ANNUAL REPORT 2008
Neuren Pharmaceuticals Limited
ARBN 111 496 130
Neuren Pharmaceuticals Limited
Contents
Corporate Directory
Chief Executives’ Report
Directors’ Report
Corporate Governance Statement
Financial Statements
Income Statements
Balance Sheets
Statements of Changes in Equity
Cash Flow Statements
Notes to the Financial Statements
Auditors’ Report
Additional Information
1
3
6
9
10
11
12
13
14
28
29
The Board of Directors is pleased to present
the Annual Report of Neuren Pharmaceuticals
Limited for the year ended 31 December 2008,
authorised by it on 31 March 2009.
For, and on behalf of, the Board
Dr Robin Congreve
Chairman
Mr Trevor Scott
Director
31 March 2009
Company
Neuren Pharmaceuticals Limited
ARBN 111 496 130
Corporate Head Office
Level 2, 57 Wellington Street,
Freemans Bay, Auckland, New Zealand
Tel: +64 9 529 3940
Australian Registered Office
Level 13, 122 Arthur Street,
North Sydney NSW 2060
Australia
Tel: +61 2 9956 8500
Directors
Dr Robin Congreve
Dr Graeme Howie
Mr Trevor Scott
Dr Douglas Wilson
Company Secretary
Mr Robert Waring
Auditors
PricewaterhouseCoopers
188 Quay Street
Private Bag 92162
Auckland, New Zealand
Share Registry
Link Market Services Limited
Level 9, 333 Collins Street
Melbourne, Victoria 3000
Australia
Tel: +61 3 9615 9800
Fax: +61 3 9615 9900
Stock Exchange Listing
Australian Stock Exchange Limited
ASX Code: NEU
Website
www.neurenpharma.com
Neuren Pharmaceuticals Limited
Chief Executives’ Report
2008 was a year of positives and negatives for the Company. From a positive perspective, the NNZ-2566 program gained
strong support with funding from the US Army, received an encouraging pre-IND review by the US Food & Drug
Administration (FDA), and was voted one of the 10 most promising neuroscience programs by Windhover. In addition, one
of the cancer preclinical programs was outlicensed to a European specialty pharmaceutical company. From a negative
perspective, results from the Glypromate® Phase 3 trial were released at the end of 2008, which showed that Glypromate®
had no observable effect in a cardiac surgery population and this program was terminated. The Company is continuing to
work on addressing the future capital requirements of the business and, with an extremely promising portfolio of highly
differentiated compounds addressing unmet needs in neurology, psychiatry and oncology, we have turned our full
attention to developing these assets in 2009.
In addition to the funds raised earlier in the year, Neuren completed an A$3 million capital raise in September 2008 via a
private placement and a partly underwritten share purchase plan. This funding enabled Neuren to complete the
Glypromate® trial and we thank those shareholders who participated in the raise. While further fund raising negotiations
are incomplete, we expect that the upcoming NNZ-2566 program will be funded by a combination of US Army funding and
capital sourced from the US market.
Glypromate® Clinical Development Programme
The Glypromate® Phase 3 trial to reduce cognitive impairment in patients undergoing cardiopulmonary bypass surgery
completed its recruitment and the results were announced at the end of 2008. During the year, a recalculation of sample
sized enabled the trial to be reduced from 600 to 325 completed patients. This allowed the Company to conserve cash
and accelerate the trial outcomes.
The trial design was based on existing literature that indicated that cognitive impairment occurs in up to 70% of patients
who undergo cardiac surgery with cardiopulmonary bypass. However, in contrast to the deficits reported in the published
literature, in the 325 patients who completed the study, only a small proportion (approximately 20% including those not
receiving the drug) evidenced cognitive decline at 12 weeks compared to before surgery, while 80% actually improved.
Consequently the study was unable to show any statistically significant difference between patients receiving the active
drug and those receiving placebo on either change in composite cognitive score or activities of daily living from baseline
to 12 weeks.
While not statistically significant, there was a 6-fold lower mortality rate in patients receiving Glypromate® compared to
those receiving placebo.
Although the effectiveness or otherwise of Glypromate® is still to be established, the Company will now focus its efforts
on NNZ-2566 which has a number of advantages over Glypromate® as a potential drug. The Neuren clinical team
performed an excellent job in running a global trial and are to be commended for their efforts.
NNZ-2566 Clinical Development Programme
Neuren has been working closely with the US Army to develop NNZ-2566 as a treatment for Traumatic Brain Injury (TBI)
since 2004. TBI is an injury to the head caused by an external trauma that can lead to brain cell death, inflammation,
oedema, haemorrhage and severe disruption to normal brain cell function. The medical need for a drug to treat the effects
of TBI is well recognised. NNZ-2566 is a novel molecule that has been shown in preclinical studies to prevent the brain cell
death that results from a wide variety of injuries, and the molecule improves functional and cognitive outcome after injury
as a consequence. The protective efficacy of NNZ-2566 is thought to result from the wide-reaching effects the drug has,
including suppression of the inflammatory response to injury, as well as beneficial effects on seizure activity and
”programmed cell death”. In 2008, the US Army awarded US$4 million in funding to the NNZ-2566 Phase 2 trial
programme through a grant to the Geneva Foundation. A proposal for further funding for the trial has been approved by
the US Army and the funding agreement is currently being negotiated. Neuren is also in discussions with private investors
in the US market for funding of the NNZ-2566 programme.
Phase 1a and 1b safety trials completed for NNZ-2566 in 2007 and CMC scale up was successfully completed in 2008. A
pre-IND meeting was held with the FDA in mid 2008. The FDA indicated that, with completion of successful Phase 2 trials
with compelling proof of efficacy, only one Phase 2b/3 pivotal trial would be required prior to registration. In addition, the
FDA indicated that Fast Track designation is likely to be approved and that Orphan Drug status is possible for the
compound in TBI. The Company submitted an Investigational New Drug (IND) application to the FDA to initiate Phase 2
trials in collaboration with the US Army in early 2009. US$4 million in funding for direct clinical trial costs was committed
in the form of a grant to the Geneva Foundation from the US Army for the NNZ-2566 Phase 2 clinical trial in moderate to
severe traumatic brain injury.
The objective of the Phase 2 trial is to evaluate the safety and efficacy of NNZ-2566 in moderate to severe brain injured
patients and also to evaluate a number of end points in order to determine which will be used in the subsequent pivotal
trial. These include neuropsychological function and global outcomes. Depression, short term memory loss and attention
deficit are frequent consequences of TBI and can cause significant disability. In addition, the trial will assess
haemodynamic status and neurological function and will incorporate biochemical and electroencephalographic markers.
The Phase 2 trial will be a complex and long trial. Trial logistics are now well underway to set up this study and it is
expected to commence in mid-2009. Investigative sites have been confirmed at David Geffen School of Medicine at UCLA,
Jackson Memorial Hospital in Miami (Florida), Wilford Hall Medical Center (Texas), Brooke Army Medical Center (Texas),
Fairfax INOVA Hospital (Virginia) and Charleston Area Medical Center (CAMC) Health Education and Research Institute
(Virginia).
1
Neuren Pharmaceuticals Limited
Motiva™
Motiva™ is being developed as a drug to treat neuropsychiatric consequences of stroke and other chronic CNS
conditions. The drug is an analogue of the natural neurotransmitter γ-aminobutyric acid, of the 2-oxo-pyrrolidine class of
compounds - a class of compound with proven efficacy for neuropsychiatric conditions. Motiva™ has been shown in
preclinical studies to improve outcome in models of motivation and depression. Neuren has designed a Phase 2b trial in
post-stroke depression and apathy. The US IND for Motiva™ is open and, pending funding, following completion of clinical
trial design and filing of a protocol amendment with the FDA, a Phase 2 trial will commence.
In addition, the Michael J. Fox Foundation has invited Neuren to apply for a grant to evaluate Motiva™ in a Phase 2 trial in
apathy and depression associated with Parkinson’s disease. A collaborator is also preparing a grant proposal for a Phase
2 trial in post-stroke depression. Should these grants be successful, these trial results will contribute to eventual product
registration.
Preclinical Research Programme
In the preclinical pipeline, the Company has obtained proof of concept in a range of in vivo models of peripheral
neuropathy, Parkinson’s disease and certain cancers. These conditions reflect significant unmet need and market
opportunity, and are major targets for many larger pharmaceutical and biotechnology companies.
Neuren’s primary objective for the remaining preclinical molecules remains leveraging external grant capital and
outlicensing these compounds as soon as possible. This portfolio contains the two cancer programs, NNZ-2591, the NRPs
and the macrocyclics.
In the field of cancer, Neuren is looking at the best way to commercialise the exciting discovery of two novel approaches
to treating a wide variety of cancers. These approaches involve the suppression of the action of specific growth factors.
NNZ-2591 is a novel neuroprotective molecule that has been shown in preclinical studies to improve outcome in models
of chronic neurological disorders, including Parkinson's disease and peripheral neuropathy. The excellent oral
bioavailability and safety profile of the drug observed in preliminary toxicity testing suggest NNZ-2591 is a preclinical
development candidate with an excellent likelihood of successful development.
NRPs (Neural Regeneration Peptides) represent a novel family of molecules that not only prevent brain cell death
following injuries, but also provoke new cell growth and connectivity. This research program therefore offers an exciting
opportunity to develop neuroprotective drugs that might modify the progression of diseases such as polyneuropathy and
motor neuron disease, rather than simply treat the symptoms.
Macrocyclics are a further preclinical program covering a number of novel chemical classes that all incorporate a novel
ring system. These molecules have shown good neuroprotective effects in early preclinical studies.
During 2008, the Company licensed out one of the candidates from its preclinical cancer program to a European specialty
pharmaceutical company. While we are concentrating resources on the NNZ-2566 trial, Neuren is actively engaged in
discussions with a number of potential partners for these promising, earlier stage compounds.
Financial Review
Grants revenue increased from $1,072,000 in 2007 to $1,660,000 in 2008 as a result of receiving the initial payment from
the Geneva Foundation under the US Army grant to support the upcoming NNZ-2566 traumatic brain injury trial, offset by
reductions due to grants relating to preclinical programmes finishing in 2007 and throughout 2008. As signalled in
previous years, Neuren no longer undertakes contract research on behalf of third parties, and accordingly has recognised
the balance of previously deferred revenue. Operating revenue was also higher in 2008 as a result of an upfront out-
licensing receipt of $736,000 for one of Neuren’s early-stage cancer programmes. The level of interest income in 2008
was consistent with lower average cash balances across the year compared with 2007. Neuren had $1,619,000 in cash
deposits as at 31 December 2008.
Research and development costs were $10,341,000 in 2008 compared to $11,767,000 in 2007. The decrease was due
largely to a reduction in the preclinical programme pending new grant funding or out-licensing. Although recruitment in
the Phase 3 Glypromate® trial was completed mid-2008 the substantial task of collating and analysing the data was not
completed until year end and accordingly trial costs were at a similar level to the previous year. As a result of the
disappointing outcome of the trial and the Company’s decision not to continue the development of Glypromate® an
impairment charge of $7,052,000 representing the carrying value of intellectual property related to Glypromate® was
recorded at year end. Hamilton Pharmaceuticals which was acquired in October 2007 again did not have a material impact
on the results of the Group, with the most significant contribution being $405,000 for the amortisation of intellectual
property.
Mr Larry Glass
Co-Chief Executive Officers
Dr Parmjot Bains
2
Neuren Pharmaceuticals Limited
Directors’ Report
Principal Activities
Neuren Pharmaceuticals Limited (Neuren or the Company, and its subsidiaries, or the Group) is a publicly listed
biopharmaceutical company focusing on the development of drugs for neurological disorders, metabolism and cancer.
The drugs target acute indications of brain injury such as cognitive impairment resulting from traumatic brain injury,
psychiatric symptoms of stroke, as well as chronic conditions such as Parkinson’s and Alzheimer’s diseases.
Neuren has three lead candidates; Motiva™ and NNZ-2566 presently in clinical development to treat four different
neurological conditions, and NNZ-2591 in preclinical development for Parkinson’s disease dementia and other chronic
neurodegenerative conditions. The Group has operations in New Zealand and the United States.
Performance Overview
During 2008, Neuren completed recruitment and top level data analysis in its Phase 3 trial of Glypromate®. Unfortunately
the trial did not achieve its efficacy end-points and accordingly the net carrying value of intellectual property related to
Glypromate® amounting to $7,052,000 was written off at year end. Planning for the Phase 2 trial of NNZ-2566 to be
conducted with support from the US Army continued throughout the year, and the Investigational New Drug application
(IND) for the trial was submitted to the US Food & Drug Administration in early 2009.
Neuren’s operations for 2008 are described further in the Chief Executive’s Report on pages 1 and 2.
All amounts are shown in New Zealand dollars unless otherwise stated.
The Group’s net loss for the year ended 31 December 2008 was $18,434,000 (2007: $13,798,000). The detailed financial
statements are presented on pages 10 to 27.
The net deficit per share of $0.08 (2007: $0.10) is based on 223,265,642 weighted average number of shares outstanding
(2007: 133,985,479).
No ordinary share dividends were paid in the year and the Directors recommend none for the year.
Directors
Dr Robin Congreve, LLM, PhD (Chairman)
Dr Congreve was for many years a partner in Russell McVeagh McKenzie Bartleet & Co specialising in taxation and
business law. He was subsequently on the Boards of or chaired a number of public and private companies including NZ
Railways Corporation, BNZ, Comalco NZ Limited, Lion Nathan Limited and TruTest Limited. He is a principal of Oceania &
Eastern Group, a New Zealand private equity group which has provided private equity funding to both Neuren's
predecessor companies, NeuronZ and EndocrinZ. Dr Congreve was founding Chairman of the Auckland Medical School
Foundation which led to the formation of NeuronZ within the University of Auckland and subsequently to the introduction
of private equity into that company and EndocrinZ.
Mr Trevor Scott, BCom, FCA (PP), FNZIM, DF Inst D (Non-Executive Director), MNZM
Mr Scott is founder of T.D. Scott and Co., an accountancy and consulting firm, which he formed in 1988. He is an
experienced advisor to companies across a variety of industries. Mr Scott serves on numerous corporate boards and is
chairman of several, including Mercy Hospital Dunedin Limited and Arthur Barnett Limited. He is also a director of ING
Property Trust Limited which is listed on the New Zealand Stock Exchange. Mr Scott is a member of the board of the New
Zealand Seed Fund.
Dr Douglas Wilson, MB, ChB, PhD (Director and Chief Medical Officer)
Dr Wilson was originally a medical academic with postgraduate experience in Auckland, London, Oxford and Walter and
Eliza Hall Institute, Melbourne. He then spent many years in the international pharmaceutical industry, firstly as Senior
Vice-President for Boehringer Ingelheim USA. Dr Wilson was responsible for all drugs and clinical development and all
interactions with the FDA. He then carried these responsibilities worldwide at Boehringer Ingelheim Head Office in
Germany. He has overseen multiple drugs at all phases of development including bringing many drugs successfully to the
market in the USA. Dr Wilson is now a consultant to the biotechnology sector.
Dr Graeme Howie, BSc (Hons), PhD (Non-Executive Director)
Dr Howie has over 27 years of management experience in the international pharmaceutical industry with a strong and
diverse background in research and development, product development, manufacturing and commercial fields. His most
recent experience is in recombinant biotech product development and was until December 2004 a senior executive at
Pfizer Inc., based in New York. Dr Howie has extensive international experience in technical and commercial due diligence
activities, including in-licensing. He also led and was responsible for new delivery route feasibility studies on human
growth hormone and has been responsible for the development and registration of various products throughout the USA,
Europe, Australia and Asia.
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Neuren Pharmaceuticals Limited
Interests Register
The Company is required to maintain an interests register in which particulars of certain transactions and matters involving
Directors must be recorded. Details of the entries in this register for each of the Directors are as follows:
Dr R L Congreve
Dr Congreve is a director of Oceania & Eastern Biotech Limited, EndocrinZ Founders Limited, Hazardous Investments
Limited and until 21 February 2006 NeuronZ Limited, all shareholders of the Company. Dr Congreve does not have any
other interests considered to cause any potential conflict of interests.
Mr T D Scott
Mr Scott is a director of New Zealand Seed Fund Management Limited and Centralo Limited, both shareholders of the
in the
Company. Mr Scott
biotechnology/pharmaceutical industry. He is also a director of NZX listed ING Property Trust Limited which is the owner
of the Company’s former leased premises. Mr Scott does not have any other interests considered to cause any potential
conflict of interests.
is also the chairman of Mercy Hospital Dunedin Limited which also operates
Dr J D Wilson
Dr Wilson was appointed a director of Phylogica Limited, a Perth, Australia, based biopharmaceutical drug discovery
company, in March 2008. Dr Wilson does not have any other disclosed interests considered to cause any potential conflict
of interests.
Dr G B Howie
Dr Howie does not have any disclosed interests considered to cause any potential conflict of interests.
Mr T R Amos
Mr Amos resigned as a director on 27 March 2009. He was a representative of the Macquarie Technology Funds 1A and
1B, both shareholders of the Company until 13 January 2009. Mr Amos did not have any other interests considered to
cause any potential conflict of interests.
The details of each Director’s relevant interests in securities of the Company are disclosed in the “Other Information”
section of this Annual Report.
Information used by Directors
During the year the Board received no notices from Directors of the Company requesting to use Company information
received in their capacity as Directors, which would not otherwise have been available to them.
Indemnification and Insurance of Directors and Officers
Neuren has arranged Directors and Officers Liability Insurance that provides that generally Directors and Officers will incur
no monetary loss as a result of actions undertaken by them as Directors and Officers. The insurance does not cover
liabilities arising from criminal activities or deliberate or reckless acts or omissions.
Remuneration of Directors
Dr Robin Congreve
Mr Tom Amos 1
Mr David Clarke 2
Dr Graeme Howie
Mr Trevor Scott
Dr Doug Wilson
1 Resigned as a director 27 March 2009
2 Resigned as a director 11 December 2007
Directors’ Fees
31 December
2008
$’000
Other
Remuneration
31 December
2008
$’000
Directors’ Fees
31 December
2007
$’000
Other
Remuneration
31 December
2007
$’000
60
35
-
19
40
-
5
-
-
-
5
172
60
35
-
35
40
-
-
-
570
-
-
200
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Neuren Pharmaceuticals Limited
Executive Remuneration
The number of employees, not being directors of the Company, who received remuneration and benefits above $100,000
per annum, is as follows:
$100,000 - $109,999
$110,000 - $119,999
$130,000 - $139,999
$140,000 - $149,999
$150,000 - $159,999
$170,000 - $179,999
$190,000 - $199,999
$210,000 - $219,999
$290,000 - $299,999
$400,000 - $409,999
Donations
31 December
2008
$’000
31 December
2007
$’000
3
2
-
1
1
-
1
-
1
1
3
1
-
2
-
1
-
1
-
-
The Company made no donations during the year (2007: nil).
Auditors
PricewaterhouseCoopers are the auditors of the Company. Audit fees in relation to the annual and interim financial
statements were $45,500 (2007: $51,000). During 2008 PricewaterhouseCoopers also received $500 (2007: $1,000) in
relation to other financial advice.
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Neuren Pharmaceuticals Limited
Corporate Governance Statement
The Directors have adopted practices and procedures for the good corporate governance of the Company. These
practices and procedures establish the framework of how the Directors carry out their duties and discharge their
obligations.
The Company has adopted appropriate policies and practices as provided by the ASX Listing Rules and the Corporate
Governance Principles and Recommendations issued by the ASX Corporate Governance Council (“Council”) in March 2003
and revised in August 2007 (2nd edition) which are as follows:
Principle 1.
Principle 2.
Principle 3.
Principle 4.
Principle 5.
Principle 6.
Principle 7.
Principle 8.
Lay solid foundations for management and oversight
Structure the Board to add value
Promote ethical and responsible decision-making
Safeguard integrity in financial reporting
Make timely and balanced disclosure
Respect the rights of shareholders
Recognise and manage risk
Remunerate fairly and responsibly
Neuren’s corporate governance practices were fully compliant with the Council’s August 2007 best practice
recommendations apart from the following recommendations:
Recommendation 2.2: The chair should be an independent director
Dr Congreve is the Chairman of the Board, and was elected as such by the shareholders of the Company. As noted
below, Dr Congreve is not “independent” however in accordance with Council’s recommendations, Mr Scott,
Chairman of the Remuneration and Audit Committee, acts as lead independent director.
Recommendation 2.4: The Board should establish a nomination committee
The Board has previously considered establishing a Nomination Committee, however due to the small number of
Directors the Board considers it more efficient for the selection and appointment of Directors to be considered by
the Board itself. It is the Board’s policy to determine the terms and conditions relating to the appointment and
retirement of non-executive Directors on a case by case basis and in conformity with the requirements of the Listing
Rules. The Board may also engage an external consultant where appropriate to identify and assess suitable
candidates who meet the Board’s specifications.
Role of the Board
The Board is responsible for the overall corporate governance of the Company. The Board acts on behalf of and is
accountable to the shareholders. The Board seeks to identify the expectations of shareholders as well as other regulatory
and ethical expectations and obligations. The Board is responsible for identifying areas of significant business risk and
ensuring mechanisms are in place to manage those risks adequately. In addition, the Board sets the overall strategic goals
and objectives, and monitors achievement of goals.
The Board appoints the Chief Executive Officers and the responsibility for the operation and administration of the
Company has been delegated to the Chief Executive Officers and senior management. The Board ensures this team is
appropriately qualified to discharge their responsibilities and reviews the performance of the Chief Executive Officers
annually against agreed objectives. As the Chief Executive Officers were appointed during the 2007 financial year, their
performance reviews will be conducted subsequent to year end. The Chief Executive Officers are responsible for
reviewing annually the performance of senior management.
The Board ensures management’s objectives and activities are aligned with the expectations and risks identified by the
Board through a number of mechanisms including the following:
•
•
establishment of the overall strategic direction and leadership of the Company;
approving and monitoring the implementation by management of the Company’s strategic plan to achieve those
objectives;
reviewing performance against its stated objectives, by receiving regular management reports on business situation,
opportunities and risks;
•
• monitoring and review of the Company’s controls and systems including those concerned with regulatory matters to
ensure statutory compliance and the highest ethical standards; and
review and adoption of the annual budget and monitoring the results against stated targets.
•
The Board reviews its corporate strategy and financial targets in terms of shareholder expectations, performance and
potential in the interests of creating long-term value for shareholders.
The Board considers corporate governance to be an important element of its responsibilities. It meets regularly
throughout the year.
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Neuren Pharmaceuticals Limited
Board Composition
The Company must have between 3 and 9 Directors. The independence and tenure of each Director at the date of this
report is as follows:
Director
Position
Independence
Term in Office
Dr Robin Congreve
Mr Tom Amos (until 27 March 2009) Non-executive director
Non-executive director
Dr Graeme Howie
Non-executive director
Mr Trevor Scott
Chief Medical Officer – Executive director Non-independent
Dr Doug Wilson
Non-independent
Independent
Independent
Independent
Chairman – Non-executive director
7
4
4
6
5
The composition of the Board, its performance, and the independence of Directors are regularly reviewed by the
Chairman and lead independent director, Mr Scott, to ensure that the Board has the appropriate mix of independence,
expertise and experience. Mr Amos (until he resigned on 27 March 2009), Dr Howie and Mr Scott are independent
Directors. The Board has previously considered establishing a Nomination Committee, however due to the small number
of Directors the Board considers it more efficient for the selection and appointment of Directors to be considered by the
Board itself.
It is the Board’s policy to determine the terms and conditions relating to the appointment and retirement of non-executive
Directors on a case by case basis and in conformity with the requirements of the Listing Rules. The Board may also
engage an external consultant where appropriate to identify and assess suitable candidates who meet the Board’s
specifications.
The relevant skills, experience and expertise of each Board member are set out in the Directors’ Report.
For the purposes of the proper performance of their duties, Directors are entitled to seek independent professional advice
at the Company’s expense on prior approval of the Chairman.
Board Committees
It is the Board’s policy that the various Committees it has established should:
•
be entitled to obtain such resources and information from the Company including direct access to employees of and
advisers to the Company as it may require; and
operate in accordance with the terms of reference established by the Board.
•
Remuneration and Audit Committee
The Remuneration and Audit Committee must have a minimum of 2 non-executive directors. Currently the Committee
members are Mr Scott (Chair), Dr Congreve and Mr Amos. The Board is currently considering the structure of the
Remuneration and Audit Committee following the resignation of Mr Amos on 27 March 2009. The Committee operates
under terms of reference approved by the Board. It is responsible for undertaking a broad review of, ensuring compliance
with, and making recommendations in respect of, the Company’s internal financial controls, legal compliance obligations
and remuneration policies. It is also responsible for:
•
review of audit assessment of the adequacy and effectiveness of internal controls over the Company’s accounting
and financial reporting systems, including controls over computerised systems;
review of the audit plans and recommendations of the external auditors;
evaluating the extent to which the planned scope of the audit can be relied upon to detect weaknesses in internal
control, fraud and other illegal acts;
review of the results of audits, any changes in accounting practices or policies and subsequent effects on the
financial statements and make recommendations to management where necessary and appropriate;
review of the performance and fees of the external auditor;
audit of legal compliance including trade practices, corporations law, occupational health and safety and
environmental statutory compliance , and compliance with the Listing Rules of the ASX;
supervision of special investigations when requested by the Board;
setting and reviewing compensation policies and practices of the Company;
setting and reviewing remuneration of the Directors, Chief Executive Officer and members of the executive team;
and
setting and reviewing the Company’s equity plans for employees and/or Directors.
•
•
•
•
•
•
•
•
•
All members of the Committee meet twice during the year. In undertaking these tasks the Remuneration and Audit
Committee meets separately with management and external auditors where required. The Committee also seeks
assurances from the Chief Executive Officers and Chief Financial Officer in respect of the accuracy and compliance of the
Company’s annual and half-year financial statements and effectiveness of the Company’s management of its material
business risks.
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Neuren Pharmaceuticals Limited
Ethical Standards and Share Trading
The Company recognises the need for Directors and employees to observe the highest standards of behaviour and
business ethics when engaging in corporate activity or share trading.
The Constitution permits Directors to acquire shares in the Company. The Company’s share trading policy prohibits
Directors, executives and employees from acquiring or disposing of securities unless this occurs during a 42 day period
commencing 24 hours after the announcement to the ASX of the quarterly, half-yearly and annual results and/or after the
conclusion of the Company’s Annual General Meeting and provided that the person is not in possession of price sensitive
information and the trading is not for short-term or speculative gain. Other trading may only occur with Board approval.
Continuous Disclosure
As a listed company, Neuren is required to comply with the continuous disclosure requirements as set out in the ASX
Listing Rules. The Company discloses to the ASX any information concerning the Company which a reasonable person
would expect to have a material effect on the price or value of securities of the Company, unless certain exemptions from
the obligation to disclose apply.
relevant
All
www.neurenpharma.com, in compliance with the continuous disclosure requirements of the Listing Rules.
is also posted onto
information provided
the ASX
the Company’s corporate website
to
Rights of Shareholders
The Board strives to communicate regularly and clearly with shareholders, the principal methods being through the
Company’s annual and half-year reports, and Company announcements posted on the Company’s website. Shareholders
are encouraged to attend and participate at general meetings, which the Auditors are also invited to attend.
Identification and Management of Significant Business Risk
The Board has identified the significant areas of potential business and legal risk for the Company.
The identification, monitoring and, where appropriate, the reduction of significant risk to the Company are monitored by
the Board. The Board reviews and monitors the parameters under which such risks will be managed.
The Board has identified the Company’s activities in conducting clinical trials on humans as a significant area of risk. The
Board has established the Clinical Development and Ethics Committee to assist the Board in discharging its
responsibilities regarding this specific area of risk including ensuring:
•
•
•
•
risk management strategies are in place (such as insurance) and that variances in such strategies are reported;
staff involved in this area are sufficiently experienced and skilled;
appropriate procedures are in place for the selection and remuneration of external contractors;
compliance with regulatory obligations including manufacturing, testing, analysis and FDA/Med Safe and Ethics.
Similar risk management procedures are adopted for other areas of identified risk.
The Remuneration and Audit Committee also assists the Board in its monitoring of financial and operational risk.
Both Committees ensure adequate and timely reporting of their findings and activities to the Board.
Remuneration
Neuren believes having highly skilled and motivated people will allow the organisation to best pursue its mission and
achieve its goals for the benefit of shareholders and stakeholders more broadly. The ability to attract and retain the best
people is critical to the Company’s future success. The Board believes remuneration policies are a key part of ensuring
this success.
The Remuneration and Audit Committee of the Board is responsible for determining and reviewing compensation
arrangements for the Directors, Chief Executive Officers and members of the executive team. The Committee assesses
the appropriateness of the nature and amount of emoluments on a periodic basis by reference to relevant employment
market conditions, with the overall objective of ensuring maximum stakeholder benefit from the retention of a high quality
Board and executive team. To assist in achieving these objectives, the Remuneration and Audit Committee links the
nature and amount of executive Directors’ and Officers’ emoluments to the Company’s performance.
Remuneration of Executives comprises base salary and an “at-risk” (bonus) component, the payment of which is
dependent upon individual, team and Company performance relative to specific targets. Executive performance and
remuneration is reviewed formally each year.
Long-term incentive arrangements have been provided by participation in a share option plan to ensure key employees
maintain a long-term interest in the growth and value of the Company.
Non-executive Director fees are determined by the Board within the aggregate limit for Directors’ fees approved by
shareholders. The current remuneration level for the Chair is $60,000 and for non-executive Directors is $25,000 per year
with an additional $10,000 for committee membership and $5,000 for committee Chairs. Executive Directors do not
receive Directors fees. Directors and Executives receive no retirement allowances. New Zealand Companies Act
disclosures with regard to Directors’ Fees and Executives’ remuneration are set out in the Directors’ Report.
8
Neuren Pharmaceuticals Limited
Financial Statements
for the year ended 31 December 2008
9
Neuren Pharmaceuticals Limited
Income Statements
for the year ended 31 December 2008
Consolidated
Parent
Notes
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
Revenue
- interest income
- contract revenue
- out-licensing revenue
Other income
- grants
- gain on acquisition of subsidiary
Total revenue and other income
Depreciation and amortisation expense
Intangible asset impairment expense
Research and development costs
Patent costs
Share option compensation expense
Foreign exchange gain (loss)
Interest expense
155
323
736
1,214
1,660
-
2,874
(1,341)
(7,052)
(10,341)
(741)
(111)
424
(31)
276
-
-
276
1,072
1,078
2,426
(1,010)
-
(11,767)
(560)
(271)
(13)
(69)
153
323
736
1,212
1,660
-
2,872
(936)
(7,052)
(10,325)
(615)
(111)
424
(31)
274
-
-
274
1,072
-
1,346
(947)
-
(11,764)
(536)
(271)
(13)
(69)
Corporate and administrative costs
(2,042)
(2,534)
(2,070)
(2,562)
Loss before income tax
Income tax expense
Loss after income tax
Basic and diluted loss per share
4
5
6
$
$
(18,361)
(73)
(18,434)
(13,798)
-
$
(13,798)
(17,844)
(73)
$
(17,917)
$
(14,816)
-
(14,816)
(0.08)
$
(0.10)
$
(0.08)
$
(0.11)
The notes on pages 14 to 27 form part of these financial statements
10
Neuren Pharmaceuticals Limited
Balance Sheets
as at 31 December 2008
ASSETS
Current assets:
Cash and cash equivalents
Trade and other receivables
Income taxes receivable
Consolidated
Parent
2008
2007
2008
2007
Notes
NZ$’000
NZ$’000
NZ$’000
NZ$’000
7
8
1,619
195
6
1,291
157
6
1,529
963
6
1,064
646
6
Total current assets
1,820
1,454
2,498
1,716
Non-current assets:
Property, plant and equipment
Intangible assets
Investments in subsidiaries
9
10
15
94
8,301
-
341
14,766
-
94
1,303
4,201
341
9,203
4,201
Total non-current assets
8,395
15,107
5,598
13,745
TOTAL ASSETS
$
10,215
$
16,561
$
8,096
$
15,461
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Trade and other payables
Convertible notes
Equipment finance – short term
Lease incentive – short term
Total current liabilities
Non-current liabilities:
Equipment finance – long term
Lease incentive – long term
Total liabilities
SHAREHOLDERS’ EQUITY
Share capital
Other reserves
Accumulated deficit
11
12
12
12
13
3,481
-
15
12
3,968
3,902
15
15
3,434
-
15
12
3,796
3,902
15
15
3,508
7,900
3,461
7,728
11
34
28
60
11
34
28
60
3,553
7,988
3,506
7,816
68,768
2,545
54,023
767
68,768
974
54,023
857
(64,651)
(46,217)
(65,152)
(47,235)
Total shareholders’ equity
6,662
8,573
4,590
7,645
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
10,215
$
16,561
$
8,096
$
15,461
The notes on pages 14 to 27 form part of these financial statements
For and on behalf of the Board of Directors who authorised the issue of these financial statements
on 31 March 2009.
Dr Robin Congreve
Chairman
Mr Trevor Scott
Director
11
Neuren Pharmaceuticals Limited
Statements of Changes in Equity
for the year ended 31 December 2008
Consolidated
Paid-in Capital
Shares
000’s
Amount
NZ$’000
Share
Option
Reserve
NZ$’000
Foreign
Currency
Translation
Reserve
NZ$’000
Accumulated
Deficit
NZ$’000
Total
Equity
NZ$’000
Recognised
Revenues
and Expenses
NZ$’000
Shareholders’ equity as at 1 January 2007
131,094 $ 49,943
$
586
$
-
$
(32,419)
$ 18,110
Shares issued on option exercise
20
8
Shares issued in acquisition of subsidiary
13,625
4,149
Share issue costs expensed
(77)
Share option grants for services
Exchange differences on translation of foreign
operations
Loss for the year
271
(90)
8
4,149
(77)
271
(90)
(13,798)
(13,798)
(13,798)
Total recognised revenues and expenses
$
(13,798)
Shareholders’ equity as at 31 December 2007
144,739 $ 54,023
$
857
$
(90)
$
(46,217)
$
8,573
Shares issued in rights issue
50,700
8,065
Shares issued on conversion of notes
24,525
3,866
Shares issued in private placement
11,875
1,190
Shares issued in Share Purchase Plan
25,625
2,426
Share issue costs expensed
(802)
Share option grants for services
Exchange differences on translation of foreign
operations
Loss for the year
117
1,661
8,065
3,866
1,190
2,426
(802)
117
1,661
(18,434)
(18,434)
(18,434)
Total recognised revenues and expenses
$
(18,434)
Shareholders’ equity as at 31 December 2008
257,464
$ 68,768
$
974
$ 1,571
$
(64,651)
$
6,662
Parent
Paid-in Capital
Shares
000’s
Amount
NZ$’000
Share
Option
Reserve
NZ$’000
Foreign
Currency
Translation
Reserve
NZ$’000
Accumulated
Deficit
NZ$’000
Total
Equity
NZ$’000
Recognised
Revenues
and Expenses
NZ$’000
Shareholders’ equity as at 1 January 2007
131,094 $ 49,943
$
586
$
-
$
(32,419)
$ 18,110
Shares issued on option exercise
20
8
Shares issued in acquisition of subsidiary
13,625
4,149
Share issue costs expensed
(77)
Share option grants for services
271
8
4,149
(77)
271
Loss for the year
(14,816)
(14,816)
(14,816)
Total recognised revenues and expenses
$
(14,816)
Shareholders’ equity as at 31 December 2007
144,739 $ 54,023
$
857
$
-
$
(47,235)
$
7,645
Shares issued in rights issue
50,700
8,065
Shares issued on conversion of notes
24,525
3,866
Shares issued in private placement
11,875
1,190
Shares issued in Share Purchase Plan
25,625
2,426
Share issue costs expensed
(802)
Share option grants for services
117
8,065
3,866
1,190
2,426
(802)
117
Loss for the year
(17,917)
(17,917)
(17,917)
Total recognised revenues and expenses
$
(17,917)
Shareholders’ equity as at 31 December 2008
257,464
$ 68,768
$
974
$
-
$
(65,152)
$
4,590
The notes on pages 14 to 27 form part of these financial statements
12
Neuren Pharmaceuticals Limited
Cash Flow Statements
for the year ended 31 December 2008
Cash flows from operating activities:
Receipts from grants
Receipts from licensing
Interest received
GST refunded
Interest paid
Payments to employees
Payments to other suppliers
Consolidated
Parent
2008
2007
2008
2007
NZ$’000
NZ$’000
NZ$’000
NZ$’000
1,666
1,533
1,666
1,533
611
155
222
(5)
-
274
230
-
611
153
222
(5)
-
274
230
-
(2,023)
(11,434)
(2,523)
(12,574)
(2,023)
(11,221)
(2,523)
(12,079)
Net cash used in operating activities
(10,808)
(13,060)
(10,597)
(12,565)
Cash flows from investing activities:
Sale of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intellectual property
Purchase of other intangible assets
Acquisition of subsidiary
Advance to subsidiary
Cash acquired on purchase of subsidiary
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from the issue of shares
Proceeds from the issue of convertible notes
Repayment of equipment financing
Payment of share issue expenses
54
(27)
-
-
-
-
-
27
11,682
-
(16)
(831)
-
(155)
(50)
(15)
(52)
-
236
(36)
8
3,830
(6)
(51)
54
(27)
-
-
-
(37)
-
(10)
11,682
-
(16)
(831)
-
(155)
(50)
(15)
(52)
(493)
-
(765)
8
3,830
(6)
(51)
Net cash provided from financing activities
10,835
3,781
10,835
3,781
Net (decrease) increase in cash
Effect of exchange rate changes on cash balances
54
274
(9,315)
(3)
228
237
(9,549)
4
Cash at the beginning of the year
1,291
10,609
1,064
10,609
Cash at the end of the year
$
1,619
$
1,291
$
1,529
$
1,064
Reconciliation with loss after income tax:
Loss after income tax
Non-cash items requiring adjustment:
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Amortisation of intangible assets
Intangible asset impairment
Share option compensation expense
Foreign exchange (gain) loss
Lease incentive amortisation
Interest on convertible notes
Gain on acquisition of subsidiary
Changes in working capital:
Trade and other receivables
Trade and other payables
$
(18,434)
$
(13,798)
$
(17,917)
$
(14,816)
88
132
1,253
7,052
111
(424)
(29)
26
-
(41)
(542)
99
-
911
-
271
13
(15)
67
(1,078)
589
(119)
88
132
848
7,052
111
(424)
(29)
26
-
(41)
(443)
99
-
848
-
271
13
(15)
67
-
549
419
Net cash used in operating activities
$
(10,808)
$
(13,060)
$
(10,597)
$
(12,565)
The notes on pages 14 to 27 form part of these financial statements
13
Neuren Pharmaceuticals Limited
Notes to the Financial Statements
for the year ended 31 December 2008
1. Nature of business
Neuren Pharmaceuticals Limited (Neuren or the Company, and its subsidiaries, or the Group) is a publicly listed
biopharmaceutical company focusing on the development of drugs for neurological disorders, metabolism and cancer.
The drugs target acute indications of brain injury such as cognitive impairment resulting from cardiac surgery and
traumatic brain injury, psychiatric symptoms of stroke, as well as chronic conditions such as Parkinson’s and Alzheimer’s
diseases.
Neuren has three lead candidates; Motiva™ and NNZ-2566 presently in clinical development to treat a range of acute and
chronic neurological conditions, and NNZ-2591 in preclinical development for Parkinson’s disease dementia and other
chronic neurodegenerative conditions. The Group has operations in New Zealand and the United States.
The Company is a limited liability company incorporated and domiciled in New Zealand. The address of its registered
office in New Zealand is level 2, 57 Wellington Street, Auckland, and in Australia Level 13, 122 Arthur Street, North Sydney.
Neuren has its primary listing on the Australian Securities Exchange (ASX code: NEU).
These consolidated financial statements have been approved for issue by the Board of Directors on 31 March 2009.
Inherent Uncertainties
• There are inherent uncertainties associated with assessing the carrying value of the acquired intellectual property. The
ultimate realisation of the carrying values of intellectual property totalling $8,300,000 (after amortisation) is dependent
on the Company and Group successfully developing its products, on licensing the products, or divesting the intellectual
property so that it generates future economic benefits to the Company.
• The Group’s research and development activities involve inherent risks. These risks include, among others: dependence
on, and the Group’s ability to retain key personnel; the Group’s ability to protect its intellectual property and prevent
other companies from using the technology; the Group’s business is based on novel and unproven technology; the
Group’s ability to sufficiently complete the clinical trials process; and technological developments by the Group’s
competitors may render its products obsolete.
• The Company has a business plan which will require a high level of expenditure until product revenue streams are
established and therefore expects to continue to incur additional net losses until then. In the future, the Company will
need to raise further financing through other public or private equity financings, collaborations or other arrangements
with corporate sources, or other sources of financing to fund operations. There can be no assurance that such
additional financing, if available, can be obtained on terms reasonable to the Company. In the event the Company is
unable to raise additional capital, future operations will need to be curtailed or discontinued. This uncertainty is
discussed further in note 20.
2. Summary of significant accounting policies
These general-purpose financial statements are for the year ended 31 December 2008 and have been prepared in
accordance with and comply with generally accepted accounting practice in New Zealand, International Financial
Reporting Standards, New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other
applicable Financial Reporting Standards as appropriate for profit-oriented entities.
(a) Basis of preparation
Entities Reporting
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 31
December 2008 and the results of all subsidiaries for the year then ended. Neuren Pharmaceuticals Limited and its
subsidiaries, which are designated as profit-oriented entities for financial reporting purposes, together are referred to in
these financial statements as the Group.
The financial statements of the ‘Parent’ are for the Company as a separate legal entity.
Statutory Base
Neuren is registered under the New Zealand Companies Act 1993 and is an issuer in terms of the New Zealand Securities
Act 1978. Neuren is also registered as a foreign company under the Australian Corporations Act 2001.
These financial statements have been prepared in accordance with the requirements of the Financial Reporting Act 1993
and the Companies Act 1993.
Historical cost convention
These financial statements have been prepared under the historical cost convention as modified by certain policies below.
Critical accounting estimates
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the
Company to exercise its judgement in the process of applying the Company’s accounting policies such as in relation to
impairment, if any, of intangible assets set out in note 10, and application of the going concern assumption as discussed
in note 20. Actual results may differ from those estimates.
The policies set out below have been consistently applied to all of the years presented.
14
Neuren Pharmaceuticals Limited
(b) Principles of Consolidation
Subsidiaries
Subsidiaries are all those entities over which the Company has the power to govern the financial and operating policies,
generally accompanying a shareholding of more than one-half of the voting rights.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated
from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed
at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted
by the Company.
(c) Segment Reporting
A geographical segment is engaged in conducting operations within a particular economic environment and may be
subject to risks and returns that are different from those of segments operating in other economic environments. A
business segment is a group of assets and operations engaged in conducting operations that may be subject to risks and
returns that are different to those of other business segments. Neuren has determined that its primary segment is
business segment, of which there is only one (research and development) and its secondary segments are geographical.
(d) Foreign Currency Translation
(i) Functional and Presentation Currency
Items included in the financial statements of each of the Group’s operations are measured using the currency that best
reflects the economic substance of the underlying events and circumstances relevant to that operation (‘functional
currency’). The consolidated and Parent financial statements are presented in New Zealand dollars, which is the Group’s
presentation currency.
(ii) Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net investment
hedges.
(iii) Foreign Operations
The results and financial position of foreign entities (none of which has the currency of a hyperinflationary economy) that
have a functional currency different from the presentation currency are translated into the presentation currency as
follows:
• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance
sheet;
• income and expenses for each income statement are translated at average exchange rates; and
• all resulting exchange differences are recognised as a separate component of equity.
Exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other
currency instruments designated as hedges of such investments, are taken to shareholders’ equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of
the foreign operation and translated at the closing rate.
(e) Revenue recognition
Grants
Grants received are recognised in the income statement when the requirements under the grant agreement have been
met. Any grants for which the requirements under the grant agreement have not been completed are carried as liabilities
until all the conditions have been fulfilled.
Out-licensing and royalty revenue
Out-licensing and royalty revenue comprises income generated from technology out-licensing and research and
development collaboration agreements. Where licensing agreements include non-refundable milestone income, revenue
is recognised on achieving the milestones. If any milestone income is creditable against royalty payments then it is
deferred and released to the income statement over the period in which the royalties would otherwise be receivable.
Royalty income relating to the sale by a licensee of licensed product is recognised on an accruals basis in accordance with
the substance of the relevant agreement and based on the receipt from the licensee of the relevant information to enable
calculation of the royalty due.
15
Neuren Pharmaceuticals Limited
Contract research
Where science projects are recognised on an individual project basis and span more than one year, the percentage
completion method is used to determine the appropriate amount of revenue to recognise in a given year over the life of
the project. Contract revenue is recognised when earned and non-refundable and when there are no future obligations
pursuant to the revenue, in accordance with the contract terms. The full amount of an anticipated loss, including that
relating to future work on the contract, is recognised as soon as it is foreseen.
Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
(f) Research and development
Research costs include direct and directly attributable overhead expenses for drug discovery, research and pre-clinical and
clinical trials. Research costs are expensed as incurred.
When a project reaches the stage where it is reasonably certain that future expenditure can be recovered through the
process or products produced, development expenditure is recognised as a development asset when:
•
•
•
•
a product or process is clearly defined and the costs attributable to the product or process can be identified
separately and measured reliably;
the technical feasibility of the product or process can be demonstrated;
the existence of a market for the product or process can be demonstrated and the Company intends to produce
and market the product or process;
adequate resources exist, or their availability can be reasonably demonstrated to complete the project and
market the product or process.
In such cases the asset is amortised from the commencement of commercial production of the product to which it relates
on a straight-line basis over the years of expected benefit. Research and development costs are otherwise expensed as
incurred.
Income tax
(g)
The income tax expense for the period is the tax payable on the period’s taxable income or loss using tax rates enacted at
the balance sheet date and adjusted by changes in deferred tax assets and liabilities attributable to temporary differences
between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax
losses.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the
assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted at the
balance sheet date. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary
differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising
from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these
temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction
did not affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those temporary differences and losses.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in
equity.
(h) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as
operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to
the income statement on a straight-line basis over the period of the lease.
Impairment of non-financial assets
(i)
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets
that are subject to amortisation are reviewed whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. The carrying amount of a long-lived asset is considered impaired when the
recoverable amount from such asset is less than its carrying value. In that event, a loss is recognised in the income
statement based on the amount by which the carrying amount exceeds the fair market value of the long-lived asset. Fair
market value is determined using the anticipated cash flows discounted at a rate commensurate with the risk involved.
(j) Goods and services tax (GST)
The financial statements have been prepared so that all components are presented exclusive of GST. All items in the
balance sheet are presented net of GST, with the exception of receivables and payables, which include GST invoiced.
Intellectual property
(k)
Costs in relation to protection and maintenance of intellectual property are expensed as incurred unless the project has
yet to be recognised as commenced, in which case the expense is deferred and recognised as contract work in progress
until the revenues and costs associated with the project are recognised.
(l) Cash and cash equivalents
Cash and cash equivalents comprises cash and demand deposits held with established financial institutions and highly
liquid investments, which are readily convertible into cash and have maturities of three months or less that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
16
Neuren Pharmaceuticals Limited
(m) Accounts receivable
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for
doubtful debts.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written
off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of receivables.
(n) Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is
directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the
item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial
period in which they are incurred.
Depreciation is determined principally using the straight-line method to allocate their cost, net of their residual values, over
their estimated useful lives, as follows:
Scientific equipment
Computer equipment
Office furniture, fixtures & fittings
Leasehold Improvements
4 years
2 years
4 years
Term of lease
Intangible assets
(o)
Intellectual property
Acquired patents, trademarks and licences have finite useful lives and are carried at cost less accumulated amortisation
and impairment losses. Amortisation is calculated using the straight line method to allocate the cost over the anticipated
useful lives, which are aligned with the unexpired patent term or agreement over trademarks and licences.
Acquired software
Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software. These costs are amortised over their estimated useful lives (two years).
(p) Borrowing Costs
Borrowing costs are expensed as incurred.
(q) Employee benefits
Wages and salaries and annual leave
Liabilities for wages and salaries, bonuses and annual leave expected to be settled within 12 months of the reporting date
are recognised in accrued liabilities in respect of employees’ services up to the reporting date and are measured at the
amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised
when the leave is taken and measured at the rates paid or payable.
Share-based payments
Neuren operates an equity-settled share option plan and awards certain employees and consultants share options, from
time to time, on a discretionary basis. The fair value of the services received in exchange for the grant of the options is
recognised as an expense with a corresponding increase in other reserve equity over the vesting period. The total amount
to be expensed over the vesting period is determined by reference to the fair value of the options at grant date. At each
balance sheet date, the Company revises its estimates of the number of options that are expected to vest and become
exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a
corresponding adjustment to equity over the remaining vesting period.
The proceeds received net of any directly attributable transaction costs are credited to share capital when the options are
exercised.
(r) Share issue costs
Costs associated with the issue of shares which are recognised in shareholders’ equity are treated as a reduction of the
amount collected per share.
(s) Financial instruments
Financial instruments recognised in the balance sheet include cash and cash equivalents, trade and other receivables and
payables, equipment finance and convertible notes. The Company believes that the amounts reported for financial
instruments approximate fair value.
Although it is exposed to interest rate and foreign currency risks, the Company does not utilise derivative financial
instruments.
Financial assets: Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet
date. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’
and cash and cash equivalents in the balance sheet. Loans and receivables are measured at amortised cost using the
effective interest method less impairment.
17
Neuren Pharmaceuticals Limited
Borrowings
Borrowings, which include convertible notes and equipment financing, are initially recognised at fair value, net of
transaction costs incurred. Borrowings are subsequently measured at amortised cost unless part of an effective hedging
relationship. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in
the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as
current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after
the balance sheet date.
(t) Earnings per share
Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Company by
the weighted average number of ordinary shares outstanding during the period.
(u) Standards, interpretations and amendments to published standards that are not yet effective
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for
later periods and which the Group has not early adopted. The key items applicable to the Group include:
NZ IFRS 8: Operating Segments (mandatory for periods beginning on or after 1 January 2009). NZ IFRS 8 requires
segments to be identified on the basis of reporting to chief operating decision makers of an organisation and requires
information provided to chief operating decision makers to be presented in the financial statements. The Group has not
determined the impact of NZ IFRS 8 to the Group’s financial statements, however as the Group’s segments are currently
determined on the basis of internal reporting little impact is expected.
NZ IFRS 3, Business Combinations (Revised) and NZ IAS 27, Consolidated and Separate Financial Statements (Revised)
(mandatory for periods beginning on or after 1 January 2009). Transaction costs associated with any future acquisition are
expensed when incurred and no longer included in the cost of acquisition. In addition, any contingent consideration is
required to be recognised at fair value at the acquisition date with any subsequent changes taken to the income
statement. Where less than a 100% interest is acquired, the acquirer can recognise either the entire goodwill or the
goodwill proportionate to the interest acquired. This has no impact on the Group’s acquisitions to date.
NZ IAS 1 (Amendments): Presentation of financial statements (mandatory for annual periods beginning on or after 1
January 2009). The amendments require an entity to present all owner changes in equity separately from non owner
changes in equity, in a Statement of Changes in Equity. All non owner changes in equity (i.e. comprehensive income) are
required to be presented in one Statement of Comprehensive Income or in two statements (an Income Statement and
Statement of Comprehensive Income). Components of comprehensive income are not permitted to be presented in a
Statement of Changes in Equity.
3. Segment information
(a) Description of Segments
The Group is organised on a global basis into New Zealand and United States based geographic segments, and
predominantly operates in one business segment, being the research and development of therapeutic products for the
treatment of brain injury and other diseases.
(b) Geographic Segments
Consolidated
Segment revenue
Segment result
Segment assets
Segment liabilities
Acquisitions of property, plant and equipment, intangibles
and other non-current segment assets
Depreciation and amortisation expense
Intangible asset impairment
Loss on disposal of property, plant and equipment
Consolidated
Segment revenue
Segment result
Segment assets
Segment liabilities
Acquisitions of property, plant and equipment, intangibles
and other non-current segment assets
Depreciation and amortisation expense
2008
2008
2008
2008
New Zealand
United States
Consolidation
Total Group
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Adjustments
2,872
(17,917)
8,096
3,506
27
936
7,052
132
2
(517)
7,088
815
-
405
-
-
-
-
(4,969)
(768)
-
-
-
-
2,874
(18,434)
10,215
3,553
27
1,341
7,052
132
2007
2007
2007
2007
New Zealand
United States
Consolidation
Total Group
NZ$’000
NZ$’000
NZ$’000
Adjustments
1,346
(14,816)
15,461
7,815
203
947
2
(60)
5,790
662
5,625
63
-
1,078
(4,690)
(489)
-
-
NZ$’000
1,348
(13,798)
16,561
7,988
5,828
1,010
18
Neuren Pharmaceuticals Limited
4. Expenses
Loss before income tax includes the following specific expenses:
Depreciation – property, plant and equipment
Scientific equipment
Computer equipment
Fixtures and fittings
Leasehold improvements
Total depreciation
Amortisation – intangible assets
Intellectual property
Software
Total amortisation
Remuneration of auditors
Audit fees
Taxation advisory fees
Total remuneration of auditors
Employee benefits expense
Salaries and wages
Share option compensation
Total employee benefits expense
Directors’ fees
Lease expense
5.
Income tax
Current tax
Deferred tax
Income tax expense
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
37
21
13
17
88
1,239
14
1,253
46
1
47
1,792
27
1,819
154
266
25
27
15
32
99
895
16
911
51
1
52
2,486
70
2,556
170
290
37
21
13
17
88
834
14
848
46
1
47
1,792
27
1,819
154
266
25
27
15
32
99
832
16
848
51
1
52
2,486
70
2,556
170
290
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
73
-
73
-
-
-
73
-
73
-
-
-
Numerical reconciliation of income tax expense to prima facie tax
payable (receivable):
Loss before income tax
(18,361)
(13,798)
(17,844)
(14,816)
Tax at rates applicable in the respective countries
(5,568)
(4,558)
(5,353)
(4,889)
Tax effect of amounts not deductible (taxable) in calculating taxable
income:
Share option compensation
Gain on acquisition of subsidiary
Other expenses not deductible for tax purposes
Foreign jurisdiction withholding tax
Under (over) provision in prior years
Deferred tax assets not recognised
Income tax expense
33
-
30
89
(356)
48
33
-
30
89
-
48
(5,505)
(4,777)
(5,290)
(4,752)
73
3
5,502
73
-
4,777
-
73
3
5,287
73
-
4,752
-
The weighted average applicable tax rate was 30% (2007: 33%).
6. Loss per share
Basic loss per share is based upon the weighted average number of outstanding ordinary shares. For the years ended 31
December 2008 and 2007, the Company’s potentially dilutive ordinary share equivalents (being the convertible notes set
out in note 12 and options over ordinary shares set out in note 13) have an anti-dilutive effect on loss per share and,
therefore, have not been included in determining the total weighted average number of ordinary shares outstanding for
the purpose of calculating diluted loss per share.
19
Neuren Pharmaceuticals Limited
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
Loss after income tax
(18,434)
(13,798)
(17,917)
(14,816)
Weighted average shares outstanding
223,265,642
133,985,479
223,265,642
133,985,479
Basic and diluted loss per share
($0.08)
($0.10)
($0.08)
($0.11)
7. Cash and cash equivalents
Cash
Demand and short-term deposits
8. Trade and other receivables
Trade receivables
Prepayments
Sundry receivables and accruals
Due from subsidiary
9. Property, plant and equipment
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
171
1,448
1,619
391
900
1,291
81
1,448
1,529
164
900
1,064
Consolidated
Parent
2008
NZ$’000
2007
2008
NZ$’000
NZ$’000
2007
NZ$’000
62
84
49
-
195
127
30
-
-
157
62
84
49
768
963
127
30
-
489
646
Consolidated and Parent
As at 31 December 2006
Cost
Accumulated depreciation
Net book value
Movements in the year ended
31 December 2007
Opening net book value
Additions
Depreciation
Closing net book value
As at 31 December 2007
Cost
Accumulated depreciation
Net book value
Movements in the year ended
31 December 2008
Opening net book value
Additions
Depreciation
Disposals
Closing net book value
As at 31 December 2008
Cost
Accumulated depreciation
Net book value
Scientific
Equipment
Computer
Equipment
NZ$’000
NZ$’000
Fixtures
& Fittings
NZ$’000
Leasehold
Total
Improvements
NZ$’000
NZ$’000
44
(14)
30
30
117
(25)
122
161
(39)
122
122
-
(37)
(30)
55
109
(54)
55
67
(32)
35
35
13
(27)
21
80
(59)
21
21
6
(21)
-
6
68
(62)
6
105
(53)
52
52
3
(15)
40
108
(68)
40
40
11
(13)
(14)
24
43
(19)
24
192
(6)
186
186
4
(32)
158
196
(38)
158
158
10
(17)
(142)
9
10
(1)
9
408
(105)
303
303
137
(99)
341
545
(204)
341
341
27
(88)
(186)
94
230
(136)
94
During the year ended 31 December 2008 the Company moved premises and at that time fully depreciated assets and
leasehold improvements related to the previous tenancy that were not sold were written off. During the year ended 31
December 2007 the Company finance leased scientific equipment with a cost of NZ$48,600 (refer note 12).
20
Neuren Pharmaceuticals Limited
10. Intangible assets
Consolidated
As at 31 December 2006
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2007
Opening net book value
Additions
Amortisation
Exchange differences
Closing net book value
As at 31 December 2007
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2008
Opening net book value
Additions
Amortisation
Impairment expense
Exchange differences
Closing net book value
As at 31 December 2008
Cost
Accumulated amortisation
Net book value
Parent
As at 31 December 2006
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2007
Opening net book value
Additions
Amortisation
Closing net book value
As at 31 December 2007
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2008
Opening net book value
Additions
Amortisation
Impairment expense
Closing net book value
As at 31 December 2008
Cost
Accumulated amortisation
Net book value
Intellectual
Property
NZ$’000
Acquired
Software
Total
NZ$’000
NZ$’000
12,461
(2,491)
9,970
9,970
5,774
(895)
(98)
14,751
18,137
(3,386)
14,751
14,751
-
(1,239)
(7,052)
1,840
8,300
9,522
(1,222)
8,300
Intellectual
Property
NZ$’000
12,461
(2,491)
9,970
9,970
50
(832)
9,188
12,511
(3,323)
9,188
9,188
-
(834)
(7,052)
1,302
1,932
(630)
1,302
20
(4)
16
16
15
(16)
-
15
35
(20)
15
15
-
(14)
-
-
1
35
(34)
1
Acquired
Software
12,481
(2,495)
9,986
9,986
5,789
(911)
(98)
14,766
18,172
(3,406)
14,766
14,766
-
(1,253)
(7,052)
1,840
8,301
9,557
(1,256)
8,301
Total
NZ$’000
NZ$’000
20
(4)
16
16
15
(16)
15
35
(20)
15
15
-
(14)
-
1
35
(34)
1
12,481
(2,495)
9,986
9,986
65
(848)
9,203
12,546
(3,343)
9,203
9,203
-
(848)
(7,052)
1,303
1,967
(664)
1,303
The results from the Glypromate® Phase 3 trial were released at the end of 2008, which showed that
Glypromate® had no observable effect in a cardiac surgery population and this program was terminated.
Accordingly, an impairment charge of $7,052,000 representing the carrying value of intellectual property related
to Glypromate® was recorded at year end.
11. Trade and other payables
Trade payables
Accruals
Employee benefits
Payment on account
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
2,267
1,016
198
-
3,481
2,729
486
430
323
3,968
2,258
978
198
-
3,434
2,715
328
430
323
3,796
21
Neuren Pharmaceuticals Limited
12. Interest bearing debt
Consolidated and Parent
Unsecured
Equipment finance
Total equipment finance
- short term
- long term
Convertible notes
- short term
Convertible notes accrued interest
- short term
Total convertible notes
Total interest bearing debt
2008
NZ$’000
2007
NZ$’000
15
11
26
-
-
-
26
15
28
43
3,835
67
3,902
3,945
The New Zealand dollar denominated equipment finance has a fixed interest rate of 12.25% and matures in 2010.
The convertible notes were issued in October 2007 in conjunction with the acquisition of Hamilton Pharmaceuticals Inc.
The principal terms of the convertible notes were:
•
•
•
•
aggregate principal amount of US$3,000,000;
interest at a fixed rate of 8% per annum, compounding annually;
conversion to Neuren ordinary shares on the date of, and on the same terms of issue as, the next capital raising
after issue in which Neuren received subscriptions for, and issued, new ordinary shares in Neuren for an
aggregate of at least US$5 million;
no voting rights at meetings of shareholders of Neuren, and no rights of participation in any rights issue
undertaken by Neuren prior to conversion of the Notes.
On 1 February 2008 the convertible notes, together with accrued interest, converted into 24,525,060 ordinary shares of
the Company.
The fair value of interest-bearing liabilities is not materially different from the carrying values.
13. Share capital
Consolidated and Parent
Issued share capital
2008
Shares
2007
Shares
2008
2007
NZ$’000
NZ$’000
Ordinary shares on issue at beginning of year
144,739,253
131,093,810
54,023
49,943
Shares issued in Rights Issue
Shares issued on conversion of notes
Shares issued for cash in private placements
Shares issued for cash under Share Purchase Plan
Shares issued on exercise of options
Shares issued in acquisition of subsidiary
Share issue expenses
50,700,000
24,525,060
11,875,000
25,625,000
-
-
-
-
-
-
-
20,000
13,625,443
8,065
3,866
1,190
2,426
-
-
-
(802)
-
-
-
-
8
4,149
(77)
257,464,313
144,739,253
68,768
54,023
(a) Ordinary Shares
The ordinary shares have no par value and all ordinary shares are fully paid-up and rank equally as to dividends and
liquidation, with one vote attached to each fully paid ordinary share.
(b) Share Options
On 30 September 2008 the Company granted 750,000 options (“September 2008 Options”) for underwriting services. The
options are exercisable into ordinary shares on a one-for-one basis with an exercise price of A$0.15 per share. The options
expire on 30 September 2010.
On 26 February 2008 the Company granted 3,000,000 options (“January 2008 Options”) for future consulting services
related to capital raising and financing activities. The options are exercisable into ordinary shares on a one-for-one basis
with an exercise price of A$0.25 per share. The options expire on 7 February 2011.
On 17 January 2007 the Company granted 1,800,000 options (“January 2007 Options”) for future consulting services
related to capital raising and financing activities, exercisable on a one-for-one basis at an exercise price of A$0.60 per
share. The options expired on 1 December 2008.
22
Neuren Pharmaceuticals Limited
On 19 May 2005 the Company granted 3,000,000 options (“May 2005 Options”) for future consulting services related to
capital raising and financing activities. The options were exercisable into ordinary shares on a one-for-one basis with an
exercise price of A$0.50 per share. The options expired on 31 May 2007.
Oceania & Eastern Biotech Limited is an investment company associated with interests of Dr Robin Congreve and holds
1,528,892 options (the “O&E Options”). The O&E Options’ exercise price is a fixed sum of NZ$600,000, exercisable into
1,528,892 ordinary shares (equivalent to NZ$0.392 per share). The options may be exercised at any time up to and
including 31 March 2009.
Auckland UniServices Limited (“UniServices”) is the commercial research and knowledge transfer company for the
University of Auckland and holds 1,872,892 options (“UniServices Options”). The UniServices Options’ exercise price is a
fixed sum of NZ$735,000, exercisable into 1,872,892 ordinary shares (equivalent to NZ$0.392 per share). The UniServices
Options may be exercised at any time up to the earlier of two years following the termination of the Research Deed (or
any further such deed entered into between the Company and UniServices Limited) and 31 March 2009.
The above options were otherwise issued on terms and conditions not materially different to those of the Share Option
Plan described below.
The Company has established a Share Option Plan to assist in the retention and motivation of senior employees of, and
certain consultants to, the Company (“Participants”). Under the Share Option Plan, options may be offered to Participants
by the Remuneration and Audit Committee. The maximum number of options to be issued and outstanding under the
Share Option Plan is 15% of the issued ordinary shares of the Company at any time. No payment is required for the grant
of options under the Share Option Plan. Each option is an option to subscribe in cash for one ordinary share, but does not
carry any right to vote. Upon the exercise of an option by a Participant, each ordinary share issued will rank equally with
other ordinary shares of the Company. Options granted under the Share Option Plan generally vest over three years
service by the Participant and lapse five years after grant date.
Movements in the number of share options are as follows:
Consolidated and Parent
Outstanding at 31 December 2006
Granted
Exercised
Expired/forfeited
Outstanding at 31 December 2007
Granted
Expired/forfeited
Weighted
Average
Exercise Price
(NZ$)
$
$
$
$
$
$
$
0.417
0.670
0.392
0.555
0.419
0.263
0.674
Options
21,857,627
1,800,000
(20,000)
(3,000,000)
20,637,627
3,750,000
(1,800,000)
Weighted
Average
Exercise Price
(NZ$)
Exercisable
20,924,295
$
0.415
20,090,961
$
0.417
Outstanding at 31 December 2008
22,587,627
$
0.373
22,387,627
$
0.373
The weighted average remaining contractual life of outstanding share options is as follows:
Consolidated and Parent
Options
2008
2007
Weighted Average
Remaining
Contract Life (years)
Options
Weighted
Average
Remaining
Contract Life
(years)
Exercise price range
NZ$0.392 – NZ$0.472
A$0.15 – A$0.25
A$0.60
18,837,627
3,750,000
-
0.3
1.9
-
18,837,627
-
1,800,000
1.3
-
0.9
22,587,627
0.6
20,637,627
1.3
The weighted average assessed fair value of options granted during the year determined using the Black-Scholes valuation
model was NZ$0.02 per option (2007: NZ$0.11). The significant weighted average inputs into the model were a grant date
share price of NZ$0.13 (2007: NZ$0.57), volatility of 69% (2007: 65%), dividend yield of 0% (2007: 0%), an expected
option life of two years (2007: one year), and an annual risk-free interest rate of 7.07% (2007: 5.95%). The expected price
volatility was derived by analysing the historic volatility of the Company’s shares since listing on the ASX.
23
Neuren Pharmaceuticals Limited
14. Deferred tax
Deferred tax asset (liability)
Amounts recognised in profit or loss
Provisions and accruals
Property, plant and equipment
Intangible assets
Tax losses
Unrecognised deferred tax assets
Deferred tax asset (liability)
Movements
Deferred tax asset (liability) at the beginning of the year
Credited (charged) to the income statement (note 6)
Acquired on purchase of subsidiary
Effects of change in tax rate
Exchange differences
Change in unrecognised deferred tax assets
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
43
11
(1,907)
20,793
18,940
(18,940)
-
-
5,502
-
-
734
(6,236)
90
18
(1,488)
14,084
12,704
(12,704)
-
-
4,777
1,959
(1,075)
(34)
(5,627)
43
11
564
90
18
472
15,423
10,174
16,041
(16,041)
10,754
(10,754)
-
-
5,287
-
-
-
(5,287)
-
-
4,752
-
(1,075)
-
(3,677)
Deferred tax asset (liability) at the end of the year
-
-
-
-
Unrecognised tax losses of $1.4 million, $8.2 million, $10.4 million, $14.0 million and $17.5 million expire in 2012, 2013,
2014, 2015 and 2016 respectively.
15. Subsidiaries
Investment in subsidiaries
(a)
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in note 2(b).
Name of entity
Date of incorporation
Principal activities
AgVentures Limited
NeuroendocrinZ Limited
Neuren Pharmaceuticals Inc.
Hamilton Pharmaceuticals Inc.
7 October 2003
Dormant
10 July 2002
Dormant
20 August 2002
US Based Office
2 April 2004
Clinical research
Interest
held
Domicile
100%
New Zealand
100%
New Zealand
100%
USA
100%
USA
Neuren Pharmaceuticals (Australia) Pty Ltd
9 November 2006
Dormant
100%
Australia
All subsidiaries have a balance date of 31 December.
(b) Acquisition of subsidiary
On 15 October 2007 Neuren issued 13,625,443 ordinary shares with a fair value of $4,149,000 as consideration for 100%
of the outstanding common stock of Hamilton Pharmaceuticals Inc. Incidental acquisition costs of $52,000 were also
incurred. The fair value of the shares issued was based on the quoted price of Neuren shares on the ASX on the
acquisition date.
The Company valued the following acquired net assets of Hamilton Pharmaceuticals Inc. at US$4,058,000 (NZ$5,279,000):
Cash
Trade and other receivables
Intellectual property
Trade and other payables
Net assets acquired
Consideration paid:
Ordinary shares issued
Legal and other cash costs
Total consideration
Gain on acquisition of subsidiary
Acquiree’s
carrying
amount
NZ$’000
236
40
-
(624)
(348)
Fair value
NZ$’000
236
40
5,724
(721)
5,279
4,149
52
4,201
1,078
Hamilton Pharmaceuticals Inc. contributed a $60,000 loss to the Group loss after tax in the period from 15 October 2007
to 31 December 2007. After adjusting for amortisation of intangible assets that would have been charged had the fair
24
Neuren Pharmaceuticals Limited
value adjustments on acquisition applied at 1 January 2007, Hamilton Pharmaceuticals Inc. incurred a full year loss of
approximately $2.7 million. However this is not representative of the ongoing contribution to the Group result as it
includes non-recurring costs comprising employee salary and severance costs, transaction costs throughout the year
associated with the sale of Hamilton Pharmaceuticals Inc. by its shareholders, office rental and administration costs, and
losses on disposal of fixed assets.
There were no acquisitions in the year ended 31 December 2008.
16. Commitments and contingencies
(a) Operating leases
The following aggregate future non-cancellable minimum lease payments for premises have been committed to by the
Company, but not recognised in the financial statements. The Company moved premises in June 2008 and the new
premises commitment is for a four year and four month lease commencing June 2008, with two two year rights of
renewal, followed by two five year rights of renewal, and three yearly rental reviews throughout.
Consolidated and Parent
Not later than one year
Later than one year and not later than five years
Later than five years
2008
NZ$’000
148
407
-
555
2007
NZ$’000
237
928
-
1,165
(b) Finance leases
The following aggregate future non-cancellable minimum lease payments for scientific equipment have been committed
to by the Company:
Consolidated and Parent
Not later than one year
Later than one year and not later than five years
Later than five years
Future finance charges
Total equipment finance (refer note 12)
2008
NZ$’000
2007
NZ$’000
18
11
-
29
(3)
26
19
31
-
50
(7)
43
(c) Legal claims
A claim by a former employee for a share of any proceeds received on commercialisation of a portion of the Neural
Regeneration Peptides (NRP) intellectual property was lodged against the Company during the period. The Company has
disclaimed liability and is defending the action. No provision in relation to this claim has been recognised in the financial
statements at 31 December 2008, as legal advice indicates that it is not probable that a significant liability will arise.
The Company has not entered into any collaborative arrangements and has no other significant legal contingencies as at
31 December 2008 (2007: nil).
(d) Capital commitments
The Company is not committed to the purchase of any property, plant or equipment as at 31 December 2008 (2007: nil).
17. Related party transactions
(a) Key management and personnel compensation
The key management personnel include the directors of the Company and the co-CEOs, and direct reports to the co-
CEOs. Compensation was as follows:
Consolidated and Parent
Short-term benefits
Share-based payments
(b) Subsidiaries
Interests in subsidiaries are set out in note 15.
18. Events after balance date
2008
NZ$’000
1,433
27
1,460
2007
NZ$’000
1,743
70
1,813
As at the date of these financial statements there were no events arising since 31 December 2008 which require
disclosure.
25
Neuren Pharmaceuticals Limited
19. Financial instruments and risk management
(a) Categories of financial instruments
Financial assets
Cash and cash equivalents
Trade and other receivables
Total financial assets (loans and receivables classification)
Financial liabilities
Amortised cost:
Trade and other payables
Equipment finance
Convertible notes
Total financial liabilities
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
1,619
195
1,814
3,481
26
-
3,507
1,291
157
1,448
3,968
43
3,902
7,913
1,529
963
2,492
3,434
26
-
3,460
1,064
646
1,710
3,796
43
3,902
7,741
(b) Risk management
The Company and its subsidiaries are subject to a number of financial risks which arise as a result of its activities.
Currency risk
During the normal course of business the Company and its subsidiaries enter into contracts with overseas customers or
suppliers or consultants that are denominated in foreign currency. As a result of these transactions there is exposure to
fluctuations in foreign exchange rates. The Company also has a net investment in a foreign operation, whose net assets
are exposed to foreign currency translation risk.
The Group does not utilise derivative financial instruments. It operates a policy of holding cash and cash equivalents in the
currency of estimated future supplier payments, however it does not designate formal hedges and as such remains
unhedged against foreign currency fluctuations. A foreign exchange gain of $424,000 is included in results for the year
ended 31 December 2008 (2007: $13,000 loss).
The carrying amounts of foreign currency denominated assets and liabilities are as follows:
Assets
US dollars
Australian dollars
UK pounds
Euro
Liabilities
US dollars
Australian dollars
UK pounds
Euro
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
7,291
822
25
49
1,582
788
270
-
6,442
45
11
-
5,365
888
105
-
960
822
25
49
1,535
788
270
-
1,141
45
11
--
5,192
888
105
-
The following table details the Group's sensitivity to a 10% increase and decrease in each of the currencies noted against
the New Zealand dollar as at the reporting date.
Decrease (increase) in loss after income tax
10% strengthening of NZ dollar against:
US dollar
Australian dollar
UK pound
Euro
10% weakening of NZ dollar against:
US dollar
Australian dollar
UK pound
Euro
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
168
(3)
22
(4)
(206)
4
(27)
5
418
77
8
-
(511)
(94)
(10)
-
52
(3)
22
(4)
(64)
4
(27)
5
368
77
8
-
(450)
(94)
(10)
-
Foreign currency denominated transactions occur consistently throughout the year. In management's opinion, the
sensitivity analysis set out above is unrepresentative of the inherent foreign exchange risk as the year end exposure does
not reflect the exposure during the year.
Interest rate risk
The Company and the Group are exposed to interest rate risk as entities in the Group hold cash and cash equivalents and
borrow interest bearing funds.
26
Neuren Pharmaceuticals Limited
The effective interest rates on financial assets are as follows:
Financial assets
Cash and cash equivalents
New Zealand dollar cash deposits
New Zealand dollar interest rate
US dollar cash deposits
US dollar interest rate
Australian dollar cash deposits
Australian dollar interest rate
Consolidated
Parent
2008
NZ$’000
2007
NZ$’000
2008
NZ$’000
2007
NZ$’000
469
5.0%
280
0.0%
790
3.2%
301
8.3%
798
4.0%
28
5.8%
469
5.0%
190
0.0%
790
3.2%
301
8.3%
571
4.0%
28
5.8%
The Company and Group’s effective interest rates on financial liabilities are set out in note 12. Trade and other receivables
and payables do not bear interest and are not interest rate sensitive.
The Company and Group’s interest bearing financial assets bear interest at overnight deposit rates and accordingly any
change in interest rates would have an immaterial effect on reported loss after tax. Similarly, the Company and Group’s
financial liabilities are at fixed interest rates, and accordingly a change in market interest rates would have no effect on
reported loss after tax.
Credit risk
The Company and its subsidiaries incur credit risk from transactions with trade receivables and financial institutions in the
normal course of its business. The credit risk on financial assets of the Group, which have been recognised on the balance
sheet, is the carrying amount, net of any allowance for doubtful debts.
The Company and its subsidiaries do not require any collateral or security to support transactions with financial
institutions. The counterparties used for banking and finance activities are financial institutions with high credit ratings.
Liquidity risk
The maturities for the Company and Group’s interest bearing financial liabilities are set out in note 12. The Company and
Group’s other financial liabilities, comprising trade and other payables, are generally repayable within 1 – 2 months, and
are managed together with capital risk as noted below.
Capital risk
The Company manages its capital to ensure that constituent entities are able to continue as a going concern. The capital
structure of the group consists of cash and cash equivalents and equity of the parent, comprising issued capital, reserves
and accumulated deficit.
20. Going concern assumption
In the year ended 31 December 2008 the Group reported a net loss for the year of $11,382,000 before impairment
charges, and at year end had cash balances of $1,619,000. Whilst the Directors are continuing to monitor the Group’s
cash position and on an ongoing basis initiatives to ensure adequate funding continues to be available for the Group to
meet its business objectives, the Directors’ consider that the current global economic circumstances present significant
challenges in terms of the Group’s ability to raise additional financing.
As previously announced the Group is in advanced discussions with private investors concerning financing of entities
owned and controlled by Neuren to enable the ongoing development of the Group’s drug portfolio but there can be no
certainty that these initiatives will proceed. Based on negotiations conducted to date the Directors have a reasonable
expectation that they will proceed successfully, but if not the Group will need to secure additional funding from alternative
sources.
The Group has also completed its detailed proposal with the US Army for the previously announced funding for the
planned Phase 2 clinical trial of NNZ-2256, and this proposal has been accepted by the US Army. The agreement between
the Group and the US Army is currently being finalised and the Directors have a reasonable expectation that this will be
completed by the end of April 2009.
The Directors’ have concluded that the combination of these factors represent a material uncertainty that casts significant
doubt upon the Group’s and the Company’s ability to continue as a going concern. If no funds are raised before the cash
balances have been exhausted, the Group may cease to be a going concern and the Group may be unable to continue in
operational existence. Nevertheless after making enquiries, and considering the uncertainties described above, the
Directors’ have a reasonable expectation that the Group and Company have adequate resources to continue in operational
existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing these
financial statements. These financial statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or to the amounts and classification of liabilities that may be necessary should
the Group be unable to continue as a going concern.
27
Auditors’ Report
to the Shareholders of Neuren Pharmaceuticals Limited
PricewaterhouseCoopers
188 Quay Street
Private Bag 92162
Auckland
New Zealand
Telephone +64 (09) 355 8000
Facsimile +64 (09) 355 8001
We have audited the financial statements on pages 10 to 27. The financial statements provide information about the
past financial performance and cash flows of the Company and Group for the year ended 31 December 2008 and
their financial position as at that date. This information is stated in accordance with the accounting policies set out on
pages 14 to 18.
Directors’ Responsibilities
The Company’s Directors are responsible for the preparation and presentation of the financial statements which give
a true and fair view of the financial position of the Company and Group as at 31 December 2008 and their financial
performance and cash flows for the year ended on that date.
Auditors’ Responsibilities
We are responsible for expressing an independent opinion on the financial statements presented by the Directors
and reporting our opinion to you.
Basis of Opinion
An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial
statements. It also includes assessing:
(a)
(b)
the significant estimates and judgments made by the Directors in the preparation of the financial
statements; and
whether the accounting policies are appropriate to the circumstances of the Company, consistently applied
and adequately disclosed.
We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and
performed our audit so as to obtain all the information and explanations which we considered necessary to provide
us with sufficient evidence to give reasonable assurance that the financial statements are free from material
misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements.
We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacity as
auditors and taxation advisers.
Fundamental uncertainty
In forming our unqualified opinion, we have considered the adequacy of the disclosures made concerning the
carrying values of intellectual property, and the ongoing need to fund the operating losses and future development of
the Company’s products. The ultimate realisation of the carrying values of intellectual property totalling $8,300,000
(after amortisation) is dependent on the Company successfully developing its products so that it generates future
economic benefits to the Company. Details of the circumstances relating to this fundamental uncertainty are
detailed in note 20.
The financial statements have been prepared on a going concern basis, the validity of which depends on future
capital and or debt being available to fund the development of products and other working capital requirements of
the Company. Details of the circumstances relating to this fundamental uncertainty are detailed in note 20.
If the Company was unable to continue in operational existence for the foreseeable future or if the future economic
benefits to be generated from intellectual property were less than their carrying amounts, adjustments would have to
be made to reflect the situation that the assets may need to be realised at other than amounts at which they are
currently recorded in the Balance Sheet.
Unqualified Opinion
We have obtained all the information and explanations we have required.
In our opinion:
(a)
(b)
proper accounting records have been kept by the Company as far as appears from our examination of
those records; and
the financial statements on pages 10 to 27:
(i)
(ii)
(ii)
comply with generally accepted accounting practice in New Zealand;
comply with International Financial Reporting Standards; and
give a true and fair view of the financial position of the Company and Group as at 31 December
2008 and their financial performance and cash flows for the year ended on that date.
Our audit was completed on 31 March 2009 and our unqualified opinion is expressed as at that date.
Chartered Accountants, Auckland
28
Neuren Pharmaceuticals Limited
Additional Information
Equity Securities Held by Directors as at 3 March 2009
Director
R L Congreve
T D Scott
T R Amos
J D Wilson
G B Howie
Shareholding
Interests in
Ordinary Shares
Interests in
Options
Direct
Indirect
Direct
Indirect
-
-
-
-
50,000
22,386,224
6,089,135
-
135,000
55,000
-
-
-
-
-
1,528,892
-
-
-
-
Each ordinary share is entitled to one vote when a poll is called; otherwise on a show of hands at a general meeting every
member present in person or by proxy has one vote.
The number of ordinary shareholdings held in less than marketable parcels at 3 March 2009 was 1,396, holding
24,753,708 ordinary shares.
The following information is presented based on share registry information processed up to and including 3 March 2009.
Distribution of Shareholders
Analysis of numbers of ordinary shares by size of holding:
Number of
Shareholders
Number of
Ordinary Shares
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
75
352
314
733
252
1,726
25,036
1,336,235
2,661,947
28,177,318
225,263,777
257,464,313
Distribution of Optionholders
Analysis of numbers of options by size of holding:
Number of
Optionholders
Number of
Options
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
-
4
2
10
18
34
-
20,000
12,442
626,532
21,928,653
22,587,627
Substantial Security Holders who have notified the Company
as at 3 March 2009 are:
Number of
Ordinary Shares
BioAsia Investments IV, LLC and associates
CNF Investments LLC and associates
K One W One Limited
Acorn Capital Limited
There are no securities subject to escrow.
19,546,572
15,761,544
18,805,865
14,371,996
29
Neuren Pharmaceuticals Limited
Twenty Largest Holders of ordinary shares:
Number of
Ordinary Shares
%
Holding
J P Morgan Nominees Australia Limited
K One W One Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited
Oceania & Eastern Biotech Limited
Pfizer Inc.
NeuronZ Limited
Mr Peter Robert Kahn
Essex Castle Limited
Centralo Limited
Custodial Services Limited
TAC Murray & Quartet Equities Limited
Hazardous Investments Limited
Mr Robert Albert Boas
Investment Custodial Services Limited
Citicorp Nominees Pty Limited
Mr Mladen Marusic
Phillip Asset Management Ltd
Mr David Burton Gibson
Mr John Donald Butler
21,033,196
18,805,865
17,445,441
15,761,544
10,283,956
8,081,438
7,178,315
6,398,070
6,198,330
5,962,754
5,659,943
5,556,366
4,940,566
2,580,403
2,579,903
2,557,071
2,403,000
2,200,000
2,000,000
1,945,123
149,571,284
8.17
7.30
6.78
6.12
3.99
3.14
2.79
2.48
2.41
2.32
2.20
2.16
1.92
1.00
1.00
0.99
0.93
0.85
0.78
0.76
58.09
Australian Stock Exchange Disclosures
Neuren Pharmaceuticals Limited is incorporated in New Zealand under the Companies Act 1993.
The Company is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act, Australia, dealing with the acquisition
of shares (such as substantial holdings and takeovers).
Limitations on the acquisition of shares are imposed by the following New Zealand legislation: Companies Act 1993,
Securities Act 1978, Securities Amendment Act 1988, Takeovers Act 1993, Overseas Investment Act 1973, Commerce Act
1986 and various regulations and codes promulgated under such Acts.
Corporations Act, Australia - Directors’ declaration
The Directors of Neuren Pharmaceuticals Limited (“Neuren”) declare that:
1.
The financial statements on pages 10 to 27 of Neuren and its subsidiaries for the year ended 31 December 2008 and
the notes to those financial statements:
(a) comply with the accounting standards issued by the Institute of Chartered Accountants of New Zealand; and
(b) give a true and fair view of the financial position as at 31 December 2008 and of the performance for the year
ended on that date of Neuren and its subsidiaries.
2.
In the Directors’ opinion there are reasonable grounds to believe that Neuren will be able to pay its debts as and
when they become due and payable.
This declaration is made in accordance with a resolution of the Board of Directors dated 31 March 2009.
On behalf of the Board
Dr Robin Congreve
Chairman
30
ANNUAL REPORT 2008
Neuren Pharmaceuticals Limited
ARBN 111 496 130
Level 2, 57 Wellington Street
Freemans Bay, Auckland
New Zealand
Tel: +64 9 529 3940
Email: enquiries@neurenpharma.com
www.neurenpharma.com