Napo Pharmaceuticals

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$2.55 Million Fundraising by Way of Issue of Convertible Debt and Common Shares and $1.5 Million Extension of Payment Terms with Certain Trade contractors

South San Francisco, California, 5 March 2008 Napo Pharmaceuticals, Inc., (LSE: NAPL) announces that it has raised $2.55 million (approximately £1.28 million), $2.47 million (approximately £1.24 million) net of expenses, through the issue of $2.25 million of convertible debt (the "March Convertible") and approximately $0.3 million (£0.15 million) of common shares (the "Subscription", together with the March Convertible, the "Fundraising").

The March Convertible bears interest at a rate of 3.2 per cent per annum payable in cash and is redeemable on 31 July 2008. 25 per cent of the March Convertible (approximately $0.56 million) is convertible into the Company's common stock at a price of 27.9 pence (the "Conversion Price"). If the maximum conversion takes place, the Company would issue 1,016,655 common shares, representing approximately 1.9 per cent of the Company's current issued share capital. The remaining 75 per cent of the March Convertible (approximately $1.69 million) is repayable in cash on 31 July 2008.

Holders of the March Convertible are also being issued with warrants over 3,049,965 common shares (representing approximately 5.7 per cent of the Companys current issued share capital) exercisable at any time from 31 July 2008 until 3 March 2013 at the Conversion Price.

The Net Funds available from the Fundraising and the Trade Contractor Extension (the "Net Funds") will be used to continue to fund the working capital of the Company into July 2008 and to reach three clinical benchmarks expected by the end of the first half of 2008, namely:

• the Phase 2 CRO-ID for acute infectious diarrhoea trial being conducted by Napo's partner in India, Glenmark Pharmaceuticals, the results for which are expected in Q2 2008;
• the Phase 2 CRO-ID trial being conducted by Napo in Bangladesh for cholera, the results for which are expected in Q2 2008; and
• the completion of the Stage I of Napo's Phase 3 adaptive design trial for CRO-HIV funded by Napo, the results for which are expected in Q2 2008.

The Net Funds are not sufficient to complete Stage II of the Phase 3 adaptive design trial for CRO-HIV which will focus on the dose selected in Stage I of the trial. However the Company will continue its efforts to raise additional funds primarily from corporate partnering alliances and out-license deals. The directors are confident that the Company will be able to secure a partnership for the commercial rights to crofelemer which will provide sufficient resources to the Company to fund the development of CRO-HIV through to FDA approval. An NDA filing with the FDA for CRO-HIV is expected at the end of 2008.

In conjunction with the Fundraising, the terms of the $1.475 million convertible debt announced on 7 January 2008 (the "January Convertible") have been amended. As a result of this amendment all of the January Convertible will be entitled to convert into common shares at the Conversion Price (representing 2,665,896 common shares, being approximately 5 per cent of the current issued share capital) and holders of the January Convertible will receive warrants over common shares equal to 50 per cent of the value of the January Convertible at the Conversion Price (representing 1,332,948 common shares, being approximately 2.5 per cent of the current issued share capital) exercisable after 60 days. The January Convertible will now bear interest at a rate of 3.2 per cent per annum payable in cash (previously 8 per cent).

Napo recently received full control over the western commercial rights of crofelemer as part of a mutual termination agreement with Trine Pharmaceuticals, which is winding down its operations, as announced on 11 February 2008. Napo is currently negotiating the license of certain commercial rights to crofelemer in western territories. The Company is seeking terms which include access fees relating to the late-stage profile of crofelemer, milestone payments and royalties as the product achieves its scientific and clinical endpoints, regulatory approval, and commercial success.

Lisa Conte, Napo's CEO commented, "We are pleased to announce this financing which allows us to continue to move forward with our Phase 3 CRO-HIV trial. Regaining the commercial control over crofelemer in western territories for all indications is a transformational moment for Napo, allowing us to engage with partners who are able to prepare for and provide the appropriate educational and commercial activities for crofelemer and share the responsibilities associated with latest stages of drug development and approval."

For more information please contact:

Napo Pharmaceuticals, Inc.
Lisa Conte, Chief Executive Officer
+001 (650) 616-1902

Charles Thompson, Chief Financial Officer
+001 (650) 616-1902

Buchanan Communications
+ 44 (0)20 7466 5000
Tim Anderson, Mary-Jane Johnson, Catherine Breen

Nomura Code Securities Limited
+44 (0)20 7776 1205
Clare Terlouw

About Napo Pharmaceuticals, Inc.

Napo Pharmaceuticals, Inc. focuses on the development and commericalization of proprietary pharmaceuticals for the global marketplace in collaboration with local partners. Napo was founded in November 2001, and is based in California, USA with a subsidiary in Mumbai, India.

Napo's late-stage proprietary gastro-intestinal compound, crofelemer, is in various stages of clinical development for four distinct product indications, including a late-stage Phase 3 program:

• CRO-HIV for AIDS diarrhea, Phase 3
• CRO-IBS for diarrhea irritable bowel syndrome (D-IBS), Phase 2
• CRO-ID for acute infectious diarrhea (including cholera), Phase 2
• CRO-PED for pediatric diarrhea, Phase 1

The FDA has granted fast-track status to CRO-IBS and CRO-HIV. Crofelemer, a proprietary patented first in class agent, is extracted from Croton lechleri, a medicinal plant which can be sustainably harvested from several countries in South America. Napo has exclusive worldwide rights to synthetic compounds in pre-clinical development which act by the same mechanism of action. Napo also plans to develop an early clinical stage product, NP-500, for the treatment of insulin resistant diseases of Type II diabetes and metabolic syndrome (Syndrome X; pre-diabetic syndrome) and has 4 issued patents for anti-cancer agents in pre-clinical development. Napo has a plant library of approximately 2,300 medicinal plants from tropical regions and Napo has entered two screening relationships associated with this collection. Currently, products are based on the chemical and biological diversity derived from plants with medicinal properties, but future products may be in-licensed from other sources. Napo has partnerships with Glenmark Pharmaceuticals Limited of India and AsiaPharm Group Ltd. of China.

For more information please visit www.napopharma.com.