Biotron Limited Annual Report 2004

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FY2004 Annual Report · Biotron Limited

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Biotron Limited ABN 60 086 399 144

ANNUAL REPORT
for the year ended 30 June 2004

contents

chairman’s report

review of operations

corporate governance statement

directors’ report

statement of financial performance

statement of financial position

statement of cash flows

notes to the financial statements

directors’ declaration

independent audit report

additional ASX information

corporate directory

2 - 6

7 - 8

9 - 12

16 - 25

he past year has seen a continued focus on
commercial development of the Company’s two
major projects, Virion and C-Test. Major advances have
been made on both projects. Virion's substantial
progress means that the Company is well placed to
maximise the benefit of the increased value of this
world-class technology.

During the year Biotron was successful
its
applications for Biotechnology Innovation Fund (BIF)
and Start grants from the Federal government. These
grants will provide almost $2 million to the Company
over the next one to two years. Successful application
for the competitive grants is affirmation of the advances
the Company has made.

The Virion antiviral technology has expanded to cover a
wide range of economically significant viruses in
addition to HIV-1. Outstanding research by our scientists
has unveiled a potential new therapy for currently
untreatable viral diseases including Hepatitis C, SARS
and Dengue. Development of therapeutics for these
viruses has progressed rapidly and we anticipate that
this rapid progress will continue. One of the benefits of
having a true platform technology is that the preclinical
and clinical studies undertaken for the HIV technology
will facilitate development of therapeutics which can
target the other viral diseases currently being
researched by the Company.

The Virion anti-HIV technology has progressed to
preclinical testing and the Company is well along the
path to clinical studies in humans. Biotron’s compounds
show characteristics that are essential for good clinical
candidates, a significant advance which should not be
underestimated.

chairman’s report

The competitive position of C-Test has been
significantly increased by improvements to methods of
detection, resulting
in decreased variability and
increased sensitivity. Together with previous advances
in
sample processing and algorithm/software
development, the C-Test cancer diagnostic test format is
well placed to take advantage of recent upsurge in
interest in biomarkers for disease diagnosis by the
international scientific and medical community.

During 2004/05, the Company looks forward to reaping
the benefit of these key advances in Virion and C-Test,
with the aim of maximising returns to shareholders. The
Company is intent on achieving a commercial outcome
for these technologies while continually exercising
rigorous control of costs.

On behalf of the shareholders and Directors, I would like
to thank all Biotron staff for their untiring efforts during
the year. Thanks to their commitment and dedication,
your Company is well placed to meet the next stage of
its development.

Yours sincerely

Michael J. Hoy

Chairman

ANNUAL REPORT 2004

review of operations

OVERVIEW

uring the year ended 30 June 2004 there has been
a continued focus on the commercial development
of the key biomedical projects managed and funded by
the Company.

The following significant events were achieved during
the year under review:
• Demonstration

ion channel activity
associated with the p7 protein of Hepatitis C virus
can be blocked by Biotron’s small molecule
compounds, opening up a potential new
therapeutic approach to this disease.

that

• Demonstration that the E protein of SARS
coronavirus forms an ion channel and that this
activity can be blocked by Biotron’s small
molecule compounds, opening up a potential
therapy for SARS.

• Demonstration that the M protein of Dengue
virus forms an ion channel and that this activity
can be blocked by Biotron’s small molecule
compounds, opening up a potential therapy for
Dengue and related flaviviruses.

• Awarded a Biotechnology Innovation Fund grant
the Australian Federal

from

of $250,000
Government.

• Publication of two manuscripts describing of
Biotron research into potential new therapeutics
for HIV and for Hepatitis C virus in international,
prestigious, peer-reviewed scientific journals.
• Awarded a Start grant of $1.7 million for
preclinical development of the Virion anti-HIV
technology.

• Successful completion of the first stage of
preclinical toxicity testing of Biotron’s lead
antiviral compounds.

BIOTRON’S PROJECTS

As stated in the Financial Report for year ended 30 June
2003 and re-iterated in the Update to Shareholders
earlier this year, the Company’s efforts are currently
focused on commercial development of the Virion and
C-test Projects. These projects the most advanced within
the Company, and address unmet medical needs and
have enormous commercial potential. Both have the
potential to generate returns in a shorter time frame.

During the 2003-2004 financial year, Biotron has been
successful
for Biotechnology
Innovation Fund (BIF) and Start grants from the Federal
government. These grants will provide almost $2 million

its applications

ANNUAL REPORT 2004

to the Company over the next one to two years.
Successful application for the grants required Biotron
to satisfy independent review committees of the
international
and
commercial potential of the projects.

competitiveness,

innovation,

Biotron’s model is to take projects such as C-Test
and Virion through proof-of-concept studies into
preclinical and early-stage clinical development. The
Company then aims to form partnerships and alliances
with international pharmaceutical or biotechnology
companies for further late-stage clinical development
and marketing of products. Income received from such
alliances will be committed to further the commercial
development of existing and new Tier 2 Projects.

Virion Project

The Virion Project is aimed at developing antiviral
agents that will interact with viral proteins in several
significant viral diseases. Over the last 12 months, the
scope of the Virion technology has expanded from HIV
alone, to include a wide range of other viral diseases.
We have been able to demonstrate that the technology
has potential to treat viruses such as SARS coronavirus,
Hepatitis C virus, Dengue virus, and a number of viruses
that cause the common cold. We are confident that the
technology will have application against an even wider
range of viral diseases.

The most advanced project with Virion is the anti-HIV
program, developing small molecule inhibitors of the
Vpu protein of HIV-1, a new drug target in the fight
against HIV. Vpu plays important roles in the budding
and release of newly formed viruses from infected cells,
a process that is crucial for the progression of infection.

As of the end of 2003, an estimated 37.8 million people
worldwide were living with AIDS, with more than 4.8
million new HIV infections occurring worldwide during
2003.

Current anti-AIDS drug therapies primarily target the
HIV-1 reverse-transcriptase and protease enzymes. To
counteract the ability of the HIV-1 virus to rapidly mutate
and develop resistance, patients are given a cocktail of
drugs
Active
of
Highly
Anti-Retroviral Therapy
(HAART). Discovery and
development of new anti-HIV-1 drugs that attack
different parts of the virus life cycle is essential in the
continuing fight against resistance.

part

There is a particular need for therapeutics that
target HIV in a particular type of cell known as
monocyte/macrophages. Recent studies have shown
that these cell types act as pools or reservoirs of virus in
HIV-infected individuals. Existing regimens of HAART
are ineffective at attacking HIV-1 in those cells.

review of operations

Over the past 12 months, Biotron has designed, synthesized and screened more than 160 compounds with the potential
to target specific viral proteins, starting from the design of the initial BIT009 compound. This process of iterative design
and testing for activity has generated a focused library of compounds with significantly improved anti-Vpu activity
compared to BIT009. Six of the most promising lead candidates have been independently tested overseas and shown
to be able to inhibit replication of HIV-1 virus.

An ongoing preclinical development program
is
underway to ensure the compounds' safety and efficacy,
leading up to a Phase I/IIa clinical trial in humans. These
steps all form part of an ordered drug development
program to maximise returns to shareholders in the
commercialisation of the Virion Project by way of
collaboration with a pharmaceutical company. The
Company is currently in the process of selecting a lead
candidate for the HIV study. It is essential that the best
lead is selected to maximise the chance of successfully
passing through the rigorous safety testing that is
required by regulatory authorities before the compound
can be tested in human trials. To assist in the lead
candidate selection, the Company has retained the
services of expert consultants with extensive and
proven experience in drug development. We are well
advanced in this lead candidate selection process and
all results to date are very encouraging, indicating that
the compounds have good, “druggable” characteristics
(ie the compounds have characteristics that are essential
if a drug is to specifically work against a given target in
humans).

As part of a preclinical testing program, acute toxicity
studies have been undertaken in mice to determine the
'no observed adverse effect levels' (NOAEL) of the six
independently tested lead drug candidates. The results
to date have indicated that all six compounds tested
were metabolised by the mice after oral dosing; and that
toxicity levels were within acceptable limits. These
results are indicative of the druggable potential of the
compounds, and move the Company one step closer to
selection of a lead drug candidate.

Discussions are underway with doctors specialising
in
trial
treatment of HIV as well as clinical
consultants, regarding the design and location of a
Phase I/IIa clinical trial in humans. Consultations with
appropriate regulatory authorities are also in progress.
The Start grant ($1.7 million) will expedite the
development of an HIV therapeutic through preclinical
testing and a Phase I/IIa trial in man which will be
undertaken prior to partnering with an international
pharmaceutical company for further development.

ANNUAL REPORT 2004

review of operations

A > Biotron’s proprietary screening assay has identified drugs that
work against the SARS coronavirus. Compounds 4 and 5 (*) strongly
inhibit SARS E protein ion channel activity. Drugs are spotted on
the plate, if the drug inhibits the E protein ion channel there is a
halo of growth.

B > The antiviral activity of the drugs is then confirmed by testing for
their ability to inhibit growth of viruses in plaque assays. The
figure above shows one Biotron’s drugs preventing growth of a
human coronavirus strain.

One of the benefits of having a true platform technology
is that the preclinical and clinical studies undertaken for
the HIV technology will facilitate development of
therapeutics which can target the other viral diseases
currently being researched by the Company.

During the last 12 months, the Virion project has evolved
into a true platform technology, based on the discovery
that Biotron’s compounds inhibit ion channel activity
associated with several other proteins from different
viruses including Hepatitis C virus, SARS coronavirus
and Dengue virus. This discovery opens up potential
antiviral therapies for these currently untreatable
viruses. Each is a medically significant virus, affecting
very large numbers of people around the world. In late
2003, Biotron was awarded a $250,000 BIF grant to
advance its work on viruses other than HIV. Over recent
months, enormous progress has been made in this area,
independent antiviral studies
with results
undertaken both overseas and within Australia
demonstrating that the compounds do inhibit growth of
target viruses. Additional antiviral testing against a
broader range of viruses is currently underway in
conjunction with researchers at the National Institute of
Health (NIH) in the USA.

from

Biotron’s proprietary screening assays are important
components of the Company’s technology portfolio.
Over the last 12 months, Biotron scientists have set up
rapid screening assays covering all current viral target
proteins, in addition to the original Vpu-based assay.
These proprietary assays have proved invaluable in
rapidly screening new compounds for activity against
the various viral targets, and significantly increase
the value of the Virion technology. Most antiviral assays
are very time-consuming and labour-intensive, so
access to rapid, high-throughput screens is a significant
advantage in terms of time and money.

During the year, on-going discussions have been held
with potential partners regarding the Virion technology.
Whilst keen to secure a partner to take the compounds
through into clinical development, Biotron can vastly

ANNUAL REPORT 2004

increase the value of the technology by undertaking the
proposed early (Phase I/IIa) clinical trial before forming
an alliance. This will translate into much higher returns
to the Company in the form of upfront payments as well
as increased milestone and royalty payments in the
future.

C-Test

Cancer cells have a number of characteristics that
distinguish them from normal cells. Most tumour
markers are neither sensitive nor specific enough to
screen for cancer or to diagnose cancer without the
support of other clinical findings. While a number of
different tumour markers have been identified, they
have generally been found to lack sensitivity and
specificity for specific cancers. There is a real need for
new tests that allow unambiguous cancer diagnoses to
be made at an early stage. The best tests will be simple
and non-invasive assays that allow rapid and accurate
diagnosis of the type of cancer and its stage.

The C-Test project is developing sensitive, rapid, non-
invasive assays to detect and diagnose specific types of
cancer. The tests are based on detection of a range of
small molecules, including carbohydrates, in the blood
of patients. The expression of these molecules differs
between patients with specific types of cancer and those
without cancer.

Whilst C-Test has received a lower priority recently due
to the Company's focus on the Virion project, excellent
progress has been made. As reported previously,
Biotron scientists have developed a simplified, robust
method for preparing blood samples for analysis, which
is more readily adaptable for automation in a pathology
laboratory. Progress has also been made on the
development of software for analysis of the samples into
a more user-friendly interface.

Over the last 12 months, work has focused on reducing
the variability inherent in the methods used to analyse
the blood samples as well as improve the sensitivity of
the system for detection of the specific molecules of
interest. As a result of this work, the Company has a
reliable, reproducible assay that reflects the underlying
disease status of the patient. Biotron’s primary aim is to
generate a commercialisable product that can be moved
into the marketplace as rapidly as possible.

Chromatogram showing profiles of blood from cancer vs
healthy patient. Arrow shows peak of interest

Analysis of biomarkers in the blood for diagnosis of
diseases such as cancer is receiving increased attention
in the scientific and medical field. Biotron’s technology is
well placed to take advantage of this upsurge of interest
internationally.

Tier 2 Projects

The remaining, Tier 2 Projects are underpinned by
a platform technology, research on ion channels
in membranes, which allows several scientists to work
in different, yet related, areas of research with the
results of work in one area providing benefits to other
research activities. These projects are at an earlier stage
of development than the Virion and C-Test Projects
and, in accordance with the Company's focus on
the commercial development of the Virion and
C-test Projects, limited resources are committed to
the Tier 2 Projects at this stage. As these projects
develop and resources become available through the
commercialisation of the more advanced Tier 1 Projects,
additional resources will be committed as they reach
specific commercially-focused milestones.

Research has progressed throughout the year on the Tier
2 Projects as discussed below.

Muscion

Contraction of muscle, including heart muscle, depends
on release of calcium from stores inside cells through
calcium channels called ryanodine receptors. The
Muscion Project team is identifying compounds that
selectively target ryanodine receptors in heart, skeletal
and insect muscle. Biotron researchers are developing
drugs to boost the output of a damaged or failing heart
muscle, and as part of this process have identified
peptides that stimulate heart muscle contraction in vitro.

During the past year, work has continued to be focused
on the design, synthesis and testing of non-peptide
compounds which mimic the activity of the previously
identified peptides that target the cardiac ryanodine
receptors. Additional small molecule compounds have
been identified that have increased activity against the
target ryanodine receptor. Work is on-going, testing
these compounds for activity in different in vitro model
systems,
them as potential
therapeutics for cardiovascular disease.

further develop

Hypoxion

The Hypoxion project involves developing compounds
that will reduce damage in cells deprived of their blood
supply (eg following heart attack or stroke). When blood
supply is compromised, cells are starved of oxygen. The

review of operations

consequent build-up of calcium in cells exposed to
hypoxia kills them. The aim is to significantly reduce the
patient death/disablement rate by stopping the build-up
of calcium and saving cells.

The project has two approaches, both aimed at
preventing the flow of sodium ions through ‘persistent’
sodium channels that they have found are opened by
hypoxia. The first approach is to screen for compounds
that can specifically block persistent sodium channels.
The second line of research that is in progress aims to
find a way to break the link between hypoxia and the
opening of persistent sodium channels.

GeneTrans

The GeneTrans project has focused on a drug transport
protein called MRP2. Drug transport proteins have
utility in drug screening tests that will help predict the
metabolism and safety of new pharmaceuticals.
Screening tests are a vital part of the drug development
process. If toxicity is detected in the early pre-clinical
stage of testing, further testing on animals is avoided
and the cost of drug development is significantly
decreased. Biotron has generated a novel cell line
expressing MRP2 and has developed a drug screening
assay using this technology. Discussions are underway
with potential licensees for this technology.

Gabion

The Gabion Project team is researching the effects of
known compounds that act on the GABAA receptor.
Research undertaken as part of the Gabion Project to
determine the effects of GABA receptor associated
protein on expressed receptors is providing important
new information about drug effects on these receptors
and has implications for the development of high
throughput screens that will assist and accelerate the
drug discovery process.

PATENT APPLICATION DEVELOPMENTS

Biotron recognises that the key to establishment
of partnerships is the expansion and continued
strengthening of Biotron’s intellectual property (IP)
portfolio. Strong, defensible, international patents are
essential to attract partners and to ensure a competitive
advantage for our products in the marketplace. Due to
the amount of interest now being shown by research
groups around the world in the viral ion channel area,
Biotron continues to build a strong defensible wall of
patents around the Company’s IP to maximise the value
of the technology and to ensure Biotron's competitive
position.

ANNUAL REPORT 2004

review of operations

A summary of Biotron patent portfolio and status of patent applications is set out in the table below.

APPLICATION/ PATENT NO.

STATUS

11370/00

Under examination

TITLE

A method of modulating ion
channel functional activity

A method of determining ion
channel activity of a substance

Antiviral compounds and methods

Method of identifying cancer
markers and uses therefore in the
diagnosis of cancer

A novel cancer marker and uses
therefore in the diagnosis of cancer

Modified proteins, isolated novel
peptides, and uses therefor

Method of modulating the activity of
calcium channels in cardiac cells and
reagents therefor

COUNTRY

Australia

New Zealand

Canada

Europe

China

Japan

USA

Australia

USA

Canada

Europe

Japan

Australia
(provisional)

Australia

New Zealand

USA

Europe

Canada

Japan

China

Brazil

Singapore

Australia

New Zealand

USA

Europe

Canada

Japan

China

Brazil

Australia

USA

Europe

Japan

Australia

510437

2345896

99970324

99812019

575514/00

09/807277

724870

6355413

12266334

97918844

515070/1998

2003903251
June 2004

200172220/01

524197

10/333348

1951237

2416375

2002514403

1814937

PI0112644

200300370-4

2002313402

531450

10/212856

752896

2457437

PI011697

2001285578

10/363112

2002252850

New Zealand

529940

USA

Europe

Brazil

Canada

Japan

China

2721869

PI0210902

2446839

2002-589036

2812056

ANNUAL REPORT 2004

Awaiting examination

Requested examination

Under examination

Granted

Requested examination

Awaiting examination

Awaiting Official action

Filed PCT application in

Requested examination

Filed

Awaiting examination

Awaiting Official action

Awaiting examination

Under examination

Requested examination

Awaiting examination

Requested examination

Awaiting Official actio

Requested examination

Awaiting examination

Requested examination

Awaiting examination

Awaiting Official action

corporate governance statement

his statement outlines the main Corporate
in place
Governance practices
throughout the financial year, which comply with
the Australian Stock Exchange (‘ASX’) Corporate
Governance Council
recommendations, unless
otherwise stated.

that were

Board of Directors

The board of directors is responsible for the overall
corporate governance of the Company including its
strategic direction, setting remuneration, establishing
goals for management and monitoring the achievement
of these goals and ensuring the integrity of internal
control and management information systems. It is also
responsible for approving and monitoring financial and
other reporting.

The composition of the board has been determined
on the basis of providing the Company with the benefit
of a broad range of technical, administrative and
financial skills, combined with an appropriate level of
experience at a senior corporate level. The names and
further information regarding the skills, experience,
qualifications and relevant expertise of the directors are
set out in the Directors’ Report. The board is composed
of a minimum of two directors.

The composition of the board is monitored constantly
to ensure that it provides the Company with the
appropriate levels of both expertise and experience. The
board comprises a majority of non-executive directors
including the Chairperson, all of whom are considered
to be independent. The independence of directors is
based on their capacity to put the best interests of the
Company and its shareholders ahead of all other
interests.

When a vacancy exists, through whatever cause, or
where it is considered that the board would benefit from
the services of a new director with particular skills, the
board identifies a panel of candidates with appropriate
expertise and experience. A selection procedure is then
completed and the board appoints the most suitable
candidate who must stand for election at the next
general meeting of shareholders.

Each director has the right to seek independent
professional advice at the Company's expense. Prior
approval of the Chairman is required, but such approval
is not unreasonably withheld. A copy of the advice
received by the director is made available to all other
members of the board.

In the event that a potential conflict of interest may
arise, involved directors must withdraw from all
deliberations concerning the matter.

The remuneration of the directors is determined by the
board as a whole, with the director to whom a particular
decision relates being absent from the meeting during
the time that the remuneration level is discussed and
decided upon. Further information and the components
of remuneration for directors are set out in the
Director’s Report.

Due to the size of the Company and the board, a
Nomination Committee, a Remuneration Committee
and an Audit Committee have not been established.

Directors, officers and employees are permitted to trade
in the Company's securities only in accordance with the
provisions of the Corporations Act and ASX Listing
Rules. The directors are under an obligation to report
any dealings by them in the Company's securities.

Internal Controls

The board of directors acknowledges that
is
responsible for the overall internal control framework,
but recognises that no cost effective internal control
system will preclude all errors and irregularities. The
system of internal control adopted by the Company
seeks
to provide an appropriate division of
responsibility and careful selection and training of
personnel relative to the level of activities and size of
the Company.

The full board takes responsibility for reviewing
financial reporting procedures, internal controls and the
performance of the financial management. Selected
internal control mechanisms employed to support the
business include:

• Investment appraisal – the Company has
documented guidelines for capital expenditure
and investment appraisals. These include annual
budgets, expenditure review procedures and
appropriate levels of authority.

• Business Planning, Budgeting and Reporting – A
comprehensive business planning process
includes evaluation of strategies, objectives, and
risks resulting in an annual budget approved by
the board. Monthly actual performance is
reported against budget and revised forecasts
for the year are prepared regularly.

• Quality and integrity of employees – there are
clearly defined accountabilities, performance
measures, and reinforcement of values and
ethics by management.

ANNUAL REPORT 2004

corporate governance statement

• Lodgement of the half yearly report with the
Australian Stock Exchange, which contains
summarised and audit reviewed
financial
information. Copies of half yearly financial
statements prepared in accordance with the
to any
Corporations Act are available
shareholder on request.

• Lodgement of quarterly reports with
the
Australian Stock Exchange which
show
summarised financial information for the quarter.
Copies of these reports are available to
shareholders on request.

• Announcements

the Australian Stock
Exchange concerning any significant development
in the Company's operations, financing and
administration. All announcements are immediately
available to the general public.

External Auditors

Board nominees review the performance of the external
auditors and meet with them during the half yearly
review and annual audit to discuss any issues that have
arisen with respect to accounting policies, any
significant operational issues and level of proposed
audit fees.

KPMG, the Company's auditors, were appointed on 20
November 2001.

Audit Committee

As at the date of the Directors' Report, there was no
Audit Committee. An Audit Committee is not considered
to be warranted because the involvement of the full
board of directors in the activities of the Company.

Ethical Standards

the utmost

All directors, managers and employees are expected to
act with
integrity and objectivity,
endeavouring at all times to enhance the performance
and reputation of the Company. Every employee has
direct access to a director to whom they may refer any
ethical issues that may arise from their employment.

The Role of Shareholders

The board ensures that the shareholders are informed
of all major developments affecting the Company by the
following means:

• The annual report is distributed to all shareholders
(unless a shareholder has specifically requested
not to receive the document).

• Disclosure of all major announcements to the
Australian Stock Exchange on the Company’s
website.

• The Annual General Meeting

is the main
opportunity for the shareholders to hear the
Managing Director and Chairman provide
updates on the Company’s performance, ask
questions of the Board and to express views and
vote on various matters of business on the
agenda.

Risk Management

The Board oversees the establishment, implementation
and ongoing review of the Company’s risk management
and internal control system. The internal control system
covers financial, operational and compliance risks.

Recommendations made by external auditors and other
external advisers are investigated by the Board, and
where necessary appropriate action is taken to ensure
that the Company has the internal control environment
to manage the key risks identified. Ways of enhancing
existing
including
risk management strategies,
segregation of duties, employment and training of
suitably qualified and experienced personnel are
investigated by the Board.

• Distribution of

the annual report

to all
shareholders which contains relevant information
about the operations of the Company during the
year in addition to disclosures required by the
Corporations Act 2001.

ANNUAL REPORT 2004

directors‘ report

he directors present their report together with the
financial report of Biotron Limited (‘the Company’)
for the year ended 30 June 2004 and the auditors' report
thereon.

the government in 1982 for research on nerve and
muscle ion channels.

He has been a Director since 23 February 1999.

Directors

The names of the directors of the Company holding
office at any time during or since the end of the financial
year are:

Mr Michael J. Hoy
Independent and Non-Executive Chairman

Mr Hoy has more than 30 years' corporate experience
in Australia, the United Kingdom, USA and Asia. He
is Chairman of Cityprint Holdings Pty Ltd and
Motoron.com Pty Ltd. and a former director of John
Fairfax Holdings Limited and FXF Trust.

He has been a Director since 7 February 2000 and
Chairman since 16 March 2000.

Dr Michelle Miller, BSc, MSc, PhD
Managing Director

Dr Miller has over 20 years in the bioscience industry,
with extensive experience in managing commercial
bioscience research. She completed her PhD
in
the Faculty of Medicine at Sydney University
investigating molecular models of cancer development.
Her experience includes a number of years at Johnson
and Johnson developing anti-HIV gene therapeutics
through preclinical research to clinical trials. She has
experience in early-stage start-ups from time spent as
Investment Manager with a specialist bioscience
venture capital fund.

She was appointed as Managing Director on 21 June 2002.

Professor Peter W. Gage, MB ChB, PhD, DSc FAA
Research Director

Professor Gage is a professor of Physiology at the John
Curtin School of Medical Research at the Australian
National University and President of the Australian
Physiological and Pharmacological Society.

He has more than 35 years' experience in medical
research,
including training medical researchers,
particularly PhD students. For the past 25 years his
research focus has been on ion channels.

Professor Gage was admitted as a fellow of the
Australian Academy of Science in 1977 and was the
recipient of an Award of a Special Research Centre by

Dr Michael S. Hirshorn, MBA, MB, BS
Independent and Non-Executive Director

Dr Hirshorn has over 20 years' experience in the
commercialisation of Australian Technology, particularly in
the medical device industry, and extensive experience
in collaboration with Australian research institutes.

He played a major role in all commercial aspects of
Cochlear Limited's development, was a founding
director of Resmed Inc., and Chief Executive Marketing
for Polartechnics Limited.

He has served on numerous government advisory
committees, including the Start IT and T Committee, the
Start Grants Biological Sciences Committee of the
Department of Industry, Science and Resources and is
currently an Investment Manager with a venture capital
firm, Nanyang Ventures.

Dr Hirshorn was appointed as a Director on 16 March 2000.

Mr Bruce Hundertmark, BE, BEc
Independent and Non-Executive Director

Mr Hundertmark is an independent businessman and
company director with a wide range of experience in
high technology based company start-up operations
and promoting the formation of venture capital
companies, including News Datacom Limited in Israel
and PT Indo Bio Products in Indonesia.

He has been a director of News International PLC,
Insurance Limited and was
Prudential Cornhill
Managing Director of IMFC Limited, a merchant bank.

Mr Hundertmark was appointed as a Director on
16 March 2000.

Mr Peter G. Scott
Non-Executive Director

Mr Scott is a founding director of Biotron Limited with
more than 30 years of commercial and entrepreneurial
experience in Australia.

He is a director of Scott’s Acorn Pty Ltd and was formerly
Chairman and Managing Director of Scottcom Pty Ltd
and Managing Director of ICAM Pty Ltd, audio visual
and multimedia companies.

Mr Scott has been a Director since 23 February 1999.

ANNUAL REPORT 2004

directors’ report

Directors’ Meetings

The number of directors’ meetings and number of meetings attended by each of the directors of the Company during
the year are:

Director

Michael J. Hoy
Michelle Miller
Peter W. Gage
Michael S. Hirshorn
Bruce Hundertmark
Peter G. Scott

Board Meetings

Held

Attended

6
6
6
6
6
6

6
6
4
5
6
6

Directors’ Interests

At the date of this report, the interests of each director of the Company in the issued share capital and options of the
Company are:

Fully Paid
Ordinary
Shares

30 September 2005
$0.50
Options

14 January 2007
$0.60
Options

14 January 2007
$0.75
Options

14 January 2007
$1.00
Options

Michael J. Hoy

1,000,000

500,000

Michelle Miller

Peter W. Gage

9,400,000

Michael S. Hirshorn

Bruce Hundertmark

200,000

Peter G. Scott

8,550,000

250,000

500,000

Total

18,950,000

900,000

250,000

500,000

Option holdings

The movement during the reporting period in the number of options over ordinary shares in the Company held directly,
indirectly or beneficially, by each specified director, including their personally-related entities, is as follows

Michael J. Hoy

Michelle Miller

Held at
1 July 2003

500,000

750,000

Granted as
remuneration

500,000

Peter W. Gage

Michael S. Hirshorn

200,000

Bruce Hundertmark

200,000

Peter G. Scott

Exercised

Held at
30 June 2004

Vested and
exercisable at
30 June 2004

500,000

1,250,000

200,000

ANNUAL REPORT 2004

directors’ report

Equity holdings and transactions

The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly or
beneficially, by each specified director, including their personally-related entities, is as follows

Michael J. Hoy

Michelle Miller

Held at
1 July 2003

1,000,000

Peter W. Gage

9,400,000

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

8,550,000

Purchased

Received on
exercise of
options

Sales

Held at
30 June 2004

1,000,000

9,400,000

8,550,000

Directors’ and Senior Executives’ Emoluments

The policy of remuneration of directors and senior executives is to ensure the remuneration package properly reflects
the person's duties and responsibilities, and that remuneration is competitive in attracting, retaining and motivating
people of the highest quality. The Board is responsible for reviewing its own performance. The non-executive directors
are responsible for evaluating the performance of the executive directors who, in turn, evaluate the performance of all
other senior executives. The evaluation process is intended to assess the Company's business performance, whether
long term strategic objectives are being achieved and the achievement of individual performance objectives.

Remuneration generally comprises salary and superannuation. Longer term incentives are able to be provided through
the Company's Incentive Option Plan which acts to align the directors and senior executives' actions with the interests
of the shareholders. The emoluments disclosed below represent the cost to the Company for the services provided under
these arrangements.

Details of options granted to directors and senior executives as part of their remuneration and the nature and amount
of each major element of the emoluments of each director and senior executive of the Company are:

Base
Emolument
$

Service
Charge
$

Super
Contributions
$

Options
$

Total
$

Directors

Executive

Michelle Miller
Peter W. Gage

Non-Executive

Michael J. Hoy
Michael S. Hirshorn
Bruce Hundertmark
Peter G. Scott

Executive Officer

152,500
30,000

-
40,000

60,000
30,000
30,000
30,000

-
-
-
-

13,725
2,700

5,400
2,700
2,700
2,700

Peter J. Nightingale

66,000

5,000
-

171,225
72,700

-
-
-
-

65,400
32,700
32,700
32,700

66,000

Each option entitles the holder to purchase one ordinary share in the Company. During the financial year ended 30 June
2003, a fair value of options, totalling $19,000, has been estimated at the date of granting, using the Black-Scholes
options pricing formula, of which $5,000 has been included in directors' emoluments during the financial year ended 30
June 2004.

ANNUAL REPORT 2004

directors‘ report

Options

At the date of this report, unissued ordinary shares of the Company under option are:

Number of Options

Exercise Price

Expiry Date

900,000

250,000

500,000

$0.50

$0.60

$0.75

$1.00

30 September 2005

14 January 2007

The options do not entitle the holder to participate in any share issue of the Company or any other body corporate.

Principal Activities

Likely Developments

The principal activities of the Company during the
financial year were the funding and management of
intermediate and early applied biotechnology research
and development projects.

Financial Result and Review of Operations

The operating loss of the Company for the financial year
after income tax was $2,805,115 (2003 - $2,728,701).

The operations of the Company for the year are set out
in the Review of Operations.

During the year ended 30 June 2004, the Company
continued to fund and manage its research and
development projects. The success of these research
projects, which cannot be assessed on the same
fundamentals as trading and manufacturing enterprises,
will determine future likely developments.

In the opinion of the directors, it would prejudice the
interests of the Company to provide additional
information, except as reported in this Annual Report,
relating to likely developments in the operations of the
Company.

Dividends

The directors recommend that no dividend be paid by
the Company. No dividend has been paid or declared
since the end of the previous financial year.

State of Affairs

This report has been signed in accordance with a
resolution of the directors and dated 9 September 2004:

There were no significant changes in the state of affairs
of the Company that occurred during the financial year
under review.

Michael J. Hoy
Director

Michelle Miller
Director

Environmental Regulation

The Company’s operations are not subject to significant
environmental regulations under Commonwealth or
State legislation in relation to its research projects.

Events Subsequent to Balance Date

There has not arisen in the interval between the end of
the financial year and the date of this report any item,
transaction or event of a material and unusual nature
likely, in the opinion of the directors of the Company, to
affect significantly the operations of the Company, the
results of those operations, or the state of affairs of the
Company, in future financial years.

ANNUAL REPORT 2004

statement of financial performancefor the year ended 30 June 2004

Other revenues from ordinary activities

Total revenue

Administration and consultants' expenses
Depreciation
Employee and director expenses
Direct research and development expenses
Rent and outgoings expenses
Legal expenses
Other expenses from ordinary activities

Loss from ordinary activities before related income tax expense

Income tax expense relating to ordinary activities

Net Loss

Basic loss per share

Diluted loss per share

Note

2004
$

2003
$

707,428

299,407

707,428

299,407

(462,773)
(182,848)
(431,056)
(2,081,410)
(119,957)
(16,710)
(217,789)

(474,832)
(211,582)
(371,306)
(1,197,012)
(81,605)
(60,636)
(256,799)

(2,805,115)

(2,354,365)

(374,336)

(2,805,115)

(2,728,701)

4.38 cents

4.26 cents

4.38 cents

4.26 cents

ANNUAL REPORT 2004

statement of financial positionas at 30 June 2004

Note

2004
$

2003
$

6
7
8

10
11

12
13
14

2,617,629
65,502
64,590
-

5,375,413
66,685
65,511
10,399

2,747,721

5,518,008

361,509

391,080

361,509

391,080

3,109,230

5,909,088

121,166
32,167

132,844
15,232

153,333

148,076

153,333

148,076

2,955,897

5,761,012

11,444,960
110,850
(8,599,913)

11,444,960
110,850
(5,794,798)

2,955,897

5,761,012

CURRENT ASSETS
Cash assets
Receivables
Inventories
Other

Total Current Assets

NON-CURRENT ASSETS
Plant and equipment

Total Non-Current Assets

Total Assets

CURRENT LIABILITIES
Payables
Provisions

Total Current Liabilities

Total Liabilities

Net Assets

EQUITY
Contributed equity
Reserves
Accumulated losses

Total Equity

ANNUAL REPORT 2004

statement of cash flowsfor the year ended 30 June 2004

Cash flows from operating activities

Cash receipts in the course of operations
Cash payments in the course of operations
Interest received
Payments for research and development

Note

2004
$

2003
$

572,218
(1,075,747)
187,230
(2,289,551)

-
(1,223,982)
299,407
(1,197,012)

Net cash used in operating activities

(2,605,850)

(2,121,587)

Cash flows from investing activities

Proceeds from sale of asset
Payments for plant and equipment

Net cash used in investing activities

Net decrease in cash held

Cash at the beginning of the financial year

3,018
(154,952)

-
(80,479)

(151,934)

(80,479)

(2,757,784)

(2,202,066)

5,375,413

7,577,479

Cash at the end of the financial year

2,617,629

5,375,413

FINANCIAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

1. STATEMENT OF SIGNIFICANT

ACCOUNTING POLICIES

The significant policies which have been adopted in the
preparation of this financial report are:

Basis of preparation

This financial report is a general purpose financial report
which has been prepared in accordance with Accounting
Standards, Urgent Issues Group Consensus Views, other
the Australian
authoritative pronouncements of
Accounting Standards Board and the Corporations Act
2001.

It has been prepared on the basis of historical costs and,
except where stated, does not take into account
changing money values or fair values of non-current
assets.

These accounting policies have been consistently
applied and, except where there is a change in
accounting policy, are consistent with those of the
previous year.

Revenue recognition

Interest revenue

Interest revenue is recognised as it accrues.

Research and development grants

Where a grant is received relating to research and
development costs that have been expensed, the grant
is recognised as revenue on a cash receipts basis.

Taxation

Income tax

The Company adopts the liability method of tax effect
accounting. Income tax expense is calculated on
operating profit adjusted for permanent differences
between taxable and accounting income. The tax effect
of timing differences, which arise from items being
brought to account in different periods for income tax
and accounting purposes, is carried forward in the
statement of financial position as a future income tax
benefit or a provision for deferred income tax.

Future income tax benefits are not brought to account
unless realisation of the asset is assured beyond
reasonable doubt. Future income tax benefits relating to
tax losses are only brought to account when their

realisation is virtually certain. The tax effect of capital
losses is not recorded unless realisation is virtually
certain.

Goods and services tax

Revenues, expenses and assets are recognised net of
the amount of goods and services tax (GST), except
where the amount of GST incurred is not recoverable
from the Australian Tax Office (ATO).
In these
circumstances the GST is recognised as part of the cost
of acquisition of the asset or as part of an item of the
expense.

Receivables and payables are stated with the amount of
GST included.

The net amount of GST recoverable from or payable to,
the ATO is included as a current asset or liability in the
statement of financial position.

Cash flows are included in the statement of cash flows
on a gross basis. The GST components of cash flows
arising from investing and financing activities which are
recoverable from, or payable to, the ATO are classified
as operating cash flows.

Earnings per Share

Basic earnings per share (EPS), is calculated by dividing
the net profit for the reporting period by the weighted
average number of ordinary shares of the company.

Research and development costs

Research and development expenditure is expensed as
incurred except to the extent that its recoverability is
assured beyond reasonable doubt, in which case it is
deferred and amortised on a straight line basis over the
period in which the related benefits are expected to be
realised.

Plant and equipment

Items of plant and equipment are initially recorded at
cost and are depreciated over their estimated useful
lives using the reducing balance method from the date
of acquisition at rates between 13% and 40% per annum.

Accounts payable

Liabilities are recognised for amounts to be paid in the
future for goods or services received, whether or not
billed to the Company. Trade accounts payable are
normally settled within 60 days.

Incentive option plan

ANNUAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

Where options are issued as remuneration for services rendered, the difference between the fair value of the options
issued and the consideration received, if any, is expensed and the fair value of the options is recorded in the option
premium reserve.

Inventories

Stock is carried at the lower of cost allocated and net realisable value.

Employee Benefits

Wages, Salaries, Annual Leave and Sick Leave

Liabilities for employee benefits for wages, salaries, annual leave and sick leave represent present obligations resulting
from employees’ services provided to reporting date, calculated at undiscounted amounts based on remuneration wage
and salary rates that the company expects to pay as to reporting date including related on-costs, such as workers
compensation insurance and superannuation.

2. REVENUE FROM ORDINARY ACTIVITIES

Other revenues:
From operating activities

Interest - other parties
Research and development grants

Total revenue from ordinary activities

3. LOSS FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE

Loss from ordinary activities before income tax expense has
been arrived at after charging the following items:
Auditors' remuneration paid to KPMG

- Audit and review of financial reports
- Other audit services

Depreciation

- Office equipment
- Plant and equipment

Direct research and development expenditure
expensed as incurred
Provision for employee entitlements
Loss on sale of non-current assets

4. EARNINGS PER SHARE

2004
$

2003
$

187,230
520,198

299,407
-

707,428

299,407

16,233
3,000

16,721
166,127

2,081,410
16,935
1,343

15,234
-

21,095
190,487

1,197,012
9,831
-

Basic and diluted loss per share has been calculated using:
Net loss for the year

2,805,115

2,728,701

Weighted average number of ordinary shares

64,055,750

Options disclosed in the Contributed Equity note below are potential ordinary shares, but are not included in the
calculation of diluted loss per share as they are not dilutive.

ANNUAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

5. INCOME TAX EXPENSE

Prima facie income tax benefit on operating loss at 30% (2003 - 30%)

841,535

706,310

2004
$

2003
$

Tax effect of:

Tax losses not brought to account
Permanent differences

Income tax underprovided in prior year
Income tax benefit/(expense) attributable to profit
from ordinary activities

(840,202)
(1,333)

(705,243)
(1,067)

(374,336)

The following potential income tax benefit calculated at 30% (2003 - 30%)
arising from tax losses has not been recognised as an asset because recovery
is not virtually certain.

Tax losses

2,810,416

1,970,214

The potential future income tax benefit will only be obtained if:

(a)

the Company derives future assessable income of a nature and of an amount sufficient to enable the benefit to
be realised;
the Company continues to comply with the conditions for deductibility imposed by law; and

(b)
(c) no changes in tax legislation adversely affect the Company in realising the benefit.

The Company has no franking credits.

6. RECEIVABLES

Other debtors

7. INVENTORIES

Stores - at cost

8. OTHER CURRENT ASSETS

Prepayments

ANNUAL REPORT 2004

65,502

66,685

64,590

65,511

10,399

notes to the financial statementsfor the year ended 30 June 2004

9. PLANT AND EQUIPMENT

Office equipment - at cost
Accumulated depreciation

Plant and equipment - at cost
Accumulated depreciation

2004
$

91,227
(63,019)

2003
$

87,658
(49,990)

28,208

37,668

892,480
(559,179)

746,464
(393,052)

333,301

353,412

Total plant and equipment - net book value

361,509

391,080

Reconciliations
Reconciliations of the carrying amounts for each class of plant and
equipment are set out below:

Office equipment
Carrying amount at beginning of year
Additions
Disposals
Depreciation

37,668
8,936
(1,675)
(16,721)

49,612
9,151
-
(21,095)

Carrying amount at end of year

28,208

37,668

Plant and equipment
Carrying amount at beginning of year
Additions
Depreciation

Carrying amount at end of year

10. PAYABLES

Current
Other creditors and accruals

11. PROVISIONS

Current
Employee entitlement provisions

Number of employees at year end

353,412
146,016
(166,127)

472,571
71,328
(190,487)

333,301

353,412

121,166

132,844

32,167

15,232

ANNUAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

12. CONTRIBUTED EQUITY

Issued and paid up capital

2004
$

2003
$

64,055,750 (2003 - 64,055,750) fully paid ordinary shares

11,444,960

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote
per share at shareholders' meetings. In the event of winding up of the Company, ordinary shareholders rank after
creditors and are fully entitled to any proceeds of liquidation.

Options

The following options were on issue at 30 June 2004, each exercisable to acquire one fully paid ordinary share:

900,000 (2003 - 900,000) at $0.50 each at any time up to 30 September 2005.
250,000 (2003 - 250,000) at $0.60 each at any time up to 14 January 2007.
500,000 (2003 - 500,000) at $0.75 each at any time up to 14 January 2007.
500,000 (2003 - 500,000) at $1.00 each at any time up to 14 January 2007.

13. RESERVES

Option premium reserve

Balance at beginning of year
Issue of options at a premium
Transfer to accumulated losses on lapse of options

Balance at end of year

This reserve represents the fair value, at the date of issue, of options on issue.

14. ACCUMULATED LOSSES

Accumulated losses at beginning of year
Net loss attributable to members of the Company

Accumulated losses at end of year

110,850
-
-

110,850

110,850
-
-

110,850

5,794,798
2,805,115

8,599,913

3,066,097
2,728,701

5,794,798

ANNUAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

15. STATEMENT OF CASH FLOWS

Reconciliation of operating loss after tax to net cash used in operating activities
Operating loss after tax

(2,805,115)

(2,728,701)

2004
$

2003
$

Items classified as investing/financing activities
Gain on disposal of non-current assets

Non-cash items

Depreciation
Provisions

Changes in assets and liabilities

(Increase)/decrease in prepayments
(Increase)/decrease in receivables
(Increase)/decrease in inventories
(Decrease)/increase in payables

Net cash used in operating activities

Reconciliation of cash

(1,343)

182,848
16,935

10,399
1,183
921
(11,678)

211,582
9,831

19,353
346,054
24,944
(4,650)

(2,605,850)

(2,121,587)

For the purposes of the Statement of Cash Flows, cash includes cash
on hand and at bank and cash on deposit net of bank overdrafts and
excluding security deposits. Cash at the end of the financial year as
shown in the Statement of Cash Flows is reconciled to the related
items in the Statement of Financial Position as follows:

Cash

2,617,629

5,375,413

ANNUAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

16. DIRECTOR AND EXECUTIVE DISCLOSURE FOR DISCLOSING ENTITIES

Directors’ Remuneration

Remuneration levels are competitively set to attract and retain appropriately qualified and experienced directors and
senior executives and to properly reflect the person's duties and responsibilities. Remuneration packages include a mix
of fixed remuneration, performance-based remuneration, and equity-based remuneration. The non-executive directors
are responsible for evaluating the performance of the executive directors who, in turn, evaluate the performance of all
other senior executives.

Directors' base fees are presently up to $30,000 per annum. The Chairperson receives up to twice the base fee and the
Managing director receives up to five times the base fee. Director's fees cover all main board activities.

Options are issued under the Company's Incentive Option Plan which acts to align the directors and senior executives'
actions with the interests of the shareholders.

The following table provides the details of all directors (‘specified directors’) of the Company and the executives
(‘specified executives’) with the greatest authority and the nature and amount of the elements of their remuneration for
the year ended 30 June 2004.

Specified directors
Non-executive
Michael J. Hoy (Chairperson)

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Executive
Michelle Miller
(Managing Director)
Peter W. Gage

Total, all specified directors

Specified executives
Peter J. Nightingale
(Company Secretary)

Total, all specified executives

Primary

Salary and
fees
$

Post-
employment
Superannuation
benefits
$

Equity
compensation
Value of
options
$

Total

2004
2003
2004
2003
2004
2003
2004
2003

2004
2003
2004
2003

2004
2003

60,000
60,000
30,000
30,000
30,000
30,000
30,000
30,000

152,500
125,039
70,000
70,000

372,500
345,039

66,000
65,000

5,400
5,400
2,700
2,700
2,700
2,700
2,700
2,700

13,725
11,244
2,700
2,700

29,925
27,444

-
-

-
-
-
-
-
-
-
-

5,000
19,000
-
-

5,000
19,000

-
-

65,400
65,400
32,700
32,700
32,700
32,700
32,700
32,700

171,225
155,283
72,700
72,700

407,425
391,483

66,000
65,000

ANNUAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

16. DIRECTOR AND EXECUTIVE DISCLOSURE FOR DISCLOSING ENTITIES (continued)

Options and rights over equity instruments granted as remuneration

During the reporting period, the following options over ordinary shares were granted and vested during the current year
under the Incentive Option Plan.

Specified director
Michelle Miller

Number of
options granted
during the year

Number of
options vested
during the year

500,000

The options vested in the current year were vested on 30 June 2004, have an expiration date of 14 January 2007, an
exercise price of $1.00 per share, and a fair value of $0.19 per share at vesting date. No options have been granted since
the end of the financial year. The options were provided at no cost to the recipient.

17. RELATED PARTY DISCLOSURES

Directors
The name of each person holding the position of director of the Company during the financial year is Michael J. Hoy,
Michelle Miller, Peter W. Gage, Michael S. Hirshorn, Bruce Hundertmark, and Peter G. Scott. Details of directors'
remuneration are set out above.

Details of relevant interests of directors of the Company and their director-related entities in shares and options of the
Company at year end are as follows:

Fully paid ordinary shares
30 September 2005 $0.50 options
14 January 2007 $0.60 options
14 January 2007 $0.75 options
14 January 2007 $1.00 options

2004
Number
18,950,000
900,000
250,000
500,000
500,000

2003
Number
18,950,000
900,000
250,000
500,000
500,000

During the year ended 30 June 2004, directors and director-related entities did not purchase any fully paid ordinary
shares or options and disposed of 100,000 fully paid ordinary shares for no consideration as a charitable contribution.

During the year ended 30 June 2004, Michael J. Hoy had an interest in an entity, CityPrint Pty Limited, which provided
printing services to the Company. Payments to CityPrint Pty Limited, which were in the ordinary course of business and
on normal terms and conditions, amounted to $16,123 (2003 - $22,377).

18. EMPLOYEES AND INCENTIVE OPTION PLAN

At 30 June 2004, the Company had 12 employees (2003 - 2). All other personnel are contracted by the Company on a
consultancy basis.

The Company has an Incentive Option Plan to provide eligible persons, being employees or directors, or individuals
whom the Plan Committee determine to be employees for the purposes of the Plan, with the opportunity to acquire
options over unissued ordinary shares in the Company. The number of options granted or offered under the Plan will
not exceed 10% of the Company's issued share capital and the exercise price of options will be the greater of the market
value of the Company's shares as at the date of grant of the option or such amount as the Plan Committee determines.
Options have no voting or dividend rights.

ANNUAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

18. EMPLOYEES AND INCENTIVE OPTION PLAN (continued)

In the event that the employment or office of the optionholder is terminated, any options which have not reached their
exercise period will lapse and any options which have reached their exercise period may be exercised within three
months of the date of termination of employment. Any options not exercised within this three month period will lapse.

No options were granted pursuant to the Incentive Option Plan during the year ended 30 June 2004. No ordinary shares
have been issued as a result of the exercise of any options granted pursuant to the Incentive Option Plan.

These options are not listed and accordingly have no market value at year end. The market value of the ordinary shares
under option at 30 June 2004 was $0.19 (2003 - $0.31) each. The amount recognised in the financial statements in
relation to the Incentive Option Plan during the financial year was $5,000 (2003 - $19,000). Options issued pursuant to
the plan are summarised below:

Grant
Date

24/01/03
06/02/02
28/06/03
28/06/03

Exercise
Date

24/01/03
06/02/02
30/06/03
30/06/04

Expiry
Date

30/09/05
14/01/07
14/01/07
14/01/07

Exercise
Price

30 June 2003
On Issue

Number of Options
30 June 2004
On Issue

$0.50
$0.60
$0.75
$1.00

900,000
250,000
500,000
500,000

30 June 2004
Vested

900,000
250,000
500,000
500,000

2,150,000

19. FINANCIAL INSTRUMENTS DISCLOSURE

Interest rate risk

The Company’s exposure to interest rate risk and the effective weighted average interest rate for classes of financial
assets and financial liabilities is as follows:

Note

Weighted
average interest
rate %

Floating
interest
rate
$

Non-
interest
bearing
$

Total
$

4.38
-

2,617,629
-

-
65,502

2,617,629
65,502

10 and 11

153,333

Note

Weighted
average interest
rate %

Floating
interest
rate
$

Non-
interest
bearing
$

Total
$

4.62
-

5,375,413
-

-
66,685

5,375,413
66,685

10 and 11

148,076

2004
Financial assets
Cash assets
Receivables

Financial liabilities
Payables and provisions

2003
Financial assets
Cash assets
Receivables

Financial liabilities
Payables and provisions

ANNUAL REPORT 2004

notes to the financial statementsfor the year ended 30 June 2004

19. FINANCIAL INSTRUMENTS DISCLOSURE (continued)

Credit risk exposure
The credit risk exposure on financial assets of the Company which have been recognised in the statement of financial
position is the carrying amount, net of any provision for doubtful debts.

Credit risk on cash assets is minimised by dealing with Australian regulated banks.

Net fair values of financial assets and liabilities
The carrying amounts of financial assets and liabilities approximate their net fair values.

20. FINANCIAL REPORTING BY SEGMENTS

The Company operates in the biotechnology industry in Australia.

21. EVENTS SUBSEQUENT TO REPORTING DATE

International Financial Reporting Standards

For reporting periods beginning on or after 1 January 2005, the Company must comply with International Financial
Reporting Standards (IFRS) as issued by the Australian Accounting Standards Board.

This financial report has been prepared in accordance with Australian accounting standards. The differences between
Australian accounting standards and IFRS identified to date as potentially having a significant effect on the Company's
financial performance and financial position are summarised below. The summary should not be taken as an exhaustive
list of all the differences between Australian accounting standards and IFRS. No attempt has been made to identify all
disclosure, presentation or classification differences that would affect the manner in which transactions or events are
presented.

The potential impacts on the Company’s financial performance and financial position of the adoption of IFRS have not
been quantified as at the transition date of 1 July 2004 due to the short timeframe between finalisation of the IFRS
standards and the date of preparing this report. The impact on future years will depend on the particular circumstances
prevailing in those years.

The key potential implications of the conversion to IFRS on the Company are as follows:
• Income tax will be calculated based on the "balance sheet" approach, which will result in more deferred tax assets
and liabilities and, as tax effects follow the underlying transaction, some tax effects will be recognised in equity.
• Changes in accounting policies will be recognised by restating comparatives rather than making current year

adjustments with note disclosure of prior year effects.

• Internally generated assets (other than development phase expenditure in certain circumstances) will not be

recognised as assets. Start-up costs may not be capitalised. Research costs must be expensed.

• Equity-based compensation in the form of shares and options will be recognised as expenses in the periods during

which the employee provides related services.

The Company's application of Australian accounting standards in the preparation of this financial report complies with
the IFRS.

ANNUAL REPORT 2004

directors’ declaration

In the opinion of the directors of Biotron Limited:

(a) the financial statements and notes, set out on pages 13 to 25, are in accordance with the Corporations Act 2001,

including:

(i) giving a true and fair view of the financial position of the Company as at 30 June 2004 and of its performance, as

represented by the results of its operations and its cash flows for the year ended on that date; and

(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and

(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become

due and payable.

This report has been signed in accordance with a resolution
of the directors and dated 9 September 2004:

Michael J. Hoy
Director

Michelle Miller
Director

ANNUAL REPORT 2004

independent audit report to the members of Biotron Limited

Scope

We have audited the financial report of Biotron Limited for the financial year ended 30 June 2004, consisting of the
statement of financial performance, statement of financial position, statement of cash flows, accompanying notes, and
the directors’ declaration set out on pages 13 to 26. The Company’s directors are responsible for the financial report. We
have conducted an independent audit of this financial report in order to express an opinion on it to the members of the
Company.

Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance
whether the financial report is free of material misstatement. Our procedures included examination, on a test basis, of
evidence supporting the amounts and other disclosures in the financial report, and the evaluation of accounting policies
and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material
respects, the financial report is presented fairly in accordance with Accounting Standards and other mandatory
professional reporting requirements in Australia and statutory requirements so as to present a view which is consistent
with our understanding of the Company's financial position, and performance as represented by the results of its
operations and its cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In our opinion, the financial report of Biotron Limited is in accordance with:

(a) the Corporations Act 2001, including:

(i) giving a true and fair view of the Company’s financial position as at 30 June 2004 and of its performance for the

year ended on that date; and

(ii) complying with Accounting Standards in Australia and the Corporations Regulations 2001; and

(b) other mandatory professional reporting requirements in Australia.

KPMG

S. J. Board
Partner

Brisbane
9 September 2004

ANNUAL REPORT 2004

additional stock exchange information

Home Exchange
The Company is listed on the Australian Stock Exchange Limited. The home exchange is Sydney.

Use of Cash and Assets
Since the Company's listing on the Australian Stock Exchange, the Company has used its cash and assets in a way
consistent with its stated business objectives.

Class of Shares and Voting Rights
There is only one class of shares in the Company, fully paid ordinary shares.

The rights attaching to shares in the Company are set out in the Company's Constitution. The following is a summary of
the principal rights of the holders of shares in the Company.

Every holder of shares present in person or by proxy, attorney or representative at a meeting of shareholders has one
vote on a vote taken by a show of hands, and, on a poll every holder of shares who is present in person or by proxy,
attorney or representative has one vote for every fully paid share registered in the shareholder's name on the Company's
share register.

A poll may be demanded by the chairperson of the meeting, by at least 5 shareholders entitled to vote on the resolution
or shareholders with at least 5% of the votes that may be cast on the resolution on a poll.

Substantial Shareholders
As at the date of the Directors' Report, the Register of Substantial Shareholders showed the following:

Peter Gage
Australian National University
Peter G. Scott
Gail S. Scott

9,400,000 fully paid ordinary shares
6,000,000 fully paid ordinary shares
4,250,000 fully paid ordinary shares
4,249,550 fully paid ordinary shares

Distribution of Equity Securityholders
As at 23 August 2004, the distribution of each class of equity was as follows:

Range

Fully Paid
Ordinary Shares

30 September 2005
$0.50 Options

14 January 2007
$0.60 Options

14 January 2007
$0.75 Options

14 January 2007
$1.00 Options

1- 1,000

1,001 - 5,000

5,001 - 10,000

10,001 – 100,000

100,001 and over

731

419

408

1,670

At 23 August 2004, 138 shareholders held less than a marketable parcel of 1,588 shares.

Twenty Largest Quoted Shareholders
At 23 August 2004 the twenty largest fully paid ordinary shareholders held 64% of fully paid ordinary as follows:

Name

Fully Paid
Ordinary
Shares

Peter Gage

9,400,000

14.7

J P Morgan Nominees
Australia Limited

1,000,000

1.6

Peter Scott

2 Australian National University
3
4 Gail Scott
5 Angela Dulhunty
6 Chris and Bhama Parish
7 Carrington Services Pty Ltd
8
Phil and Marylyn Board
9 Altinova Nominees Pty Limited
10 Michael Hoy

6,000,000
4,250,000
4,249,550
2,500,000
2,100,000
2,000,000
1,799,950
1,326,668
1,000,000

9.3
6.6
6.6
3.9
3.2
3.1
2.8
2.0
1.6

There are no current on-market buy-backs.

12 Tom Mann
13 Peter Nightingale
14
Lujeta Pty Ltd
15 CBDF Pty Limited
16 Dr Gary Dinneen Ewart
Jey Investment Pty Ltd
17
18 Tomas Forseberg
19 Mr Christopher David Hammer
20

LPA No 2 Pty Ltd

1,000,000
1,000,000
557,078
550,000
500,000
495,866
449,527
442,736
410,844

1.6
1.6
0.9
0.9
0.8
0.8
0.7
0.7
0.6

ANNUAL REPORT 2004

corporate directory

Directors:

Mr Michael J. Hoy (Chairman)
Dr Michelle Miller (Managing Director)
Professor Peter W. Gage (Research Director)
Dr Michael S. Hirshorn
Mr Bruce Hundertmark
Mr Peter G. Scott

Company Secretary:

Mr Peter J. Nightingale

Registered Office:

Level 8, 261 George Street
SYDNEY NSW 2000
Phone: 61-2 9247 8212
Fax:
61-2 9247 3932
E-mail: enquiries@biotron.com.au
Homepage: www.biotron.com.au

Share Registrar:
Computershare Investor Services Pty Limited
Level 27, Central Plaza One
345 Queen Street
BRISBANE QLD 4000
Phone: 61-7 3237 2100
Fax: 61-7 3229 9860

Auditors:

KPMG
Level 30, Central Plaza One
345 Queen Street
BRISBANE QLD 4000

Home Exchange:

Australian Stock Exchange Limited
20 Bridge Street
SYDNEY NSW 2000

Solicitors:
Minter Ellison
88 Phillip Street
SYDNEY NSW 2000

Biotron Limited, incorporated and domiciled in Australia, is a
publicly listed company limited by shares.

Level 8 > 261 George Street > Sydney NSW 2000 > Australia