Napo Pharmaceuticals, Inc. Preliminary Results For The Year Ended December 31, 2006

SOUTH SAN FRANCISCO, Calif., March 30 /PRNewswire/ -- Napo Pharmaceuticals, Inc. today announced its preliminary results for the year ended December 31, 2006.

Financial Highlights: -- Milestone and contract revenue of US $1.2 million * Milestone payment of US $1 million received from Trine Pharmaceuticals, Inc. as a result of initiation of Phase 2b trial for CRO-IBS -- Net loss attributable to common stockholders US $15.2 million inclusive of US $2.2 million of non-cash stock compensation charges and deemed dividends of US $3.9 million -- US $22 million (£11.9 million) gross proceeds raised in an IPO on the London Stock Exchange July 31, 2006 * Subsequent financing raised US $5.6 million in December 2006/January 2007 plus conditional commitment to subscribe for additional shares worth approximately $900,000 -- Cash and equivalents of US $19.7 million at December 31, 2006 -- Current share count is 46,971,796 common shares 2006 Operational Highlights: -- Initiation of Special Protocol Assessment Process for adaptive design for CRO-HIV Phase 3 study. -- Completion of feasibility study for CRO-HIV final Phase 3 study in US. -- Additions of M. Scott Harris, M.D. as VP Clinical and Chief Medical Officer to oversee CRO-HIV trial, Mark Longer, Ph.D. as VP Planning Program Management. -- Phase 2 trial initiated for crofelemer for a cholera indication at the International Center for Diarrheal Disease Research in Bangladesh. -- Manufacturing capability developed for crofelemer at Glenmark facility in India. Senior manufacturing personnel added who had previous manufacturing experience with crofelemer. -- USD $600,000 grant received from the US National Institutes of Health (NIH) - National Institute for Allergies and Infectious Diseases for formulation development for crofelemer in connection with a cholera indication. -- Drug Controller General of India (DCGI) approval for Glenmark Pharmaceuticals Limited, Napo's licensee and manufacturing partner for crofelemer, to start a Phase 2 trial with crofelemer, Napo's proprietary gastro-intestinal compound for the treatment of acute infectious diarrhea. -- Entered into a plant screening agreement with AsiaPharm Group for the screening of Napo's library of plants for multiple therapeutic indications. Post 2006 highlights Operations: -- James Nash joined Napo as Chief Operating Officer in January. Mr. Nash has approximately 30 years of pharmaceutical experience with companies including Watson Pharmaceuticals, Chiron and Searle Pharmaceuticals. -- Screening agreement with Nicholas Piramal Limited (India) for novel diabetes therapeutic agents. -- Received Independent Review Board approval of protocol for CRO-HIV Phase 3 study. Board: -- Mustapha "Staph" Leavenworth Bakali and Jack Van Hulst joined Napo's Board of Directors. Mr. Bakali is the former COO of ID Biomedical and Powderject and Jack Van Hulst has over 39 years of pharmaceutical experience and was most recently Executive Vice President of MOVA Pharmaceutical Corporation

Commenting on this announcement, Lisa Conte, Chief Executive Officer of Napo Pharmaceuticals Inc, said: "We are delighted to issue our preliminary results as a publicly listed company on the Main Market of the London Stock Exchange. Since flotation in July last year Napo has enjoyed a very busy and successful period. We commenced a clinical trial for crofelemer for a cholera indication and have made progress with regulators to start our CRO-HIV clinical trial. We received a grant from the NIH for developing formulations of crofelemer for the cholera trial and our team at Napo has expanded across all areas. We look forward to issuing further news flow and to returning value to our stockholders. I would like to thank all employees and stockholders for their support."

For more information please contact: Napo Pharmaceuticals, Inc Lisa Conte, Chief Executive Officer + 650 616 1902 Charles Thompson, Chief Financial Officer + 650 616 1903 Buchanan Communications Tim Anderson, Mary-Jane Johnson 020 7466 5000 Noonan Russo Greg Geissman + 619-814-3510 Nomura Code Securities Limited Clare Terlouw 0207 776 1204

Disclaimer The Shares referenced in this announcement are not for distribution, directly or indirectly, in or into the United States or to any US person as defined in Regulation S under the US Securities Act of 1933, as amended ("Regulation S"). This announcement is not an offer of securities for sale into the United States or elsewhere. The Shares described above have not been registered under the US Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in the United States or to, or for the account or benefit of, US persons (as such term is defined in Regulation S) unless they are registered under the Securities Act or they are exempt from registration under the Securities Act. No offer or sale of Regulation S securities has been made or will be made in the United States. Hedging transactions involving these securities may not be conducted unless in compliance with the Securities Act.

Our preliminary statement contains certain statements, statistics and projections that are or may be forward-looking (within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on the current expectations or beliefs of Napo Pharmaceuticals, Inc. management and are subject to a number of factors and uncertainties, including the risk factors identified in Part II of Napo Pharmaceuticals, Inc.'s July 2006 Prospectus, and the outcome of events may differ materially from those described in the forward-looking statements). The accuracy and completeness of all such statements, including, without limitation, statements regarding the future financial position, strategy, projected costs, plans and objectives for the management of future operations of Napo and its subsidiaries is not warranted or guaranteed. These statements typically contain words such as "intends", "expects", "anticipates", "estimates" and words of similar import. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Although Napo believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to be correct. There are a number of factors, which may be beyond the control of Napo, which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. Other than as required by applicable law or the applicable rules of any exchange on which our securities may be listed, Napo has no intention or obligation to update forward-looking statements contained herein.

Chairman and Chief Executive's Statement

The year 2006 was exciting for Napo. In March 2006, Napo began its first clinical trial for crofelemer at the International Center for Diarrheal Disease Research ("ICDDR") in Bangladesh for a cholera indication. We substantially expanded the operating base of our company through the addition of new personnel and a significant capital infusion from our initial public offering on the London Stock Exchange ("LSE") and in the process became the first US incorporated company to complete an initial public offering on the LSE. The IPO raised US $22 million gross (£11.9 million). In December 2006 and January 2007 the company raised an additional US $5.6 million (£2.86 million) in cash and conditional commitments, the funds of which were used to license a diabetes and metabolic disease compound ready to enter Phase 2 development and for working capital purposes.

Our results of operations in 2006 reflect our ongoing research and development activities tied to the development of crofelemer including the hiring of additional personnel and significant expenditures for manufacturing operations. This level of expenditure will increase in 2007 as we begin the CRO-HIV trial and Napo believes the loss from results of operations in 2007 is likely to be higher than 2006.

2006 was a major building year for Napo. This will serve as a foundation in 2007 for several major milestones which we aim to achieve, including:

-- Completion of Special Protocol Assessment process for adaptive design with FDA -- Launch of the CRO-HIV pivotal Phase 3 trial -- Completion of the cholera trial -- Clinical progress on CRO-IBS Phase 2b trial (conducted by Napo's licensee - Trine Pharmaceuticals) -- Planning for the development for NP 500 for insulin resistance and metabolic disease -- Clinical progress of Glenmark's acute infectious diarrhea indication for crofelemer -- Plans/partnering for western territory pediatric development -- Progress on the development of a lower cost manufacturing process for crofelemer as well as IP development -- Pre-clinical pipeline development and further definition of unifying natural product R&D strategy Thank you for your support. Nezam Tooloee Lisa A. Conte Chairman of the Board CEO Finance Review Summary of Results of Operations Consolidated income statement For the year ended December 31, 2006 Years Ended December 31 2005 2006 Revenue 8,973 1,238,444 Operating expenses: Cost of revenue: 37 Research & development (1) 1,297,076 8,094,224 General & administrative (2) 2,090,909 4,912,181 Total operating expenses 3,388,022 13,006,405 Loss from operations (3,379,040) (11,767,961) Other income, net 65,200 181,165 Interest (exp.) income, net (22,758) 340,447 Net loss (3,336,607) (11,246,349) Deemed dividends (3,942,007) Net loss attributable to common stockholders (3,336,607) (15,188,356) Non-cash stock based compensation expense included in operating expenses: Research & development (1) 15,762 1,392,035 General & administrative (2) 31,949 790,676 Basic and diluted net loss per common share US$ ($82.42) ($0.90) Basic and diluted net loss per common share GBP (42.09 pounds) (0.45 pounds) Shares used in basic and diluted net loss per common share calculation 40,484 16,925,408 Comparison of Years Ended December 31 2006 and 2005

Revenue. Revenue in the year ended December 31, 2006 was US $1.2 million as compared to US $9,000 in the year ended December 31, 2005. In 2006, Napo received a US $1 million milestone payment from Trine Pharmaceuticals, Inc., which in 2004 licensed crofelemer for the indication of diarrhoea-predominant IBS (CRO-IBS) worldwide. The milestone payment was associated with Trine's initiation of a Phase 2b trial for CRO-IBS. Additionally, Napo received a contract revenue of US $229,000 from a grant from the National Institutes of Health - National Institute of Allergy and Infectious Diseases associated with the development of a formulation of crofelemer for cholera.

Research and Development. Research and development expenses were US $8.1 million in the year ended December 31, 2006 compared to US $1.3 million in the year ended December 31, 2005. Research and development expenses increased significantly in 2006 with the addition of additional employees and consultants in the areas of manufacturing and clinical development in preparation for the pivotal Phase 3 trial for CRO-HIV and the cholera trial which began in March 2006. In addition to personnel, there were higher costs associated with preparations for the manufacture of active pharmaceutical ingredient, formulation and related activities. Research and development employees increased to 13 at the end of 2006 from four at the end of 2005. Included in research and development expenses were non-cash compensation charges of USD $1.4 million associated with the grant of incentive equity options.

General and Administrative Expenses. General and administrative expenses were US $4.9 million in the year ended December 31, 2006 compared to US $2.1 million in the year ended December 31, 2005. General and administrative expenses increased in the year ended December 31, 2006 as a result of higher employee headcount and higher compensation, employee recruiting activities as well as increased costs associated with Napo's public offering including travel, public relations and other legal costs. Included in general and administrative expenses were non-cash compensation charges of US $791,000 associated with the grant of incentive equity options.

Other income, net. Other income in the year ended December 31, 2006 was US $181,000 compared to US $65,200 in the year ended December 31, 2005. Other income in 2006 included a gain on a settlement with a third party regarding damages to property held in storage of US $172,000, while the other income item of US $65,000 in the year ended December 31, 2005 was due to an insurance recovery on damaged property.

Net Interest. Net interest income in the year ended December 31, 2006 was US $340,000 compared to net interest expense of US $23,000 in the year ended December 31, 2005. The interest income in 2006 was due to higher net cash balances while the net interest expense in the year ended December 31, 2005 was associated with interest expense on US $1.1 million series C convertible notes which converted to Series C Preferred Shares in July 2005.

Deemed dividends. In the year ended December 31, 2006, Napo incurred non- cash charges of US $3.9 million associated with the issuance of Series C Convertible Preferred Stock in the months prior to Napo's initial public offering.

Net loss attributable to common stockholders. The net loss attributable to common stockholders in the year ended December 31, 2006 was US $15.2 million compared to US $3.3 million in the year ended December 31, 2005, reflecting significant increases in research and development activity and higher levels of general and administrative expenses associated with increased operating activities and as well as Napo's initial public offering and non cash compensation charges and deemed dividends.

Cash Flow and Liquidity

In the year ended December 31, 2006, cash used in operating activities was US $7.2 million and cash used to purchase property and equipment was US $481,000. Net cash provided by financing activities was $26.2 million, including:

-- US $2.7 million from the sale of Series C Convertible Preferred Stock -- US $1.3 million from the exercise of warrants to purchase common stock -- US $2.9 million from the issuance of the Optionally Convertible Redeemable Preference Shares -- US $369,000 from the issuance of common stock -- US $38,000 from the exercise of stock options -- US $18.9 million from IPO proceeds

On July 31, 2006, upon the initial public offering of our common stock on the Main Market of the London Stock Exchange, we issued 14,300,048 shares of our common stock at an offering price of 83 pence or US $1.54 per share for gross proceeds of approximately $21.9 million. Cash proceeds from the sale, net of underwriters' discount and offering expenses, totaled approximately US $18.9 million.

In December 2006 and January 2007, Napo issued 3,150,914 shares of common stock including 124,271 shares to advisors at 94.5 pence or US $1.85 per share for gross proceeds of US $5.6 million and received a conditional commitment for additional funds of US $900,000.

As of December 31, 2006 Napo had cash of US $19.7 million and no bank borrowings.

Cash at the beginning of the year was US $1.2 million. There was no capitalized interest in either period. Earnings Per Share and Dividends

The net loss per common share in the year ended December 31, 2006 was US $0.90 or 0.45 pounds GBP. Napo does not plan to pay any dividends in the foreseeable future, if ever.

The closing market price of the Company's shares at the end of the financial year was 94.5 pence (December 31, 2006): and the range of market prices during the year was between 83 pence and 96.5 pence.

Credit Risk

Napo holds significant cash balances which are invested on a short-term basis. These deposits and other financial instruments give rise to credit risk on amounts due from counterparties. Credit risk is managed by limiting the aggregate amount and duration of the exposure to any one counterparty by reference to its credit rating. Counterparties are chosen based on yield, availability of funds, credit rating and quality of service.

The maximum maturity of the portfolio may not exceed 36 months with the average maturity not to exceed 18 months. Eligible investment includes US treasury securities, asset-backed securities with a minimum rating of AAA, and A-1 rated money market instruments.

Napo Pharmaceuticals, Inc. (a development stage company) Consolidated Balance Sheets 2006 2005 $ $ Assets Cash and cash equivalents 920,704 1,183,991 Short-term investments 18,803,881 - Stock subscriptions receivable 599,998 - Prepaid expenses and deposits 36,856 44,313 Other current assets 221,712 67,572 Total current assets 20,583,151 1,295,876 Property and equipment, net 425,961 51,865 Patent, net 111,109 138,889 Total Assets 21,120,221 1,486,630 Liabilities and Stockholders' Equity Accounts payable 414,060 135,447 Accrued compensation 535,415 255,299 Other current liabilities 1,350,206 3,632 Total current liabilities 2,299,681 394,378 Convertible redeemable preference shares (Optionally convertible, redeemable preference shares, 1 Indian Rupee par value, 3,529,412 shares authorized, issued and outstanding, aggregate liquidation preference of US $5,710,830) 5,710,830 - Commitments and Contingencies (Note 4) Stockholders' Equity Convertible preferred stock, $0.0001 par value, 30,000,000 shares authorized: Series A: 6,030,000 shares designated, 5,858,350 shares issued and outstanding at December 31, 2005 and 2004, aggregate liquidation preference of $1,756,333 - 1,759,335 Series B: 7,000,000 shares designated, 6,999,233 shares issued and outstanding at December 31, 2005 and 2004, aggregate liquidation preference of $3,499,617 - 3,459,001 Series C: 15,000,000 shares designated, 5,260,017 shares issued and outstanding at December 31, 2005, aggregate liquidation preference of $5,516,016 - 4,451,029 Common stock subscribed 81 - Stock subscriptions receivable (899,994) - Accumulated other comprehensive loss (7,658) - Additional paid-in capital 38,104,012 325,249 Deficit accumulated during the development stage (24,090,722) (8,902,366) Total Stockholders' Equity 13,109,710 1,092,252 Total Liabilities and Stockholders' Equity 21,120,221 1,486,630

See summary of accounting policies and notes to consolidated financial statements.

Consolidated Statements of Operations Period from Inception (November 15, 2001) Year Ended December 31 through Year ended December 31 2006 2005 2004 2006 $ $ $ $ Revenue 1,238,444 8,973 1,088,793 2,561,838 Operating expenses: Cost of revenue - 37 52,054 194,601 General and administrative expense(1) 4,912,181 2,090,909 1,370,642 10,279,472 Research and development expense(2) 8,094,224 1,297,076 1,305,405 12,396,741 Total operating expenses 13,006,405 3,388,022 2,728,101 22,870,814 Loss from operations (11,767,961) (3,379,049) (1,639,308) (20,308,976) Gain from insurance recovery 172,051 Interest (expense) income, net 340,447 (22,758) (108,972) 85,947 Other income, net 9,114 65,200 - 74,314 Net loss (11,246,349) (3,336,607) (1,748,280) (20,148,715) Deemed dividends (3,942,007) - - (3,942,007) Net loss attributable to common stockholders (15,188,356) (3,336,607) (1,748,280) (24,090,722) Basic and diluted net loss per common share 0.90 82.42 49.18 Basic and diluted net loss per common share (pounds) 0.45 42.09 25.12 Shares used in basic and diluted net loss per common share calculation 16,925,408 40,484 35,552 Included in operating expenses is non-cash stock-based compensation as follows: (1) General and administrative expense 790,676 31,949 137,517 1,013,020 (2) Research and development expense 1,392,035 15,762 37,638 1,497,330

See summary of accounting policies and notes to consolidated financial statements.

Statement of Stockholder's Equity, Optionally Convertible Redeemable Preference Shares ("OCRPS") and Accumulated Other Comprehensive Income Common Stock Stock Sub- Sub- OCRPS Common Stock scribed scriptions Paid-in Shares Amount Shares Amount Shares Amount Receivable Capital $ $ $ $ $ Issuance of common stock in December 2001 for cash 9,378 1 277 Issuance of Series A preferred stock at $0.2998 per share for cash Issuance of Series A preferred stock to pay pre- decessor expenses at $0.2998 per share, net issuance costs of $10,150 Issuance of common stock warrants for services Issuance of series A warrants for services Issuance of common stock for cash at $0.03 per share 11,106 1 336 Issuance of Series A preferred stock at $0.2998 per share in June 2002, net issuance costs of $3,543 Compensation recognised under incentive stock option plans 31,602 Net loss from inception through Dec. 31, 2002 Balances at Dec. 31, 2002 20,484 2 34,718 Compensation recognised under incentive stock option plans 67,667 Net loss Balances at Dec. 31, 2003 20,484 2 102,385 Series A Series B Series C Preferred Preferred Preferred Stock Stock Stock Shares Amount Shares Amount Shares Amount $ $ $ Issuance of common stock in December 2001 for cash Issuance of Series A preferred stock at $0.2998 per share for cash 750,000 225,000 Issuance of Series A preferred stock to pay pre- decessor expenses at $0.2998 per share, net issuance costs of $10,150 1,932,341 569,169 Issuance of common stock warrants for services Issuance of series A warrants for services 3,002 Issuance of common stock for cash at $0.03 per share Issuance of Series A preferred stock at $0.2998 per share in June 2002, net issuance costs of $3,543 3,176,009 962,164 Compensation recognized under incentive stock option plans Net loss from inception through Dec. 31, 2002 Balances at Dec. 31, 2002 5,858,350 1,759,335 Compensation recognized under incentive stock option plans Net loss Balances at Dec. 31, 2003 5,858,350 1,759,335 Accumulated Other Accumulated Comprehensive Stockholders' Deficit Income Equity $ $ $ Issuance of common stock in December 2001 for cash 278 Issuance of Series A preferred stock at $0.2998 per share for cash 225,000 Issuance of Series A preferred stock to pay pre- decessor expenses at $0.2998 per share, net issuance costs of $10,150 569,169 Issuance of common stock warrants for services 2,503 Issuance of series A warrants for services 3,002 Issuance of common stock for cash at $0.03 per share 337 Issuance of Series A preferred stock at $0.2998 per share in June 2002, net issuance costs of $3,543 962,164 Compensation recognized under incentive stock option plans 31,602 Net loss from inception through Dec. 31, 2002 (1,845,358) (1,845,358) Balances at Dec. 31, 2002 (1,845,358) (51,303) Compensation recognized under incentive stock option plans 67,667 Net loss (1,972,121) (1,972,121) Balances at Dec. 31, 2003 (3,817,479) (1,965,757) See summary of accounting policies and notes to financial statements. Common Stock Stock Sub- Sub- OCRPS Common Stock scribed scriptions Paid-in Shares Amount Shares Amount Shares Amount Receivable Capital $ $ $ $ $ Balance at Dec. 31, 2003 20,484 2 102,385 Issuance of common stock in exchange for services 20,000 2 600 Issuance of common stock warrants in exchange for services in March and April, 2004 4,117 Issuance of Series B preferred stock at $0.50 per share, including conversion of short- term notes payable Issuance of common stock warrants with preferred stock 115,585 Compensation recognized under incentive stock option plans 54,851 Net loss Balances at Dec. 31, 2004 40,484 4 277,538 Issuance of common stock warrants in exchange for services in February and September 2005 5,705 Issuance of Series C preferred stock from July through December 2005 at $0.085 per share, net of issuance costs of $24,185 Compensation recognized under incentive stock option plans 42,006 Net loss Balances at Dec. 31, 2005 40,484 4