ANNUAL REPORT 2009
Neuren Pharmaceuticals Limited
ARBN 111 496 130
Neuren Pharmaceuticals Limited
Contents
Corporate Directory
Chief Executive’s Report
Directors’ Report
Corporate Governance Statement
Financial Statements
Statements of Comprehensive Income
Statements of Financial Position
Statements of Changes in Equity
Statements of Cash Flows
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 2009,
authorised by it on 25 March 2010.
For, and on behalf of, the Board
Dr Robin Congreve
Chairman
Dr Trevor Scott
Director
25 March 2010
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 John Holaday
Dr Graeme Howie
Dr 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
ASX Limited
ASX Code: NEU
Website
www.neurenpharma.com
Neuren Pharmaceuticals Limited
Chief Executive’s Report
2009 proved to be a watershed year for the Company. Putting the termination of the Glypromate® program at the end of
2008 behind us and weathering an almost unprecedented economic recession that took a major toll on the global
biopharmaceutical industry, Neuren has emerged as a stronger, more secure company with a clear path forward and the
resources necessary to achieve major milestones with the potential to significantly enhance shareholder value. Major
accomplishments during 2009 included:
•
Approval of an Investigational New Drug (IND) application for a Phase II trial of NNZ-2566 in traumatic brain
injury (TBI) by the US Food and Drug Administration (FDA)
• Obtaining Fast Track designation for NNZ-2566 in TBI from the FDA
•
•
Receiving a US$14 million grant award from the US Army for clinical development of NNZ-2566
Creating a subsidiary (Perseis Therapeutics) to advance our cancer portfolio in a partnership with, and with
funding from, the New Zealand Breast Cancer Research Trust
Strengthening the board of directors with the addition of Dr John Holaday, a seasoned US biotech
executive, banker and entrepreneur with significant operating experience in the Australian biotech sector
as CEO of QRxPharma
Establishing a strategic relationship with Cato Research, a US-based global contract research organisation,
to manage the Company’s clinical development and source additional product pipeline opportunities
Securing new funding of up to A$7.6 million through private placement and a convertible debt facility
which, in combination with the funding from the US Army, is expected to cover all corporate and product
development expenses through to the end of 2011.
•
•
•
As we enter 2010, Neuren is one of the few small biopharmaceutical companies in Australia, New Zealand or elsewhere
with two active, Phase II clinical development programmes and the financial, human and technical resources already in
hand to complete them. This will enable Neuren to focus on execution of the programmes as well as strengthen our
position with respect to partnering, which remains a key objective for the Company.
NNZ-2566 Clinical Development Programme
Neuren has been working collaboratively 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 of normal brain function. The medical need for a drug to treat TBI is well
recognised. Annually in the US alone, approximately 1.5 million people experience TBI resulting in 700,000 emergency
department visits, 300,000 hospital admissions and 52,000 deaths. Direct and indirect costs of TBI have been estimated
to exceed US$50 billion per year. TBI is also a major cause of mortality and disability among military personnel. There
presently are no drugs approved to treat TBI.
NNZ-2566 is a novel molecule developed by Neuren that has been shown in preclinical studies to prevent the brain cell
death that results from a wide variety of injuries and to improve functional and cognitive outcome after injury as a
consequence. The 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 apoptosis or
”programmed cell death”. During 2009, Neuren and Army scientists published four peer-reviewed papers reporting on the
performance of NNZ-2566 in experimental models of brain injury.
In 2008, the US Army awarded US$4 million in funding to the NNZ-2566 Phase II clinical trial programme through a grant
to the Geneva Foundation. A proposal for further funding for the trial was approved in 2009 resulting in a direct grant of
US$14.2 million which is intended to cover most of the costs of the Phase II trial as well as further safety testing and
chemistry-related studies that would enable progression into a pivotal registration trial if the results of the Phase II are
sufficiently positive.
Phase Ia and Ib safety trials were completed in 2007 and manufacturing scale up was successfully completed in 2008. At
a pre-IND meeting held with the FDA in mid 2008, the FDA indicated that, with completion of successful Phase II trials
with compelling proof of efficacy, only one pivotal trial would be required prior to registration if that trial shows
comparable efficacy.
The objective of the Phase II trial is to evaluate the safety and efficacy of NNZ-2566 in patients with moderate to severe
brain injury and also to evaluate a number of endpoints in order to determine which will be used in a subsequent pivotal
trial. These include neuropsychological function and global outcomes. Psychological problems such as depression, short
term memory loss and attention deficit are frequent consequences of TBI and can cause significant disability. In addition,
the trial will incorporate biochemical and electroencephalographic (EEG) markers. In preclinical studies conducted by the
US Army, NNZ-2566 showed significant effects in attenuating so-called non-convulsive seizures that can occur following
TBI and that have been associated with worse clinical outcomes. These seizures are a major focus of the Army’s TBI
research program.
The Phase II trial is a complex study, seeking to enroll 260 patients and incorporating a large number of endpoints and
measurements. The Company has already recruited 12 Level I and II trauma centres across the US to participate in the trial
and is presently qualifying an additional 4 sites as backup in the event that enrolment is slower than anticipated.
Contracts have been signed and provisional Institutional Review Board (IRB, the US equivalent of an Ethics Committee)
approval obtained from most sites and from the US Army. Initiation of patient enrolment was delayed somewhat by the
need to develop, test and manufacture a buffer system to avoid irritation at the site of injection and the risk that that could
unblind the study. This has now been completed and both the drug product and buffer are available for shipment to the
clinical sites. All other technical capabilities necessary to implement the trial — electronic data capture and data
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Neuren Pharmaceuticals Limited
management, site monitoring, EEG recording and centralised interpretation, randomisation and drug supply, and central
laboratory support for determination of pharmacokinetic and biomarker levels — have been put in place. Patient
enrolment is now expected to begin in April 2010.
Neuren also is pursuing indications for NNZ-2566 beyond TBI. The Company has entered into a Material Transfer
Agreement with the Rett Syndrome Research Trust to test NNZ-2566 in a mouse model of Rett Syndrome, one of the
most severe of the autism spectrum disorders. Researchers at the Massachusetts Institute of Technology have found
that IGF-1(1-3), the naturally occurring parent molecule of NNZ-2566, is effective in reducing symptoms of Rett Syndrome
in a mouse model. The Company is also seeking potential partners concerning development of NNZ-2566 for conditions
associated with pre-term birth and perinatal asphyxia, neurological damage associated with cancer chemotherapy and
other indications.
Motiva™
Motiva™ is being developed 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 in neuropsychiatric conditions. Motiva™ has been shown in preclinical studies to
improve outcome in models of motivation and depression. In a Phase II trial conducted by Daiichi in the US and Canada,
Motiva™ was shown to have a significant effect on apathy in post-stroke patients with depression. Apathy Syndrome
occurs in a wide range of neurological conditions such as stroke, TBI, schizophrenia, depression, Parkinson’s disease and
Alzheimer’s disease and is a major contributor to disability and therapeutic failure.
Professor Sergio Starkstein from the University of Western Australia, one of the investigators on the completed Phase II
trial and an international expert on psychiatric complications of neurological disease, submitted a grant application to the
National Health and Medical Research Council for a study of Motiva™ in post-stroke patients. As announced, that
application has been funded and will cover virtually all the costs of the 122-patient study. Patient enrolment is expected
to begin in April 2010.
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 medical need and market
opportunity and represent important targets for many larger pharmaceutical and biotechnology companies. Neuren’s
primary objective for the preclinical portfolio remains leveraging non-dilutive capital and outlicensing or partnering these
compounds to extract value without in any way impacting the progress of or resources available to the clinical
programmes. Within the preclinical portfolio, priority is being given to the cancer projects and NNZ-2591.
Neuren has assigned its rights to the cancer technologies to a subsidiary, Perseis Therapeutics, which is funded and
partly owned by the New Zealand Breast Cancer Research Trust (BCRT). Sufficient capital has been invested by the BCRT
to validate the approach, after which Perseis will determine whether to continue development internally or seek a partner
for further development and commercialisation.
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 drug’s oral bioavailability
and safety profile suggests that NNZ-2591 is a preclinical development candidate with an excellent likelihood of
successful development and a strong asset for partnering.
Financial Review
Grant income increased from $1,660,000 in 2008 to $6,123,000 in 2009 due to the commencement of start-up activities on
the NNZ-2566 Phase II trial, with a resulting flow of advance grant funding from the US Army to cover direct costs
associated with the trial. In addition, a one-off R&D tax credit of $288,000 was recorded in grant income in the year.
Partially offsetting this increase were reductions in contract revenue and out-licensing revenue, both of which were one-
off items in 2008.
The level of interest income in 2009 was consistent with lower average cash balances across the year compared with
2008. Neuren had $4,232,000 in cash deposits as at 31 December 2009.
In addition to the increased grant funding, expenditure was significantly reduced throughout the year while the Company
sought additional capital to progress its drug portfolio. Research and development costs declined from $10,341,000 in
2008 to $3,969,000 as a result of the Glypromate® trial being undertaken throughout 2008 compared to only start-up
activities occurring through 2009 in relation to the NNZ-2566 Phase II trial. An intangibles impairment charge of $7,052,000
was also taken in 2008 following the outcome of the Glypromate® trial compared to only $192,000 in 2009 after
rationalisation of the patent portfolio. As a result the Group recorded a small income after tax and minority interest in 2009
of $123,000 compared to an after tax loss of $18,434,000 in 2008.
Mr Larry Glass
Chief Executive Officer
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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 2009, Neuren obtained FDA approval to proceed with its Phase II trial of NNZ-2566 in traumatic brain injury, and a
further US$14 million award from the US Army towards the direct costs of the trial. The focus of the year was on start-up
activities related to the NNZ-2566 trial and also securing funding for the Company for working capital to support the trial.
In this regard, Neuren secured a convertible loan facility for up to A$6.7 million, and in November 2009 drew down the first
note of A$550,000. This facility is available until December 2011 and provides minimum monthly funding commencing
with A$400,000 in January 2010, followed by ten tranches of A$100,000, and subsequent tranches of A$60,000. Start-up
activities for the NNZ-2566 trial are almost complete and patient recruitment is expected to commence in April 2010.
Neuren’s operations for 2009 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 2009 was $33,000 (2008: $18,434,000). The detailed financial
statements are presented on pages 10 to 27.
The net deficit per share for 2009 was nil (2008: $0.08) based on 271,275,942 weighted average number of shares
outstanding (2008: 223,265,642).
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.
Dr Trevor Scott, MNZM, LLD (Hon), BCom, FCA, FNZIM, DF Inst D (Non-Executive Director)
Dr 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. Dr 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.
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.
Dr John Holaday, PhD (Non-Executive Director)
Dr Holaday joined the Neuren Board in November 2009. Dr Holaday, a veteran life-science entrepreneur, has built five
public and private biopharmaceutical companies over the past 21 years and raised more than US$450 million in capital. Dr
Holaday founded EntreMed in 1992 and served as its Chairman, President and CEO until his retirement in 2003 and was
the co-founder, director, Scientific Director and SVP of Medicis Pharmaceutical Corporation. He was the founder and
Chief of the Neuropharmacology Branch at the Walter Reed Army Institute of Research for 21 years. Dr Holaday has
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Neuren Pharmaceuticals Limited
received numerous honours and awards, including induction into Ernst and Young’s Entrepreneur of the Year 2006 Hall of
Fame. He holds over 60 U.S. and foreign patents, has published more than 200 scientific articles and reviews, and edited
five books. He is currently CEO of QRxPharma, a listed specialty pharmaceutical company specialising in pain and CNS
diseases.
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, and Hazardous Investments
Limited, all shareholders of the Company. Dr Congreve does not have any other interests considered to cause any
potential conflict of interests.
Dr T D Scott
Dr Scott is a director of Centralo Limited, a shareholder of the Company, and Essex Castle Limited, a nominee company.
Dr Scott is also the chairman of Mercy Hospital Dunedin Limited which also operates in the biotechnology/pharmaceutical
industry. Dr Scott does not have any other interests considered to cause any potential conflict of interests.
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 interests considered to cause any potential conflict of interests.
Dr J Holaday
Dr Holaday is CEO of QRxPharma, a listed specialty pharmaceutical company specialising in pain and CNS diseases. Dr
Holaday does not have any other 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
Directors’ Fees
Dr Robin Congreve (Chairman) 1
Mr Tom Amos 1 3
Dr John Holaday 1 2
Dr Graeme Howie 1
Dr Trevor Scott 1
2009
$’000
60
9
3
35
40
Dr Doug Wilson
1 Fees and other remuneration were accrued but unpaid at 31 December 2009
2 Appointed as a director 25 November 2009
3 Resigned as a director 27 March 2009
-
Other
Remuneration
2009
$’000
40
-
-
-
20
100
Directors’ Fees
2008
$’000
60
35
-
19
40
-
Other
Remuneration
2008
$’000
-
5
-
-
5
172
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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:
2009
$’000
2008
$’000
$100,000 - $109,999
$110,000 - $119,999
$120,000 - $129,999
$140,000 - $149,999
$150,000 - $159,999
$170,000 - $179,999
$190,000 - $199,999
$290,000 - $299,999
$360,000 - $369,999
$400,000 - $409,999
1
-
2
1
-
1
-
-
1
-
3
2
-
1
1
-
1
1
-
1
Donations
The Company made no donations during the year (2008: nil).
Auditors
PricewaterhouseCoopers are the auditors of the Company. Audit fees in relation to the annual and interim financial
statements were $44,000 (2008: $45,500). During 2008 PricewaterhouseCoopers also received $500 (2009: $nil) 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, Dr 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 Officer and the responsibility for the operation and administration of the Company
has been delegated to the Chief Executive Officer and senior management. The Board ensures this team is appropriately
qualified to discharge their responsibilities and reviews the performance of the Chief Executive Officer annually against
agreed objectives. This performance review was conducted in 2009 and early 2010. The Chief Executive Officer is
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)
Dr John Holaday (from 25 November 2009)
Dr Graeme Howie
Dr Trevor Scott
Dr Doug Wilson
Chairman – Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Chief Medical Officer – Executive director Non-independent
Non-independent
Independent
Independent
Independent
Independent
8
4
-
5
7
6
The composition of the Board, its performance, and the independence of Directors are regularly reviewed by the
Chairman and lead independent director, Dr Scott, to ensure that the Board has the appropriate mix of independence,
expertise and experience. Dr Holaday, Dr Howie and Dr 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 Dr Scott (Chair) and Dr Congreve. The Board is 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 at least 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 Officer 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 $5,000 for committee Chairs. Executive Directors do not
receive Directors fees. Directors and Executives receive no retirement allowances. New Zealand Companies Act
disclosures with regard to Directors’ Fees and Executives’ remuneration are set out in the Directors’ Report.
8
Neuren Pharmaceuticals Limited
Financial Statements
for the year ended 31 December 2009
9
Neuren Pharmaceuticals Limited
Statements of Comprehensive Income
for the year ended 31 December 2009
Consolidated
Parent
Notes
NZ$’000
2009
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
Revenue
- interest income
- contract revenue
- out-licensing revenue
Other income
- grants
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
Interest expense
24
-
58
82
6,123
6,205
(625)
(192)
(3,969)
(515)
(7)
203
(3)
155
323
736
1,214
1,660
2,874
(1,341)
(7,052)
(10,341)
(741)
(111)
424
(31)
Corporate and administrative costs
(1,130)
(2,042)
15
-
58
73
388
461
(164)
(192)
(990)
(306)
(7)
204
(3)
(978)
153
323
736
1,212
1,660
2,872
(936)
(7,052)
(10,325)
(615)
(111)
424
(31)
(2,070)
Loss before income tax
Income tax expense
Loss after income tax
4
5
(33)
-
(33)
(18,361)
(73)
(18,434)
(1,975)
-
(1,975)
(17,844)
(73)
(17,917)
Other comprehensive income (expense), net of tax
Exchange differences on translation of foreign operations
(1,321)
1,661
-
-
Total comprehensive loss
$
(1,354)
$
(16,773)
$
(1,975)
$ (17,917)
Profit (loss) after income tax attributable to:
Equity holders of the company
Minority interest
Total comprehensive loss attributable to:
Equity holders of the company
Minority interest
123
(156)
(18,434)
-
(1,975)
-
(17,917)
-
$
(33)
$
(18,434)
$
(1,975)
$ (17,917)
(1,198)
(156)
(16,773)
-
(1,975)
-
(17,917)
-
$
(1,354)
$
(16,773)
$
(1,975)
$ (17,917)
Basic and diluted loss per share
6
$
0.00
$
(0.08)
The notes on pages 14 to 27 form part of these financial statements
10
Neuren Pharmaceuticals Limited
Statements of Financial Position
as at 31 December 2009
ASSETS
Current assets:
Cash and cash equivalents
Trade and other receivables
Income taxes receivable
Total current assets
Non-current assets:
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities:
Trade and other payables
Equipment finance – short term
Lease incentive – short term
Total current liabilities
Non-current liabilities:
Equipment finance – long term
Convertible note
Lease incentive – long term
Total liabilities
EQUITY
Share capital
Other reserves
Accumulated deficit
Total equity attributable to equity holders
Minority interest in equity
Total equity
Consolidated
Parent
Notes
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
7
8
9
10
15
11
12
12
12
13
4,232
2,270
-
6,502
51
6,153
-
6,204
1,619
195
6
1,820
94
8,301
-
8,395
1,695
1,871
-
3,566
47
933
4,257
5,237
1,529
963
6
2,498
94
1,303
4,201
5,598
$
12,706
$
10,215
$
8,803
$
8,096
3,093
11
12
3,116
-
490
22
3,481
15
12
3,508
11
-
34
2,700
11
12
2,723
-
490
22
3,434
15
12
3,461
11
-
34
3,628
3,553
3,235
3,506
69,344
3,601
(63,692)
9,253
(175)
9,078
68,768
2,545
(64,651)
6,662
-
6,662
69,344
3,351
(67,127)
5,568
-
5,568
68,768
974
(65,152)
4,590
-
4,590
TOTAL LIABILITIES AND EQUITY
$
12,706
$
10,215
$
8,803
$
8,096
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 25 March 2010.
Dr Robin Congreve
Chairman
Dr Trevor Scott
Director
11
Neuren Pharmaceuticals Limited
Statements of Changes in Equity
for the year ended 31 December 2009
Consolidated
Share
Option
Reserve
NZ$’000
Foreign
Currency
Translation
Reserve
NZ$’000
Accumulated
Deficit
NZ$’000
Total
Attributable
to Equity
Holders
NZ$’000
Share
Capital
NZ$’000
Minority
Interest
NZ$’000
Total
Equity
NZ$’000
Equity as at 1 January 2008
$ 54,023
$
857
$
(90)
$
(46,217)
$
8,573
$
-
$
8,573
Shares issued in rights issue
Shares issued on conversion of notes
Shares issued in private placement
Shares issued in Share Purchase Plan
Share issue costs expensed
8,065
3,866
1,190
2,426
(802)
Share option grants for services
117
8,065
3,866
1,190
2,426
(802)
117
8,065
3,866
1,190
2,426
(802)
117
Comprehensive loss for the year
1,661
(18,434)
(16,773)
(16,773)
Equity as at 31 December 2008
$ 68,768
$
974
$ 1,571
$
(64,651)
$
6,662
$
-
$
6,662
Shares issued in Share Purchase Plan
Shares issued on conversion of notes
Shares issued in private placement
Share issue costs expensed
1,003
190
1,903
(150)
Share option grants for services
(2,370)
2,377
Minority interest issued in subsidiary
Gain on issue of minority interest
Comprehensive loss for the year
(1,321)
836
123
1,003
190
1,903
(150)
7
-
836
(1,198)
1,003
190
1,903
(150)
7
817
-
(1,354)
817
(836)
(156)
Equity as at 31 December 2009
$ 69,344
$ 3,351
$
250
$
(63,692)
$
9,253
$
(175)
$
9,078
Parent
Share
Option
Reserve
NZ$’000
Foreign
Currency
Translation
Reserve
NZ$’000
Accumulated
Deficit
NZ$’000
Total
Attributable
to Equity
Holders
NZ$’000
Share
Capital
NZ$’000
Equity as at 1 January 2008
$ 54,023
$
857
$
-
$
(47,235)
$
7,645
Shares issued in rights issue
Shares issued on conversion of notes
Shares issued in private placement
Shares issued in Share Purchase Plan
Share issue costs expensed
8,065
3,866
1,190
2,426
(802)
Share option grants for services
117
8,065
3,866
1,190
2,426
(802)
117
Comprehensive loss for the year
(17,917)
(17,917)
Equity as at 31 December 2008
$ 68,768
$
974
$
-
$
(65,152)
$
4,590
Shares issued in Share Purchase Plan
Shares issued on conversion of notes
Shares issued in private placement
Share issue costs expensed
1,003
190
1,903
(150)
Share option grants for services
(2,370)
2,377
1,003
190
1,903
(150)
7
Comprehensive loss for the year
(1,975)
(1,975)
Equity as at 31 December 2009
$ 69,344
$ 3,351
$
-
$
(67,127)
$
5,568
The notes on pages 14 to 27 form part of these financial statements
12
Neuren Pharmaceuticals Limited
Statements of Cash Flows
for the year ended 31 December 2009
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
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
5,835
1,666
107
24
111
(3)
(976)
(6,688)
611
155
222
(5)
(2,023)
(11,434)
100
107
15
94
(3)
(851)
(1,908)
1,666
611
153
222
(5)
(2,023)
(11,221)
Net cash used in operating activities
(1,590)
(10,808)
(2,446)
(10,597)
Cash flows from investing activities:
Sale of property, plant and equipment
Purchase of property, plant and equipment
Advance to subsidiaries
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from the issue of shares
Proceeds from the issue of convertible notes
Proceeds from minority interest
Repayment of equipment financing
Payment of share issue expenses
5
(6)
-
(1)
54
(27)
-
27
2,906
11,682
680
817
(15)
(149)
-
-
(16)
(831)
Net cash provided from financing activities
4,239
10,835
Net (decrease) increase in cash
Effect of exchange rate changes on cash balances
Cash at the beginning of the year
2,648
(35)
1,619
54
274
1,291
5
-
(867)
(862)
2,906
680
-
(15)
(149)
3,422
114
52
1,529
54
(27)
(37)
(10)
11,682
-
-
(16)
(831)
10,835
228
237
1,064
Cash at the end of the year
$
4,232
$
1,619
$
1,695
$
1,529
Reconciliation with loss after income tax:
Loss after income tax
$
(33)
$
(18,434)
$
(1,975)
$
(17,917)
Non-cash items requiring adjustment:
Depreciation of property, plant and equipment
Loss (gain) on disposal of property, plant and equipment
Amortisation of intangible assets
Intangible asset impairment
Share option compensation expense
Foreign exchange gain
Lease incentive amortisation
Interest on convertible notes
Changes in working capital:
Trade and other receivables
Trade and other payables
43
(1)
582
192
7
(203)
(12)
-
(1,852)
(313)
88
132
1,253
7,052
111
(424)
(29)
26
(41)
(542)
43
(1)
121
192
7
(204)
(12)
-
104
(721)
88
132
848
7,052
111
(424)
(29)
26
(41)
(443)
Net cash used in operating activities
$
(1,590)
$
(10,808)
$
(2,446)
$
(10,597)
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 2009
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 25 March 2010.
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 $6,153,000 (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.
2. Summary of significant accounting policies
These general-purpose financial statements are for the year ended 31 December 2009 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 2009 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. Actual results may differ from those estimates.
Changes in accounting policies
The following new standards and amendments are mandatory for the first time in the period beginning 1 January 2009:
14
Neuren Pharmaceuticals Limited
• NZ IAS 1 (Revised) Presentation of financial statements. The revised standard requires non-owner changes in equity to
be presented separately from owner changes in equity within non-owner changes in equity shown on a performance
statement. The financial statements have been prepared under the revised disclosure requirements and a Statement of
Comprehensive Income is presented.
• NZ IFRS 8 Operating Segments. The revised standard requires a “management approach” under which operating
segment information is presented on the same basis as that used for internal reporting to the chief operating decision-
maker, in the Company’s case, the Chief Executive Officer. This presentation is consistent with prior year reporting by
the Company.
(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. Costs attributable to the acquisition are expensed as incurred. 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 comprehensive 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
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Chief Executive Officer.
(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 comprehensive 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 statement of financial position presented are translated at the closing rate at the date of
that statement of financial position;
• income and expenses for each comprehensive 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 comprehensive 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
15
Neuren Pharmaceuticals Limited
is recognised on achieving the milestones. If any milestone income is creditable against royalty payments then it is
deferred and released to the comprehensive 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.
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 comprehensive 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
comprehensive income statement based on the amount by which the carrying amount exceeds the fair market value less
costs to sell 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
statement of financial position are presented net of GST, with the exception of receivables and payables, which include
GST invoiced.
16
Neuren Pharmaceuticals Limited
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.
(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 comprehensive 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 comprehensive 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 statement of financial position 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.
17
Neuren Pharmaceuticals Limited
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 statement of financial position. Loans and receivables are measured at amortised
cost using the effective interest method less impairment.
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 comprehensive 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 item applicable to the Group is:
NZ IFRS 3, Business Combinations (Revised) and NZ IAS 27, Consolidated and Separate Financial Statements (Revised)
(mandatory for periods beginning on or after 1 July 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 comprehensive
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.
There are no other standards, amendments or interpretations to existing standards which have been issued, but are not
yet effective, which are expected to impact the Company or Group.
3. Segment information
(a) Description of Segments
The chief operating decision maker has been identified as the CEO, who reviews the business largely on a geographic
basis and assesses results from New Zealand and the USA separately. The information reviewed is prepared in the same
format as included in the financial statements.
(b) Geographic Segments
Consolidated
Segment revenue
Segment result before minority interest
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 (gain) on disposal of property, plant and equipment
Consolidated
Segment revenue
Segment result before minority interest
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 (gain) on disposal of property, plant and equipment
18
2009
2009
2009
2009
New Zealand
United States
Consolidation
Total Group
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Adjustments
467
(2,535)
9,156
3,275
-
167
192
(1)
5,738
2,502
9,283
1,829
6
458
-
-
-
-
(5,733)
(1,476)
-
-
-
-
6,205
(33)
12,706
3,628
6
625
192
(1)
2008
2008
2008
2008
New Zealand
United States
Consolidation
Total Group
NZ$’000
2,872
(17,917)
8,096
3,506
27
936
7,052
132
Adjustments
NZ$’000
NZ$’000
NZ$’000
2
(517)
7,088
815
-
405
-
-
-
-
(4,969)
(768)
-
-
-
-
2,874
(18,434)
10,215
3,553
27
1,341
7,052
132
Neuren Pharmaceuticals Limited
4. Expenses
Loss before income tax includes the following specific expenses:
Depreciation – property, plant and equipment
Scientific equipment
Computer equipment
Fixtures and fittings
Leasehold improvements
Total depreciation
Amortisation – intangible assets
Intellectual property
Software
Total amortisation
Remuneration of auditors
Audit fees
Taxation advisory fees
Total remuneration of auditors
Employee benefits expense
Salaries and wages
Share option compensation
Total employee benefits expense
Directors’ fees
Lease expense
5.
Income tax
Income tax expense
Current tax
Deferred tax
Income tax expense
Numerical reconciliation of income tax expense to prima facie
tax payable (receivable):
Loss before income tax
Tax at rates applicable in the respective countries
Tax effect of amounts not deductible (taxable) in calculating taxable
income:
Share option compensation
Grant income
Other expenses not deductible for tax purposes
Foreign jurisdiction withholding tax
Under (over) provision in prior years
Deferred tax assets not recognised
Income tax expense
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
24
5
11
3
43
581
1
582
44
-
44
964
7
971
147
176
37
21
13
17
88
1,239
14
1,253
46
1
47
1,792
27
1,819
154
266
24
5
11
3
43
120
1
121
44
-
44
836
7
843
147
176
37
21
13
17
88
834
14
848
46
1
47
1,792
27
1,819
154
266
Consolidated
Parent
2009
NZ$’000
2008
2009
NZ$’000
NZ$’000
2008
NZ$’000
-
-
-
(33)
277
2
(2,422)
-
(2,143)
-
62
2,081
-
73
-
73
-
-
-
73
-
73
(18,361)
(1,975)
(17,844)
(5,568)
(593)
(5,353)
33
-
30
(5,505)
73
3
5,502
73
2
(86)
-
(677)
-
2
675
-
33
-
30
(5,290)
73
3
5,287
73
The weighted average applicable tax rate for New Zealand segments is 30% and for United States segments 41% (2008:
30% and 41% respectively).
19
Neuren Pharmaceuticals Limited
6. Earnings (loss) per share
Basic loss per share is based upon the weighted average number of outstanding ordinary shares. For the years ended 31
December 2008 and 2009, the Company’s potentially dilutive ordinary share equivalents (being the options over ordinary
shares set out in note 13) have an anti-dilutive effect on loss per share and, therefore, have not been included in
determining the total weighted average number of ordinary shares outstanding for the purpose of calculating diluted loss
per share. In the year ended 31 December 2009, the convertible notes set out in note 12 were potentially dilutive ordinary
share equivalents for the purposes of the Group earnings per share.
Consolidated
2009
NZ$’000
2008
NZ$’000
Profit (loss) after income tax attributable to equity holders
123
(18,434)
Weighted average shares outstanding (basic)
Weighted average shares outstanding (diluted)
271,275,942
223,265,642
272,220,539
223,265,642
Basic and diluted loss per share
$0.00
($0.08)
7. Cash and cash equivalents
Cash
Demand and short-term deposits
8. Trade and other receivables
Trade receivables
Prepayments
Sundry receivables and accruals
Due from subsidiaries
9. Property, plant and equipment
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
308
3,924
4,232
81
1,538
1,619
134
1,561
1,695
81
1,448
1,529
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
347
1,923
-
-
62
84
49
-
2,270
195
330
49
-
1,492
1,871
62
84
49
768
963
Scientific
Equipment
Computer
Equipment
NZ$’000
NZ$’000
Fixtures
& Fittings
NZ$’000
Leasehold
Total
Improvements
NZ$’000
NZ$’000
-
161
(39)
122
122
(37)
(30)
55
109
(54)
55
55
-
(24)
(4)
27
100
(73)
27
80
(59)
21
21
6
(21)
-
6
68
(62)
6
6
-
(5)
-
1
68
(67)
1
108
(68)
40
40
11
(13)
(14)
24
43
(19)
24
24
-
(11)
-
13
43
(30)
13
196
(38)
158
158
10
(17)
(142)
9
10
(1)
9
9
-
(3)
-
6
10
(4)
6
545
(204)
341
341
27
(88)
(186)
94
230
(136)
94
94
-
(43)
(4)
47
221
(174)
47
Parent
As at 1 January 2008
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
Movements in the year ended
31 December 2009
Opening net book value
Additions
Depreciation
Disposals
Closing net book value
As at 31 December 2009
Cost
Accumulated depreciation
Net book value
20
Neuren Pharmaceuticals Limited
In addition to the Parent’s property, plant and equipment noted above, the only property, plant and equipment within the
Group was computer equipment with a cost of US$4,000 purchased by the US based subsidiary for use in the upcoming
Phase II trial of NNZ-2566. As the trial had not commenced at 31 December 2009 and the computer equipment was not in
use, no depreciation was charged in the year ended 31 December 2009 for this equipment.
During the year ended 31 December 2008 the Company moved premises and at that time fully depreciated assets and
leasehold improvements related to the previous tenancy that were not sold were written off.
10. Intangible assets
Consolidated
As at 1 January 2008
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2008
Opening net book value
Amortisation
Impairment expense
Exchange differences
Closing net book value
As at 31 December 2008
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2009
Opening net book value
Amortisation
Impairment expense
Exchange differences
Closing net book value
As at 31 December 2009
Cost
Accumulated amortisation
Net book value
Parent
As at 1 January 2008
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2008
Opening net book value
Amortisation
Impairment expense
Closing net book value
As at 31 December 2008
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2009
Opening net book value
Assigned to subsidiary
Amortisation
Impairment expense
Closing net book value
As at 31 December 2009
Cost
Accumulated amortisation
Net book value
Intellectual
Property
NZ$’000
Acquired
Software
Total
NZ$’000
NZ$’000
18,137
(3,386)
14,751
14,751
(1,239)
(7,052)
1,840
8,300
9,522
(1,222)
8,300
8,300
(581)
(192)
(1,374)
6,153
7,660
(1,507)
6,153
35
(20)
15
15
(14)
-
-
1
35
(34)
1
1
(1)
-
-
-
35
(35)
-
18,172
(3,406)
14,766
14,766
(1,253)
(7,052)
1,840
8,301
9,557
(1,256)
8,301
8,301
(582)
(192)
(1,374)
6,153
7,695
(1,542)
6,153
Intellectual
Property
NZ$’000
Acquired
Software
Total
NZ$’000
NZ$’000
12,511
(3,323)
9,188
9,188
(834)
(7,052)
1,302
1,932
(630)
1,302
1,302
(57)
(120)
(192)
933
1,556
(623)
933
35
(20)
15
15
(14)
-
1
35
(34)
1
1
-
(1)
-
35
(35)
-
12,546
(3,343)
9,203
9,203
(848)
(7,052)
1,303
1,967
(664)
1,303
1,303
(57)
(121)
(192)
933
1,591
(658)
933
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 31
December 2008. An intangibles impairment charge of $192,000 was recorded in 2009 following rationalisation of the
patent portfolio.
21
Neuren Pharmaceuticals Limited
11. Trade and other payables
Trade payables
Accruals
Employee benefits
12. Borrowings
Consolidated and Parent
Interest bearing
Equipment finance
- short term
- long term
Total interest bearing debt
Non-interest bearing
Convertible note
- long term
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
2,443
464
186
3,093
2,267
1,016
198
3,481
2,052
464
184
2,700
2,258
978
198
3,434
2009
NZ$’000
2008
NZ$’000
11
-
11
490
15
11
26
-
The New Zealand dollar denominated equipment finance is unsecured, has a fixed interest rate of 12.25% and matures in
2010.
The convertible note with a principal amount of A$550,000 was issued on 18 November 2009, and A$150,000 of this was
converted at the election of the noteholder to 4,629,630 ordinary shares on 4 December 2009.
The principal terms of the note are:
(a) The Note is unsecured and does not bear interest;
(b) The Note, or part thereof, shall convert to new ordinary shares in the Company determined by dividing the
Principal Amount, or part thereof to be converted, by the lesser of:
(i)
130% of the average of the Volume Weighted Average Prices per share of the Company’s ordinary
shares quoted on the ASX (“VWAPs”) for the twenty (20) business days immediately prior to 18
November 2009; and
(ii) 90% of the lowest of the VWAPs during the twenty (20) business days immediately prior to the date
the Investor elects to have the Note, or part thereof, repaid;
(c) The ordinary shares issued upon conversion of the Note will rank equally in all respects with the then existing
ordinary shares on issue;
(d) The noteholder may convert the Note or any part thereof at any time or times prior to 18 November 2011;
(e) The Note does not carry any voting rights at meetings of shareholders of Neuren, and have no rights of
participation in any rights issue undertaken by Neuren prior to conversion of the Notes.
The convertible loan agreement under which the above convertible note was issued provides for convertible note funding
of up to A$6.7 million. This facility is available until December 2011 and provides further minimum monthly funding
commencing with A$400,000 in January 2010, followed by ten tranches of A$100,000, and subsequent tranches of
A$60,000 on the principal terms noted above except that each monthly convertible note shall have a term of
approximately one month. Pursuant to the convertible loan agreement, the Company issued for no value 13,000,000
ordinary shares as collateral for funding under the agreement. On expiry or termination of the convertible loan agreement
these collateral shares shall be returned to the Company to be cancelled or held as treasury shares, or by mutual
agreement of the parties purchased by the convertible loan funding provider.
13. Share capital
Consolidated and Parent
Issued share capital
2009
Shares
2008
Shares
2009
2008
NZ$’000
NZ$’000
Ordinary shares on issue at beginning of year
257,464,313
144,739,253
68,768
54,023
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 as collateral and in lieu for capital raising fees
Share issue expenses
-
4,629,630
40,306,174
27,176,665
22,670,669
-
50,700,000
24,525,060
11,875,000
25,625,000
-
-
-
190
1,903
1,003
-
(2,520)
8,065
3,866
1,190
2,426
-
(802)
352,247,451
257,464,313
69,344
68,768
22
Neuren Pharmaceuticals Limited
(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 23 December 2009 the Company granted 40,306,174 options (“December 2009 Placement Options”) in conjunction
with a private placement on that date. The options are exercisable into ordinary shares on a one-for-one basis with an
exercise price of A$0.0457 per share. The options expire on 23 December 2013.
On 4 December 2009 the Company granted 4,629,630 options (“December 2009 Conversion Options”) in conjunction with
partial conversion of a convertible note. The options are exercisable into ordinary shares on a one-for-one basis with an
exercise price of A$0.0389 per share. The options expire on 4 December 2013.
On 18 November 2009 the Company granted 20,000,000 options (“November 2009 Options”) in conjunction with obtaining
a convertible loan facility. The options are exercisable into ordinary shares on a one-for-one basis with an exercise price of
A$0.0445 per share. The options expire on 18 November 2013.
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.
Oceania & Eastern Biotech Limited is an investment company associated with interests of Dr Robin Congreve and held
1,528,892 options (the “O&E Options”). The O&E Options’ exercise price was a fixed sum of NZ$600,000, exercisable into
1,528,892 ordinary shares (equivalent to NZ$0.392 per share). The options expired on 31 March 2009.
Auckland UniServices Limited (“UniServices”) is the commercial research and knowledge transfer company for the
University of Auckland and held 1,872,892 options (“UniServices Options”). The UniServices Options’ exercise price was a
fixed sum of NZ$735,000, exercisable into 1,872,892 ordinary shares (equivalent to NZ$0.392 per share). The UniServices
Options expired on 31 March 2009.
The above options were otherwise issued on terms and conditions not materially different to those of the Share Option
Plan described below.
The Company has established a Share Option Plan to assist in the retention and motivation of senior employees of, and
certain consultants to, the Company (“Participants”). Under the Share Option Plan, options may be offered to Participants
by the Remuneration and Audit Committee. The maximum number of options to be issued and outstanding under the
Share Option Plan is 15% of the issued ordinary shares of the Company at any time. No payment is required for the grant
of options under the Share Option Plan. Each option is an option to subscribe in cash for one ordinary share, but does not
carry any right to vote. Upon the exercise of an option by a Participant, each ordinary share issued will rank equally with
other ordinary shares of the Company. Options granted under the Share Option Plan generally vest over three years
service by the Participant and lapse five years after grant date.
Movements in the number of share options are as follows:
Consolidated and Parent
Outstanding at 1 January 2008
Granted
Expired
Outstanding at 31 December 2008
Granted
Expired
Weighted
Average
Exercise Price
(NZ$)
$
$
$
$
$
$
0.419
0.263
0.674
0.373
0.056
0.392
Options
20,637,627
3,750,000
(1,800,000)
22,587,627
64,935,804
(17,517,627)
Weighted
Average
Exercise Price
(NZ$)
Exercisable
20,090,961
$
0.417
22,387,627
$
0.373
Outstanding at 31 December 2009
70,005,804
$
0.074
70,005,804
$
0.074
23
Neuren Pharmaceuticals Limited
The weighted average remaining contractual life of outstanding share options is as follows:
Consolidated and Parent
Options
2009
Weighted Average
Remaining
Contract Life (years)
2008
Weighted Average
Remaining
Contract Life (years)
Options
Exercise price range
NZ$0.392 – NZ$0.472
A$0.15 – A$0.25
A$0. 0389 – A$0.0457
1,320,000
3,750,000
64,935,804
70,005,804
0.3
1.1
3.9
3.7
18,837,627
3,750,000
-
0.3
1.9
-
22,587,627
0.6
The weighted average assessed fair value of options granted during the year determined using the Black-Scholes valuation
model was NZ$0.036 per option (2008: NZ$0.02). The significant weighted average inputs into the model were a grant
date share price of NZ$0.046 (2008: NZ$0.13), volatility of 146% (2008: 69%), dividend yield of 0% (2008: 0%), an
expected option life of three years (2008: two years), and an annual risk-free interest rate of 4.23% (2008: 7.07%). The
expected price volatility was derived by analysing the historic volatility of the Company’s shares since listing on the ASX.
14. Deferred tax
Deferred tax asset (liability)
Amounts recognised in profit or loss
Provisions and accruals
Property, plant and equipment
Intangible assets
Tax losses
Unrecognised deferred tax assets
Deferred tax asset (liability)
Movements
Deferred tax asset (liability) at the beginning of the year
Credited (charged) to the income statement (note 5)
Impact of loss of shareholder continuity
Effects of change in tax rate
Exchange differences
Change in unrecognised deferred tax assets
Deferred tax asset (liability) at the end of the year
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
13
10
(1,762)
21,580
19,841
(19,841)
-
-
2,081
(568)
(612)
(901)
-
43
11
(1,907)
20,793
18,940
(18,940)
-
-
5,502
-
-
734
(6,236)
-
13
10
(5)
43
11
564
16,130
15,423
16,148
(16,148)
16,041
(16,041)
-
-
675
(568)
-
(107)
-
-
-
5,287
-
-
-
(5,287)
-
Unrecognised tax losses of $7.7 million, $10.4 million, $14.0 million, $17.5 million, and $4.3 million expire in 2013, 2014,
2015, 2016 and 2017 respectively.
15. Subsidiaries
Investment in subsidiaries
(a)
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in note 2(b).
Name of entity
Date of
incorporation
Principal
activities
Interest
held
Domicile
Amount due to (from) Parent
2009
NZ$’000
2008
NZ$’000
AgVentures Limited
7 October 2003
Dormant
NeuroendocrinZ Limited
10 July 2002
Dormant
100%
100%
NZ
NZ
Neuren Pharmaceuticals Inc.
20 August 2002
US Based Office
100%
USA
Hamilton Pharmaceuticals Inc.
2 April 2004
Clinical research
100%
USA
Neuren Pharmaceuticals (Australia) Pty Ltd
Perseis Therapeutics Limited
9 November
2006
25 March 2009
Dormant
100%
Australia
Preclinical research
72.2%
NZ
-
-
852
624
-
16
-
-
-
768
-
-
All subsidiaries have a balance date of 31 December, except Perseis Therapeutics which has a 31 March year end.
24
Neuren Pharmaceuticals Limited
16. Commitments and contingencies
(a) Operating leases
The following aggregate future non-cancellable minimum lease payments for premises have been committed to by the
Company, but not recognised in the financial statements. The Company moved premises in June 2008 and the new
premises commitment is for a four year and four month lease commencing June 2008, with two two year rights of
renewal, followed by two five year rights of renewal, and three yearly rental reviews throughout.
Consolidated and Parent
Not later than one year
Later than one year and not later than five years
Later than five years
2009
NZ$’000
148
259
-
407
2008
NZ$’000
148
407
-
555
(b) Finance leases
The following aggregate future non-cancellable minimum lease payments for scientific equipment have been committed
to by the Company:
Consolidated and Parent
Not later than one year
Later than one year and not later than five years
Later than five years
Future finance charges
Total equipment finance (refer note 12)
2009
NZ$’000
2008
NZ$’000
12
-
12
(1)
11
18
11
-
29
(3)
26
(c) Legal claims
The Company has not entered into any collaborative arrangements and has no other significant legal contingencies as at
31 December 2009. During 2008 a claim by a former employee for a share of any proceeds received on commercialisation
of a portion of the Neural Regeneration Peptides (NRP) intellectual property was lodged against the Company. The
Company disclaimed liability and the claim was withdrawn during 2009.
(d) Capital commitments
The Company is not committed to the purchase of any property, plant or equipment as at 31 December 2009 (2008: nil).
17. Related party transactions
(a) Key management and personnel
The key management personnel include the directors of the Company, the CEO, and direct reports to the CEO
Compensation for this group was as follows:
Consolidated and Parent
Directors’ fees and other short term benefits
CEO and management - short-term benefits
CEO and management - share-based payments
2009
NZ$’000
307
1,245
7
1,252
2008
NZ$’000
341
1,107
27
1,475
In December 2009, in conjunction with a shareholder approved private placement Dr Trevor Scott subscribed for and was
allotted 10,604,991 ordinary shares at A$0.0381 per share and 10,604,991 options over ordinary shares with an exercise
price of A$0.0457 per option.
(b) Subsidiaries
Interests in and amounts due from subsidiaries are set out in note 15. The Parent funds the activities of the subsidiaries
throughout the year through the intercompany accounts as needed. All amounts due between entities in the Group are
payable on demand and bear no interest. During the year ended 31 December 2009 the Parent charged Perseis
Therapeutics $42,000 for monthly management and administrative services.
18. Events after balance date
As at the date of these financial statements there were no events arising since 31 December 2009 which require
disclosure.
25
Neuren Pharmaceuticals Limited
19. Financial instruments and risk management
(a) Categories of financial instruments
Financial assets
Cash and cash equivalents
Trade receivables
Total financial assets (loans and receivables classification)
Financial liabilities
Amortised cost:
Trade and other payables
Equipment finance
Convertible notes
Total financial liabilities
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
4,232
347
4,579
3,093
11
490
3,594
1,619
111
1,730
3,481
26
-
3,507
1,695
330
2,025
2,700
11
490
3,201
1,529
111
1,640
3,434
26
-
3,460
(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 $203,000 is included in results for the year
ended 31 December 2009 (2008: $424,000 gain).
The carrying amounts of foreign currency denominated assets and liabilities are as follows:
Assets
US dollars
Australian dollars
UK pounds
Euro
Liabilities
US dollars
Australian dollars
UK pounds
Euro
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
9,297
622
17
-
1,345
993
153
-
7,291
822
25
49
1,582
788
270
-
1,495
622
17
-
958
990
153
-
960
822
25
49
1,535
788
270
-
The following table details the Group's sensitivity to a 10% increase and decrease in each of the currencies noted against
the New Zealand dollar as at the reporting date.
Decrease (increase) in loss after income tax
10% strengthening of NZ dollar against:
US dollar
Australian dollar
UK pound
Euro
10% weakening of NZ dollar against:
US dollar
Australian dollar
UK pound
Euro
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
(139)
31
12
-
170
(44)
(15)
-
168
(3)
22
(4)
(206)
4
(27)
5
(49)
31
12
-
60
(44)
(15)
-
52
(3)
22
(4)
(64)
4
(27)
5
Foreign currency denominated transactions occur consistently throughout the year. In management's opinion, the
sensitivity analysis set out above is unrepresentative of the inherent foreign exchange risk as the year end exposure does
not reflect the exposure during the year.
Interest rate risk
The Company and the Group are exposed to interest rate risk as entities in the Group hold cash and cash equivalents and
borrow interest bearing funds.
26
Neuren Pharmaceuticals Limited
The effective interest rates on financial assets are as follows:
Financial assets
Cash and cash equivalents
New Zealand dollar cash deposits
New Zealand dollar interest rate
US dollar cash deposits
US dollar interest rate
Australian dollar cash deposits
Australian dollar interest rate
Consolidated
Parent
2009
NZ$’000
2008
NZ$’000
2009
NZ$’000
2008
NZ$’000
1,265
3.4%
2,079
1.1%
580
3.1%
468
5.0%
280
0.0%
790
3.2%
981
3.4%
-
-
580
3.1%
468
5.0%
190
0.0%
790
3.2%
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 or no 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 in the
statement of financial position, 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, convertible notes and equity of the parent, comprising
issued capital, reserves and accumulated deficit.
27
PricewaterhouseCoopers
188 Quay Street
Private Bag 92162
Auckland
New Zealand
Telephone +64 (09) 355 8000
Facsimile +64 (09) 355 8001
Auditors’ Report
to the Shareholders of Neuren Pharmaceuticals Limited
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 2009 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.
This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the Companies
Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters
which we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a
body, for our audit work, for this report, or for the opinions we have formed.
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 2009 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 judgements made by the Directors in the preparation of the financial statements;
and
whether the accounting policies are appropriate to the circumstances of the Company and Group, 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 advisors.
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 2009
and their financial performance and cash flows for the year ended on that date.
Our audit was completed on 30 March 2010 and our unqualified opinion is expressed as at that date.
Chartered Accountants, Auckland
28
Additional Information
Equity Securities Held by Directors as at 15 March 2010
Director
R L Congreve
T D Scott
J D Wilson
G B Howie
J Holaday
Shareholding
Interests in
Ordinary Shares
Interests in
Options
Direct
Indirect
Direct
Indirect
-
-
-
50,000
-
22,386,224
16,694,126
135,000
55,000
-
-
-
-
-
-
-
10,604,991
-
-
-
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 15 March 2010 was 899, holding 5,620,586
ordinary shares.
The following information is presented based on share registry information processed up to and including 15 March 2010.
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
136
331
296
835
343
1,941
29,553
1,247,487
2,507,942
34,911,910
327,785,435
366,482,327
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
Substantial Security Holders who have notified the Company
as at 15 March 2010 are:
CNF Investments LLC and associates
K One W One Limited
There are no securities subject to escrow.
-
4
-
-
8
12
-
20,000
-
-
84,220,680
84,240,680
Number of
Ordinary Shares
23,188,005
19,305,865
29
Neuren Pharmaceuticals Limited
Twenty Largest Holders of ordinary shares:
Number of
Ordinary Shares
%
Holding
HSBC Custody Nominees (Australia) Limited
Essex Castle Limited
ANZ Nominees Limited
HSBC Custody Nominees (Australia) Limited
K One W One Limited
Merrill Lynch (Australia) Nominees Pty Limited
Oceania & Eastern Biotech Limited
Citicorp Nominees Pty Limited
J P Morgan Nominees Australia Limited
Pfizer Inc.
National Nominees Limited
Custodial Services Limited
Centralo Limited
TAC Murray & Quartet Equities Limited
Hazardous Investments Limited
Jarden Custodians Limited
Mr Roger Scott Alter
Mr Mladen Marusic
Mr Robert Albert Boas
Investment Custodial Services Limited
24,911,455
24,014,208
23,926,850
23,188,005
19,305,865
11,904,338
10,283,956
9,338,927
9,027,096
8,081,438
7,398,559
6,140,668
5,962,754
5,556,366
4,940,566
3,181,497
3,000,000
2,903,000
2,580,403
2,567,403
208,213,354
6.80
6.55
6.53
6.33
5.27
3.25
2.81
2.55
2.46
2.21
2.02
1.68
1.63
1.52
1.35
0.87
0.82
0.79
0.70
0.70
56.81
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 2009 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 2009 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 25 March 2010.
On behalf of the Board
Dr Robin Congreve
Chairman
30
ANNUAL REPORT 2009
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