finally an acquisition

Metabolic signs binding term sheet for PolyNovo

• Metabolic to acquire 100 per cent of PolyNovo shares from its two shareholders Xceed and CSIRO in exchange for shares in Metabolic
• Transaction expected to be completed by late October 2008
• Dr Ian Griffiths to be appointed as CEO & Managing Director and Board restructure

Melbourne, 18 July 2008. Metabolic Pharmaceuticals Limited (“Metabolic”) today announced that the Company has signed a binding term sheet to acquire PolyNovo Biomaterials Ltd (PolyNovo), a company developing a novel patented family of biodegradable polymers, NovoSorbTM, for use in medical devices.
The transaction is expected to take around three months to complete and is subject to satisfactory due diligence and relevant regulatory and shareholder approvals. Upon completion of the transaction, approximately 247 million new shares in Metabolic, representing 45 per cent of the Company’s current issued capital, will be issued to the shareholders of PolyNovo, being Xceed Capital Limited (Xceed) (ASX: XCD) and Commonwealth Scientific and Industrial Research Organisation (CSIRO).

Mr Rob Stewart, the Chairman of Metabolic, commented “the Board is delighted with this proposed acquisition and believes it will add significant value for our shareholders. PolyNovo is an exciting company with a track record of securing international licensing deals with major companies. Over the last year we have explored numerous M&A possibilities – we believe that PolyNovo presents us with the greatest potential to add value for our shareholders.”

PolyNovo’s technology - NovoSorbTM
PolyNovo is a Melbourne-based company focused on developing its novel patented family of biodegradable
polymers NovoSorbTM for use in medical devices. PolyNovo has signed three international deals with major companies since 2006 and is expanding its NovoSorbTM polymer production capacity to supply material to these companies for product development.
NovoSorbTM is based on the novel composition of matter and process patents developed within CSIRO’s Division of Molecular and Health Technologies. PolyNovo is focussed on commercialising NovoSorbTM to produce a range of medical products that can be safely broken down and excreted (biodegradable) and utilised (bioresorbable) by the human body. NovoSorbTM offers flexibility which allows it to be formulated either as an injectable gel that can be cured in-situ or on demand or as a solid form product with
compressive strength similar to bone. NovoSorbTM can be tailored to large world markets with potential applications in areas as diverse as orthopaedics, orthodontics, drug delivery, wound care, tissue engineering, nerve regeneration and cartilage repair.

Key terms of the deal
Subject to satisfaction of relevant conditions precedent, Metabolic will acquire 100 per cent of the issued share capital of PolyNovo from its two shareholders (Xceed and CSIRO) in exchange for new issued shares in Metabolic. Xceed and CSIRO currently own 64 per cent and 36 per cent of PolyNovo respectively.

Once the transaction has been completed, these two shareholders will be issued new shares on a pro-rata basis, equivalent to 45 per cent of Metabolic’s current issued capital. Both Xceed and CSIRO have agreed to abide by any escrow restrictions required by the ASX. The total number of Metabolic’s current issued capital and performance rights is around 302 million. At completion of the transaction approximately 247 million new shares will be issued to Xceed and CSIRO.

Therefore, the new issued capital of the Company will be approximately 549 million shares, of which 158 million will be owned by Xceed and 89 million by CSIRO.

Under the terms of the agreement, Xceed is required to distribute all of these Metabolic shares to Xceed's
shareholders within a timeframe agreed to by the parties (subject to an ATO Class Ruling and any ASX imposed restrictions). In the event that these Metabolic shares cannot be distributed to Xceed’s shareholders, Xceed has agreed that, by no later than 12 months after the completion of the transaction or 6 months after the release from any escrow conditions (whichever is the later to occur), it will own not more than 10 per cent of the issued capital of Metabolic. It has also entered into an agreement which will restrict its voting power, except in certain customary circumstances, whilst it holds in excess of 10 per cent of Metabolic.

The transaction is expected to take three months to complete. In the interim, Metabolic has agreed to advance PolyNovo up to $2 million to enable the company to move forward with the development of its business. Of this amount, $1 million is payable upon signing the binding term sheet and further drawdowns up to an aggregate of $1 million may be advanced following satisfactory due diligence and satisfaction of relevant drawdown conditions. If the transaction is not completed, Metabolic may require repayment of the loan or convert the loan into equity in PolyNovo. Xceed has entered into an agreement with PolyNovo to subscribe a minimum of $2.5 million of additional share capital of PolyNovo to enable it to repay the loan should that be required.

Shareholder approval and timeline
This transaction is subject to various conditions precedent including the approval of the shareholders of
Metabolic and Xceed at General Meetings and the final stage approval of CSIRO.

The anticipated timeline for the transaction is as follows:

17 July 2008 Binding term sheet signed
Mid August 2008 Due diligence completed
September 2008 Notices of General Meetings sent to shareholders of Metabolic and Xceed
October Shareholder Meeting of Metabolic and Xceed
Late October 2008 Completion of transaction

It is intended that on completion of the transaction, Metabolic will change its name to PolyNovo Biomaterials Ltd and PolyNovo, as a subsidiary, will also change its name.

Board and Management
Upon completion of the transaction, Dr Ian Griffiths will be appointed as Chief Executive Officer and Managing Director of Metabolic. Dr Griffiths is the inaugural Chief Executive Officer of PolyNovo. He has a degree in polymer chemistry and a Ph.D. in polyurethane physics from the University of Manchester (UK).

Dr Griffiths has extensive experience in the set-up, management and development of biomaterials companies. He has specific industry knowledge and commercial experience in the fields of cardiac surgery, interventional cardiology, cardiac rhythm management, orthopaedics and cosmetic surgery. He has worked with development groups and regulatory agencies on numerous medical devices that are currently commercially available.

Upon completion of the transaction, Mr Don Clarke and Mr Iain Kirkwood will resign as directors of Metabolic and Mr Bruce Rathie, a current director of PolyNovo, and Dr Stewart Washer, an executive director of Xceed, will be appointed to the Board of Metabolic. Dr Washer will remain a director for such period as Xceed holds at least 10 per cent of Metabolic’s shares.

The new Board of Metabolic will comprise the following directors:

Rob Stewart Non-executive Chairman
Ian Griffiths* Chief Executive Officer & Managing Director
Franklyn Brazil Non-executive Director
Paul Lappin Non-executive Director
Stewart Washer Non-executive Director
Bruce Rathie Non-executive Director

* Dr Griffiths will resign from the board of Xceed upon completion of the transaction.

The staff of both companies will be retained to ensure the smooth transition to the Company’s future direction.

Continued development of Metabolic’s research projects
The new Board of Metabolic will review the Company’s existing projects targeting motor neuron disease and
osteoporosis. It is expected that the Company will continue to seek an out-licensing deal for its osteoporosis
drug and will continue its collaboration with Neuren for Neural Regeneration Peptides (NRPs). The appropriate resources will be allocated to these projects as agreed upon by the new Board.