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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

For The Fiscal Year Ended December 31, 2003.

For the transition period from              to             .

Commission File No. 0-14691

SENETEK PLC

(Exact Name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (707) 226-3900

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

AMERICAN DEPOSITARY SHARES

(each American Depositary share represents

1 Ordinary share, pound sterling 0.05 par value)

(Title of Class)

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  x  No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K    x.

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  ¨  No  x

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant, computed by reference to the price at which the common stock was last sold, or the average bid and asked price of such common stock, as of June 30, 2003, the last business day of the registrant’s most recently completed second quarter, is $32,478,684.

As of March 26, 2004, the Registrant had 59,052,153 Ordinary shares outstanding, including 58,682,402 represented by American Depositary shares.

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements herein which are not of historical fact may constitute such forward-looking statements. In particular, words such as “may”, “could”, “would”, “should”, “can”, “might”, “expect”, “estimate”, “project”, “anticipate” and the like identify the statement to which they refer as forward-looking. Forward-looking statements by their nature involve substantial uncertainty, and actual results may differ materially from those expressed in such statements. Important factors identified by the Company that it believes could result in such material differences are described in this Annual Report in the sections titled “Competition”, “Government Regulation” and “Intellectual Property” on pages 10 through 14 of this Annual Report, “Risk Factors”, on page 15 through 18 of this Annual Report, and “Management’s Discussion and Analysis of Results of Operations and Financial Condition”, on pages 29 through 39. However, the Company can give no assurance that it has identified all of the important factors that may result in material differences between actual results and its forward-looking statements, and the Company assumes no obligation to correct or update any forward-looking statements which may prove to be inaccurate, whether as a result of new information, future events or otherwise, except as may be required in connection with future reports of the Company pursuant to the Securities Exchange Act of 1934, as amended.

PART I

ITEM 1—BUSINESS

Overview

Senetek PLC, together with its subsidiaries (the “Company” which may be referred to as “Senetek”, “we”, “us”, or “our”), is a public limited company organized under the laws of England in 1983 (registration number 1759068). Senetek has three wholly-owned subsidiaries, Senetek Drug Delivery Technologies Inc. (“SSDT”) and Senetek Asia (HK) Limited, corporations formed by Senetek under the laws of Delaware and Hong Kong, respectively, and Carme Cosmeceutical Sciences Inc. (“CCSI”), a Delaware corporation acquired by Senetek in 1995.

You should read the “Risk Factors” section beginning on page 15 of this document to ensure you understand the risks associated with the Company. For detailed financial information, please consult the Company’s financial statements included in this annual report.

Our corporate website is located at www.senetekplc.com. Our annual reports on Form 10-K for the 2002, 2001 and 2000 fiscal years, in addition to our interim financial reports on Form 10-Q for fiscal 2003, are available on our website as soon as practicable after they are filed with the SEC. Our other SEC filings may be obtained from us in electronic or paper format free of charge by writing us at ir@senetek.net or at Investor Relations, 620 Airpark Road, Napa, California, 94558.

Senetek is a life sciences-driven enterprise engaged in developing and marketing proprietary products that fulfill important unmet consumer needs related to aging. Our business is comprised of two business segments: dermatological/skincare compounds principally addressing photoaging and other skincare needs (the “Skincare Segment”); and biopharmaceuticals, currently principally those addressing sexual dysfunction and drug delivery of liquid injectable products (automatic injectors) (“Pharmaceutical Segment”).

The Company recently completed an in-depth review of Senetek’s business model and strategic direction aimed at broadening the Company’s base of proprietary skincare and dermatological technology, more systematically pursuing new high potential Kinetin licensing opportunities, maximizing the return on the Company’s pharmaceutical assets, and reducing non-revenue-generating operating expenses. As part of this program the Company announced it will:

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Dermatological and Skincare

Skincare Technology

We have developed and patented multiple cytokinins, including Kinetin and Zeatin, plant growth factors that are naturally occurring.

Kinetin (N6-furfuryladenine) has been found to retard aging of plants and, in research done on human skin fibroblasts, Kinetin delayed the signs of cell aging, multi-nucleation and loss of organizational structure, as well as other biochemical and morphologic changes associated with aging. Kinetin also has been shown to be a powerful antioxidant, acting as a free radical scavenger. In clinical studies over the past two years at the University of California, Irvine, Kinetin showed good-to-excellent response rates in partially reversing the clinical signs of photodamage, including the appearance of fine lines and wrinkles, and in contrast to other anti-aging products such as retinoids and alpha-hydroxy acids, Kinetin did not produce any clinical signs or symptoms of skin irritation, did not result in skin sensitivity to the sun, and did not break down the skin’s natural barrier function causing moisture loss; in fact, it improved the moisture barrier, helping retain moisture.

Zeatin, currently under development, is an analogue of Kinetin. A study recently completed at the University of Aarhus, Denmark, evaluated the effects of two concentrations of Zeatin on cultured human skin fibroplasts over their approximately 300 day lifespan in lab culture. Uniformly positive results were obtained. The new results were consistent with earlier studies of Zeatin and Senetek’s lead anti-aging compound Kinetin which suggested that at higher concentrations Zeatin was more effective than Kinetin in certain measures of bioactivity. Based on these results, Senetek will be undertaking a full program of pre-clinical testing which we expect to begin later in fiscal 2004.

We are continually evaluating other applications for Kinetin and its analogues in collaboration with our research partners.

On January 23, 2003, we acquired additional patent rights for systemic applications of cytokinins including injection therapy along with expanded claims for inflammatory diseases.

Our strategy is to build a global distribution system across all channels of distribution for our core skincare technology.

In June 1998, we granted Osmotics Corporation (“Osmotics”) an exclusive license to market Kinetin-based products to the worldwide prestige market, comprised of department stores and perfumeries, in exchange for specified royalties. The license required Osmotics to source licensed products exclusively from Senetek or its designated contract manufacturer. In February 1999 Osmotics launched a line of Kinetin-based products, but on January 20, 2000, we notified Osmotics that the license was terminated due to material breach of its terms by Osmotics, including sales outside of the prestige channel of distribution and non-payment of royalties. In May 2001, the parties entered into a settlement of all disputes providing, among other things, for payment by Osmotics of back royalties and the grant by Senetek of a non-exclusive license for the remaining terms of the underlying patents to manufacture and market specified Kinetin-based products to the prestige class of trade worldwide in exchange for specified royalties.

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In October 1998, we granted Valeant Pharmaceuticals International (“Valeant,”), formerly called ICN Pharmaceuticals, Inc., a worldwide license to market Kinetin in the ethical skincare market. The Valeant license agreement provided for royalties on Valeant’s net sales of licensed products within its class of trade and a supply agreement requiring Valeant to source its products from Senetek with prescribed minimums. In March 1999, Valeant launched Kinerase in the United States and Canada, followed by launches in various Latin American and Far East markets. In August 2003, Valeant signed an amendment to its license agreement to expand its exclusivity in the ethical channel from North America to Europe and Australia. The expanded license transfers manufacturing to Valeant, adds five new products to the Kinerase^® line, including new serum and cream formulations with highly stabilized Vitamin C, a Kinerase^® sunscreen formulation and new cream and lotion formulations, and adds non-exclusive rights in the prestige, spa/salon and travel retail channels of trade as well as direct-to-consumer media including television, print and Internet.

In November 1999, we entered into a license and supply agreement with Obagi Medical Products, Inc. (“Obagi”) for the exclusive marketing and distribution of specified Kinetin-based products in the mass market channel of distribution in China, Hong Kong, Japan, Malaysia, Singapore, South Korea, the Philippines and other designated Asian countries and in the multi-level marketing channel of distribution in Taiwan, in exchange for a licensing fee, paid in installments in 1999 and 2000, and specified royalties on Obagi’s net sales of licensed products. In March 2000, Obagi entered into a joint venture with Rohto Pharmaceuticals Co., Ltd. (“Rohto”), apublicly traded company based in Osaka, Japan, providing for the latter to market Kinetin-based products in Japan, and Obagi subsequently launched Kinetin-based products in Taiwan and South Korea. On April 12, 2001, OMP Inc. (“OMP”), the successor to Obagi, filed suit against Senetek alleging breach of the license, and on July 23, 2001 Senetek filed suit against OMP alleging breach and patent infringement. The litigation was settled in January 2002 for a $375,000 lump sum settlement payment to Senetek for past royalties. The parties agreed to terminate the original license and to use best efforts to negotiate a new license agreement, to which Rohto would also be a party, and OMP agreed to pay Senetek a specified royalty for sales of products during the negotiating period (which totaled $248,000). The parties failed to reach agreement on this and Senetek ceased all contractual relationships with OMP and Rohto on May 31, 2002. All countries, except Japan, included in the territory granted to Obagi by the original license agreement were surrendered in the January 2002 settlement and, pursuant to the terms of the Company’s previously signed license agreement with Revlon Consumer Products Corporation (“Revlon”) described below, became part of the territory granted to Revlon. In April 2003, Senetek commenced a lawsuit against OMP alleging breach of the January 2002 settlement agreement. This lawsuit and related litigation were settled in March 2004 under terms granting OMP and Rohto a non-exclusive right to continue selling certain Kinetin products in their existing class of trade in Japan. See Item 3, Legal Proceedings.

In May 2000, we entered into a license and supply agreement with Buth-Na-Bodhaige, Inc., doing business as The Body Shop. Under the terms of the license agreement, as amended in November 2000, The Body Shop was granted the right to sell Kinetin-based products supplied by Senetek in The Body Shop retail stores in North America, in The Body Shop’s catalogue and on The Body Shop’s Internet website, in exchange for a specified royalty based on the suggested retail prices of products sold by The Body Shop to consumers, and Senetek agreed not to enter into Kinetin licenses with specified other retailers. The Body Shop launched its initial line of licensed products in April 2001. On November 4, 2002, we signed an expansion of the license agreement with The Body Shop under which The Body Shop is launching its Kinetin line of exclusively formulated skin care products in its retail stores, kiosks, catalogs and websites throughout Europe and Asia.

On June 8, 2000, we entered into a license agreement with Revlon for the remaining term of the principal covered patents, in consideration of a license fee, paid at signing, of $3 million and royalties based on Revlon’s net sales of licensed products. In connection with this agreement we granted Revlon warrants to purchase one million Ordinary shares in Senetek at a price of $6 per share. Under the agreement as amended in February 2001, and giving effect to Revlon’s assumption of territories surrendered by OMP under its license as described above, Revlon was granted exclusive rights throughout the world, excluding Japan, to sell specified Kinetin-based products in the mass market class of trade, subject to Revlon’s royalty payments and advertising expenditures meeting certain minimums. The agreement also grants Revlon non-exclusive rights to sell such products in

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perfumeries and department stores in Europe, South and Central America, Mexico, Puerto Rico, South Africa, Australia, New Zealand, Israel, China, Hong Kong, Taiwan and certain additional Asian markets other than Japan, subject to Revlon’s royalty payments meeting certain additional minimums. Revlon launched the Almay Kinetin Skincare Advanced Anti-Aging Series of products in the United States in mid-2001, followed by launches in other territories including the United Kingdom, Canada, New Zealand, and South Africa.

In December 2000, we entered into a license and supply agreement with Med-Beauty AG (“Med-Beauty”), a Swiss company based in Zurich, in consideration of a product license fee. Under the agreement as amended in September 2001, Med-Beauty is granted an exclusive right to sell specified Kinetin-based products to estheticians and beauty salons in Switzerland and a non-exclusive right to sell such products in those classes of trade in Germany and Russia, all subject to achieving certain minimum purchase levels of bulk product. Med-Beauty’s initial launch of covered products was made in May 2001. Currently Med Beauty is in the process of expanding the number of kinetin based products offered.

In November 2001, we entered into an arrangement to collaborate with Allure Cosmetics (“Allure”), a California-based skincare manufacturing and marketing company, under which the parties undertook to develop new Kinetin-based products to be manufactured by Allure and marketed by the Company directly or through licensees. The parties agreed to jointly market Kinetin-based products to Allure’s existing customer base, and the Company granted Allure a non-exclusive license to manufacture and market specified Kinetin-based products to health food stores, estheticians, beauty salons, spas and by direct mail, in exchange for specified royalties.

On April 16, 2002 we executed a license agreement with C. J. Enprani Co., Ltd. (“Enprani”) of Seoul, Republic of Korea, to market and distribute Kinetin based products in South Korea in the Cosmetics Specialty Stores channel of distribution under the Enprani brand. Enprani is also developing and clinically testing a new and unique combination skincare line containing our patented Kinetin ingredient. Enprani has gained functional care approval for Kinetin from the Korean Food and Drug Administration (“KFDA”). The licensing arrangement includes an upfront royalty payment and agreed annual minimum sales of licensed product. Enprani is a well-established and highly regarded cosmetic company in Korea. It is an affiliate of Samsung, one of the largest business conglomerates in Korea with total assets exceeding (US) $2 billion and consolidated sales of (US) $4.5 billion.

On October 22, 2002 we signed an agreement with Vivier Pharma Inc. (“Vivier”), of Montreal, Canada, granting Vivier the right to manufacture and sell to dermatologists, pharmacies and other ethical channels in Canada and the United States dermatological products containing our patented Kinetin skin care ingredient in combination with Vivier’s proprietary formulation of highly stable Vitamin C serum (L-Ascorbic Acid). Vivier launched in the fourth quarter of 2003. In addition to this, Vivier has granted us the right to sell, and license third parties to sell, the Kinetin—Vitamin C combination products as well as Vivier’s line of Vitamin C serums in certain global markets. The Agreement calls for the parties to collaborate on future developmental projects and clinical evaluations.

On November 12, 2002 we signed a worldwide non-exclusive Kinetin licensing agreement with Shaklee Corporation, a wholly-owned subsidiary of Yamanouchi Pharmaceutical Co., Ltd, Japan’s third largest pharmaceutical company. The agreement was terminated in 2003 but on April 15, 2003 we entered into a license agreement with Shaklee for the sales by Senetek and our licensees of products combining Kinetin and Shaklee’s proprietary formulation of highly stable Vitamin C cream.

On March 12, 2003 we signed a non-exclusive license agreement with Panion & BF Biotech Inc., a major manufacturer and marketer of pharmaceuticals and cosmeceuticals based in the Republic of China on Taiwan. Under the agreement, Panion will launch a line of Kinetin-based skin care products in the ethical (physician) channel of distribution in Taiwan, Hong Kong and subject to agreement on royalty levels, The Peoples Republic of China. The launch of its initial product collection occurred in the fourth quarter of 2003. In February 2004 we expanded the license agreement to include the ethical channel in Republic of Korea and the ASEAN member

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countries, including the key markets of Indonesia, Malaysia, The Philippines, Singapore and Thailand, and to broaden its authorized trading channels to include prestige department and specialty stores and salons and spas except in Korea. Further products featuring Kinetin in combination with effective synergistic ingredients are scheduled to be submitted to the Taiwan Department of Health for registration as functional skin care products during 2004.

In April 2003 we signed a license agreement with Lavipharm S.A. of Athens, Greece, a major manufacturer and marketer of pharmaceutical, cosmetic and consumer health products with an extensive R&D activity, for Lavipharm to launch a line of Kinetin-based skin care products in the ethical and pharmacy market under its well-known brand name “Castalia” in Greece, Cyprus and, subject to agreement on royalty levels, a number of Near East, Asian and Latin American markets. The launch in Greece and Cyprus occurred in the fourth quarter of 2003. In addition, the two companies will work together to develop additional proprietary Kinetin-based products using Lavipharm’s proprietary technologies.

In September 2003, the Company launched its proprietary product line, Kinetin Plus^™ Age Defiant^®. The Kinetin Plus product line consists of eight products: Chest & Neck Treatment Lotion, Eye Area Eraser Plus Vitamin C & E Booster, Gentle Foaming Cleanser, Intense Serum Plus 10% Vitamin C Booster, Night Renewal Cream, Refresh Finishing Toner, Smoothing Lip Balm SPF 20, and Sun Protection Lotion SPF 15 (the latter two bearing the Skin Cancer Foundation Seal). As part of this product launch, the Company established its own website (www.kinetinplus.com and www.kinetin.com.) where the products can be purchased. Also related to the product launch, the Company created a program length infomercial for Kinetin Plus^™ and undertook some limited media placements of its infomercial. As a result of lower than anticipated response rates to the infomercial, the Company terminated the media tests in the fourth quarter of 2003. After evaluating the infomercial and analyzing media costs, the Company has concluded that it is unlikely it will undertake any significant expenditure related to the infomercial in 2004. The Company is currently evaluating alternative approaches for marketing its proprietary Kinetin Plus product line and formulations.

In October 2003 we entered into a non-exclusive license agreement for Age Advantage to formulate its unique “Age Eraser” cream with Kinetin and market it in the United States to spas, beauty salons, department stores, high-end perfumeries and natural and health product retailers. Headquartered in Atlanta, Georgia, Age Advantage Laboratories offers natural anti-aging and skin repair products.

We plan to continue focusing on building a high-margin, royalty-based revenue stream by actively developing additional licensing opportunities for those territories and categories of trade for which we have not granted exclusive licenses under the agreements described above. These include the prestige market, the ethical market (dermatologists’ and cosmetic surgeons’ patients outside of North America, Europe and Australia), the multi-level market, direct response market, salon-esthetician market, infomercials and the natural products market throughout the world.

A key element of the Company’s strategic Business Plan is to add to our portfolio of cytokinin compounds and other ingredients with strong antisenescent properties by working through our research facility in Aarhus, Denmark with institutions conducting basic research on naturally-occurring compounds, such as the Institute of Experimental Botany of the Czech Academy of Sciences, and with commercial partners such as Beiersdorf, AG and current and future licensees, under the direction of our Chief Scientist, Dr. Brian Clark, in association with Dr. Suresh Rattan, the co-discoverers of Kinetin’s antisenescent and other dermatological bioactivity, both of the University of Aarhus in Denmark. See “Research and Development”.

Other Products

The Company previously developed or acquired a number of skincare products designed to meet specific niche segments of the market, including Mill Creek, Sleepy Hollow Botanicals and Biotene H-24, as well as two specialty mass market lines, Silver Fox, a product for gray hair, and Allercreme, a hypoallergenic range of skincare and cosmetic products for women with sensitive skin, developed in conjunction with dermatologists. In 1999 the Company determined that these product lines were non-core and entered into a license agreement with

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United States International Trading Corporation (“USITC”) under which USITC purchased the Company’s inventories of Mill Creek and Silver Fox finished goods and componentry and paid a licensing fee for the exclusive right to manufacture and market these lines in exchange for royalties subject to specified annual minimums. USITC was granted an option to purchase the rights to these lines for $2.8 million. Subsequently, an existing distribution agreement with Quimlam, Inc. covering the Allercreme product line was terminated and these distribution rights were granted to USITC on a non-exclusive basis up to December 31, 2001. Currently, we are planning to divest and sell off the Allercreme line and have discontinued the manufacture of these products.

On September 27, 2002 we signed an agreement with USITC conveying to it the rights to the Mill Creek personal care line, the Silver Fox hair care line and other brands. made under a purchase option in the license agreement described above. The purchase price was $2.8 million, $100,000 having been previously paid, of which $400,000 was paid in cash at closing, and the balance of $2.3 million was represented by a secured promissory note providing for twenty-three consecutive quarterly payments of $100,000 each beginning in September 2003. Interest is payable on the outstanding principal balance at an annual rate of 10%. During fiscal 2003, USITC paid the Company $113,000 which was allocated to interest due under the note. As of December 31, 2003, USITC was delinquent on scheduled principal and interest payments totaling approximately $398,000. The Company is currently working with USITC to bring the note current and assure timely performance in the future.

Biopharmaceuticals and Drug Delivery Technology

Sexual Dysfunction

We have developed, patented and, are in the process of securing European marketing approvals for Invicorp, an intracavernous injection therapy for the treatment of erectile dysfunction (“ED”). Invicorp is a combination therapy comprised of phentolamine mesylate (“PMS”) and vasoactive intestinal peptide (“VIP”), a 28-amino-acid peptide found naturally in the human male and female urogenital tracts and central and peripheral nervous systems that cause erection by binding to smooth-muscle receptors in the corpus cavernosum, inducing smooth-muscle relaxation and increased blood flow.

The commercial potential of products for the treatment of ED is significant and growing. A study released in 2002 by Decision Resources, Inc. (the “2002 Study”) estimates that in 2001 some 70 million men in the seven major pharmaceutical markets covered by the study (the United States, France, Germany, Italy, Spain, the United Kingdom and Japan) suffered from some degree of ED. The incidence of ED increases with age, and therefore is expected to grow as the median age of the world’s population increases. ED is also associated with a number of common conditions including arteriosclerosis, diabetes, hypertension and the use of such medications as beta blockers and tricyclic antidepressants. According to the 2002 Study, seven-market sales of drugs and devices to treat ED totaled $1.3 billion in 2001 and are expected to grow at an annual rate of 10%, reaching $3.6 billion in 2011.

According to the 2002 Study, oral medications (principally Pfizer, Inc.’s sildenafil product Viagra) represented in excess of 92% of total 2001 sales of ED products in the studied markets. However, these oral therapies are ineffective, medically contraindicated or otherwise unsuitable for significant numbers of ED sufferers, who opt for “second line” injection therapies or penile implants, or who may forego therapy altogether. The 2002 Study indicated that physicians are increasingly likely to prescribe combination therapies to treat ED due to the fact that emerging localized drugs with improved methods of delivery will drive a trend towards combinations of oral and localized therapy in an effort to boost the overall efficacy of ED treatment.

Specifically, the 2002 Study found that men whose ED is classified as moderate or severe (those most likely to seek treatment) show a markedly lower response rate to sildenafil and other oral therapies than do those with mild ED; that certain patient groups (including diabetics, who have a high incidence of ED) experience particularly low response rates to sildenafil; that sildenafil is contraindicated for patients who take any form of nitrates (a group that represents 5-10% of men with ED); and that men who take both sildenafil and drugs such as

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erythromycin or cholesterol-lowering agents, which are metabolized by the same isoenzymes as sildenafil, are at risk for developing higher than desirable serum levels of sildenafil. In addition, Pfizer, Inc. has advised that sildenafil should not be taken by men who have suffered a recent stroke or myocardial infarction or men with hypotension or certain retinal disorders. Also, the 2002 Study found that some men for whom sildenafil is effective nevertheless decline to use it because of its relatively slow onset of activity.

Clinical trials of Invicorp suggest that it could become the selected therapy for all of these patient types. Invicorp has been found to have a favorable side-effect and drug-interaction profile, permitting it to be prescribed for men with the various contraindications referred to above. In clinical trials, Invicorp has been shown to be highly safe and effective in patients of all etiologies, as well as patients who have failed previous therapy. In trials, participants have also reported lower incidences of penile pain and fibrosis than with other ED injection therapies. The 2002 Study concluded Invicorp has a novel micro-injection system that significantly reduces the pain associated with local invasive ED therapies.

As the 2002 Study found, we believe that mode of administration is an important factor affecting patient acceptance of injection therapy. We have developed Reliaject, a highly advanced, disposable autoinjector that renders the administration process uncomplicated and pain-free. We believe Invicorp and Reliaject to be the right drug in the right delivery system that will ideally address the needs of a significant segment of the ED market including ED sufferers for whom currently available therapies are ineffective or contraindicated. See “Government Regulation”.

On November 12, 2002 we signed a marketing and distribution agreement for Invicorp in New Zealand with Douglas Pharmaceuticals (“Douglas”). This is our first licensing agreement for Invicorp and Douglas is to assume full marketing responsibility for Invicorp in New Zealand in exchange for specified payments. Douglas will also receive rights of first offer for future Senetek products in development, not limited to sexual dysfunction. In addition, Douglas will provide assistance for regulatory filings in Australia as well as marketing support for launching in other countries. The New Zealand launch of Invicorp is scheduled for early April of 2004.

Although the Company is optimistic about the long term potential of Invicorp, the Company has determined it does not have the financial or technical resources to complete the necessary regulatory filing in Europe. Accordingly, the Company is seeking an appropriate partner that has the requisite financial and technical resources to first progress with the Mutual Recognition Procedure (“MRP”) in Europe and secondly prepare for discussions with the U.S. FDA, regarding the number and scope of Invicorp pre-clinical and clinical trials in the U.S.

We have engaged a regulatory consultant, Quintiles, to assist the Company with filing the necessary variations, including for the change of manufacturing site and supplier of active ingredients with the Danish Medicines Agency, which is the Company’s reference country for its MRP process.While the Company has received pre-market approval for Invicorp in New Zealand and Denmark, and for one formulation in the United Kingdom and is optimistic about the long term potential of Invicorp, the Company has determined it does not have the financial or technical resources to complete the necessary regulatory process in Europe or to undertake the regulatory process for the United States, which the Company believes represents some 70% of the potential world market for ED treatments. Accordingly, the Company is seeking an appropriate partner that has the requisite financial and technical resources to first progress with the Mutual Recognition Procedure (“MRP”) in Europe and secondly prepare for discussions with the U.S. FDA, regarding the number and scope of Invicorp pre-clinical studies and clinical trials in the U.S.

Drug Delivery Technology

Reliaject is Senetek’s modular, disposable, automatic, self-injection system. While originally developed for self-administration of Invicorp, its modular design accommodates multiple therapeutic applications. Reliaject is equipped with an ultra fine gauge needle, manufactured by a laser process for pain-free use and utilizes a dental cartridge to contain the drug to be injected. The needle is visibly undetectable by the patient during administration of the drug and appropriate needle depth is automatically reached before drug flow occurs, thereby reducing reliance upon the patient’s technique for accuracy and safe delivery. In addition to Invicorp,

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Reliaject has potential use with other therapies including anaphylactic shock, migraine treatment, infertility regimens, human growth hormones and analgesics. The equipment is highly specialized and involves a significant commitment of funds, manufacturing space and technical and regulatory expertise. The Company is currently seeking a transaction whereby a commercial partner would assume primary responsibility for regulatory approvals and for marketing Reliaject. As discussed in more detail in Note 5 to the audited financial statements, the Company recorded an impairment charge of $2,451,000 in 2003 related to this asset.

Diagnostic Monoclonal Antibodies

In 1995, we entered into a license agreement with the Research Foundation for Mental Hygiene (“RFMH”), an agency operated by the State of New York, under which the Company was granted exclusive rights to certain of the RFMH’s cell lines capable of producing monoclonal antibodies for research on various diseases including Alzheimer’s Disease. The license expires 10 years from inception as to the cell lines originally covered and, as to cell lines subsequently added to the license (most recently) in 1999, 10 years from their inclusion. The three cell lines currently licensed expire in 2004, 2005 and 2009. Until mid 2000 the Company marketed these cell lines to major pharmaceutical companies including Glaxo, Pfizer, Wyeth Ayest, Amgen, Pharmacia Upjohn, Eli Lilly and Genentech. In August 2000, we determined that the marketing of diagnostic monoclonial antibodies was not a core business and entered into an agreement for the remaining term of the RFMH license with Signet Laboratories, Inc., a leading medical diagnostic and research company, under which Signet now markets these cell lines and develops new antibodies and assays based on the cell lines covered by the RFMH license. We receive royalties on Signet’s sales, subject to certain minimum royalty guarantees, and remit a portion to the RFMH in accordance with the terms of its license. During 2004, the Company will be working with RFMH to extend its license agreement on those cell lines that expire in 2004.

Research and Development

We sponsor research in the life sciences and biotechnology fields involving the treatment of conditions related to aging, particularly our core field of interest in dermatologicals and skin treatment. Our strategy has been to apply our available research and development resources to funding research agreements with third-party consultants, clinicians and research scientists having particular expertise in our areas of interest with a direct focus on getting our products into the market. Under these agreements, we are granted exclusive rights to patents for the manufacture and marketing of products arising from this research, with the researchers in certain cases being entitled to royalties or other payments in connection with commercialization of resulting products.

Typically, our research agreements oblige us to fund or co-fund agreed research in amounts determined between the parties. The researchers are responsible for filing progress reports and working with consultants appointed by us on matters such as product formulation, stability, clinical trials and regulatory compliance.

In furtherance of this strategy, in October 2001, we established a research professorship at the University of Aarhus, Denmark, at the University’s Center for Molecular Gerontology. Previous research programs with the University resulted in us acquiring the patent rights to Kinetin and Zeatin for certain applications. Under the terms of the grant, which will be administered by the University’s Natural Science Faculty, we will have a right of first refusal on discoveries resulting from the sponsored research.

On January 29, 2003, Dr. Brian Clark, one of the founders of Senetek PLC and co-discoverer and patentee of the therapeutic properties of Kinetin and various of its analogues, agreed to lead our Research and Development program as Chief Scientist. Dr. Clark is based at the University of Aarhus, Denmark at its Center for Molecular Gerontology. Dr. Clark will be working, in association with Dr. Suresh Rattan, the other co-discoverer of Kinetin’s therapeutic properties, on our future research and development infrastructure and will assess the scientific feasibility of new technology acquisition candidates.

In June 2003 the Company entered into a research collaboration agreement with Beiersdorf AG for it to undertake and fund laboratory and in vivo evaluations of selected compounds for potential licensing in the mass market worldwide. Beiersdorf’s Nivea^® is the world’s largest selling skin care brand. Senetek will own and have the right to practice and license all compounds resulting from this collaboration outside of the markets and fields of use that may be licensed to Beiersdorf.

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In June 2003 the Company also signed a cooperative research agreement with the Institute of Experimental Botany in Prague, Czech Republic. The Institute was created in 1962 from the Department of Plant Physiology and the Department of Phytopathology of the Institute of Biology of the Czechoslovak Academy of Sciences. In 1990, it was divided into two independent units, one of which became The Institute of Experimental Botany (IEB) in Prague and Olomouc. The principal fields of scientific work in the Institute consist of plant genetics, physiology and biotechnology. In genetic research, the Institute carries out work on induced mutagenesis and DNA repair, induction of genetic variability in tissue and cell cultures in vitro, and the molecular genetics of pollen. Physiological subjects include adaptation and acclimation mechanisms of photosynthesis, hormonal and ecological control of plant growth and development, the mechanisms of action of growth regulators, physiology of plant viruses and plant pathophysiology. The agreement gives Senetek exclusive access to all chemical and botanical based compounds and the related scientific data developed by the Institute for all applications worldwide. Senetek has the option to enter into exclusive licenses for these applications worldwide.

Our research and development expenditures amounted to $1,560,000, $1,332,000 and $344,000 for 2003, 2002 and 2001, respectively. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Under the terms of our skincare license agreements, various licensees are responsible for developing new products and applications, and gaining product approvals based upon the technologies and patents covered by the licenses.

We expect research and development spending for our skincare segment to continue to increase as we develop our pipeline of proprietary technology and move forward with establishing more advanced research capabilities, including the build out of our leased space in Denmark, through our partnership with Aarhus University in Denmark with the intention of identifying and evaluating new cytokinins, and accelerating development of Zeatin in 2004. The Company expects, however, a portion of these expenses to continue to be absorbed by its existing and future commercial partners.

Research and Development expenditures associated with our sexual dysfunction products are expected to significantly decline in fiscal 2004 as the Company has determined it does not have the financial or technical resources to complete the necessary regulatory filing in Europe. Accordingly, the Company is seeking an appropriate partner that has the requisite financial and technical resources to first progress with the Mutual Recognition Procedure (“MRP”) in Europe and secondly prepare for discussions with the U.S. FDA, regarding the number and scope of Invicorp clinical trials in the U.S. In this connection, we are working with Quintiles, a leading provider of information, technology and services to the pharmaceuticals industry, to support our efforts to contract with a partner with the goal of bringing Invicorp to market in Europe and in the US as efficiently as possible. The future success of Invicorp in Europe and the United States will be dependent on finding the appropriate corporate partner.

Marketing and Manufacturing

Marketing

Consistent with our strategy of building a high-margin revenue stream, virtually all of our current Kinetin revenues are derived from license agreements under which our licensees assume responsibility for marketing and maintaining required government approvals within their respective licensed territories. We expect to maintain this business model in the case of emerging products in our Skincare Segment, where achieving acceptable distribution is dependent upon a broad-based sales and distribution network within the particular class of trade. In fiscal 2003 we developed our own proprietary product line, Kinetin Plus. Our initial attempt at selling direct to consumers through a national infomercial did not produce acceptable response rates and we are currently evaluating different ways to market and distribute this proprietary product line and its unique formulations. The Company does not expect to spend significant funds on marketing Kinetin Plus in 2004.

In the case of Invicorp and Reliaject, we have concluded that we are not going to undertake sales and distribution directly but rather are seeking alliances with companies with appropriate sales and distribution

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infrastructure. Establishing an alliance with a company having an established retailing and distribution network in a particular market will subsidize ongoing marketing approval expense and realize revenues through licensing fees and royalties or other participation in the third party’s sales or through shared equity or other joint venture arrangements.

Manufacturing

Certain of our existing licenses for core products in the Skincare Segment grant our licensees the right to manufacture covered products. In the case of those licenses which grant only marketing rights or require the licensee to produce and package product from Senetek-supplied bulk, we contract with third parties for the manufacture and/or filling and labeling of the skincare products covered by such licenses. While we rely on particular suppliers for the raw materials and componentry used in the manufacture of such products we do not anticipate any problems with supply of such materials. We have licensed a third party to manufacture and sell the cell lines licensed to us for production of monoclonal antibodies.

With regard to our ED medication, Invicorp, the active ingredients, VIP and PMS are currently available from suppliers in quantities believed to be adequate for the Company’s requirements following marketing approval in Europe. These suppliers have developed synthetic production methods that are included in the product marketing application updates with regulatory authorities in Europe. We believe that, should these suppliers become unavailable or unable to supply in required volumes, alternative sources of approvable supplies are available.

Competition

The bulk of our current revenues are derived from licenses to manufacture and/or market products containing our patented Kinetin ingredient, with smaller amounts being derived from agreements for the manufacture and sale of non-core skincare and consumer products and cell lines for the production of monoclonal antibodies used in research. While our patents and patent licenses currently protect us from competition from sales of products within the specific scope of our patents and license rights, many companies are engaged in the development and marketing of products competitive with our patented and licensed products. Regarding our ED products, all necessary governmental marketing approvals have not yet been obtained. Assuming they are obtained we or our commercial partners will compete with many other companies having established products in the marketplace including Pfizer, Schwarz Pharma, and Vivus, which market Caverject, Edex and MUSE, respectively. We believe Invicorp offers advantages over these therapies including a favorable side effect profile, high level of efficacy in organic ED, natural erection and termination, and shorter time to onset. Pfizer, Inc. with its Viagra product controls the bulk of the oral therapy market, which currently represents in excess of 92% of the worldwide ED market. We consider Invicorp to be complimentary to rather than competitive with the oral therapy market as it addresses the needs of patients for whom the oral therapies are not effective or well-tolerated.

The biopharmaceutical, pharmaceutical and cosmeceutical industries are highly competitive. We compete and will continue to compete with research and development programs at biotechnology, biopharmaceutical, pharmaceutical and cosmeceutical companies, as well as academic institutions, government agencies and public and private organizations throughout the world. Virtually all of our existing or potential competitors have substantially greater financial, technical and human resources and name recognition than do we and are better equipped to research, develop, patent, conduct pre-clinical testing and human clinical trials, manufacture, and market products. These companies have the capability and resources to develop or acquire and market products that compete with our existing and planned products, and the timing of the market introduction of our own and our competitors’ products will be important competitive factors affecting our future results.

We cannot predict the extent to which any of the products we are currently developing, including Invicorp and Reliaject, will become commercially viable. Assuming that Invicorp and related delivery vehicles are

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approved for sale in the additional territories in which approvals are currently being sought, we believe that competition will be based, among other things, on product efficacy, ease of administration, convenience, speed of onset, price and third party reimbursement. Regarding our future viability, our competitive position also depends upon our ability to contract for effective and productive research and attract and retain qualified personnel to develop and effectively exploit the results of such research. We expect competition to intensify in all fields in which we are involved.

Government Regulation

General

The research, pre-clinical development, clinical trials, manufacturing and marketing of the products comprising our Pharmaceuticals Segment are subject to extensive regulation, including pre-marketing approval requirements, of the FDA and equivalent foreign regulatory agencies. Product development and approval within this regulatory framework takes a number of years and involves the expenditure of substantial resources. Many products ultimately do not reach the market because of toxicity or lack of effectiveness as demonstrated by required testing. Furthermore, regulatory agencies may suspend clinical trials at any time if it is believed that the subjects participating in such trials are being exposed to unacceptable health risks. In addition, there can be no assurance that this regulatory framework will not change or that additional regulations will not arise at any stage during product development that may affect approval, delay an application, or require additional expenditures. Accordingly, we cannot assure that clinical trials related to any products currently in development by us will be completed successfully within any specified time period, if at all, or that pre-marketing approvals based on such trials will be granted.

While the business currently comprising our existing Skincare Segment generally is not subject to pre-marketing approval, various statutes and regulatory restrictions apply to this business in the United States and most other countries. For future compounds the Company will consider taking some through the drug approval process, not necessarily mutually exclusive of the cosmeceutical route.

Product Approval-United States

In the United States, the Federal Food, Drug and Cosmetic Act and the Public Health Service Act govern the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our pharmaceuticals. The steps required before a pharmaceutical product may be marketed in the United States include:

Clinical trials of new pharmaceuticals in humans are designed to establish both the safety and the efficacy of the pharmaceutical in treating a particular disease or condition. These studies are usually conducted in three phases of testing. In Phase I, a small number of volunteers are given the new compound in order to identify toxicities and characterize the compound’s behavior in humans. In Phase II, small numbers of patients with the targeted disease are given the compound to test its efficacy in treating the targeted disease and to establish dose levels. Phase III studies are large-scale studies designed to confirm a compound’s efficacy for the targeted disease and identify toxicities that might not have been seen in smaller studies. Once adequate data have been obtained in clinical testing to demonstrate that the compound is both safe and effective for the intended use, all available data is submitted to the FDA as part of the New Drug Application.

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Senetek’s Investigational New Drug application to the FDA was withdrawn and we do not intend to pursue clinical trials and the filing of a New Drug Application with the FDA for Invicorp unless we can locate an acceptable partner with adequate financial and technical resources. Pursuit of any regulatory approval in the United States would likely follow completion of pre-marketing approvals in Europe.

Current FDA regulations govern the manufacture, labeling, advertising and marketing of over the counter drug products covered by the Federal Food, Drug and Cosmetics Act, which are required to obtain pre-market approval if they do not fall within the parameters of FDA-issued “monographs”. Currently, such regulations do not apply to non-drugs, such as Kinetin, though the FDA does regulate issues such as labeling and has the power to seize such products found to be adulterated. However, there can be no assurance that the Federal Food, Drug and Cosmetics Act or the regulations there under will not be changed so as to subject non-drug products to increased regulation.

Product Approval—Other Countries

Marketing of pharmaceutical products in other countries requires regulatory approval from the notified bodies in each particular country. The current approval process varies from country to country, and the time to approval may vary from that required for FDA approval, although the review of clinical studies by regulatory agencies in foreign jurisdictions to establish the safety and efficacy of the product generally follows a similar process to that in the United States. Similarly, non-pharmaceutical products generally are not subject to pre-marketing approval requirements in foreign countries although they are regulated in a manner similar to the United States and, in the case of certain countries such as Japan, such products may require reformulation to remove ingredients not considered acceptable by the particular country.

Invicorp was approved for marketing in Denmark in July 1998 and renewed in May 2003. In June 2000 the New Zealand Medicines Assessment Advisory Committee granted a Marketing Authorization Approval for Invicorp in New Zealand. In October 2000, the United Kingdom Medicines Control Agency granted a Marketing Authorization for a special dose of Invicorp in the United Kingdom, where it is currently sold to physicians for prescribing on a “named patient” basis. An application for Marketing Authorization Approvals under the European Mutual Recognition Procedure (“MRP”) has been initiated, with Denmark being selected as the Reference Member State.

During the later part of 2003, the Company determined it does not have the financial or technical resources to complete the MRP regulatory filing for Europe. Accordingly, the Company is seeking an appropriate partner that has the requisite financial and technical resources to first progress with the MRP in Europe and secondly prepare for discussions with the U.S. FDA, regarding the number and scope of Invicorp pre-clinical and clinical trials In this connection, we are working with Quintiles, a leading provider of information, technology and services to the pharmaceuticals industry, to support our efforts to contract with a partner with the goal of bringing Invicorp to market in Europe and in the US as efficiently as possible. The future success of Invicorp in Europe and the United States will be dependent on finding the appropriate corporate partner.

Post-Approval

The marketing and manufacture of pharmaceutical products are subject to post-approval regulatory review, and later discovery of previously unknown problems with a product, manufacturer or facility may result in the regulatory agencies requiring further clinical research or imposing restrictions on the product or the manufacturer, including withdrawal of the product from the market. Additionally, any adverse reactions or events involving such products must be reported to these agencies. Previously unidentified adverse events or an increased frequency of adverse events occurring post-approval could result in labeling modifications, additional contraindications and other restrictions that could adversely affect future marketability. Ultimately, marketing approvals may be withdrawn if compliance with regulatory standards is not maintained or if a product is found to present an unacceptable risk. Any such restriction, suspension or revocation of regulatory approvals could have a material adverse effect on us.

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Third-Party Reimbursement

We believe that the availability of third-party reimbursement of all or a portion of the cost of Invicorp therapy may affect the overall marketability of Invicorp and its related delivery systems.

In the United States, government-funded and private insurance programs reimburse or pay directly the cost of many medical treatments, prescription drugs and medical devices. The U.S. Health Care Financing Administration (“HCFA”) sets reimbursement policy for the Medicare program in the United States, and has established a national coverage policy for the diagnosis and treatment of ED in Medicare beneficiaries. Private insurance coverage for ED treatment, however, varies widely across the United States, and the introduction and popularity of Pfizer’s Viagra^® resulted in some plans establishing broad coverage exclusions for ED treatment. As Viagra is an oral therapy and therefore in a different usage category, we believe that such coverage exclusions will not apply to Invicorp because it is an injectable product.

Outside of the United States, most third-party reimbursement programs are governmentally funded. In some countries, no reimbursement currently is made for ED therapy, while other countries limit the amount of reimbursement or require that ED treatment be related to specify other medical conditions. In addition, in certain European countries, the sales price of a product must be approved. The pricing review period often begins after market approval is granted. Restrictions on the pricing of Invicorp could adversely affect the profitability of the Pharmaceuticals Segment.

Intellectual Property

We rely on a combination of patents, trade secrets, trademarks and confidentiality agreements to protect our business interests. We believe that patents are of material importance to the success of our royalty-driven business model and that trademarks are also of significance, particularly within our Skincare Segment. Our policy is to file patent applications to protect inventions and improvements considered important to the development of our business in the principal countries where protection from manufacture or marketing of infringing products is commercially warranted. Typically, U.S. patents expire 17 years after the grant date and foreign patents expire up to 20 years after filing of the patent application. As of December 31, 2003 we held approximately 87 issued patents, including patents for Invicorp for the use of VIP and PMS in the treatment of ED, granted in 19 countries and pending in sixteen other countries, patents for Kinetin and Zeatin for ameliorating the effects of aging on skin, granted in 26 countries and pending in eight other countries, patents for Kinetin and Zeatin for ameliorating the effects of hyperproliferative skin diseases, including psoriasis, granted in 15 countries, and autoinjector patents for the delivery of therapeutic ingredients, granted in 20 countries and pending in eight other countries. In January 2003 we were granted a patent in one country for cytokinins (including Kinetin) in the treatment of inflammatory diseases.

It is noted, however, that patents, including those for pharmaceuticals and skincare ingredients, generally involve complex legal and factual issues. In the United States, for example, the first person to conceive and document a novel invention is generally entitled to patent it, even if another person who subsequently conceived the invention was the first person to file a patent application on it. This issue of priority of invention is further complicated by the fact that patent applications in the United States are maintained in secrecy until a patent is issued or denied, generally years after filing. Accordingly, a patent-holder may be subject to interference proceedings in the U.S. Patent and Trademark Office (“PTO”) long after the patent was issued based upon another party’s claim of earlier invention. Furthermore, as only novel inventions are patentable, a patent-holder may be subject to proceedings in the PTO or in federal court attacking the validity of the patent based on alleged obviousness or so-called “prior art”, or based on alleged improprieties in prosecuting the patent in the PTO. Issues of novelty and abuse of patent also arise under the laws of most foreign countries in which we hold patents or have filed patent applications. We have successfully defended against claims of invalidity and unenforceability of our Kinetin patents. However, while we believe that our patents are valid and enforceable, there can be no assurance that if, in the future, we must enforce any one or more of our patents, or such patents

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are challenged by a third party, such patents ultimately would be upheld. Similarly, while we believe that our products do not infringe the valid claims of any third party’s patents, there can be no assurance that we would prevail if a third party sought to enforce its patent against us by a suit for an injunction or damages.

Interference and similar proceedings in the PTO or equivalent foreign patent offices, whether brought by us to protect our patents or brought by a third party challenging such patents, are time-consuming, disruptive of management and highly costly, and injunctive and other patent litigation in court is likely to be many times more time-consuming, disruptive and costly. Furthermore, in the United States (unlike many foreign countries) a party generally is not entitled to reimbursement of its legal fees and expenses even if it is wholly successful in its prosecution or defense, so that we could be exposed to costs which could have a material adverse effect on our business even if we were successful in enforcing our patents against an infringer or successful in defending against proceedings to invalidate our patents or proceedings alleging breach by us of a third party’s patents. Additionally, if we were unsuccessful in proceedings challenging our patents, third parties licensed by us under those patents might seek to terminate such licenses and cease paying royalties. If we were unsuccessful in defending against a claim that we had infringed a third party’s patent, even unknowingly, we could be subject to a permanent injunction against engaging in the infringing business as well as an award of damages measured by the profits obtained from past infringement. Additionally, because of our relative lack of financial and management resources, we could be less able than our competitors to bear such risks.

Employees

As of December 31, 2003, we had thirteen full-time employees, comprised of three employees located in our office in St. Neots, United Kingdom and ten persons at our Napa, California headquarters.

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RISK FACTORS

As stated in the preamble to this Annual Report on Form 10-K, this document contains numerous forward-looking statements which we believe to be a fair reflection of our risks and opportunities. However, such statements by their nature are future-related and involve substantial uncertainties. In addition to those factors referred to elsewhere in Part I of this Annual Report, particularly the Sections in Item 1 entitled “Competition”, “Government Regulation” and “Intellectual Property”, and in Part II of this Annual Report, particularly in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we have identified the following factors that may affect whether future events may differ materially from the expectations described in such forward-looking statements.

Limited Product Offering and Relatively Fixed Revenue Stream.    Substantially all of our current revenue base is derived from license fees on our patented Kinetin ingredient, which is being amortized into income over the terms of the licenses, and royalties earned on licensees’ sale of such licensed products which are generally paid quarterly. In addition, part of current revenues reflect the retained portion of royalties received from Signet on sales of cell lines for production of monoclonal antibodies that are not remitted to the Foundation under the terms of our license agreement with it. If our patents on Kinetin were successfully challenged and our Kinetin licensees sought to terminate their licenses, our revenue stream would be substantially curtailed, and if the Foundation’s patents were successfully challenged, the Foundation failed to renew its license with us beginning in 2004, or if the State of New York ceased supporting the Foundation, our sublicense with Signet would yield substantially reduced revenues. Additionally, our present revenue stream is tied to our licensees’ sales of licensed product and accordingly is relatively fixed unless new territories are launched or expansion occurs in existing territories. Should we be faced with significant cash requirements in connection with gaining regulatory approvals of our biopharmaceutical products currently in development or in connection with protecting our patents or defending against patent infringement litigation, our capital resources might be inadequate to fund our capital needs, as described below.

Concentrated Revenue Base.    In 2003, three of our customers, Valeant, Revlon and The Body Shop, accounted for 55%, 20% and 11%, respectively of our total revenue. At December 31, 2003, two customers, Revlon and The Body Shop, represent approximately 43% and 13%, respectively of our net trade receivables. Subsequent to December 31, 2003, 100% of the above mentioned accounts receivable were collected in full. However, while we have no security for payment of such trade receivables, we believe that all of such customers are credit-worthy and committed to fully performing their license obligations. Nevertheless, should any of such customers cease paying receivables when due or cease performing under their respective licenses, our results would be adversely affected.

Reliance on other Organizations and Companies for research and development, sales and marketing performance.    We rely on a number of significant collaborative relationships for a large part of our research and development, sales and marketing performance. The collaborations with Valeant, The Body Shop, Revlon and other licensees in addition to our research collaborations, pose a number of risks including our inability to control whether our licensee will devote significant resources to our products, disputes may arise with respect to ownership to rights of technology developed, disagreements with corporate partners could lead to delays in commercializing products, and our contracts with our corporate partners may fail to provide adequate protection if one of our partners fails to perform. To date, we have been unable to establish any significant relationships for Invicorp.

Limited Capital Resources.    As described under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, all of our indebtedness is from a single source pursuant to agreements under which our funding source has substantial control over our ability to incur additional debt, sell equity or dispose of assets, substantially all of which are pledged as security for our borrowings. In the event that we are unable to fund continued product development and governmental marketing approvals of our pharmaceutical products or such unbudgeted expenses as the defense of our position in patent litigation through our operating cash flow or by raising additional cash through equity offerings, we would currently be largely dependent upon this source for additional funding, and if we were unable to arrange for funding upon acceptable

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terms, our business could be materially adversely affected. Although we are currently exploring additional financing alternatives to help us with any possible periods of cash flow deficiencies during 2004, there can be no assurance that we will be able to close any such transactions. The Company’s recent settlement of the OMP lawsuit more fully described in Item 3 will provide the Company with $1.5 million in April 2004 and help satisfy the Company’s requirement for additional working capital in 2004.

In the event that we are unable to obtain further funding or the costs of development and operations prove greater than anticipated, we may be required to curtail our operations or seek alternative financing arrangements. Additional financing may not be available to us on favorable terms or at all. If we have insufficient funds or are unable to raise additional funds, we may be required to delay, reduce or cease certain of our programs.

In the event that we are able to obtain further funding, any future financings may result in the substantial dilution of stockholders’ interests and may result in future investors being granted rights superior to those of existing stockholders.

Fluctuating Operating Results and ADS price.    Our operating results have fluctuated in the past and are likely to do so in the future. These fluctuations could cause our stock price to decline. Because many of our expenses are relatively fixed in the short-term, our earnings will decline if revenue declines in a given quarter. This could be due to delays in recognizing revenue or for other reasons. In particular, research and development and general and administrative expenses are not affected directly by variations in revenue. Due to fluctuations in our revenue and operating expenses, we believe that period-to-period comparisons of our results of operations are not a good indication of our future performance. In future quarters, our operating results could be below the expectations of securities analysts or investors. In that case, our stock price could fluctuate significantly or decline.

Intellectual Property and Enforcement.    Our success will depend in part on our ability to obtain and maintain meaningful patent protection for our products, both in the United States and in other countries. Our inability to do so could harm our competitive position. We rely on our issued and pending patent applications in the United States and in other countries to protect a large part of our intellectual property and our competitive position. We cannot assure you that any of the currently pending or future patent applications will issue as patents, or that any patents issued to us will not be challenged, invalidated, held unenforceable or circumvented. Further, we cannot assure you that our intellectual property rights will be sufficiently broad to prevent third parties from producing competing products similar in design to our products.

In addition to patent protection, we also rely on protection of trade secrets, know-how and confidential and proprietary information. We generally enter into confidentiality agreements with our employees, consultants and our collaborative partners upon commencement of a relationship with us. However, we cannot assure you that these agreements will provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information or that adequate remedies would exist if unauthorized use or disclosure were to occur. The exposure of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our operating results, financial condition and future growth prospects. Further, we cannot assure you that others have not or will not independently develop substantially equivalent know-how and technology.

Our commercial success also depends in part on avoiding the infringement of other parties’ patents or proprietary rights and the breach of any licenses that may relate to our technologies and products. We are aware of several third-party patents that may relate to our technology. We believe that we do not infringe these patents but cannot assure you that we will not be found in the future to infringe these or other patents or proprietary rights of third parties, either with products we are currently developing or with new products that we may seek to develop in the future. If third parties assert infringement claims against us, we may be forced to enter into license arrangements with them. We cannot assure you that we could enter into the required licenses on commercially reasonably terms, if at all. The failure to obtain necessary licenses or to implement alternative approaches may prevent us from commercializing products under development and would impair our ability to be commercially competitive.

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The defense and prosecution, if necessary, of intellectual property suits, United States Patent and Trademark Office interference proceedings and related legal and administrative proceedings would result in substantial expense to us and significant diversion of effort by our technical and management personnel. An adverse determination in litigation or interference proceedings to which we may become a party could subject us to significant liabilities to third parties, could put our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Further, there is a risk that some of our confidential information could be compromised during the discovery process of any litigation. During the course of any lawsuit, there may be public announcements of the results of hearings, motions and other interim proceedings or developments in the litigation. If securities analysts or investors perceive these results to be negative, it could have a substantial negative effect on the trading price of our stock.

Regulation by Government Agencies.    The production and sale of pharmaceutical products is highly regulated. Our ability and the ability of our partners to secure regulatory approval for our products and to continue to satisfy regulatory requirements will determine our future success. We may not receive required regulatory approvals for our products or receive approvals in a timely manner. In particular, the United States Food and Drug Administration and comparable agencies in foreign countries, including the European Medicines Evaluation Agency and the Medicines Control Agency in the United Kingdom, must approve human therapeutic and preventive products before they are marketed. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. While the time required to obtain approva