Options . Stock options granted under the 2014 EMI Scheme may be granted either with an exercise price greater than or equal to the market value of Ordinary Share at the date of grant, but not in any event at a price less than the nominal value of such share. The stock options may be stock options to subscribe for new Ordinary Shares.

The participant will have no stockholder rights until such time as he is able to exercise the stock option and acquire Ordinary Shares.

Size of Option Grants and Plan Limits . As of December 31, 2017, Midatech had reserved 4,529,894 of its Ordinary Shares for issuance under the 2014 EMI Scheme. Stock options shall be granted under, and comply with, Schedule 5. This confers tax benefits on stock options up to a certain threshold. That threshold is currently such that when an employee has received and holds stock options with a value at grant of £ 120,000 or more, he or she may not have any further granted options for three years. In the event that this threshold is exceeded or Midatech ceases to satisfy the qualifying conditions, unapproved options may instead be granted under the terms of the 2014 EMI Scheme. The total value of shares subject to unexercised options at any time may not exceed £ 3.0 million. All options must be exercised within 10 years from the grant date as set out in the rules of the 2014 EMI Scheme, or as set forth in the applicable option agreement.

Vesting of Options . In the normal course, stock options will become eligible for vesting subject to the satisfaction of time and financial performance targets.

If a Plan Participant leaves the employment of Midatech or its subsidiaries for any reason, his or her stock option will generally lapse unless the Midatech Board of Directors exercises its discretion to allow the exercise of the stock option.

Performance Targets . All stock options granted under the 2014 EMI Scheme will be subject to appropriate performance targets determined by the Midatech Board of Directors, which may include share price targets, with stock options vesting in part on the attainment of each performance target.

Rights Attaching to Ordinary Shares . Ordinary Shares issued in connection with the exercise of stock options will rank equally with all other Ordinary Shares then in issue (save as regards any rights attaching to Ordinary Shares by reference to a record date prior to entry of the shares on the register of stockholders). Application will be made for admission to trading on AIM of new Ordinary Shares issued under the 2014 EMI Scheme.

Adjustments . If there is any adjustment of the issued share capital of Midatech, the Ordinary Shares subject to a stock option will be subject to appropriate adjustment. The Midatech Board of Directors may adjust stock options in such manner as it determines to be appropriate.

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Midatech Pharma PLC 2016 United States Option Plan

In 2016, Midatech adopted the Midatech Pharma PLC 2016 United States Option Plan (the “ 2016 United States Plan ” ) as a sub-plan of the 2014 EMI Scheme, to set forth the terms and conditions applicable to options that are granted under the 2014 EMI Scheme to eligible employees of Midatech ’ s United States subsidiaries. As of December 31, 2017, Midatech had reserved an aggregate of 1,000,000 of its Ordinary Shares for issuance pursuant to the 2016 United States Plan, subject to certain adjustments set forth in the plan, with 420,000 options having been granted.

Administration . The responsibility for the operation and administration of the 2016 United States Plan is vested in either a committee appointed by the Midatech Board of Directors to administer the Plan or the Midatech Board of Directors (the “ Committee ” ).

Eligibility . In order to be eligible to participate as a Plan Participant in the 2016 United States Plan, a person must be an employee of one of Midatech ’ s United States subsidiaries. Directors who are not otherwise employed by Midatech or a United States subsidiary of Midatech are not eligible under the 2016 United States Plan. The Committee may exercise its discretion in selecting the Plan Participants to whom stock options will be granted under the 2014 United States Plan and take into account any factors it deems relevant, including the duties of the individual, the Committee ’ s assessment of the individual ’ s present and potential contributions to the success of the Company or its subsidiaries.

Grant of Options . Each grant of options under the 2016 United States Plan must be made pursuant to an award agreement, in such form as the Committee shall determine. The award agreement must specify the number of shares to which the option pertains, whether the option is an incentive stock option ( “ ISO ” ) or a non-qualified stock option, the option price, the term of the option, the conditions upon which the option shall become vested and exercisable, and such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. ISOs may be granted only to employees of the Company or a Subsidiary. Subject to the exceptions in the 2016 United States Plan, or to the extent an option remains exercisable as set forth in the award agreement, an option shall immediately terminate upon the participant ’ s termination of service with the Company and its subsidiaries for any reason.

Form of Options . The option price per share of options granted under the 2016 United States Plan may be no less than the fair market value per share on the date of grant of the option, subject to certain exceptions for grants of ISOs and the grant of options pursuant to the assumption of, or substitution of another option.

The participant will have no stockholder rights until such time as he is able to exercise the stock option and acquire Ordinary Shares.

Size of Option Grants and Plan Limits . As of December 31, 2017, Midatech had reserved 1,000,000 of its Ordinary Shares for issuance under the 2016 United States Plan. Issuance of options under the 2016 United States Plan are limited pursuant to the terms of the 2014 EMI Scheme. Additionally, under the 2016 United States Plan, no individual may be granted options covering in the aggregate more than 100,000 shares in one calendar year.

Adjustments . If there is any reorganization, recapitalization, stock split, stock dividend, extraordinary dividend, spin-off, combination of shares, merger, consolidation or similar transaction or other change in corporate capitalization affecting Midatech ’ s ordinary shares, equitable adjustments and/or substitutions, as applicable, to prevent the dilution or enlargement of rights may be made by the Committee to the maximum number and kind of ordinary shares.

Midatech Pharma PLC Employee Share Incentive Plan

In 2017, the Group set up the Midatech Pharma Share Incentive Plan (MPSIP). Under the MPSIP, Group employees and directors can acquire ordinary shares in the Company via a salary sacrifice arrangement. Midatech grants matching shares for every share bought. In order to retain these shares, scheme participants must remain employed by the Group for three years from the date of acquisition. All shares purchased by the MPSIP are held by an Employee Benefit Trust that is not under the control of Midatech. Shares must be left in the plan for 5 years to qualify for full income tax relief. As of December 31, 2017, Midatech had reserved 94,655 of its Ordinary Shares for issuance under the MPSIP.

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ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

A.	Major Shareholders

The following table sets forth information, as of December 31, 2017, regarding the beneficial ownership of Ordinary Shares, including:

each person that is known by Midatech to be a beneficial owner of 5% or more of Midatech ordinary shares (based on information in our share register and information provided by such persons);

each member of Midatech ’ s Board of Directors;

each of Midatech ’ s executive officers; and

all members of Midatech ’ s Board of Directors and its executive officers, taken as a group.

Beneficial ownership of shares is determined under rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as noted by footnote, and subject to community property laws where applicable, Midatech believes, based upon the information provided to Midatech, that the persons and entities named in the table below have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. The percentage of beneficial ownership is based upon 61,084,135 Ordinary Shares outstanding as of March 15, 2018. Ordinary Shares subject to options currently exercisable or exercisable within 60 days of March 15, 2018 are deemed to be outstanding and beneficially owned by the person holding the options for the purposes of computing the percentage of beneficial ownership of that person and any group of which that person is a member, but are not deemed outstanding for the purpose of computing the percentage of beneficial ownership for any other person. Unless otherwise indicated, the address for each holder listed below is Midatech Pharma PLC, 65 Innovation Drive, Milton Park, Abingdon, Oxfordshire, OX14 4RQ, United Kingdom. All holders of Ordinary Shares, including those shareholders listed below, have the same voting rights with respect to such shares.

Name of Beneficial Owner	Amount and Nature Of Ownership(1)	Percent of class
Major Stockholders:
Woodford Fund Management Limited (2)	12,247,629		20.1	%
Legal & General Investment Management (3)	10,275,518		16.8	%
City Financial (4)	3,650,000		6.0	%

Directors and Executive Officers:
David Benharris	20,000		*
Craig Cook, MB, BCH	156,000		*
Sijmen (Simon) de Vries, M.D. (5)	104,952		*
John Johnston	54,981		*
Michele Luzi (6)	219,468		*
James N. Phillips, MB, ChB	553,646		*
Pavlo (Paul) Protopapa (7)	1,649,334		2.7	%
Nicholas Robbins-Cherry	123,313		*
Rolf Stahel	599,942		*
Simon Turton, Ph.D.	269,413		*
Directors and executive officers as a group (10 persons)	3,751,049		6.1	%

_________________

*	Less than one percent of the outstanding Ordinary Shares.

(1)

Includes the following Ordinary Shares subject to outstanding stock options exercisable within 60 days of March 15, 2018: 7,000 for Dr. de Vries; 18,796 for Mr. Luzi; 493,750 for Dr. Phillips; 20,000 for Mr. Benharris; 150,000 for Dr. Cook; 122,813 for Mr. Robbins-Cherry; and 812,359 for all current directors and executive officers as a group.

(2)	The principal business address of Woodford Fund Management Limited is 9400 Garsington Road, Oxford, OX4 2HN, United Kingdom.

(3)	The principal business address of Legal & General Investment Management Limited is 1 Coleman St, London, United Kingdom EC2R 5AA.

(4)	The principal business address of City Financial is 62 Queen Street, London EC4R 1EB.

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(5)	Includes 59,150 Ordinary Shares held by Promida Holdings, in which Dr. de Vries has a minority interest.

(6)	Includes 69,382 Ordinary Shares held by JTC Trustees Limited, of which Mr. Luzi is a beneficiary.

(7)	Includes 1,649,334 Ordinary Shares directly held by Ippon Capital SA. Mr. Protopapa, a director of Ippon Capital SA, disclaims beneficial ownership of all shares held directly by Ippon Capital SA except to the extent of his pecuniary interest therein, if any.

As of March 15, 2018, there were 370 individual holders of record entered in Midatech ’ s share register. The number of individual holders of record is based exclusively upon Midatech ’ s share register and does not address whether a share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial owner of a share or shares in our company. As of March 15, 2018, 82% of Midatech ’ s outstanding Ordinary Shares were held in the United Kingdom. As of March 15, 2018, assuming that all of the Ordinary Shares represented by Depositary Shares are held by residents of the United States, approximately 9% of Midatech ’ s outstanding Ordinary Shares were held in the United States. At such date, there were outstanding 2,078,856 Depositary Shares, each representing two Ordinary Shares, and in the aggregate representing approximately 7% of the outstanding Ordinary Shares. The actual number of holders is greater than these numbers of record holders, and includes beneficial owners whose Depositary Shares are held in street name by brokers and other nominees. This number of holders of record also does not include holders whose shares may be held in trust by other entities.

To Midatech ’ s knowledge, it is not directly or indirectly owned or controlled by another corporation, by any foreign government, or by any other natural or legal person, nor is Midatech aware of any arrangement that may, at a subsequent date, result in a change of control of the Company.

Midatech was incorporated on September 12, 2014 and its initial public offering of Ordinary Shares on the AIM Market took place on December 8, 2014 ( “ Admission ” ). Since Admission, there have been no significant changes in ownership by any major shareholder in Midatech.

B.	Related Party Transactions

Agreement with Chesyl Pharma Limited

In April 2014, Midatech Limited entered into a consultancy agreement (the “ Consultancy Agreement ” ) with Chesyl Pharma Limited ( “ Chesyl ” ). Chesyl is wholly owned by Mr. Rolf Stahel, a director of Midatech. The term of the Consultancy Agreement commenced on March 1, 2014, with an initial term of 12 months and continuing thereafter until terminated in accordance with its terms. Chesyl was engaged to provide management consultancy services, including support and assistance to the board of directors of Midatech Limited in relation to operational issues and the provision of advice in relation to corporate strategy, corporate activities, fund raising and mergers and acquisition opportunities (collectively, the “ Services ” ).

Pursuant to the terms of the Consultancy Agreement, Mr. Stahel (or a similarly qualified substitute party, approved by the Midatech Limited) is obliged to procure the Services at such times and at such locations as may be reasonably necessary for 10 full working days per year. Mr. Stahel may not sub-contract these obligations. Midatech Limited will pay Chesyl £ 40,000 per annum for Mr. Stahel ’ s services (reduced from £50,000 with effect from October 1, 2017), and if engaged for any additional days, a rate of £ 2,000 will be paid per full working day.

C.	Interests of Experts and Counsel

Not Applicable

ITEM 8.

FINANCIAL INFORMATION.

A.	Consolidated Statements and Other Financial Information

See “ Item 18. Financial Statements. ”

Legal Proceedings

From time to time, Midatech may be subject to various claims or legal proceedings that arise in the ordinary course of its business. Midatech is currently not a party to, and is not aware of any threat of, any legal proceedings, which, in the opinion of management, is likely to have or could reasonably possibly have a material adverse effect on Midatech ’ s business, financial condition or results of operations.

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Dividend Policy

Midatech has never declared or paid any cash dividends on its shares, and it has no present intention of declaring or paying any dividends in the foreseeable future. Midatech may, by ordinary resolution, declare a dividend to be paid to the share owners according to their respective rights and interests in profits, and may fix the time for payment of such dividend. No dividend may be declared in excess of the amount recommended by the directors. The directors may from time to time declare and pay to the share owners of Midatech such interim dividends as appear to the directors to be justified by the profits of Midatech available for distribution. There are no fixed dates on which entitlement to dividends arises on Midatech ordinary shares.

The share owners may pass, on the recommendation of the directors, an ordinary resolution to direct that all or any part of a dividend to be paid by distributing specific assets, in particular paid up shares or debentures of any other body corporate. The articles also permit, with the prior authority of an ordinary resolution of shareholders, a scrip dividend scheme under which share owners may be given the opportunity to elect to receive fully paid Ordinary Shares instead of cash, or a combination of shares and cash, with respect to future dividends.

By the way of the exercise of a lien, if a share owner owes any money to Midatech relating in any way to shares, the board may deduct any of this money from any dividend on any shares held by the share owner, or from other money payable by Midatech in respect of the shares. Money deducted in this way may be used to pay the amount owed to Midatech.

Unclaimed dividends and other money payable in respect of a share can be invested or otherwise used by directors for the benefit of Midatech until they are claimed. A dividend or other money remaining unclaimed 12 years after it first became due for payment will be forfeited and shall revert to Midatech.

All of the shares represented by the Depositary Shares have the same dividend rights as all of Midatech ’ s other outstanding shares.

B.	Significant Changes

None.

ITEM 9.

THE OFFER AND LISTING.

A.	Offer and Listing Details.

The Ordinary Shares have been trading on AIM, a market operated by the London Stock Exchange plc ( “ AIM ” ) under the symbol “ MTPH ” since December 8, 2014.

The following table sets forth, for the periods indicated, the reported high and low closing sale prices of the Ordinary Shares on AIM in British pounds sterling and United States dollars (rounded to the nearest whole cent). Price per Ordinary Share in United States dollars amounts below have been translated into United States dollars at the noon buying rate of the Federal Reserve Bank of New York on December 29, 2017 of £ 1.00 to $1.3529.

	British Pounds Sterling (Price per ordinary share)					United States Dollars (Price per ordinary share)
	High		Low			High		Low
Annual:
Year ended December 31, 2014 (1)	£	2.85		£	2.60	$	3.85		$	3.52
Year ended December 31, 2015	£	3.30		£	1.50	$	4.46		$	2.03
Year ended December 31, 2016	£	2.05		£	1.01	$	2.77		$	1.37
Year ended December 31, 2017	£	1.48		£	0.34	$	2.00		$	0.45
Quarterly:
First Quarter 2016	£	2.05		£	1.33	$	2.77		$	1.80
Second Quarter 2016	£	1.85		£	1.01	$	2.27		$	1.24
Third Quarter 2016	£	1.90		£	1.10	$	2.57		$	1.35
Fourth Quarter 2016	£	1.33		£	1.10	$	1.63		$	1.35
First Quarter 2017	£	1.48		£	1.16	$	2.00		$	1.57
Second Quarter 2017	£	1.24		£	1.00	$	1.68		$	1.35
Third Quarter 2017	£	1.06		£	0.50	$	1.43		$	0.68
Fourth Quarter 2017	£	0.52		£	0.34	$	0.70		$	0.46
First Quarter 2018	£	0.54		£	0.26	$	0.73		$	0.35
Monthly:
October 2017	£	0.52		£	0.48	$	0.70		$	0.65
November 2017	£	0.50		£	0.43	$	0.68		$	0.58
December 2017	£	0.43		£	0.34	$	0.58		$	0.46
January 2018	£	0.54		£	0.37	$	0.73		$	0.50
February 2018	£	0.41		£	0.30	$	0.55		$	0.41
March 2018	£	0.34		£	0.26	$	0.46		$	0.35
April 2018 (through April 20, 2018)	£	0.28		£	0.25	$	0.38		$	0.38

__________

(1)	The Ordinary Shares began trading on AIM on December 8, 2014. Prior to that, no established market for Ordinary Shares existed.

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On April 20, 2018, the last reported sales price of an Ordinary Share on AIM was £0.27 ($0.37).

The Depositary Shares, each representing two Ordinary Shares, have been trading on the NASDAQ Capital Market under the symbol “ MTP ” since December 7, 2015. The following table sets forth, for the periods indicated, the reported high and low closing sale prices of the Depositary Shares on the NASDAQ Capital Market in United States Dollars.

	United States Dollars (Price per Depositary Share)
	High		Low
Annual:
Year Ended December 31, 2015 (1)	$	8.09	$	4.09
Year Ended December 31, 2016	$	5.72	$	2.40
Year Ended December 31, 2017	$	3.65	$	0.79
Quarterly:
First Quarter 2016	$	5.72	$	3.33
Second Quarter 2016	$	5.44	$	2.62
Third Quarter 2016	$	4.42	$	2.69
Fourth Quarter 2016	$	3.25	$	2.40
First Quarter 2017	$	3.65	$	2.42
Second Quarter 2017	$	3.27	$	2.48
Third Quarter 2017	$	2.80	$	1.29
Fourth Quarter 2017	$	1.64	$	0.79
First Quarter 2018	$	2.65	$	0.80
Monthly:
October 2017	$	1.64	$	1.33
November 2017	$	1.59	$	1.00
December 2017	$	1.22	$	0.79
January 2018	$	2.65	$	0.86
February 2018	$	1.12	$	0.87
March 2018	$	1.25	$	0.73
April 2018 (through April 20, 2018)	$	0.84	$	0.74

______

(1)	The Depositary Shares began trading on The NASDAQ Capital Market on December 7, 2015. Prior to that, no established market for the Depositary Shares existed.

On April 20, 2018, the last reported sales price of a Depositary Share on the NASDAQ Capital Market was $0.76.

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B.	Plan of Distribution

Not applicable.

Markets

Our Ordinary Shares are listed on AIM under the symbol “ MTPH ” and the Depositary Shares are listed on the NASDAQ Capital Market under the symbol “ MTP. ”

D.	Seller Shareholders

Not applicable.

Dilution

Not applicable.

F.	Expenses of the Issue

Not applicable.

ITEM 10.

ADDITIONAL INFORMATION.

A.	Share Capital

Not applicable.

B.	Memorandum and Articles of Association

Midatech incorporates by reference into this annual report the description of its articles of association contained in its Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended.

C.	Material Contracts

Except as otherwise disclosed in this annual report, Midatech is not currently, and has not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of business.

D.	Exchange Controls

Other than certain economic sanctions which may in place from time to time, there are currently no United Kingdom laws, decrees or regulations restricting the import or export of capital or affecting the remittance of dividends or other payment to holders of Ordinary Shares who are non-residents of the United Kingdom. Similarly, other than certain economic sanctions which may be in force from time to time, there are no limitations relating only to non-residents of the United Kingdom under English law or Midatech ’ s articles of association on the right to be a holder of, and to vote in respect of, the Ordinary Shares.

Taxation

Taxation in the United States

The following is a summary of material United States federal income tax consequences of the ownership and disposition of Depositary Shares by United States holders (as defined below). This summary is for general information only and is not tax advice. Each investor should consult its tax advisor with respect to the tax consequences of the ownership and disposition of Depositary Shares, including the impact of the recently enacted Tax Cuts and Jobs Act of 2017.

This summary is based on provisions of the Internal Revenue Code of 1986, as amended (the “ Code ” ), United States Treasury regulations promulgated thereunder (whether final, temporary, or proposed), administrative rulings, and judicial interpretations thereof, and the Convention Between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and on Capital Gains of 2001, as amended (the “ United States-U.K. Treaty ” ), all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.

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For purposes of this discussion, the term “ United States holder ” means a holder of Depositary Shares that is, for United States federal income tax purposes:

an individual who is a citizen or resident of the United States;

a corporation or other entity taxable as a corporation that is created or organized in the United States or under the laws of the United States or any state thereof or the District of Columbia;

an estate the income of which is subject to United States federal income taxation regardless of its source; or

any trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or (b) such trust has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This summary addresses only the United States federal income tax considerations for United States holders that acquire and hold the Depositary Shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of United States federal income taxation that may be relevant to a holder in light of its particular circumstances, or that may apply to holders that are subject to special treatment under the United States federal income tax laws (including, for example, banks, financial institutions, underwriters, insurance companies, dealers in securities or foreign currencies, traders in securities who elect the mark-to-market method of accounting for their securities, persons subject to the alternative minimum tax, persons that have a functional currency other than the United States dollar, tax-exempt organizations (including private foundations), mutual funds, subchapter S corporations, partnerships or other pass-through entities for United States federal income tax purposes, certain expatriates, corporations that accumulate earnings to avoid United States federal income tax, persons who hold Depositary Shares as part of a hedge, straddle, constructive sale, conversion or other integrated transaction, persons who acquire Depositary Shares through the exercise of options or other compensation arrangements, persons who own (or are treated as owning) 10% or more of the outstanding voting stock of Midatech, or persons who are not United States holders). In addition, this discussion does not address any aspect of state, local, foreign, estate, gift or other tax law that may apply to holders of Depositary Shares.

The United States federal income tax treatment of a partner in a partnership (including any entity or arrangement treated as a partnership for United States federal income tax purposes) generally will depend on the status of the partner and the activities of the partnership. A partner in such a partnership should consult its tax advisor regarding the associated tax consequences.

Consequences Relating to Ownership and Disposition of Depositary Shares

Ownership of Depositary Shares. For United States federal income tax purposes, a holder of Midatech Depositary Shares will generally be treated as if such holder directly owned the ordinary shares represented by such Midatech Depositary Shares.

Distributions on Depositary Shares . Subject to the discussion below under “ - Passive Foreign Investment Company Rules , ” the gross amount of any distribution on Depositary Shares (including withheld taxes, if any) made out of Midatech ’ s current or accumulated earnings and profits (as determined for United States federal income tax purposes) will generally be taxable to a United States holder as dividend income on the date such distribution is actually or constructively received. Any such dividends paid to corporate United States holders generally will not qualify for the dividends received deduction that may otherwise be allowed under the Code. Distributions in excess of Midatech ’ s current and accumulated earnings and profits would generally be treated first as a non-taxable return of capital to the extent of the United States holder ’ s basis in the Depositary Shares, and thereafter as capital gain. However, since Midatech does not calculate its earnings and profits under United States federal income tax principles, it is expected that any distribution on Depositary Shares will be reported as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.

Dividends paid in currencies other than the United States dollar, if any, will generally be taxable to a United States holder as ordinary dividend income in an amount equal to the United States dollar value of the currency received on the date such distribution is actually or constructively received. Such United States dollar value must be determined using the spot rate of exchange on such date, regardless of whether the non-United States currency is actually converted into United States dollars on such date. The United States holder may realize exchange gain or loss if the currency received is converted into United States dollars after the date on which it is actually or constructively received. In general, any such gain or loss will be ordinary and will be treated as from sources within the United States for United States foreign tax credit purposes.

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Subject to the discussion below under “ -3.8% Medicare Tax on Net Investment Income , ” dividends received by certain non-corporate United States holders (including individuals) from a “ qualified foreign corporation ” may be eligible for reduced rates of taxation, currently at a maximum rate of 20%, provided that certain holding period requirements and other conditions are satisfied. For these purposes, a foreign corporation will generally be treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that the Depositary Shares, which are listed on NASDAQ, would be considered readily tradable on an established securities market in the United States. However, there can be no assurance that the Depositary Shares will be considered readily tradable on an established securities market in future years. A foreign corporation is also treated as a qualified foreign corporation if it is eligible for the benefits of a comprehensive income tax treaty with the United States which is determined by the United States Treasury Department to be satisfactory for purposes of these rules and which includes an exchange of information provision. The United States Treasury Department has determined that the United States-U.K. Treaty meets these requirements. Midatech would not constitute a qualified foreign corporation for purposes of these rules if it is a passive foreign investment company for the taxable year in which it pays a dividend or for the preceding taxable year, as discussed below under “ - Passive Foreign Investment Company Rules . ”

Subject to certain conditions and limitations, non-United States taxes, if any, withheld on dividends paid by Midatech may be treated as foreign taxes eligible for a credit against a United States holder ’ s United States federal income tax liability under the United States foreign tax credit rules. The rules governing the United States foreign tax credit are complex, and United States holders should consult their tax advisors regarding the availability of the United States foreign tax credit under their particular circumstances.

Sale of Depositary Shares . A United States holder will generally recognize gain or loss on any sale, exchange, redemption, or other taxable disposition of Midatech Depositary Shares in an amount equal to the difference between the amount realized on the disposition and such holder ’ s tax basis in the shares. Subject to the discussion below under “ - Passive Foreign Investment Company Rules , ” any gain or loss recognized by a United States holder on a taxable disposition of Midatech Depositary Shares will generally be capital gain or loss and will be long-term capital gain or loss if the holder ’ s holding period in such share exceeds one year at the time of the disposition. The deductibility of capital losses is subject to limitations.

For a cash basis taxpayer, units of foreign currency received will generally be translated into United States dollars at the spot rate on the settlement date of the sale. In that case, no foreign currency exchange gain or loss will result from currency fluctuations between the trade date and the settlement date of such sale. An accrual basis taxpayer may elect to apply the same rules applicable to cash basis taxpayers with respect to the sale of Midatech Depositary Receipts that are traded on an established securities market, provided that the election must be applied consistently from year to year and cannot be changed without the consent of the IRS. For an accrual method taxpayer who does not make such an election, units of foreign currency received will generally be translated into United States dollars at the spot rate on the trade date of the sale. Such an accrual basis taxpayer may recognize foreign currency exchange gain or loss based on currency fluctuations between the trade date and the settlement date of such sale. In general, any such gain or loss will be ordinary and will be treated as from sources within the United States for United States foreign tax credit purposes.

Passive Foreign Investment Company Rules . A foreign corporation is a passive foreign investment company ( “ PFIC ” ) if either (1) 75% or more of its gross income for the taxable year is passive income or (2) the average percentage of assets held by such corporation during the taxable year that produce passive income or that are held for the production of passive income is at least 50%. For purposes of applying the tests in the preceding sentence, the foreign corporation is deemed to own its proportionate share of the assets, and to receive directly its proportionate share of the income, of any other corporation of which the foreign corporation owns, directly or indirectly, at least 25% by value of the stock.

Based upon estimates with respect to its income, assets, and operations, it is expected that Midatech will not be a PFIC for the current taxable year. However, because the determination of PFIC status must be made on an annual basis after the end of the taxable year and will depend on the composition of the income and assets, as well as the nature of the activities, of Midatech and its subsidiaries from time to time, there can be no assurance that Midatech will not be considered a PFIC for any taxable year.

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Classification of a foreign corporation as a PFIC can have various adverse United States tax consequences to United States holders, including taxation of gain on a sale or other disposition of the shares of the corporation at ordinary income rates and imposition of an interest charge on gain or on distributions with respect to the shares. Unless a United States holder of PFIC shares elects to be taxed annually on a mark-to-market basis or makes a “ qualified electing fund ” election with respect to the shares and certain other requirements are met, gain realized on the sale or other disposition of PFIC shares would generally not be treated as capital gain. Instead, the United States holder would be treated as if the United States holder had realized such gain ratably over the holder ’ s holding period for the PFIC shares. The amounts allocated to the taxable year of sale or other disposition and to any year before the foreign corporation became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for such year, together with an interest charge in respect of the tax attributable to each such year. Similar rules apply to the extent any distribution in respect of PFIC shares exceeds 125% of the average annual distribution on such PFIC shares received by the shareholder during the preceding three years or holding period, whichever is shorter. With certain exceptions, a foreign corporation is treated as a PFIC with respect to a shareholder if the corporation was a PFIC with respect to the shareholder at any time during the shareholder ’ s holding period of the foreign corporation ’ s stock. Dividends paid to with respect to shares of a PFIC are not eligible for the special tax rates applicable to qualified dividend income of certain non-corporate holders. Instead, such dividend income is taxable at rates applicable to ordinary income. If Midatech were to be classified as a PFIC for any taxable year in which a United States holder held the Depositary Shares, the PFIC regime described above generally would apply.

If Midatech were to be treated as a PFIC, the tax consequences described above could be avoided by a “ mark-to-market ” election. A United States holder making a “ mark-to-market ” election (assuming the requirements for such an election are satisfied) generally would (i) be required to include as ordinary income the excess of the fair market value of the Depositary Shares on the last day of the United States holder ’ s taxable year over the United States holder ’ s adjusted tax basis in such Depositary Shares and (ii) be allowed a deduction in an amount equal to the lesser of (A) the excess, if any, of the United States holder ’ s adjusted tax basis in the Depositary Shares over the fair market value of such Depositary Shares on the last day of the United States holder ’ s taxable year or (B) the excess, if any, of the amount included in income because of the election for prior taxable years over the amount allowed as a deduction because of the election for prior taxable years. In addition, upon a sale or other taxable disposition of Depositary Shares, a United States holder would recognize ordinary income or loss (which loss could not be in excess of the amount included in income because of the election for prior taxable years over the amount allowed as a deduction because of the election for prior taxable years). If Midatech were to be treated as a PFIC, different rules would apply to a United States holder making a “ qualified electing fund ” election with respect to Depositary Shares. However, because Midatech does not intend to prepare or provide the information that would permit the making of a valid “ qualified electing fund ” election, such an election will not be available to United States holders.

United States holders are urged to consult their own tax advisors about the PFIC rules, including the availability of the “ mark-to-market ” election.

3.8% Medicare Tax on “Net Investment Income”

A 3.8% tax, or “ Medicare Tax, ” is imposed on all or a portion of “ net investment income, ” which may include any gain realized or amounts received with respect to Depositary Shares, received by (i) United States holders that are individuals with modified adjusted gross income in excess of $200,000 for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or a surviving spouse), or $125,000 for a married individual filing a separate return, and (ii) certain estates and trusts. United States holders should consult their own tax advisors with respect to the applicability of the Medicare Tax.

Information Reporting and Backup Withholding

United States holders may be subject to information reporting requirements and may be subject to backup withholding with respect to dividends on Depositary Shares and on the proceeds from the sale, exchange, or disposition of Depositary Shares unless the United States holder provides an accurate taxpayer identification number and complies with certain certification procedures or otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax and amounts withheld may be allowed as a credit against the United States holder ’ s United States federal income tax liability and may entitle the United States holder to a refund, provided that certain required information is timely furnished to the IRS.

Foreign Asset Reporting

United States holders who are individuals and who own “ specified foreign financial assets ” with an aggregate value in excess of $50,000 are generally required to file an information statement along with their tax returns, currently on IRS Form 8938, with respect to such assets. “ Specified foreign financial assets ” include securities issued by a non-United States issuer (which would include the Depositary Shares) that are not held in accounts maintained by financial institutions. Higher reporting thresholds apply to certain individuals living abroad and to certain married individuals. Individuals who fail to report the required information could be subject to substantial penalties, and such individuals should consult their own tax advisors concerning the application of these rules to their investment in Depositary Shares.

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F.	Dividends and Payment Agents

Not applicable.

G.	Statements by Experts

Not applicable.

H.	Documents on Display

Midatech is subject to the informational requirements of the Exchange Act. Accordingly, it is required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

Midatech also makes available on its website, free of charge, its annual report and the text of its reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Midatech ’ s website address is “ www.midatechpharma.com. ” The information contained on Midatech ’ s website is not incorporated by reference in this annual report.

I.	Subsidiary Information

Not applicable.

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Midatech is exposed to a variety of financial risks, including, but not limited to, market risk (including foreign exchange and interest rate risks), credit risks, and liquidity risks. Midatech ’ s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on its financial performance.

Credit Risk

Credit risk is the risk of financial loss to the Group if a development partner or counterparty to a financial instrument fails to meet its contractual obligations. Midatech is mainly exposed to credit risk from amounts due from collaborative partners which is deemed to be low.

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with high credit status are accepted.

The Group does not enter into derivatives to manage credit risk.

The total exposure to credit risk of the Group is equal to the total value of the financial assets held at year end.

Cash in Bank

The Group is continually reviewing the credit risk associated with holding money on deposit in banks and seeks to mitigate this risk by holding deposits with banks with high credit status.

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Fair Value and Cash Flow Interest Rate Risk

Midatech is not significantly exposed to cash flow interest rate risk from short term and long-term borrowings at variable rate as the majority of borrowings, with the exception of finance leases are held on fixed rates.

Midatech has minimal exposure to interest rate risk as it has had minimal borrowings on variable rates and immaterial levels of interest paid and received on their variable rate loans.

Midatech ’ s exposure to fair value interest rate risk is also considered to be immaterial.

Foreign Exchange Risk

Foreign exchange risk arises because the Group has material operations located in Bilbao, Spain and the United States, whose functional currencies are not the same as the functional currency of Midatech. Midatech ’ s net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into British pounds sterling. Given the levels of materiality, the Group does not hedge its net investments in overseas operations as the cost of doing so is disproportionate to the exposure.

Foreign exchange risk also arises when individual Midatech entities enter into transactions denominated in a currency other than their functional currency; Midatech ’ s transactions outside the United Kingdom to the United States and Europe drive foreign exchange movements where suppliers invoice in currency other than British pounds sterling. These transactions are not hedged because the cost of doing so is disproportionate to the risk.

As December 31, 2015, the Group ’ s exposure to foreign exchange risk was not considered significant. However, due to significant currency fluctuations during the years ended December 31, 2017 and December 31, 2016, particularly in respect of British pounds sterling against the US dollar and British pounds sterling against the Euro, Midatech ’ s foreign exchange risk was significant. The Group ’ s net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into sterling. Despite this historic volatility, the Group does not hedge its net investments in overseas operations as the cost of doing so is disproportionate to the exposure.

Liquidity Risk

Liquidity risk arises from Midatech’s management of working capital. It is the risk that Midatech will encounter difficulty in meeting its financial obligations as they fall due.

It is Midatech ’ s aim to settle balances as they become due.

The Group ’ s current financial position following its public offerings in 2016 and 2017, and taking into account the Credit Facility, is such that it does not consider there to be a short-term liquidity risk, however it will continue to monitor long term cash projections in light of Midatech ’ s development plan and will consider raising funds as required to fund long term development projects. Development expenditure can be curtailed as necessary to preserve liquidity.

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

A.	Debt Securities

Not applicable.

B.	Warrants and Rights

Not applicable.

C.	Other Securities

Not applicable.

D.	American Depositary Shares

Depositary Share holders will be required to pay the following service fees to Deutsche Bank Trust Company Americas, the depositary bank for the Depositary Shares (the “ Depositary ” ), and certain taxes and governmental charges (in addition to any applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of such holders Depositary Shares):

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Service		Fees

· to any person to whom Depositary Shares are issued or to any person to whom a distribution is made in respect of Depositary Share distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash)		Up to US$0.05 per Depositary Share issued

· to any person surrendering Depositary Shares for withdrawal of deposited securities or whose Depositary Shares are cancelled or reduced for any other reason including, inter alia, cash distributions made pursuant to a cancellation or withdrawal		Up to US$0.05 per Depositary Share cancelled

· Distribution of cash dividends		Up to US$0.05 per Depositary Share held

· Distribution of cash entitlements (other than cash dividends) and/or cash proceeds, including proceeds from the sale of rights, securities and other entitlements		Up to US$0.05 per Depositary Share held

· Distribution of Depositary Shares pursuant to exercise of rights.		Up to US$0.05 per Depositary Share held

· Depositary services		Up to US$0.05 annually per Depositary Share held on the applicable record date(s) established by the depositary bank

In addition, Depositary Share holders, beneficial owners of Depositary Shares, persons depositing Ordinary Shares for deposit and persons surrendering Depositary Shares for cancellation and withdrawal of deposited securities will be required to pay the following charges:

taxes (including applicable interest and penalties) and other governmental charges;

such registration fees as may from time to time be in effect for the registration of Ordinary Shares or other deposited securities with Midatech ’ s share registrar and applicable to transfers of Ordinary Shares or other deposited securities to or from the name of the custodian, the Depositary or any nominees upon the making of deposits and withdrawals, respectively;

such cable, telex, facsimile and electronic transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of the person depositing or withdrawing Ordinary Shares or Depositary Share holders and beneficial owners of Depositary Shares;

the expenses, fees and other charges incurred by the Depositary in the conversion of foreign currency, including, without limitation, the expenses, fees and other charges imposed by any affiliate of the Depositary (which may, in its sole discretion, act in a principal capacity in such transaction) that may be utilized in connection therewith;

such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to Ordinary Shares, deposited securities, Depositary Shares and American Depositary Receipts;

the fees and expenses incurred by the Depositary in connection with the delivery of deposited securities, including any fees of a central depository for securities in the local market, where applicable; and

any fees, charges, costs or expenses that may be incurred from time to time by the Depositary and/or any of the Depositary ’ s agents, including the custodian, and/or agents of the Depositary ’ s agents in connection with the servicing of Ordinary Shares, deposited securities and/or Depositary Shares, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities or otherwise in connection with the Depositary ’ s or its custodian ’ s compliance with applicable law, rule or regulation (such fees, charges, costs or expenses to be assessed against Depositary Share holders of record as at the date or dates set by the Depositary as it sees fit and collected at the sole discretion of the Depositary by billing such Depositary Share holders for such fee or by deducting such fee from one or more cash dividends or other cash distributions).

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The Depositary fees payable upon the issuance and cancellation of Depositary Shares are typically paid to the Depositary by the brokers (on behalf of their clients) receiving the newly issued Depositary Shares from the Depositary and by the brokers (on behalf of their clients) delivering the Depositary Shares to the depositary bank for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions of cash or securities to Depositary Share holders and the Depositary services fee are charged by the Depositary to the holders of record of Depositary Shares as of the applicable Depositary Share record date.

The Depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case of distributions other than cash (i.e., share dividends, rights), the Depositary charges the applicable fee to the Depositary Share record date holders concurrent with the distribution. In the case of Depositary Shares registered in the name of the investor (whether certificated or uncertificated in direct registration), the Depositary sends invoices to the applicable record date Depositary Share holders. In the case of Depositary Shares held in brokerage and custodian accounts (via The Depository Trust Company ( “ DTC ” )), the Depositary generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the Depositary Share held in DTC) from the brokers and custodians holding Depositary Share in their DTC accounts. The brokers and custodians who hold their clients ’ Depositary Shares in DTC accounts in turn charge their clients ’ accounts the amount of the fees paid to the Depositary.

In the event of refusal to pay the Depositary fees, the Depositary may, under the terms of the deposit agreement among Midatech, the Depositary and the holders of Depositary Shares, refuse the requested service until payment is received or may set off the amount of the Depositary fees from any distribution to be made to the Depositary Share holder.

The Depositary has agreed to reimburse Midatech for a portion of certain expenses it incurs that are related to establishment and maintenance of the American Depositary Receipt program, including investor relations expenses. There are limits on the amount of expenses for which the Depositary will reimburse Midatech, but the amount of reimbursement available to Midatech is not related to the amounts of fees the Depositary collects from investors. Further, the Depositary has agreed to reimburse Midatech certain fees payable to the Depositary by holders of Depositary Shares. Neither the Depositary nor Midatech can determine the exact amount to be made available to Midatech because (i) the number of Depositary Shares that will be issued and outstanding, (ii) the level of service fees to be charged to holders of Depositary Shares and (iii) its reimbursable expenses related to the program are not known at this time.

Payment of Taxes

Holders of Depositary Shares will be responsible for any taxes or other governmental charges payable, or which become payable, on their Depositary Shares or on the deposited securities represented by any of their Depositary Shares. The depositary may refuse to register or transfer the Depositary Shares or allow a holder to withdraw the deposited securities represented by the Depositary Shares until such taxes or other charges are paid. It may apply payments owed to a holder of Depositary Shares or sell deposited securities represented by the Depositary Shares to pay any taxes owed and such holder will remain liable for any deficiency. If the Depositary sells deposited securities, it will, if appropriate, reduce the number of Depositary Shares to reflect the sale and pay to the holder any net proceeds, or send to the holder any property, remaining after it has paid the taxes. Each holder of Depositary Shares agrees to indemnify Midatech, the Depositary, the custodian and each of their respective agents, directors, employees and affiliates for, and hold each of them harmless from, any claims with respect to taxes and additions to tax (including applicable interest and penalties thereon) arising from any refund of taxes, reduced rate of withholding at source or other tax benefit obtained for or by such holder. A holder ’ s obligations under this paragraph shall survive any transfer of American Depositary Receipts, any surrender of American Depositary Receipts and withdrawal of deposited securities or the termination of the deposit agreement.

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PART II

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

Not applicable.

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.

Not applicable.

ITEM 15.

CONTROLS AND PROCEDURES.

A.	Disclosure Controls and Procedures

Midatech has carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) under the supervision and the participation of the Group’s management, which is responsible for the management of the internal controls, and which includes Midatech ’ s Chief Executive Officer and Chief Financial Officer (Midatech ’ s principal executive officer and principal financial officer, respectively). The term “ disclosure controls and procedures, ” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC ’ s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Group’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Based upon our evaluation of our disclosure controls and procedures as of January 31, 2017, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable level of assurance.

B.	Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed, under the supervision of the Chief Executive Officer and the Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with International Financial Reporting Standards.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Moreover, projections of any evaluation of the effectiveness of internal control to future periods are subject to a risk that controls may become inadequate because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

Our management has assessed the effectiveness of internal control over financial reporting as of December 31, 2017 based on the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013. Based on this assessment, our management has concluded that our internal control over financial reporting as of December 31, 2017 was effective.

For the fiscal year ended December 31, 2016, we disclosed that there was a material weakness in the design and operating effectiveness of our internal controls over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. A description of the identified material weakness in internal control over financial reporting is as follows:

The incorrect presentation of credits for product returns, rebates, discounts and other incentives based on sales price throughout 2016 as part of cost of sales as opposed to being shown as deductions from revenue.

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In the case of this material weakness, we had incorrectly mapped such amounts from our trial balance to our financial statements as cost of sales instead of as a reduction of revenues, and we did not prevent this error from being recorded, nor did we detect it after it had occurred. This weakness was appropriately remediated in fiscal 2017.

Although Midatech has instituted remedial measures to address the material weaknesses identified and to continually review and evaluate its internal control systems to allow management to report on the sufficiency of our internal control over financial reporting, Midatech cannot assure you that it will not discover additional weaknesses in its internal control over financial reporting. Any such additional weaknesses or failure to adequately remediate any existing weakness could materially and adversely affect Midatech ’ s financial condition and results of operations, as well as Midatech ’ s ability to accurately report its financial condition and results of operations in a timely and reliable manner.

Additionally, the material weakness described above, or other material weaknesses or significant deficiencies Midatech may become aware of in the future, could result in Midatech determining that its controls and procedures are not effective in future periods or could result in a material misstatement of the consolidated financial statements that would not be prevented or detected.

Any failure to maintain effective internal controls over financial reporting could severely inhibit Midatech ’ s ability to accurately report its financial condition, results of operations or cash flows. If Midatech is unable to conclude that its internal control over financial reporting is effective, or if its independent registered public accounting firm determines it has a material weakness or significant deficiency in its internal control over financial reporting once that firm begin its Section 404 reviews, Midatech could lose investor confidence in the accuracy and completeness of its financial statements and reports, the market price of the Ordinary Shares and/or Depositary Shares could decline, and Midatech could be subject to sanctions or investigations by the NASDAQ, the SEC or other regulatory authorities. Failure to remedy any material weakness in its internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict Midatech ’ s future access to the capital markets.

Remediation efforts to address material weakness identified as at December 31, 2016

The material weakness disclosed in our annual report on Form 20-F for the year ended December 31, 2016 pertaining to a deficiency in the presentation of credits for product returns, rebates, discounts and other incentives based on sales price throughout 2016 as part of cost of sales as opposed to being shown as deductions from revenue. The specific remediation actions taken by management included:

Implementing additional controls and procedures to facilitate senior management and audit committee review in order to remediate the underlying causes of the material error in Midatech ’ s financials; and

Seeking outside assistance, as necessary, from third party experts when or if Midatech enters into or effects future, non-routine transactions which involve complex accounting and related disclosure matters.

C.	Attestation Report of the Registered Public Accounting Firm

This annual report does not include an attestation report of Midatech ’ s registered public accounting firm as it is an emerging growth company.

D.	Changes in Internal Control Over Financing Reporting

Midatech regularly reviews its system of internal control over financial reporting to ensure it maintain an effective internal control environment. Other than the changes discussed above, there were no changes in Midatech ’ s internal control over financial reporting that occurred during the fiscal year ended December 31, 2017 that materially affected, or is reasonably likely to materially affect, Midatech ’ s internal control over financial reporting.

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT.

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ITEM 16B.

CODE OF ETHICS.

Midatech ’ s Code of Business Conduct and Ethics is applicable to all of its employees, officers and directors and is available on our website at http://www.midatechpharma.com. The Code of Business Conduct and Ethics provides that our directors and officers are expected to avoid any action, position or interest that conflicts with the interests of the Group or gives the appearance of a conflict. Midatech ’ s directors and officers have an obligation under the Code of Business Conduct and Ethics to advance the Group’s interests when the opportunity to do so arises. Midatech expects that any amendment to this code, or any waivers of its requirements, will be disclosed on its website. Information contained on, or that can be accessed through, Midatech ’ s website is not incorporated by reference into this document, and you should not consider information on the website to be part of this document.

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table sets forth by category of service the total fees for services provided to us by BDO LLP, our independent registered public accounting firm, during the fiscal years ended December 31, 2017 and 2016.

	2017		2016
	(£’s in thousands)
Audit Fees(1)		350		311
Audit-Related Fees(2)		-		-
Tax Fees(3)		-		-
All Other Fees(4)		-		-
Total		350		311

______________

(1)

Audit fees consist of the aggregate fees billed in connection with the audit and United Kingdom statutory audit of Midatech ’ s annual consolidated financial statements included in this annual report, the issuance of consent letters, and interim reviews of Midatech ’ s half-yearly financial information.

(2)

Audit-related fees are fees for services that are traditionally performed by the independent accountants, including consultations concerning financial accounting and reporting, and employee benefit plan audits, and due diligence on mergers or acquisitions.

(3)

Represents the aggregate fees billed for tax compliance, tax advice and tax consulting services.

(4)

Represents the aggregate fees billed for all products and services provided that are not included under “ audit fees ” , “ audit related fees or “ tax fees, ” including, but not limited to, fees billed for services relating to mergers and acquisitions.

Audit Committee Pre-Approval Policies and Procedures

The pre-approval of the Audit Committee or member thereof, to whom pre-approval authority has been delegated, is required for the engagement of our independent auditors to render audit or non-audit services. Audit Committee pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the Audit Committee regarding Midatech ’ s engagement of the independent auditors, provided the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service provided and such policies and procedures do not include delegation of the Audit Committee ’ s responsibilities under the Exchange Act to management. Audit Committee pre-approval of non-audit services (other than review and attest services) also will not be required if such services fall within available exceptions established by the SEC.

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

Not applicable.

ITEM 16E.

PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

Not applicable.

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ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTS.

Not applicable.

ITEM 16G.

CORPORATE GOVERNANCE.

Companies with securities listed on NASDAQ are required to comply with United States federal securities laws, including the Sarbanes-Oxley Act of 2002, as well as certain NASDAQ rules and corporate governance requirements. As a foreign private issuer, however, Midatech is entitled to follow our home country practice in lieu of the NASDAQ corporate governance standards, subject to certain exceptions and except to the extent that such exemptions would be contrary to United States federal securities laws. The United Kingdom laws and practices followed by Midatech in lieu of NASDAQ rules are described below:

Midatech does not follow NASDAQ ’ s requirements applicable to independent director oversight of director nominations, which require that director nominees either be selected or recommended by independent directors. In accordance with United Kingdom law and practice, the Company ’ s directors are nominated by the Nominations Committee, which is comprised of all of the directors of the company.

Midatech does not follow NASDAQ ’ s requirement that the compensation committee be comprised of Independent Directors, as defined under Rule 5605(a)(2). One of the members of Midatech ’ s compensation committee, Mr. Stahel, is not considered independent under the applicable NASDAQ rule. He is, however, considered to be independent under United Kingdom law and practice.

Midatech does not require that the compensation committee consider the specific factors affecting consultant independence that are set forth in NASDAQ Rule 5605(d)(3)(D). Midatech ’ s compensation committee may engage independent compensation consultants at its discretion.

Midatech does not follow NASDAQ ’ s requirements that non-executive directors meet on a regular basis without management present. Midatech ’ s Board of Directors may choose to meet in executive session at their discretion.

Midatech does not follow NASDAQ ’ s quorum requirements for stockholder meetings. In accordance with United Kingdom law and practice, Midatech ’ s Articles of Association provide alternative quorum requirements that are generally applicable to meetings of shareholders.

Midatech does not follow NASDAQ ’ s requirements to seek shareholder approval for the implementation of certain equity compensation plans and issuances of ordinary shares. In accordance with the AIM Rules, Midatech is not required to seek shareholder approval in such circumstances.

ITEM 16H.

MINE SAFETY DISCLOSURE.

Not applicable.

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PART III

ITEM 17.

FINANCIAL STATEMENTS.

The Company has elected to provide financial statements pursuant to Item 18.

ITEM 18.

FINANCIAL STATEMENTS.

The financial statements are filed as part of this annual report beginning on page F-1.

The financial statements of the Company included in this Annual Report do not constitute statutory financial statements within the meaning of the UK Companies Act 2006. The Company’s statutory financial statements have been reported on by BDO LLP, independent auditors, under applicable law and International Standards on Auditing (United Kingdom). The Independent Auditors’ Report of BDO LLP on the statutory financial statements for each of the years ended December 31, 2017, 2016 and 2015 were unqualified.

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ITEM 19.

EXHIBITS.

Exhibit Number	Title

1.1	Articles of Association of Midatech Pharma PLC (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
2.1	Specimen certificate representing ordinary shares of Midatech Pharma PLC (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
2.2	Form of Deposit Agreement by and among Midatech Pharma PLC, Deutsche Bank Trust Company Americas, as depositary, and all owners and holders from time to time of American Depositary Shares thereunder (incorporated by reference to Exhibit 99A to the Company’s Registration Statement on Form F-6/A (File No. 333-207186), filed with the SEC on October 27, 2015).
2.3	Form of American Depositary Receipt (included in Exhibit 2.2).
2.4	Form of Warrant Assumption Agreement by and between Midatech Pharma PLC and DARA BioSciences, Inc. (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form F-4 /A (File No. 333-206305), filed with the SEC on October 9 , 2015, as amended).
2.5	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4 to DARA BioSciences, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed with the SEC on May 14, 2010).
2.6	Form of Class B Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.3 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on December 29, 2010).
2.7	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on January 18, 2012).
2.8	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on April 9, 2012).
2.9	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on October 22, 2013).
2.10	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.1 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on February 12, 2014).
2.11	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on May 30, 2014).
2.12	Form of “Phase 2b” Common Stock Purchase Warrant issued to General Hospital Corporation d/b/a Massachusetts General Hospital (incorporated by reference to Exhibit 4.1 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on December 15, 2014).
2.13	Form of “FDA Approval” Common Stock Purchase Warrant issued to General Hospital Corporation d/b/a Massachusetts General Hospital (incorporated by reference to Exhibit 4.2 to DARA BioSciences, Inc.’s Current Report on Form 8-K filed with the SEC on December 15, 2014).
4.1	Warrant Instrument, dated as of February 24, 2017, constituting warrants to subscribe for ordinary shares in Midatech Pharma PLC (incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 20-F (File No. File No.: 001-37652), filed with the SEC on April 6, 2017).
4.2	Debenture, dated as of February 24, 2017, between Midatech Pharma PLC, Midatech Ltd., and Midatech Pharma (Wales) Limited as the Original Chargors and Silicon Valley Bank as the Bank (incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 20-F (File No. File No.: 001-37652), filed with the SEC on April 6, 2017).
4.3#	Midatech Pharma PLC 2016 United States Option Plan (incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-214969), filed with the SEC on December 8, 2016).
4.4#	Midatech Pharma PLC 2014 Enterprise Management Incentive Scheme (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form F-4 /A (File No. 333-206305), filed with the SEC on October 9 , 2015, as amended).
4.5#	Form of Option Agreement (included in Exhibit 4.4).
4.6	Form of Warrant Exchange Agreement dated as of November 28, 2014, by and between Midatech Pharma PLC and certain warrantholders of Midatech Limited (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.7	Nominated Advisor and Broker Agreement, dated as of December 2, 2014, by and between Midatech Pharma PLC and Panmure Gordon (UK) Limited (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).

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4.8	Patent and Know-How Agreement, dated June 21, 2002, as amended on October 14, 2004, by and between Consejo Superior de Investigaciones Cientificas and Midatech Limited (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.9	Consortium Agreement, dated as of June 25, 2012, by and among Midatech Limited, Cardiff University, Inserm-Transfert SA, Nanopass Technologies Ltd., Leiden University Medical Center, Kings College London, Institut National de la Sante et de la Recherche Medicale, Marseille and Linkopings University (incorporated by reference to Exhibit 10.15 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.10 †	Asset Purchase Agreement, dated as of December 17, 2015, by and between Galena Biopharma, Inc. and Midatech Pharma PLC (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F (File No. 001-37652), filed with the SEC on April 14, 2016).
4.11 †	License and Supply Agreement dated as of July 17, 2014, by and between MonoSol RX, LLC and Galena Biopharma, Inc. (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F (File No. 001-37652), filed with the SEC on April 14, 2016).
4.12 †	License and Supply Transfer Agreement dated as of December 16, 2015, by and between MonoSol RX, LLC and Galena Biopharma, Inc. (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F (File No. 001-37652), filed with the SEC on April 14, 2016).
4.13 †	Distribution and Licence Agreement dated as of September 7, 2012, by and between Helsinn Healthcare SA and DARA BioSciences, Inc. (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F (File No. 001-37652), filed with the SEC on April 14, 2016).
4.14 †	Commercialization Agreement dated as of March 9, 2015, by and between Onxeo S.A. and DARA BioSciences, Inc. (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F (File No. 001-37652), filed with the SEC on April 14, 2016).
4.15 †	Master Service Agreement, dated as of October 25, 2013, by and between DARA Biosciences, Inc. and Alamo Pharma Services, Inc. including the Sales Representative Sharing Agreement by and among DARA Biosciences Inc., Alamo Pharma Services, Inc. and Mission Pharmacal Company (attached as Exhibit A), and the Co-Promotion Agreement by and among DARA BioSciences, Inc., Alamo Pharma Services, Inc. and Mission Pharmacal Company (attached as Attachment B) (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F (File No. 001-37652), filed with the SEC on April 14, 2016).
4.16#	Consultancy Agreement, dated as of April 15, 2014, by and between Midatech Limited and Chesyl Pharma Limited (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.17#	Service Agreement dated as of December 3, 2014, by and between Midatech Pharma PLC and Dr. James Phillips (incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.18#	Service Agreement dated as of December 3, 2014, by and between Midatech Pharma PLC and Nicholas Robbins-Cherry (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.19#	Executive Employment Agreement dated as of January 1, 2016, by and between Midatech Pharma US, Inc. and David Benharris (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F (File No. 001-37652), filed with the SEC on April 14, 2016).
4.20#	Appointment Agreement, dated as of April 15, 2014, by and between Midatech Limited and Rolf Stahel (incorporated by reference to Exhibit 10.20 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.21#	Revised Appointment Agreement, dated as of December 2, 2014, by and between Midatech Pharma PLC and Rolf Stahel (incorporated by reference to Exhibit 10.21 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.22#	Form of Appointment Letter between Midatech Pharma PLC and certain directors of Midatech Pharma PLC (incorporated by reference to Exhibit 10.22 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.23#	Deed of Indemnity dated August 5, 2015 (incorporated by reference to Exhibit 10.23 to the Company’s Registration Statement on Form F-4 (File No. 333-206305), originally filed with the SEC on August 11, 2015, as amended).
4.24#	Contract of Employment dated September 1, 2014 by and between Midatech Limited and Craig Cook (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F (File No. 001-37652), filed with the SEC on April 14, 2016).

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4.25†	License Agreement, dated as of 6 June 2017, by and between Novartis Pharma AG and Midatech Limited (incorporated by reference to Exhibit 99.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed with the SEC on July 19, 2017).
4.26*	Credit, Guaranty and Security Agreement, dated as of December 29, 2017 by and among MidCap Financial Trust, as administrative agent, the Lenders listed therein, the Company, DARA Therapeutics, Inc., Midatech Pharma US Inc., Midatech Pharma (Wales) Limited and Midatech Limited.
4.27#*	The Midatech Pharma Share Incentive Plan.
4.28# ††*	Settlement Agreement, dated as of March 14, 2018, by and between the Company and Dr. James Phillips.
8.1*	Subsidiaries of Midatech Pharma PLC.
12.1*	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
12.2*	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
13.1*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
15.1*	Consent of BDO LLP, independent registered public accounting firm.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Scheme Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

___________

* Filed herewith.

# Management contract or compensatory plan or arrangement.

† Confidential treatment has been granted as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.

†† Confidential treatment has been requested as to portions of the exhibit. Confidential materials omitted and filed separately with the Securities and Exchange Commission.

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SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

	MIDATECH PHARMA PLC
	(Registrant)

	By:	/s/ James N. Phillips
	Name:	James N. Phillips
	Title:	Chief Executive Officer

Date: April 23 , 2018

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MIDATECH PHARMA PLC

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated statements of comprehensive income for the years ended 31 December 2017, 2016 and 2015	F-3
Consolidated statements of financial position at 31 December 2017, 2016 and 2015	F-4
Consolidated statements of cash flows for the years ended 31 December 2017, 2016 and 2015	F-5
Consolidated statements of changes in equity for the years ended 31 December 2017, 2016 and 2015	F-6
Notes forming part of the consolidated financial statements	F-9

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Midatech Pharma PLC

Abingdon, United Kingdom

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of Midatech Pharma PLC (the “Company”) and subsidiaries as at 31 December 2017, 2016 and 2015, the related consolidated statements of comprehensive income, changes in equity, and cash flows for each of the three years in the period ended 31 December 2017, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BDO LLP

BDO LLP

Reading, United Kingdom

23 April 2018

We have served as the Company’s auditor since 2014.

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Midatech Pharma PLC

Consolidated statements of comprehensive income

for the years ended 31 December 2017, 2016 and 2015

	Note		2017			2016			2015
				£’000			£’000		£'000

Revenue		3		6,758			6,376			775
Grant revenue				840			547			600
Total revenue				7,598			6,923			1,375
Cost of sales				(926	)		(667	)		(70	)
Gross profit				6,672			6,256			1,305

Research and development costs (reclassified)				(10,185	)		(7,796	)		(8,710	)
Distribution costs, sales and marketing (reclassified)				(9,417	)		(12,510	)		(605	)
Administrative costs (reclassified)				(3,148	)		(5,123	)		(4,908	)
Impairment of intangible assets		13		(1,500	)		(11,413	)		-
Loss from operations		4		(17,578	)		(30,586	)		(12,918	)

Finance income		6		415			1,337			1,691
Finance expense		6		(166	)		(73	)		(5	)
Loss before tax				(17,329	)		(29,322	)		(11,232	)

Taxation		7		1,265			9,160			1,133
Loss for the year attributable to the owners of the parent				(16,064	)		(20,162	)		(10,099	)
Other comprehensive income:
Items that will or may be reclassified subsequently to profit or loss when specific conditions are met:
Exchange gains/(losses) arising on translation of foreign operations				(1,233	)		3,228			399
Total other comprehensive (loss) income, net of tax				(1,233	)		3,228			399
Total comprehensive loss attributable to the owners of the parent				(17,297	)		(16,934	)		(9,700	)
Loss per share
Basic and diluted loss per ordinary share - pence		8		(31p	)		(56p	)		(36p	)

The notes form an integral part of these consolidated financial statements

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Midatech Pharma PLC

Consolidated statements of financial position

at 31 December 2017, 2016 and 2015

	Note		2017			2016			2015
Assets				£’000			£’000			£’000
Non-current assets
Property, plant and equipment		9		2,529			2,766			1,984
Intangible assets		10		27,647			31,172			41,339
Other receivables due in greater than one year		16		465			448			387
				30,641			34,386			43,710
Current assets
Inventories		18		941			817			459
Trade and other receivables		16		3,242			2,439			2,496
Taxation				1,196			1,439			1,201
Cash and cash equivalents		17		13,204			17,608			16,175
				18,583			22,303			20,331
Total assets				49,224			56,689			64,041
Liabilities
Non-current liabilities
Borrowings		20		6,185			1,620			1,508
Deferred tax liability		23		-			-			6,547
				6,185			1,620			8,055
Current liabilities
Trade and other payables		19		8,002			8,407			7,084
Borrowings		20		361			538			442
Derivative financial liability – equity settled		21		-			400			1,573
				8,363			9,345			9,099
Total liabilities				14,548			10,965			17,154

Issued capital and reserves attributable to owners of the parent
Share capital		24		1,003			1,002			1,002
Share premium		25		52,939			47,211			31,643
Merger reserve		25		53,003			53,003			52,803
Shares to be issued		25		-			-			200
Foreign exchange reserve		25		2,385			3,618			390
Accumulated deficit		25		(74,654	)		(59,110	)		(39,151	)
Total equity				34,676			45,724			46,887
Total equity and liabilities				49,224			56,689			64,041

The financial statements were approved and authorised for issue by the Board of Directors on 20 April 2018 and were signed on its behalf by:

Nick Robbins-Cherry

Chief Financial Officer

The notes form an integral part of these consolidated financial statements.

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Midatech Pharma PLC

Consolidated statements of cash flows

for the years ended 31 December 2017, 2016 and 2015


	Note		2017			2016			2015
				£’000			£’000		£'000
Cash flows from operating activities
Loss for the year				(16,064	)		(20,162	)		(10,099	)
Adjustments for:
Depreciation of property, plant and equipment		9		983			772			501
Amortisation of intangible fixed assets		10		1,577			3,583			236
Loss on disposal of fixed assets				27			-			-
Net interest (income)/expense		6		(249	)		(1,264	)		(1,686	)
Impairment of intangible assets		13		1,500			11,413			-
Gain on bargain purchase		12		-			-			(165	)
Share based payment expense		5		520			203			170
Taxation		7		(1,265	)		(9,160	)		(1,133	)

Cash flows from operating activities before changes in working capital				(12,971	)		(14,615	)		(12,176	)

Increase in inventories				(202	)		(237	)		(62	)
Increase in trade and other receivables				(968	)		(242	)		(1,540	)
(Decrease)/Increase in trade and other payables				(267	)		358			711

Cash used in operations				(14,408	)		(14,736	)		(13,067	)

Taxes received				1,455			1,650			646
Net cash used in operating activities				(12,953	)		(13,086	)		(12,421	)
Investing activities
Purchases of property, plant and equipment		9		(707	)		(1,347	)		(922	)
Purchase of intangibles		10		(778	)		(19	)		(3	)
Acquisition of subsidiary, net of cash acquired		11		-			-			1,867
Acquisition of business, net of cash acquired		12		-			-			(2,528	)
Interest received				15			164			53
Net cash used in investing activities				(1,470	)		(1,202	)		(1,533	)

Financing activities
Interest paid				(111	)		(74	)		(5	)
Payments to finance lease creditors				(25	)		(69	)		(49	)
Repayment of borrowings				(552	)		(235	)		(165	)
New bank loan				5,237			65			-
Share issues net of costs		17		5,728			15,568			-
Net cash generated from/(used in) financing activities				10,277			15,255			(219	)

Net (decrease)/increase in cash and cash equivalents				(4,146	)		967			(14,173	)

Cash and cash equivalents at beginning of year				17,608			16,175			30,325

Exchange (losses)/gains on cash and cash equivalents				(258	)		466			23
Cash and cash equivalents at end of year		17		13,204			17,608			16,175

The notes form an integral part of these consolidated financial statements.

F-5

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Midatech Pharma PLC

Consolidated statements of changes in equity

for the years ended 31 December 2017, 2016 and 2015

	Share capital		Share premium			Merger reserve		Foreign exchange reserve			Accumulated deficit			Total Equity
	£'000		£'000				£’000	£'000			£'000			£'000

At 1 January 2017		1,002		47,211			53,003		3,618			(59,110	)		45,724

Loss for the year		-		-			-		-			(16,064	)		(16,064	)
Foreign exchange translation		-		-			-		(1,233	)		-			(1,233	)
Total comprehensive loss		-		-			-		(1,233	)		(16,064	)		(17,297	)
Shares issued on 16 October 2017 – note 17		1		6,157			-		-			-			6,158
Costs associated with share issue – note 17		-		(429	)		-		-			-			(429	)
Share option charge		-		-			-		-			520			520
Total contribution by and distributions to owners		1		5,728			-		-			520			6,249
At 31 December 2017		1,003		52,939			53,003		2,385			(74,654	)		34,676

The notes form an integral part of these consolidated financial statements

F-6

Table of Contents

Midatech Pharma PLC

Consolidated statements of changes in equity

for the years ended 31 December 2017, 2016 and 2015

	Share capital		Share premium			Merger reserve		Shares to be issued			Foreign exchange reserve		Accumulated deficit			Total equity
	£'000		£'000				£’000		£’000		£'000		£'000			£'000

At 1 January 2016		1,002		31,643			52,803		200			390		(39,151	)		46,887
Loss for the year		-		-			-		-			-		(20,162	)		(20,162	)
Foreign exchange translation		-		-			-		-			3,228		-			3,228
Total comprehensive loss		-		-			-		-			3,228		(20,162	)		(16,934	)
Transactions with owners

Shares issued on 31 October 2016 – note 17		-		16,673			-		-			-		-			16,673

Costs associated with share issue – note 17		-		(1,105	)		-		-			-		-			(1,105	)
Share option charge		-		-			-		-			-		203			203

Shares issued as deferred consideration for business combination		-		-			200		(200	)		-		-			-
Total contribution by and distributions to owners		-		15,568			200		(200	)		-		203			15,771
At 31 December 2016		1,002		47,211			53,003		-			3,618		(59,110	)		45,724

The notes form an integral part of these consolidated financial statements

F-7

Table of Contents

Midatech Pharma PLC

Consolidated statements of changes in equity

for the years ended 31 December 2017, 2016 and 2015

	Share capital		Share premium		Merger reserve		Shares to be issued			Foreign exchange reserve			Accumulated deficit			Total equity
	£'000		£'000			£’000		£’000		£'000			£'000			£'000

At 1 January 2015		1,001		31,643		37,776		800			(9	)		(29,222	)		41,989
Loss for the year		-		-		-		-			-			(10,099	)		(10,099	)
Foreign exchange translation		-		-		-		-			399			-			399
Total comprehensive loss		-		-		-		-			399			(10,099	)		(9,700	)
Transactions with owners

Shares issued on exercise of share options		1		-		-		-			-			-			1
Shares, warrants and share options issued as consideration for a business combination – 4 December 2015		-		-		14,427		-			-			-			14,427
Share option charge		-		-		-		-			-			170			170

Shares issued as deferred consideration for business combination		-		-		600		(600	)		-			-			-
Total contribution by and distributions to owners		1		-		15,027		(600	)		-			170			14,598
At 31 December 2015		1,002		31,643		52,803		200			390			(39,151	)		46,887

The notes form an integral part of these consolidated financial statements.

F-8

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies

General information

Midatech Pharma PLC (the "Company") is a company registered and domiciled in England. The Company was incorporated on 12 September 2014.

The Company is a public limited company, which has been listed on the Alternative Investment Market (“AIM”), which is a submarket of the London Stock Exchange, since 8 December 2014.

In addition, since 4 December 2015 the Company has American Depository Receipts (“ADRs”) registered with the US Securities and Exchange Commission (“SEC”) and is listed on The NASDAQ Capital Market.

Basis of preparation

The Group was formed on 31 October 2014 when Midatech Pharma PLC entered into an agreement to acquire the entire share capital of Midatech Limited and its wholly owned subsidiaries through the issue equivalent of shares in the Company which took place on 13 November 2014.

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) and as adopted by the European Union ("adopted IFRSs") and are presented in £’000’s Sterling.

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the periods presented.

Reclassification of 2016 and 2015 comparative operating costs

As the nature of the operations of the Group have changed over the last two years management has reviewed how costs are presented on the income statement, allocated between:

Research and development costs;

Distribution costs, sales and marketing; and

Administrative costs.

In order to give a clearer and more meaningful picture of activity within the business, certain costs, previously shown within administrative costs have been reclassified as either research and development costs, or distribution costs, sales and marketing. Comparative figures for 2016 and 2015 have been reclassified using the same allocation basis as the 2017 results to provide consistency.

	2016 reclassified		2016 original		2015 reclassified		2015 original
		£’000		£’000		£’000		£’000

Research and development costs		7,796		6,684		8,710		5,920
Distribution costs, sales and marketing		12,510		9,523		605		374
Administrative costs		5,123		9,222		4,908		7,929
		25,429		25,429		14,223		14,223

F-9

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Adoption of new and revised standards

A number of new standards, amendments to standards, and interpretations are not effective for 2017, and therefore have not been applied in preparing these financial statements.

IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted.

The Group plans to adopt the new standard on the required effective date. The Company expects no significant impact on its operating results or financial position.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

IFRS 15 Revenue from contracts with customers amends revenue recognition requirements and establishes principles for reporting information regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customer. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related interpretations.

The new revenue standard will supersede all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. The Group plans to adopt the new standard on the required effective date.

The Company has performed an assessment of the impact of IFRS 15 and has concluded that:

Grant Revenue is outside the scope of IFRS 15.

The Group will implement the new standard from January 1, 2018 and will apply the modified retrospective method, which requires the recognition of the cumulative effect of initially applying IFRS 15 as at January 1, 2018, to retained earnings and not restate prior years. However, since the results of the Group’s impact assessment indicates that IFRS 15 is not expected to significantly change the amount or timing of revenue recognition in 2017 or prior periods, an insignificant cumulative adjustment to increase retained earnings will be made.

F-10

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Adoption of new and revised standards (continued)

IFRS 16 Leases

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the re-measurement of the lease liability as an adjustment to the right-of-use asset.

IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions permit certain reliefs.

During 2017 the Group assessed the potential effect of IFRS 16 on its consolidated financial statements. Refer to note 26 for further information on the Group’s operating leases.

The current undiscounted operating lease commitments of £848k as of 31 December 2017 and disclosed in Note 26 provide, subject to the provision of the standard, an indicator of the impact of the implementation of IFRS 16 on the Group’s consolidated balance sheet.

Upon adoption of the new standard, a portion of the annual operating lease costs, which is currently fully recognised as a functional expense, will be recorded as interest expense. In addition, the portion of the annual lease payments recognised in the cash flow statement as a reduction of the lease liability will be recognised as an outflow from financing activities. Given the leases involved and assuming the current low interest rate environment continues, the Group does not currently expect these effects to be significant.

There are no other IFRS standards or interpretations not currently effective that would be expected to have a material impact on the Group.

Basis for consolidation

The Group financial statements consolidate those of the parent company and all of its subsidiaries. The parent controls a subsidiary if it has power over the investee to significantly direct the activities, exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investor’s returns. All subsidiaries have a reporting date of 31 December.

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-Group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

The loss and other comprehensive income of Midatech Pharma US, Inc. (formerly DARA Biosciences, Inc.) acquired in December 2015 is recognised from the effective date of acquisition i.e. 4 December 2015. Similarly, the loss and other comprehensive income of Zuplenz ^® , acquired as a business by Midatech Pharma PLC, is recognised from 24 December 2015.

F-11

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

The consolidated financial statements consist of the results of the following entities:

Entity	Summary description
Midatech Pharma PLC	Ultimate holding company
Midatech Limited	Trading company
Midatech Pharma (Espana) SL (formerly Midatech Biogune SL)	Trading company
Midatech Andalucia SL	Dormant
PharMida AG	Dormant
Midatech Pharma (Wales) Limited (formerly Q Chip Limited)	Trading company
Midatech Pharma US, Inc. (formerly DARA Biosciences, Inc.)	Trading company
Dara Therapeutics, Inc.	Dormant
Midatech Pharma Pty	Trading company

Going concern

The Group is subject to a number of risks similar to those of other development and early-commercial stage pharmaceutical companies. These risks include, amongst others, generation of revenues from the existing product portfolio and in due course the development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals of its pipeline products. Ultimately, the attainment of profitable operations is dependent on future uncertain events which include obtaining adequate financing to fulfil the Group’s commercial and development activities and generating a level of revenue adequate to support the Group's cost structure.

The Group has experienced net losses and significant cash outflows from cash used in operating activities over the past years as it develops its portfolio. As at 31 December 2017 the Group had total equity of £34.7m which includes an accumulated deficit of £74.7m, it incurred a net loss for the year to 31 December 2017 of £16.1m and used cash in operating activities of £13.0m for the same period. As at 31 December 2017, the Group had cash and cash equivalents of £13.2m.

The Board of Directors have prepared cash flow forecasts and considered the cash flow requirement for the Group for the next five years. These forecasts show that further financing is likely to be required during the course of the next 12 months, assuming, inter alia , that all development programmes continue as currently planned. This requirement for additional financing represents a material uncertainty that may cause significant doubt upon the Group’s ability to continue as a going concern, however, the Board of Directors is examining a range of non-dilutive, financing options to meet this near-term cash need that, if successful, would enable the Group to deliver on these key value-driving programmes without requiring equity finance in the short-term.

Revenue

The Group’s income streams include milestone income from research and development contracts and the sale of goods. Milestone income is recognised as revenue in the accounting period in which the milestones are achieved. Milestones are agreed on a project by project basis and will be evidenced by set deliverables.

F-12

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Revenue (continued)

Revenue from the sales of goods by Midatech Pharma US, Inc. is recognised when the significant risks and rewards of ownership are transferred to the buyer and it is probable the previously agreed upon payment will be received. These criteria are considered to be met when the goods are delivered to the buyer. Revenue represents the full list price of products shipped to wholesalers and other customers less product returns, discounts, rebates and other incentives based on the sales price.

Sales to wholesalers provide for selling prices that are fixed on the date of sale, although Midatech Pharma US, Inc. offers certain discounts to group purchasing organisations and governmental programmes. The wholesalers take title to the product, bear the risk and rewards and have ownership of the inventory. The Group has sufficient experience with their material wholesaler distribution channel to reasonably estimate product returns from its wholesalers while the wholesalers are still holding inventory.

Grant revenue

Where grant income is received, which is not a direct re-imbursement of related costs and at the point at which the conditions have been met for recognition as income, this has been shown within grant revenue.

Government grants and government loans

Where government grants are received as a re-imbursement of directly related costs they are credited to research and development expense in the same period as the expenditure towards which they are intended to contribute.

The Group receives government loans that have a below-market rate of interest. These loans are recognised and measured in accordance with IAS 39. The benefit of the below-market rate of interest is measured as the difference between the initial carrying value of the loan discounted at a market rate of interest and the proceeds received.

The difference is held within deferred revenue as a government grant and is released as a credit to research and development expense in line with the expenditure to which it relates. In a situation where the proceeds were invested in plant and equipment, the deferred revenue is credited to research and development within the income statement in line with the depreciation of the acquired asset.

Business combinations and externally acquired intangible assets

Business combinations are accounted for using the acquisition method at the acquisition date, which is the date at which the Group obtains control over the entity. The cost of an acquisition is measured as the amount of the consideration transferred to the seller, measured at the acquisition date fair value, and the amount of any non-controlling interest in the acquiree. The Group measures goodwill initially at cost at the acquisition date, being:

the fair value of the consideration transferred to the seller, plus

the amount of any non-controlling interest in the acquiree, plus

if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree re-measured at the acquisition date, less

the fair value of the net identifiable assets acquired and assumed liabilities

Acquisition costs incurred are expensed and included in administrative costs. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration, whether it is an asset or liability, will be recognised either as a profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not re-measured.

F-13

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Business combinations and externally acquired intangible assets (continued)

An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights.

Externally acquired intangible assets other than goodwill are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives where they are in use. The amortisation expense is included within the distribution costs, sales and marketing in the consolidated statement of comprehensive income. Goodwill is stated at cost less any accumulated impairment losses.

The amounts ascribed to intangibles recognised on business combinations are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below).

In-process research and development (IPRD) programmes acquired in business combinations are recognised as assets even if subsequent expenditure is written off because the criteria specified in the policy for development costs below are not met. IPRD is subject to annual impairment testing until the completion or abandonment of the related project. No further costs are capitalised in respect of this IPRD unless they meet the criteria for research and development capitalisation as set out below.

As per IFRS 3, once the research and development of each defined project is completed, the carrying value of the acquired IPRD is reclassified as a finite-lived asset and amortised over its useful life.

Product and marketing rights acquired in business combinations are recognised as assets and are amortised over their useful life. Under the terms of various licenses, the Group holds the US rights to sell four products approved by the US Food and Drug Administration: Zuplenz ^® , Gelclair ^® , Oravig ^® and Soltamox ^® .

The significant intangibles recognised by the Group and their useful economic lives are as follows:

Goodwill	-	Indefinite life
IPRD	-	In process, not yet amortising
IT and website costs	-	4 years
Product and marketing rights	-	Between 2 and 13 years

The useful economic life of IPRD will be determined when the in-process research projects are completed.

Internally generated intangible assets (development costs)

Expenditure on the research phase of an internal project is recognised as an expense in the period in which it is incurred. Development costs incurred on specific projects are capitalised when all the following conditions are satisfied:

Completion of the asset is technically feasible so that it will be available for use or sale

The Group intends to complete the asset and use or sell it

The Group has the ability to use or sell the asset and the asset will generate probable future economic benefits (over and above cost)

There are adequate technical, financial and other resources to complete the development and to use or sell the asset, and

The expenditure attributable to the asset during its development can be measured reliably.

Judgement is applied when deciding whether the recognition criteria are met. Judgements are based on the information available. In addition, all internal activities related to the research and development of new projects are continuously monitored by the Directors. The Directors consider that the criteria to capitalise development expenditure are not met for a product prior to that product receiving regulatory approval in at least one country.

F-14

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Business combinations and externally acquired intangible assets (continued)

Development expenditure not satisfying the above criteria, and expenditure on the research phase of internal projects are included in research and development costs recognised in the Consolidated Statement of Comprehensive Income as incurred. No projects have yet reached the point of capitalisation.

Impairment of non-financial assets

Assets that have an indefinite useful life, for example goodwill, or intangible assets not ready for use, such as IPRD, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. An impairment charge of £1.5m was recognised in 2017 against the IPRD of the Midatech Pharma (Wales) Ltd cash generating unit. An impairment charge of £11.4m was recognised in 2016 against the product rights of Oravig, a product of Midatech Pharma US

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). The Group at 31 December 2017 had two cash generating units (2016: Two, 2015: Two), see note 13. Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of impairment at each reporting date.

Impairment charges are included in profit or loss, except, where applicable, to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

Patents and trademarks

The costs incurred in establishing patents and trademarks are either expensed in accordance with the corresponding treatment of the development expenditure for the product to which they relate or capitalised if the development expenditure to which they relate has reached the point of capitalisation as an intangible asset.

Joint arrangements

The Group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

The Group classifies its interests in joint arrangements as either:

Joint ventures: where the Group has rights to only the net assets of the joint arrangement.

Joint operations: where the Group has both the rights to assets and obligations for the liabilities of the joint arrangement.

In assessing the classification of interests in joint arrangements, the Group considers:

The structure of the joint arrangement

The legal form of joint arrangements structured through a separate vehicle

The contractual terms of the joint arrangement agreement

Any other facts and circumstances (including any other contractual arrangements).

The Group accounts for its interests in joint ventures using the equity method. The equity accounted joint venture is highly immaterial with no profit and loss impact during 2017 (2016: Nil, 2015: Nil).

F-15

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Joint arrangements (continued)

Any premium paid for an investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

Amounts received under collaborative joint agreements, representing contributions to the Group’s research and development programmes, are recognised as a credit against research and development expense in the period over which the related costs are incurred. All costs related to these collaborative agreements are recorded as research and development expenditure.

The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.

Foreign currency

Transactions entered into by subsidiaries entities in a currency other than the currency of the primary economic environment, in which they operate, are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss.

The presentational currency of the Group is Pounds Sterling, and the reporting currency is also Pounds Sterling. Foreign subsidiaries use the local currencies of the country where they operate. On consolidation, the results of overseas operations are translated into Pounds Sterling at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

Exchange differences recognised in the profit or loss of Group entities on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to other comprehensive income and accumulated in the foreign exchange reserve on consolidation.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.

Financial assets

The Group does not have any financial assets which it would classify as fair value through profit or loss, available for sale or held to maturity. Therefore, all financial assets are classed as loans and receivables as defined below.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

F-16

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Financial assets (continued)

Loans and receivables (continued)

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable.

For trade receivables, which are reported net; such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.

Cash and cash equivalents include cash in hand, deposits held at call with original maturities of three months or less.

Financial liabilities

The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was acquired.

Fair value through profit and loss (“FVTPL”)

The Group assumed fully vested warrants and share options on the acquisition of DARA Biosciences, Inc. The number of ordinary shares to be issued when exercised is fixed, however the exercise prices are denominated in US Dollars being different to the functional currency of the parent company. Therefore, the warrants and share options are classified as equity settled derivative financial liabilities through the profit and loss account. The financial liabilities were valued using the Black-Scholes option pricing model. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporated any interest paid on the financial liability and is included in the ‘other gains and losses’ line item in the income statement. Fair value is determined in the manner described in note 22.

Other financial liabilities include the following items:

Borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.

Government loans received on favourable terms below market rate are discounted at a market rate of interest. The difference between the present value of the loan and the proceeds is held as a government grant within deferred revenue and is released to research and development expenditure in line with when the asset or expenditure is recognised in the income statement.

Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

F-17

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Group has two classes of share in existence:

Ordinary shares of £0.00005 each are classified as equity instruments;

Deferred shares of £1 each are classified as equity instruments.

Retirement benefits: defined contribution schemes

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

Share-based payments

The Group operates a number of equity-settled, share-based compensation plans, under which the entity receives services from employees as consideration for equity instruments (options) of the Group. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted:

including any market performance conditions (including the share price);

excluding the impact of any service and non-market performance vesting conditions (for example, remaining an employee of the entity over a specified time period); and

including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. Where vesting conditions are accelerated on the occurrence of a specified event, such as a change in control or initial public offering, such remaining unvested charge is accelerated to the income statement.

In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement period and grant date.

At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.

Leased assets

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease"), the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum lease payments payable over the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated statement of comprehensive income over the period of the lease and is calculated so that it represents a constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.

F-18

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

1	Accounting policies (continued)

Leased assets (continued)

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.

Deferred taxation

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

the initial recognition of goodwill;

the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax assets or liabilities are recovered or settled.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs.

Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:

Fixtures and fittings Leasehold improvements	- -	25% per annum straight line 10% per annum straight line
Computer equipment	-	25% per annum straight line
Laboratory equipment	-	15% - 25% per annum straight line

Inventories

Inventories are stated at the lower of cost or net realisable value. Net realisable value is the market value. In evaluating whether inventories are stated at the lower of cost or net realisable value, management considers such factors as the amount of inventory on hand and in the distribution channel, estimated time required to sell such inventory, remaining shelf life, and current and expected market conditions, including levels of competition.

If net realisable value is lower than the carrying amount a write down provision is recognised for the amount by which the carrying value exceeds its net realisable value.

Inventory is valued at the lower of cost or market value using the FIFO method. Inventory is charged to the income statement as cost of sales as it is sold.

F-19

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

2	Critical accounting estimates and judgements

The preparation of these consolidated financial statements requires the Group to make estimates, assumptions and judgments that can have a significant impact on the reported amounts of assets and liabilities, revenue and expenses and related disclosure of contingent assets and liabilities, at the respective dates of our financial statements. The Group bases its estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. Management evaluates estimates, assumptions and judgments on a regular basis and makes changes accordingly, and discusses critical accounting estimates with the Board of Directors.

The following are considered to be critical accounting policies because they are important to the portrayal of the financial condition or results of operations of the Group and they require critical management estimates and judgments about matters that are uncertain.

Business combinations

The Board of Directors determine and allocate the purchase price of an acquired business to the assets acquired and liabilities assumed as of the business combination date. The purchase price allocation process requires the use of significant estimates and assumptions, including the estimated fair value of the acquired intangible assets.

While the Board of Directors use their best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the date of acquisition, our estimates and assumptions are inherently uncertain and subject to refinement. Examples of critical estimates in valuing the intangible assets we have acquired or may acquire in the future include but are not limited to:

future expected cash flows from in-process research and development;

the fair value of the property, plant and equipment; and

discount rates.

Judgement has also been applied in the distinction of an asset purchase and business combination with regard to the Zuplenz ^® acquisition. Judgement was applied in assessing the inputs, processes and outputs relevant to the acquisition to arrive at the conclusion that the treatment should be a business combination.

The carrying value of acquired product and marketing rights as at 31 December 2017 was £4.1m (note 10).

Impairment of goodwill and intangible assets not yet ready for use

The carrying value of goodwill was £13.4 million and intangibles not yet ready for use was £10.1 million as at 31 December 2017 (note 10).

F-20

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

2	Critical accounting estimates and judgements (continued)

Impairment of goodwill and intangible assets not yet ready for use (continued)

Share-based payments

The Group accounts for share-based payment transactions for employees in accordance with IFRS 2 Share-based Payment, which requires the measurement of the cost of employee services received in exchange for the options on our ordinary shares, based on the fair value of the award on the grant date.

The Directors selected the Black-Scholes-Merton option pricing model as the most appropriate method for determining the estimated fair value of our share-based awards without market conditions. For performance-based options that include vesting conditions relating to the market performance of our ordinary shares, a Monte Carlo pricing model was used in order to reflect the valuation impact of price hurdles that have to be met as conditions to vesting.

The resulting cost of an equity incentive award is recognised as expense over the requisite service period of the award, which is usually the vesting period. Compensation expense is recognised over the vesting period using the straight-line method and classified in the consolidated statements of comprehensive income.

The assumptions used for estimating fair value for share-based payment transactions are disclosed in note 28 to our consolidated financial statements and are estimated as follows:

Volatility is estimated based on the average annualized volatility of a number of publicly traded peer companies in the biotech sector;

The estimated life of the option is estimated to be until the first exercise period, which is typically the month after the option vests; and

The dividend return is estimated by reference to our historical dividend payments. Currently, this is estimated to be zero as no dividend has been paid in the prior periods.

Income Taxes

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised based upon the likely timing and the level of future taxable profits together with future tax planning strategies.

In 2017, there were approximately £38. 4m of gross unutilised tax losses carried forward (2016: £2 7.0 m 2015: £23. 3 m) No deferred tax asset has been provided in respect of these losses as there was insufficient evidence to support their recoverability in future periods.

Intangible asset recognition

Research and development costs are charged to expense as incurred and are typically made up of salaries and benefits, clinical and preclinical activities, drug development and manufacturing costs, and third-party service fees, including for clinical research organizations and investigative sites. Costs for certain development activities, such as clinical trials, are periodically recognised based on an evaluation of the progress to completion of specific tasks using data such as patient enrolment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses.

F-21

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

3	Segment Information

Revenue

Geographical analysis of revenue by destination of customer

	2017		2016		2015
		£’000		£’000		£’000

United Kingdom		79		491		-
Turkey		-		-		73
Rest of Europe		70		35		25
United States		6,609		5,850		677
		6,758		6,376		775

In 2017, the Group had three customers, all in the Commercial segment, that each accounted for at least 10% of total revenue (2016: three customers, 2015: one customer in Pipeline R&D):

	2017			2016			2015

Customer A (Pipeline R&D)		-			-			11	%
Customer B (Commercial)		20	%		20	%		-
Customer C (Commercial)		17	%		15	%		-
Customer D (Commercial)		13	%		10	%		-

The Group contains two reportable operating segments as follows:

Pipeline Research and Development: The Pipeline Research and Development (“Pipeline R&D”) segment seeks to develop products using the Group’s nanomedicine and sustained release technology platforms.

Commercial: The Commercial segment distributes and sells the Group’s commercial products. Midatech Pharma US, Inc. promotes the Group’s commercial, cancer supportive care products in the US market, in which the Group has exclusive licenses to Soltamox, Oravig and Zuplenz ^® , an exclusive license to distribute, promote and market Gelclair, and a marketing agreement to co-promote two other products: Ferralet 90 and Aquoral. As and when new products are introduced the Commercial segment will include revenues from the marketing of these commercial products.

The accounting policies of the reportable segments are consistent with the Group’s accounting policies described in note 1. Segment results represent the result of each segment without the allocation of head office expenses, interest expense, interest income and tax.

No measures of segment assets and segment liabilities are reported to the Group’s Board of Directors in order to assess performance and allocate resources. There is no intersegment activity and all revenue is generated from external customers.

Both the UK and Spanish entities meet the aggregation criteria and have therefore been presented as a single reportable segment under Pipeline R&D. The research and development activities involve the discovery and development of pharmaceutical products in the field of nanomedicine and sustained release technology. The US operating company is engaged in the sale and marketing of cancer supportive care products and is reported under the Commercial segment.

F-22

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

3	Segment information (continued)

Segmented results for the year ended 31 December 2017

	Pipeline R&D			Commercial			Consolidated
		£’000			£’000			£’000

Revenue		108			6,650			6,758
Grant revenue		840			-			840
Total revenue		948			6,650			7,598

Cost of sales		-			(926	)		(926	)
Research and development costs		(9,830	)		(355	)		(10,185	)
Distribution costs, sales and marketing		(744	)		(7,096	)		(7,840	)
Administrative costs		(1,685	)		(480	)		(2,165	)
Depreciation		(974	)		(9	)		(983	)
Amortisation		(193	)		(1,384	)		(1,577	)
Impairment		(1,500	)		-			(1,500	)
Loss from operations		(13,978	)		(3,600	)		(17,578	)
Finance income								415
Finance expense								(166	)

Loss before tax								(17,329	)

Taxation								1,265
Loss for the year								(16,064	)

F-23

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

3	Segment information (continued)

Segmented results for the year ended 31 December 2016

	Pipeline R&D			Commercial			Consolidated
		£’000			£’000			£’000

Revenue		776			5,600			6,376
Grant revenue		547			-			547
Total revenue		1,323			5,600			6,923

Cost of sales		(9	)		(658	)		(667	)
Research and development costs (reclassified)		(7,786	)		(10	)		(7,796	)
Distribution costs, sales and marketing (reclassified)		(396	)		(8,531	)		(8,927	)
Administrative costs (reclassified)		(2,279	)		(2,072	)		(4,351	)
Depreciation		(762	)		(10	)		(772	)
Amortisation		(193	)		(3,390	)		(3,583	)
Impairment		-			(11,413	)		(11,413	)
Loss from operations		(10,102	)		(20,484	)		(30,586	)
Finance income								1,337
Finance expense								(73	)
Loss before tax								(29,322	)

Taxation								9,160
Loss for the year								(20,162	)

F-24

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

3	Segment information (continued)

Segmented results for the year ended 31 December 2015

	Pipeline R&D			Commercial			Unallocated Costs ⁽¹⁾			Consolidated
		£’000			£’000			£’000			£’000

Revenue		273			502			-			775
Grant revenue		600			-			-			600
Total revenue		873			502			-			1,375

Cost of sales		-			(70	)		-			(70	)
Research and development costs (reclassified)		(8,601	)		(109	)		-			(8,710	)
Distribution costs, sales and marketing (reclassified)		-			(369	)					(369	)
Administrative costs (reclassified)		(1,151	)		(265	)		(2,991	)		(4,407	)
Depreciation		(500	)		(1	)		-			(501	)
Amortisation		(5	)		(231	)		-			(236	)
Loss from operations		(9,384	)		(543	)		(2,991	)		(12,918	)
Finance income											1,691
Finance expense											(5	)
Loss before tax											(11,232	)

Taxation											1,133
Loss for the year											(10,099	)

(1) There were no unallocated costs in 2017 or 2016. Unallocated costs in 2015 represent fees associated with the acquisitions of Midatech Pharma US, Inc. and Zuplenz ^® in 2015.

Non-current assets by location of assets

	2017		2016		2015
		£’000		£’000		£’000

Spain		2,154		2,125		1,433
United Kingdom		15,331		16,489		14,019
United States		13,156		15,772		28,258
		30,641		34,386		43,710

All material additions to non-current assets in 2017, 2016 and 2015 were in the Pipeline R&D segment.

F-25

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

4	Loss from operations


	2017			2016		2015
Loss from operations is stated after charging/(crediting):		£’000			£’000	£'000

Changes in inventories of finished goods and work in progress		2 02			256		62
Write down of inventory to net realisable value		-			287		-
Depreciation of property, plant and equipment		983			772		501
Amortisation of intangible assets – product and marketing rights		1,577			3,583		236
Impairment of intangible assets		1,500			11,413		-
Operating lease expense:
- Property		277			385		246
- Plant and machinery		-			194		86
Foreign exchange(gain)/ loss		(39	)		31		(23	)
Acquisition costs		-			-		2,991
Loss on disposal of property, plant and equipment		27			-		2,553
Gain on bargain purchase		-			-		(165	)
Share based payment		520			203		170

Acquisition costs relate to professional fees incurred on the acquisition of Midatech Pharma US, Inc. and Zuplenz ^® in 2015 and Midatech Pharma (Wales) Limited in 2014.

Amortisation of product and marketing rights are included with distribution costs, sales and marketing expenses.

F-26

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

5	Staff costs

	2017		2016		2015
		£’000		£’000		£’000
Staff costs (including directors) comprise:

Wages and salaries		5,278		6,314		3,731
Defined contribution pension cost (note 27)		158		206		183
Social security contributions and similar taxes		643		769		431
Share based payment		520		203		170
		6,599		7,492		4,515

Employee numbers

The average number of staff employed by the Group during the financial year amounted to:

	2017		2016 reclassified		2015 reclassified

Research and development		62		57		45
General and administration		17		19		22
Sales and marketing		6		8		7
		85		84		74

Key management personnel compensation

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the directors of the Company listed on page 33, and the Chief Operating Officer.

	2017		2016		2015
		£’000		£’000		£’000

Wages and salaries		811		1,054		850
Defined contribution pension cost		68		59		59
Payments made to third parties		142		142		223
Social security contributions and similar taxes		97		152		88
Benefits in kind		3		2		7
Share based payment		388		184		170
		1,509		1,593		1,397

Emoluments disclosed above include the following amounts in respect of the highest paid Director. Directors’ emoluments are disclosed on page 27.

	2017		2016		2015
		£’000		£’000		£’000

Salary		299		448		347
Total pension and other post-employment benefit costs		10		28		24
Benefits in kind		1		1		6
		310		477		377

None of the Directors have exercised share options during the year (2016: Nil, 2015: Nil).

During the year two Directors (2016: 2) participated in a defined contribution pension scheme.

F-27

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

6	Finance income and expense

	2017		2016		2015
Finance income		£’000		£’000		£’000

Interest received on bank deposits		15		164		53
Gain on equity settled derivative financial liability		400		1,173		1,638
Total finance income		415		1,337		1,691

The gain on the equity settled derivative financial liability in 2017 has arisen due to the reduction in the share price and the lapsing of warrants and options as it did in 2016.

	2017		2016		2015
Finance expense		£’000		£’000		£’000

Bank loans		18		16		2
Other loans		91		57		3
Arrangement Fees		57		-		-
Total finance expense		166		73		5

Taxation

	2017		2016			2015
		£’000		£’000			£’000
Current tax credit
Current tax credited to the income statement		1,253		1,936			1,002
Taxation payable in respect of foreign subsidiary		-		(25	)		-
		1,253		1,911			1,002
Deferred tax credit
Reversal of temporary differences (Note 23)		12		7,249			131
Total tax credit		1,265		9,160			1,133

F-28

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

7	Taxation (continued)

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to losses for the year are as follows:

	2017			2016			2015
		£’000			£’000			£’000

Loss before tax		(17,329	)		(29,322	)		(11,232	)

Expected tax credit based on the standard rate of United Kingdom corporation tax at the domestic rate of 19.25% (2016: 20.25%, 2015:20.25%)		(3,336	)		(5,864	)		(2,274	)

Expenses not deductible for tax purposes		412			1,022			185
Adjustments to brought forward values		-			-			(8	)
Additional deduction for R&D expenditure		-			4			(789	)
Surrender of tax losses for R&D tax refund		(1,196	)		(1,503	)		406
Reversal of deferred tax on impairment		-			(3,421	)		-
Unrelieved tax losses and other deductions arising in the period		(156	)		(166	)		(78	)
Foreign exchange differences		( 84	)		712			-
Deferred tax not recognised		3,095			491			1,425
Adjustment in respect of prior years		-			(435	)		-
Total tax credited to the income statement		(1,265	)		(9,160	)		(1,133	)

The taxation credit arises on the enhanced research and development tax credits accrued for the respective periods.

8	Loss per share

	2017			2016			2015
Numerator		£’000			£’000			£’000

Loss used in basic EPS and diluted EPS		(16,064	)		(20,162	)		(10,099	)

Denominator

Weighted average number of ordinary shares used in basic EPS		51,317,320			36,072,752			28,229,814
Basic and diluted loss per share - pence		(31p	)		(56p	)		(36p	)

The Group has made a loss in the current and previous years presented, and therefore the options and warrants are anti-dilutive. As a result, diluted earnings per share is the same for all of the periods presented.

F-29

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

9	Property, plant and equipment

	Fixtures			Leasehold			Computer			Laboratory
	and fittings			improve- ments			equipment			equipment			Total
	£'000			£'000			£'000			£'000			£'000

At 1 January 2015		1,202			880			195			583			2,860
Additions		183			283			173			385			1,024
Acquired through acquisition of subsidiary		-			-			-			16			16
Exchange differences		(66	)		(51	)		(14	)		(1	)		(132	)
At 31 December 2015		1,319			1,112			354			983			3,768

Additions		2			715			43			609			1,369
Disposal		-			-			(1	)		-			(1	)
Transfer		(1,125	)		-			(122	)		1,247			-
Exchange differences		32			172			7			211			422
At 31 December 2016		228			1,999			281			3,050			5,558

Additions		18			41			57			591			707
Disposal		-			-			-			(41	)		(41	)
Exchange differences		6			72			4			69			151
At 31 December 2017		252			2,112			342			3,669			6,375

F-30

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

9	Property, plant and equipment (continued)


	Fixtures			Leasehold			Computer			Laboratory
	and fittings			improve- ments			equipment			equipment			Total
	£'000			£'000			£'000			£'000			£'000
Accumulated depreciation

At 1 January 2015		479			479			140			246			1,344
Charge for the year		3			282			48			168			501
Exchange differences		(24	)		(28	)		(8	)		(1	)		(61	)
At 31 December 2015		458			733			180			413			1,784

Charge for the year		41			134			54			543			772
Transfer		(369	)		(96	)		(118	)		583			-
Exchange differences		19			101			6			110			236
At 31 December 2016		149			872			122			1,649			2,792

Charge for the year		43			330			68			542			983
Disposals		-			-			-			(14	)		(14	)
Exchange differences		4			36			2			43			85
At 31 December 2017		196			1,238			192			2,220			3,846

Net book value
At 31 December 2017		56			874			150			1,449			2,529
At 31 December 2016		79			1,127			159			1,401			2,766
At 31 December 2015		861			379			174			570			1,984
At 1 January 2015		723			401			55			337			1,516

Included within the total net book value of tangible fixed assets is £63k (2016: £33k, 2015: £266k) in respect of assets held under finance leases and similar hire purchase contracts. The depreciation charge for the year on these assets was £62k (2016: £22k, 2015: £26k). These assets were held as security in respect of their finance lease obligations.

No other assets were held as security other than those on finance lease.

F-31

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

10	Intangible assets

	In-process research and development		Product and marketing rights			Goodwill			IT/Website costs			Total
	£'000		£'000			£'000			£'000			£'000

Cost

At 1 January 2015		12,600		-			2,291			12			14,903
Additions		-		-			-			3			3
Acquired in business combinations		-		17,989			9,952			-			27,941
Foreign exchange		-		332			213			-			545

At 31 December 2015		12,600		18,321			12,456			15			43,392


Additions		-		-			-			19			19
Foreign exchange		-		3,160			2,032			-			5,192
Disposals		-		-			-			(8	)		(8	)

At 31 December 2016		12,600		21,481			14,488			26			48,595


Additions		778		-			-			-			778
Foreign exchange		-		(1,625	)		(1,044	)		1			(2,668	)

At 31 December 2017		13,378		19,856			13,444			27			46,705

F-32

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

10	Intangible assets (continued)

	In-process		Product and
	research and		marketing					IT/Website
	development		rights			Goodwill		Costs		Total
	£'000		£'000			£'000		£'000		£'000

Accumulated amortisation

At 1 January 2015		1,800		-			-		9		1,809
Amortisation charge for the year		-		235			-		1		236
Foreign exchange		-		8			-		-		8

At 31 December 2015		1,800		243			-		10		2,053


Amortisation charge for the year		-		3,578			-		5		3,583
Impairment		-		11,413			-		-		11,413
Foreign exchange		-		374			-		-		374
At 31 December 2016		1,800		15,608			-		15		17,423

Amortisation charge for the year		-		1,574			-		3		1,577
Impairment		1,500		-			-		-		1,500
Foreign exchange		-		(1,443	)		-		1		(1,442	)
At 31 December 2017		3,300		15,739			-		19		19,058


Net book value
At 31 December 2017		10,078		4,117			13,444		8		27,647
At 31 December 2016		10,800		5,873			14,488		11		31,172
At 31 December 2015		10,800		18,078			12,456		5		41,339
At 1 January 2015		10,800		-			2,291		3		13,094

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

10	Intangible assets (continued)

The individual intangible assets, excluding goodwill, which are material to the financial statements are:

	Carrying amount						Remaining amortisation period
	2017		2016		2015		2017		2016		2015
		£’000		£’000		£’000	(years)		(years)		(years)

Midatech Pharma (Wales) Limited acquired IPRD		9,300		10,800		10,800	n/a in process		n/a in process		n/a in process

Midatech Pharma US, Inc., product and marketing rights		1,995		3,557		15,570	Between 1 and 3		Between 1 and 4		Between 2 and 5

Zuplenz ^® product and marketing rights		2,122		2,316		2,508		11		12		13

MTX110 acquired IPRD		778		-		-	n/a in process			-		-
		14,195		16,673		28,878

11	Acquisition of Midatech Pharma US, Inc.

On 4 December 2015, the Group acquired 100% of the voting equity of DARA BioSciences, Inc. whose principal activity is the sale and marketing of a portfolio of cancer supportive care pharmaceutical products. At completion of that transaction DARA BioSciences, Inc. was merged into a wholly owned subsidiary of Midatech Pharma PLC and the name of the merged entity was changed to Midatech Pharma US, Inc. The principal reason for this acquisition was to acquire commercial infrastructure and capability in the US market.

The revenue included in the consolidated statement of comprehensive income between 4 December 2015 and 31 December 2015 contributed by Midatech Pharma US, Inc. was £502k. Midatech Pharma US, Inc. contributed a net loss of £238k over the same period. If the acquisition had occurred at 1 January 2015 group revenue would have been £3.67m and the group loss for the period would have been £19.34m.

Acquisition related costs of £2.77m were incurred in relation to this acquisition and are included within (administrative expenses) within the consolidated statement of comprehensive income for the period.

The main factors leading to the recognition of goodwill are the presence of certain intangible assets, such as the assembled workforce of the acquired entity, its established commercial infrastructure and the expected synergies of the enlarged Group which do not qualify for separate recognition.

In addition to the consideration outlined below, additional cash consideration may have become payable (up to a maximum of £3.85m/$5.7m) if specified sales milestones had been achieved for the years ended 31 December 2016 and 2017, however, these milestones were not met.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

11	Acquisition of Midatech Pharma US, Inc. (continued)

The goodwill and intangible assets recognised will not attract tax deductions.

	Fair value
		£’000
Identifiable intangible assets:
Product and marketing rights		15,477

Property, plant and equipment		16
Receivables and other debtors		515
Stock		152
Payables and other liabilities		(4,150	)
Deferred tax		(6,191	)
Cash		2,289

Total net assets		8,108

Equity instruments (5,422,028 ordinary shares) Deferred Equity instruments		14,427
- Share options*		1,056
- Warrants*		2,155
- Preference share redemption**		422

Total consideration		18,060

Goodwill on acquisition		9,952

* The share options and the warrants were valued using the Black Scholes model .

** The preference share redemption was valued on a cash basis

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

11	Acquisition of Midatech Pharma US, Inc. (continued)

The net cash inflow in 2015 in respect of the acquisition of the subsidiary comprised:


	£’000
Cash paid on completion – preferred share redemption	(422	)
Net cash acquired	2,289
	1,867

Assumption of DARA BioSciences, Inc. share options and warrants

At the time of completion of the merger with DARA BioSciences, Inc. there were a number of outstanding and unexercised options and warrants over common stock in DARA. Under the terms of the merger these options and warrants became exercisable for a number of Midatech ordinary shares equal to the product of (A) the number of shares of DARA common stock that were issuable upon exercise of the stock option or warrant immediately prior to the merger, multiplied by (B) a factor of 0.272, that being the Exchange Ratio defined in the merger agreement, rounded down to the nearest whole number of Midatech ordinary shares.

The per share exercise price for each Midatech ordinary share issuable upon exercise of each stock option or warrant will be equal to (C) the exercise price per share of DARA common stock at which the DARA stock option or warrant was exercisable divided by (D) the Exchange Ratio of 0.272, rounded up to the nearest whole cent. All other terms, notably including expiration dates, remained materially the same.

As at 31 December 2017 there were DARA options outstanding over 134,670 Midatech ordinary shares (2016: 300,728, 2015: 721,000) with a weighted average exercise price of $6.69 per share (2016: $7.19, 2015: $7.62), within a range of $2.54 to $644.12 (2016: $2.54 to $770.59, 2015: $2.54 to $770.59), and a weighted average remaining contractual life of 6.7 years (2016: 7.7 years, 2015: 8.5 years). The risk-free rate ranged from 0.00% to 1.08% (2016: 0.00% to 1.14%, 2015: 0.63% to 1.81%), volatility of 42.5% (2016: 60% to 77%, 2015: 59% to 79%) and the expected life from 0.3 to 7.8 years (2016: 0.8 to 8.8 years, 2015: 1.9 to 8.6 years). The exercise of all options would raise additional cash of $0.90m (2016: $2.16m, 2015: $5.50m).

Also at 31 December 2017 there were DARA warrants outstanding over 2,528,455 Midatech ordinary shares (2016: 3,017,773, 2015: 3,034,437) with a weighted average exercise price of $7.45 per share (2016: $9.44, 2015: $9.67), within a range of $3.05 to $24.08 (2016: $3.06 to $27.58, 2015: $3.06 to $164.71), and a weighted average remaining contractual life of 1.4 years (2016: 2.1 years, 2015: 3.1 years). The risk-free rate ranged from 0.00% to 0.71% (2016: 0.00% to 0.71%, 2015: 0.44% to 1.63%), volatility of 42.5% (2016: 60% to 66%, 2015: 59% to 79%) and the expected life from 0.1 to 4.9 years (2016: 0.1 to 5.9 years, 2015: 0.1 to 7.0 years). The exercise of all warrants would raise additional cash of $18.84m (2016: $28.48m, 2015: $29.33m).

The share options and warrants were valued using the Black Scholes model for the purpose of calculating the consideration payable for the DARA business. These options and warrants are treated as an equity settled derivative, held as a fair value through profit and loss instrument, see note 21.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

12	Acquisition of Zuplenz ^®

On 24 December 2015, the Group acquired US sales and marketing rights to the product Zuplenz ^®, an FDA-approved, marketed anti-emetic oral soluble film used in adult patients for the prevention of highly and moderately emetogenic chemotherapy-induced nausea and vomiting, radiotherapy-induced nausea and vomiting and post-operative nausea and vomiting. This acquisition was deemed to be a business combination following a review of the inputs, processes and potential for a market participant to generate outputs using the assets and agreements acquired.

The goodwill recognised will not attract a tax deduction.

	Fair value
		£’000
Identifiable intangible assets:
Product and marketing rights		2,512
Stock		231


Total net assets		(2,743	)

Cash consideration		2,528
Contingent consideration*		50

Total consideration		2,578

Gain from bargain purchase on acquisition		(165	)

The contingent consideration relates to various milestone payments which are dependent on the quarterly sales achieved in calendar years 2016 and 2017 and annual sales from 2018 to 2022 exceeding specified sales targets. The maximum amount payable was $26.0m however, the 2016 and 2017 sales targets were not achieved and management does not consider it likely that the 2018 to 2022 sales targets will be achieved either.

No revenue or costs were contributed by Zuplenz ^® in 2015. Acquisition related costs of £218k were incurred in relation to this acquisition and are included within administrative expenses within the consolidated statement of comprehensive income for 2015.

The gain from the bargain purchase of £165k was included within administrative costs in 2015 in the consolidated statement of comprehensive income. It arose due to the seller of Zuplenz ^® seeking to conclude the transaction as quickly as possible.

We are unable to quantity the impact on the 2015 group revenue and group loss had the acquisition occurred on 1 January 2015 due to the seller of the product not providing separable accounting records.

The net cash outflow in the year in respect of the business acquisition comprised:
			£’000

Cash paid on completion			2,528

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

13	Impairment testing

Midatech Pharma (Wales) Limited

Details of goodwill and IPRD allocated to the acquired cash generating unit and the valuation basis are as follows:

	Indefinite lived
	IPRD carrying amount						Goodwill carrying amount						Valuation Basis
Name	2017		2016		2015		2017		2016		2015
		£’000		£’000		£000		£’000		£’000		£000

CGU – Midatech Pharma (Wales) Ltd		9,300		10,800		10,800		2,291		2,291		2,291	Value in use

The assets of the Midatech Pharma (Wales) Limited (“MPW”) CGU were valued as at 31 December 2017 and 31 December 2016 and were found to support the IPRD and goodwill carrying amounts set out above. The IPRD was valued using 13-14 year (2016: 14-15 year, 2015: 15-16 years), risk adjusted cash flow forecasts, in line with patent life, that have been approved by the Board. A period longer than 5 years is appropriate on the basis that the investment is long term and the development and commercialisation process is typically in excess of 5 years. Beyond the period from product launch and initial market penetration, a long-term growth rate of 5% was used.

In 2017 an impairment charge of £1.5m was recorded in the MPW CGU as a result of the impairment of the Opsisporin IPRD, primarily due to a strategic review concluding that the product is outside of Midatech’s strategic focus and as a result the decision was made not to continue with the programme at this point. At the same time the carrying value of a component of IPRD was reduced from £1.5m to nil. The resulting charge was recorded in research and development expenditure within the consolidated statement of income.

The key assumptions used in the valuation model examining the MPW Ltd cash generating unit include the following:

Assumptions	2017	2016	2015

Pre-tax discount rate	17.9%	18.1%	17.7-19.5%

Cumulative probability of success of projects	81%	46% to 81%	46% to 69%

The discount rate is an estimated market-based weighted average cost of capital for the MPW business, determined at the date of acquisition. Cumulative probability of success of projects is the product of the probability of success of each remaining major phase of development for each individual IPRD component. These phase probabilities were determined by management with reference to the risks associated with each remaining development stage.

Sensitivity analysis

If any one of the following changes were made to the above key assumptions, applied to all projects, the carrying value and recoverable amount would be equal.

Assumptions	2017	2016	2015

Pre-tax discount rate for all projects	increase to 21.0%	increase to 26.4%	increase to 23.9%

Cumulative probability of success of projects	57%	53%	44%

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

13	Impairment testing (continued)

Midatech Pharma US, Inc.

Details of goodwill and intangibles allocated to the acquired cash generating unit and the valuation basis are as follows:

	Definite lived						Indefinite lived
	Product and marketing rights carrying amount						Goodwill carrying amount						Valuation Basis
Name	2017		2016		2015		2017		2016		2015
	£’000		£’000		£’000		£’000		£’000		£’000

CGU – Midatech Pharma US, Inc		1,995		3,557		15,477		11,152		12,197		10,165	Value in use

The change in the goodwill carrying value as at 31 December 2017 is due to the movement in the Sterling and US Dollar exchange rate used to translate the underlying US Dollar value of goodwill, 2017: $1.349, (2016: $1.233).

Following the acquisition of Zuplenz ^® on 24 December 2015, the Group has considered Zuplenz ^® to be an asset of the MPUS cash generating unit as from 1 January 2016. The Zuplenz ^® product is wholly integrated within the MPUS portfolio of products and as such all related cash flows have been included with the value in use calculations of the CGU.

An impairment charge of £11.4m in relation to product and marketing rights and a related £4.6m deferred tax credit was recorded in MPUS as at 31 December 2016. This arose as a result of the underperformance of Oravig in comparison to forecast sales at the time of the acquisition. The carrying value of the product rights, was reduced from £11.4m to nil. The resulting impairment charge is shown separately within the consolidated statement of comprehensive income.

The remaining assets of the Midatech Pharma US, Inc. CGU, including Zuplenz ^® , were valued as at 31 December 2017 and 31 December 2016 and were found to support the product and marketing rights and goodwill carrying amounts set out above. The product and marketing rights were valued using 10-year cash flow forecasts, that have been approved by the Board. A period longer than 5 years is appropriate on the basis that the product patents afford a certain amount of protection from competitors thereby providing assurance that market share can be preserved throughout the period of patent life. A long-term growth rate of 3% was used for all assets except Zuplenz where 5% was used.

As at 31 December 2015, the assets of the CGU were not identified as being materially different to the fair values determined at the acquisition date on 4 December 2015.

The key assumptions used in the model examining the Midatech Pharma US, Inc. cash generating unit include the following:

Assumptions	2017	2016
Pre-tax discount rate	19.7%	24.7%

Overall CGU 10-year growth rate	26.4%	10.6%

The increase in the overall growth rate reflects the addition of the Group’s development products, Q Octreotide and MTX110 into the MPUS portfolio once they have been approved and launched.

The discount rate is an estimated market-based weighted average cost of capital for the Midatech Pharma US, Inc. business, determined at the date of acquisition. The overall CGU 10-year growth rate is a composite of individual product forecasts, each with particular forecast growth rates over the next 5-years followed by a further 5-year period utilising a 3% long-term growth rate, or 5% for Zuplenz.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

13	Impairment testing (continued)

Sensitivity analysis

If any one of the following changes were made to the above key assumptions, applied to all projects, the carrying value and recoverable amount would be equal.

Assumptions	2017	2016
Pre-tax discount rate	increase to 53.7%	increase to 25.2%

Overall CGU 10-year growth rate	5.0%	10.5%

The sensitivity analysis assumes that Q Octreotide and MTX110 are not added into the Midatech Pharma US, Inc. portfolio and the resulting 2017 growth rate of 5%, required for the carrying value and recoverable amount to be equal, is derived exclusively from the current product portfolio.

The value in use calculations used to value the acquired intangibles and appraise the remaining carrying value of the intangibles at 31 December 2015 were materially the same. This is because of the impairment test date and acquisition date being only 27 days apart. Any increase in the discount rate or decrease in the probability of success of projects stated above would result in an impairment.

14	Subsidiaries

The subsidiaries of Midatech Pharma PLC, all of which are 100% owned, either directly or through subsidiaries where indicated, and have been included in these financial statements in accordance with the details set out in the basis of preparation and basis of consolidation note 1, are as follows:

	Registered	Nature of
Name	Office	Business	Notes
Midatech Limited	65 Innovation Drive, Milton Park, Milton, Abingdon, Oxfordshire, OX14 4RQ	Trading company
Midatech Pharma (Espana) SL	Parque Tecnológico de Vizcaya, Edificio 800 Planta 2, Derio, 48160, Vizcaya, Spain	Trading company	(a)
PharMida AG	c/o Kellerhals, Hirschgässlein 11, 4051 Basel, Switzerland	Dormant	(a) (b)
Midatech Pharma (Wales) Limited	Oddfellows House, 19 Newport Road, Cardiff, CF24 0AA	Trading company
Midatech Pharma US, Inc.	8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615, USA	Trading company	(c)
Dara Therapeutics, Inc.	8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615, USA	Dormant	(d)
Midatech Pharma PTY	c/o Griffith Hack Consulting, 300 Queen Street, Brisbane, QLD 4000, Australia	Trading company	(e)

Notes:

(a)

Wholly owned subsidiary of Midatech Limited

(b)

PharMida AG became dormant in January 2016.

(c)

DARA Bio Sciences, Inc. was acquired on 4 December 2015 through a merger with a specially incorporated subsidiary of Midatech Pharma plc. This merger subsidiary was renamed Midatech Pharma US, Inc. on 4 December 2015.

(d)

Wholly owned subsidiary of Midatech Pharma US, Inc.

(e)

Midatech Pharma PTY was incorporated on 16 February 2015.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

15	Joint arrangements

	Country of
Name	incorporation	Nature of business	Type of arrangement
Syntara LLC	USA	Dormant	Joint venture

MidaSol Therapeutics GP	Cayman Islands	Research and development partner	Joint operation

The Group has a 50% (2016: 50%; 2015: 50%) interest in two joint arrangements: Syntara LLC and MidaSol Therapeutics. The primary activity of these joint arrangements was to provide the partners with collaborative research and development on drug delivery systems in the market, which is in line with the Group’s strategy to develop a safe and effective drug delivery system.

Syntara LLC is a dormant joint venture where the Group has joint control over the separate legal entity. The Group equity accounts for its interests in this arrangement; the results are immaterial to the financial statements.

MidaSol Therapeutics is a separate legal entity however no costs or revenues pass through it. The Group and its collaborative partner incur costs in respect of research and development and periodically agree on a contribution from either side to ensure that both parties have incurred 50% of the total costs. Contributions from their research partner are netted against the costs to which they relate within research and development and the arrangement is accounted for as a joint operation. MidaSol operations effectively ceased during 2015.

	2017		2016		2015
	£’000		£’000		£'000
Research and development spend on MidaSol Therapeutics		-		-		776
Year-end receivable due from joint operation partner		-		-		219

16	Trade and other receivables

	2017			2016			2015
	£’000			£’000			£'000

Trade receivables		2,232			1,428			985
Prepayments		627			586			685
Other receivables		848			873			1,213


Total trade and other receivables		3,707			2,887			2,883
Less: non-current portion (rental deposit and on bond)		(465	)		(448	)		(387	)

Current portion		3,242			2,439			2,496

Trade and other receivables do not contain any impaired assets. The Group does not hold any collateral as security and the maximum exposure to credit risk at the Consolidated Statement of Financial Position date is the fair value of each class of receivable.

Book values approximate to fair value at 31 December 2017, 2016 and 2015.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

17	Cash and cash equivalents and cash flow supporting notes

Cash and cash equivalents for purposes of the consolidated statement of cash flows comprises:

	2017		2016		2015
		£’000		£’000	£'000

Cash at bank available on demand		13,204		17,608		16,175

There were no significant non-cash transactions during the year.

During the year, cash inflows arose from an equity financing transaction, included within financing activities on the face of the cash flow statement.

	2017			2016			2015
		£’000			£’000		£'000

Funds raised on Public Offering		6,157			16,673			-
Costs of raising funds on Public Offering		(429	)		(1,105	)		-
		5,728			15,568			-

The following changes in liabilities arose as a result of financing activities during the year:

	Non-current liabilities, borrowings			Current liabilities, borrowings			Total
		£’000			£’000			£’000

At 1 January 2017		-			23			23
Cash Flows		5,249			(12	)		5,237
Foreign Exchange		(42	)		-			(42	)
At 31 December 2017		5,207			11			5,218

18	Inventories

	2017		2016		2015
		£’000		£’000	£'000

Work in progress		-		-	230
Finished goods		941		817		229
Total inventories		941		817		459

A reserve is maintained against inventory that is not expected to be sold before its sell by date. The resulting charge to the comprehensive statement of income for the year was £151k (2016: £287k, 2015: Nil).

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

19	Trade and other payables

	2017		2016		2015
Current		£’000		£’000	£'000

Trade payables		2,271		3,268		2,285
Other payables		1,141		1,166		35
Accruals		3,090		2,003		3,101

Total financial liabilities, excluding loans and borrowings, classified as financial liabilities measured at amortised cost		6,502		6,437		5,421

Tax and social security		359		670		183
Deferred revenue		1,141		1,300		1,480

Total trade and other payables		8,002		8,407		7,084

Book values approximate to fair value at 31 December 2017, 2016 and 2015.

All current trade and other payables are payable within 3 months of the period end date shown above.

Government grants

The Group received development grant funding from the European Union under the Horizon 2020 “Nanofacturing” project, a European Union funded programme to develop a scalable manufacturing platform for the production of nanopharmaceutical products. Midatech is participating in this programme, along with seven other entities, through two Group companies, Midatech Pharma España SL (formerly Midatech Biogune SL) (“MPE”), which is acting as project coordinator, and Midatech Limited. The project commenced in February 2015 and is scheduled to complete in January 2019. £840k (2016: £547k) of revenue has been recognised during the year in relation to this project and £1.11m (2016: £1.24m) of the deferred revenue balance relates to funds received but not yet recognised.

Government grants/loans in Spain

Five tranches of government loans have been received by MPE for the finance of research, technical innovation and the construction of their laboratory. The loans are term loans which carry an interest rate below the market rate, and are repayable over periods through to 2022. The loans carry default interest rates in the event of scheduled repayments not being met. On initial recognition, the loans are discounted at a market rate of interest with the credit being classified as a grant within deferred revenue. The deferred grant revenue is released to the consolidated statement of comprehensive income within research and development costs in the period to which the expenditure is recognised.

The debt element of the government loans is designated within note 20 as borrowings, the gross contractual repayment of the loans is disclosed in note 22.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

20	Borrowings

	2017		2016		2015
		£’000		£’000	£'000
Current
Bank loans		11		23		9
Finance lease		39		31		70
Government and research loans		311		484		363

Total		361		538		442

Non-current
Bank loans		5,207		-		20
Finance lease		29		52		68
Government and research loans		949		1,568		1,420

Total		6,185		1,620		1,508

Book values approximate to fair value at 31 December 2017, 2016 and 2015.

Obligations under finance leases are secured by a fixed charge over the fixed assets to which they relate.

The Group had $8m of undrawn committed borrowing facilities at year end.

Midcap Loan Facility

In December 2017, Midatech entered into a secured loan agreement with Midcap Financial Trust (“MidCap”). The total facility is for $15m to be drawn down in three separate tranches. Interest is charged on the outstanding balance of the loan at an annual rate of LIBOR plus 7.5% subject to a LIBOR floor of 1.25%. MidCap was granted 247,881 warrants to purchase shares which was equal to 2% of the amount funded divided by the Exercise Price of £0.42. The exercise price was calculated as the average closing price for the 30-day period prior to the date of grant. The loan is secured against the assets of the group.

The first tranche of $7m was drawn down on 28 December 2017 and is disclosed under bank loans.

21	Derivative financial liability - current

	2017			2016			2015
	£'000				£’000		£'000

Equity settled derivative financial liability		-			400			1,573

At 1 January/on acquisition – 5 December 2015		400			1,573			3,211

Gain recognised in finance income within the consolidated statement of comprehensive income		(400	)		(1,173	)		(1,638	)

At 31 December		-			400			1,573

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

21	Derivative financial liability – current (continued)

Equity settled derivative financial liability is a liability that is not to be settled for cash. The Group assumed fully vested warrants and share options on the acquisition of DARA Biosciences, Inc. The number of ordinary shares to be issued when exercised is fixed, however the exercise prices are denominated in US Dollars being different to the functional currency of the parent company. Therefore, the warrants and share options are classified as equity settled derivative financial liabilities through the profit and loss account. The financial liabilities were valued using the Black-Scholes option pricing model. Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporated any interest paid on the financial liability and is included in the ‘other gains and losses’ line item in the income statement. Fair value is determined in the manner described in note 22. A key input in the valuation of the instrument is the Company share price. The share price of the Company reduced from £2.65 at the date of acquisition of DARA Biosciences, Inc. to £1.74 at 31 December 2015, resulting in a gain of £1.64m on re-measurement, which was credited to finance income in 2015.

At 31 December 2016, some 398,315 options and 16,664 warrants had lapsed, as described in note 11. In addition, the share price had fallen to £1.18, which resulted in a gain of £1.17m on re-measurement, which was credited to finance income in 2016.

At 31 December 2017 a further 166,058 options and 489,318 warrants had lapsed and the share price had fallen to £0.36 which results in a gain of £0.40m on re-measurement which was credited to finance income during 2017.

22	Financial instruments - risk management

The Group is exposed through its operations to the following financial risks:

Credit risk

Foreign exchange risk

Liquidity risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. The Board does not believe that its risk exposure to financial instruments, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note has changed in the past year.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

Trade and other receivables

Cash and cash equivalents

Trade and other payables

Accruals

Loans and borrowings

Derivative financial liability

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

22	Financial instruments - risk management (continued)

A summary of the financial instruments held by category is provided below:

Financial assets - loans and receivables

	2017		2016		2015
	£'000			£’000	£'000

Cash and cash equivalents		13,204		17,608		16,175
Trade receivables		2,232		1,428		985
Other receivables		848		873		1,213

Total financial assets		16,284		19,909		18,373

Financial liabilities - amortised cost


	2017		2016		2015
	£'000			£’000	£'000

Trade payables		2,271		3,268		2,285
Other payables		1,141		1,166		35
Accruals		3,090		2,003		3,101
Borrowings		6,546		2,158		1,950

Total financial liabilities - amortised cost		13,048		8,595		7,371

Financial liabilities – fair value through profit and loss – current

	2017		2016		2015
	£'000			£’000	£'000

Equity settled derivative financial liability		-		400		1,573

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s Management.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are set out below:

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

•

Level 1: quoted (unadjusted) prices in active markets for identical assets and liabilities;

•

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

•

Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

22	Financial instruments - risk management (continued)

The fair value of the Group’s derivative financial liability is measured at fair value on a recurring basis.

The following table gives information about how the fair value of this financial liability is determined, additional disclosure is given in note 11:

Financial liabilities	Fair value as at 31/12/2017	Fair value hierarchy	Valuation technique (s) and key input(s)	Significant unobservable input(s)	Relationship of unobservable inputs to fair value

Equity settled financial derivative liability	-	Level 3	Black Scholes option pricing model	Volatility rate of 42.5%determined using historical volatility of comparable companies.	The higher the volatility the higher the fair value.

				Expected life between a range of 0.1 and 8.6 years determined using the remaining life of the share options.	The shorter the expected life the lower the fair value.

				Risk-free rate between a range of 0.0% and 1.14% determined using the expected life assumptions.	The higher the risk-free rate the higher the fair value.

Given that the fair value of the equity settled financial derivative liability is nil, it is not sensitive to changes in volatility or expected life. In 2016, if the above unobservable volatility input to the valuation model had been 10% higher while all other variables were held constant, the carrying amount of shares would have increased by £94k. If the above unobservable expected life input to the valuation model had been 1 year shorter while all other variables were held constant, the carrying amount of shares would have decreased by £133k.

Changing the unobservable risk free rate input to the valuation model by 10% higher while all other variables were held constant, would not impact the carrying amount of shares (2016: increase by £2k).

There were no transfers between Level 1 and 2 in the period.

The financial liability measured at fair value on Level 3 fair value measurement represents consideration relating to a business combination.

Credit risk

Credit risk is the risk of financial loss to the Group if a development partner or a counterparty to a financial instrument fails to meet its contractual obligations. The Group is mainly exposed to credit risk from amounts due from collaborative partners which is deemed to be low.

The Group does not enter into derivatives to manage credit risk.

Quantitative disclosures of the credit risk exposure in relation to financial assets are set out in note 16. This includes details regarding trade and other receivables, which are neither past due nor impaired.

The total exposure to credit risk of the Group is equal to the total value of the financial assets held at each year end as noted above.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

22	Financial instruments - risk management (continued)

Cash in bank

The Group is continually reviewing the credit risk associated with holding money on deposit in banks and seeks to mitigate this risk by holding deposits with banks with high credit status.

Foreign exchange risk

Foreign exchange risk arises because the Group has a material operation located in Bilbao, Spain, and operations in the US whose functional currencies are not the same as the functional currency of the Group. The Group’s net assets arising from such overseas operations are exposed to currency risk resulting in gains or losses on retranslation into sterling. Given the levels of materiality, the Group does not hedge its net investments in overseas operations as the cost of doing so is disproportionate to the exposure.

Foreign exchange risk also arises when individual Group entities enter into transactions denominated in a currency other than their functional currency; the Group’s transactions outside the UK to the US, Europe and Australia drive foreign exchange movements where suppliers invoice in currency other than sterling. These transactions are not hedged because the cost of doing so is disproportionate to the risk.

The table below shows analysis of the Pounds Sterling equivalent of year-end cash and cash equivalent balances by currency:

	2017		2016		2015
	£'000			£’000	£'000

Cash and cash equivalents:
Pounds Sterling		6,116		10,229		14,494
US Dollar		5,362		2,186		819
Euro		1,632		5,143		862
Other		94		50		-

Total		13,204		17,608		16,175

The table below shows the foreign currency exposure that give rise to net currency gains and losses recognised in the consolidated statement of comprehensive income. Such exposures comprise the net monetary assets and monetary liabilities of the Group that are not denominated in the functional currency of the relevant Group entity. As at 31 December 2017, these exposures were as follows:

	2017			2016			2015
	£'000				£’000		£'000

Net Foreign Currency Assets/(Liabilities):
US Dollar		4,459			(206	)		(1,691	)
Euro		(362	)		2,655			77
Other		95			58			(8	)

Total		4,192			2,507			(1,622	)

Foreign currency sensitivity analysis

The most significant currencies in which the Group transacts, other than Pounds Sterling, are the US Dollar and the Euro. The Group also trades in other currencies in small amounts as necessary.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

22	Financial instruments - risk management (continued)

The following table details the Group’s sensitivity to a 10% change in year-end exchange rates, which the Group feels is the maximum likely change in rate based upon recent currency movements, in the key foreign currency exchange rates against Pounds Sterling:

Year ended 31 December 2017	US Dollar		Euro			Other
	£'000			£’000		£'000

Loss before tax		307		(89	)		-
Total equity		307		(89	)		-

Year ended 31 December 2016	US Dollar		Euro			Other
	£'000			£’000		£'000

Loss before tax		521		(73	)		(55	)
Total equity		521		(73	)		(55	)

In the year ended 31 December 2015, this foreign currency exposure risk was not considered material. In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year-end exposure does not reflect the exposure during the year.

Liquidity risk

Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. It is the Group’s aim to settle balances as they become due.

In Q4 2017, as disclosed in Note 20, Midatech entered into a secured loan agreement with MidCap to reduce its short to medium term funding risk. This loan is secured against all assets of the Group.

The Group’s current financial position is such that the Board does not consider there to be a short-term liquidity risk however the Board will continue to monitor long term cash projections in light of the development plan and will consider raising funds as required to fund long term development projects. Development expenditure can be curtailed as necessary to preserve liquidity.

The following table sets out the contractual maturities (representing undiscounted contractual cash-flows) of financial liabilities:

2017	Up to 3 months		Between 3 and 12 months		Between 1 and 2 years		Between 2 and 5 years		Over 5 years
		£’000		£’000		£’000		£’000		£’000

Trade and other payables		6,502		-		-		-		-
Bank loans		120		359		2,201		3,926		-
Finance leases		16		25		30		-		-
Government research loans		43		268		467		545		47

Total		6,681		649		2,698		4,471		47

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

22	Financial instruments - risk management (continued)

2016	Up to 3 months		Between 3 and 12 months		Between 1 and 2 years		Between 2 and 5 years		Over 5 years
		£’000		£’000		£’000		£’000		£’000

Trade and other payables		6,437		-		-		-		-
Bank loans		3		8		11		4		-
Finance leases		7		26		30		33		-
Government research loans		-		449		269		761		393

Total		6,447		483		310		798		393

2015	Up to 3 months		Between 3 and 12 months		Between 1 and 2 years		Between 2 and 5 years		Over 5 years
		£’000		£’000		£’000		£’000		£’000

Trade and other payables		5,421		-		-		-		-
Bank loans		2		7		9		13		-
Finance leases		7		71		27		56		-
Government research loans		36		352		195		644		755

Total		5,466		430		231		713		755

More details with regard to the line items above are included in the respective notes:

•

Trade and other payables – note 19

•

Loans and borrowings – note 20

Capital risk management

The Group monitors capital which comprises all components of equity (i.e. share capital, share premium, foreign exchange reserve and accumulated deficit).

The Group’s objectives when maintaining capital are:

•

to safeguard the entity’s ability to continue as a going concern; and

•

to have sufficient resource to take development projects forward towards commercialisation.

The Group continues to incur substantial operating expenses. Until the Group generates positive net cash inflows from the commercialisation of its products it remains dependent upon additional funding through the injection of equity capital and government funding. The Group may not be able to generate positive net cash inflows in the future or to attract such additional required funding at all, or on suitable terms. In such circumstances the development programmes may be delayed or cancelled and business operations cut back.

The Group seeks to reduce this risk by keeping a tight control on expenditure, avoiding long-term supplier contracts (other than clinical trials), prioritising development spend on products closest to potential revenue generation, obtaining government grants (where applicable), maintaining a focused portfolio of products under development and keeping shareholders informed of progress.

There have been no changes to the Group’s objectives, policies and processes for managing capital and what the Group manages as capital, unless otherwise stated in this note, since the past year.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

23	Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using tax rates applicable in the tax jurisdictions where the tax asset or liability would arise.

The movement on the deferred tax account is as shown below:

	2017		2016			2015
		£’000		£’000		£'000

Liability at 1 January		-		6,547			354
Arising on business combination		-		-			6,191
Credited to income on impairment and amortisation of intangibles		-		(5,509	)		-
Credited to income statement		-		(1,740	)		(131	)
Foreign exchange gain		-		702			133

Liability at 31 December		-		-			6,547

The movement on the deferred tax account in 2017 is Nil as the net credit arising on the amortisation of intangible assets and other timing differences has been matched by a reduction in the deferred tax asset recognised on the losses offsetting the liability remaining.

A deferred tax liability has arisen due to deferred tax on intangible assets acquired in 2015.

An intangible asset was impaired in the financial statements for the year ended 31 December 2016 by £11.4m which resulted in a £4.6m tax credit being recognised in the income statement.

Unused tax losses carried forward, subject to agreement with local tax authorities, were as follows:

	Gross losses		Unrecognised deferred tax asset
		£’000		£’000

31 December 2015		23,286		4,191
31 December 2016		26,956		5,049
31 December 2017		38,377		6,639

With the exception of the £2.6m (2016: £3.7m: 2015: £1.6m) deferred tax asset which qualifies for offset against the deferred tax liabilities arising on the acquisitions of Midatech Pharma (Wales) Limited and Midatech Pharma US, the remaining potential deferred tax asset of £9.5m (2016: £8.1m) has not been provided in these accounts due to uncertainty as to the whether the asset would be recovered.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

23	Deferred tax (continued)

Details of the deferred tax liability are as follows:

2017	Asset		Liability			Net
		£’000		£’000		£'000

Business Combinations		2,599		(2,599	)		-


2016	Asset		Liability			Net
		£’000		£’000		£'000

Business Combinations		3,668		(3,668	)		-


2015	Asset		Liability			Net
		£’000		£’000		£'000

Business Combinations		1,625		(8,172	)		(6,547	)

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

24	Share capital

	2017		2017		2016		2016		2015		2015
Authorised, allotted and fully paid – classified as equity	Number			£	Number			£	Number			£

At 1 January
Ordinary shares of £0.00005 each		61,084,135		3,054		48,699,456		2,435		33,467,504		1,673
Deferred shares of £1 each		1,000,001		1,000,001		1,000,001		1,000,001		1,000,001		1,000,001

Total				1,003,055				1,002,436				1,001,674

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

24	Share capital (continued)

In accordance with the Articles of Association for the Company adopted on 13 November 2014, the share capital of the Company consists of an unlimited number of ordinary shares of nominal value 0.005 pence each. Ordinary and Deferred shares were recorded as equity.

Rights attaching to the shares following the incorporation of Midatech Pharma plc

Shares classified as equity

The holders of ordinary shares in the capital of the Company have the following rights:

(a)

to receive notice of, to attend and to vote at all general meetings of the Company, in which case shareholders shall have one vote for each share of which he is the holder.

(b)

to receive such dividend as is declared by the Board on each share held.

The holders of Deferred Shares in the capital of the Company:

(a)

shall not be entitled to receive notice of or to attend or speak at any general meeting of the Company or to vote on any resolution to be proposed at any general meeting of the Company;

(b)

shall not be entitled to receive any dividend or other distribution of out of the profits of the Company.

In the event of a distribution of assets, the Deferred shareholders shall receive the nominal amount paid up on such share after the holder of each ordinary share shall have received (in cash or specie) the amount paid up or credited as paid up on such ordinary share together with an additional payment of £100 per share. The Company has the authority to purchase the Deferred Shares and may require the holder of the Deferred Shares to sell them for a price not exceeding 1p for all the Deferred Shares.

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

24	Share capital (continued)

		Ordinary Shares		Deferred Shares		Share Price		Total consideration
		Number		Number			£		£’000
2015
As at 1 January 2015			27,794,258		1,000,001				32,000

24 April 2015	Exercise of employee share options		16,500		-		0.00005		-
25 September 2015	Exercise of employee share options		10,000		-		0.00005		-
4 December 2015	Share issue on acquisition of DARA BioSciences, Inc.		5,422,028		-		2.63		14,240
23 December 2015	Deferred consideration re: acquisition of Q Chip Limited		224,718		-		2.67		600

As at 31 December 2015			33,467,504		1,000,001				46,840
2016
1 July 2016	Deferred consideration re: acquisition of Q Chip Limited		74,908		-		2.67		200
31 October 2016	Placing and Open Offer (costs shown in note 17)		15,157,044		-		1.10		16,673

As at 31 December 2016			48,699,456		1,000,001				63,713
2017
19 May 2017	Share issue to SIPP trustee (see note 28)		20,000		-		0.00005		1
16 October 2017	Placing and Open Offer (shown in note 17)		12,314,679		-		0.5		6,157
7 November 2017	Share issue to SIPP trustee (see note 28)		50,000		-		0.00005		3
As at 31 December 2017			61,084,135		1,000,001				69,874

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Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

Reserves

The following describes the nature and purpose of each reserve within equity:

Reserve	Description and purpose

Share premium	Amount subscribed for share capital in excess of nominal value.

Merger reserve	Represents the difference between the fair value and nominal value of shares issued on the acquisition of subsidiary companies where the Company has elected to take advantage of merger relief.

Shares to be issued	Shares for which consideration has been received but which are not yet issued and which form part of consideration in a business combination.

Foreign exchange reserve	Gains/losses arising on retranslating the net assets of overseas operations into sterling.

Accumulated deficit	All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere.

Leases

The Group had commitments under non-cancellable operating leases as set out below:

	Land and
	buildings		Other

2017	£'000		£'000

Expiring In one year or less		449		8
Expiring Between one and five years		359		32
		808		40

2016	£'000		£'000

Expiring In one year or less		371		7
Expiring Between one and five years		449		28
		820		35

	Land and
	buildings		Other
2015	£'000		£'000

Expiring In one year or less		313		1
Expiring Between one and five years		410		2
		723		3

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

27	Retirement benefits

The Group operates a defined contribution pension scheme for the benefit of its employees. The assets of the scheme are administered by trustees in funds independent from those of the Group.

28	Share-based Payments

Share Options

The Group has issued options over ordinary shares under the 2014 Midatech Pharma PLC Enterprise Management Incentive Scheme, the Midatech Pharma PLC 2016 U.S. Option Plan, which is a sub-plan of the approved UK plan, and unapproved share options awarded to non-UK or non-US staff. In addition, certain share options originally issued over shares in Midatech Ltd under the Midatech Limited 2008 unapproved share option scheme or Midatech Limited 2013 approved Enterprise Incentive scheme were reissued in 2015 over shares in Midatech Pharma PLC under the 2014 Midatech Pharma PLC Enterprise Management Incentive Scheme. Exercise of an option is subject to continued employment.

Details of all share options granted under the Schemes are set out below:

Date of grant	At 1 January 2017		Granted in 2017		Exercised in 2017		Forfeited in 2017			At 31 December 2017		Exercise Price

31 December 2008		26,122		-		-		-			26,122	£	1.425
31 December 2008		3,000		-		-		-			3,000	£	3.985
1 April 2010		25,110		-		-		-			25,110	£	4.00
20 August 2010		41,766		-		-					41,766	£	4.19
13 September 2011		3,000		-		-		-			3,000	£	4.19
20 April 2012		35,796		-		-		-			35,796	£	4.19

9 May 2014		200,000		-		-		-			200,000	£	0.075
30 June 2014		880,000		-		-		-			880,000	£	0.075
11 July 2014		3,000		-		-		1,000			2,000	£	0.075
31 October 2016		50,000		-		-		-			50,000	£	1.710
31 October 2016		607,600		-		-		-			607,600	£	2.680
14 December 2016		8,000		-		-		-			8,000	£	1.550
14 December 2016		10,000		-		-		-			10,000	£	1.700
14 December 2016		3,000		-		-		3,000			-	£	1.710
14 December 2016		3,000		-		-		3,000			-	£	1.730
14 December 2016		3,000		-		-		3,000			-	£	1.740
14 December 2016		40,000		-		-		-			40,000	£	1.870
14 December 2016		40,000		-		-		-			40,000	£	1.880
15 December 2016		197,000		-		-		95,000			102,000	£	1.210
19 December 2016		1,110,000		-		-		5,750			1,104,250	£	1.210
15 December 2017		-		1,351,250		-		-			1,351,250	£	0.46

		3,289,394		1,351,250		-		(110,750	)		4,529,894

Options exercisable at 31 December 2017		1,000,469
Weighted average exercise price of outstanding options at 31 December 2017	£	1.003
Weighted average exercise price of options exercised in 2017		n/a
Weighted average exercise price of options forfeited in 2017	£	1.242
Weighted average exercise price of options granted in 2017	£	0.46
Weighted average remaining contractual life of outstanding options at 31 December 2017	8.3 years

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

28	Share-based payment (continued)

Date of grant	At 1 January 2016		Granted in 2016		Exercised in 2016		Forfeited in 2016			At 31 December 2016		Exercise Price

31 December 2008		26,122		-		-		-			26,122	£	1.425
31 December 2008		15,500		-		-		(12,500	)		3,000	£	3.985
1 April 2010		25,110		-		-		-			25,110	£	4.00
20 August 2010		41,766		-		-					41,766	£	4.19
13 September 2011		3,000		-		-		-			3,000	£	4.19
20 April 2012		35,796		-		-		-			35,796	£	4.19

9 May 2014		200,000		-		-		-			200,000	£	0.075
30 June 2014		880,000		-		-		-			880,000	£	0.075
11 July 2014		5,000		-		-		(2,000	)		3,000	£	0.075
31 October 2016		-		50,000		-		-			50,000	£	1.710
31 October 2016		-		607,600		-		-			607,600	£	2.680
14 December 2016		-		8,000		-		-			8,000	£	1.550
14 December 2016		-		10,000		-		-			10,000	£	1.700
14 December 2016		-		3,000		-		-			3,000	£	1.710
14 December 2016		-		3,000		-		-			3,000	£	1.730
14 December 2016		-		3,000		-		-			3,000	£	1.740
14 December 2016		-		40,000		-		-			40,000	£	1.870
14 December 2016		-		40,000		-		-			40,000	£	1.880
15 December 2016		-		197,000		-		-			197,000	£	1.210
19 December 2016				1,110,000		-		-			1,110,000	£	1.210

		1,232,294		2,071,600		-		(14,500	)		3,289,394

Options exercisable at 31 December 2016		468,194
Weighted average exercise price of outstanding options at 31 December 2016	£	1.234
Weighted average exercise price of options exercised in 2016		n/a
Weighted average exercise price of options forfeited in 2016	£	3.446
Weighted average exercise price of options granted in 2016	£	1.685
Weighted average remaining contractual life of outstanding options at 31 December 2016	8.6 years

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Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

28	Share-based payment (continued)

Date of grant	At 1 January 2015		Granted in 2015		Exercised in 2015			Forfeited in 2015			At 31 December 2015		Exercise Price

31 December 2008		26,122		-		-			-			26,122	£	1.425
31 December 2008		15,500		-		-			-			15,500	£	3.985
1 April 2010		25,110		-		-			-			25,110	£	4.00
20 August 2010		59,666		-		-			(17,900	)		41,766	£	4.19
13 September 2011		3,000		-		-			-			3,000	£	4.19
20 April 2012		35,796		-		-			-			35,796	£	4.19
3 April 2014		26,500		-		(26,500	)		-			-	£	0.075
9 May 2014		200,000		-		-			-			200,000	£	0.075
30 June 2014		880,000		-		-			-			880,000	£	0.075
11 July 2014		11,000		-		-			(6,000	)		5,000	£	0.075

		1,282,694		-		(26,500	)		(23,900	)		1,232,294

Options exercisable at 31 December 2015		366,044
Weighted average exercise price of outstanding options at 31 December 2015	£	0.502
Weighted average exercise price of options exercised in 2015	£	0.075
Weighted average exercise price of options forfeited in 2015	£	4.193
Weighted average exercise price of options granted in 2015		n/a
Weighted average remaining contractual life of outstanding options at 31 December 2015	7.8 years

All of the 1,351,250 options granted during 2017, contain the following conditions:

25% (i.e. 337,812 options) become eligible to vest on the first anniversary of the relevant date of grant; and

A further 6.25% (i.e. 84,453 options) vest every 3 months following the first anniversary of the date of grant such that by the fourth anniversary all 1,351,250 options shall have be eligible for vesting.

All vesting is subject to the 20-VWAP share price reaching £1 at any time during the life of the option.

Of the 2,071,600 options granted during 2016, 1,981,600 options contain the following conditions:

25% (i.e. 495,400 options) vest on the first anniversary of the relevant date of grant; and

A further 6.25% (i.e. 123,850 options) vest every 3 months following the first anniversary of the date of grant such that by the fourth anniversary all 1,981,600 options shall have vested.

607,600 of these options related to 2015 but the acquisition of DARA BioSciences, Inc. and other activities during that year meant that there was insufficient time during Open periods to make the awards until 2016. However, the effective date of grant and hence basis for vesting was in 2015. As a result, 151,900 of these options had vested by 31 December 2016.

The remaining 90,000 options granted during 2016 contained the following conditions:

Vesting was conditional on the same time-based vesting criteria noted above and also on the Midatech Pharma US, Inc. business achieving a revenue target for the year ended 31 December 2017. This target was not met and the options have therefore lapsed.

Otherwise the main vesting condition of all share options is that the Director or employee remain employed with the Group as at the date of exercise or continues to provide consultancy services as at the date of exercise.

F-59

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

28	Share-based payment (continued)

The following information is relevant in the determination of the fair value of options granted during the year 2017 under the equity share based remuneration schemes operated by the Group.


	2017
Number of options	1,351,250
Option pricing models used	Monte-Carlo
Share price	£0.41*
Exercise price of options issued in year	£0.46
Contractual life	10 years
Expected life	5 years
Volatility	42.5%**
Expected dividend yield	0%
Risk free rate	0.73%

The share price used in the determination of the fair value of the options granted in 2017 was the share price on the date of grant.

Volatility was calculated with reference to the historic share price volatility of comparable companies measured over a five-year period.

The following information is relevant in the determination of the fair value of options granted during the year 2016 under the equity share based remuneration schemes operated by the Group.


	2016
Number of options	2,071,600
Option pricing models used	Black Scholes
Share price	£1.143-£1.19*
Exercise price of options issued in year	£1.21-£2.68
Contractual life	10 years
Expected life	5 years
Volatility	40%**
Expected dividend yield	0%
Risk free rate	0.63%-0.74%

The share price used in the determination of the fair value of the options granted in 2016 was the average of the opening and closing share prices on the date of grant.

Volatility was calculated with reference to the historic share price volatility of comparable companies measured over a five-year period.

All other share options relate to the Midatech Limited 2008 unapproved share option scheme.

Share Incentive Plan

In April 2017 the Group set up the Midatech Pharma Share Incentive Plan (“MPSIP”). Under the MPSIP, Group employees and directors can acquire ordinary shares in the Company via a salary sacrifice arrangement. Midatech grants matching shares for every share bought. In order to retain these shares, scheme participants must remain employed by the Group for three years from the date of acquisition. All shares purchased by the MPSIP are held by an Employee Benefit Trust that is not under the control of Midatech. Shares must be left in the plan for 5 years to qualify for full income tax and NIC relief.

F-60

Table of Contents

Midatech Pharma PLC

Notes forming part of the financial statements

for the years ended 31 December 2017, 2016 and 2015

29	Capital commitments

The Group had no capital commitments at 31 December 2017, 31 December 2016 and 31 December 2015.

30	Related party transactions

Details of Directors’ remuneration are given on page 27 and in note 5.

Transactions with Monosol RX, LLC

The Directors considered Monosol RX, LLC (“Monosol”) to be a related party by virtue of the fact that Monosol was a shareholder of the Company and a collaborative partner in the MidaSol Therapeutics joint operation.

During the prior period, due to cessation of activities within the MidaSol joint operation no monies were receivable from Monosol (2016: nil, 2015: £317K) for research services. Amounts receivable in prior years were credited to research and development expenditure. The year-end receivable due from Monosol was nil (2016: nil, 2015: £219K). As a result of the cessation of activities, Monosol ceased to be a related party on 2 May 2016.Monosol is also the licensor of the Company’s Zuplenz ^® product. In this capacity, the Group incurred royalty costs up to the date at which it ceased to be a related party in 2016 of £187.7k, payable to Monosol (2015: nil). The 2016 year-end payable to Monosol was £48.7k (2015: nil).

Transactions with Preci-Health

The Directors consider Preci-Health SA (“Preci-Health) to be a related party by virtue of the fact that there is a common director with the Company.

During the year, £44.4k was invoiced to Preci-Health for research services, and credited to revenue. This was paid by Preci-Health during the year. There were no transactions with Preci-Health in earlier periods.

The Group has not made any allowances for bad or doubtful debts in respect of related party debtors nor has any guarantee been given or received during 2017, 2016 or 2015 regarding related party transactions.

31	Contingent liabilities

The Group had no contingent liabilities at 31 December 2017, 31 December 2016 and 31 December 2015.

32	Ultimate controlling party

The Directors do not consider that there is an ultimate controlling party.

F-61

Exhibit 4.26

CREDIT, GUARANTY AND SECURITY AGREEMENT

dated as of December 29, 2017

by and among

MIDATECH PHARMA PLC,

MIDATECH PHARMA US INC.,

DARA THERAPEUTICS INC.,

MIDATECH PHARMA (WALES) LIMITED, and

MIDATECH LIMITED

and any additional borrower that hereafter becomes party hereto, each as Borrower, and collectively as Borrowers,

The Guarantors from time to time party hereto,

and

MIDCAP FINANCIAL TRUST,

as Agent and as a Lender,

and

THE ADDITIONAL LENDERS

FROM TIME TO TIME PARTY HERETO

TABLE OF CONTENTS

Page

CREDIT, Guaranty AND SECURITY AGREEMENT			6
1.	ACCOUNTING AND OTHER TERMS		6
2.	CREDIT FACILITIES AND TERMS		6
	2.1	Promise to Pay	6
	2.2	Credit Facilities	6
	2.3	Credit Facilities	6
	2.4	Reserved	7
	2.5	Reserved	7
	2.6	Interest and Payments; Administration	7
	2.7	Secured Promissory Notes	12
3.	CONDITIONS OF CREDIT EXTENSIONS		13
	3.1	Conditions Precedent to Initial Credit Extension	13
	3.2	Conditions Precedent to all Credit Extensions	13
	3.3	Method of Borrowing	13
	3.4	Funding of Credit Facilities	14
	3.5	Searches	14
4.	CREATION OF SECURITY INTEREST		14
	4.1	Grant of Security Interest	14
	4.2	Representations and Covenants	14
5.	REPRESENTATIONS AND WARRANTIES		16
	5.1	Due Organization, Authorization: Power and Authority	16
	5.2	Litigation	16
	5.3	No Material Deterioration in Financial Condition; Financial Statements	17
	5.4	Solvency	17
	5.5	Subsidiaries; Investments; Margin Stock	17
	5.6	Tax Returns and Payments; Pension Contributions	17
	5.7	Intellectual Property and License Agreements	18
	5.8	Regulatory Status	18
	5.9	Accuracy of Schedules and Perfection Certificate	18
	5.10	FCPA and Anti-Corruption Law	18
	5.11	Centre of Main Interests and establishment for UK Credit Parties	18
	5.12	Pensions	19
6.	AFFIRMATIVE COVENANTS		19
	6.1	Organization and Existence; Government Compliance	19
	6.2	Financial Statements, Reports, Certificates	19

	6.3	Maintenance of Property	20
	6.4	Taxes; Pensions	20
	6.5	Insurance	21
	6.6	Collateral Accounts	21
	6.7	Notices of Material Agreements, Litigation and Defaults; Cooperation in Litigation	21
	6.8	Creation/Acquisition of Subsidiaries	22
	6.9	Use of Proceeds	22
	6.10	Hazardous Materials; Remediation	23
	6.11	Power of Attorney	23
	6.12	Further Assurances	23
	6.13	Post-Closing Obligations	24
	6.14	Disclosure Schedule Updates	24
	6.15	Intellectual Property and Licensing	24
	6.16	Regulatory Reporting and Covenants	25
	6.17	Pensions	26
	6.18	People with Significant Control regime.:	26
7.	NEGATIVE COVENANTS		26
	7.1	Dispositions	26
	7.2	Changes in Business, Management, Ownership or Business Locations	27
	7.3	Mergers or Acquisitions	27
	7.4	Indebtedness	27
	7.5	Encumbrance	27
	7.6	Maintenance of Collateral Accounts	27
	7.7	Distributions; Investments; Margin Stock	27
	7.8	Transactions with Affiliates	28
	7.9	Subordinated Debt	28
	7.10	Compliance	28
	7.11	Amendments to Organization Documents and Material Agreements	28
	7.12	Compliance with Anti-Terrorism Laws	29
	7.13	Fiscal Year; Fiscal Quarter	29
8.	RESERVED		29
9.	FINANCIAL COVENANTS		29
	9.1	Minimum Net Revenue	29
	9.2	Evidence of Compliance	29
10.	EVENTS OF DEFAULT		29
	10.1	Events of Default	29
	10.2	Rights and Remedies	33
	10.3	Notices	34
	10.4	Protective Payments	34

	10.5	Liability for Collateral No Waiver; Remedies Cumulative	34
	10.6	Application of Payments and Proceeds	34
	10.7	Waivers	35
	10.8	Injunctive Relief	36
11.	NOTICES		36
12.	CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER		37
13.	GENERAL PROVISIONS		38
	13.1	Successors and Assigns	38
	13.2	Indemnification	39
	13.3	Time of Essence	40
	13.4	Severability of Provisions	40
	13.5	Correction of Financing Documents	40
	13.6	Integration	40
	13.7	Counterparts	40
	13.8	Survival	40
	13.9	Confidentiality	41
	13.10	Right of Set-off	41
	13.11	Publicity	41
	13.12	No Strict Construction	42
	13.13	Approvals	42
	13.14	Amendments; Required Lenders; Inter-Lender Matters	42
	13.15	Borrower Liability	43
	13.16	Reinstatement	43
	13.17	USA PATRIOT Act Notification	43
	13.18	Warrants	43
	13.19	Process Agent	44
	13.20	Other Currency	44
14.	AGENT		44
	14.1	Appointment and Authorization of Agent	44
	14.2	Successor Agent	45
	14.3	Delegation of Duties	45
	14.4	Liability of Agent	45
	14.5	Reliance by Agent	46
	14.6	Notice of Default	46
	14.7	Credit Decision; Disclosure of Information by Agent	46
	14.8	Indemnification of Agent	46
	14.9	Agent in its Individual Capacity	47
	14.10	Agent May File Proofs of Claim	47
	14.11	Collateral and Guaranty Matters	47

	14.12	Advances; Payments; Non-Funding Lenders	48
	14.13	Miscellaneous	48
15.	GUARANTY		49
	15.1	Guaranty	49
	15.2	Payment of Amounts Owed	49
	15.3	Certain Waivers by Guarantor	49
	15.4	Guarantor’s Obligations Not Affected by Modifications of Financing Documents	51
	15.5	Reinstatement; Deficiency	51
	15.6	Subordination of Borrower’s Obligations to Guarantors; Claims in Bankruptcy	52
	15.7	Maximum Liability	52
	15.8	Guarantor’s Investigation	52
	15.9	Termination	53
16.	DEFINITIONS		53

CREDIT, GUARANTY AND SECURITY AGREEMENT

This CREDIT, GUARANTY AND SECURITY AGREEMENT (this “ Agreement ”), dated as of December 29, 2017 (the “ Closing Date ”) by and among MIDCAP FINANCIAL TRUST , a Delaware statutory trust (“ MidCap ”), as administrative agent, the Lenders listed on the Credit Facility Schedule attached hereto and otherwise party hereto from time to time (each a “ Lender ”, and collectively the “ Lenders ”), MIDATECH PHARMA PLC , a company formed under the laws of England and Wales with company number 09216368 (“ Parent ”), MIDATECH PHARMA US INC. , a Delaware corporation (“ Midatech US ”), DARA THERAPEUTICS INC. , a North Carolina corporation (“ DARA Therapeutics ”), M IDATECH PHARMA (WALES) LIMITED , a company formed under the laws of England and Wales with company number 04929486 (“ Midatech Wales ”), MIDATECH LIMITED , a company formed under the laws of England and Wales with company number 04097593 (“ Midatech Limited ”) and any additional borrower that may hereafter be added to this Agreement (collectively, together with Parent, Midatech US, DARA Therapeutics, Midatech Wales and Midatech Limited, in the singular, together with each entity that become party hereto as Borrower and each of their successors and permitted assigns, “ Borrowers ”) and any Guarantor party hereto from time to time, provides the terms on which Lenders agree to lend to Borrower and Borrower shall repay the Lenders. The parties agree as follows:

1.	ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed in accordance with IFRS. Calculations and determinations must be made in accordance with IFRS. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 16. All thresholds, baskets and other similar amounts that are stated in Dollars shall, where applicable, be deemed to apply to equivalent amounts of any foreign currency. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein. All headings numbered without a decimal point are herein referred to as “Articles,” and all paragraphs numbered with a decimal point (and all subparagraphs or subsections thereof) are herein referred to as “Sections.”

2.	CREDIT FACILITIES AND TERMS

2.1 Promise to Pay . Borrower hereby unconditionally promises to pay to each Lender in accordance with each Lender’s respective Pro Rata Share of each Credit Facility, the outstanding principal amount of all Credit Extensions made by the Lenders under such Credit Facility and accrued and unpaid interest thereon and any other amounts due hereunder as and when due in accordance with this Agreement.

2.2 Credit Facilities . Subject to the terms and conditions hereof, each Lender, severally, but not jointly, agrees to make available to Borrower Credit Extensions in respect of each Credit Facility set forth opposite such Lender’s name on the Credit Facility Schedule, in each case not to exceed such Lender’s commitment as identified on the Credit Facility Schedule (such commitment of each Lender, as it may be amended to reflect assignments made in accordance with this Agreement or terminated or reduced in accordance with this Agreement, its “ Applicable Commitment ”, and the aggregate of all such commitments of all Lenders, the “ Applicable Commitments ”).

2.3 Credit Facilities .

(a) Nature of Credit Facility; Credit Extension Requests . Credit Extensions in respect of a Credit Facility may be requested by Borrower during the Draw Period for such Credit Facility. For any Credit Extension requested under a Credit Facility (other than a Credit Extension on the Closing Date), Agent must receive the completed Credit Extension Form by 12:00 noon (New York time) ten (10) Business Days prior to the date the Credit Extension is to be funded. To the extent any Credit Facility proceeds are repaid for any reason, whether voluntarily or involuntarily (including repayments from insurance or condemnation proceeds), Agent and the Lenders shall have no obligation to re-advance such sums to Borrower.

(b) Principal Payments . Principal payable on account of a Credit Facility shall be payable by Borrower to Agent, for the account of the applicable Lenders in accordance with their respective Pro Rata Shares, immediately upon the earliest of (i) the date(s) set forth in the Amortization Schedule for such Credit Facility (or if no such Amortization Schedule is attached, then upon Agent’s demand for payment), or (ii) the Maturity Date. Except as this Agreement may specifically provide otherwise, all prepayments of Credit Extensions under the Credit Facilities shall be applied by Agent to the applicable Credit Facility in inverse order of maturity. The monthly payments required under the Amortization Schedule shall continue in the same amount (for so long as the applicable Credit Facility shall remain outstanding) notwithstanding any partial prepayment, whether mandatory or optional, of the applicable Credit Facility.

(c) Mandatory Prepayment . If a Credit Facility is accelerated following the occurrence of an Event of Default, Borrower shall immediately pay to Agent, for payment to each Lender in accordance with its respective Pro Rata Share, an amount equal to the sum of: (i) all outstanding principal of the Credit Facility and all other Obligations, plus accrued and unpaid interest thereon, (ii) any fees payable under the Fee Letters by reason of such prepayment, (iii) the Applicable Prepayment Fee as specified in the Credit Facility Schedule for the Credit Facility being prepaid, and (iv) all other sums that shall have become due and payable, including Protective Advances. Additionally, at the election of Agent, Borrower shall prepay the Credit Facilities (to be allocated pro rata among the outstanding Credit Extensions under all Credit Facilities) in the following amounts: (A) on the date on which any Credit Party (or Agent as loss payee or assignee) receives any casualty proceeds in excess of Twenty-Five Thousand Dollars ($25,000) for personal property, or in excess of Fifty Thousand Dollars ($50,000) for real property, in respect of assets upon which Agent maintained a Lien, an amount equal to one hundred percent (100%) of such proceeds (net of out-of-pocket expenses and, in the case of personal property, repayment of any permitted purchase money debt encumbering the personal property that suffered such casualty), or such lesser portion of such proceeds as Agent shall elect to apply to the Obligations; and (B) upon receipt by any Credit Party of the proceeds of any asset disposition of personal property not made in the Ordinary Course of Business (other than transfers permitted by Section 7.1) an amount equal to one hundred percent (100%) of the net cash proceeds of such asset disposition (net of out-of-pocket expenses and repayment of any permitted purchase money debt encumbering such asset), or such lesser portion as Agent shall elect to apply to the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to $100,000 in the aggregate with respect to any property loss in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (x) shall be of greater, equal, or like value as the replaced or repaired Collateral and (y) shall be deemed Collateral in which Agent and the Lenders have been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Agent, be payable to Agent, for the ratable benefit of the Lenders, on account of the Obligations.

(d) Permitted Prepayment . Borrower shall have the right to prepay the Prepayable Amount (as defined below) of such Credit Facility advanced by the Lenders under this Agreement, provided Borrower (i) provides written notice to Agent and each Lender of its election to prepay the Prepayable Amount at least thirty (30) days prior to such prepayment, and (ii) pays to Agent, for payment to each applicable Lender in accordance with its respective Pro Rata Share, on the date of such prepayment, an amount equal to the sum of (A) the Prepayable Amount, plus accrued interest thereon, (B) any fees payable under the Fee Letters by reason of such prepayment, (C) the Applicable Prepayment Fee as specified in the Credit Facility Schedule for the Credit Facility being prepaid, and (D) all Protective Advances. The term “Prepayable Amount” means all, but not less than all, of the Credit Extensions and all other Obligations under all Credit Facilities.

2.4 Reserved .

2.5 Reserved .

2.6 Interest and Payments; Administration .

(a) Interest; Computation of Interest . Each Credit Extension shall bear interest on the outstanding principal amount thereof from the date when made until paid in full at a rate per annum equal to the Applicable Interest Rate. Each Lender may, upon the failure of Borrower to pay any fees or interest as required herein, capitalize such interest and fees and begin to accrue interest thereon until paid in full, which such interest shall be at a rate per annum equal to the Applicable Interest Rate unless and until the Default Rate shall otherwise apply. All other Obligations shall bear interest on the outstanding amount thereof from the date they first become payable by Borrower under the Financing Documents until paid in full at a rate per annum equal to the Applicable Interest Rate unless and until the Default Rate shall otherwise apply. Interest on the Credit Extensions and all fees payable under the Financing Documents shall be computed on the basis of a three hundred sixty (360) day year and the actual number of days elapsed in the period during which such interest accrues. In computing interest on any Credit Extension or other advance, the date of the making of such Credit Extension or advance shall be included and the date of payment shall be excluded; provided , however , that if any Credit Extension or advance is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension or advance. As of each Applicable Interest Rate Determination Date, Agent shall determine (which determination shall, absent manifest error in calculation, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Credit Extensions.

(b) Default Rate . Upon the election of Agent following the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is two hundred basis points (2.00%) above the rate that is otherwise applicable thereto (the “ Default Rate ”). Payment or acceptance of the increased interest rate provided in this subsection is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Agent or the Lenders.

(c) Payments Generally . Except as otherwise provided in this Agreement, including pursuant to Section 2.6(c), or as otherwise directed by Agent, all payments in respect of the Obligations shall be made to Agent for the account of the applicable Lenders in accordance with their Pro Rata Share. Payments of principal and interest in respect of each Credit Facility shall be made to each applicable Lender identified on the applicable Credit Facility Schedule. All Obligations are payable upon demand of Agent in the absence of any other due date specified herein. All fees payable under the Financing Documents shall be deemed non-refundable as of the date paid. Any payment required to be made to Agent or a Lender (and any servicer or trustee on behalf of a securitization vehicle designated by either) under this Agreement may be made by debit or automated clearing house payment initiated by Agent or such Lender (or any servicer designated or trustee on behalf of a securitization vehicle on behalf of either) from any of Borrower’s deposit accounts, including the Designated Funding Account, and Borrower hereby authorizes Agent and each Lender (or any servicer or trustee on behalf of a securitization vehicle designated on behalf of either) to debit any such accounts for any amounts Borrower owes hereunder when due. Without limiting the foregoing, Borrower shall tender to Agent and the Lenders any authorization forms as Agent or any Lender may require to implement such debit or automated clearing house payment. These debits or automated clearing house payments shall not constitute a set-off. Payments of principal and/or interest received after 12:00 noon New York time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment is due the next Business Day and additional fees or interest, as applicable, shall continue to accrue until paid. All payments to be made by Borrower under any Financing Document shall be made without set-off, recoupment or counterclaim, in lawful money of the United States and in immediately available funds. The balance of the Obligations, as recorded in Agent’s books and records at any time, shall be conclusive and binding evidence of the amounts due and owing to Agent and the Lenders by each Borrower absent manifest error; provided , however , that any failure to so record or any error in so recording shall not limit or otherwise affect any Borrower’s duty to pay all amounts owing hereunder or under any Financing Document. Agent shall provide Borrower with a monthly statement regarding the Credit Extensions. Borrower shall have the right to notify Agent of any objection to any such statement (specifically describing the basis for such objection) at any time within the period of ninety (90) days after the date of receipt of such statement whereupon the Borrower and Agent shall each use reasonable efforts to reach agreement on the item or items the subject of the objection. In the event that no objection is made within such period such statement shall be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein.

(d) Interest Payments; Maturity Date . Commencing on the first (1 ^st ) Payment Date following the funding of a Credit Extension, and continuing on the Payment Date of each successive month thereafter through and including the Maturity Date, Borrower shall make monthly payments of interest, in arrears, calculated as set forth in this Section 2.6. All unpaid principal and accrued interest is due and payable in full on the Maturity Date or any earlier date specified herein. If the Obligations are not paid in full on or before the Maturity Date, all interest thereafter accruing shall be payable immediately upon accrual.

(e) Fees . Borrower shall pay, as and when due and payable under the terms of the Fee Letters, to Agent and each Lender, as applicable, for their own accounts and not for the benefit of any other Lenders, the fees set forth in the Fee Letters.

(f) Protective Advances . Borrower shall pay to Agent for the account of the Lenders all Protective Advances (including reasonable attorneys’ fees and expenses for documentation and negotiation of this Agreement and the other Financing Documents) when due under any Financing Document (and in the absence of any other due date specified herein, such Protective Advances shall be due upon demand).

(g) Maximum Lawful Rate . In no event shall the interest charged hereunder with respect to the Obligations exceed the maximum amount permitted under the Laws of the State of Maryland. Notwithstanding anything to the contrary in any Financing Document, if at any time the rate of interest payable hereunder (the “ Stated Rate ”) would exceed the highest rate of interest permitted under any applicable Law to be charged (the “ Maximum Lawful Rate ”), then for so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable shall be equal to the Maximum Lawful Rate; provided, however , that if at any time thereafter the Stated Rate is less than the Maximum Lawful Rate, Borrower shall, to the extent permitted by Law, continue to pay interest at the Maximum Lawful Rate until such time as the total interest received is equal to the total interest which would have been received had the Stated Rate been (but for the operation of this provision) the interest rate payable. Thereafter, the interest rate payable shall be the Stated Rate unless and until the Stated Rate again would exceed the Maximum Lawful Rate, in which event this provision shall again apply. In no event shall the total interest received by any Lender exceed the amount which it could lawfully have received, had the interest been calculated for the full term hereof at the Maximum Lawful Rate. If, notwithstanding the prior sentence, any Lender has received interest hereunder in excess of the Maximum Lawful Rate, such excess amount shall be applied to the reduction of the principal balance of such Lender’s Credit Extensions or to other amounts (other than interest) payable hereunder, and if no such Credit Extensions or other amounts are then outstanding, such excess or part thereof remaining shall be paid to Borrower. In computing interest payable with reference to the Maximum Lawful Rate applicable to any Lender, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.

(h) Taxes; Additional Costs .

(i) Any and all payments by or on account of any obligation of Borrower hereunder shall be made without deduction or withholding for any Taxes, except as required by applicable law. For purposes of this Section 2.6(h), the term “applicable law” shall include FATCA. If any applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then Withholding Agent shall make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.6(h)) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

(ii) Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of Agent timely reimburse it for the payment of, any Other Taxes.

(iii) Borrower shall indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 2.6(h)) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrower by a Lender (with a copy to Agent), or by Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(iv) Each Lender shall severally indemnify Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that Borrower has not already indemnified Agent for such Indemnified Taxes and without limiting the obligation of Borrower to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 13.1(c) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by Agent in connection with this Agreement or any Obligation, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by Agent shall be conclusive absent manifest error. Each Lender hereby authorizes Agent to set off and apply any and all amounts at any time owing to such Lender pursuant to this Agreement or otherwise payable by Agent to the Lender from any other source against any amount due to Agent under this paragraph (iv).

(v) As soon as practicable after any payment of Taxes by Borrower to a Governmental Authority pursuant to this Section 2.6(h), Borrower shall deliver to Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to Agent.

(vi) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made in connection with this Agreement or any Obligation shall deliver to Borrower and Agent, at the time or times reasonably requested by Borrower or Agent, such properly completed and executed documentation reasonably requested by Borrower or Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by Borrower or Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by Borrower or Agent as will enable Borrower or Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two (2) sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.6(h)(vii)(A), (vii)(B) and (vii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(vii) Without limiting the generality of the foregoing,

(A) any Lender that is a U.S. Person shall deliver to Borrower and Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Borrower or Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to Borrower and Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Borrower or Agent), whichever of the following is applicable:

(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under this Agreement or any Financing Document, executed copies of IRS Form W-8BEN-E or W-8BEN, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under this Agreement or any other Financing Document, IRS Form W-8BEN-E or W-8BEN, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(2) executed copies of IRS Form W-8ECI;

(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the IRC, (x) executed copies of IRS Form W-8BEN-E or W-8BEN, as applicable and (y) a certification substantially in the form of Exhibit D-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the IRC, a “10 percent shareholder” of Borrower within the meaning of Section 881(c)(3)(B) of the IRC, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the IRC, together with such Other Tax Certification as Borrower or Agent may reasonably request from time to time; or

(4) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E or W-8BEN, as applicable, a U.S. Tax Compliance Certificate substantially in the form of Exhibit D-2 or Exhibit D-3 , IRS Form W-9, and/or such Other Tax Certification from each beneficial owner as Agent may reasonably request, as applicable; provided that if the Foreign Lender is a partnership and one (1) or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit D-4 and such Other Tax Certification as may be reasonably required by Agent or Borrower on behalf of each such direct and indirect partner;

(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to Borrower and Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of Borrower or Agent), executed copies of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such Other Tax Certification as may be prescribed by applicable law to permit Borrower or Agent to determine the withholding or deduction required to be made; and

(D) if a payment made to a Lender under any this Agreement would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the IRC, as applicable), such Lender shall deliver to Borrower and Agent at the time or times prescribed by law and at such time or times reasonably requested by Borrower or Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the IRC) and such Other Tax Certification reasonably requested by Borrower or Agent as may be necessary for Borrower and Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

Each Lender agrees that if any form or certification it previously delivered pursuant to this Section 2.6(h)(vi) or (vii) expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify Borrower and Agent in writing of its legal inability to do so.

(viii) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.6(h) (including by the payment of additional amounts pursuant to this Section 2.6(h)), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

(ix) If any Lender shall determine in its commercially reasonable judgment that the adoption or taking effect of, or any change in, any applicable Law regarding capital adequacy, in each instance, after the Closing Date, or any change after the Closing Date in the interpretation, administration or application thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation, administration or application thereof, or the compliance by any Lender or any Person controlling such Lender with any request, guideline or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency adopted or otherwise taking effect after the Closing Date, has or would have the effect of reducing the rate of return on such Lender’s or such controlling Person’s capital as a consequence of such Lender’s obligations hereunder to a level below that which such Lender or such controlling Person could have achieved but for such adoption, taking effect, change, interpretation, administration, application or compliance (taking into consideration such Lender’s or such controlling Person’s policies with respect to capital adequacy) then from time to time, upon written demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to Agent), Borrower shall promptly pay to such Lender such additional amount as will compensate such Lender or such controlling Person for such reduction; provided , however , that notwithstanding anything in this Agreement to the contrary, (A) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (B) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “change in applicable Law”, regardless of the date enacted, adopted or issued.

(x) If any Lender requires compensation under this subsection (h), or requires any Borrower to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to this subsection (h), then, upon the written request of Borrower, such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Credit Extensions hereunder or to assign its rights and obligations hereunder (subject to the terms of this Agreement) to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (A) would eliminate or materially reduce amounts payable pursuant to any such subsection, as the case may be, in the future, and (B) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(xi) Each party’s obligations under this Section 2.6(h) shall survive the resignation or replacement of Agent or any assignment of rights by, or the replacement of, a Lender, and the repayment, satisfaction or discharge of all Obligations hereunder.

(i) Administrative Fees and Charges .

(i) Borrower shall pay to Agent, for its own account and not for the benefit of any other Lenders, all reasonable fees and expenses in connection with audits and inspections of the books and records of the Credit Parties, audits, valuations or appraisals of the Collateral, audits of Borrower’s compliance with applicable Laws and such other matters as Agent shall deem appropriate, which shall be due and payable on the first (1st) Business Day of the month following the date of issuance by Agent of a written request for payment thereof to any Borrower; provided that, as long as no Event of Default has occurred and is continuing, Agent shall be entitled to such reimbursement for no more than one (1) audit and inspection per Fiscal Year.

(ii) If payments of principal or interest due on the Obligations, or any other amounts due hereunder or under the other Financing Documents, are not timely made and remain overdue for a period of five (5) days, Borrower, without notice or demand by Agent, promptly shall pay to Agent, for its own account and not for the benefit of any other Lenders, as additional compensation to Agent in administering the Obligations, an amount equal to two percent (2.0%) of each delinquent payment.

2.7 Secured Promissory Notes . At the election of any Lender made as to each Credit Facility for which it has made Credit Extensions, each Credit Facility shall be evidenced by one (1) or more secured promissory notes in form and substance satisfactory to Agent and the Lenders (each a “ Secured Promissory Note ”). Upon receipt of an affidavit of an officer of a Lender as to the loss, theft, destruction, or mutilation of its Secured Promissory Note, Borrower shall issue, in lieu thereof, a replacement Secured Promissory Note in the same principal amount thereof and of like tenor.

3.	CONDITIONS OF CREDIT EXTENSIONS

3.1 Conditions Precedent to Initial Credit Extension . Each Lender’s obligation to make the initial advance in respect of a Credit Facility on the Closing Date is subject to the condition precedent that Agent shall consent to or shall have received, in form and substance satisfactory to Agent those documents and other matters listed on the Closing Deliveries Schedule attached hereto.

3.2 Conditions Precedent to all Credit Extensions . The obligation of each Lender to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:

(a) satisfaction of all Applicable Funding Conditions for the applicable Credit Extension as set forth in the Credit Facility Schedule, if any, in each case in form and substance reasonably satisfactory to Agent and each Lender;

(b) timely receipt by Agent and each Lender of an executed Credit Extension Form in the form attached hereto;

(c) for Credit Extensions made on the Closing Date, the representations and warranties in Article 5 and elsewhere in the Financing Documents shall be true, correct and complete in all respects on the Closing Date; provided , however , that those representations and warranties expressly referring to a specific date shall be true, correct and complete in all respects as of such date;

(d) for Credit Extensions made after the Closing Date, if any, the representations and warranties in Article 5 and elsewhere in the Financing Documents shall be true, correct and complete in all material respects on the date of the Credit Extension Form and on the Funding Date of each Credit Extension; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided , further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date. Each Credit Extension is each Credit Party’s representation and warranty on that date that the representations and warranties in Article 5 and elsewhere in the Financing Documents remain true, accurate and complete in all material respects; provided , however , that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided , further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date;

(e) no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension;

(f) Agent shall be satisfied with the results of any searches conducted under Section 3.5;

(g) receipt by Agent of such evidence as Agent shall request to confirm that the deliveries made in Section 3.1 remain current, accurate and in full force and effect, or if not, updates thereto, each in form and substance satisfactory to Agent; and

(h) as determined in such Lender’s sole discretion, there has not been any Material Adverse Change or any material adverse deviation by any Credit Party from the most recent business plan of the Credit Parties presented to and accepted by Agent.

3.3 Method of Borrowing . Each Credit Extension in respect of each Credit Facility shall be in an amount at least equal to the applicable Minimum Credit Extension Amount for such Credit Facility as set forth in the Credit Facility Schedule or such lesser amount as shall remain undisbursed under the Applicable Commitments for such Credit Facility. The date of funding for any requested Credit Extension shall be a Business Day. To obtain a Credit Extension, Borrower shall deliver to Agent a completed Credit Extension Form executed by a Responsible Officer. Agent may rely on any notice given by a person whom Agent reasonably believes is a Responsible Officer or designee thereof. Agent and the Lenders shall have no duty to verify the authenticity of any such notice.

3.4 Funding of Credit Facilities . Credit Extensions may be funded by Agent on behalf of the Lenders or by the Lenders directly (the identity of the funder to be at Agent’s discretion). If Agent elects to fund any Credit Extension on behalf of the Lenders, upon the terms and subject to the conditions set forth in this Agreement, each Lender, severally and not jointly, shall make available to Agent its Pro Rata Share of the requested Credit Extension, in lawful money of the United States of America in immediately available funds, prior to 11:00 a.m. (New York time) on the specified date for the Credit Extension. Agent (or if Agent elects to have each Lender fund its Credit Extensions to Borrower directly, each Lender) shall, unless it shall have determined that one of the conditions set forth in Section 3.1 or 3.2, as applicable, has not been satisfied, by 2:00 p.m. (New York time) on the specified date for the Credit Extension, credit the amounts received by it in like funds to Borrower by wire transfer to the Designated Funding Account (or to the account of Borrower in respect of the Obligations, if the Credit Extension is being made to pay an Obligation of Borrower). A Credit Extension made prior to the satisfaction of any conditions set forth in Section 3.1 or 3.2 shall not constitute a waiver by Agent or the Lenders of Borrower’s obligation to satisfy such conditions, and any such Credit Extension made in the absence of such satisfaction shall be made in each Lender’s discretion.

3.5 Searches . Before the Closing Date, and thereafter (as and when determined by Agent in its discretion), Agent shall have the right to perform, all at the Credit Parties’ expense, the searches described in clauses (a), (b), and (c) below against Borrower and any other Credit Party, the results of which are to be consistent with the Credit Parties’ representations and warranties under this Agreement and the reasonably satisfactory results of which shall be a condition precedent to all Credit Extensions requested by Borrower: (a) title investigations, UCC searches and fixture filings searches and the equivalent thereof in each applicable foreign jurisdiction; (b) judgment, pending litigation, federal tax lien, personal property tax lien, and corporate and partnership tax lien searches, in each jurisdiction searched under clause (a) above; and (c) searches of applicable corporate, limited liability company, partnership and related records to confirm the continued existence, organization and good standing of the applicable Person and the exact legal name under which such Person is organized.

4.	CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest . Each Credit Party hereby grants to Agent, for the ratable benefit of the Lenders, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Agent, for the ratable benefit of the Lenders, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Each Credit Party represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral, subject only to Permitted Liens and Liens that may have priority by operation of applicable Law or by the terms of a written intercreditor or subordination agreement entered into by Agent. Notwithstanding the foregoing, if any inconsistency exists between this Article 4 and any provision of the UK Security Documents with respect to any UK Credit Party, the provisions of the UK Security Documents shall prevail.

4.2 Representations and Covenants .

(a) As of the Closing Date, no Credit Party has any ownership interest in any Chattel Paper, letter of credit rights, commercial tort claims, Instruments, documents or investment property (other than as disclosed on the Disclosure Schedule attached hereto).

(b) Each Credit Party shall promptly (and in any event within ten (10) days of acquiring any of the following) deliver to Agent all tangible Chattel Paper and all Instruments and documents owned at any time by such Credit Party and constituting part of the Collateral duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Agent. Each Credit Party shall provide Agent with “control” (as defined in the Code) of all electronic Chattel Paper owned by such Credit Party and constituting part of the Collateral by having Agent identified as the assignee on the records pertaining to the single authoritative copy thereof and otherwise complying with the applicable elements of control set forth in the Code. Each Credit Party also shall deliver to Agent all security agreements securing any such Chattel Paper and securing any such Instruments. Each Credit Party will mark conspicuously all such Chattel Paper and all such Instruments and Documents with a legend, in form and substance satisfactory to Agent, indicating that such Chattel Paper and such Instruments and Documents are subject to the security interests and Liens in favor of Agent created pursuant to this Agreement and the Financing Documents.

(c) Each Credit Party shall promptly (and in any event within ten (10) days of acquiring any of the following) deliver to Agent all letters of credit on which such Credit Party is the beneficiary and which give rise to letter of credit rights owned by such Credit Party which constitute part of the Collateral, in each case, duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Agent. Each Credit Party shall take any and all actions as may be necessary or desirable, or that Agent may request, from time to time, to cause Agent to obtain exclusive “control” (as defined in the Code) of any such letter of credit rights in a manner acceptable to Agent.

(d) Each Credit Party shall promptly (and in any event within 10 days) advise Agent upon any Credit Party becoming aware that it has any interests in any commercial tort claim that constitutes part of the Collateral, which such notice shall include descriptions of the events and circumstances giving rise to such commercial tort claim and the dates such events and circumstances occurred, the potential defendants with respect such commercial tort claim and any court proceedings that have been instituted with respect to such commercial tort claims, and each Credit Party shall, with respect to any such commercial tort claim, execute and deliver to Agent such documents as Agent shall request to perfect, preserve or protect the Liens, rights and remedies of Agent with respect to any such commercial tort claim.

(e) Except for (i) Inventory located outside the United States, (ii) the Inventory with an aggregate value of less than $250,000 located at the ICS Location, and (iii) other Inventory located in the United States with an aggregate value of less than Twenty-Five Thousand Dollars ($25,000), no Inventory or other Collateral shall at any time be in the possession or control of any warehouse, consignee, bailee or any of the Credit Parties’ agents or processors without prior written notice to Agent and the receipt by Agent, if Agent has so requested, of warehouse receipts, consignment agreements or bailee lien waivers (as applicable) satisfactory to Agent prior to the commencement of such possession or control. Each Credit Party shall, upon the request of Agent, notify any such warehouse, consignee, bailee, agent or processor of the security interests and Liens in favor of Agent created pursuant to this Agreement and the Financing Documents, instruct such Person to hold all such Collateral for Agent’s account subject to Agent’s instructions and shall, in Agent’s discretion, obtain an Access Agreement or other acknowledgement from such Person that such Person holds the Collateral for Agent’s benefit.

(f) Upon request of Agent, each Credit Party shall promptly deliver to Agent any and all certificates of title, applications for title or similar evidence of ownership of all such tangible personal property and shall cause Agent to be named as lienholder on any such certificate of title or other evidence of ownership. No Credit Party shall permit any such tangible personal property to become fixtures to real estate unless such real estate is subject to a Lien in favor of Agent.

(g) all Deposit Accounts, Securities Accounts, Commodity Accounts or other bank accounts or investment accounts owned by a Credit Party, together with the purpose of such accounts and the financial institutions at which such accounts reside, are listed on the Disclosure Schedule.

(h) Each Credit Party hereby authorizes Agent to file without the signature of such Credit Party one or more UCC financing statements (and shall comply with all equivalent requirements in jurisdictions outside of the United States) relating to its Liens on all or any part of the Collateral, which financing statements may list Agent as the “secured party” and such Credit Party as the “debtor” and which describe and indicate the collateral covered thereby as all or any part of the Collateral under the Financing Documents (including an indication of the collateral covered by any such financing statement as “all assets” of such Credit Party now owned or hereafter acquired), in such jurisdictions as Agent from time to time determines are appropriate, and to file without the signature of such Credit Party any continuations of or corrective amendments to any such financing statements, in any such case in order for Agent to perfect, preserve or protect the Liens, rights and remedies of Agent with respect to the Collateral. Each Credit Party also ratifies its authorization for Agent to have filed in any jurisdiction any initial financing statements or amendments thereto if filed prior to the date hereof. Any financing statement may include a notice that any disposition of the Collateral in contravention of this Agreement, by such Credit Party or any other Person, shall be deemed to violate the rights of Agent and the Lenders under the Code.

(i) As of the Closing Date, no Credit Party holds, and after the Closing Date each Credit Party shall promptly notify Agent in writing upon creation or acquisition by any Credit Party of, any Collateral which constitutes a claim against any Governmental Authority, including, without limitation, the federal government of the United States or any instrumentality or agency thereof, the assignment of which claim is restricted by any applicable Law, including, without limitation, the federal Assignment of Claims Act and any other comparable Law. Upon the request of Agent, each Credit Party shall take such steps as may be necessary or desirable, or that Agent may request, to comply with any such applicable Law.

(j) Each Credit Party shall furnish to Agent from time to time any statements and schedules further identifying or describing the Collateral and any other information, reports or evidence concerning the Collateral as Agent may reasonably request from time to time.

REPRESENTATIONS AND WARRANTIES

Each Credit Party represents and warrants as follows on the Closing Date, on the date of each Credit Extension, and on such other dates when such representations and warranties under this Agreement are made or deemed to be made:

5.1 Due Organization, Authorization: Power and Authority .

(a) Each Credit Party and each Subsidiary thereof is duly existing and in good standing, as a Registered Organization in its respective jurisdiction of formation, or, in the case of any Credit Party formed outside the United States or any political subdivision thereof, incorporated, existing and, where the jurisdiction in which such entity is incorporated has a concept of good standing, is in good standing under the laws of its jurisdiction of incorporation. Each Credit Party and each Subsidiary thereof has the power to own its assets and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a Material Adverse Change. The Financing Documents to which it is a party have been duly authorized, executed and delivered by each Credit Party and constitute legal, valid and binding agreements enforceable in accordance with their terms. The execution, delivery and performance by each Credit Party of each Financing Document executed or to be executed by it is in each case within such Credit Party’s powers.

(b) Each UK Security Document creates the security interests which that UK Security Document purports to create and, subject to any necessary registration pursuant to the terms of the UK Security Documents, those security interests are valid and effective. The choice of governing law of the Financing Documents will be recognized and enforced in its relevant jurisdiction. Any judgment obtained in relation to a Financing Document in the jurisdiction of the governing law of that Financing Document will be recognized and enforced in its relevant jurisdictions.

(c) The execution, delivery and performance by each Credit Party of the Financing Documents to which it is a party do not (i) conflict with any of such Credit Party’s organizational documents; (ii) contravene, conflict with, constitute a default under or violate any applicable Law; (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which such Credit Party or any of its property or assets may be bound or affected; (iv) require any action by, filing, registration, or qualification with, or Required Permit from, any Governmental Authority (except such Required Permits which have already been obtained and are in full force and effect); or (v) constitute a default under or conflict with any Material Agreement.

(d) No Credit Party is in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to result in a Material Adverse Change.

5.2 Litigation . Except as disclosed on the Disclosure Schedule or, after the Closing Date, pursuant to Section 6.7, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Responsible Officers, threatened in writing by or against any Credit Party which involves the possibility of any judgment or liability of more than One Hundred and Fifty Thousand Dollars ($150,000.00) or that could result in a Material Adverse Change, or which questions the validity of the Financing Documents, or the other documents required thereby or any action to be taken pursuant to any of the foregoing, nor does any Credit Party have reason to believe that any such actions, suits, proceedings or investigations are threatened.

5.3 No Material Deterioration in Financial Condition; Financial Statements . All financial statements for the Credit Parties delivered to Agent or any Lender fairly present, in conformity with IFRS, in all material respects the consolidated financial condition and consolidated results of operations of such Credit Party. Except as stated in any Announcements, of which Borrower has complied with its obligation in Section 13.11, there has been no material deterioration in the consolidated financial condition of any Credit Party from the most recent financial statements and projections submitted to Agent or any Lender. There has been no material adverse deviation from the most recent annual operating plan of the Credit Parties delivered to Agent and the Lenders.

5.4 Solvency .

(a) The fair salable value of each Credit Party’s assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities. After giving effect to the transactions described in this Agreement, (a) no Credit Party is left with unreasonably small capital in relation to its business as presently conducted, and (b) each Credit Party is able to pay its debts (including trade debts) as they become due for payment.

(b) No: (a) corporate action, legal proceeding or other procedure or step described in Section 10.1(h); or (b) creditors’ process described in Section 101(i), has been taken or, to the knowledge of the Parent, threatened in relation to a UK Credit Party; and none of the circumstances described in Section 10.1(g) applies to a UK Credit Party.

5.5 Subsidiaries; Investments; Margin Stock . The Credit Parties and their Subsidiaries do not own any stock, partnership interest or other equity securities, except for Permitted Investments. Without limiting the foregoing, the Credit Parties and their Subsidiaries do not own or hold any Margin Stock.

5.6 Tax Returns and Payments; Pension Contributions .

(a) Each Credit Party and its Subsidiaries has timely filed all required federal and other material tax returns and reports, and, except for those Taxes that are subject to a Permitted Contest, each Credit Party has timely paid all foreign, federal, material state and local Taxes, assessments, deposits and contributions due and owing by such Credit Party. Other than as disclosed to Agent in accordance with Section 6.2, the Credit Parties are unaware of any claims or adjustments proposed for any prior tax years of any Credit Party which could result in additional Taxes becoming due and payable by such Credit Party. Under the laws of England and Wales, it is not necessary that the Financing Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration, notarial or similar taxes or fees be paid on or in relation to the Financing Documents or the transactions contemplated by the Financing Documents except: (x) registration of particulars of the UK Security Documents at the Companies Registration Office in England and Wales under section 859A of the Companies Act and payment of associated fees; and (y) registration of particulars of certain Intellectual Property secured pursuant to the terms of the UK Security Documents at the Trade Marks Registry at the Patent Office in England and Wales and payment of associated fees; each of which registrations, filings, taxes and fees will be made promptly after the date of the relevant UK Security Document.

(b) No Credit Party to whom ERISA applies, Subsidiary of any Credit Party to whom ERISA applies, or any trade or business (whether or not incorporated) that is under common control with any Credit Party to whom ERISA applies within the meaning of Section 414(b) or (c) of the IRC (and Sections 414(m) and (o) of the IRC for purposes of the provisions relating to Section 412 of the IRC) or Section 4001 of ERISA (an “ ERISA Affiliate ”) (i) has failed to satisfy the “minimum funding standards” (as defined in Section 412 of or Section 302 of ERISA), whether or not waived, with respect to any Pension Plan, (ii) has incurred liability with respect to the withdrawal or partial withdrawal of any Credit Party or ERISA Affiliate from any Pension Plan or incurred a cessation of operations that is treated as a withdrawal, (iii) has incurred any liability under Title IV of ERISA (other than for PBGC premiums due but not delinquent under Section 4007 of ERISA), (iv) has had any “reportable event” as defined in Section 4043(c) of ERISA (or the regulations issued thereunder) (other than an event for which the thirty (30) day notice requirement is waived) occur with respect to any Pension Plan or (v) failed to maintain (1) each “plan” (as defined by Section 3(3) of ERISA) in all material respects with the applicable provisions of ERISA, the IRC and other federal or state laws, and (2) the tax qualified status of each plan (as defined above) intended to be so qualified.

5.7 Intellectual Property and License Agreements . A list of all Registered Intellectual Property of each Credit Party and all in-bound license or sublicense agreements, exclusive out-bound license or sublicense agreements, or other rights of any Credit Party to use Intellectual Property (but excluding in-bound licenses of over-the-counter software that is commercially available to the public), as of the Closing Date and, as updated pursuant to Section 6.14, is set forth on the Intangible Assets Schedule . Such Intangible Assets Schedule shall be prepared by the Credit Parties in the form provided by Agent and contain all information required in such form. Except for Permitted Licenses, each Credit Party is the sole owner of its Intellectual Property free and clear of any Liens. Each Patent is valid and enforceable and no part of the Material Intangible Assets has been judged invalid or unenforceable, in whole or in part, and to the best of the Credit Parties’ knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party.

5.8 Regulatory Status . All of each Credit Party’s Products and Regulatory Required Permits are listed on the Products Schedule and Required Permits Schedule , respectively (as updated from time to time pursuant to Section 6.14), and the Credit Parties have delivered to Agent a copy of all Regulatory Required Permits requested by Agent as of the date hereof or to the extent requested by Agent pursuant to Section 6.16. With respect to each Product, (i) the Credit Parties and their Subsidiaries have received, and such Product is the subject of, all Regulatory Required Permits needed in connection with the testing, manufacture, marketing or sale of such Product as currently being conducted by or on behalf of such Credit Party, and have provided Agent and each Lender with all notices and other information required by Section 6.16, (ii) such Product is being tested, manufactured, marketed or sold, as the case may be, in material compliance with all applicable Laws and Regulatory Required Permits. As of the Closing Date, there have been no Regulatory Reporting Events.

5.9 Accuracy of Schedules and Perfection Certificate . All information set forth in the Disclosure Schedule , Intangible Assets Schedule , the Required Permits Schedule and the Products Schedule is true, accurate and complete in all material respects as of the Closing Date, the date of delivery of the last Compliance Certificate and any other subsequent date on which the Credit Parties are requested to update such certificate. All information set forth in the Perfection Certificate is true, accurate and complete as of the Closing Date, the date of each Credit Extension and each other subsequent date on which the Credit Parties deliver an updated Perfection Certificate pursuant to Agent’s request.

5.10 FCPA and Anti-Corruption Law . For the immediately preceding five year period, no Credit Party nor any of its Subsidiaries nor, to the knowledge of any Credit Party, any director, officer, agent, employee or other Person acting in such capacity on behalf of any Credit Party or any of its Subsidiaries, has taken any action, directly or indirectly, that would result in a violation by such Persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “ FCPA ”) or any other applicable anti-corruption law. No part of the proceeds of the Credit Extensions shall be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the FCPA. Each Credit Party and its Subsidiaries have conducted their businesses in compliance with applicable anti-corruption laws and has instituted and maintained policies and procedures designed to promote and achieve compliance with such laws.

5.11 Centre of Main Interests and establishment for UK Credit Parties .

(a) Each UK Credit Party’s “centre of main interests” (as that term is used in Article 3(1) of The Council of European Union No 1346/2000 on Insolvency Proceedings (the “ Regulation ”)) is situated in its jurisdiction of incorporation.

(b) No UK Credit Party has “establishment” (as that term is used in Article 2(h) of the Regulation) in any other jurisdiction.

5.12 Pensions . None of the Credit Parties nor any of their Subsidiaries is or has at any time been an employer (for the purposes of sections 38 to 51 of the Pensions Act) of an occupational pension scheme which is not a money purchase scheme (both terms as defined in the Pensions Schemes Act), nor is or has at any time been “connected” with or an “associate” of (as those terms are used in sections 38 and 43 of the Pensions Act) such an employer.

AFFIRMATIVE COVENANTS

Each Credit Party covenants and agrees as follows:

6.1 Organization and Existence; Government Compliance .

(a) Each Credit Party shall maintain, and shall cause each Subsidiary to maintain, its legal existence and good standing in its respective jurisdiction of formation and maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Change. If a Credit Party is not now a Registered Organization but later becomes one, the Credit Parties shall promptly notify Agent of such occurrence and provide Agent with such Credit Party’s organizational identification number.

(b) Each Credit Party shall, and shall cause each Subsidiary to, comply with all Laws, ordinances and regulations to which it or its business locations are subject, the noncompliance with which could reasonably be expected to result in a Material Adverse Change. Each Credit Party shall, and shall cause each Subsidiary to, obtain and keep in full force and effect and comply with all of the Required Permits, except where failure to have or maintain compliance with or effectiveness of such Required Permit could not reasonably be expected to result in a Material Adverse Change. Upon request of Agent or any Lender, each Credit Party shall promptly (and in any event within three (3) Business Days of such request) provide copies of any such obtained Required Permits to Agent. Credit Parties shall notify Agent within three (3) Business Days (but in any event prior to Borrower submitting any requests for Credit Extensions or release of any reserves) of the occurrence of any facts, events or circumstances known to any Credit Party, whether threatened, existing or pending, that could cause any Required Permit to become limited, suspended or revoked. Notwithstanding the foregoing, each Credit Party shall comply with Section 6.16 as it relates to Regulatory Required Permits and to the extent that there is a conflict between this Section and Section 6.16 as it relates to Regulatory Required Permits, Section 6.16 shall govern.

6.2 Financial Statements, Reports, Certificates .

(a) Each Credit Party shall deliver to Agent and each Lender: (i) as soon as available, but no later than thirty (30) days after the last day of each month, a company prepared consolidated and consolidating balance sheet, income statement and cash flow statement covering such Credit Party’s consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Agent and each Lender; (ii) as soon as available, but no later than one hundred twenty (120) days after the last day of a Credit Party’s Fiscal Year, audited consolidated and consolidating financial statements prepared under IFRS, consistently applied, together with an unqualified opinion on the financial statements from an independent accounting firm acceptable to Agent and each Lender in its reasonable discretion ; provided , that the Credit Parties’ auditor as of the Closing Date, BDO LLP, shall be deemed acceptable to Agent and each Lender; (iii) as soon as available after approval thereof by such Credit Party’s governing board, but no later than thirty (30) days after the last day of such Credit Party’s Fiscal Year, and as amended and/or updated, such Credit Party’s financial projections for the current Fiscal Year; (iv) within five (5) Business Days of delivery, copies of all statements, reports and notices made available to all of such Credit Party’s security holders or to any holders of Subordinated Debt; (v) within five (5) Business Days of filing, all reports on Form 20-F, 6-K, 10-K, 10-Q and 8‑K filed by or on behalf of a Credit Party with the Securities and Exchange Commission (“ SEC ”) or a link thereto on such Credit Party’s or another website on the Internet; (vi) as soon as available, but no later than thirty (30) days after the last day of each month, copies of the month-end account statements for each Collateral Account maintained by a Credit Party, which statements may be provided to Agent and each Lender by the Credit Parties or directly from the applicable institution(s); (vii) promptly (and in any event within ten (10) Business Days of any request therefor) such readily available budgets, sales projections, operating plans, financial information and other information, reports or statements regarding the Credit Parties or their respective businesses, contractors and subcontractors reasonably requested by Agent or any Lender other than information which the Parent is prohibited or restricted by law or regulation from disclosing to Agent or such Lender (as applicable); and (viii) within ten (10) Business Days after any Credit Party becomes aware of any claim or adjustment proposed for any prior tax years of any Credit Party or any of their Subsidiaries which could result in additional Taxes becoming due and payable by such Credit Party or Subsidiary, notice of such claim or adjustment.

(b) Within thirty (30) days after the last day of each month, Credit Parties shall deliver to Agent and each Lender with the monthly financial statements described above, a duly completed Compliance Certificate signed by a Responsible Officer.

(c) Each Credit Party shall keep proper books of record and account in accordance with IFRS in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities. Upon prior written notice and during business hours (which such limitations shall not apply if an Event of Default has occurred), each Credit Party shall allow, Agent and the Lenders to visit and inspect any properties of a Credit Party, to examine and make abstracts or copies from any Credit Party’s books, to conduct a collateral audit and analysis of its operations and the Collateral to verify the amount and age of the accounts, the identity and credit of the respective account debtors, to review the billing practices of the Credit Party and to discuss its respective affairs, finances and accounts with their respective officers, employees and independent public accountants as often as may reasonably be desired. The Credit Parties shall reimburse Agent and each Lender for all reasonable costs and expenses associated with such visits and inspections; provided , however , that the Credit Parties shall be required to reimburse Agent and each Lender for such costs and expenses for no more than two (2) such visits and inspections per twelve (12) month period unless an Event of Default has occurred during such period.

(d) Each Credit Party shall deliver to Agent and each Lender, within five (5) days after the same are sent or received, copies of all material correspondence, reports, documents and other filings with any Governmental Authority that could reasonably be expected to have a material effect on any of the Required Permits material to Credit Parties’ business or otherwise on the operations of the Credit Parties or any of their Subsidiaries (except that reporting related to Regulatory Required Permits and/or Regulatory Reporting Events shall be governed by Section 6.16).

6.3 Maintenance of Property . Each Credit Party shall, and shall cause each Subsidiary to, cause all equipment and other tangible personal property other than Inventory to be maintained and preserved in the same condition, repair and in working order as of the date hereof, ordinary wear and tear excepted, and shall promptly make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or desirable to such end. Each Credit Party shall, and shall cause each Subsidiary to, keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between a Credit Party and its Account Debtors shall follow the Credit Party’s customary practices as they exist at the Closing Date. Borrower shall promptly notify Agent of all returns (other than solely date expiry returns for which one for one replacement is made), recoveries, disputes and claims that involve more than Two Hundred and Fifty Thousand Dollars ($250,000) of Inventory collectively among all Credit Parties in any Fiscal Quarter.

6.4 Taxes; Pensions . Each Credit Party shall timely file all required tax returns and reports and timely pay all foreign, federal, state, and local Taxes, assessments, deposits and contributions that are due and owing, and shall deliver to Agent, upon Agent’s reasonable request, appropriate certificates attesting to such payments; provided , however , that a Credit Party may defer payment of any Taxes that are subject to a Permitted Contest. Each Credit Party shall pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms. Each Credit Party and their ERISA Affiliates shall timely make all required contributions to each Pension Plan and shall maintain each “plan” (as defined by Section 3(3) of ERISA) in material compliance with the applicable provisions of ERISA, the Internal Revenue Code and other federal and state laws. Credit Parties shall give written notice to Agent and each Lender promptly (and in any event within three (3) Business Days) upon any Credit Party becoming aware of any (i) Credit Party’s or any ERISA Affiliate’s failure to make any contribution required to be made with respect to any Pension Plan not having been timely made, (ii) notice of the PBGC’s, any Credit Party’s or any ERISA Affiliate’s intention to terminate or to have a trustee appointed to administer any such Pension Plan, or (iii) complete or partial withdrawal by any Credit Party or any ERISA Affiliate from any Pension Plan.

6.5 Insurance . Each Credit Party shall keep its business and the Collateral insured for risks and in amounts standard for companies in such Credit Party’s industry and location and as Agent may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Agent. Other than the customary naming of additional parties in the ordinary and usual course of business of a Credit Party, all property policies of U.S. Credit Parties shall have a lender’s loss payable endorsement showing Agent as sole lender’s loss payee and waive subrogation against Agent, and all liability policies of U.S. Credit Parties shall show, or have endorsements showing, Agent as an additional insured and all property and liability policies of Non-U.S. Credit Parties shall have Agent’s interest noted in the manner customary in the relevant jurisdiction. If required by Agent, all policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall endeavor to give Agent at least thirty (30) days’ (ten (10) days’ for non-payment of premium) notice before canceling, amending, or declining to renew its policy. At Agent’s request, each Credit Party shall deliver certified copies of all such Credit Party’s insurance policies and evidence of all premium payments. If any Credit Party fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Agent, Agent may make all or part of such payment or obtain such insurance policies required in this Section 6.5, and take any action under the policies Agent deems prudent.

6.6 Collateral Accounts .

(a) Each Credit Party shall provide Agent five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution. In addition, for each Collateral Account that any Credit Party at any time maintains (and in connection with any such Collateral Account established after the Closing Date, prior to opening such Collateral Account), each Credit Party shall (a) with respect to each Collateral Account located in the United States, cause the applicable bank or financial institution at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Agent’s Lien in such Collateral Account in accordance with the terms hereunder, which Control Agreement, inter alia , (i) provides that, upon written notice from Agent, such bank or financial institution shall comply with instructions originated by Agent directing disposition of the funds in such Collateral Account without further consent by such Credit Party and (ii) may not be terminated without prior written consent of Agent and (b) with respect to all other Collateral Accounts, take such other action (in a jurisdiction other than the United States) as is necessary to ensure that Agent has a first priority perfected security interest in such Collateral Account and the amounts held therein. The provisions of the previous sentence shall not apply to Excluded Accounts.

(b) The Credit Parties shall maintain one (1) or more separate Payroll Accounts, and shall not commingle any monies allocated for such purposes with funds in any other Deposit Account.

(c) During the Deposit Account Transition Period, the Credit Parties shall (i) not permit the aggregate amounts on deposit in the First Citizens Deposit Accounts to exceed $500,000 at any time and (ii) ensure that, by the close of the last Business Day of each calendar week, all amounts on deposit in the First Citizens Deposit Accounts are transferred to a U.S. Deposit Account that is subject to a Control Agreement in favor of Agent pursuant to an irrevocable standing wire instruction or other arrangement satisfactory to Agent (in its reasonable discretion).

6.7 Notices of Material Agreements, Litigation and Defaults; Cooperation in Litigation .

(a) The Credit Parties shall promptly (and in any event within the time periods specified below) provide written notice to Agent and each Lender of the following:

(i) Within three (3) Business Days of any Credit Party becoming aware of the existence of any Default or Event of Default;

(ii) Within three (3) Business Days of any Credit Party becoming aware of (or having reason to believe any of the following are pending or threatened in writing) any action, suit, proceeding or investigation by or against any Credit Party which involves the possibility of any judgment or liability of more than One Hundred and Fifty Thousand Dollars ($150,000) or that could result in a Material Adverse Change, or which questions the validity of any of the Financing Documents, or the other documents required thereby or any action to be taken pursuant to any of the foregoing;

(iii) (A) Within three (3) Business Days of any Credit Party executing and delivering any Material Agreement or any material amendment, consent, waiver or other modification to any Material Agreement or receiving or delivering any notice of termination or default or similar notice in connection with any Material Agreement and (B) together with delivery of the next Compliance Certificate (included as an update to the Disclosure Schedule delivered therewith) the execution of any new Material Agreement and/or any new material amendment, consent, waiver or other modification to any Material Agreement not previously disclosed; and

(iv) Within three (3) Business Days of any failure by Borrowers to achieve the Minimum Sales Threshold under the Gelclair Distribution Agreement.

(b) Each Credit Party shall provide such further information (including copies of such documentation) as Agent or any Lender shall reasonably request with respect to any of the events or notices described in clause (a). From the date hereof and continuing through the termination of this Agreement, each Credit Party shall make available to Agent and each Lender, without expense to Agent or any Lender, each Credit Party’s officers, employees and agents and books, to the extent that Agent or any Lender may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Agent or any Lender with respect to any Collateral or relating to a Credit Party.

6.8 Creation/Acquisition of Subsidiaries .

(a) Each Credit Party shall provide Agent with at least thirty (30) days (or such shorter period as Agent may accept in its sole discretion) prior written notice of its intention to create or, to the extent permitted pursuant to this Agreement, acquire a new Subsidiary. Upon such creation or, to the extent permitted hereunder, acquisition of any Subsidiary, such Credit Party and such Subsidiary shall promptly (and in any event within five (5) Business Days of such creation or acquisition) take all such action as may be reasonably required by Agent or the Required Lenders to cause each such Subsidiary to either, in the sole discretion of Agent, become a Borrower or a Guarantor hereunder and, in each case, grant a continuing pledge and security interest in and to the assets of such Subsidiary (substantially as described on Exhibit A hereto or, in the case of a Subsidiary formed outside of the United States or any political subdivision thereof, in such form as reasonably acceptable to the Agent and as appropriate for the relevant jurisdiction in which the Subsidiary is formed); and such Credit Party shall grant and pledge to Agent, for the ratable benefit of the Lenders, a perfected security interest in the stock, units or other evidence of ownership of each Subsidiary (the foregoing collectively, the “ Joinder Requirements ”); provided that the Credit Parties shall not be permitted to make an Investment of more than $25,000 in any such Subsidiary until such time as the Joinder Requirements have been satisfied.

(b) The Credit Parties shall not permit, and shall cause each Subsidiary to not permit, the total amount of cash and cash equivalents held by all Restricted Foreign Subsidiaries (other than cash and cash equivalents held by Credit Parties in Collateral Accounts that are subject to Agent’s first priority perfected security interest) to at any time exceed $250,000.

(c) Following (i) the occurrence and continuation of an Event of Default and (ii) the exercise by Agent of any of those rights under Section 10.2, each Credit Party shall cause each Restricted Foreign Subsidiary to declare and pay to the applicable Credit Party the maximum amount of dividends and other distributions in respect of its capital stock or other equity interest legally permitted to be paid by each such Restricted Foreign Subsidiary subject to complying with applicable laws in such jurisdiction; provided that such Restricted Foreign Subsidiary shall be able to retain for working capital purposes such amounts used by such Restricted Foreign Subsidiaries in the Ordinary Course of Business and as are reasonably necessary for its operations based on its current projections, as provided to Agent pursuant to Section 6.2.

6.9 Use of Proceeds . Borrower shall use the proceeds of the Credit Extensions solely for (a) transaction fees incurred in connection with the Financing Documents and the payment in full on the Closing Date of certain existing Indebtedness of Borrower, (b) for working capital needs of the Credit Parties and their Subsidiaries, and (c) any other Permitted Purpose specified in the Credit Facility Schedule for such Credit Facility. No portion of the proceeds of the Credit Extensions will be used for family, personal, agricultural or household use or to purchase Margin Stock.

6.10 Hazardous Materials; Remediation .

(a) If any release or disposal of Hazardous Materials shall occur or shall have occurred on any real property or any other assets of any Credit Party, such Credit Party will cause the prompt containment and removal of such Hazardous Materials and the remediation of such real property or other assets as is necessary to comply with all Laws and to preserve the value of such real property or other assets. Without limiting the generality of the foregoing, each Credit Party shall comply with each Law requiring the performance at any real property by such Credit Party of activities in response to the release or threatened release of a Hazardous Material.

(b) The Credit Parties will provide Agent within thirty (30) days after written demand therefor with a bond, letter of credit or similar financial assurance evidencing to the reasonable satisfaction of Agent that sufficient funds are available to pay the cost of removing, treating and disposing of any Hazardous Materials or Hazardous Materials Contamination and discharging any assessment which may be established on any property as a result thereof, such demand to be made, if at all, upon Agent’s determination that the failure to remove, treat or dispose of any Hazardous Materials or Hazardous Materials Contamination, or the failure to discharge any such assessment could reasonably be expected to have a Material Adverse Change.

(c) If there is any conflict between this Section 6.10 and any environmental indemnity agreement which is a Financing Document, the environmental indemnity agreement shall govern and control.

6.11 Power of Attorney . Each of the officers of Agent is hereby irrevocably made, constituted and appointed the true and lawful attorney for each Credit Party (without requiring any of them to act as such) with full power of substitution to do the following upon the occurrence and during the continuance of an Event of Default: (a) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral (in each case, so long as no Default or Event of Default has occurred, other than Permitted Liens), or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (b) (i) execute in the name of any Person comprising any Credit Party any schedules, assignments, instruments, documents, and statements that such Credit Party is obligated to give Agent under this Agreement or that Agent or any Lender deems necessary to perfect or better perfect Agent’s security interest or Lien in any Collateral, (ii) do such other and further acts and deeds in the name of such Credit Party that Agent may deem necessary or desirable to enforce, protect or preserve any Collateral or its rights therein, including, but not limited to, to sign such Credit Party’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; and (iii)(A) endorse the name of any Credit Party upon any and all checks, drafts, money orders, and other instruments for the payment of money that are payable to such Credit Party; (B) make, settle, and adjust all claims under the Credit Parties’ insurance policies; (C) take any action any Credit Party is required to take under this Agreement or any other Financing Document; (D) transfer the Collateral into the name of Agent or a third party as the Code permits; (E) exercise any rights and remedies described in this Agreement or the other Financing Documents; and (F) do such other and further acts and deeds in the name of any Credit Party that Agent may deem necessary or desirable to enforce its rights with regard to any Collateral.

6.12 Further Assurances .

(a) Each Credit Party shall, and shall cause each Subsidiary to, promptly execute any further instruments and take further action as Agent reasonably requests to perfect or better perfect or continue Agent’s Lien in the Collateral or to effect the purposes of this Agreement or any other Financing Document.

(b) Each UK Credit Party shall promptly do all such acts or execute all such documents (including assignments, transfers, mortgages, charges, notices and instructions) as the Security Agent may reasonably specify (and in such form as the Security Agent may reasonably require in favor of the Security Agent or its nominee(s)):

(i) to perfect the Lien created or intended to be created under or evidenced by the UK Security Documents (which may include the execution of a mortgage, charge, assignment or other Lien over all or any of the assets which are, or are intended to be, the subject of the UK Security Documents) or for the exercise of any rights, powers and remedies of the Security Agent or the Lenders provided by or pursuant to the Financing Documents or by law;

(ii) to confer on the Security Agent or confer on the Lenders a Lien over any property and assets of that UK Credit Party located in any jurisdiction equivalent or similar to the Lien intended to be conferred by or pursuant to the UK Security Documents; and/or

(iii) to facilitate the realization of the assets which are, or are intended to be, the subject of the UK Security Documents.

(c) Each UK Credit Party shall, if requested by the Security Agent, take all such action as is reasonably available to it (including making all filings and registrations not otherwise made or agreed to be made by the Security Agent or its legal counsel) as may be necessary for the purpose of the creation, perfection, protection or maintenance of any Lien conferred or intended to be conferred on the Security Agent or the Lenders by or pursuant to the Financing Documents.

6.13 Post-Closing Obligations . Each Credit Party shall complete each of the post-closing obligations and/or deliver to Agent each of the documents, instruments, agreements and information listed on the Post-Closing Obligations Schedule attached hereto, on or before the date set forth for each such item thereon (as the same may be extended by Agent in writing in its sole discretion), each of which shall be completed or provided in form and substance satisfactory to Agent and the Lenders.

6.14 Disclosure Schedule Updates . Each Credit Party shall deliver to Agent, together with the each Compliance Certificate delivered with respect to the last month of a Fiscal Quarter under this Agreement, an update to the Disclosure Schedule correcting all outdated, inaccurate, incomplete or misleading information therein. With respect to any proposed updates to the Disclosure Schedule involving Permitted Liens, Permitted Indebtedness or Permitted Investments, Agent will replace the Disclosure Schedule attached hereto with such proposed updates only if such updated information reflects transactions that are otherwise expressly permitted by the definitions of, and limitations herein pertaining to, Permitted Liens, Permitted Indebtedness or Permitted Investments (it being understood that such updates will not be deemed to amend the Disclosure Schedule as in effect on the Closing Date). With respect to any updates to the Disclosure Schedule involving matters other than those set forth in the preceding sentence, Agent will replace the applicable portion of the Disclosure Schedule attached hereto with such update upon Agent’s receipt and approval thereof.

6.15 Intellectual Property and Licensing .

(a) If (A) any Credit Party acquires and/or develops any new Registered Intellectual Property, or (B) any Credit Party enters into or becomes bound by any additional in-bound license or sublicense agreement, any additional exclusive out-bound license or sublicense agreement or other agreement with respect to rights in Intellectual Property (other than over-the-counter software that is commercially available to the public), or (C) there occurs any other material change in any Credit Party’s Registered Intellectual Property, in-bound licenses or sublicenses or exclusive out-bound licenses or sublicenses from that listed on the Intangible Assets Schedule , then the Credit Parties shall, together with next Compliance Certificate required to be delivered pursuant to Section 6.2(b) for the last month of a Fiscal Quarter, deliver to Agent an updated Intangible Assets Schedule reflecting such updated information.

(b) If any Credit Party obtains any Registered Intellectual Property (other than copyrights, mask works and related applications, which are addressed below), such Credit Party shall promptly execute such intellectual property security agreements (which shall be filed in the United States Patent and Trademark Office) and other documents and provide such other information (including, without limitation, copies of applications) and take such other actions as Agent shall request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Agent, for the ratable benefit of Lenders, in such property. If any Credit Party decides to register any copyrights or mask works in the United States Copyright Office, such Credit Party shall: (x) provide Agent with at least fifteen (15) days prior written notice of such Credit Party’s intent to register such copyrights or mask works together with a copy of the application it intends to file with the United States Copyright Office (excluding Exhibits thereto); (y) execute an intellectual property security agreement and such other documents and provide such other information and take such other actions as Agent may request in its good faith business judgment to perfect and maintain a first priority perfected security interest in favor of Agent, for the ratable benefit of the Lenders, in the copyrights or mask works intended to be registered with the United States Copyright Office; and (z) record such intellectual property security agreement with the United States Copyright Office contemporaneously with filing the copyright or mask work application(s) with the United States Copyright Office.

(c) The Credit Parties shall take such steps as Agent requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (x) all licenses or agreements to be deemed “Collateral” and for Agent to have a security interest in it that might otherwise be restricted or prohibited by Law or by the terms of any such license or agreement, whether now existing or entered into in the future, and (y) Agent to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Agent’s rights and remedies under this Agreement and the other Financing Documents.

(d) Each Credit Party shall own, or be licensed to use or otherwise have the right to use, all Material Intangible Assets. Each Credit Party shall cause all Registered Intellectual Property to be duly and properly registered, filed or issued in the appropriate office and jurisdictions for such registrations, filings or issuances, except where the failure to do so would not reasonably be expected to result in a Material Adverse Change. Each Credit Party shall at all times conduct its business without infringement or claim of infringement of any Intellectual Property rights of others. Each Credit Party shall (i) protect, defend and maintain the validity and enforceability of its Material Intangible Assets (ii) promptly advise Agent in writing of material infringements of its Material Intangible Assets, or of a material claim of infringement by any Credit Party on the Intellectual Property rights of others; and (iii) not allow any of such Credit Party’s Material Intangible Assets to be abandoned, invalidated, forfeited or dedicated to the public or to become unenforceable. No Credit Party shall become a party to, nor become bound by, any material license or other agreement with respect to which such Credit Party is the licensee that prohibits or otherwise restricts such Credit Party from granting a security interest in such Credit Party’s interest in such license or agreement or other property.

6.16 Regulatory Reporting and Covenants .

(a) The Credit Parties shall notify Agent and each Lender promptly, and in any event within five (5) Business Days of receiving, becoming aware of or determining that, (each, a “ Regulatory Reporting Event ” and collectively, the “ Regulatory Reporting Events ”): (i) any Governmental Authority, specifically including the FDA is conducting or has conducted (A) if applicable, any investigation of any Credit Party’s or its Subsidiaries’ manufacturing facilities and processes for any Product (or any investigation of the facility of a contract manufacturer engaged by any Credit Party or its Subsidiaries in respect of a Product of which such Credit Party and/or its Subsidiaries are aware), which has disclosed any material deficiencies or violations of Laws and/or the Regulatory Required Permits related thereto or (B) an investigation or review of any Regulatory Required Permit (other than routine reviews in the Ordinary Course of Business associated with the renewal of a Regulatory Required Permit and which could not reasonably be expected to result in a Material Adverse Change), (ii) development, testing, and/or manufacturing of any Product should cease, (iii) if a Product has been approved for marketing and sale, any marketing or sales of such Product should cease or such Product should be withdrawn from the marketplace, (iv) any Regulatory Required Permit has been revoked or withdrawn, (v) adverse clinical test results have occurred with respect to any Product to the extent that such results have or could reasonably be expected to result in a Material Adverse Change, (vi) any Product recalls or voluntary Product withdrawals from any market (other than with respect to discrete batches or lots that are not material in quantity or amount and are not made in conjunction with a larger recall) have occurred, or (vii) any significant failures in the manufacturing of any Product have occurred such that the amount of such Product successfully manufactured in accordance with all specifications thereof and the required payments to be made to such Credit Party therefor in any month shall decrease significantly with respect to the quantities of such Product and payments produced in the prior month. The Credit Parties shall provide to Agent or any Lender such further information (including copies of such documentation) as Agent or any Lender shall reasonably request with respect to any such Regulatory Reporting Event.

(b) Each Credit Party shall obtain and, to the extent applicable, use commercially reasonable efforts to cause all third parties to obtain, all Regulatory Required Permits necessary for compliance in all material respects with Laws with respect to testing, manufacturing, developing, selling or marketing of Products and shall maintain and comply fully and completely in all respects with all such Regulatory Required Permits, the noncompliance with which could have a Material Adverse Change. In the event any Credit Party obtains any new Regulatory Required Permit or any information on the Required Permits Schedule becomes outdated, inaccurate, incomplete or misleading, the Credit Parties shall, together with the next Compliance Certificate required to be delivered under this Agreement after such event, provide Agent with an updated Required Permits Schedule including such updated information.

(c) If, after the Closing Date, (i) any Credit Party determines to manufacture, sell, develop, test or market any new Product (by itself or through a third party), such Credit Party shall deliver prior written notice to Agent of such determination (which shall include a brief description of such Product) and, together with delivery of the next Compliance Certificate shall provide an updated Intangible Assets Schedule , Products Schedule and Required Permits Schedule (and copies of such Required Permits as Agent may request) reflecting updates related to such determination.

6.17 Pensions .

(a) Each Credit Party shall ensure that neither it nor any of its Subsidiaries shall at any time establish any occupational pension scheme in the United Kingdom which is not a money purchase scheme (both terms as defined in the Pension Schemes Act).

(b) Each Credit Party shall ensure that neither it nor any of its Subsidiaries is or has been at any time an employer (for the purposes of sections 38 to 51 of the Pensions Act) of an occupational pension scheme which is not a money purchase scheme (both terms as defined in the Pension Schemes Act) or is or has been at any time “connected” with or an “associate” of (as those terms are used in sections 38 or 43 of the Pensions Act) such an employer and that no contribution notice or financial support direction (both terms as defined in the Pensions Act) has been issued by the Regulator (as defined in the Pensions Act) against or involving any Credit Party or any of its Subsidiaries, nor is each Credit Party aware of any reason justifying the issue of a contribution notice or financial support direction against it or any of its Subsidiaries.

(c) Each Credit Party shall ensure that no action or omission is taken by it or any of its subsidiaries in relation to a pension scheme operated by or maintained for the benefit of any employees or former employees of the Credit Party or its subsidiaries which has or is reasonably likely to result in a Material Adverse Change.

6.18 People with Significant Control regime . Each Credit Party shall:

(a) within the relevant timeframe, comply with any notice it receives pursuant to Part 21A of the Companies Act from any company incorporated in the United Kingdom whose shares are the subject of any Security Document; and

(b) promptly provide the Security Agent with a copy of that notice.

NEGATIVE COVENANTS

No Credit Party shall, nor shall it permit any Subsidiary to, do any of the following without the prior written consent of Agent:

7.1 Dispositions . Convey, sell, abandon, lease, license, transfer, assign or otherwise dispose of (collectively, “ Transfer ”), all or any part of its business or property, except for (a) sales, transfers or dispositions of Inventory in the Ordinary Course of Business; (b) sales or abandonment of (i) worn‑out or obsolete Equipment or (ii) other Equipment that is no longer used or useful in the business of the Credit Parties or such Subsidiary with a fair salable value not to exceed Twenty-Five Thousand Dollars ($25,000) in the aggregate for all such Equipment; (c) to the extent constituting a Transfer, Permitted Liens; (d) to the extent they may constitute a Transfer, Permitted Investments; or (e) Permitted Licenses.

7.2 Changes in Business, Management, Ownership or Business Locations . (a) Engage in any business other than the businesses currently engaged in by such Credit Party or such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; provided , however, that (x) a non-Credit Party Subsidiary may liquidate or dissolve in the ordinary course of business so long as such non-Credit Party Subsidiary distributes its assets to a Credit Party and (y) DARA Therapeutics may liquidate or dissolve so long as it distributes its assets (if any) to Midatech US; (c) (i) have a change in Key Persons where a suitable permanent replacement, as approved by Parent’s board of directors, has not been named and hired by not later than ninety (90) days after such change, or (ii) enter into any transaction or series of related transactions which would result in a Change in Control unless the agreements with respect to such transactions provide for, as a condition precedent to the consummation thereof, either (x) the indefeasible payment in full of the Obligations or (y) the consent of Agent and the Lenders; (d) add any new offices or business locations, or enter into any new leases with respect to existing offices or business locations without first delivering a fully-executed Access Agreement to Agent (except as otherwise provided below); (e) change its jurisdiction of organization; (f) change its organizational structure or type; (g) change its legal name; or (h) change any organizational number (if any) assigned by its jurisdiction of organization; provided that in no event shall any Credit Party change its jurisdiction of organization to any jurisdiction other than the United States or any state thereof, or England and Wales, without Agent’s prior written consent. Notwithstanding the foregoing in the case of subpart (d) above, provided that the applicable lease or license agreement, or applicable law, does not grant to the landlord or licensor any Lien upon intangible assets of the tenant or licensee, subpart (d) shall not restrict leases or licenses for (i) such new or existing offices or business locations containing less than Two Hundred Thousand Dollars ($200,000) in the Credit Parties’ assets or property and not containing any Credit Party’s Books and (ii) any new or existing business location constituting a warehouse, consignee or bailee location that does not contain any Credit Party’s Books and would not otherwise require an Access Agreement pursuant to the criteria set forth in Section 4.2(e).

7.3 Mergers or Acquisitions . Merge or consolidate with any other Person, or acquire all or substantially all of the capital stock or property of or make any Investment in another Person; provided, however , that (a) a non-Credit Party Subsidiary may merge or consolidate into another non-Credit Party Subsidiary and (b) a Subsidiary of a Credit Party may merge or consolidate into another Subsidiary that is a Credit Party, so long as (i) Borrower has provided Agent with prior written notice of such transaction, (ii) a Person already comprising a Credit Party shall be the surviving legal entity, (iii) if a Borrower is a party thereto, such Borrower shall be the surviving legal entity, (iv) the Parent is a party thereto, the Parent shall be the surviving legal entity, (v) the surviving Credit Party’s tangible net worth is not thereby reduced, (vi) no Event of Default has occurred and is continuing prior thereto or arises as a result therefrom, and (vii) the Credit Parties shall be in compliance with the covenants set forth in this Agreement both before and after giving effect to such transaction.

7.4 Indebtedness . (a) Create, incur, assume, or be liable for any Indebtedness other than Permitted Indebtedness or (b) purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness (other than with respect to the Obligations as described in Section 2.3) prior to its scheduled maturity.

7.5 Encumbrance . (a) Create, incur, allow, or suffer any Lien on any of its property, except for Permitted Liens, (b) permit any Collateral to fail to be subject to the first priority security interest granted herein except for Permitted Liens that may have priority by operation of applicable Law or by the terms of a written intercreditor or subordination agreement entered into by Agent, or (c) enter into any agreement, document, instrument or other arrangement (except with or in favor of Agent) with any Person which directly or indirectly prohibits or has the effect of prohibiting any Credit Party or any Subsidiary of a Credit Party from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of a Credit Party’s or any Subsidiary’s Collateral or Intellectual Property, except as is otherwise permitted in the definition of “Permitted Liens” herein.

7.6 Maintenance of Collateral Accounts . Maintain any Collateral Account, except pursuant to the terms of Section 6.6 hereof.

7.7 Distributions; Investments; Margin Stock .

(a) Pay any dividends (other than dividends payable solely in common stock or dividends payable from a non-Credit Party Subsidiary to a Credit Party) or make any distribution or payment with respect to or redeem, retire or purchase or repurchase any of its equity interests (other than repurchases pursuant to the terms of employee stock purchase plans, employee restricted stock agreements or similar plans),

(b) directly or indirectly make any Investment (including, without limitation, any additional Investment in any Subsidiary) other than Permitted Investments,

(c) (i) in the case of any Credit Party, commingle any of its assets (including any bank accounts, cash or cash equivalents) with the assets of any Person other than a Credit Party or (ii) in the case of any Restricted Foreign Subsidiary commingle any of its assets (including any bank accounts, cash or cash equivalents) with the assets of any Person other than another Restricted Foreign Subsidiary, or

(d) directly or indirectly enter into or own any interest in a joint venture that is not itself a corporation or limited liability company or other legal entity in respect of which the equity holders are not liable for the obligations of such entity as a matter of law. ¹

Without limiting the foregoing, no Credit Party shall, nor will any Credit Party permit any Subsidiary to, purchase or carry Margin Stock.

7.8 Transactions with Affiliates . Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of any Credit Party, except for (a) transactions that are in the Ordinary Course of Business, upon fair and reasonable terms that are no less favorable to such Credit Party than would be obtained in an arm’s length transaction with a non-affiliated Person, (b) transactions with Credit Parties and that are not otherwise prohibited by Article 7 of this Agreement, (c) transactions permitted by Section 7.7(a) of this Agreement, (d) transactions constituting bona fide equity financings for capital raising purposes not otherwise in contravention of this Agreement, and (e) reasonable and customary director, officer and employee compensation (including bonuses) and other benefits (including retirement, health, stock option and other benefit plans and indemnification arrangements approved by the relevant board of directors, board managers or equivalent corporate body in the Ordinary Course of Business).

7.9 Subordinated Debt . (a) Make or permit any payment on any Subordinated Debt, except to the extent expressly permitted to be made pursuant to the terms of the Subordination Agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt other than as may be expressly permitted pursuant to the terms of any applicable Subordination Agreement to which such Subordinated Debt is subject.

7.10 Compliance . Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended or undertake as one of its important activities extending credit to purchase or carry Margin Stock, or use the proceeds of any Credit Extension for that purpose; (i) fail, or permit any ERISA Affiliate to fail, to meet “minimum funding standards” (as defined in Section 412 of the Internal Revenue Code or Section 302 of ERISA), whether or not waived, (ii) permit (with respect to any Credit Party, any Subsidiary of any Credit Party or any ERISA Affiliate thereof) a “reportable event” as defined in Section 4043(c) of ERISA (or the regulations issued thereunder) (other than an event for which the 30-day notice requirement is waived) to occur, (iii) engage in any “prohibited transaction” within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code that could reasonably be expected to result in liability in excess of $150,000 in the aggregate or that could reasonably be expected to result in a Material Adverse Change; (iv) fail to comply with the Federal Fair Labor Standards Act that could result in liability in excess of $150,000 in the aggregate or that could reasonably be expected to result in a Material Adverse Change; (v) permit (with respect to any Credit Party, any Subsidiary of any Credit Party or any ERISA Affiliate thereof) the withdrawal from participation in any Pension Plan, or (vi) incur, or permit any Credit Party, any Subsidiary of any Credit Party or any ERISA Affiliate thereof to incur, any liability under Title IV of ERISA (other than for PBGC premiums due but not delinquent under Section 4007 of ERISA).

7.11 Amendments to Organization Documents and Material Agreements . Amend, modify or waive any provision of (a) any Material Agreement in a manner that is materially adverse to any Credit Party, that is adverse to Agent or any Lender, that pertains to rights to assign or grant a security interest in such Material Agreement or that could or could reasonably be expected to result in a Material Adverse Change, or (b) any of its organizational documents (other than a change in registered agents, changes which are merely administrative in nature by virtue of updated applicable law or any change that could not adversely affect the rights of Agent or the Lenders hereunder, but, for the avoidance of doubt, under no circumstances a change of its name, type of organization or jurisdiction of organization), in each case, without the prior written consent of Agent. Each Credit Party shall provide to Agent copies of all amendments, waivers and modifications of any Material Agreement or organizational documents.

¹ Note to draft: (c) and (d) added to address dormant non-subsidiary JV entity.

7.12 Compliance with Anti-Terrorism Laws . Directly or indirectly, knowingly enter into any documents, instruments, agreements or contracts with any Person listed on the OFAC Lists. Each Credit Party shall immediately notify Agent if such Credit Party has knowledge that any Credit Party or any Subsidiary or Affiliate is listed on the OFAC Lists or (a) is convicted on, (b) pleads nolo contendere to, (c) is indicted on, or (d) is arraigned and held over on charges involving money laundering or predicate crimes to money laundering. No Credit Party will, nor will any Credit Party permit any Subsidiary or Affiliate to, directly or indirectly, (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including, without limitation, the making or receiving of any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to Executive Order No. 13224, any similar executive order or other Anti-Terrorism Law, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in Executive Order No. 13224 or other Anti-Terrorism Law. Agent hereby notifies each Credit Party that pursuant to the requirements of Anti-Terrorism Laws, and Agent’s policies and practices, Agent is required to obtain, verify and record certain information and documentation that identifies such Credit Party and its principals, which information includes the name and address of such Credit Party and its principals and such other information that will allow Agent to identify such party in accordance with Anti-Terrorism Laws.

7.13 Fiscal Year; Fiscal Quarter . Directly or indirectly change any Credit Party’s Fiscal Year end or Fiscal Quarter ends.

RESERVED

9.	FINANCIAL COVENANTS

9.1 Minimum Net Revenue . Credit Parties shall not permit Net Revenue for the twelve month period immediately preceding (and ending on) each Testing Date to be less than the minimum amount set forth opposite such Testing Date on the Minimum Net Revenue Schedule. A breach of a financial covenant contained in this Section 9.1 shall be deemed to have occurred as of any date of determination by Agent or as of the applicable Testing Date, regardless of when the financial statements reflecting such breach are delivered to Agent.

9.2 Evidence of Compliance . Borrower shall furnish to Agent, together with the monthly financial reporting required of Borrower in this Agreement, a Compliance Certificate as evidence of Borrower compliance with the covenants in this Article 9. The Compliance Certificate shall include, without limitation, (i) a statement and report, on a form approved by Agent, detailing Borrower’s calculations, (ii) the monthly cash and cash equivalents of Borrower and Borrower and its consolidated Subsidiaries and, if requested by Agent, bank statements and (iii) if requested by Agent, back-up documentation (including, without limitation, invoices, receipts and other evidence of costs incurred during such quarter as Agent shall reasonably require) evidencing the propriety of the calculations.

10.

EVENTS OF DEFAULT

10.1 Events of Default . The occurrence of any of the following conditions and/or events, whether voluntary or involuntary, by operation of law or otherwise, shall constitute an “ Event of Default ” and Credit Parties shall thereupon be in default under this Agreement and each of the other Financing Documents:

(a) Borrower fails to (i) make any payment of principal or interest on any Credit Extension on its due date, or (ii) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day grace period shall not apply to payments due on the Maturity Date or the date of acceleration pursuant to Section 10.2 hereof).

(b) any Credit Party defaults in the performance of or compliance with any term contained in this Agreement or in any other Financing Document (other than occurrences described in other provisions of this Section 10.1 for which a different grace or cure period is specified or for which no grace or cure period is specified and thereby constitute immediate Events of Default) and such default is not remedied by such Credit Party or waived by Agent within thirty (30) days after the earlier of (i) the date of receipt by any Borrower of notice from Agent or the Required Lenders of such default, or (ii) the date an officer of such Credit Party becomes aware, or through the exercise of reasonable diligence should have become aware, of such default;

(c) any Credit Party defaults in the performance of or compliance with any term contained in Section 6.2, 6.4, 6.5, 6.6, 6.7(a), 6.8, 6.9, 6.10, 6.13, 6.15 or 6.16, Article 7 or Article 9;

(d) any representation, warranty, certification or statement made by any Credit Party, and holder of Subordinated Debt or any other Person acting for or on behalf of a Credit Party or a holder of Subordinated Debt (i) in any Financing Document or in any certificate, financial statement or other document delivered pursuant to any Financing Document, or (ii) to induce Agent and/or Lenders to enter into this Agreement or any Financing Document is incorrect in any respect (or in any material respect if such representation, warranty, certification or statement is not by its terms already qualified as to materiality) when made (or deemed made);

(e) (i) (A) any Credit Party defaults under or is in material breach under any Material Agreement (after any applicable grace period contained therein), or a Material Agreement shall be terminated by a third party or parties party thereto prior to the expiration thereof, or there is a loss of a material right of a Credit Party under any Material Agreement to which it is a party or (B) without limiting the foregoing, the Credit Parties fail to meet the Minimum Sales Threshold for any applicable period under the Gelclair Distribution Agreement, (ii) (A) any Credit Party or Subsidiary of a Credit Party fails to make (after any applicable grace period) any payment when due (whether due because of scheduled maturity, required prepayment provisions, acceleration, demand or otherwise) on any Indebtedness (other than the Obligations) of such Credit Party or such Subsidiary having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than One Hundred Thousand Dollars ($100,000) (“ Material Indebtedness ”), (B) any other event shall occur or condition shall exist under any contractual obligation relating to any such Material Indebtedness, if the effect of such event or condition is to accelerate, or to permit the acceleration of (without regard to any subordination terms with respect thereto), the maturity of such Material Indebtedness or (C) any such Material Indebtedness shall become or be declared to be due and payable, or be required to be prepaid, redeemed, defeased or repurchased (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof, (iii) any Credit Party defaults (beyond any applicable grace period) under any obligation for payments due or otherwise under any lease agreement for such Credit Party’s principal place of business or any place of business that meets the criteria for the requirement of an Access Agreement under Section 7.2 or for which an Access Agreement exists or was required to be delivered, (iv) the occurrence of any breach or default under any terms or provisions of any Subordinated Debt Document or under any agreement subordinating the Subordinated Debt to all or any portion of the Obligations, or the occurrence of any event requiring the prepayment of any Subordinated Debt, or the delivery of any notice with respect to any Subordinated Debt or pursuant to any Subordination Agreement that triggers the start of any standstill or similar period under any Subordination Agreement, or (v) any Credit Party makes any payment on account of any Indebtedness that has been subordinated to any of the Obligations, other than payments specifically permitted by the terms of such subordination;

(f) (i) any Credit Party or any Subsidiary of a Credit Party shall generally not pay its debts as such debts become due, shall admit in writing its inability to pay its debts generally, shall make a general assignment for the benefit of creditors, or shall cease doing business as a going concern, (ii) any proceeding shall be instituted by or against any Credit Party or any Subsidiary of a Credit Party in any jurisdiction seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, composition of it or its debts or any similar order, in each case under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee, conservator, liquidating agent, liquidator, other similar official or other official with similar powers, in each case for it or for any substantial part of its property and, in the case of any such proceedings instituted against (but not by or with the consent of) such Credit Party or such Subsidiary, either such proceedings shall remain undismissed or unstayed for a period of thirty (30) days or more or any action sought in such proceedings shall occur or (iii) any Credit Party or any Subsidiary of a Credit Party shall take any corporate or similar action or any other action to authorize any action described in clause (i) or (ii) above;

(g) Insolvency of a UK Credit Party:

(i) A UK Credit Party:

(A)

is unable or admits inability to pay its debts as they fall due;

(B)

suspends or threatens to suspend making payments on any of its debts; or

(C)

by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors (excluding any Lender in its capacity as such) with a view to rescheduling any of its indebtedness.

(ii) The value of the assets of a UK Credit Party is less than its liabilities (taking into account contingent and prospective liabilities).

(iii) A moratorium is declared in respect of any indebtedness of a UK Credit Party. If a moratorium occurs, the ending of the moratorium will not remedy any Event of Default caused by that moratorium.

(h) Insolvency proceedings in relation to a UK Credit Party:

(i) Any corporate action, legal proceedings or other procedure or step is taken in relation to:

(A) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganization (by way of voluntary arrangement, scheme of arrangement or otherwise) of a UK Credit Party;

(B) a composition, compromise, assignment or arrangement with any creditor of a UK Credit Party;

(C) the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of a UK Credit Party or any of its assets;

(D) enforcement of any security over any assets of a UK Credit Party; or

(E) any analogous procedure or step is taken in any jurisdiction.

(ii) Section 10.1(h)(i) shall not apply to any winding-up petition which is frivolous or vexatious and is discharged, stayed or dismissed within 14 days of commencement.

(i) any expropriation, attachment, sequestration, distress or execution or any analogous process in any jurisdiction affects any asset or assets of a UK Credit Party having an aggregate value in excess of $50,000 and not discharged within 14 days of commencement;

(j) (i) the service of process seeking to attach, execute or levy upon, seize or confiscate any Collateral Account, any Intellectual Property, or any funds of any Credit Party on deposit with Agent, any Lender or any Affiliate of Agent or any Lender, or (ii) a notice of lien, levy, or assessment is filed against any assets of a Credit Party by any government agency, and the same under subclauses (i) and (ii) hereof are not discharged or stayed (whether through the posting of a bond or otherwise) prior to the earlier to occur of ten (10) days after the occurrence thereof or such action becoming effective;

(k) (i) any court order enjoins, restrains, or prevents a Credit Party from conducting any material part of its business, (ii) the enforcement by any Governmental Authority of any fine or other financial order or any other penalty under criminal proceedings against any Credit Party, or (iii) one or more judgments or orders for the payment of money (not paid or fully covered by insurance and as to which the relevant insurance company has acknowledged coverage in writing) aggregating in excess of Five Hundred Thousand Dollars ($500,000) shall be rendered against any or all Credit Parties and either (A) enforcement proceedings shall have been commenced by any creditor upon any such judgments or orders, or (B) there shall be any period of ten (10) consecutive days during which a stay of enforcement of any such judgments or orders, by reason of a pending appeal, bond or otherwise, shall not be in effect,

(l) any Lien created by any of the Financing Documents shall at any time fail to constitute a valid and perfected Lien on all of the Collateral purported to be encumbered thereby, subject to no prior or equal Lien except Permitted Liens, or any Credit Party shall so assert; any provision of any Financing Document shall fail to be valid and binding on, or enforceable against, a Credit Party, or any Credit Party shall so assert;

(m) (i) a Change in Control occurs or (ii) any Credit Party or direct or indirect equity owner in a Credit Party shall enter into an agreement which contemplates a Change in Control (unless such agreement is either (A) non-binding on such Credit Party or (B) provides for, as a condition precedent to the consummation of such agreement, either (x) the indefeasible payment in full in cash of all Obligations or (y) the consent of Agent and the Lenders);

(n) any Required Permit shall have been (i) revoked, rescinded, suspended, modified in a materially adverse manner or not renewed in the Ordinary Course of Business for a full term, or (ii) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Required Permit or that could result in the Governmental Authority taking any of the actions described in clause (i) above, and such decision or such revocation, rescission, suspension, modification or non-renewal has, or could reasonably be expected to have, a Material Adverse Change;

(o) (i) the voluntary withdrawal or institution of any action or proceeding by the FDA or similar Governmental Authority (including any foreign Governmental Authority) to order the withdrawal of any Product or Product category from the market or to enjoin Borrower, its Subsidiaries or any representative of Borrower or its Subsidiaries from manufacturing, marketing, selling or distributing any Product or Product category, (ii) the institution of any action or proceeding by any DEA, FDA, or any other Governmental Authority (including any foreign Governmental Authority) to revoke, suspend, reject, withdraw, limit, or restrict any Regulatory Required Permit held by Borrower, its Subsidiaries or any representative of Borrower or its Subsidiaries, which, in each case, has or could reasonably be expected to result in Material Adverse Change, (iii) the commencement of any enforcement action against Borrower, its Subsidiaries or any representative of Borrower or its Subsidiaries (with respect to the business of Borrower or its Subsidiaries) by DEA, FDA, or any other Governmental Authority (including any foreign Governmental Authority) which has or could reasonably be expected to result in a Material Adverse Change, or (iv) the occurrence of adverse test results in connection with a Product which could reasonably be expected to result in Material Adverse Change.

(p) Parent’s equity fails to remain either: (x) registered with SEC; or (y) quoted on AIM or on the Official List of the London Stock Exchange (“Main Listing”) as applicable, in good standing, and/or such equity fails to remain publicly traded on and registered with such other public securities exchange; provided , that notwithstanding the foregoing, the Parent may voluntarily de-list itself from AIM or from a Main Listing in connection with a contemporaneous listing of Parent’s equity on NASDAQ or on the NYSE; or

(q) the occurrence of any fact, event or circumstance that could reasonably be expected to result in a Material Adverse Change.

Notwithstanding the foregoing, if a Credit Party fails to comply with any same provision of this Agreement two (2) times in any twelve (12) month period and Agent has given to any Credit Party in connection with each such failure any notice to which the Credit Parties would be entitled under this Section 10.1 before such failure could become an Event of Default, then all subsequent failures by a Credit Party to comply with such provision of this Agreement shall effect an immediate Event of Default (without the expiration of any applicable cure period) with respect to all subsequent failures by a Credit Party to comply with such provision of this Agreement, and Agent thereupon may exercise any remedy set forth in this Article 10 without affording the Credit Parties any opportunity to cure such Event of Default

All cure periods provided for in this Section 10.1 shall run concurrently with any cure period provided for in any applicable Financing Documents under which the default occurred.

10.2 Rights and Remedies .

(a) Upon the occurrence and during the continuance of an Event of Default, Agent may, and at the written direction of any Lender shall, without notice or demand, do any or all of the following: (i) deliver notice of the Event of Default to Borrower, (ii) by notice to any Borrower declare all Obligations immediately due and payable (but if an Event of Default described in Section 10.1(f) occurs all Obligations shall be immediately due and payable without any action by Agent or the Lenders), or (iii) by notice to any Borrower suspend or terminate the obligations, if any, of the Lenders to advance money or extend credit for Borrower’s benefit under this Agreement or under any other Financing Document (but if an Event of Default described in Section 10.1(f) occurs all obligations, if any, of the Lenders to advance money or extend credit for Borrower’s benefit under this Agreement or under any other agreement between Borrower and Agent and/or the Lenders shall be immediately terminated without any action by Agent or the Lenders).

(b) Without limiting the rights of Agent and the Lenders set forth in Section 10.2(a) above, upon the occurrence and during the continuance of an Event of Default, Agent shall have the right, without notice or demand, to do any or all of the following:

(i) with or without legal process, enter any premises where the Collateral may be and take possession of and remove the Collateral from the premises or store it on the premises, and foreclose upon and/or sell, lease or liquidate, the Collateral, in whole or in part;

(ii) apply to the Obligations (A) any balances and deposits of any Credit Party that Agent or any Lender or any Affiliate of Agent or a Lender holds or controls, or (B) any amount held or controlled by Agent or any Lender or any Affiliate of Agent or a Lender owing to or for the credit or the account of any Credit Party;

(iii) settle, compromise or adjust and grant releases with respect to disputes and claims directly with Account Debtors for amounts on terms and in any order that Agent considers advisable, notify any Person owing any Credit Party money of Agent’s security interest in such funds, and verify the amount of such Account;

(iv) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Agent requests and make it available as Agent designates. Agent may also render any or all of the Collateral unusable at a Credit Party’s premises and may dispose of such Collateral on such premises without liability for rent or costs. Each Credit Party grants Agent a license to enter and occupy any of its premises, without charge, to exercise any of Agent’s rights or remedies;

(v) pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred;

(vi) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, and/or advertise for sale, the Collateral. Agent is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, each Credit Party’s labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral (and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof) and, in connection with Agent’s exercise of its rights under this Article 10, to the fullest extent permitted by applicable law, each Credit Party’s rights under all licenses and all franchise agreements shall be deemed to inure to Agent for the benefit of the Lenders;

(vii) place a “hold” on any account maintained with Agent or the Lenders or any Affiliate of Agent or a Lender and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;

(viii) demand and receive possession of the Books of Borrower and the other Credit Parties; and

(ix) exercise all other rights and remedies available to Agent under the Financing Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).

10.3 Notices . Any notice that Agent is required to give to a Credit Party under the UCC of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given in accordance with this Agreement at least five (5) days prior to such action.

10.4 Protective Payments . If any Credit Party fails to pay or perform any covenant or obligation under this Agreement or any other Financing Document, Agent may pay or perform such covenant or obligation, and all amounts so paid by Agent are Protective Advances and immediately due and payable, bearing interest at the then highest applicable rate for the Credit Facilities hereunder, and secured by the Collateral. No such payments or performance by Agent shall be construed as an agreement to make similar payments or performance in the future or constitute Agent’s waiver of any Event of Default.

10.5 Liability for Collateral No Waiver; Remedies Cumulative . So long as Agent and the Lenders comply with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Agent and the Lenders, Agent and the Lenders shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. The Credit Parties bear all risk of loss, damage or destruction of the Collateral. Agent’s failure, at any time or times, to require strict performance by any Credit Party of any provision of this Agreement or any other Financing Document shall not waive, affect, or diminish any right of Agent thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Agent and then is only effective for the specific instance and purpose for which it is given. Agent’s rights and remedies under this Agreement and the other Financing Documents are cumulative. Agent has all rights and remedies provided under the Code, by Law, or in equity. Agent’s exercise of one (1) right or remedy is not an election, and Agent’s waiver of any Event of Default is not a continuing waiver. Agent’s delay in exercising any remedy is not a waiver, election, or acquiescence.

10.6 Application of Payments and Proceeds . Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence and during the continuance of an Event of Default, (i) each Credit Party irrevocably waives the right to direct the application of any and all payments at any time or times thereafter received by Agent from or on behalf of the Credit Parties of all or any part of the Obligations, and, as between the Credit Parties on the one hand and Agent and the Lenders on the other, Agent shall have the continuing and exclusive right to apply and to reapply any and all payments received against the Obligations in such manner as Agent may deem advisable notwithstanding any previous application by Agent, and (ii) unless Agent and the Lenders shall agree otherwise, the proceeds of any sale of, or other realization upon all or any part of the Collateral shall be applied: first , to the Protective Advances; second , to accrued and unpaid interest on the Obligations (including any interest which, but for the provisions of the United States Bankruptcy Code, would have accrued on such amounts); third , to the principal amount of the Obligations outstanding; and fourth , to any other indebtedness or obligations of the Credit Parties owing to Agent or any Lender under the Financing Documents. The Credit Parties shall remain fully liable for any deficiency. Any balance remaining shall be delivered to the Credit Parties or to whomever may be lawfully entitled to receive such balance or as a court of competent jurisdiction may direct. Unless Agent and the Lenders shall agree otherwise, in carrying out the foregoing, (x) amounts received shall be applied in the numerical order provided until exhausted prior to the application to the next succeeding category, and (y) each of the Persons entitled to receive a payment in any particular category shall receive an amount equal to its pro rata share of amounts available to be applied pursuant thereto for such category.

10.7 Waivers .

(a) Except as otherwise provided for in this Agreement and to the fullest extent permitted by applicable law, each Borrower waives: (i) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all Financing Documents and hereby ratifies and confirms whatever Agent or the Lenders may do in this regard; (ii) all rights to notice and a hearing prior to Agent’s or any Lender’s entry upon the premises of a Borrower, the taking possession or control of, or to Agent’s or any Lender’s replevy, attachment or levy upon, any Collateral or any bond or security which might be required by any court prior to allowing Agent or any Lender to exercise any of its remedies; and (iii) the benefit of all valuation, appraisal and exemption Laws. Each Borrower acknowledges that it has been advised by counsel of its choices and decisions with respect to this Agreement, the other Financing Documents and the transactions evidenced hereby and thereby.

(b) Each Credit Party, for itself and all its successors and assigns, (i) agrees that its liability shall not be in any manner affected by any indulgence, extension of time, renewal, waiver, or modification granted or consented to by any Lender; (ii) consents to any indulgences and all extensions of time, renewals, waivers, or modifications that may be granted by Agent or any Lender with respect to the payment or other provisions of the Financing Documents, and to any substitution, exchange or release of the Collateral, or any part thereof, with or without substitution, and agrees to the addition or release of any Credit Party, endorsers, guarantors, or sureties, or whether primarily or secondarily liable, without notice to any other Borrower and without affecting its liability hereunder; (iii) agrees that its liability shall be unconditional and without regard to the liability of any other Credit Party, Agent or any Lender for any tax on the indebtedness; and (iv) to the fullest extent permitted by law, expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing.

(c) To the extent that Agent or any Lender may have acquiesced in any noncompliance with any requirements or conditions precedent to the closing of the Credit Facilities or to any subsequent disbursement of Credit Extensions, such acquiescence shall not be deemed to constitute a waiver by Agent or any Lender of such requirements with respect to any future Credit Extensions and Agent may at any time after such acquiescence require Borrower to comply with all such requirements. Any forbearance by Agent or a Lender in exercising any right or remedy under any of the Financing Documents, or otherwise afforded by applicable law, including any failure to accelerate the maturity date of the Credit Facilities, shall not be a waiver of or preclude the exercise of any right or remedy nor shall it serve as a novation of the Financing Documents or as a reinstatement of the Obligations or a waiver of such right of acceleration or the right to insist upon strict compliance of the terms of the Financing Documents. Agent’s or any Lender’s acceptance of payment of any sum secured by any of the Financing Documents after the due date of such payment shall not be a waiver of Agent’s and such Lender’s right to either require prompt payment when due of all other sums so secured or to declare a default for failure to make prompt payment. The procurement of insurance or the payment of taxes or other Liens or charges by Agent as the result of an Event of Default shall not be a waiver of Agent’s right to accelerate the maturity of the Obligations, nor shall Agent’s receipt of any condemnation awards, insurance proceeds, or damages under this Agreement operate to cure or waive any Credit Party’s default in payment of sums secured by any of the Financing Documents.

(d) Without limiting the generality of anything contained in this Agreement or the other Financing Documents, each Borrower agrees that if an Event of Default is continuing (i) Agent and the Lenders shall not be subject to any “one action” or “election of remedies” law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Agent or the Lenders shall remain in full force and effect until Agent or the Lenders have exhausted all remedies against the Collateral and any other properties owned by Borrower and the Financing Documents and other security instruments or agreements securing the Obligations have been foreclosed, sold and/or otherwise realized upon in satisfaction of Borrower’s obligations under the Financing Documents.

(e) Neither Agent nor any Lender shall be under any obligation to marshal any assets in payment of any or all of the Obligations. Nothing contained herein or in any other Financing Document shall be construed as requiring Agent or any Lender to resort to any part of the Collateral for the satisfaction of any of Borrower’s obligations under the Financing Documents in preference or priority to any other Collateral, and Agent may seek satisfaction out of all of the Collateral or any part thereof, in its absolute discretion in respect of Borrower’s obligations under the Financing Documents. To the fullest extent permitted by law, each Borrower, for itself and its successors and assigns, waives in the event of foreclosure of any or all of the Collateral any equitable right otherwise available to any Credit Party which would require the separate sale of any of the Collateral or require Agent or the Lenders to exhaust their remedies against any part of the Collateral before proceeding against any other part of the Collateral; and further in the event of such foreclosure each Borrower does hereby expressly consent to and authorize, at the option of Agent, the foreclosure and sale either separately or together of each part of the Collateral.

10.8 Injunctive Relief . The parties acknowledge and agree that, in the event of a breach or threatened breach of any Credit Party’s obligations under any Financing Documents, Agent and the Lenders may have no adequate remedy in money damages and, accordingly, shall be entitled to an injunction (including, without limitation, a temporary restraining order, preliminary injunction, writ of attachment, or order compelling an audit) against such breach or threatened breach, including, without limitation, maintaining any cash management and collection procedure described herein. However, no specification in this Agreement of a specific legal or equitable remedy shall be construed as a waiver or prohibition against any other legal or equitable remedies in the event of a breach or threatened breach of any provision of this Agreement. Each Credit Party waives, to the fullest extent permitted by law, the requirement of the posting of any bond in connection with such injunctive relief. By joining in the Financing Documents as a Credit Party, each Credit Party specifically joins in this Section 10.8 as if this Section 10.8 were a part of each Financing Document executed by such Credit Party.

11.

NOTICES

All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Financing Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail (if an email address is specified herein) or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Any of Agent, a Lender or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Article 11.

If to Borrower:

Midatech Pharma plc

65 Innovation Drive

Milton Park

Abingdon

Oxfordshire OX14 4RQ

United Kingdom

Attn: Nick Robbins-Cherry

Fax: (___) ___-____

Email: nickrc@midatechpharma.com

If to Agent or to MidCap (or any of its Affiliates or Approved Funds) as a Lender:

MidCap Financial Trust

c/o MidCap Financial Services, LLC, as servicer

7255 Woodmont Ave, Suite 200

Bethesda, MD 20814

Attn: Account Manager for Midatech transaction

Fax: 301-941-1450

Email: notices@midcapfinancial.com

With a copy to:

MidCap Financial Trust

c/o MidCap Financial Services, LLC, as servicer

7255 Woodmont Ave, Suite 200

Bethesda, MD 20814

Attn: Legal

Fax: 301-941-1450

Email: legalnotices@midcapfinancial.com

If to any Lender other than MidCap : at the address set forth on the signature pages to this Agreement or provided as a notice address for such in connection with any assignment hereunder.

12.	CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

12.1 THIS AGREEMENT, EACH SECURED PROMISSORY NOTE AND EACH OTHER FINANCING DOCUMENT (EXCLUDING THOSE FINANCING DOCUMENTS THAT BY THEIR OWN TERMS ARE EXPRESSLY GOVERNED BY THE LAWS OF ANOTHER JURISDICTION), AND THE RIGHTS, REMEDIES AND OBLIGATIONS OF THE PARTIES HERETO AND THERETO, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT OR SUCH FINANCING DOCUMENT (EXCLUDING THOSE FINANCING DOCUMENTS THAT BY THEIR OWN TERMS ARE EXPRESSLY GOVERNED BY THE LAWS OF ANOTHER JURISDICTION), THE RELATIONSHIP OF THE PARTIES, AND/OR THE INTERPRETATION AND ENFORCEMENT OF THE RIGHTS AND DUTIES OF THE PARTIES AND ALL OTHER MATTERS RELATING HERETO, THERETO OR ARISING THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW). NOTWITHSTANDING THE FOREGOING, AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH AGENT AND THE LENDERS (IN ACCORDANCE WITH THE PROVISIONS OF SECTION 12.1) DEEM NECESSARY OR APPROPRIATE TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE AGENT’S AND LENDERS’ RIGHTS AGAINST BORROWER OR ITS PROPERTY. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO THE JURISDICTION OF THE FEDERAL AND STATE COURTS LOCATED IN THE STATE OF MARYLAND AND ANY SUCH OTHER JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINTS, AND OTHER PROCESS ISSUED IN SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS, AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN ARTICLE 11 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER TO OCCUR OF BORROWER’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAIL, PROPER POSTAGE PREPAID.

12.2 TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER, AGENT AND THE LENDERS EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE FINANCING DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12.3 Borrower, Agent and each Lender agree that each Credit Extension (including those made on the Closing Date) shall be deemed to be made in, and the transactions contemplated hereunder and in any other Financing Document shall be deemed to have been performed in, the State of Maryland.

13.	GENERAL PROVISIONS

13.1 Successors and Assigns .

(a) This Agreement binds and is for the benefit of the successors and permitted assigns of each party. No Credit Party may assign this Agreement or any rights or obligations under it without Agent’s prior written consent (which may be granted or withheld in Agent’s discretion). Any Lender may at any time assign to one (1) or more Eligible Assignees all or any portion of such Lender’s Applicable Commitment and/or Credit Extensions, together with all related obligations of such Lender hereunder. The Credit Parties and Agent shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned until Agent shall have received and accepted an effective assignment agreement in form and substance acceptable to Agent, executed, delivered and fully completed by the applicable parties thereto, and shall have received such other information regarding such Eligible Assignee as Agent reasonably shall require. Notwithstanding anything set forth in this Agreement to the contrary, any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided, however, that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. If requested by Agent, Borrower agrees to (i) execute any documents reasonably required to effectuate and acknowledge each assignment of an Applicable Commitment or Credit Extension to an assignee hereunder and (ii) assist Agent or the Lenders in the preparation of information relating to the financial affairs of the Credit Parties as any prospective participant or assignee of an Applicable Commitment or Credit Extension reasonably may request.

(b) From and after the date on which the conditions described above have been met, (i) such Eligible Assignee shall be deemed automatically to have become a party hereto and, to the extent of the interests assigned to such Eligible Assignee pursuant to such assignment agreement, shall have the rights and obligations of a Lender hereunder, and (ii) the assigning Lender, to the extent that rights and obligations hereunder have been assigned by it pursuant to such assignment agreement, shall be released from its rights and obligations hereunder (other than those that survive termination). Upon the request of the Eligible Assignee (and, as applicable, the assigning Lender) pursuant to an effective assignment agreement, each Borrower shall execute and deliver to Agent for delivery to the Eligible Assignee (and, as applicable, the assigning Lender) secured notes in the aggregate principal amount of the Eligible Assignee’s Credit Extensions or Applicable Commitments (and, as applicable, secured promissory notes in the principal amount of that portion of the principal amount of the Credit Extensions or Applicable Commitments retained by the assigning Lender).

(c) Agent, acting solely for this purpose as an agent of Borrower, shall maintain at its offices located in Bethesda, Maryland a copy of each assignment agreement delivered to it and a Register for the recordation of the names and addresses of each Lender, and the commitments of, and principal amount (and stated interest) of the Credit Extensions owing to, such Lender pursuant to the terms hereof (the “ Register ”). The entries in such Register shall be conclusive, absent manifest error, and Borrower, Agent and the Lenders may treat each Person whose name is recorded therein pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. Such Register shall be available for inspection by Borrower and any Lender, at any reasonable time upon reasonable prior notice to Agent. Each Lender that sells a participation shall, acting solely for this purpose as an agent of Borrower maintain a register on which it enters the name and address of each participant and the principal amounts (and stated interest) of each participant’s interest in the Obligations (each, a “ Participant Register ”). The entries in the Participant Registers shall be conclusive, absent manifest error. Each Participant Register shall be available for inspection by Borrower and Agent at any reasonable time upon reasonable prior notice to the applicable Lender; provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any participant or any information relating to a participant’s interest in any commitments, loans, letters of credit or its other obligations under any Financing Document) to any Person (including Borrower) except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. For the avoidance of doubt, Agent (in its capacity as Agent) shall have no responsibility for maintaining a participant register.

(d) Notwithstanding anything to the contrary contained in this Agreement, the Credit Extensions (including any Secured Promissory Notes evidencing such Credit Extensions) are registered obligations, the right, title and interest of the Lenders and their assignees in and to such Credit Extensions shall be transferable only upon notation of such transfer in the Register and no assignment thereof shall be effective until recorded therein. This Agreement shall be construed so that the Credit Extensions are at all times maintained in “registered form” within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the IRC and Section 5f.103-1(c) of the United States Treasury Regulations.

13.2 Indemnification .

(a) Borrower hereby agrees to promptly pay (i) (A) all reasonable and documented out-of-pocket costs and expenses of Agent (including, without limitation, the reasonable and documented out-of-pocket costs, expenses and reasonable fees of one primary external counsel to Agent (and one firm of local counsel in each appropriate jurisdiction and one specialist counsel for each appropriate specialty), and independent appraisers and consultants retained by, Agent) in connection with the examination, review, due diligence investigation, documentation, negotiation, closing and syndication of the transactions contemplated by the Financing Documents, and in connection with the continued administration of the Financing Documents including (1) any amendments, modifications, consents and waivers to and/or under any and all Financing Documents, and (2) any periodic public record searches conducted by or at the request of Agent (including, without limitation, title investigations, UCC searches, fixture filing searches, judgment, pending litigation and tax lien searches and searches of applicable corporate, limited liability, partnership and related records concerning the continued existence, organization and good standing of certain Persons), and (B) documented out-of-pocket costs and expenses of Agent in connection with the performance by Agent of its rights and remedies under the Financing Documents; (ii) without limitation of the preceding clause (i), all reasonable and documented out-of-pocket costs and expenses of Agent in connection with the creation, perfection and maintenance of Liens pursuant to the Financing Documents; (iii) without limitation of the preceding clause (i), all documented out-of-pocket costs and expenses of Agent in connection with (A) protecting, storing, insuring, handling, maintaining or selling any Collateral, (B) any litigation, dispute, suit or proceeding relating to any Financing Document, and (C) any workout, collection, bankruptcy, insolvency and other enforcement proceedings under any and all of the Financing Documents; (iv) without limitation of the preceding clause (i), all reasonable and documented out-of-pocket costs and expenses of Agent in connection with Agent’s reservation of funds in anticipation of the funding of the Credit Extensions to be made hereunder; and (v) all documented out-of-pocket costs and expenses incurred by Agent or the Lenders in connection with any litigation, dispute, suit or proceeding relating to any Financing Document and in connection with any workout, collection, bankruptcy, insolvency and other enforcement proceedings under any and all Financing Documents, whether or not Agent or the Lenders are a party thereto; provided, however , that the costs and expenses referred to in clause (a)(ii) through (iv) hereof shall be limited at all times to one primary outside counsel (and one firm of local counsel in each appropriate jurisdiction and one specialist counsel for each appropriate specialty) to the Agent. If Agent or any Lender uses in-house counsel for any of these purposes, Borrower further agrees that the Obligations include reasonable charges for such work.

(b) Borrower hereby agrees to indemnify, pay and hold harmless Agent and the Lenders and the officers, directors, employees, trustees, agents, investment advisors, collateral managers, servicers, and counsel of Agent and the Lenders (collectively called the “ Indemnitees ”) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the disbursements and reasonable and documented out-of-pocket fees of counsel for one primary counsel for all Indemnities, together with local counsel and specialist counsel where reasonably necessary in each applicable jurisdiction, and, solely in the event of a conflict of interest, additional primary counsel for each impacted Indemnitee, and where reasonably necessary, additional local counsel in each applicable jurisdiction and additional specialist counsel for each impacted Indemnitee) in connection with any investigative, response, remedial, administrative or judicial matter or proceeding, whether or not such Indemnitee shall be designated a party thereto and including any such proceeding initiated by or on behalf of a Credit Party, and the reasonable expenses of investigation by engineers, environmental consultants and similar technical personnel and any commission, fee or compensation claimed by any broker (other than any broker retained by Agent or the Lenders) asserting any right to payment for the transactions contemplated hereby, which may be imposed on, incurred by or asserted against such Indemnitee as a result of or in connection with the transactions contemplated hereby and the use or intended use of the proceeds of the Credit Facilities, except that Borrower shall have no obligation hereunder to an Indemnitee with respect to any liability (x) resulting from the gross negligence, bad faith or willful misconduct of such Indemnitee, as determined by a final non-appealable judgment of a court of competent jurisdiction, or (y) if such Indemnitee is a party other than Agent and its officers, directors, employees, trustees, agents, investment advisors, collateral managers, servicers and counsel, and such liability does not involve an act or omission of Borrower or any other Credit Party or their respective Affiliates and is brought by another Indemnitee against such Indemnitee. To the extent that the undertaking set forth in the immediately preceding sentence may be unenforceable, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable Law to the payment and satisfaction of all such Indemnified Liabilities incurred by the Indemnitees or any of them. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Financing Documents or the transactions contemplated hereby or thereby. This Section 13.2 shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

(c) Notwithstanding any contrary provision in this Agreement, the obligations of Borrower under this Section 13.2 shall survive the payment in full of the Obligations and the termination of this Agreement. NO INDEMNITEE SHALL BE RESPONSIBLE OR LIABLE TO ANY CREDIT PARTY OR TO ANY OTHER PARTY TO ANY FINANCING DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

13.3 Time of Essence . Time is of the essence for the payment and performance of the Obligations in this Agreement.

13.4 Severability of Provisions . Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

13.5 Correction of Financing Documents . Agent and the Lenders may correct patent errors and fill in any blanks in this Agreement and the other Financing Documents consistent with the agreement of the parties.

13.6 Integration . This Agreement and the other Financing Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Financing Documents merge into this Agreement and the Financing Documents.

13.7 Counterparts . This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement. Delivery of an executed signature page of this Agreement by facsimile transmission or electronic transmission shall be as effective as delivery of a manually executed counterpart hereof.

13.8 Survival . All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations for which no claim has yet been made and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 13.2 to indemnify each Lender and Agent shall survive until the statute of limitations with respect to such claim or cause of action shall have run. All powers of attorney and appointments of Agent or any Lender as Borrower’s attorney in fact hereunder, and all of Agent’s and Lenders’ rights and powers in respect thereof, are coupled with an interest, are irrevocable until all Obligations (other than inchoate indemnity obligations for which no claim has yet been made and any other obligations which, by their terms, are to survive the termination of this Agreement) have been fully repaid and performed and Agent’s and the Lenders’ obligation to provide Credit Extensions terminates.

13.9 Confidentiality . In handling any confidential information of Borrower, each of the Lenders and Agent shall use all reasonable efforts to maintain, in accordance with its customary practices, the confidentiality of information obtained by it pursuant to any Financing Document and any other specific information which is designated in writing by any Credit Party as confidential, but disclosure of information may be made: (a) to the Lenders’ and Agent’s Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any interest in the Credit Extensions; (c) as required by Law, regulation, subpoena, order or other legal, administrative, governmental or regulatory request; (d) to regulators or as otherwise required in connection with an examination or audit, or to any nationally recognized rating agency; (e) as Agent or any Lender considers appropriate in exercising remedies under the Financing Documents; (f) to financing sources that are advised of the confidential nature of such information and are instructed to keep such information confidential; (g) to third party service providers of the Lenders and/or Agent so long as such service providers are bound to such Lender or Agent by obligations of confidentiality; (h) to the extent necessary or customary for inclusion in league table measurements; and (i) in connection with any litigation or other proceeding to which such Lender or Agent or any of their Affiliates is a party or bound, or to the extent necessary to respond to public statements or disclosures by Credit Parties or their Affiliates referring to a Lender or Agent or any of their Affiliates. Confidential information does not include information that either: (i) is in the public domain or in the Lenders’ and/or Agent’s possession when disclosed to the Lenders and/or Agent, or becomes part of the public domain after disclosure to the Lenders and/or Agent; or (ii) is disclosed to the Lenders and/or Agent by a third party, if the Lenders and/or Agent does not know that the third party is prohibited from disclosing the information. Agent and/or the Lenders may use confidential information for the development of client databases, reporting purposes, and market analysis, so long as Agent and/or the Lenders, as applicable, do not disclose Borrower’s identity or the identity of any Person associated with Borrower unless otherwise permitted by this Agreement. The provisions of the immediately preceding sentence shall survive the termination of this Agreement. The agreements provided under this Section 13.9 supersede all prior agreements, understanding, representations, warranties, and negotiations between the parties about the subject matter of this Section 13.9.

13.10 Right of Set-off . Borrower hereby grants to Agent and to each Lender, a lien, security interest and right of set-off as security for all Obligations to Agent and each Lender hereunder, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Agent or the Lenders or any entity under the control of Agent or the Lenders (including an Agent or Lender Affiliate) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Agent or the Lenders may set-off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SET-OFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

13.11 Publicity . No Credit Party will directly or indirectly publish, disclose or otherwise use in any public disclosure, advertising material, promotional material, press release or interview, any reference to the name, logo or any trademark of Agent or any Lender or any of their Affiliates or any reference to this Agreement or the financing evidenced hereby, in any case except as required by (i) applicable Law, (ii) subpoena or judicial or similar order, (iii) the rules and regulations of AIM and of NASDAQ or (iv) the Market Abuse Regulation of the European Union, in which case the Credit Parties shall endeavor to give Agent prior written notice of such publication or other disclosure so far as is reasonably practicable in the circumstances. Each Lender and each Credit Party hereby authorize each Lender to publish the name of such Lender and the Credit Parties, the existence of the financing arrangements referenced under this Agreement, the primary purpose and/or structure of those arrangements, the amount of credit extended under each facility, the title and role of each party to this Agreement, and the total amount of the financing evidenced hereby in any “tombstone”, comparable advertisement or press release which such Lender elects to submit for publication. In addition, each Lender and each Credit Party agree that each Lender may provide lending industry trade organizations with information necessary and customary for inclusion in league table measurements after the Closing Date. With respect to any of the foregoing, such authorization shall be subject to such Lender providing the Credit Parties and the other Lenders with an opportunity to review and confer with such Lender regarding, and approve, the contents of any such tombstone, advertisement or information, as applicable, prior to its initial submission for publication, but subsequent publications of the same tombstone, advertisement or information shall not require Credit Party approval.

13.12 No Strict Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

13.13 Approvals . Unless expressly provided herein to the contrary, any approval, consent, waiver or satisfaction of Agent or the Lenders with respect to any matter that is the subject of this Agreement or the other Financing Documents may be granted or withheld by Agent and the Lenders in their sole and absolute discretion and credit judgment.

13.14 Amendments; Required Lenders; Inter-Lender Matters .

(a) No amendment, modification, termination or waiver of any provision of this Agreement or any other Financing Document, no approval or consent thereunder, or any consent to any departure by any Credit Party therefrom (in each case, other than amendments, waivers, approvals or consents deemed ministerial by Agent), shall in any event be effective unless the same shall be in writing and signed by Borrower, the other Credit Parties, Agent and the Required Lenders. Except as set forth in clause (b) below, all such amendments, modifications, terminations or waivers requiring the consent of the “Lenders” shall require the written consent of Required Lenders.

(b) No amendment, modification, termination or waiver of any provision of this Agreement or any other Financing Document shall, unless in writing and signed by Agent and by each Lender directly affected thereby: (i) increase or decrease the Applicable Commitment of any Lender (which shall be deemed to affect all Lenders), (ii) reduce the principal of or rate of interest on any Obligation or the amount of any fees payable hereunder, (iii) postpone the date fixed for or waive any payment of principal of or interest on any Credit Extension, or any fees or reimbursement obligation hereunder, (iv) release all or substantially all of the Collateral, or consent to a transfer of any of the Intellectual Property, in each case, except as otherwise expressly permitted in the Financing Documents (which shall be deemed to affect all Lenders), (v) subordinate the lien granted in favor of Agent securing the Obligations (which shall be deemed to affect all Lenders, except as otherwise provided below), (vi) release a Credit Party from, or consent to a Credit Party’s assignment or delegation of, such Credit Party’s obligations hereunder and under the other Financing Documents or any Guarantor from its guaranty of the Obligations (which shall be deemed to affect all Lenders) or (vii) amend, modify, terminate or waive this Section 13.14(b) or the definition of “Required Lenders” or “Pro Rata Share” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender. For purposes of the foregoing, no Lender shall be deemed affected by (i) waiver of the imposition of the Default Rate or imposition of the Default Rate to only a portion of the Obligations, (ii) waiver of the accrual of late charges, (iii) waiver of any fee solely payable to Agent under the Financing Documents, (iv) subordination of a lien granted in favor of Agent; provided that such subordination is limited to equipment being financed by a third party providing Permitted Indebtedness. Notwithstanding any provision in this Section 13.14 to the contrary, no amendment, modification, termination or waiver affecting or modifying the rights or obligations of Agent hereunder shall be effective unless signed by Agent and the Required Lenders

(c) Agent shall not grant its written consent to any deviation or departure by Borrower or any Credit Party from the provisions of Article 7 without the prior written consent of the Required Lenders. Required Lenders shall have the right to direct Agent to take any action described in Section 10.2(b). Upon the occurrence of any Event of Default, Agent shall have the right to exercise any and all remedies referenced in Section 10.2 without the written consent of Required Lenders following the occurrence of an “Exigent Circumstance” (as defined below). All matters requiring the satisfaction or acceptance of Agent in the definition of Subordinated Debt shall further require the satisfaction and acceptance of each Required Lender. Any reference in this Agreement to an allocation between or sharing by the Lenders of any right, interest or obligation “ratably,” “proportionally” or in similar terms shall refer to Pro Rata Share unless expressly provided otherwise. As used in this Section, “ Exigent Circumstance ” means any event or circumstance that, in the reasonable judgment of Agent, imminently threatens the ability of Agent to realize upon all or any material portion of the Collateral, such as, without limitation, fraudulent removal, concealment, or abscondment thereof, destruction or material waste thereof, or failure of Borrower after reasonable demand to maintain or reinstate adequate casualty insurance coverage, or which, in the judgment of Agent, could result in a material diminution in value of the Collateral.

13.15 Borrower Liability . If there is more than one (1) entity comprising Borrower, then (a) any Borrower may, acting singly, request Credit Extensions hereunder, (b) each Borrower hereby appoints the other as agent for the other for all purposes hereunder, including with respect to requesting Credit Extensions hereunder, (c) each Borrower shall be jointly and severally obligated to pay and perform all obligations under the Financing Documents, including, but not limited to, the obligation to repay all Credit Extensions made hereunder and all other Obligations, regardless of which Borrower actually receives said Credit Extensions, as if each Borrower directly received all Credit Extensions, and (d) each Borrower waives (1) any suretyship defenses available to it under the Code or any other applicable law, and (2) any right to require the Lenders or Agent to: (A) proceed against any Borrower or any other person; (B) proceed against or exhaust any security; or (C) pursue any other remedy. The Lenders or Agent may exercise or not exercise any right or remedy they have against any Credit Party or any security (including the right to foreclose by judicial or non-judicial sale) without affecting any other Credit Party’s liability or any Lien against any other Credit Party’s assets. Notwithstanding any other provision of this Agreement or other related document, until the indefeasible payment in cash in full of the Obligations (other than inchoate indemnity obligations for which no claim has yet been made) and termination of the Applicable Commitments, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of the Lenders and Agent under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Credit Party, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by any Credit Party with respect to the Obligations in connection with this Agreement or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by a Credit Party with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section shall be null and void. If any payment is made to a Credit Party in contravention of this Section, such Credit Party shall hold such payment in trust for the Lenders and Agent and such payment shall be promptly delivered to Agent for application to the Obligations, whether matured or unmatured.

13.16 Reinstatement . This Agreement shall remain in full force and effect and continue to be effective should any petition or other proceeding be filed by or against any Credit Party for liquidation or reorganization, should any Credit Party become insolvent or make an assignment for the benefit of any creditor or creditors or should an interim receiver, receiver, receiver and manager or trustee be appointed for all or any significant part of any Credit Party’s assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a fraudulent preference reviewable transaction or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

13.17 USA PATRIOT Act Notification . Agent (for itself and not on behalf of any Lender) and each Lender hereby notifies each Credit Party that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record certain information and documentation that identifies such Credit Party, which information includes the name and address of such Credit Party and such other information that will allow Agent or such Lender, as applicable, to identify such Credit Party in accordance with the USA PATRIOT Act.

13.18 Warrants . Notwithstanding anything to the contrary herein, any warrants issued to the Lenders by any Credit Party, the stock issuable thereunder, any equity securities purchased by Lenders, any amounts paid thereunder, any dividends, and any other rights in connection therewith shall not be subject to the terms and conditions of this Agreement. Nothing herein shall affect any Lender’s rights under any such warrants, stock, or other equity securities to administer, manage, transfer, assign, or exercise such warrants, stock, or other equity securities for its own account.

13.19 Process Agent . Each Credit Party that is incorporated under the laws of a jurisdiction other than the United States (or any state thereof) hereby irrevocably designates, appoints, authorizes and empowers CT Corporation System, with an address of 111 Eighth Avenue, New York, NY 10011 on the date hereof (the “ Process Agent ”), as its agent to receive on behalf of itself, service of copies of the summons and complaint and any other process which may be served in any suit, action or proceeding brought in connection with this Agreement or any other Financing Document in the circuit court of any county of the state of New York, and any appellate court thereof. To the fullest extent permitted by applicable laws, such service may be made by mailing or delivering a copy of such process to such Borrower in care of the Process Agent at its address specified above, and each such Borrower hereby authorizes and directs the Process Agent to receive such service on its behalf. The appointment of the Process Agent shall be irrevocable by each such Borrower until the appointment of a successor Process Agent. Each such Borrower further agrees promptly to appoint a successor Process Agent in New York (which shall accept such appointment in form and substance satisfactory to Agent) prior to the termination for any reason of the appointment of the initial Process Agent. Nothing in this Section 13.19 shall affect the right of any party hereto to serve process in any manner permitted by applicable law or to enforce in any lawful manner a judgment obtained in one jurisdiction in any other jurisdiction.

13.20 Other Currency . Without limiting Section 2.6 or any other provision of this Agreement, to the extent permitted by applicable Law, the obligations of any of the Credit Parties in respect of any amount due under this Agreement shall, notwithstanding any payment in any other currency (the “ Other Currency ”) (whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in the currency in which it is due (the “ Agreed Currency ”) that Agent or Lenders may, in accordance with normal banking procedures, purchase with the sum paid in the Other Currency (after any premium and costs of exchange) on the Business Day immediately after the day on which Agent or Lender receives the payment. If the amount of the Agreed Currency that may be so purchased for any reason falls short of the amount originally due, such Credit Party shall pay all additions amounts, in the Agreed Currency, as may be necessary to compensate for the shortfall. Any obligation of a Credit Party not discharged by that payment shall, to the extent permitted by applicable law, be due as a separate and independent obligation and, until discharged as provided in this Section 13.18, continue in full force and effect.

14.

AGENT

14.1 Appointment and Authorization of Agent . Each Lender hereby irrevocably appoints, designates and authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Financing Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Financing Document, together with such powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of Agent and the Lenders and none of Credit Parties nor any other Person shall have any rights as a third party beneficiary of any of the provisions hereof. The duties of Agent shall be mechanical and administrative in nature. Notwithstanding any provision to the contrary contained elsewhere herein or in any other Financing Document, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with any Lender or participant, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Financing Document or otherwise exist against Agent. Without limiting the generality of the foregoing sentence, the use of the term “agent” herein and in the other Financing Documents with reference to Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. Without limiting the generality of the foregoing, Agent shall have the sole and exclusive right and authority (to the exclusion of the Lenders), and is hereby authorized, to (a) act as collateral agent for Agent and each Lender for purposes of the perfection of all liens created by the Financing Documents and all other purposes stated therein, (b) manage, supervise and otherwise deal with the Collateral, (c) take such other action as is necessary or desirable to maintain the perfection and priority of the liens created or purported to be created by the Financing Documents, (d) except as may be otherwise specified in any Financing Document, exercise all remedies given to Agent and the other Lenders with respect to the Collateral, whether under the Financing Documents, applicable law or otherwise and (e) execute any amendment, consent or waiver under the Financing Documents on behalf of any Lender that has consented in writing to such amendment, consent or waiver; provided , however , that Agent hereby appoints, authorizes and directs each Lender to act as collateral sub-agent for Agent and the Lenders for purposes of the perfection of all liens with respect to the Collateral, including any deposit account maintained by a Credit Party with, and cash and cash equivalents held by, such Lender, and may further authorize and direct the Lenders to take further actions as collateral sub-agents for purposes of enforcing such liens or otherwise to transfer the Collateral subject thereto to Agent, and each Lender hereby agrees to take such further actions to the extent, and only to the extent, so authorized and directed.

14.2 Successor Agent .

(a) Agent may at any time assign its rights, powers, privileges and duties hereunder to (i) another Lender or an Affiliate of Agent or any Lender or any Approved Fund, or (ii) any Person to whom Agent, in its capacity as a Lender, has assigned (or will assign, in conjunction with such assignment of agency rights hereunder) fifty percent (50%) or more of the Credit Extensions or Applicable Commitments then held by Agent (in its capacity as a Lender), in each case without the consent of the Lenders or Borrower. Following any such assignment, Agent shall give notice to the Lenders and Borrower. An assignment by Agent pursuant to this subsection (a) shall not be deemed a resignation by Agent for purposes of subsection (b) below.

(b) Without limiting the rights of Agent to designate an assignee pursuant to subsection (a) above, Agent may at any time give notice of its resignation to the Lenders and Borrower. Upon receipt of any such notice of resignation, Required Lenders shall have the right to appoint a successor Agent. If no such successor shall have been so appointed by Required Lenders and shall have accepted such appointment within ten (10) Business Days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent; provided, however, that if Agent shall notify Borrower and the Lenders that no Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice from Agent that no Person has accepted such appointment and, from and following delivery of such notice, (i) the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Financing Documents, and (ii) all payments, communications and determinations provided to be made by, to or through Agent shall instead be made by or to each Lender directly, until such time as Required Lenders appoint a successor Agent as provided for above in this subsection (b).

(c) Upon (i) an assignment permitted by subsection (a) above, or (ii) the acceptance of a successor’s appointment as Agent pursuant to subsection (b) above, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Agent, and the retiring Agent shall be discharged from all of its duties and obligations hereunder and under the other Financing Documents (if not already discharged therefrom as provided above in this subsection (c)). The fees payable by Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between Borrower and such successor. After the retiring Agent’s resignation hereunder and under the other Financing Documents, the provisions of this Article shall continue in effect for the benefit of such retiring Agent and its sub-agents in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting or was continuing to act as Agent.

14.3 Delegation of Duties . Agent may execute any of its duties under this Agreement or any other Financing Document by or through its, or its Affiliates’, agents, employees or attorneys-in-fact and shall be entitled to obtain and rely upon the advice of counsel and other consultants or experts concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects in the absence of gross negligence or willful misconduct. Any such Person to whom Agent delegates a duty shall benefit from this Article 14 to the extent provided by Agent.

14.4 Liability of Agent . Except as otherwise provided herein, no “Agent-Related Person” (as defined below) shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Financing Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any manner to any Lender or participant for any recital, statement, representation or warranty made by any Credit Party or any officer thereof, contained herein or in any other Financing Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Financing Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Financing Document, or for any failure of any Credit Party or any other party to any Financing Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Financing Document, or to inspect the Collateral, other properties or books or records of any Credit Party or any Affiliate thereof. The term “ Agent-Related Person ” means Agent, together with its Affiliates, and the officers, directors, employees, agents, advisors, auditors and attorneys-in-fact of such Persons; provided , however , that no Agent-Related Person shall be an Affiliate of Borrower.

14.5 Reliance by Agent . Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, communication, signature, resolution, representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, electronic mail message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrower), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under any Financing Document (a) if such action would, in the opinion of Agent, be contrary to law or any Financing Document, (b) if such action would, in the opinion of Agent, expose Agent to any potential liability under any law, statute or regulation or (c) if Agent shall not first have received such advice or concurrence of all Lenders as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Financing Document in accordance with a request or consent of all Lenders (or Required Lenders where authorized herein) and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders.

14.6 Notice of Default . Agent shall not be deemed to have knowledge or notice of the occurrence of any Default and/or Event of Default, unless Agent shall have received written notice from a Lender or Borrower, describing such default or Event of Default. Agent will notify the Lenders of its receipt of any such notice. While an Event of Default has occurred and is continuing, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as Agent shall deem advisable or in the best interests of the Lenders, including without limitation, satisfaction of other security interests, liens or encumbrances on the Collateral not permitted under the Financing Documents, payment of taxes on behalf of Borrower or any other Credit Party, payments to landlords, warehouseman, bailees and other Persons in possession of the Collateral and other actions to protect and safeguard the Collateral, and actions with respect to insurance claims for casualty events affecting a Credit Party and/or the Collateral.

14.7 Credit Decision; Disclosure of Information by Agent . Each Lender acknowledges that no Agent-Related Person has made any representation or warranty to it, and that no act by Agent hereafter taken, including any consent to and acceptance of any assignment or review of the affairs of Borrower or any Affiliate thereof, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender as to any matter, including whether Agent-Related Persons have disclosed material information in their possession. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of, and investigation into, the business, prospects, operations, property, financial and other condition and creditworthiness of the Credit Parties, and all applicable bank or other regulatory Laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower hereunder. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Financing Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by Agent herein, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of any Credit Party which may come into the possession of any Agent-Related Person.

14.8 Indemnification of Agent . Whether or not the transactions contemplated hereby are consummated, each Lender shall, severally and pro rata based on its respective Pro Rata Share, indemnify upon demand each Agent-Related Person (to the extent not reimbursed by or on behalf of Borrower and without limiting the obligation of Borrower to do so), and hold harmless each Agent-Related Person from and against any and all Indemnified Liabilities (which shall not include legal expenses of Agent incurred in connection with the closing of the transactions contemplated by this Agreement) incurred by it; provided, however , that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities to the extent determined in a judgment by a court of competent jurisdiction to have resulted from such Agent-Related Person’s own gross negligence or willful misconduct; provided, however , that no action taken in accordance with the directions of the Required Lenders shall be deemed to constitute gross negligence or willful misconduct for purposes of this Section. Without limitation of the foregoing, each Lender shall, severally and pro rata based on its respective Pro Rata Share, reimburse Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Protective Advances incurred after the closing of the transactions contemplated by this Agreement) incurred by Agent (in its capacity as Agent, and not as a Lender) in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Financing Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrower. The undertaking in this Section shall survive the payment in full of the Obligations, the termination of this Agreement and the resignation of Agent. The term “Indemnified Liabilities” means those liabilities described in Section 13.2(a) and Section 13.2(b).

14.9 Agent in its Individual Capacity . With respect to its Credit Extensions, MidCap shall have the same rights and powers under this Agreement as any other Lender and may exercise such rights and powers as though it were not Agent, and the terms “Lender” and “Lenders” include MidCap in its individual capacity. MidCap and its Affiliates may lend money to, invest in, and generally engage in any kind of business with, any Credit Party and any of their Affiliates and any person who may do business with or own securities of any Credit Party or any of their Affiliates, all as if MidCap were not Agent and without any duty to account therefor to Lenders. MidCap and its Affiliates may accept fees and other consideration from a Credit Party for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. Each Lender acknowledges the potential conflict of interest between MidCap as a Lender holding disproportionate interests in the Credit Extensions and MidCap as Agent, and expressly consents to, and waives, any claim based upon, such conflict of interest.

14.10 Agent May File Proofs of Claim . In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Credit Party, Agent (irrespective of whether the principal of any Credit Extension, shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Agent shall have made any demand on such Credit Party) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Credit Extensions and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and Agent and their respective agents and counsel and all other amounts due the Lenders and Agent allowed in such judicial proceeding); and

(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to Agent and, in the event that Agent shall consent to the making of such payments directly to the Lenders, to pay to Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agent and its agents and counsel, including Protective Advances. To the extent that Agent fails timely to do so, each Lender may file a claim relating to such Lender’s claim.

14.11 Collateral and Guaranty Matters . The Lenders irrevocably authorize Agent, at its option and in its discretion, to release (a) any Credit Party and any Lien on any Collateral granted to or held by Agent under any Financing Document upon the date that all Obligations (other than inchoate indemnity obligations for which no claim has yet been made and any other obligations which, by their terms, are to survive the termination of this Agreement) due hereunder have been fully and indefeasibly paid in full and no Applicable Commitments or other obligations of any Lender to provide funds to Borrower under this Agreement remain outstanding, and (b) any Lien on any Collateral that is transferred or to be transferred as part of or in connection with any transfer permitted hereunder or under any other Financing Document. Upon request by Agent at any time, all Lenders will confirm in writing Agent’s authority to release its interest in particular types or items of Collateral pursuant to this Section 14.11.

14.12 Advances; Payments; Non-Funding Lenders .

(a) Advances; Payments . If Agent receives any payment for the account of the Lenders on or prior to 11:00 a.m. (New York time) on any Business Day, Agent shall pay to each applicable Lender such Lender’s Pro Rata Share of such payment on such Business Day. If Agent receives any payment for the account of the Lenders after 11:00 a.m. (New York time) on any Business Day, Agent shall pay to each applicable Lender such Lender’s Pro Rata Share of such payment on the next Business Day. To the extent that any Lender has failed to fund any Credit Extension (a “ Non-Funding Lender ”), Agent shall be entitled to set-off the funding short-fall against that Non-Funding Lender’s Pro Rata Share of all payments received from Borrower.

(b) Return of Payments .

(i) If Agent pays an amount to a Lender under this Agreement in the belief or expectation that a related payment has been or will be received by Agent from a Credit Party and such related payment is not received by Agent, then Agent will be entitled to recover such amount (including interest accruing on such amount at the Federal Funds Rate for the first Business Day and thereafter, at the rate otherwise applicable to such Obligation) from such Lender on demand without set-off, counterclaim or deduction of any kind.

(ii) If Agent determines at any time that any amount received by Agent under this Agreement must be returned to a Credit Party or paid to any other person pursuant to any insolvency law or otherwise, then, notwithstanding any other term or condition of this Agreement or any other Financing Document, Agent will not be required to distribute any portion thereof to any Lender. In addition, each Lender will repay to Agent on demand any portion of such amount that Agent has distributed to such Lender, together with interest at such rate, if any, as Agent is required to pay to a Credit Party or such other person, without set-off, counterclaim or deduction of any kind.

14.13 Miscellaneous .

(a) Neither Agent nor any Lender shall be responsible for the failure of any Non-Funding Lender to make a Credit Extension or make any other advance required hereunder. The failure of any Non‑Funding Lender to make any Credit Extension or any payment required by it hereunder shall not relieve any other Lender (each such other Lender, an “ Other Lender ”) of its obligations to make the Credit Extension or payment required by it, but neither any Other Lender nor Agent shall be responsible for the failure of any Non-Funding Lender to make a Credit Extension or make any other payment required hereunder. Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender shall not have any voting or consent rights under or with respect to any Financing Document or constitute a “Lender” (or be included in the calculation of “Required Lender” hereunder) for any voting or consent rights under or with respect to any Financing Document. At Borrower’s request, Agent or a person reasonably acceptable to Agent shall have the right with Agent’s consent and in Agent’s sole discretion (but shall have no obligation) to purchase from any Non-Funding Lender, and each Non-Funding Lender agrees that it shall, at Agent’s request, sell and assign to Agent or such person, all of the Applicable Commitments and all of the outstanding Credit Extensions of that Non-Funding Lender for an amount equal to the principal balance of the Credit Extensions held by such Non-Funding Lender and all accrued interest and fees with respect thereto through the date of sale, such purchase and sale to be consummated pursuant to an executed assignment agreement reasonably acceptable to Agent.

(b) Each Lender shall promptly remit to the other Lenders such sums as may be necessary to ensure the ratable repayment of each Lender’s portion of any Credit Extension and the ratable distribution of interest, fees and reimbursements paid or made by any Credit Party. Notwithstanding the foregoing, if this Agreement requires payments of principal and interest to be made directly to the Lenders, a Lender receiving a scheduled payment shall not be responsible for determining whether the other Lenders also received their scheduled payment on such date; provided, however , if it is determined that a Lender received more than its ratable share of scheduled payments made on any date or dates, then such Lender shall remit to Agent (for Agent to redistribute to itself and the Lenders in a manner to ensure the payment to Agent of any sums due Agent hereunder and the ratable repayment of each Lender’s portion of any Credit Extension and the ratable distribution of interest, fees and reimbursements) such sums as may be necessary to ensure the ratable payment of such scheduled payments, as instructed by Agent. If any payment or distribution of any kind or character, whether in cash, properties or securities and whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, shall be received by a Lender in excess of its ratable share, then (i) the portion of such payment or distribution in excess of such Lender’s ratable share shall be received by such Lender in trust for application to the payments of amounts due on the other Lender’s claims, or, in the case of Collateral, shall hold such Collateral for itself and as agent and bailee for Agent and other Lenders and (ii) such Lender shall promptly advise Agent of the receipt of such payment, and, within five (5) Business Days of such receipt and, in the case of payments and distributions, such Lender shall purchase (for cash at face value) from the other Lenders (through Agent), without recourse, such participations in the Credit Extension made by the other Lenders as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them in accordance with the respective Pro Rata Shares of the Lenders; provided , however , that if all or any portion of such excess payment is thereafter recovered by or on behalf of a Credit Party from such purchasing Lender, the purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest; provided , further , that the provisions of this Section shall not be construed to apply to (x) any payment made by a Credit Party pursuant to and in accordance with the express terms of this Agreement or the other Financing Documents, or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Applicable Commitment pursuant to Section 13.1. Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. No documentation other than notices and the like shall be required to implement the terms of this Section. Agent shall keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased pursuant to this Section and shall in each case notify the Lenders following any such purchases.

15.

GUARANTY

15.1 Guaranty . Each Guarantor hereby unconditionally (a) guarantees, as a primary obligor and not merely as a surety, jointly and severally with each other Guarantor when and as due, whether at maturity, by acceleration, by notice of prepayment or otherwise, the due and punctual performance of all of the Obligations, including payment in full of the principal, accrued but unpaid interest and all other amounts due and owing to the Agent and Lenders under any Credit Facility and (b) indemnifies each Lender immediately on demand against any cost, loss or liability suffered by such Lender if any obligations guaranteed by it are or become unenforceable, invalid, voided, avoid or illegal, the amount of which such cost, loss or liability shall be equal to the amount which such Lender would otherwise be entitled to recover. Each payment made by any Guarantor pursuant to this Section 15 shall be made in lawful money of the United States in immediately available funds

15.2 Payment of Amounts Owed . The Guarantee hereunder is an absolute, unconditional and continuing guarantee of the full and punctual payment and performance of all of the Obligations and not of their collectability only and is in no way conditioned upon any requirement that the Agent or any Lender first attempt to collect any of the Obligations from Borrower or resort to any collateral security or other means of obtaining payment. In the event of any default by Borrower in the payment of the Obligations, after the expiration of any applicable cure or grace period, each Guarantor agrees, on demand by Agent (which demand may be made concurrently with notice to Borrower that Borrower is in default of its obligations), to pay the Obligations, regardless of any defense, right of set-off or recoupment or claims which Borrower or Guarantor may have against Agent or Lenders or the holder of the Secured Promissory Notes. All of the remedies set forth in this Agreement, in any other Financing Document or at law or equity shall be equally available to Agent and Lenders, and the choice by Agent or Lenders of one such alternative over another shall not be subject to question or challenge by any Guarantor or any other person, nor shall any such choice be asserted as a defense, setoff, recoupment or failure to mitigate damages in any action, proceeding, or counteraction by Agent or Lenders to recover or seeking any other remedy under this Guarantee, nor shall such choice preclude Agent or Lenders from subsequently electing to exercise a different remedy

15.3 Certain Waivers by Guarantor . To the fullest extent permitted by law, and until terminated in accordance with Section 15.9, each Guarantor does hereby:

(a) waive notice of acceptance of this Agreement by Agent and Lenders and any and all notices and demands of every kind which may be required to be given by any statute, rule or law;

(b) agree to refrain from asserting, until after repayment in full of the Obligations, any defense, right of set-off, right of recoupment or other claim which such Guarantor may have against Borrower;

(c) waive any defense, right of set-off, right of recoupment or other claim which such Guarantor may have against Agent, Lenders or the holder of the Secured Promissory Notes;

(d) waive any and all rights such Guarantor may have under any anti-deficiency statute or other similar protections;

(e) waive all rights at law or in equity to seek subrogation, contribution, indemnification or any other form of reimbursement or repayment from Borrower, any other Guarantor or any other person or entity now or hereafter primarily or secondarily liable for any of the Obligations until the Obligations have been paid in full;

(f) waive presentment for payment, demand for payment, notice of nonpayment or dishonor, protest and notice of protest, diligence in collection and any and all formalities which otherwise might be legally required to charge such Guarantor with liability;

(g) waive the benefit of all appraisement, valuation, marshalling, forbearance, stay, extension, redemption, homestead, exemption and moratorium laws now or hereafter in effect;

(h) waive any defense based on the incapacity, lack of authority, death or disability of any other person or entity or the failure of Agent or Lenders to file or enforce a claim against the estate of any other person or entity in any administrative, bankruptcy or other proceeding;

(i) waive any defense based on an election of remedies by Agent or Lenders, whether or not such election may affect in any way the recourse, subrogation or other rights of such Guarantor against Borrower, any other Guarantor or any other person in connection with the Obligations;

(j) waive any defense based on the failure of the Agent or Lenders to (i) provide notice to such Guarantor of a sale or other disposition of any of the security for any of the Obligations, or (ii) conduct such a sale or disposition in a commercially reasonable manner;

(k) waive any defense based on the negligence of Agent or Lenders in administering this Agreement or the other Financing Documents (including, but not limited to, the failure to perfect any security interest in any Collateral), or taking or failing to take any action in connection therewith, provided, however, that such waiver shall not apply to the gross negligence or willful misconduct or material breach of the Financing Documents on the part of the Agent or Lenders, as determined by the final, non-appealable decision of a court having proper jurisdiction;

(l) waive any right to file any Claim (as defined below) as part of, and any right to request consolidation of any action or proceeding relating to a Claim with, any action or proceeding filed or maintained by Agent or Lenders to collect any Obligations of such Guarantor to Agent or Lenders hereunder or to exercise any rights or remedies available to Agent or Lenders under the Financing Documents, at law, in equity or otherwise;

(m) agree that neither Agent nor Lenders shall have any obligation to obtain, perfect or retain a security interest in any property to secure any of the Obligations (including any mortgage or security interest contemplated by the Financing Documents);

(n) waive any obligation Agent or Lenders may have to disclose to such Guarantor any facts the Agent or Lenders now or hereafter may know or have reasonably available to it regarding Borrower or Borrower’s financial condition, whether or not the Agent or Lenders have a reasonable opportunity to communicate such facts or have reason to believe that any such facts are unknown to such Guarantor or materially increase the risk to such Guarantor beyond the risk such Guarantor intends to assume hereunder;

(o) agree that neither Agent nor Lenders shall be liable in any way for any decrease in the value or marketability of any property securing any of the Obligations which may result from any action or omission of the Agent or Lenders in enforcing any part of this Agreement;

(p) waive any defense based on any invalidity, irregularity or unenforceability, in whole or in part, of any one or more of the Financing Documents;

(q) waive any defense based on any change in the composition of Borrower, and

(r) waive any defense based on any representations and warranties made by such Guarantor herein or by Borrower herein or in any of the Financing Documents.

For purposes of this section, the term “Claim” shall mean any claim, action or cause of action, defense, counterclaim, retention, set-off or right of recoupment of any kind or nature against the Agent or Lenders, its officers, directors, employees, agents, members, actuaries, accountants, trustees or attorneys, or any affiliate of the Agent or Lenders in connection with the making, closing, administration, collection or enforcement by the Agent or Lenders of the Obligations.

15.4 Guarantor’s Obligations Not Affected by Modifications of Financing Documents . Each Guarantor further agrees that such Guarantor’s liability as guarantor shall not be impaired or affected by any renewals or extensions which may be made from time to time, with or without the knowledge or consent of Guarantor for the time for payment of interest or principal or by any forbearance or delay in collecting interest or principal hereunder, or by any waiver by Agent or Lenders under this Agreement or any other Financing Documents, or by Agent’s or Lenders’ failure or election not to pursue any other remedies it may have against Borrower or Guarantor, or by any change or modification in the Secured Promissory Notes, this Agreement or any other Financing Document, or by the acceptance by Agent or Lenders of any additional security or any increase, substitution or change therein, or by the release by Agent or Lenders of any security or any withdrawal thereof or decrease therein, or by the application of payments received from any source to the payment of any obligation other than the Obligations even though Agent or Lenders might lawfully have elected to apply such payments to any part or all of the Obligations, it being the intent hereof that, subject to Agent’s or Lenders’ compliance with the terms of this Section 15 and the Financing Documents, each Guarantor shall remain liable for the payment of the Obligations, until the Obligations have been paid in full, notwithstanding any act or thing which might otherwise operate as a legal or equitable discharge of a surety. Each Guarantor further understands and agrees that Agent or Lenders may at any time enter into agreements with Borrower to amend, modify and/or increase the principal amount of, interest rate applicable to or other economic and non-economic terms of this Agreement or the other Financing Documents, and may waive or release any provision or provisions of this Agreement or the other Financing Documents, and, with reference to such instruments, may make and enter into any such agreement or agreements with a Credit Party as Agent, Lenders and Borrower may deem proper and desirable, without in any manner impairing this Guarantee or any of Agent’s or Lenders’ rights hereunder or each Guarantor’s obligations hereunder, and each Guarantor’s obligations hereunder shall apply to the this Agreement and other Financing Documents as so amended, modified, extended, renewed or increased.

15.5 Reinstatement; Deficiency . This guaranty shall continue to be effective or be reinstated (as the case may be) if at any time payment of all or any part of any sum payable pursuant to this Agreement or any other Financing Document is rescinded or otherwise required to be returned by Agent or Lenders upon the insolvency, bankruptcy, dissolution, liquidation, or reorganization of Borrower, or upon or as a result of the appointment of a receiver, intervenor, custodian or conservator of or trustee or similar officer for, Borrower or any substantial part of its property, or otherwise, all as though such payment to Agent or Lenders had not been made, regardless of whether Agent or Lenders contested the order requiring the return of such payment. In the event of the foreclosure of the Financing Documents and of a deficiency, each Guarantor hereby promises and agrees forthwith to pay the amount of such deficiency notwithstanding the fact that recovery of said deficiency against Borrower would not be allowed by applicable law; however, the foregoing shall not be deemed to require that Agent or Lenders institute foreclosure proceedings or otherwise resort to or exhaust any other collateral or security prior to or concurrently with enforcing this guaranty.

15.6 Subordination of Borrower’s Obligations to Guarantors; Claims in Bankruptcy .

(a) Any indebtedness of Borrower to any Guarantor (including, but not limited to, any right of such Guarantor to a return of any capital contributed to Borrower), whether now or hereafter existing, is hereby subordinated to the payment of the Obligations. Each Guarantor agrees that, until the Obligations have been paid in full, such Guarantor will not seek, accept, or retain for its own account, any payment from Borrower on account of such subordinated debt. Any payments to any Guarantor on account of such subordinated debt shall be collected and received by such Guarantor in trust for Agent and Lenders and shall be immediately paid over to Agent, for the benefit of Agent and Lenders, on account of the Obligations without impairing or releasing the obligations of such Guarantor hereunder.

(b) Each Guarantor shall promptly file in any bankruptcy or other proceeding in which the filing of claims is required by law, all claims and proofs of claims that such Guarantor may have against Borrower or any other Guarantor and does with effect from the occurrence of an Event of Default hereby assign to Agent or its nominee (and will, upon request of Agent, reconfirm in writing the assignment to Agent or its nominee of) all rights of such Guarantor under such claims. If such Guarantor does not file any such claim, Agent, as attorney in fact for such Guarantor, is hereby irrevocably authorized with effect from the occurrence of an Event of Default to do so in the name of such Guarantor, or in Agent’s discretion, to assign the claim to a designee and cause proof of claim to be filed in the name of Agent’s designee. In all such cases, whether in administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Agent, for the benefit of Agent and Lenders, the full amount thereof and, to the full extent necessary for that purpose, each Guarantor with effect from the occurrence of an Event of Default hereby assigns to the Lenders all of such Guarantor’s rights to any such payments or distributions to which such Guarantor would otherwise be entitled, such assignment being a present and irrevocable assignment of all such rights.

15.7 Maximum Liability . The provisions of this Article 15 are severable, and in any action or proceeding involving any state corporate law, or any state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under this Article 15 would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Guarantor’s liability under this Article 15, then, notwithstanding any other provision of this Article 15 to the contrary, the amount of such liability shall, without any further action by the Guarantors or the Agent or any Lender, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding; provided , however, that such amount shall not exceed, in any event, the total aggregate amount of the Obligations (such highest amount determined hereunder being the relevant Guarantor’s “ Maximum Liability ”). This Section 15.6 with respect to the Maximum Liability of each Guarantor is intended solely to preserve the rights of the Agent and the Lenders to the maximum extent not subject to avoidance under applicable law, and no Guarantor nor any other Person shall have any right or claim under this Section 15.6 with respect to such Maximum Liability, except to the extent necessary so that the obligations of any Guarantor hereunder shall not be rendered voidable under applicable law. Each Guarantor agrees that the Obligations may at any time and from time to time exceed the Maximum Liability of each Guarantor without impairing this guaranty or affecting the rights and remedies of the Agent or the Lenders hereunder, provided that, nothing in this sentence shall be construed to increase any Guarantor’s obligations hereunder beyond its Maximum Liability.

15.8 Guarantor’s Investigation . Each Guarantor acknowledges receipt of a copy of each of this Agreement and the other Financing Documents. Each Guarantor has made an independent investigation of the other Credit Parties and of the financial condition of the other Credit Parties. Neither Agent nor any Lender has made and neither Agent nor any Lender does make any representations or warranties as to the income, expense, operation, finances or any other matter or thing affecting any Credit Party nor has Agent or any Lender made any representations or warranties as to the amount or nature of the Obligations of any Credit Party to which this Section 15 applies as specifically herein set forth, nor has Agent or any Lender or any officer, agent or employee of Agent or any Lender or any representative thereof, made any other oral representations, agreements or commitments of any kind or nature, and each Guarantor hereby expressly acknowledges that no such representations or warranties have been made and such Guarantor expressly disclaims reliance on any such representations or warranties.

15.9 Termination . The provisions of this Article 15 shall remain in effect until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied.

16.	DEFINITIONS

In addition to any terms defined elsewhere in this Agreement, or in any schedule or exhibit attached hereto, as used in this Agreement, the following terms have the following meanings:

“ Access Agreement ” means a landlord consent, bailee letter or warehouseman’s letter, in form and substance reasonably satisfactory to Agent, in favor of Agent executed by such landlord, bailee or warehouseman, as applicable, for any third party location.

“ Account ” means any “account”, as defined in the Code, with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.

“ Account Debtor ” means any “account debtor”, as defined in the Code, with such additions to such term as may hereafter be made.

“ Affiliate ” means, with respect to any Person, a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members.

“ Agent ” means, MidCap, not in its individual capacity, but solely in its capacity as agent on behalf of and for the benefit of the Lenders, together with its successors and assigns.

“ Agreement ” has the meaning given it in the preamble of this Agreement.

“ Agreed Currency ” has the meaning given it in Section 13.19.

“ AIM ” means the Alternative Investment Market of the London Stock Exchange.

“ Amortization Schedule ” means the “Amortization Schedule” attached to this Agreement.

“ Announcement ” means any public announcement made by the Parent through a regulatory information service approved by the Financial Conduct Authority of the United Kingdom for distribution of regulatory and other announcements to the public.

“ Anti-Terrorism Laws ” means any Laws relating to terrorism or money laundering, including Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the Laws comprising or implementing the Bank Secrecy Act, and the Laws administered by OFAC.

“ Applicable Commitment ” has the meaning given it in Section 2.2

“ Applicable Floor ” means for each Credit Facility the per annum rate of interest specified on the Credit Facility Schedule; provided , however , that for the Applicable Prime Rate, the Applicable Floor is a per annum rate that is three hundred (300) basis points above the Applicable Floor for the Applicable Libor Rate.

“ Applicable Index Rate ” means, for any Applicable Interest Period, the rate per annum determined by Agent equal to the Applicable Libor Rate; provided , however , that in the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation of application thereof, shall at any time after the date hereof, in the reasonable opinion of Agent or any Lender, make it unlawful or impractical for Agent or such Lender to fund or maintain Obligations bearing interest based upon the Applicable Libor Rate, Agent or such Lender shall give notice of such changed circumstances to Agent and Borrower and the Applicable Index Rate for Obligations outstanding or thereafter extended or made by Agent or such Lender shall thereafter be the Applicable Prime Rate until Agent or such Lender determines (as to the portion of the Credit Extensions or Obligations owed to it) that it would no longer be unlawful or impractical to fund or maintain such Obligations or Credit Extensions at the Applicable Libor Rate. In the event that Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), as of any Applicable Interest Rate Determination Date, that adequate and fair means do not exist for ascertaining the interest rate applicable to any Credit Facility on the basis provided for herein, then Agent may select a comparable replacement index and corresponding margin.

“ Applicable Interest Period ” for each Credit Facility has the meaning specified for that Credit Facility in the Credit Facility Schedule; provided , however , that, at any time that the Applicable Prime Rate is the Applicable Index Rate, Applicable Interest Period shall mean the period commencing as of the most recent Applicable Interest Rate Determination Date and continuing until the next Applicable Interest Rate Determination Date or such earlier date as the Applicable Prime Rate shall no longer be the Applicable Index Rate; and provided , further , that, at any time the Libor Rate Index is adjusted as set forth in the definition thereof, or re-implemented following invocation of the Applicable Prime Rate as permitted herein, the Applicable Interest Period shall mean the period commencing as of such adjustment or re-implementation and continuing until the next Applicable Interest Rate Determination Date, if any.

“Applicable Interest Rate” means a per annum rate of interest equal to the Applicable Index Rate plus the Applicable Margin.

“ Applicable Interest Rate Determination Date ” means the second (2nd) Business Day prior to the first (1st) day of the related Applicable Interest Period; provided , however , that, at any time that the Applicable Prime Rate is the Applicable Index Rate, Applicable Interest Rate Determination Date means the date of any change in the Base Rate Index; and provided , further , that, at any time the Libor Rate Index is adjusted as set forth in the definition thereof, the Applicable Interest Rate Determination Date shall mean the date of such adjustment or the second (2nd) Business Day prior to the first (1st) day of the related Applicable Interest Period, as elected by Agent.

“ Applicable Libor Rate ” means, for any Applicable Interest Period, the rate per annum, determined by Agent (rounded upwards, if necessary, to the next 1/100th%), equal to the greater of (a) the Applicable Floor and (b) the Libor Rate Index.

“ Applicable Margin ” for each Credit Facility has the meaning specified for that Credit Facility in the Credit Facility Schedule.

“ Applicable Prepayment Fee ”, for each Credit Facility, has the meaning given it in the Credit Facility Schedule for such Credit Facility.

“ Applicable Prime Rate ” means, for any Applicable Interest Period, the rate per annum, determined by Agent (rounded upwards, if necessary, to the next 1/100th%), equal to the greater of (a) the Applicable Floor and (b) the Base Rate Index.

“ Approved Fund ” means any (a) investment company, fund, trust, securitization vehicle or conduit that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the Ordinary Course of Business, or (b) any Person (other than a natural person) which temporarily warehouses loans for any Lender or any entity described in the preceding clause (a) and that, with respect to each of the preceding clauses (a) and (b), is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) a Person (other than a natural person) or an Affiliate of a Person (other than a natural person) that administers or manages a Lender.

“ Base Rate Index ” means, for any Applicable Interest Period, the rate per annum, determined by Agent (rounded upwards, if necessary, to the next 1/100th%) as being the rate of interest announced, from time to time, within Wells Fargo Bank, N.A. (“ Wells Fargo ”) at its principal office in San Francisco as its “prime rate,” with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo may designate; provided , however , that Agent may, upon prior written notice to any Borrower, choose a reasonably comparable index or source to use as the basis for the Base Rate Index.

“ Blocked Person ” means: (a) any Person listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (b) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, Executive Order No. 13224, (c) a Person with whom any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law, (d) a Person that commits, threatens or conspires to commit or supports “terrorism” as defined in Executive Order No. 13224, or (e) a Person that is named a “specially designated national” or “blocked person” on the most current list published by OFAC or other similar list.

“ Books ” means all books and records of a Person, including ledgers, federal and state tax returns, records regarding the Person’s assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

“ Borrowers ” has the meaning given it in the preamble. The term “each Borrower” shall refer to each Person comprising the Borrower if there is more than one (1) such Person, or the sole Borrower if there is only one (1) such Person. The term “any Borrower” shall refer to any Person comprising the Borrower if there is more than one (1) such Person, or the sole Borrower if there is only one (1) such Person.

“ Business Day ” means any day that is not (a) a Saturday or Sunday or (b) a day on which Agent is closed.

“ Change in Control ” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of Parent, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Parent, representing fifty percent (50%) or more of the combined voting power of Parent’s then outstanding equity securities; provided that a sale of Parent’s equity securities in a public offering or to venture capital or private equity investors shall not constitute a “Change in Control” if (i) Borrower identifies to Agent the proposed purchasers at least five (5) Business Days prior to the closing of the transaction and provides to Agent a description of the material terms of the transaction and (ii) Agent provides it written consent prior to the consummation of such sale (such consent not to be unreasonably withheld); (b) Parent ceases to own and control, directly or indirectly, all of the economic and voting rights associated with the outstanding securities of each of its Subsidiaries; (c) the occurrence of any “change in control” or any term or provision of similar effect under any Subordinated Debt Document or any Credit Party’s Operating Documents; or (d) any Credit Party ceases to own and control, directly or indirectly, all of the economic and voting rights associated with the outstanding securities of each of its Subsidiaries.

“ Closing Date ” has the meaning given it in the preamble of this Agreement.

“ Code ” means the Uniform Commercial Code in effect on the date hereof, as the same may, from time to time, be enacted and in effect in the State of New York; provided, however , that to the extent that the Code is used to define any term herein or in any Financing Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; and provided, further , that in the event that, by reason of mandatory provisions of Law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Agent’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of New York, the term “ Code ” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

“ Collateral ” means all property, now existing or hereafter acquired, mortgaged or pledged to, or purported to be subjected to a Lien in favor of, Agent, for the benefit of Agent and the Lenders, pursuant to this Agreement and the other Financing Documents, including, without limitation, all of the property described in Exhibit A hereto.

“ Collateral Account ” means any Deposit Account, Securities Account or Commodity Account.

“ Commitment Commencement Date ” has the meaning given it in the Credit Facility Schedule.

“ Commitment Termination Date ” has the meaning given it in the Credit Facility Schedule.

“ Commodity Account ” means any “commodity account”, as defined in the Code, with such additions to such term as may hereafter be made.

“ Companies Act ” means the Companies Act 2006, enacted in the United Kingdom.

“ Compliance Certificate ” means a certificate, duly executed by an authorized officer of Borrower, appropriately completed and substantially in the form of Exhibit B .

“ Contingent Obligation ” means, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co‑made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the Ordinary Course of Business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

“ Control Agreement ” means any control agreement, each of which shall be in form and substance satisfactory to Agent, entered into among the depository institution at which a Credit Party maintains a Deposit Account or the securities intermediary or commodity intermediary at which Credit Party maintains a Securities Account or a Commodity Account, such Credit Party, and Agent pursuant to which Agent obtains control (within the meaning of the Code) for the benefit of the Lenders over such Deposit Account, Securities Account or Commodity Account.

“ Credit Extension ” means an advance or disbursement of proceeds to or for the account of Borrower in respect of a Credit Facility.

“ Credit Extension Form ” means that certain form attached hereto as Exhibit C , as the same may be from time to time revised by Agent.

“ Credit Facility ” means a term loan credit facility specified on the Credit Facility Schedule.

“ Credit Facility Schedule ” means each “Credit Facility Schedule” attached to this Agreement.

“ Credit Party ” means any Borrower, any Guarantor under a guarantee of the Obligations or any part thereof, and any other Person (other than Agent, a Lender or a participant of a Lender), whether now existing or hereafter acquired or formed, that becomes obligated as a borrower, guarantor, surety, indemnitor, pledgor, assignor or other obligor under any Financing Document; and “ Credit Parties ” means all such Persons, collectively.

“ DARA Therapeutics ” has the meaning given it in the preamble of this Agreement.

“ DEA ” means the Drug Enforcement Administration of the United States of America, any comparable state or local Government Authority, any comparable Government Authority in any non-United States jurisdiction, and any successor agency of any of the foregoing.

“ Default ” means any fact, event or circumstance which with notice or passage of time or both, could constitute an Event of Default.

“ Default Rate ” has the meaning given it in Section 2.6(b).

“ Deposit Account ” means any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.

“ Deposit Account Transition Period ” means the period beginning on the Closing Date and ending on the earlier to occur of (a) one hundred twenty (120) days following the Closing Date (or such later date as Agent may agree in writing) and (b) the date on which Borrowers have satisfied the requirements of paragraph 1 of Post-Closing Obligations Schedule.

“ Designated Funding Account ” is Borrower’s Deposit Account, account number ******, maintained with Silicon Valley Bank and over which Agent has been granted control for the ratable benefit of all Lenders.

“ Dollars , ” “ dollars ” and “ $ ” each means lawful money of the United States.

“ Draw Period ” means, for each Credit Facility, the period commencing on the Commitment Commencement Date and ending on the Commitment Termination Date.

“ Drug Application ” means a new drug application, an abbreviated drug application, or a product license application for any Product, as appropriate, as those terms are defined in the FDCA.

“ Eligible Assignee ” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, and (d) any other Person (other than a natural person) approved by Agent; provided, however , that notwithstanding the foregoing, “Eligible Assignee” shall not include any Credit Party or any Subsidiary of a Credit Party. Notwithstanding the foregoing, in connection with assignments by a Lender due to a forced divestiture at the request of any regulatory agency, the restrictions set forth herein shall not apply and Eligible Assignee shall mean any Person or party becoming an assignee incident to such forced divestiture.

“ Environmental Law ” means each present and future law (statutory or common), ordinance, treaty, rule, regulation, order, policy, other legal requirement or determination of an arbitrator or of a Governmental Authority and/or Required Permits imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the workplace, the environment and natural resources, and including public notification requirements and environmental transfer of ownership, notification or approval statutes.

“ Equipment ” means all “equipment”, as defined in the Code, with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, and all regulations promulgated thereunder.

“ ERISA Affiliate ” has the meaning given it in Section 5.7.

“ Event of Default ” has the meaning given it in Section 10.1.

“ Excluded Accounts ” means (a) Payroll Accounts and (b) during the Deposit Account Transition Period, the First Citizens Deposit Accounts.

“ Excluded Taxes ” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Credit Extension or Applicable Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Credit Extension or Applicable Commitment or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.6(h)(i) or 2.6(h)(iii), amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Sections 2.6(h)(vi) and (vii) and (d) any U.S. federal withholding Taxes imposed under FATCA.

“ Exigent Circumstance ” has the meaning given it in Section 13.14.

“ FATCA ” means Sections 1471 through 1474 of the IRC, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the IRC.

“ FDA ” means the Food and Drug Administration of the United States of America, any comparable state or local Government Authority, any comparable Government Authority in any non-United States jurisdiction, and any successor agency of any of the foregoing.

“ FDCA ” means the Federal Food, Drug and Cosmetic Act, as amended, 21 U.S.C. Section 301 et seq., and all regulations promulgated thereunder.

“ Federal Funds Rate ” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Agent on such day on such transactions as determined by Agent in a commercially reasonable manner.

“ Fee Letters ” means, collectively, the fee letter agreements among either the Credit Parties and Agent or the Credit Parties and each Lender.

“ Financing Documents ” means, collectively, this Agreement, the Perfection Certificate, the Security Documents, each Subordination Agreement and any subordination or intercreditor agreement pursuant to which any Indebtedness and/or any Liens securing such Indebtedness is subordinated to all or any portion of the Obligations, the Fee Letter(s), each note and guarantee executed by one (1) or more Credit Parties in connection with the indebtedness governed by this Agreement, and each other present or future agreement executed by one (1) or more Credit Parties and, or for the benefit of, the Lenders and/or Agent in connection with this Agreement, all as amended, restated, or otherwise modified from time to time.

“ First Citizens Deposit Accounts ” means, collectively, the Deposit Accounts of the Credit Parties maintained First Citizens Bank with account numbers *****, ***** and *****.

“ Fiscal Quarter ” means a fiscal quarter of Credit Parties, ending on March 31, June 30, September 30 and December 31 of each calendar year.

“ Fiscal Year ” means a fiscal year of Credit Parties, ending on December 31 of each calendar year.

“ Foreign Lender ” means a Lender that is not a U.S. Person.

“ Funding Date ” means any date on which a Credit Extension is made to or on account of Borrower which shall be a Business Day.

“ General Intangibles ” means all “general intangibles”, as defined in the Code, with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable Law, any applications therefor, whether registered or not, any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including, without limitation, key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

“ Gelclair Distribution Agreement ” means that certain Distribution and License Agreement for Gelclair, dated as of September 7, 2012, between Helsinn Healthcare SA (“ HHC ”) and Midatech US as amended, supplemented or otherwise modified from time to time prior to the Closing Date and as further amended, supplemented or otherwise modified from time to after the Closing Date in accordance with the terms of the Financing Documents.

“ Governmental Authority ” means any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

“ Guarantor ” means each Person that is or hereafter becomes a party to this Agreement as a guarantor of the Obligations.

“ Hazardous Materials ” means petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives, flammable materials; radioactive materials; polychlorinated biphenyls and compounds containing them; lead and lead-based paint; asbestos or asbestos-containing materials; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which is prohibited by any Laws; toxic mold, any substance that requires special handling; and any other material or substance now or in the future defined as a “hazardous substance,” “hazardous material,” “hazardous waste,” “toxic substance,” “toxic pollutant,” “contaminant,” “pollutant” or other words of similar import within the meaning of any Environmental Law, including: (a) any “hazardous substance” defined as such in (or for purposes of) CERCLA, or any so-called “superfund” or “superlien” Law, including the judicial interpretation thereof; (b) any “pollutant or contaminant” as defined in 42 U.S.C.A. § 9601(33); (c) any material now defined as “hazardous waste” pursuant to 40 C.F.R. Part 260; (d) any petroleum or petroleum by-products, including crude oil or any fraction thereof; (e) natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel; (f) any “hazardous chemical” as defined pursuant to 29 C.F.R. Part 1910; (g) any toxic or harmful substances, wastes, materials, pollutants or contaminants (including, without limitation, asbestos, polychlorinated biphenyls, flammable explosives, radioactive materials, infectious substances, materials containing lead-based paint or raw materials which include hazardous constituents); and (h) any other toxic substance or contaminant that is subject to any Environmental Laws or other past or present requirement of any Governmental Authority.

“ Hazardous Materials Contamination ” means contamination (whether now existing or hereafter occurring) of the improvements, buildings, facilities, personalty, soil, groundwater, air or other elements on or of the relevant property by Hazardous Materials, or any derivatives thereof, or on or of any other property as a result of Hazardous Materials, or any derivatives thereof, generated on, emanating from or disposed of in connection with the relevant property.

“ ICS Location ” means the premises occupied by Integrated Commercialization Solutions, Inc. of 3101 Gaylord Parkway, Frisco, Texas 75034 USA where Borrowers are storing certain of their Inventory.

“ IFRS ” means the International Financial Reporting Standards, which are the standards issued by the International Accounting Standards Board together with the interpretations issued by the International Financial Reporting Interpretations Committee of the International Accounting Standards Board (as amended, supplemented or re-issued from time to time), applied on a consistent basis both as to classification of items and amounts.

“ Indebtedness ” means (a) indebtedness for borrowed money (including the Obligations) or the deferred price of, or payment for, property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, (d) non-contingent obligations of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit, banker’s acceptance or similar instrument, (e) equity securities of such Person subject to repurchase or redemption other than at the sole option of such Person, (f) obligations secured by a Lien on any asset of such Person, whether or not such obligation is otherwise an obligation of such Person, (g) “earnouts”, purchase price adjustments, profit sharing arrangements, deferred purchase money amounts and similar payment obligations or continuing obligations of any nature of such Person arising out of purchase and sale contracts, (h) all Indebtedness of others guaranteed by such Person, (i) off-balance sheet liabilities and/or pension plan or multiemployer plan liabilities of such Person, and (j) Contingent Obligations.

“ Indemnified Liabilities ” has the meaning given it in Section 14.8.

“ Indemnified Taxes ” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of Borrower under this Agreement and (b) to the extent not otherwise described in (a), Other Taxes.

“ Indemnitees ” has the meaning given it in Section 13.2(b).

“ Insolvency Act ” means the Insolvency Act 1986, enacted in the United Kingdom.

“ Insolvency Proceeding ” means any proceeding by or against any Person under the United States Bankruptcy Code, the Insolvency Act, or any other bankruptcy or insolvency Law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief, or any corporate action, legal proceeding of other procedure or step being taken in relation to: (i) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration or reorganization (by way of voluntary arrangement, scheme of arrangement or otherwise); (ii) a composition, compromise, assignment or arrangement with any creditor; (iii) the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer; (iv) enforcement of any security over any assets; or (v) any analogous procedure or step taken in any jurisdiction.

“ Intellectual Property ” means all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, patent applications and like protections, including improvements, divisions, continuations, renewals, reissues, extensions, and continuations-in-part of the same, trademarks, trade names, service marks, mask works, rights of use of any name, domain names, or any other similar rights, any applications therefor, whether registered or not, know-how, operating manuals, trade secret rights, clinical and non-clinical data, rights to unpatented inventions, and any claims for damage by way of any past, present, or future infringement of any of the foregoing.

“ Inventory ” means all “inventory”, as defined in the Code, with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of any Credit Party’s custody or possession or in transit and including any returned goods and any documents of title representing any of the above.

“ Investment ” means, with respect to any Person, directly or indirectly, (a) to purchase or acquire any stock or stock equivalents, or any obligations or other securities of, or any interest in, any Person, including the establishment or creation of a Subsidiary, (b) to make or commit to make any acquisition (including through licensing) of (i) of all or substantially all of the assets of another Person, or (ii) any business, Product, business line or product line, division or other unit operation of any Person or (c) to make or purchase any advance, loan, extension of credit or capital contribution to, or any other investment in, any Person.

“ IP Security Agreement ” means any security agreement executed by a Credit Party that grants (or is prepared as a notice filing or recording with respect to) a Lien or security interest in favor of Agent and/or Lenders on Intellectual Property, each as amended, restated, or otherwise modified from time to time.

“ IRC ” means the Internal Revenue Code of 1986, as amended, and any successor provisions.

“ IRS ” means the United States Internal Revenue Service.

“ Joinder Requirements ” has the meaning given it in Section 6.8.

“ Key Persons ” means the chief executive officer and the chief financial officer of Parent as of the Closing Date.

“ Laws ” means any and all federal, state, provincial, territorial, local and foreign statutes, laws, judicial decisions, regulations, guidance, guidelines, ordinances, rules, judgments, orders, decrees, codes, plans, injunctions, permits, concessions, grants, franchises, governmental agreements and governmental restrictions, whether now or hereafter in effect, which are applicable to any Credit Party in any particular circumstance.

“ Lenders ” means each of the Persons identified on the Credit Facility Schedule as amended from time to time to reflect assignments made in accordance with this Agreement.

“ Libor Rate Index ” means, for any Applicable Interest Period, the rate per annum, determined by Agent (rounded upwards, if necessary, to the next 1/100th%) by dividing (a) the rate per annum, determined by Agent in accordance with its customary procedures, and utilizing such electronic or other quotation sources as it considers appropriate (rounded upwards, if necessary, to the next 1/100%), to be the rate at which Dollar deposits (for delivery on the first (1st) day of such Applicable Interest Period or, if such day is not a Business Day, on the preceding Business Day) in the amount of One Million Dollars ($1,000,000) are offered to major banks in the London interbank market on or about 11:00 a.m. (London time) on the Applicable Interest Rate Determination Date, for a period of thirty (30) days, which determination shall be conclusive in the absence of manifest error, by (b) one hundred percent (100%) minus the Reserve Percentage; provided , however , that Agent may, upon prior written notice to any Borrower, choose a reasonably comparable index or source to use as the basis for the Libor Rate Index. The Libor Rate Index may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of maintaining or obtaining any eurodollar deposits or increased costs, in each case, due to changes in applicable Law occurring subsequent to the commencement of the then Applicable Interest Period, including changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve System (or any successor), which additional or increased costs would increase the cost of funding loans bearing interest based upon the Libor Rate Index; provided , however , that notwithstanding anything in this Agreement to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “change in applicable Law”, regardless of the date enacted, adopted or issued. In any such event, the affected Lender shall give Borrower and Agent notice of such a determination and adjustment and Agent promptly shall transmit the notice to each other Lender and, upon its receipt of the notice from the affected Lender, Borrower may, by notice to such affected Lender require such Lender to furnish to Borrower a statement setting forth the basis for adjusting such Libor Rate Index and the method for determining the amount of such adjustment.

“ Lien ” means a claim, mortgage, deed of trust, lien, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of Law or otherwise against any property.

“ Margin Stock ” means “margin stock” as such term is defined in Regulation T, U, or X of the Board of Governors of the Federal Reserve System.

“ Material Adverse Change ” means (a) a material impairment in the perfection or priority of Agent’s Lien (or any Lender’s Lien therein to the extent provided for in the Financing Documents) in the Collateral; (b) a material impairment in the value of any material Collateral; (c) a material adverse change in the business, operations, or condition (financial or otherwise) of the Credit Parties (taken as a whole) or the Credit Parties and their Subsidiaries (taken as a whole); or (d) a material impairment of the prospect of repayment of any portion of the Obligations.

“ Material Agreement ” means (a) the agreements listed in the Disclosure Schedule , (b) each agreement or contract to which a Credit Party or any Subsidiary thereof is a party relating to Material Intangible Assets or Material Products or Intellectual Property, (c) any agreement with respect to any Material Product, the loss of which would materially impair a Credit Party’s (or any Subsidiary’s) ability to sell or market such Material Product, and (d) any agreement or contract to which such Credit Party or its Subsidiaries is a party the termination of which would reasonably be expected to result in a Material Adverse Change.

“ Material Indebtedness ” has the meaning given it in Section 10.1(e).

“ Material Intangible Assets ” means (a) all of the Credit Parties’ Intellectual Property and (b) each license or sublicense agreements or other agreements with respect to rights in Intellectual Property, that, in the case of each of clauses (a) and (b), is material to the condition (financial or other), business or operations of the Credit Parties, as determined by Agent.

“ Material Product ” means any Product that accounts for, directly or indirectly, annual Net Revenue of the Credit Parties in excess of $500,000.

“ Maturity Date ” means December 1, 2021.

“ Maximum Lawful Rate ” has the meaning given it in Section 2.6(g).

“ Midatech US ” has the meaning given it in the preamble of this Agreement.

“ Midatech Limited ” has the meaning given it in the preamble of this Agreement.

“ Midatech Wales ” has the meaning given it in the preamble of this Agreement.

“ MidCap ” has the meaning given it in the preamble of this Agreement.

“ Multiemployer Plan ” means any employee benefit plan of the type described in Section 4001(a)(3) or ERISA, to which any Credit Party or any ERISA Affiliate has at any time (whether presently or in the past) sponsored, maintained, contributed to, or had an obligation to make contributions to or to which any Credit Party or any ERISA Affiliate has any liability, contingent or otherwise.

“ Net Revenue ” means, for any period, Borrowers (a) gross revenues generated solely through the commercial sale of Products by the Borrowers during such period, less (b)(i) trade, quantity and cash discounts allowed by the Borrowers, (ii) discounts, refunds, rebates, charge backs, retroactive price adjustments and any other allowances which effectively reduce net selling price, (iii) product returns and allowances, (iv) allowances for shipping or other distribution expenses, (iv) set-offs and counterclaims, and (v) any other similar and customary deductions used by the Borrowers in determining net revenues, all, in respect of (a) and (b), as determined in accordance with IFRS and in the Ordinary Course of Business.

“ Non-U.S. Credit Party ” means each Credit Party that is incorporated in a jurisdiction other than the United States or any state thereof.

“ Obligations ” means all of Borrower’s obligations to pay when due any debts, principal, interest, Protective Advances, fees, indemnities and other amounts Borrower owes Agent or the Lenders now or later, under this Agreement or the other Financing Documents, including, without limitation, interest accruing after Insolvency Proceedings begin (whether or not allowed) and debts, liabilities, or obligations of Borrower assigned to the Lenders and/or Agent, and the payment and performance of each other Credit Party’s covenants and obligations under the Financing Documents. “Obligations” does not include obligations under any warrants issued to Agent or a Lender by the Parent.

“ OFAC ” means the U.S. Department of Treasury Office of Foreign Assets Control.

“ OFAC Lists ” means, collectively, the Specially Designated Nationals and Blocked Persons List maintained by OFAC pursuant to Executive Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) and/or any other list of terrorists or other restricted Persons maintained pursuant to any of the rules and regulations of OFAC or pursuant to any other applicable Executive Orders.

“ Operating Documents ” means, for any Person, such Person’s formation documents, as certified with the Secretary of State of such Person’s state of formation on a date that is no earlier than thirty (30) days prior to the Closing Date, and (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

“ Ordinary Course of Business ” means, in respect of any transaction involving any Credit Party, the ordinary course of business of such Credit Party, as conducted by such Credit Party in accordance with past practices or then current business practices set forth in the most recent operating plan of the Credit Parties to the extent approved by Agent, which shall in any event be at arms-length.

“ Other Connection Taxes ” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced this Agreement, or sold or assigned an interest in any Obligation hereunder).

“ Other Currency ” has the meaning given it in Section 13.19.

“ Other Tax Certification ” means such certification or evidence, in each case in form and substance satisfactory to Borrower and Agent, that any Lender or prospective Lender is exempt from, or eligible for a reduction in, U.S. federal withholding tax or backup withholding tax, including evidence supporting the basis for such exemption or reduction.

“ Other Taxes ” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, this Agreement, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment.

“ Parent ” has the meaning given it in the preamble of this Agreement.

“ Participant Register ” has the meaning given it in Section 13.1(c).

“ Payment Date ” means the first (1st) calendar day of each calendar month.

“ Payroll Account ” means deposit accounts of the Credit Parties exclusively used for payroll, payroll taxes and, in Agent’s discretion, other employee wage and benefit payments to or for the benefit of a Credit Party’s or Subsidiary’s employees and identified to Agent by such Credit Party as such.

“ PBGC ” means the Pension Benefit Guaranty Corporation, or any successor entity thereto.

“ Pensions Act ” means the Pensions Act 2004, enacted in the United Kingdom.

“ Pension Plan ” means any employee benefit pension plan that is subject to the minimum funding standards under Section 412 of the Code or is covered by Title IV of ERISA (including a Multiemployer Plan) that any Credit Party or any ERISA Affiliate has, at any time (whether presently or in the past) sponsored, maintained, contributed to, or had an obligation to make contributions to or to which any Credit Party or any ERISA Affiliate has any liability (contingent or otherwise).

“ Pension Schemes Act ” means the Pension Schemes Act 1993, enacted in the United Kingdom.

“ Perfection Certificate ” means the Perfection Certificate delivered to Agent as of the Closing Date, together with any amendments thereto required under this Agreement.

“ Permitted Contest ” means a contest maintained in good faith by appropriate proceedings promptly instituted and diligently conducted and with respect to which such reserve or other appropriate provision, if any, as shall be required in conformity with IFRS shall have been made; provided that compliance with the obligation that is the subject of such contest is effectively stayed during such challenge.

“ Permitted Contingent Obligations ” means (a) Contingent Obligations resulting from endorsements for collection or deposit in the Ordinary Course of Business; (b) Contingent Obligations incurred in the Ordinary Course of Business with respect to surety and appeal bonds, performance bonds and other similar obligations not to exceed Twenty-Five Thousand Dollars ($25,000) in the aggregate at any time outstanding; (c) Contingent Obligations arising under indemnity agreements with title insurers; (d) Contingent Obligations arising with respect to customary indemnification obligations in favor of purchasers in connection with dispositions of personal property assets permitted under Article 7; (e) Contingent Obligations arising under the Financing Documents; (f) so long as there exists no Event of Default both immediately before and immediately after giving effect to any such transaction, Contingent Obligations existing or arising under any swap contract, provided , however , that such obligations are (or were) entered into by Borrower or an Affiliate in the Ordinary Course of Business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person and not for purposes of speculation; (g) Contingent Obligations existing or arising in connection with any security deposit or letter of credit obtained for the sole purpose of securing a lease of real property, or in connection with ancillary bank services such as a corporate credit card facility, provided that the aggregate face amount of all such security deposits, letters of credit and ancillary bank services does not at any time exceed One Hundred Thousand Dollars ($100,000); and (h) other Contingent Obligations not permitted by clauses (a) through (g) above, not to exceed Twenty Five Thousand Dollars ($25,000) in the aggregate at any time outstanding.

“ Permitted Indebtedness ” means: (a) Borrower’s Indebtedness to the Lenders and Agent under this Agreement and the other Financing Documents; (b) Indebtedness existing on the Closing Date and described on the Disclosure Schedule ; (c) Indebtedness secured by Liens permitted pursuant to clause (b) of the definition of “Permitted Liens”; (d) Subordinated Debt; (e) unsecured Indebtedness to trade creditors incurred in the Ordinary Course of Business; (f) Permitted Contingent Obligations; (g) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness set forth in (b) and (c) above, provided, however , that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon the obligors thereunder; (h) Indebtedness consisting of intercompany loans and advances made by any Credit Party to any other Credit Party, provided that the obligations of the Credit Parties under such intercompany loan shall be subordinated at all times to the Obligations of the Credit Parties hereunder or under the other Financing Documents in a manner satisfactory to Agent; (i) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business; (j) unsecured Indebtedness of Midatech Pharma Espana SL, payable to third parties, in the amounts and on the terms and conditions set forth in the documentation delivered by the Credit Parties to Agent prior to the Closing Date (without giving effect to any subsequent amendments, renewals, extensions, modifications or supplements thereto); and (k) other unsecured Indebtedness of the Credit Parties not to exceed $150,000 in the aggregate at any time.

“ Permitted Investments ” means: (a) Investments existing on the Closing Date and described on the Disclosure Schedule ; (b) Investments consisting of cash equivalents; (c) any Investments in liquid assets permitted by Borrower’s investment policy, as amended from time to time, provided that such investment policy (and any such amendment thereto) has been approved in writing by Agent ( provided that, under no circumstances shall Borrower be permitted to invest in or hold Margin Stock); (d) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of any Credit Party; (e) Investments consisting of deposit accounts or securities accounts in which Agent has a first priority perfected security interest except as otherwise provided by Section 6.6; (f) if no Event of Default has occurred and is continuing, Investments consisting solely of cash and cash equivalents in a Restricted Foreign Subsidiary solely to the extent that (i) the aggregate amount of such Investments with respect to all Restricted Foreign Subsidiaries does not, at any time, exceed $1,000,000 in any twelve (12) month period and (ii) the aggregate amount of such Investments made in any particular Restricted Foreign Subsidiary does not, at any time, exceed the amount necessary to fund the current and three months’ forward operation of such Restricted Foreign Subsidiary (taking into account their revenue from other sources); (g) Investments by any Credit Party in any Subsidiary now owned or hereafter created by such Credit Party, which Subsidiary (x) is a Borrower or (y) has provided a Guarantee of the Obligations of the Borrowers which Guarantee is secured by a Lien granted by such Subsidiary to Agent in all or substantially all of its property of the type described on Exhibit A hereto and otherwise made in compliance with Section 6.8; (h) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the Ordinary Course of Business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower’s board of directors; (i) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the Ordinary Course of Business; and (j) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates of the relevant Credit Party, in the ordinary course of business; provided that this paragraph (j) shall not apply to Investments of any Credit Party in any Subsidiary.

“ Permitted License ” means any non-exclusive license of patent rights of Borrower or its Subsidiaries so long as all such Permitted Licenses are granted to third parties in the Ordinary Course of Business, do not result in a legal transfer of title to the licensed property, and have been granted in exchange for fair consideration.

“ Permitted Liens ” means: (a) Liens existing on the Closing Date and shown on the Disclosure Schedule or arising under this Agreement and the other Financing Documents; (b) purchase money Liens or capital leases securing no more than One Hundred and Fifty Thousand Dollars ($150,000.00) in the aggregate amount outstanding (i) on Equipment acquired or held by a Credit Party incurred for financing the acquisition of the Equipment, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; (c) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or subject to a Permitted Contest, provided that no notice of any such Lien has been filed or recorded under any applicable law in the United States, including, without limitation, the IRC and the treasury regulations adopted thereunder; (d) statutory Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other Persons imposed without action of such parties which either (x) arise in the ordinary course of business with respect to obligations that are not due or (y) are being contested pursuant to a Permitted Contest; (e) leases or subleases of real property granted in the Ordinary Course of Business, and leases, subleases, non-exclusive licenses or sublicenses of property (other than real property or Intellectual Property) granted in the Ordinary Course of Business, if the leases, subleases, licenses and sublicenses do not prohibit granting Agent a security interest; (f) banker’s liens, rights of set-off and Liens in favor of financial institutions incurred made in the Ordinary Course of Business arising in connection with a Credit Party’s Collateral Accounts provided that such Collateral Accounts are subject to a Control Agreement to the extent required hereunder; (g) Liens to secure payment of workers’ compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the Ordinary Course of Business (other than Liens imposed by ERISA); (h) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default; (i) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and similar charges or encumbrances affecting real property not constituting a Material Adverse Change; and (j) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) and (b) above, but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness may not increase.

“ Person ” means any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

“ Pledge Agreement ” means that certain New York law governed Pledge Agreement, dated as of the date hereof, executed by certain Credit Parties in favor of Agent, for the benefit of Lenders, covering all the equity interests respectively owned by the Credit Parties, as amended, restated, or otherwise modified from time to time.

“ Pro Rata Share ” means, as determined by Agent, with respect to each Credit Facility and Lender holding an Applicable Commitment or Credit Extensions in respect of such Credit Facility, a percentage (expressed as a decimal, rounded to the ninth decimal place) determined by dividing (a) in the case of fully-funded Credit Facilities, the amount of Credit Extensions held by such Lender in such Credit Facility by the aggregate amount of all outstanding Credit Extensions for such Credit Facility, and (b) in the case of Credit Facilities that are not fully-funded, the amount of Credit Extensions and unfunded Applicable Commitments held by such Lender in such Credit Facility by the aggregate amount of all outstanding Credit Extensions and unfunded Applicable Commitments for such Credit Facility.

“ Process Agent ” has the meaning set forth in Section 13.19.

“ Products ” means any products manufactured, sold, developed, tested or marketed by any Credit Party or any of its Subsidiaries, including without limitation, those products set forth on the Products Schedule (as updated from time to time in accordance with Section 6.16); provided that, for the avoidance of doubt, any new Product not disclosed on the Products Schedule shall still constitute a “Product” as herein defined.

“ Protective Advances ” means all audit fees and expenses, costs, and expenses (including reasonable attorneys’ fees and expenses) of Agent and the Lenders for preparing, amending, negotiating, administering, defending and enforcing the Financing Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred by Agent or the Lenders in connection with the Financing Documents.

“ Recipient ” means Agent and any Lender, as applicable.

“ Register ” has the meaning given it in Section 13.1(c).

“ Registered Intellectual Property ” means any patent, registered trademark or servicemark, registered copyright, registered mask work, or any pending application for any of the foregoing.

“ Registered Organization ” means any “registered organization” as defined in the Code, with such additions to such term as may hereafter be made.

“ Regulatory Reporting Event ” has the meaning given it in Section 6.16(a).

“ Regulatory Required Permit ” means any and all licenses, approvals and permits issued by the FDA, DEA or any other applicable Governmental Authority (including any foreign Governmental Authority), including without limitation Drug Applications, necessary for the testing, manufacture, marketing or sale of any Product by any applicable Credit Party and its Subsidiaries as such activities are being conducted by such Credit Party and its Subsidiaries with respect to such Product at such time and any drug listings and drug establishment registrations under 21 U.S.C. Section 510, registrations issued by DEA under 21 U.S.C. Section 823 (if applicable to any Product), and those issued by State governments or foreign governments for the conduct of such Credit Party’s or any Subsidiary’s business.

“ Required Lenders ” means, unless all of the Lenders and Agent agree otherwise in writing, Lenders having (a) more than sixty percent (60%) of the Applicable Commitments of all Lenders, or (b) if such Applicable Commitments have expired or been terminated, more than sixty percent (60%) of the aggregate outstanding principal amount of the Credit Extensions.

“ Required Permit ” means all licenses, certificates, accreditations, product clearances or approvals, provider numbers or provider authorizations, supplier numbers, provider numbers, marketing authorizations, other authorizations, registrations, permits, consents and approvals of a Credit Party issued or required under Laws applicable to the business of any Credit Party or any of its Subsidiaries or necessary in the manufacturing, importing, exporting, possession, ownership, warehousing, marketing, promoting, sale, labeling, furnishing, distribution or delivery of goods or services under Laws applicable to the business of any Credit Party or any of its Subsidiaries. Without limiting the generality of the foregoing, “ Required Permits ” includes any Regulatory Required Permit.

“ Reserve Percentage ” means, on any day, for any Lender, the maximum percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that are in effect on such date with respect to eurocurrency funding (currently referred to as “eurocurrency liabilities”) of that Lender, but so long as such Lender is not required or directed under applicable regulations to maintain such reserves, the Reserve Percentage shall be zero.

“ Resolutions ” means, with respect to any Person, those resolutions, in form and substance satisfactory to Agent, adopted by such Person’s Board of Directors or other appropriate governing body and delivered by such Person to Agent approving the Financing Documents to which such Person is a party and the transactions contemplated thereby, as well as any other approvals as may be necessary or desired to approve the entering into the Financing Documents or the consummation of the transactions contemplated thereby or in connection therewith.

“ Responsible Officer ” means any of the Chief Executive Officer or Chief Financial Officer of the Parent or other applicable Credit Party.

“ Restricted Foreign Subsidiary ” means (a) the Subsidiaries set forth on the Restricted Foreign Subsidiaries Schedule on the Closing Date, and (b) each other Subsidiary of Parent (other than the Credit Parties) not organized under the laws of the United States, England or Wales that Agent may agree (in its sole discretion) in writing from time to time after the Closing Date is not required to comply with the Joinder Requirements set forth in Section 6.8(a) and may be designated as an “Restricted Foreign Subsidiary” for purposes of this Agreement.

“ SEC ” has the meaning given it in Section 6.2(a).

“ Secretary’s Certificate ” means, with respect to any Person, a certificate, in form and substance satisfactory to Agent, executed by such Person’s secretary (or other appropriate officer acceptable to Agent in its sole but reasonable discretion) on behalf of such Person certifying (a) that such Person has the authority to execute, deliver, and perform its obligations under each of the Financing Documents to which it is a party, (b) that attached to such certificate is a true, correct, and complete copy of the Resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Financing Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Financing Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), (d) that attached to such certificate are true, correct, and complete copies of the Operating Documents of such Credit Party and good standing certificates of such Credit Party certified by the Secretary of State of the state(s) of organization of such Credit Party as of a date no earlier than thirty (30) days prior to the Closing Date, (e) that attached to such certificate is true, correct, and complete copy of the Credit Party’s Registration Rights Agreement/Investors’ Rights Agreement, voting agreements or other agreements among shareholders and any amendments to the foregoing; and (f) that Agent and the Lenders may conclusively rely on such certificate unless and until such Person shall have delivered to Agent a further certificate canceling or amending such prior certificate.

“ Secured Promissory Note ” has the meaning given it in Section 2.7.

“ Securities Account ” means any “securities account”, as defined in the Code, with such additions to such term as may hereafter be made.

“ Security Agent ” has the meaning given to it in the UK Security Documents.

“ Security Documents ” means, collectively, the UK Security Documents, the Pledge Agreement, each IP Security Agreement, each Control Agreement, and each other agreement, document or instrument executed concurrently herewith or at any time hereafter pursuant to which one (1) or more Credit Parties or any other Person provides, as security for all or any portion of the Obligations, a Lien on any of its assets in favor of Agent for its own benefit and the benefit of the Lenders, as any or all of the same may be amended, supplemented, restated or otherwise modified from time to time.

“ Stated Rate ” has the meaning given it in Section 2.6(g).

“ Subordinated Debt ” means indebtedness incurred by any Credit Party which shall be (a) in an amount satisfactory to Agent, (b) made pursuant to documents in form and substance satisfactory to Agent (the “ Subordinated Debt Documents ”), and (c) subordinated to all of Credit Party’s now or hereafter indebtedness to Agent and the Lenders pursuant to a Subordination Agreement.

“ Subordination Agreement ” means a subordination, intercreditor, or other similar agreement in form and substance, and on terms, approved by Agent in writing.

“ Subsidiary ” means, with respect to any Person, any Person of which more than fifty percent (50.0%) of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled, directly or indirectly, by such Person. Unless the context otherwise requires, each reference to a Subsidiary shall be a reference to a Subsidiary of a Credit Party.

“ Taxes ” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“ Testing Date ” means each date identified as a “Testing Date” on the Minimum Net Revenue Schedule.

“ Transfer ” has the meaning given it in Section 7.1.

“ UK Credit Parties ” means, collectively, Parent, Midatech Limited, Midatech Wales, and each other Credit Party party hereto, from time to time, organized under the laws of England and Wales.

“ UK Debenture ” means the debenture dated on or about the Closing Date and entered into by each of Parent, Midatech Limited, and Midatech Wales in favor of the Security Agent.

“ UK Security Documents ” means (i) the UK Debenture and (ii) each other agreement, document or instrument executed concurrently herewith or at any time hereafter pursuant to which a Credit Party or any other Person organized in the United Kingdom provides, as security for all or any portion of the Obligations, a Lien on any of its assets in favor of Agent or Security Agent for its own benefit and the benefit of the Lenders, and in all cases, as the same may be amended, supplemented, restated or otherwise modified from time to time.

“ U.S. Credit Parties ” means each Credit Party that is incorporated in the United States or any state thereof.

“ U.S. Person ” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.

“ Withholding Agent ” means the Credit Parties and Agent.

“ Zuplenz License Agreement ” means that certain License and Supply Agreement, dated as of July 17, 2014, among Monosol RX, LLC and Parent (as successor to Galena Biopharma, Inc.), as the same has been amended, supplemented or otherwise modified from time to time, prior to the Closing Date.

[SIGNATURES APPEAR ON FOLLOWING PAGES]

IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be executed as of the Closing Date.

BORROWERS:

MIDATECH PHARMA PLC

By: /s/ James N. Phillips
Name: James N. Phillips
Title: Director

MIDATECH PHARMA US INC.

By: /s/ James N. Phillips
Name: James N. Phillips
Title: Director

DARA THERAPEUTICS INC.

By: /s/ James N. Phillips
Name: James N. Phillips
Title: Director

MIDATECH PHARMA (WALES) LIMITED

By: /s/ James N. Phillips
Name: James N. Phillips
Title: Director

MIDATECH LIMITED

By: /s/ James N. Phillips
Name: James N. Phillips
Title: Director

AGENT:

MIDCAP FINANCIAL TRUST

By: Apollo Capital Management, L.P.,

its investment manager

By: Apollo Capital Management GP, LLC,

its general partner

By: /s/ Maurice Amsellem
Name: Maurice Amsellem
Title: Authorized Signatory

LENDERS:

MIDCAP FUNDING I (IRELAND) LIMITED

By: Apollo Capital Management, L.P.,

its investment manager

By: Apollo Capital Management GP, LLC,

its general partner

By: /s/ Maurice Amsellem
Name: Maurice Amsellem
Title: Authorized Signatory

		Witness signature

……………………………..……………………………..		……………………………..……………………………..

Director, Midatech Pharma plc		Witness name

		……………………………..……………………………..

		and address

		……………………………..……………………………..

		……………………………..……………………………..

		……………………………..……………………………..

		Occupation:

		……………………………..……………………………..

……………………………..……………………………..

Director, RM2 Trustees Limited, Trustee

“Accumulation Period”	in relation to Partnership Shares, the period during which the Trustees accumulate a Qualifying Employee’s Partnership Share Money before acquiring Partnership Shares or repaying it to the employee

“Acquisition Date”	(a) in relation to Partnership Shares, where there is no Accumulation Period, the meaning given by paragraph 50(4) of the Schedule; and (b) in relation to Partnership Shares, where there is an Accumulation Period, the meaning given by paragraph 52(5) of the Schedule (c) in relation to Dividend Shares, the meaning given by paragraph 66(4) of the Schedule

“AIM”	the Alternative Investment Market

“Associated Company”	the same meaning as in paragraph 94 of the Schedule

“Award Date”	in relation to Free and Matching Shares, the date on which such Shares are awarded to Participants

“Award”	(a) in relation to Free and Matching Shares, the appropriation of Free and Matching Shares to Participants in accordance with the Plan; and (b) in relation to Partnership Shares and Dividend Shares, the acquisition of Partnership Shares and Dividend Shares on behalf of Qualifying Employees in accordance with the Plan

“Capital Receipt”	the same meaning as in section 502 of ITEPA 2003

“Close Company”	the same meaning as in section 989 of ITA 2007

“Company”	Midatech Pharma plc, CRN 09216368

“Connected Company”	the same meaning as in paragraph 18(3) of the Schedule

“Control”	the same meaning as in section 719 of ITEPA 2003

“CTA 2010”	the Corporation Tax Act 2010

“Dealing Day”	a day on which the Recognised Stock Exchange is open for the transaction of business

“Deed”	Trust Deed of The Midatech Pharma Share Incentive Plan

“Directors”	the board of directors of the Company (or a duly authorised committee)

“Dividend Shares”	Shares acquired on behalf of a Participant from reinvestment of dividends under Rule 8 of the Plan and which are subject to the Plan

“Forfeit”	the automatic transfer of the beneficial ownership of Free Shares or Matching Shares from a Participant to the Trustees for no consideration and the term “Forfeiture” shall be construed accordingly

“Free Share Agreement”	an agreement in the terms set out in Appendix B (and as amended by the Directors from time to time)

“Free Shares”	Shares awarded under Rule 5 of the Plan which are subject to the Plan

“Group Plan”	the Plan as established by Midatech Pharma plc and extending to its Subsidiaries which are Participating Companies

“Holding Period”	(a) in relation to Free Shares, the period specified by the Company as mentioned in Rule 5.12; (b) in relation to Matching Shares, the period specified by the Company as mentioned in Rule 7.5; and (c) in relation to Dividend Shares, the period of 3 years from the Acquisition Date

“Initial Market Value”	the Market Value of a Share on an Award Date. Where the Share is subject to a restriction or risk of Forfeiture, the Market Value shall be determined without reference to that restriction or risk

“ITA 2007”	the Income Tax Act 2007

“ITEPA 2003”	the Income Tax (Earnings and Pensions) Act 2003

“ITTOIA 2005”	the Income Tax (Trading and Other Income) Act 2005

“Market Value”	in relation to a Share on a given date: (a) if shares in the Company of the same class as the Shares are then quoted on a Recognised Stock Exchange or AIM and (i) all of the Shares in respect of which an Award is to be made are purchased in the market over 5 or fewer consecutive Dealing Days ending on the Award Date (or in the case of Partnership Shares and Dividend Shares, the Acquisition Date), the average of the prices at which such shares were so purchased (and for these purposes an Award of Matching Shares and the corresponding acquisition of Partnership Shares with which they are matched, shall be treated as one award of Shares); or (ii) if all the Shares are not so purchased, the closing quotation of a Share on such Recognised Stock Exchange or AIM on the Dealing Day immediately preceding the date of the Award; and (b) in any other case, determined in accordance with the provisions of Part VIII of the Taxation of Chargeable Gains Act 1992 and agreed for the purposes of the Plan with HM Revenue & Customs Shares and Assets Valuation on or before that day; PROVIDED that the market value of Shares subject to a restriction shall be determined as if they were not subject to the restriction

“Matching Shares”	Shares awarded under Rule 7 of the Plan and which are subject to the Plan

“NICs”	National Insurance Contributions

“Participant”	an individual who has received under the Plan an Award of Free Shares, Matching Shares or Partnership Shares, or on whose behalf Dividend Shares have been acquired

“Participating Company”	the Company and such of its Subsidiaries as have executed deeds of adherence to the Plan under Clause 16 of the Trust Deed

“Partnership Shares”	Shares awarded under Rule 6 of the Plan and which are subject to the Plan

“Partnership Share Agreement”	an agreement in the terms set out in Appendix A and entitled “Partnership Share Agreement” (and as amended by the Directors from time to time)

“Partnership Share Money”	money deducted from a Qualifying Employee’s Salary pursuant to a Partnership Share Agreement and held by the Trustees to acquire Partnership Shares or to be returned to such a person

“Performance Allowance”	the criteria for an Award of Free Shares where: (a) whether Shares are awarded; or (b) the number or value of Shares awarded is conditional on performance targets being met

“Plan”	The Midatech Pharma Share Incentive Plan

“Plan Shares”	(a) Free Shares, Matching Shares or Partnership Shares awarded to Participants; (b) Dividend Shares acquired on behalf of Participants; and (c) shares in relation to which paragraph 87(1) (consequences of company reconstructions) of the Schedule applies that remain subject to the Plan

“Plan Termination Notice”	a notice issued under paragraph 89 of the Schedule

“Qualifying Company”	the same meaning as in paragraph 17 of the Schedule

“Qualifying Corporate Bond”	the same meaning as in section 117 of the Taxation of Chargeable Gains Act 1992

“Qualifying Employee”	an employee who must be invited to participate in an award in accordance with Rule 3.3 and any employee who the Company has invited in accordance with Rule 3.4

“Qualifying Period”	(a) in the case of Free Shares such period as the Directors shall decide in relation to each Award, such period not exceeding 18 months ending with the date on which the Award is made (b) in the case of Partnership Shares and Matching Shares where there is an Accumulation Period such period as the Directors shall decide in relation to each Award, such period not exceeding 6 months ending with the start of the Accumulation Period (c) in the case of Partnership Shares and Matching Shares where there is no Accumulation Period, such period as the Directors shall decide in relation to each Award, such period not exceeding 18 months ending with the deduction of Partnership Share Money relating to the Award

“Qualifying Plan”	a Share Incentive Plan that meets and continues to meet the requirements of the Schedule

“Recognised Stock Exchange”	has the meaning given to it by section 1005 of ITA 2007

“Redundancy”	the same meaning as in the Employment Rights Act 1996

“Relevant Employment”	employment by the Company or any Associated Company

“Rules”	the rules of the Plan

“Salary”	the same meaning as in paragraph 43(4) of the Schedule

“Schedule”	Schedule 2 to ITEPA 2003

“Shares”	Ordinary Shares of £0.00005 each in the capital of the Company which comply with the conditions set out in paragraph 25 of the Schedule and which are subject to the rights and restrictions as set out in the Company’s Articles of Association.

“SIP”	a share incentive plan within the meaning of section 488(4) of ITEPA 2003

“Subsidiary”	any company which is for the time being under the Control of the Company

“Tax Year”	a year beginning on 6 April and ending on the following 5 April

“Trustees”	the Trustees or Trustee of the Plan, including a corporate Trustee

“Trustee Director”	a director or officer of a corporate Trustee

“Trust Fund”	all assets transferred to the Trustees to be held on the terms of the Trust Deed and the assets from time to time representing such assets, including any accumulations of income

“the Trust Period”	the period of 125 years beginning with the date of the Deed

Participant (“the Participant”) and	Full Name
	Home Address
	National Insurance Number (see payslip)
Midatech Pharma plc (“the Company”) and	Registered Address	65 Innovation Drive, Milton Park, Milton, Abingdon, Oxfordshire, OX14 4RQ
Midatech Pharma plc (“the Company”) and	Registered Number	09216368
RM2 Trustees Limited CRN 03363760 with registered office Sycamore House, 86-88 Coombe Road, New Malden, KT3 4QS (“the Trustees”)

[***]

[***]	Bonus Payment
[***]	£10,000
[***]	£25,000
[***]	£50,000
[***]	£100,000

[***]

…………………………………………
Signed by Dr James Phillips

…………………………………………
Date

Date: April 23, 2018		/s/ James N. Phillips
		James N. Phillips
		Chief Executive Officer

Date: April 23, 2018		/s/ Nicholas Robbins-Cherry
		Nicholas Robbins-Cherry
		Chief Financial Officer