QRxPharma Limited Annual Report 2009

Plain-text annual report

FPO See COVER ﬁ le Opening the therapeutic window for doctors and patients. QRXPHARMA IS A CLINICAL-STAGE SPECIALTY PHARMACEUTICAL COMPANY FOCUSED ON THE DEVELOPMENT AND COMMERCIALISATION OF THERAPIES FOR PAIN MANAGEMENT AND CENTRAL NERVOUS SYSTEM (CNS) DISORDERS. Based on a business strategy to expand the clinical utility and commercial value of marketed and/or existing compounds, QRxPharma’s product portfolio includes both late and early stage clinical drug candidates with well-deﬁned paths to regulatory approval and sales. The Company intends to directly commercialise its products in the US and seek strategic partnerships for worldwide markets. QRxPharma’s lead compound, MoxDuo™IR (Q8003IR), is in Phase 3 clinical development and has successfully completed multiple comparative studies evaluating its efﬁ cacy and safety against equianalgesic doses of morphine, oxycodone and Percocet® for the treatment of acute pain. Study results consistently demonstrate MoxDuo™IR’s greater overall tolerability, achieving better pain relief with substantially fewer incidences of moderate to severe side effects. The Company’s preclinical and clinical pipeline includes other technologies in the ﬁelds of pain management, neurodegenerative disease and venomics. QRxPHARMA LIMITED ABN 16 102 254 151 CORPORATE DIRECTORY Directors Peter C Farrell PhD, ScD, AM, Non Executive Chairman John W Holaday PhD, Managing Director and Chief Executive Ofﬁ cer R Peter Campbell FCA, FTIA Gary W Pace PhD Michael A Quinn MBA Secretary Chris J Campbell CA Notice of annual general meeting The annual general meeting of QRxPharma Limited will be held in Sydney on 16 November 2009 Principal registered ofﬁ ce in Australia Share register Auditor Solicitors QRxPharma Limited Level 1 194 Miller St North Sydney NSW 2060 Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 PricewaterhouseCoopers Darling Park Tower 2 201 Sussex Street GPO BOX 2650 Sydney NSW 1171 Dibbs Barker Level 8, Angel Place 123 Pitt Street Sydney NSW 2000 Stock exchange listings QRxPharma Limited shares are listed on the Australian Securities Exchange. Listing Code: QRX QRxPharma Limited American Depositary Receipts are listed on the OTCQX. Symbol: QRXPY Website address www.qrxpharma.com TABLE OF CONTENTS Key Achievements Letter from the Chairman CEO Review What key opinion leaders are saying Directors’ report Auditor’s independence declaration Corporate governance statement Income statements 2 3 5 7 8 24 25 31 Balance sheets Statements of changes in equity Cash ﬂ ow statements Notes to the ﬁ nancial statements Directors’ declaration Independent auditor’s report Shareholder information 32 33 34 35 68 69 71 www.qrxpharma.com 1 KEY ACHIEVEMENTS MAY 2007 IPO: Initial Public offering completed raising A$50 million NOVEMBER 2007 MoxDuoTM IR: Phase 3 trials initiated with Dose Range Study MAY 2008 JULY 2008 MoxDuoTM IR: Dose Range study completed: Establishes Preferred Dose for Optimal Efﬁ cacy and Tolerability; Study Goals and Secondary Endpoints Met (256 patients) MoxDuoTM IR: FDA accepts streamlined Phase 3 development programme: No Long Term Safety Data Required; Only Two Additional Phase 3 Studies for New Drug Application Submission DEC 2008 MoxDuoTM IR: Initiation of ”Combination Rule” Pilot Study FEB 2009 MoxDuoTM IR: Initiation of Comparative Pilot Study in Pain after Total Knee Replacement APRIL 2009 MoxDuoTM IR: ”Combination Rule” Pilot Study demonstrates that MoxDuoTM IR provides greater tolerability / fewer side effects than Morphine or Oxycodone alone (197 patients) JUNE 2009 MoxDuoTM IV: First patient dosed in Phase 2 Investigator study AUGUST 2009 MoxDuoTM IR: Comparative Pilot Study in Pain after Total Knee Replacement demonstrates that MoxDuoTM IR provides greater tolerability / fewer side effects than Percocet® (44 patients) OCTOBER 2009 MoxDuoTM IR: FDA ﬁ nal review of MoxDuoTM IR Phase 3 Combination Rule study Special Protocol Assessment Anticipated timing of announcement DECEMBER 2009 MoxDuoTM IV: Complete dosing of patients in MoxDuo™ IV Phase 2 Investigator study MoxDuoTM CR: Commence MoxDuo™ CR Phase 1 study MoxDuoTM IR: Initiate remaining MoxDuo™ IR Pivotal Phase 3 study programme Anticipated timing of announcement 2 QRxPharma Annual Report 2009 LETTER FROM THE CHAIRMAN Dear Shareholder, On behalf of the Board and management of QRxPharma, I am pleased to present our 2009 annual report. The past 12 months will be remembered as a year of change. A year in which the global economic crisis brought an end to the belief of uninterrupted growth. A year in which companies – once icons of industries – are now ﬁ ghting for their very survival. A year in which ﬁ nancial uncertainty threatened the engine of innovation upon which wealth creation and our prosperity depend. Against such a backdrop it is with some humility but also, pride and satisfaction – that I can report that the past year has been very positive for QRxPharma, demonstrating the results of our focused business approach. It’s been a year of measured achievement with both good scientiﬁ c progress and prudent resource management. This discipline and commitment to build shareholder value even in these uncertain times, has placed the Company on an upward trajectory when many companies are failing to achieve their stated goals. Our primary objective remains the commercialisation of MoxDuo™IR (formerly Q8003IR), the Company’s lead product candidate for the treatment of acute pain. In the past 12 months, we’ve made encouraging progress towards this goal. With the successful completion of multiple comparative pilot studies, we’ve advanced our Phase 3 program for MoxDuo™IR and demonstrated the clinical beneﬁ t, as well as the commercial value of our patented Dual-Opioid™ platform. To date, more than 400 patients, experiencing different forms of post-surgical pain (bunionectomy and total knee replacement), have received MoxDuo™IR. Study results consistently demonstrate MoxDuo™IR’s greater overall tolerability with substantially fewer incidences of moderate to severe side effects than observed with morphine, oxycodone and Percocet®. Data collected from these trials has provided additional guidance for optimizing the design and implementation of two pending pivotal Phase 3 studies required for ﬁ ling a New Drug Application (NDA) with the US Food and Drug Administration (FDA). QRxPharma remains on track to launch the world’s ﬁ rst dual-opioid™ product, MoxDuo™IR, in 2011. The Company also advanced clinical development of its complementary dual-opioid™ products, with the initiation of a Phase 2 comparative proof-of-concept study, evaluating the efﬁ cacy and safety of MoxDuo™IV (intravenous morphine and oxycodone) against IV morphine for the treatment of moderate to severe post-operative pain. MoxDuo™CR, a continuous release formulation designed to provide 12 hours of pain relief in patients with moderate to severe pain, is on schedule to initiate Phase 1 studies by the end of the 2009 calendar year. These formulations incorporate both tamper resistant and abuse deterrent technologies. www.qrxpharma.com 3 LETTER FROM THE CHAIRMAN (CONTINUED) Additionally, QRxPharma continues to advance the development of its Torsin program under collaborative research agreement with the University of Alabama (Caldwell Labs). These small molecules target dystonia, Parkinson’s disease, Alzheimer’s disease as well as similar neurologic disorders. Preclinical trials, supported in part by the Michael J. Fox Foundation, are presently underway to evaluate the Company’s lead drug candidates in Parkinson’s disease. QRxPharma has continued to make signiﬁ cant progress over the past year, having achieved our projected clinical development goals for MoxDuo™IR, whilst maintaining development momentum of other drug candidates. And we have done this while being suitably ﬁ scally conservative. I would like to take this opportunity to thank my fellow Board members, CEO Dr John Holaday, the management team, and all staff in Australia and the US for their dedication and determination throughout the year. We also appreciate your continued support and look forward to communicating with you over the coming year as events unfold. Peter C Farrell, PhD, ScD, AM Chairman 4 QRxPharma Annual Report 2009 CEO REVIEW Advances in science usually occur when convention is creatively challenged with solid data. Over twenty years ago, the World Health Organization stated: “never administer two powerful opioids at the same time”. Our founding scientist, Prof. Maree Smith at the University of Queensland, asked: “why not”. Her discovery, that the combination of two powerful opioids, morphine and oxycodone, demonstrated synergy on pain relief with fewer side effects, is the basis of our remarkable clinical ﬁ ndings. The Company’s lead product candidate, MoxDuo™IR, an immediate-release oral capsule, the ﬁ rst patented analgesic product in the world that consists of two opioids (a ﬁ xed ratio of morphine and oxycodone), has shown her vision to be true. We now have demonstrated in Phase 2 and 3 clinical trials that this combination therapy provides pain relief while signiﬁ cantly limiting the debilitating side effects that prevent the use of opioids for treating moderate to severe pain. While many analgesic combination drugs exist – such as Percocet®, which contains an opioid (oxycodone) combined with a classic mild pain reliever like acetaminophen (Tylenol®), such products are typically used for controlling mild to moderate pain. MoxDuo™IR, however, is intended for the treatment of moderate to severe acute pain – a $2.5 billion segment of the $8 billion spent annually on prescription opioids in the United States. In clinical trials conducted to date, our data indicate that QRxPharma’s patented combination of morphine plus oxycodone works synergistically to increase analgesia while signiﬁ cantly decreasing the frequency and severity of opioid-related side effects. Expanding on these promising clinical ﬁ ndings with our immediate-release formulation, our Dual-Opioid™ product portfolio includes two complementary products: MoxDuo™CR, a controlled-release oral capsule (with abuse deterrent and tamper resistant technologies) for chronic pain and MoxDuo™IV, an intravenous formulation for treating moderate to severe hospital-based pain. In the past 12 months, the Company signiﬁ cantly advanced its MoxDuo™IR Phase 3 clinical program, completing two critical comparative pilot studies. The ﬁ rst study compared the efﬁ cacy and safety proﬁ le of MoxDuo™IR to corresponding doses of oxycodone and morphine in patients experiencing moderate to severe pain in the ﬁ rst 24 hours following a scheduled surgical procedure (bunionectomy). When postoperative pain reached a measure of at least “4” on the Numerical Pain Rating Scale (10 being the most severe), patients either received MoxDuo™IR, morphine or oxycodone every 6 hours for 48 hours. The study’s primary clinical endpoint was changes in the pain intensity scores from baseline for MoxDuo versus component doses of morphine and oxycodone alone. Secondary endpoints included: (1) efﬁ cacy relating to the time to onset of analgesia and global assessment of effect; and (2) safety as measured by the incidence and intensity of opioid-related adverse events. The study enrolled 197 patients at 6 US clinical research sites. Signiﬁ cantly, the frequency of moderate to severe adverse events (including nausea, vomiting, constipation, dizziness, etc.) was 50% to 75% lower among patients on MoxDuo™IR compared to those receiving equi-analgesic doses of morphine or oxycodone alone. Furthermore, patients receiving morphine or oxycodone were two to four times more likely to prematurely discontinue dosing (due to side effects) than those on MoxDuo™IR. These results were incorporated into an updated version of the Company’s “combination rule” pivotal Phase 3 study protocol for MoxDuo™IR submitted in June 2009 to the US Food and Drug Administration (FDA) for Special Protocol Assessment (SPA) approval. This process enables companies to achieve advanced agreement with the FDA regarding study design acceptability and proposed statistical analysis plans prior to implementation of the pivotal Phase 3 clinical trial. QRxPharma’s second pilot study compared the efﬁ cacy and safety proﬁ le of MoxDuo™IR capsules to equi-analgesic doses of Percocet® in patients experiencing moderate to severe pain following total knee replacement surgery. Patients were treated every four to six hours over a 48-hour period. The study enrolled a total of 44 patients at ﬁ ve US clinical research sites. As with morphine and oxycodone, when compared to equi-analgesic doses of Percocet®, MoxDuo™IR demonstrated greater overall tolerability – enabling doctors and patients to achieve better pain relief while signiﬁ cantly decrease the frequency and severity of side effects. www.qrxpharma.com 5 CEO REVIEW (CONTINUED) All primary study objectives were met comparing: (1) analgesic efﬁ cacy and safety; and (2) a ﬂ exible dosing regimen of MoxDuo™IR against a ﬁ xed low dose (3/2 mg). Patients receiving the ﬂ exible dosing regimen of MoxDuo™IR achieved signiﬁ cantly greater pain relief than those receiving the low dose formulation (p<0.05). Data collected from both pilot studies will provide additional guidance for optimizing the design and implementation of the two pending pivotal Phase 3 trials required for ﬁ ling a New Drug Application (NDA) with the US Food and Drug Administration (FDA). Based on the Company’s July 2008 FDA meeting, ﬁ nal Phase 3 studies for MoxDuo™IR will include a “combination rule” trial in patients experiencing post-surgery (bunionectomy) pain that compares MoxDuo™IR against morphine alone and oxycodone alone, and a low dose MoxDuo™IR controlled study of the effectiveness of a ﬂ exible dose regimen of MoxDuo™IR in patients following total knee replacement. No additional pharmacology, toxicology or long-term clinical safety studies will be required for regulatory submission and market approval. QRxPharma plans to launch MoxDuo™IR in the US marketplace in 2011. The Company is also excited to report the entry of a second MoxDuo™ product into the clinic with the initiation of a Phase 2 comparative proof-of-concept study evaluating the efﬁ cacy and safety of MoxDuo™IV (an intravenous morphine plus oxycodone formulation) against IV morphine for the treatment of moderate to severe post-operative pain. The study involves 40 patients recovering from hip replacement surgery and is being conducted at the Cologne-Merheim Medical Center, a part of Witten/ Herdecke University, and Cologne University Hospital, both in Cologne, Germany. Data from this study will serve as a signiﬁ cant predictor of MoxDuo™IV clinical beneﬁ ts and provide guidance for the design of further clinical trials leading to an Investigational New Drug (IND) submission to the FDA in 2010. In addition, QRxPharma is on track to initiate its ﬁ rst Phase 1 study of MoxDuo™CR, a continuous release Dual-Opioid™, by the end of calendar year 2009. MoxDuo™CR is designed to provide 12 hours of pain relief in patients with moderate to severe pain. This proprietary formulation encompasses not only sustained delivery technology, but also technologies to deter abuse and tampering. Our small molecule development program for neurological disorders continues to move forward with the University of Alabama (Caldwell Labs) under a collaborative research agreement. Preclinical trials, supported in part by the Michael J. Fox Foundation - are presently underway to evaluate QRxPharma’s lead drug candidates for Parkinson’s disease. Business development efforts also continue to proceed with QRxPharma’s Venomics platform to secure strategic relationships for the clinical and commercial development of these venom-derived coagulants and anti-coagulants. The foundation of our success is people and patents. Our progress over this year would not have been possible without the exceptional efforts of our management team and staff. I am very grateful for their important contributions. We are executing well on all three cornerstones of our business, including clinical, ﬁ nancial and business development, while remaining conservative with resources. Further, our patent portfolio is enriched this year with several key submissions that expand our opportunities with our Dual-Opioid™ platform to extend exclusivity beyond 2029, as well as other key patent applications surrounding the growing value of our neurodegenerative disease opportunities. QRxPharma has had a very successful year. We’ve completed planned trials ahead of schedule, exceeded expectations in terms of study results, and clearly demonstrated the value of our Dual-Opioid™ platform. We believe the MoxDuo™ product portfolio, including immediate release, controlled release and intravenous formulations, will offer a broader selection of analgesic options to pain specialists and signiﬁ cantly improve patient care - providing equal or better analgesia with fewer and/or less intense side effects than current standards of care. I look forward to an exciting year ahead. John W Holaday, PhD Managing Director and Chief Executive Ofﬁ cer 6 QRxPharma Annual Report 2009 WHAT KEY OPINION LEADERS ARE SAYING: ON CURRENT PAIN THERAPIES... “Pain is poorly controlled.” Pain Specialist - Atlanta “ We need a better tolerated product. Less side effects.” Orthopedic Surgeon - Los Angeles “ Side effects. Constipation. The patient is spaced out, drowsy, itching. Most are not happy or comfortable.” Pain Specialist - Los Angeles ON MOXDUOTM... “ Fascinating. I’ve never seen a combination of two narcotics. I’ve seen it combined with anti-inﬂ ammatories. This is great. Requires a smaller amount and it’s symbiotic.” Orthopedic Surgeon - Atlanta “ It has real advantages. The same pain relief but less side effects. Increases safety of the patient.” Pain Specialist - Atlanta “ I like it. A reduction in all the side effects [we mentioned]. Low potential for sedation. Absolutely key for the elderly. No increase in side effects if you increase the dose. It’s better.” Podiatrist - Los Angeles Disclaimer: This KOL research was conducted after results of the 021 study. Product proﬁ le presented the 50% - 75% reductions in AEs seen in the 021 study. www.qrxpharma.com 7 DIRECTORS’ REPORT Your directors present their report on the consolidated entity (referred to hereafter as the Group) consisting of QRxPharma Limited (referred to hereafter as the Company) and the entities it controlled at the end of, or during, the year ended 30 June 2009. DIRECTORS The following persons were directors of QRxPharma Limited during the whole of the ﬁ nancial year and up to the date of this report: Peter C Farrell R Peter Campbell Gary W Pace Michael A Quinn John W Holaday PRINCIPAL ACTIVITIES During the year the principal continuing activities of the Group consisted of the development and commercialisation of biopharmaceutical products based on largely Australian research, targeting the US market. DIVIDENDS - QRXPHARMA LIMITED No dividends were paid or declared since the start of the ﬁ nancial year (2008: $nil). REVIEW OF OPERATIONS The Group has made a loss from ordinary activities after income tax for the year of $13.5 million (2008: loss of $36.6 million). The loss was in line with the expectations of the Board of Directors and resulted from fulﬁ lling research and development activities in the progression of the Company’s clinical pipeline candidates and preclinical stage drugs. The results were favourably impacted by foreign exchange gains of $5.3 million (2008: $2.6 million loss) arising from holding cash reserves primarily in US dollars. In addition, the prior year loss included an impairment charge relating to the Torsin IP of $14.6 million. (2009: $nil) The Company continues to closely monitor its cash position as it progresses the MoxDuoTM Phase 3 development programme, and retains $17.8 million in cash reserves at 30 June 2009. Further information on the operations and ﬁ nancial position of the Group and its business strategies and prospects is set out on pages 5 to 6 of this annual report. 8 QRxPharma Annual Report 2009 LOSS PER SHARE (a) Basic loss per share Loss from continuing operations attributable to the ordinary equity holders of the company (b) Diluted loss per share Loss from continuing operations attributable to the ordinary equity holders of the company 2009 Cents 2008 Cents (18.0) (48.8) (18.0) (48.8) SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS No signiﬁ cant changes in the state of affairs of the Group were noted during the ﬁ nancial year that have not otherwise been disclosed in this report or in the ﬁ nancial statements. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR No matter or circumstance has arisen since 30 June 2009 that has signiﬁ cantly affected, or may signiﬁ cantly affect: (a) the Group’s operations in future ﬁ nancial years, or (b) the results of those operations in future ﬁ nancial years, or (c) the Group’s state of affairs in future ﬁ nancial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS Information on likely developments in the operations of the Group and the expected results of operations have not been included in this annual report because the directors believe it would be likely to result in unreasonable prejudice to the Group. ENVIRONMENTAL REGULATION There are no particular and signiﬁ cant environmental regulations under a law of the Commonwealth or of a State or Territory of Australia affecting the Group. www.qrxpharma.com 9 DIRECTORS’ REPORT (CONTINUED) INFORMATION ON DIRECTORS Peter C Farrell PhD, ScD, AM. Non Executive Chairman. Experience and expertise Dr Farrell has over 30 years executive and consulting experience in the medical device industry. Dr Farrell is a Fellow of several professional bodies, including the Australian Institutes of Management and Company Directors. He is the Vice Chair of the Executive Council of the Division of Sleep Medicine at Harvard Medical School, he serves on the Board of Trustees of University of California, San Diego (UCSD) and is on the Health Sciences Advisory Board of the Dean of Medicine and the Advisory Board of UCSD’s Jacobs School of Engineering. Dr Farrell is also a Visiting Professor at the University of New South Wales Graduate School for Biomedical Engineering, of which he was founding Director in 1978. In 1994, the Australian Institution of Engineers awarded Dr Farrell the honour of National Professional Engineer of the Year and, in 1997, he received the David Dewhurst Award (Biomedical Engineer of the Year) from the same institution. He was also named San Diego Entrepreneur of the Year for Health Sciences in 1998, Australian Entrepreneur of the Year for 2001, and US National Entrepreneur of the Year for Health Sciences for 2005. Dr Farrell was admitted to membership of the Order of Australia in 2004. He holds Bachelors and Masters degrees in chemical engineering from the University of Sydney and the Massachusetts Institute of Technology (MIT) respectively, a PhD in bioengineering from the University of Washington in Seattle, and a ScD from the University of New South Wales for research related to dialysis and renal medicine. Other current directorships Dr Farrell is the Chairman of ResMed Inc (ASX and NYSE: RMD), which he founded in 1989. He is also a Director of Pharmaxis Limited (ASX: PXS) (director since March 2006) and Nuvasive Inc (NASDAQ: NUVA) (director since January 2005) serving on the nominations and governance committees. Former directorships in last 3 years Nil. Special responsibilities Chairman of the Board. Chairman of nominations committee. Chairman of remuneration committee. Interests in shares and options 1,380,540 ordinary shares and 604,089 options over ordinary shares. John W Holaday PhD. Managing Director and Chief Executive Ofﬁ cer. Experience and expertise Dr Holaday brings four decades of experience as a scientist, founder and executive manager of biotechnology and biopharmaceutical companies, and as a banker. Dr Holaday has extensive experience in building publicly traded specialty pharmaceutical companies. In 1992, Dr Holaday was a co¬-founder of EntreMed Inc (NASDAQ: ENMD), of which he served as President, Chief Executive Ofﬁcer, and Chairman of the Board. In 1988, Dr Holaday also co-founded Medicis Pharmaceutical Corporation (NYSE: MRX), where he served as a Board Director, as Scientiﬁc Director, and as Senior Vice President for Research and Development. Dr Holaday also founded MaxCyte Inc, a cell therapy company, where he served as Chairman until retiring in 2003. He founded HarVest Bank of Maryland in 2004, served as Chairman until 2006 and remains on the Board. Dr Holaday was founder, Chairman and Chief Executive Ofﬁ cer of CNSCo, Inc, a private company which was acquired by the Group on 26 April 2007. 10 QRxPharma Annual Report 2009 Dr Holaday currently serves as an ofﬁ cer and Fellow in several biomedical societies, has authored and edited over 200 scientiﬁ c articles in journals and books, and holds over 60 patents. He served as Chairman of the Maryland BioAlliance, was a Judge for the Ernst and Young Entrepreneur of the Year Award (2003 to 2008) and was named to the Ernst and Young Entrepreneur of the Year Hall of Fame in 2006. Dr. Holaday served as a Captain, US Army, until 1972, and as managing founder of the Neuropharmacology Branch at the Walter Reed Army Institute of Research until 1988. Dr Holaday was formerly an Associate Professor of Anaesthesiology and Critical Care Medicine and Senior Lecturer in Medicine at The Johns Hopkins University of Medicine and remains as Adjunct Professor of Psychiatry at the Uniformed Services University School of Medicine, Bethesda, Maryland. Dr Holaday obtained his Doctorate in Pharmacology at the University of California, San Francisco in 1977. Other current directorships Nil Former directorships in last 3 years Nil Special responsibilities Managing Director and Chief Executive Ofﬁ cer. President of QRxPharma, Inc. Member of remuneration committee. Interests in shares and options 7,543,000 ordinary shares (including ordinary shares held by John Holaday and John Holaday as trustee for the John Holaday Foundation) and 805,452 options over ordinary shares. R Peter Campbell FCA, FTIA. Non Executive Director. Experience and expertise Mr Campbell is a Chartered Accountant and company Director with more than 35 years of business consulting and advisory experience, and operates his own chartered accountancy practice based in Sydney. He is a fellow of both the Institute of Chartered Accountants in Australia and the Taxation Institute of Australia and is a registered company auditor. Other current directorships Director and Chair of the audit committees of Silex Systems Limited (ASX: SLX) (director since July 1996), Sonic Healthcare Limited (ASX: SHL) (director since January 1993), and Admerex Limited (ASX: ADL) (director since January 2007). Former directorships in last 3 years Non-executive director of SciGen Limited (ASX: SIE) from August 1999 to February 2005. Special responsibilities Chairman of audit and risk committee. Member of nominations committee. Interests in shares and options 85,000 ordinary shares and 241,635 options over ordinary shares. www.qrxpharma.com 11 DIRECTORS’ REPORT (CONTINUED) Gary W Pace PhD. Non-Executive Director and Consultant. Experience and expertise Dr Pace is a co founder of QRxPharma Limited and continues to work with the Group. Dr Pace is a seasoned biopharmaceutical executive with over 30 years of experience in the industry. He has co founded a number of early stage life science companies where he built products from the laboratory to commercialisation. Dr Pace is an elected Fellow of the Australian Academy of Technological Sciences and Engineering, author and co author of over 50 research papers, reviews and patents. In 2003, Dr Pace was awarded a Centenary Medal by the Australian Government for service to Australian society in research and development. Dr Pace holds a Bachelor of Science (Honours) from the University of New South Wales and a PhD from Massachusetts Institute of Technology, where he was a Fulbright Scholar. Other current directorships Director of ResMed Inc (ASX and NYSE: RMD) (since 1995), Transition Therapeutics Inc (TSX and NASDAQ: TTH;) (since 2002), Celsion Corp (AMX: CLN) (since 2002) and Peplin Limited (ASX: PEP) (since June 2004). Former directorships in last 3 years Resonance Health Limited (ASX: RHT) (April 2006 to August 2007) Special responsibilities Nil Interests in shares and options 3,230,083 ordinary shares and 402,726 options over ordinary shares. Michael A Quinn MBA. Non-Executive Director. Experience and expertise Mr Quinn is managing partner of Innovation Capital and has more than 30 years executive experience in technology companies in Australia, the US and the UK. Mr Quinn holds a Bachelor of Science, a Bachelor of Economics, and an MBA from Harvard. Mr Quinn is Chairman of the New South Wales Entrepreneurship Centre Limited, a not-for-proﬁ t organisation that trains entrepreneurs. In 1983 he co-founded Memtec Limited (NYSE and ASX), and has also served as Chief Executive Ofﬁ cer of an ASX listed manufacturer and distributor of health care and scientiﬁ c products. Mr Quinn has been a Director of several listed companies in Australia, the US and the UK and numerous unlisted life science and other technology based companies. Other current directorships Director of ResMed Inc (ASX and NYSE: RMD) (director since 1992) where he chairs the audit committee and Chairman of CAP XX Limited (AIM: CPX) (director since November 1998). Former directorships in last 3 years Nil. Special responsibilities Member of nominations committee. Member of audit and risk committee. Member of remuneration committee. Interests in shares and options 8,297,307 ordinary shares (including ordinary shares held by Innovation Capital Limited, Innovation Capital LLC and Kaylara Pty Limited). 402,726 options over ordinary shares (including options held by Innovation Capital Limited and Innovation Capital LLC). 12 QRxPharma Annual Report 2009 COMPANY SECRETARY Chris J Campbell holds a Bachelor of Commerce and is an Associate of the Institute of Chartered Accountants in Australia. He also holds the position of Chief Financial Ofﬁ cer of QRxPharma Limited. He has over 25 years experience with major accounting ﬁ rms and as CFO of publicly traded companies. MEETINGS OF DIRECTORS The numbers of meetings of the company’s board of directors and of each board committee held during the year ended 30 June 2009, and the numbers of meetings attended by each director were: Full meetings of directors Meetings of non-executive directors Meetings of committees Audit and risk Nominations Remuneration A 4 4 4 4 4 B 4 4 4 4 4 A 4 4 4 4 B 4 4 4 4 A ** ** 6 ** 6 B 6 6 A 1 ** 1 ** 1 B 1 1 1 A 4 4 ** ** 4 B 4 4 4 Peter C Farrell John W Holaday* R Peter Campbell Gary W Pace Michael A Quinn A = Number of meetings attended B = Number of meetings held during the time the director held ofﬁ ce or was a member of the committee during the year * = Not a non executive director ** = Not a member of the relevant committee REMUNERATION REPORT The remuneration report is set out under the following main headings: A Principles used to determine the nature and amount of remuneration B Details of remuneration C Service agreements D Share-based compensation E Additional information. www.qrxpharma.com 13 DIRECTORS’ REPORT (CONTINUED) The information provided in the remuneration report has been audited as required by section 308 (3C) of the Corporations Act 2001. A Principles used to determine the nature and amount of remuneration As a company building a speciality pharmaceutical business to compete internationally, QRxPharma Limited requires a board and senior management team that have both the technical capability and relevant business experience to execute the Group’s strategy. The objective of the Group’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market practice for delivery of reward. The Board ensures that executive reward satisﬁ es the following key criteria for good reward governance practices: (cid:129) competitiveness and reasonableness (cid:129) acceptability to shareholders (cid:129) transparency The Group has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the organisation. Alignment to shareholders’ interests: (cid:129) focuses on sustained growth in share price as well as focusing the executive on key non ﬁ nancial drivers of value (cid:129) attracts and retains high calibre executives. Alignment to program participants’ interests: (cid:129) (cid:129) rewards capability and experience reﬂ ects competitive reward for contribution to growth in shareholder wealth (cid:129) provides recognition for contribution. The framework provides a blend of ﬁ xed pay, and short and long term incentives. The board has established a remuneration committee which provides advice on remuneration and incentive policies and practices and speciﬁ c recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non executive directors. The Corporate Governance Statement provides further information on the role of this committee. Non-executive directors Fees and payments to non executive directors reﬂ ect the demands which are made on, and the responsibilities of, the directors. The fees were set on 27 April 2007 ahead of the Company completing its initial public offering. There is an annual base fee payable six months in arrears, currently $60,000 for the Chairman and $40,000 for the other non executive directors (which also covers serving on a committee) and long term incentives through participation in the QRxPharma Limited Employee Share Option Plan. Non executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum currently stands at $400,000 per annum and was approved by shareholders at the Annual General Meeting on 24 April 2007. Executive pay The executive pay and reward framework has three components: (cid:129) base pay and beneﬁ ts, including superannuation (cid:129) short term performance incentives, and (cid:129) long term incentives through participation in the QRxPharma Limited Employee Share Option Plan. 14 QRxPharma Annual Report 2009 The combination of these comprises the executive’s total remuneration. Base pay Structured as a total employment package which may be delivered as a combination of cash and prescribed non ﬁ nancial beneﬁ ts at the executives’ discretion. Executives are offered a competitive base pay that comprises the ﬁ xed component of pay and rewards. Base pay for executives is reviewed annually and every two years a market survey is conducted to ensure the executive’s pay is competitive with the market. An executive’s pay is also reviewed on promotion. There are no guaranteed base pay increases included in any executives’ contracts. Beneﬁ ts Executives receive beneﬁ ts including health insurance and tax advisory services. Superannuation The Group does not maintain a Group superannuation plan. The Group makes ﬁ xed percentage contributions for Australian resident employees to complying third party superannuation funds and where requested for US resident employees to complying pension plans. Short-term incentives A variable cash incentive component is payable annually dependant upon achievement of performance targets. Individual performance targets are set by reference to components of the Group’s business plan for which the individual executive is responsible. Long-term incentives Long-term incentives are provided to certain employees through participation in the QRxPharma Limited Employee Share Option Plan. B Details of remuneration Amounts of remuneration Details of the remuneration of the directors and the key management personnel (as deﬁ ned in AASB 124 Related Party Disclosures) of QRxPharma Limited and the Group are set out in the following tables. The key management personnel of QRxPharma Limited and the Group includes the directors as per pages 10 to 12 and the following executive ofﬁ cers who have authority and responsibility for planning, directing and controlling the activities of the Group, who are also the highest paid executives of the entity: (cid:129) Warren C Stern, PhD – Executive Vice President, Drug Development (cid:129) Chris J Campbell – Chief Financial Ofﬁ cer and Company Secretary (cid:129) Joseph J Berry – Vice President Operations (cid:129) Philip J Magistro – Vice President Commercial Operations (cid:129) Patricia T Richards, MD – Chief Medical Ofﬁ cer www.qrxpharma.com 15 DIRECTORS’ REPORT (CONTINUED) Key management personnel and other executives of QRxPharma Limited and the Group are the same Short-term employee beneﬁ ts Post-employment beneﬁ ts Non- monetary Super- Retirement service Long- term Share- based beneﬁ ts payments Long 2009 Name Non executive directors Peter C Farrell R Peter Campbell Michael A Quinn Gary W Pace Cash salary and fees $ Cash bonus $ 60,000 40,000 40,000 40,000 - - - - - Sub-total non-executive directors 180,000 Executive directors John W Holaday 404,733 132,511 Other key management personnel (Group) Warren C Stern ^ Chris J Campbell ^ Joseph J Berry ^ Philip J Magistro ^ 311,677 121,674 204,644 307,257 311,677 57,881 91,255 91,255 Patricia T Richards ^ 343,355 101,395 Total key management personnel compensation (Group) 2,063,343 595,971 beneﬁ ts Other annuation beneﬁ ts leave Options $ $ $ $ $ $ Total $ - - - - - - - - - - - - - - - - - - - - - - - - 3,600 - - 3,600 - - 23,626 - - - - 27,226 - - - - - - - - - - - - - - - - - - - - - - - 141,155 56,462 94,104 125,088 201,155 100,062 134,104 165,088 416,809 600,409 250,176 787,420 252,287 104,416 30,794 40,495 107,178 685,638 390,567 429,306 443,427 551,928 - 1,202,155 3,888,695 ^ denotes one of the highest paid executives of the company, as required to be disclosed under the Corporations Act 2001. Gary Pace was paid $131,532 for consulting services provided to the Company during the year. 16 QRxPharma Annual Report 2009 Key management personnel and other executives of QRxPharma Limited and the Group were the same in 2008 Short-term employee beneﬁ ts Non- Post-employment beneﬁ ts Long- term Share- based beneﬁ ts payments Long Cash salary Cash monetary Super- Retirement service and fees bonus beneﬁ ts Other annuation beneﬁ ts leave Options $ $ $ $ $ $ $ $ Total $ 2008 Name Non executive directors Peter C Farrell R Peter Campbell Michael A Quinn Gary W Pace 60,000 40,000 40,000 59,765 - - - - - Sub-total non-executive directors 199,765 Executive directors John W Holaday 350,000 146,250 Other key management personnel (Group) Douglas A Saltel 208,788 56,744 (resigned 7 March 2008) Warren C Stern ^ Chris J Campbell ^ Joseph J Berry ^ (appointed 12 November 2007) 227,665 197,248 150,550 90,879 75,000 70,458 Philip J Magistro ^ 147,684 73,528 (appointed 26 November 2007) Patricia T Richards ^ 99,533 29,860 (appointed 18 February 2008) Total key management personnel compensation (Group) Other Group executives Terrence F Sayer (Company Secretary) 1,581,233 542,719 (resigned 6 February 2008) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,600 - - 3,600 - - - 24,502 - - - 28,102 - - - - - - - - - - - - - - - - - - - - - - - - - - - 296,083 118,433 197,388 278,241 356,083 162,033 237,388 338,006 890,145 1,093,510 556,482 1,052,732 - 265,532 556,482 228,017 32,598 875,026 524,767 253,606 43,463 264,675 54,026 183,419 - 2,361,213 4,513,267 - - - ^ denotes one of the highest paid executives of the Group, as required to be disclosed under the Corporations Act 2001. Gary Pace was paid $239,443 for consulting services provided to the Company during the year, after ceasing as an employee on 30 September 2007. Terrence F Sayer was paid $53,120 for Accounting and Ofﬁ ce Services and Company Secretarial duties provided to the Company during the year. www.qrxpharma.com 17 DIRECTORS’ REPORT (CONTINUED) Key management personnel and other executives of the Group The relative proportions of remuneration that are linked to performance and those that are ﬁ xed are as follows: Name 2009 2008 2009 2008 2009 2008 Fixed remuneration At risk - STI At risk - LTI Directors of QRxPharma Limited John W Holaday Peter C Farrell R Peter Campbell Michael A Quinn Gary W Pace 83% 100% 100% 100% 100% Other key management personnel of the Group Douglas A Saltel (resigned 7 March 2008) Warren C Stern Chris J Campbell Joseph J Berry Philip J Magistro Patricia T Richards - 82% 85% 79% 79% 82% C Service agreements 86% 100% 100% 100% 100% 79% 90% 86% 72% 72% 84% 17% - - - - - 18% 15% 21% 21% 18% 14% - - - - 21% 10% 14% 28% 28% 16% - - - - - - - - - - - - - - - - - - - - - - On appointment to the board, all non executive directors enter into a service agreement with the company in the form of a letter of appointment. The letter summarises the board policies and terms, including compensation, relevant to the ofﬁ ce of director. Remuneration and other terms of employment for the Managing Director and Chief Executive Ofﬁ cer and the other Key Management personnel are also formalised in service agreements. Each of these agreements provide for the provision of performance related cash bonuses, other beneﬁ ts including health insurance and tax advisory services, and participation, when eligible, in the QRxPharma Limited Employee Share Option Plan. Other major provisions of the agreements relating to remuneration are set out below. John W Holaday, Managing Director and Chief Executive Ofﬁ cer (cid:129) Term of agreement – 3 years (with annual extension) renegotiated from 20 February 2009. (cid:129) Base salary, inclusive of retirement or pension contribution, for the year ended 30 June 2009 of US$300,000, to be reviewed annually by the remuneration committee. (cid:129) Payment of a termination beneﬁ t on early termination by the Company, other than for gross misconduct, equal to the annual base salary and a bonus component of US$130,000. Warren C Stern, Executive Vice President Drug Development (cid:129) Term of agreement – 3 years (with annual extension) commencing 14 April 2007. (cid:129) Base salary, inclusive of retirement or pension contribution, for the year ended 30 June 2009 of US$262,500 to be reviewed annually by the remuneration committee. (cid:129) Payment of a termination beneﬁ t on early termination by the Company, other than for gross misconduct, equal to the annual base salary and a bonus component of US$100,000. 18 QRxPharma Annual Report 2009 Joseph J Berry, Vice President Operations (cid:129) Term of agreement – ongoing, commencing 12 November 2007. (cid:129) Base salary, inclusive of retirement or pension contribution, for the year ended 30 June 2009 of US$236,250, to be reviewed annually by the remuneration committee. Philip J Magistro, Vice President Commercial Operations (cid:129) Term of agreement – ongoing commencing 26 November 2007. (cid:129) Base salary, inclusive of retirement or pension contribution, for the year ended 30 June 2009 of US$236,250, to be reviewed annually by the remuneration committee. Patricia T Richards, Chief Medical Ofﬁ cer (cid:129) Term of agreement – ongoing, commencing 18 February 2008. (cid:129) Base salary, inclusive of retirement or pension contribution, for the year ended 30 June 2009 of US$262,500, to be reviewed annually by the remuneration committee. Chris J Campbell, Chief Financial Ofﬁ cer (cid:129) Term of agreement – ongoing, commencing 1 March 2007. (cid:129) Base salary, inclusive of superannuation, for the year ended 30 June 2009 of $225,750, to be reviewed annually by the remuneration committee. (cid:129) Payment of a termination beneﬁ t on early termination without notice by the Company, other than for gross misconduct, equal to 3 months salary. Gary W Pace, Non-Executive Director, Consultant (cid:129) Term of agreement – 1 year, renegotiated from 25 May 2009. (cid:129) Base consulting fee for the contract year ending 25 May 2009 of US$100,000 (pro rata). (cid:129) No termination beneﬁ t payable on early termination by the Company. D Share-based compensation Options Options over shares in QRxPharma Limited are granted under the QRxPharma Limited Employee Share Option Plan (ESOP). The ESOP is designed to provide long term incentives for executives to deliver long term shareholder returns. The maximum number of options available to be issued under the ESOP is 10% of diluted ordinary share capital in the Company as at the date of issue of the relevant options. All employees and directors are eligible to participate in the ESOP, but do so at the invitation of the Remuneration Committee. The term of option issues are determined by the Remuneration Committee. Options issued up to 31 December 2008 were generally granted for no consideration and generally vest annually over 3 years in equal proportions with the initial vesting on the ﬁ rst anniversary of the date of grant. Options issued from 1 January 2009 generally vest over 3 years with the initial vesting on the ﬁ rst anniversary of the date of the grant and subsequent vestings in 8 equal tranches on the ﬁ rst day of each calendar quarter over the following 2 years. The exercise price is set by the Remuneration Committee but being not less than the market price of ordinary shares immediately prior to the grant date of the options. Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share. www.qrxpharma.com 19 DIRECTORS’ REPORT (CONTINUED) The terms and conditions of each grant of options affecting remuneration in the previous, this or future reporting periods are as follows: Grant date Vested and exercisable Expiry date Exercise price Value per option at grant date 31 March 2007 14 April 2007 25 May 2007 25 May 2007 1 September 2007 1 October 2007 9 October 2007 1 January 2008 1 April 2008 1 April 2008 1 October 2008 4 November 2008 1 January 2009 1 January 2009 Over 3 years Over 3 years Over 3 years Over 3 years Over 3 years Over 3 years Over 3 years Over 3 years Over 3 years Over 3 years Over 3 years Over 6 months Over 6 months Over 3 years 31 March 2014 14 April 2014 25 May 2014 25 May 2014 1 September 2014 1 October 2014 9 October 2014 1 January 2015 1 April 2015 1 April 2015 1 October 2015 4 November 2015 1 January 2016 1 January 2016 $1.42 $1.00 $1.00 $2.00 $1.70 $1.45 $1.34 $1.11 $1.05 $1.04 $0.60 $0.37 $0.20 $0.20 $1.31 $1.46 $1.46 $1.15 $0.98 $0.83 $0.77 $0.64 $0.60 $0.60 $0.24 $0.07 $0.10 $0.10 The exercise price in respect of an option granted shall be the market price for a share prevailing at the time of grant unless the Board decides otherwise. Options will lapse if they are not exercised before the expiration date or if the option holder leaves the employment of the Group. Details of options over ordinary shares in the company provided as remuneration to each director of QRxPharma Limited and each of the key management personnel of the parent entity and the Group are set out below. When exercisable, each option is convertible into one ordinary share of QRxPharma Limited. Further information on the options is set out in note 26 to the ﬁ nancial statements. Name Directors of QRxPharma Limited Peter C Farrell R Peter Campbell Michael A Quinn Gary W Pace John W Holaday Other key management personnel Warren C Stern Chris J Campbell Joseph J Berry Philip J Magistro Patricia T Richards Number of options granted during the year Number of options vested during the year 2009 2008 2009 2008 - - - - - 75,000 75,000 60,000 60,000 60,000 - - - - - - - 150,000 200,000 500,000 201,363 80,545 134,242 134,242 268,484 268,484 134,242 50,000 66,667 166,667 201,363 80,545 134,242 134,242 268,484 268,484 134,242 - - - The assessed fair value at grant date of options granted to the individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables above. Fair values at grant date are independently determined using a binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. 20 QRxPharma Annual Report 2009 The model inputs for options granted during the year ended 30 June 2009 included: (a) Options are granted for no consideration and generally vest over 3 years (see page 19) (b) Exercise price: $0.20 to $0.60 (2008: $1.05 to $1.11) (c) Grant date: 1 October 2008 to 1 January 2009 (2008: 1 January 2008 to 1 April 2008) (d) Expiry date: 4 May 2009 to 1 January 2016 (2008: 1 January 2015 to 1 April 2015) (e) Expected price volatility of the company’s shares: 60% to 80% (2008: 60%) (f) Expected dividend yield: nil% (2008: nil%) (g) Risk free interest rate: 5.18% (2008: 6.25%). Shares provided on exercise of remuneration options No ordinary shares in the company have been provided as a result of the exercise of remuneration options to any director of QRxPharma Limited or other key management personnel of the Group for the ﬁ nancial year ended 30 June 2009 or 30 June 2008. Share-based compensation: Options A B C D E Remuneration consisting of options Value at grant date $ Value at exercise date $ Value at lapse date $ Total of columns B-D $ 70.2% 58.5% 70.2% 31.8% 75.8% 36.8% 26.7% 7.2% 9.1% 19.4% - - - - - 7,443 7,443 5,954 5,954 5,954 - - - - - - - - - - - - - - - - - - - - - - - - - 7,443 7,443 5,954 5,954 5,954 Name Peter C Farrell R Peter Campbell Michael A Quinn John W Holaday Gary W Pace Warren C Stern Chris J Campbell Joseph Berry Philip Magistro Patricia Richards A = The percentage of the value of remuneration consisting of options, based on the value of options expenses during the current year. B = The value at grant date calculated in accordance with AASB 2 Share-based Payment of options granted during the year as part of remuneration. C = The value at exercise date of options that were granted as part of remuneration and were exercised during the year, being the intrinsic value of the options at that date. D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the year. www.qrxpharma.com 21 DIRECTORS’ REPORT (CONTINUED) Shares under option Unissued ordinary shares of QRxPharma Limited under option at the date of this report are as follows: Date options granted Expiry date Issue price of shares Number under option 31 March 2007 14 April 2007 25 May 2007 25 May 2007 25 May 2007 1 September 2007 1 October 2007 9 October 2007 1 January 2008 1 April 2008 1 April 2008 1 October 2008 4 November 2008 1 January 2009 31 March 2014 14 April 2014 25 May 2014 25 May 2014 25 May 2010 1 September 2014 1 October 2014 9 October 2014 1 January 2015 1 April 2015 1 April 2015 1 October 2015 4 November 2015 1 January 2016 $1.42 $1.00 $1.00 $2.00 $2.20 $1.70 $1.45 $1.34 $1.11 $1.05 $1.04 $0.60 $0.37 $0.20 402,726 2,013,630 552,726 1,448,450 322,181 50,000 75,000 50,000 350,000 600,000 75,000 50,000 100,000 710,000 6,799,713 Shares issued on the exercise of options No ordinary shares have been issued during the year ended 30 June 2009 on the exercise of options granted under the QRxPharma Limited Employee Option Plan INDEMNIFICATION The Company has entered into Deeds of Access, Indemnity and Insurance with each of the directors and executive ofﬁ cers of the Group against all liabilities to another person (other then the Company or a related body corporate) that may arise from their position as directors and executive ofﬁ cers of the Company and its controlled entities, except where the liability arises out of conduct involving a lack of good faith. The agreement stipulates that the Company will meet the amount of any such liabilities, including costs and expenses. INSURANCE OF OFFICERS The directors have not included details of the nature of liabilities covered nor the amount of the premium paid in respect to Directors and Ofﬁ cers liability insurance contracts, as such disclosure is prohibited under the terms of the contracts. PROCEEDINGS ON BEHALF OF THE COMPANY No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the company, or to intervene in any proceedings to which the company is a party, for the purpose of taking responsibility on behalf of the company for all or part of those proceedings. No proceedings have been brought or intervened in on behalf of the company with leave of the Court under section 237 of the Corporations Act 2001. 22 QRxPharma Annual Report 2009 NON-AUDIT SERVICES The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the Group are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non audit services provided during the year are set out below. The board of directors has considered the position and, in accordance with advice received from the audit committee, is satisﬁ ed that the provision of the non audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisﬁ ed that the provision of non audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons: (cid:129) all non audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor (cid:129) none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants. 1. Audit services PricewaterhouseCoopers Australian ﬁ rm: Audit and review of ﬁ nancial reports and other audit work under the Corporations Act 2001 Total remuneration for audit services 2. Non audit services PricewaterhouseCoopers Australian ﬁ rm: Taxation services Related practices of PricewaterhouseCoopers Australian ﬁ rm Total remuneration for non-audit services AUDITOR’S INDEPENDENCE DECLARATION Consolidated 2009 2008 129,250 129,250 88,885 66,218 155,103 86,000 86,000 99,270 11,554 110,824 A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 24. ROUNDING OF AMOUNTS The company is a kind referred to in Class order 98/100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the ﬁ nancial report. Amounts in the directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. AUDITOR PricewaterhouseCoopers continues in ofﬁ ce in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of directors. Peter C Farrell Director Sydney 21 August 2009 www.qrxpharma.com 23 AUDITORS’ INDEPENDENCE DECLARATION 24 QRxPharma Annual Report 2009 CORPORATE GOVERNANCE STATEMENT QRxPharma Limited (the Company) and the board are committed to achieving and demonstrating the highest standards of corporate governance. The board continues to review the framework and practices to ensure they meet the interests of shareholders. The Company and its controlled entities together are referred to as the Group in this statement. A description of the Group’s main corporate governance practices is set out below. All these practices, unless otherwise stated, were in place for the entire year. They comply with the August 2007 ASX Principles of Good Corporate Governance and Best Practice Recommendations. PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT The relationship between the board and senior management is critical to the Group’s long term success. The directors are responsible to the shareholders for the performance of the Group in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is properly managed. The responsibilities of the board include: (cid:129) overseeing the business and strategic direction of the Group in order to maximise performance and generate appropriate levels of shareholder return (cid:129) ensuring that management establishes and follows an appropriate system of internal controls, risk management and legal compliance (cid:129) reviewing the performance and implementation of corporate strategies by senior management and ensuring senior management have the necessary resources to do so (cid:129) approving and supervising signiﬁ cant capital expenditure, capital management, acquisitions and divestments Day to day management of the Group’s affairs and the implementation of the corporate strategy and policy initiatives are formally delegated by the board to the Chief Executive Ofﬁ cer and senior executives as set out in the Group’s delegations policy. These delegations are reviewed on an annual basis. A performance assessment for senior executives last took place in July 2009 during the remuneration committee’s annual assessment of performance bonuses. To help make this assessment, the committee receives detailed reports on performance from management. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE The board operates in accordance with the broad principles set out in its charter which is available from the corporate governance information section of the company website at www. qrxpharma.com. The charter details the board’s composition and responsibilities. Board composition The charter states: (cid:129) the board is committed to ensuring that there will be a least ﬁ ve directors of whom a majority will be non executive directors. Non-executive directors bring a fresh perspective to the board’s consideration of strategic, risk and performance matters and are best placed to exercise independent judgement and review and constructively challenge the performance of management (cid:129) where possible the non executive directors be independent. This is in recognition of the importance of independent views and the board’s role in supervising the activities of management and independent judgement in board decision making (cid:129) the board is also committed to ensuring that its members have a broad range of skills, experience and expertise. This will assist the board to maximise performance and ensure appropriate levels of shareholder return (cid:129) appointment, performance assessment and, if necessary, removal of the Chairman, Chief Executive Ofﬁ cer, Chief Financial Ofﬁ cer and the Company Secretary (cid:129) the board is required to undertake an annual review of its performance and Charter to ensure that it is operating effectively and in the best interests of the Group (cid:129) approving and monitoring annual budgets and strategic plans The board seeks to ensure that: (cid:129) approving and monitoring ﬁ nancial and other reporting made to shareholders and the ASX under the continuous disclosure regime. (cid:129) at any point in time, its membership represents an appropriate balance between directors with experience and knowledge of the Group and directors with an external or fresh perspective (cid:129) the size of the board is conducive to effective discussion and efﬁ cient decision making. www.qrxpharma.com 25 CORPORATE GOVERNANCE STATEMENT (CONTINUED) Directors’ independence Non executive directors The board has adopted speciﬁ c principles in relation to directors’ independence. These state that to be deemed independent, a director must be a non executive and the board should consider whether the director: (cid:129) is a substantial shareholder of the Company or an ofﬁ cer of, or otherwise associated directly with, a substantial shareholder of the Company (cid:129) is or has been employed in an executive capacity by the Company or any other Group member, within three years before commencing to serve on the board (cid:129) within the last three years has been a principal of a material professional adviser or a material consultant to the Company or any other Group member, or an employee materially associated with the service provided (cid:129) is a material supplier or customer of the Company or any other Group member, or an ofﬁ cer of or otherwise associated directly or indirectly with a material supplier or customer (cid:129) has a material contractual relationship with the company or a controlled entity other than as a director of the Group (cid:129) is free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Group. At present, materiality for these purposes is determined as a relationship or contract where the Company or Group pays in excess of $100,000. Recent thinking on corporate governance has introduced the view that a director’s independence may be perceived to be impacted by lengthy service on the board. To avoid any potential concerns, the board has determined that a director will not be deemed independent if he or she has served on the board of the company for more than ten years. The board assesses independence each year. To enable this process, the directors must provide all information that may be relevant to the assessment. Board members Details of the members of the board, their experience, expertise, qualiﬁ cations, term of ofﬁ ce, relationships affecting their independence and their independent status are set out in the directors’ report under the heading “Information on directors”. At the date of signing the directors’ report, there is one executive director and four non-executive directors. The four non executive directors met four times during the year, in scheduled sessions without the presence of management, to discuss the operation of the board and a range of other matters. Relevant matters arising from these meetings were shared with the full board. Term of ofﬁ ce The Company’s Constitution speciﬁ es that all directors excluding the chief executive ofﬁ cer must retire from ofﬁ ce no later than the third annual general meeting (AGM) following their last election. Chair The Chair is responsible for leading the board, ensuring directors are properly briefed in all matters relevant to their role and responsibilities, facilitating board discussions and managing the board’s relationship with the Group’s senior executives. In accepting the position, the Chair has acknowledged that it will require a signiﬁ cant time commitment and has conﬁ rmed that other positions iwll not hinder his effective performance in the role of the Chair. Chief Executive Ofﬁ cer (CEO) The CEO is responsible for implementing Group strategies and policies. Commitment The number of meetings of the Company’s board of directors and of each board committee held during the year ended 30 June 2009, and the number of meetings attended by each director is disclosed on page 13. The board will meet as frequently as required but must not meet less than four times each year. The commitments of non executive directors are considered by the nomination committee prior to the directors’ appointment to the board of the Company. Independent professional advice Directors and board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice. With the approval of the Chairman this advice will be at the expense of the Company. Avoidance of conﬂ ict of interest In addition to the issue of independence, the directors have a continuing responsibility to avoid conﬂ icts of interest (both real and apparent) between their duty to the Company and their own interests. Directors are required to disclose any actual or potential 26 QRxPharma Annual Report 2009 conﬂ ict of interest on appointment and are required to keep this disclosure up to date. A director that has an actual or potential conﬂ ict must immediately inform the board and remove themselves from any discussions or decision making in relation to the actual or potential conﬂ ict. Performance assessment The board undertakes an annual self assessment of its collective performance, the performance of the Chairman and its committees. The results and any action plans are documented together with speciﬁ c performance goals which are agreed for the coming year. Board committees The board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of complex issues. Current committees of the board are the nominations, remuneration and audit and risk committees. The nominations and audit and risk committees are comprised entirely of non executive directors. Each committee has its own written charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the committee is to operate. All of these charters are reviewed on an annual basis and are available on the Company website. All matters determined by committees are submitted to the full board as recommendations for board decisions. Minutes of committee meetings are tabled at the subsequent board meeting. Additional requirements for speciﬁ c reporting by the committees to the board are addressed in the charter of the individual committees. Nominations committee The nominations committee is currently comprised of Peter C Farrell (Chairman), Michael A Quinn, and R Peter Campbell all non-executive directors. Details of these directors’ attendance at nomination committee meetings are set out in the directors’ report on page 13. The nominations committee operates in accordance with its charter which is available on the Company website. The nominations committee assists the board to discharge its responsibilities with regards to overseeing the composition of the board and competencies of directors together with developing procedures to assess the performance of directors. Further, advise the board on appointment and evaluation of the Managing Director and to develop succession plans for the board, Managing Director and senior management. The main responsibilities of the committee include: (cid:129) reviewing management succession planning for the Company in general but speciﬁ cally in regards to the CEO and other senior management (cid:129) reviewing the appointments and terminations to senior executive positions reporting to the CEO (cid:129) reviewing and making recommendations to the board regarding the appointment of non executive directors, including: (cid:129) periodically assessing the appropriate mix of skills, experience and expertise required on the board and assessing the extent to required which skills are represented on the board (cid:129) establishing processes for identiﬁ cation of suitable candidates for appointment to the board (cid:129) monitoring the length of service of current board members, considering succession planning issues and identifying the likely order of retirement by rotation of non-executive directors (cid:129) establishing processes for the review of the performance of individual non-executive directors, the board and board committees. Whilst the nominations committee may recommend new director candidates, it is the full board that is responsible for the actual appointment of new directors and any candidate appointed must stand for election at the next annual general meeting of the company. The committee’s nomination of existing directors for reappointment is also not automatic and is contingent on their past performance, contribution to the Company and the current and future needs of the board and Company. PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING Code of Conduct Over the past year the board has conducted the affairs of the Company in accordance with principles of good corporate governance and has required that at all times all Group personnel act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and Group policies. The Company is developing a Code of Conduct to guide the board, individual directors and senior management as to the practices necessary to maintain conﬁ dence in the Group’s integrity with key stakeholders and the wider community together with the responsibility and accountability of individuals for reporting and investigating reports of unethical practices. www.qrxpharma.com 27 CORPORATE GOVERNANCE STATEMENT (CONTINUED) The Company maintains a Securities Trading Policy which is available on the company website. All directors, ofﬁ cers and employees are prohibited from dealing in any QRxPharma Limited securities, except while not in possession of unpublished price sensitive information. It is also contrary to the Company’s policy for directors, ofﬁ cers and employees to be engaged in short term trading of the Company’s securities. Directors, ofﬁ cers and employees may only deal in the Company’s securities during a speciﬁed period of 45 days after the release of the Company’s results or after the AGM. Directors must obtain the approval of the Chairman and employees the approval of the Company Secretary prior to dealing in the Company’s securities outside those periods. PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING In fulﬁ lling its responsibilities, the audit committee: (cid:129) receives regular reports from management and external auditors (cid:129) meets with the external auditors at least twice a year, or more frequently if necessary (cid:129) reviews any signiﬁ cant disagreements between the auditors and management, irrespective of whether they have been resolved (cid:129) provides the external auditors with a clear line of direct communication at any time to the audit committee. The audit committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. Audit and risk committee External auditors The audit and risk committee is currently comprised of R Peter Campbell (Chairman) and Michael A Quinn, both non executive directors. Details of these directors’ qualiﬁ cations and attendance at audit committee meetings are set out in the directors’ report on pages 10 - 13. The audit committee has appropriate ﬁ nancial expertise and all members are ﬁ nancially literate and have an appropriate understanding of the industry in which the Group operates. The Company and audit committee policy is to appoint external auditors who clearly demonstrate quality and independence. PricewaterhouseCoopers is the incumbent external auditor. It is PricewaterhouseCoopers policy to rotate audit engagement partners on listed companies at least every ﬁ ve years. An analysis of fees paid to the external auditors, including a break down of fees for non audit services, is provided in the directors’ report and in note 19 to the ﬁ nancial statements. It is the policy of the external auditors to provide an annual declaration of their independence to the audit committee. The audit committee operates in accordance with a charter which is available on the Company website. The audit and risk committee assist the board to discharge its responsibilities relating to the effectiveness of the control environment and risk management framework in the areas of operational and balance sheet risk, legal/regulatory compliance and ﬁ nancial reporting, together with the effectiveness and independence of the external audit process. The external auditor will attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the annual report. PRINCIPLES 5 AND 6: MAKE TIMELY AND BALANCED DISCLOSURES AND RESPECT THE RIGHTS OF SHAREHOLDERS The main responsibilities of the committee include: Continuous disclosure and shareholder communication (cid:129) overseeing the Company’s relationship with the external auditor (including forming a policy on the provision of non audit services and the rotation of external audit personnel on a regular basis) and the external audit function in general. This includes recommending to the board the appointment, removal and remuneration of the external auditors, and reviewing the terms of their engagement, the scope and quality of the audit and assess performance (cid:129) overseeing the adequacy of the control processes in place in relation to the preparation of ﬁ nancial statements and reports (cid:129) overseeing the adequacy of the Company’s ﬁ nancial controls and systems (cid:129) overseeing the process of identiﬁ cation and management of business, ﬁ nancial and commercial risks. In fulﬁ lling its responsibilities on continuous disclosure of any information concerning the Group that a reasonable person would expect to have a material effect on the price of the Company’s securities the Company is committed to: (cid:129) ensuring that shareholders and the ﬁ nancial markets are provided with timely disclosure about its activities (cid:129) fully complying with continuous disclosure obligations contained in applicable ASX listing rules and the Corporations Act (cid:129) ensuring that all investors have equal and timely access to material information concerning the Group. The Company has detailed this commitment in a Shareholder Communication Policy which is available on the Company website. 28 QRxPharma Annual Report 2009 recommendations on remuneration packages and other terms of employment for senior executives and directors. The main responsibilities of the committee include: (cid:129) assisting the board in setting the executive remuneration policy inclusive of the operation of the Company’s employee share option plan (cid:129) making recommendations to the board for reviewing and approving the remuneration of executive directors (cid:129) reviewing and approving the remuneration of senior executives as deﬁ ned by the board from time to time. Each member of the senior executive team signs a formal employment contract at the time of their appointment covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. Further information on directors’ and executives’ remuneration is set out in the directors’ report under the heading ‘’Remuneration Report’’. The Company Secretary has been nominated as the person responsible for communications with the ASX. This role includes responsibility for ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules and overseeing and co ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public. The Company website provides general information and reports on the Group, inclusive of ASX announcements, investor presentations, and a link to ASX website which displays the share price, share price movements and other market information. PRINCIPLE 7: RECOGNISE AND MANAGE RISK The board, through the audit committee, is responsible for ensuring there is an adequate framework in relation to risk management, compliance and internal control systems. In summary, the framework is designed to ensure strategic, operational, legal, reputation and ﬁ nancial risks are identiﬁ ed, assessed, effectively and efﬁ ciently managed and monitored to enable achievement of the Group’s business objectives. The CEO and CFO have made the following certiﬁ cations to the board: (cid:129) That the company’s ﬁ nancial reports are complete and present a true and fair view, in all material respects, of the ﬁ nancial condition and operational results of the company and Group and are in accordance with relevant accounting standards (cid:129) That the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board and that the company’s risk management and internal compliance and control is operating efﬁ ciently and effectively in all material respects in relation to ﬁ nancial reporting risks. PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY Remuneration Committee The remuneration committee is currently comprised of Peter C Farrell (Chairman), Michael A Quinn, both non-executive directors and John W Holaday, the Managing Director. Details of these directors’ attendance at remuneration committee meetings are set out in the directors’ report on page 13. The remuneration committee operates in accordance with its charter which is available on the Company website. The remuneration committee assists the board to discharge its responsibilities to attract and retain senior executives and directors who will create value for shareholders. The remuneration committee advises the board on remuneration and incentive policies and practices generally, and makes speciﬁ c www.qrxpharma.com 29 FINANCIAL REPORT This ﬁ nancial report covers both QRxPharma Limited as an individual entity and the consolidated entity consisting of QRxPharma Limited and its subsidiaries. The ﬁ nancial report is presented in the Australian currency. QRxPharma Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered ofﬁ ce and principal place of business is: QRxPharma Limited Level 1 194 Miller St North Sydney NSW 2060. A description of the nature of the consolidated entity’s operations and its principal activities is included in the CEOs review on pages 5 to 6 and in the directors’ report on pages 8 to 23, both of which are not part of this ﬁ nancial report. The ﬁ nancial report was authorised for issue by the directors on 20 August 2009. The company has the power to amend and reissue the ﬁ nancial report. Through the use of the internet, we have ensured that our corporate reporting is timely, complete, and available globally at minimum cost to the company. All press releases, ﬁ nancial reports and other information are available on our website: www.qrxpharma.com Income statements Balance sheets Statements of changes in equity Cash ﬂ ow statements Notes to the ﬁ nancial statements Directors’ declaration Independent auditor’s report to the members Shareholder information 31 32 33 34 35 68 69 71 30 QRxPharma Annual Report 2009 QRxPHARMA LIMITED ABN 16 102 254 151 INCOME STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 Revenue from continuing operations Other income Research and development Employee beneﬁ ts expense Depreciation and amortisation Business Development Other expenses Net foreign exchange (loss) Impairment of ﬁ nancial asset Impairment of intangible asset Loss before income tax Income tax beneﬁ t Loss from continuing operations Loss for the year Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Notes 5 6 7 7 7 7 12 14 8 719 2,009 710 2,009 5,474 (11,937) (6,191) (29) (212) (1,319) - - - (13,495) - (13,495 ) (13,495 ) - (12,708) (5,298) (822) (241) (2,421) (2,618) - (14,628) (36,727) 125 (36,602) (36,602) 6,193 (14,480) (2,422) (13) (206) (1,908) - (749) - (12,875) - (12,875) (12,875) 515 (13,970) (2,838) (16) (241) (2,807) (2,648) (17,117) - (37,113) 125 (36,988) (36,988) Earnings per share for loss attributable to the ordinary equity holders of the company: Cents Cents Basic loss per share Diluted loss per share 25 25 (18.0) (18.0) (48.8) (48.8) The above income statements should be read in conjunction with the accompanying notes. www.qrxpharma.com 31 QRxPHARMA LIMITED ABN 16 102 254 151 BALANCE SHEETS AS AT 30 JUNE 2009 ASSETS Current assets Cash and cash equivalents Trade and other receivables Other current assets Total current assets Non-current assets Other ﬁ nancial assets Property, plant and equipment Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Total current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves Accumulated losses Total equity Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Notes 9 10 11 12 13 14 15 17,773 66 566 29,672 158 458 17,552 94 220 29,583 135 119 18,405 30,288 17,866 29,837 - 274 - 274 18,679 1,684 1,684 1,684 - 73 - 73 30,361 2,024 2,024 2,024 2,341 24 - 2,605 37 - 2,365 20,231 2,642 32,479 3,263 3,263 3,263 4,169 4,169 4,169 16,995 28,337 16,968 28,310 16 17(a) 17(b) 79,694 5,737 (68,436) 16,995 79,694 3,584 (54,941) 28,337 79,694 5,432 (68,158) 16,968 79,694 3,899 (55,283) 28,310 The above balance sheets should be read in conjunction with the accompanying notes. 32 QRxPharma Annual Report 2009 QRxPHARMA LIMITED ABN 16 102 254 151 STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2009 Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Notes Total equity / (deﬁ ciency in capital) at the beginning of the ﬁ nancial year 28,337 61,980 28,310 62,024 Loss for the year (13,495) (36,602) (12,875) (36,988) Transactions with equity holders in their capacity as equity holders: Contributions of equity, net of transaction costs Employee shares and share options Foreign currency translation Total equity at the end of the ﬁ nancial year 16 17 17 - 1,533 620 2,153 16,995 (238) 3,512 (315) 2,959 - 1,533 - 1,533 (238) 3,512 - 3,274 28,337 16,968 28,310 The above statements of changes in equity should be read in conjunction with the accompanying notes. www.qrxpharma.com 33 QRxPHARMA LIMITED ABN 16 102 254 151 CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 Cash ﬂ ows from operating activities Payments to suppliers and employees (inclusive of goods and services tax) Interest received Income tax R&D receipt Grant received Net cash outﬂ ow from operating activities Cash ﬂ ows from investing activities Payments for property, plant and equipment Payments for shares issued in subsidiary Proceeds (payments) for held-to-maturity investments Net cash inﬂ ow / (outﬂ ow) from investing activities Cash ﬂ ows from ﬁ nancing activities Payments made in relation to IPO Net cash inﬂ ow / (outﬂ ow) from ﬁ nancing activities Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Notes 8 6 24 12 (17,956) (15,822) (18,103) 813 - 150 1,550 125 - 616 - 150 (12,669) 1,550 125 - (16,993) (14,147) (17,337) (10,994) (230) - - (230) - - (68) - 10,846 10,778 (31) (31) - (2) - (2) - - (28) (3,252) 10,846 7,566 (31) (31) Net (decrease) / increase in cash and cash equivalents (17,223) (3,400) (17,339) (3,459) Cash and cash equivalents at the beginning of the ﬁ nancial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year 9 29,672 35,690 29,583 35,690 5,324 17,773 (2,618) 29,672 5,308 (2,648) 17,552 29,583 The above cash ﬂ ow statements should be read in conjunction with the accompanying notes. 34 QRxPharma Annual Report 2009 NOTES TO THE FINANCIAL STATEMENTS 1 Summary of signiﬁ cant accounting policies 2 Financial risk management 3 Critical accounting estimates and judgements 4 Segment information 5 Revenue 6 Other income 7 Expenses 8 Income tax beneﬁ t 9 Current assets – Cash and cash equivalents 10 Current assets – Trade and other receivables 11 Current assets – Other current assets 12 Non-current assets – Other ﬁ nancial assets 36 43 47 48 48 48 49 50 51 51 52 52 13 Non-current assets – Property, plant and equipment 53 14 Non-current assets – Intangible assets 15 Current liabilities – Trade and other payables 16 Contributed equity 17 Reserves and accumulated losses 18 Key management personnel disclosures 19 Remuneration of auditors 20 Contingencies 21 Commitments 22 Related party transactions 23 Subsidiaries 24 Reconciliation of proﬁ t after income tax to net cash inﬂ ow from operating activities 25 Loss per share 26 Share-based payments 27 Events occurring after the balance sheet date 54 55 56 57 58 61 61 62 62 63 63 64 65 67 www.qrxpharma.com 35 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2009 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of the ﬁ nancial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The ﬁ nancial report includes separate ﬁ nancial statements for QRxPharma Limited as an individual entity and the consolidated entity consisting of QRxPharma Limited and its subsidiaries. (A) BASIS OF PREPARATION This general purpose ﬁ nancial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Compliance with IFRS Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures the ﬁ nancial report of QRxPharma Limited complies with International Financial Reporting Standards (IFRS). Historical cost convention These ﬁ nancial statements have been prepared under the historical cost convention, as modiﬁ ed by the revaluation of ﬁ nancial assets and liabilities (including derivative instruments) at fair value through proﬁ t or loss. Critical accounting estimates The preparation of ﬁ nancial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are signiﬁ cant to the ﬁ nancial statements, are disclosed in note 3. (B) GOING CONCERN The Group has experienced signiﬁ cant recurring operating losses and negative cash ﬂ ows from operating activities since its inception. At 30 June 2009, the Group holds cash and cash equivalents of $17.8 million. (2008 : $29.7 million) The directors have considered the signiﬁ cance and possible effects of these circumstances in order to determine the suitability of adopting the going concern basis for the preparation of this ﬁ nancial report. Having carefully assessed the ﬁ nancial and operating implications of the above matters, the directors consider that the Group will be able to pay its debts as and when they fall due for at least 12 months following the date of these ﬁ nancial statements and that it is appropriate for the accounts to be prepared on a going concern basis. (C) PRINCIPLES OF CONSOLIDATION The consolidated ﬁ nancial statements incorporate the assets and liabilities of all subsidiaries of QRxPharma Limited (‘’company’’ or ‘’parent entity’’) as at 30 June 2009 and the results of all subsidiaries for the year then ended. QRxPharma Limited and its subsidiaries together are referred to in this ﬁ nancial report as the Group or the consolidated entity. Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the ﬁ nancial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. 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. Intercompany 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 Group. (D) SEGMENT REPORTING A business segment is identiﬁ ed for a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identiﬁ ed when products or services are provided within a particular economic environment subject to risks and returns that are different from those of segments operating in other economic environments. (E) FOREIGN CURRENCY TRANSLATION (i) Functional and presentation currency Items included in the ﬁ nancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated ﬁ nancial statements are presented in Australian dollars, which is QRxPharma Limited’s functional and presentation currency. 36 QRxPharma Annual Report 2009 (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when they are deferred in equity as qualifying cash ﬂ ow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. (iii) Group companies The results and ﬁ nancial position of all the Group entities (none of which has the currency of a hyperinﬂ ationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (cid:129) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet (cid:129) income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and (cid:129) all resulting exchange differences are recognised as a separate component of equity. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other ﬁ nancial instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. (F) REVENUE RECOGNITION Interest income Interest income is recognised on a time proportion basis using the effective interest method. (G) INCOME TAX The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated ﬁ nancial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable proﬁ t or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. 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. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Tax consolidation legislation QRxPharma Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. The head entity, QRxPharma Limited, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right. (H) BUSINESS COMBINATIONS The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. www.qrxpharma.com 37 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 (I) IMPAIRMENT OF ASSETS (ii) Loans and receivables Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁ able cash inﬂ ows which are largely independent of the cash inﬂ ows from other assets or groups of assets (cash generating units). Non ﬁ nancial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (J) GRANT INCOME Government grants are recognised as income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. (K) CASH AND CASH EQUIVALENTS For cash ﬂ ow statement presentation purposes, cash and cash equivalents includes cash on hand, deposits held at call with ﬁ nancial institutions, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insigniﬁ cant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet. Loans and receivables are non-derivative ﬁ nancial assets with ﬁ xed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classiﬁ ed as non-current assets. Loans and receivables are included in trade and other receivables in the balance sheet (note 10). (iii) Held-to-maturity investments Held-to-maturity investments are non derivative ﬁ nancial assets with ﬁ xed or determinable payments and ﬁ xed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insigniﬁ cant amount of held-to-maturity ﬁ nancial assets, the whole category would be tainted and reclassiﬁ ed as available for sale. Held-to- maturity ﬁ nancial assets are included in non-current assets, except for those with maturities less than 12 months from the reporting date, which are classiﬁ ed as current assets. Recognition and derecognition Financial assets carried at fair value through proﬁ t or loss are initially recognised at fair value and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash ﬂ ows from the ﬁ nancial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership. Subsequent measurement (L) INVESTMENTS AND OTHER FINANCIAL ASSETS Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Classiﬁ cation Fair value The Group classiﬁ es its investments in the following categories: ﬁ nancial assets at fair value through proﬁ t or loss, loans and receivables and held-to-maturity investments. The classiﬁ cation depends on the purpose for which the investments were acquired. Management determines the classiﬁ cation of its investments at initial recognition and, in the case of assets classiﬁ ed as held-to- maturity, re-evaluates this designation at each reporting date. (i) Financial assets at fair value through proﬁ t or loss Financial assets at fair value through proﬁ t or loss are ﬁ nancial assets held for trading. A ﬁ nancial asset is classiﬁ ed in this category if acquired principally for the purpose of selling in the short term. Derivatives are classiﬁ ed as held for trading unless they are designated as hedges. The fair values of option agreements are based on current market prices. (M) PROPERTY, PLANT AND EQUIPMENT Depreciation on plant and equipment is calculated using the straight line method to allocate their cost, net of their residual values, over their estimated useful lives, as follows: – Plant and equipment 4 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(i)). 38 QRxPharma Annual Report 2009 (N) INTANGIBLE ASSETS (i) Intellectual property (Q) EMPLOYEE BENEFITS (i) Wages and salaries and annual leave Costs incurred in acquiring intellectual property are capitalized and amortised on a straight line basis of the period of the expected beneﬁ t. Costs include only those costs directly attributable to the acquisition of the intellectual property. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(i)). (ii) Research and development Research expenditure on internal development projects is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when it is probable that the project will, after considering its commercial and technical feasibility, be completed and generate future economic beneﬁ ts and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which the asset is ready for use on a straight line basis over its useful life, which varies from 3 to 5 years. (O) TRADE AND OTHER PAYABLES These amounts represent liabilities for goods and services provided to the Group prior to the end of ﬁ nancial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (P) LEASES Leases in which a signiﬁ cant portion of the risks and rewards of ownership are not transferred to the Group as lessee are classiﬁ ed as operating leases (note 21). Payments made under operating leases (net of any incentive received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. Liabilities for wages and salaries, including non-monetary beneﬁ ts and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables 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. (ii) Long service leave The liability for long service leave is recognised in the provision for employee beneﬁ ts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outﬂ ows. (iii) Retirement beneﬁ t obligations The Group does not maintain a Group superannuation plan. The Group makes ﬁ xed percentage contributions for all Australian resident employees to complying third party superannuation funds and for US resident employees to complying pension funds. The Group’s legal or constructive obligation is limited to these contributions. Contributions to complying third party superannuation funds and pension plans are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (iv) Share-based payments Share-based compensation beneﬁ ts are provided to employees via the QRxPharma Limited Employee Share Option Plan. Information relating to this scheme is set out in note 26. The fair value of options granted under the QRxPharma Limited Employee Share Option Plan is recognised as an employee beneﬁ t expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is independently determined using a binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. www.qrxpharma.com 39 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 The fair value of the options granted is adjusted to reﬂ ect market vesting conditions, but excludes the impact of any non market vesting conditions (for example, proﬁ tability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee beneﬁ t expense recognised each period takes into account the most recent estimate. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital and the proceeds received, net of any directly attributable transaction costs, are credited to share capital. (v) Bonus plans (ii) Diluted earnings per share Diluted earnings per share adjusts the ﬁ gures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other ﬁ nancing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (T) DERIVATIVES Derivatives that do not qualify for hedge accounting Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement and are included in other income or other expenses. The Group recognises a liability and an expense for bonuses in accordance with the terms of employment contracts. The Group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (vi) Employee beneﬁ t on-costs (U) FAIR VALUE ESTIMATION The fair value of ﬁ nancial assets and ﬁ nancial liabilities must be estimated for recognition and measurement or for disclosure purposes. Employee beneﬁ t on-costs, including payroll tax, are recognised and included in the employee beneﬁ t liabilities and costs when the employee beneﬁ ts to which they relate are recognised. The fair value of ﬁ nancial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for ﬁ nancial assets held by the Group is the current bid price. (R) CONTRIBUTED EQUITY Ordinary shares are classiﬁ ed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. (S) EARNINGS PER SHARE (i) Basic earnings per share Basic earnings per share is calculated by dividing the proﬁ t attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the ﬁ nancial year, adjusted for bonus elements in ordinary shares issued during the year. (V) GOODS AND SERVICES TAX (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash ﬂ ows are presented on a gross basis. The GST components of cash ﬂ ows arising from investing or ﬁ nancing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash ﬂ ow. (W) ROUNDING OF AMOUNTS The company is a kind referred to in Class order 98/100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the ﬁ nancial report. Amounts in the ﬁ nancial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. 40 QRxPharma Annual Report 2009 (X) NEW ACCOUNTING STANDARDS AND INTERPRETATIONS Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2009 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below. (i) AASB 8 Operating Segments and AASB 2007- 3 Amendments to Australian Accounting Standards arising from AASB 8 (effective from 1 January 2009) AASB 8 requires the adoption of a “management approach” to reporting on the ﬁ nancial performance. The information being reported will be based on what the key decision-makers use internally for evaluating segment performance and deciding how to allocate resources to operating segments. The Group will adopt AASB 8 from 1 July 2009 and it is not expected to have a signiﬁ cant impact on disclosure. (ii) Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123 (effective from 1 January 2009) The revised AASB 123 has removed the option to expense all borrowing costs and, when adopted, will require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. There will be no impact on the ﬁ nancial report of the Group, as the Group does not have any borrowings. (iii) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 (effective from 1 January 2009) The September 2007 revised AASB 101 requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts recognised in the ﬁ nancial statements. If an entity has made a prior period adjustment or has reclassiﬁ ed items in the ﬁ nancial statements, it will need to disclose a third balance sheet (statement of ﬁ nancial position), this one being as at the beginning of the comparative period. The Group will apply the revised standard from 1 July 2009. (iv) AASB 2008-1 Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations (effective from 1 January 2009) AASB 2008-1 clariﬁ es that vesting conditions are service conditions and performance conditions only and that other features of a share- based payment are not vesting conditions. It also speciﬁ es that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group will apply the revised standard from 1 July 2009, but it is not expected to affect the accounting for the Group’s share-based payments. (v) Revised AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 (effective 1 July 2009) The revised AASB 3 continues to apply the acquisition method to business combinations, but with some signiﬁ cant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classiﬁ ed as debt subsequently remeasured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition related costs must be expensed. The revised AASB 127 requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also speciﬁ es the accounting when the control is lost. Any remaining interest in the entity is remeasured to fair value, and a gain or loss is recognised in proﬁ t or loss. This is consistent with the Group’s current accounting policy if signiﬁ cant inﬂ uence is not retained. The Group will apply the revised standards prospectively to all business combinations and transactions with non controlling interests from 1 July 2009. www.qrxpharma.com 41 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 (ix) AASB Interpretation 17 Distribution of Non-cash Assets to Owners and AASB 2008-13 Amendments to Australian Accounting Standards arising from AASB Interpretation 17 AASB-I 17 applies to situations where an entity pays dividends by distributing non-cash assets to its shareholders. These distributions will need to be measured at fair value and the entity will need to recognise the difference between the fair value and the carrying amount of the distributed assets in the income statement on distribution. The interpretation further clariﬁ es when a liability for the dividend must be recognised and that it is also measured at fair value. The Group will apply the interpretation prospectively from 1 July 2009. It is not expected to have a material impact on the Group’s ﬁ nancial statements. (vi) AASB 2008-6 Further Amendments to Australian Accounting Standards arising from the Annual improvement project (effective 1 July 2009) The amendments to AASB 5 Discontinued operations and AASB 1 First-time Adoption of Australian-Equivalents to international ﬁ nancial Reporting Standards are part of the IASB’s annual improvements project published in May 2008. They clarify that all of a subsidiary’s assets and liabilities are classiﬁ ed as held for sale if a partial disposal sale plan results in loss of control. Relevant disclosures should be made for this subsidiary if the deﬁ nition of a discontinued operation is met. The Group will apply the amendments prospectively to all partial disposals of subsidiaries from 1 July 2009. (vii) AASB 2008-7 Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective 1 July 2009) In July 2008, the AASB approved amendments to AASB 1 First Time adoption of International Financial Reporting Standards and AASB 127 Consolidated and Separate Financial Statements. The Group will apply the revised rules prospectively from 1 July 2009. After that date, all dividends received from investments in subsidiaries, jointly controlled entities or associates will be recognised as revenue, even if they are paid out of pre-acquisition proﬁ ts, but the investments may need to be tested for impairment as a result of the dividend payment. Under the entities current policy, these dividends are deducted from the cost of the investments. Furthermore, when a new intermediate parent entity is created in internal reorganisations it will measure its investments in subsidiaries at the carrying amounts of the net assets of the subsidiary rather than the subsidiary’s fair value. It is not expected to have a material impact on the Group’s ﬁ nancial statements. (viii) AASB 2008-8 Amendment to IAS 39 Financial instruments: Recognition and Measurement (effective 1 July 2009) AASB 2008-8 amends AASB 139 Financial instruments: Recognition and Measurement and must be applied retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. The amendment makes two signiﬁ cant changes. It prohibits designating inﬂ ation as a hedgeable component of a ﬁ xed rate debt. It also prohibits including time value in the one sided hedged risk when designating options as hedges. The Group will apply the amended standard from 1 July 2009. It is not expected to have a material impact on the Group’s ﬁ nancial statements. 42 QRxPharma Annual Report 2009 2 FINANCIAL RISK MANAGEMENT The Group’s activities expose it to a variety of ﬁ nancial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of ﬁ nancial markets and seeks to minimise potential adverse effects on the ﬁ nancial performance of the Group. The Group uses derivative ﬁ nancial instruments such as foreign exchange contracts to hedge certain risk exposures. Derivatives are exclusively used for hedging purposes, not as trading or other speculative instruments. Cash and cash equivalents are invested exclusively with A rated ﬁ nancial institutions, at a minimum, with capital preservation being the stated investment objective. Risk management is carried out under policies approved by the Board of Directors. The Group and the parent entity hold the following ﬁ nancial instruments: Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 17,773 66 566 18,405 1,684 1,684 29,672 158 458 30,288 2,024 2,024 17,552 94 220 17,866 29,583 135 119 29,837 3,263 3,263 4,169 4,169 Financial assets Cash and cash equivalents Trade and other receivables Other ﬁ nancial assets Financial liabilities Trade and other payables (A) MARKET RISK (i) Foreign exchange risk The Group is exposed to foreign exchange risk arising from currency exposure to the US dollar. Foreign exchange risk arises from future commercial transactions and recognised assets and liabilities denominated in a currency that is not the entity’s functional currency. During the year the Group converted AUD$3 million (2008: $20 million) to USD taking advantage of the terms on the remaining option contracts which had been entered into during the ﬁ nancial year ended 30 June 2007. During that year, the Group had entered into a series of foreign exchange put option contracts at an exchange rate between Australian dollars and US dollars of AUD$1.00 to US$0.8181 to protect against adverse foreign exchange movements between AUD and USD. These put options contracts covered existing purchase contracts and highly probable forecasted purchases over the ensuing two ﬁ nancial years and mature as follows: Buy US dollars Sell Australian dollars Average exchange rate Maturity 6 – 12 months 2009 $’000 2008 $’000 2009 2008 - 15,300 - 0.8180 Amounts disclosed above represent currency sold measured at the contracted rate. www.qrxpharma.com 43 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 The Group’s exposure to foreign currency risk at the reporting date was as follows: Cash at bank Term deposits Trade payables 30 June 2009 30 June 2008 USD $’000 EUR $’000 USD $’000 EUR $’000 158 13,009 829 - 68 - 333 21,022 116 - - - The carrying amounts of the parent entity’s ﬁ nancial assets and liabilities are denominated in Australian dollars except as set out below: 30 June 2009 30 June 2008 USD $’000 EUR $’000 USD $’000 EUR $’000 158 13,009 3,098 - 68 - 333 21,022 3,891 - - - Cash at bank Term deposits Trade payables Group sensitivity Based on the ﬁ nancial instruments held at 30 June 2009, had the Australian dollar weakened / strengthened by 10% against the US dollar with all other variables held constant, the Group’s post-tax loss for the year would have been $1.8 million lower / $1.5 million higher (2008 – $2.5 million lower / $2.0 million higher), mainly as a result of foreign exchange gains/losses on translation of US dollar denominated ﬁ nancial instruments as detailed in the above table. The Group’s exposure to other foreign exchange movements is not material. Parent entity sensitivity The parent entity’s post-tax loss for the year would have been $1.8 million lower / $1.5 million higher (2008 - $2.5 million lower / $2.0 million higher) had the Australian dollar weakened/strengthened by 10% against the US dollar. Proﬁ t is more sensitive to movements in the Australian Dollar / US Dollar exchange rates in 2008 than in 2009 because of the foreign exchange gains/losses on the translation of US dollar denominated derivatives held for trading during the year ended 30 June 2008. (ii) Price risk The Group and the parent entity are not exposed to equity securities price risk or commodity price risk. (iii) Cash ﬂ ow and fair value interest rate risk The Group’s main interest rate risk arises from the holding of cash and cash equivalents. During the year, the Group held signiﬁ cant bank accepted commercial bills and term deposit interest-bearing assets exposing the Group’s income and operating cash ﬂ ows to changes in market interest rates. The value of borrowings at 30 June 2009 was $nil (2008 - $nil), thus limiting the Group’s exposure to any cash ﬂ ow risk in relation to liabilities. 44 QRxPharma Annual Report 2009 Group sensitivity As at 30 June 2009, if interest rates had changed by -/+ 40 basis points from the year-end rates with all other variables held constant, the post-tax loss for the year would have been $16,100 higher / lower (2008 – change of 125 bps: $70,100 higher / lower), mainly as a result of lower/higher interest income from cash and cash equivalents. Parent entity sensitivity The parent entity’s main interest rate risk arises from the holding of cash equivalents. As at 30 June 2009, if interest rates had changed by -/+ 40 basis points from the year-end rates with all other variables held constant, the post-tax loss would have been $70,100 higher / lower (2008 – change of 125 bps: $70,100 higher / lower) as a result of lower / higher interest income from these ﬁ nancial assets. (B) CREDIT RISK Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents and deposits with banks and ﬁ nancial institutions. For banks and ﬁ nancial institutions, only independently rated parties with a minimum rating of ‘A’ are acceptable. At 30 June 2009, cash equivalents were held with an Aa1 and an A3 ﬁ nancial institution, as rated by Moody’s. (C) LIQUIDITY RISK Prudent liquidity risk management implies maintaining sufﬁ cient cash and marketable securities. The Group has experienced recurring operating losses and operating cash outﬂ ows since inception to 30 June 2009. Due to negative cash ﬂ ow position the Group has not committed to any credit facilities rather relied upon equity ﬁ nancing through private and public equity investors. The Group and parent entity’s exposure to liquidity risk is restricted to the value of outstanding trade creditors. Trade payables generally have 30 day payment terms, and at 30 June 2009, the Group and parent entities had no overdue liabilities. The Group is continuously monitoring its’ level of expenditure against the Prospectus as funds are expended in accordance with its’ drug development expenditure program. The value of trade creditors at 30 June 2009 for the Group was $824,000 (2008: $1.6 million) which is payable within 1 month of the year end and at 30 June 2009, the entity carried cash and cash equivalents of $17.8 million (2008: $29.7 million). The value of trade creditors at 30 June 2009 for the parent was $241,200 (2008: $158,000) which is payable within 1 month of the year end and at 30 June 2009, the parent entity carried cash and cash equivalents of $17.6 million (2008: $29.6 million). The Group also holds a Sponsored Research Agreement with the University of Alabama. The Group is committed to paying the University of Alabama USD 400,000 per annum, payable quarterly for ﬁ ve years from 25 May 2007. This agreement can be terminated by the Group at any time without cause upon 12 months prior written notice to the University of Alabama. (D) FAIR VALUE ESTIMATION The fair value of ﬁ nancial assets and ﬁ nancial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of ﬁ nancial instruments that are not traded in an active market is determined using valuation techniques. The carrying value of trade payables are assumed to approximate their fair values due to their short-term nature. www.qrxpharma.com 45 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 Summarised sensitivity analysis The following table summarises the sensitivity of the Group’s ﬁ nancial assets and ﬁ nancial liabilities to interest rate risk, foreign exchange risk and other price risk. Carrying amount $’000 Foreign exchange risk Interest rate risk -10% +10% -40bps +40bps Proﬁ t $’000 Equity $’000 Proﬁ t $’000 Equity $’000 Proﬁ t $’000 Equity $’000 Proﬁ t $’000 Equity $’000 30 June 2009 Financial assets Cash and cash equivalents 17,773 1,803 Financial liabilities Trade payables 824 (114) Total increase/decrease 1,689 - - - (1,475) 93 (1,382) - - - (16) - (16) - - - 16 - 16 Carrying amount $’000 Foreign exchange risk Interest rate risk -10% +10% -125bps +125bps Proﬁ t $’000 Equity $’000 Proﬁ t $’000 Equity $’000 Proﬁ t $’000 Equity $’000 Proﬁ t $’000 Equity $’000 30 June 2008 Financial assets Cash and cash equivalents 29,672 2,465 Financial liabilities Trade payables 1,611 (13) Total increase/decrease 2,452 - - - (2,017) 11 (2,006) - - - (70) - (70) - - - 70 - 70 - - - - - - 46 QRxPharma Annual Report 2009 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a ﬁ nancial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by deﬁ nition, seldom equal the related actual results. The estimates and assumptions that have a signiﬁ cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next ﬁ nancial year are discussed below. Research and development expenditure The Group has expensed all internal research and development expenditure incurred during the year as the costs relate to the initial expenditure for research and development of biopharmaceutical products and the generation of future economic beneﬁ ts are not considered certain. It was considered appropriate to expense the research and development costs as they did not meet the criteria to be capitalised under AASB 138. Impairment of intangible assets The Group reviews deﬁ nite life intangibles for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Group makes estimates and assumptions about the recoverability of intellectual property. Where the carrying value of the intellectual property exceeds the recoverable amount, an impairment loss is recognised to record the intellectual property at its recoverable amount. By agreement dated 26 April 2007, between CNS Co. Inc (a company then controlled by Dr John Holaday), QRxPharma Limited, QRxPharma Inc and Dr John Holaday, CNS Co. Inc merged with QRxPharma, Inc. Upon the merger CNS Co. Inc ceased to exist and QRxPharma Inc became the surviving entity. Under the terms of the merger agreement QRxPharma Inc acquired 100% of the equity of CNS Co. Inc with the purchase consideration payable to Dr John Holaday being equivalent to 10% of the post-IPO ordinary capital of QRxPharma Limited. This purchase consideration was satisﬁ ed through the issue of 7,500,000 ordinary shares in QRxPharma Limited at the time of the Company’s initial public offering (“IPO”) on 25 May 2007. Intellectual property of $15.5 million acquired through this merger relates to an exclusive worldwide license from the University of Alabama (“UOA”) of certain technology relating to the treatment of central nervous system (CNS) disorders and other related diseases (“Torsin IP”). The Torsin IP programme is run through the Caldwell Labs at the UOA and is directed at re engineering existing drug therapies for new clinical applications, which include the treatment of dystonia, Parkinson’s disease and other neurological disorders which are a part of the Central Nervous System (“CNS”) market. Under the terms of this agreement the Group will use its commercially reasonable best efforts to bring a product or process using the Torsin IP to market through a commercially reasonable development programme to meet certain milestones. The ﬁ rst milestone is the ﬁ ling of an investigational new drug application for a product within three years. The commercial commitments are more fully described in note 20. Applying Accounting Standard AASB 136 “Impairment of Assets” at 30 June 2008 resulted in the Company fully impairing the carrying value of the asset at 30 June 2008, being $14.6 million. It should be noted in fully impairing the carrying value of this asset at 30 June 2008 does not mean the abandonment of the programme with the UOA as it is believed that the asset still has long term value and remains part of the Company’s preclinical and clinical pipeline of pharmaceuticals. Binomial option pricing model During the year, the Group booked $1.5 million of share based payments as determined through the application of the binomial option pricing model. The binomial model is dependent on a number of variables and estimates fully described in note 26. www.qrxpharma.com 47 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 4 SEGMENT INFORMATION The Group’s operations during the year were predominantly in Australia. The Group operates in only one market segment, that of the research and development of biopharmaceutical products for commercial sale. Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 719 2,009 710 2,009 Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 - 5,324 150 5,474 - - - - 735 5,308 150 6,193 515 - - 515 5 REVENUE From continuing operations Interest 6 OTHER INCOME Management fees Foreign exchange gain Export Market Development Grant 48 QRxPharma Annual Report 2009 7 EXPENSES Loss before income tax includes the following speciﬁ c expenses: Depreciation and Amortisation Plant and equipment Amortisation of intangible assets Net foreign exchange loss Employee beneﬁ t expense Employee beneﬁ t expense Deﬁ ned contribution superannuation expense Share option expense Research and development Research and development expensed Impairment of intangible asset Impairment losses – ﬁ nancial assets Investment in subsidiary Rental expenses relating to operating leases Minimum lease payments Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 29 - 29 - 4,616 42 1,533 6,191 20 802 822 2,618 2,907 38 2,353 5,298 13 - 13 - 1,330 42 1,050 2,422 16 - 16 2,648 1,136 38 1,664 2,838 11,937 - 12,708 14,628 14,480 - 13,970 - 11,937 27,336 14,480 13,970 - 136 - 73 749 17,117 25 27 www.qrxpharma.com 49 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 8 INCOME TAX BENEFIT (A) INCOME TAX BENEFIT Current tax Deferred tax expense Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 - - - - (125) (125) - - - 2008 $’000 - (125) (125) The deferred tax asset relates to a Research and Development tax rebate payment received during the ﬁ nancial year ended 30 June 2008 under Section 73B of the Income Tax Assessment Act 1936. (B) NUMERICAL RECONCILIATION OF INCOME TAX EXPENSE TO PRIMA FACIE TAX PAYABLE Loss from continuing operations before income tax expense Tax at the Australian tax rate of 30% (2008 – 30%) Tax effect of amounts which are not deductible in calculating taxable income: Amortisation of intangibles Impairment of intangible asset Impairment of ﬁ nancial asset Share-based payments Previously unrecognised losses recouped Adjustment of current tax for prior periods Beneﬁ t of tax losses not recognised Income tax expense (C) TAX LOSSES Unused tax losses for which no deferred tax asset has been recognised Potential tax beneﬁ t @ 30% Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 (13,495) (4,048) (36,727) (11,018) (12,875) (3,862) (37,113) (11,134) - - - 461 241 4,388 - 779 - - 225 315 - - 5,135 779 (3,587) (5,610) (3,322) (5,220) - 701 2,886 - (125) - 5,610 (125) - 759 2,563 - (125) - 5,220 (125) Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 37,131 11,139 27,513 8,254 34,758 10,427 26,213 7,864 No deferred tax asset has been recognised for the tax losses generated from operations in both Australia and the USA, as the beneﬁ t for tax losses will only be obtained if: (i) the Group derives future assessable income of a nature and of an amount sufﬁ cient to enable the beneﬁ t from the deductions for the losses to be realised, or (ii) the Group continues to comply with the conditions for deductibility imposed by tax legislation, and (iii) no changes in tax legislation adversely affect the Group in realising the beneﬁ t from the deduction for the losses. 50 QRxPharma Annual Report 2009 (D) TAX CONSOLIDATION LEGISLATION QRxPharma Limited and its wholly owned Australian controlled entities have implemented the tax consolidation legislation as of 7 December 2002. The accounting policy in relation to this legislation is set out in note 1(g). 9 CURRENT ASSETS – CASH AND CASH EQUIVALENTS Cash at bank Term deposits Commercial bills (A) CASH AT BANK Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 527 16,153 1,093 17,773 654 21,839 7,179 29,672 306 16,153 1,093 17,552 565 21,839 7,179 29,583 These bear an interest rate of 2.9% (2008: 7.3%) for the AUD accounts and 0.25% (2008:1%) on balances over USD 50,000 for the USD accounts. (B) TERM DEPOSITS These are USD deposits and bear an average ﬁ xed interest rate of 0.4% (2008: 2.3%). These deposits have a maturity of less than 3 months. (C) COMMERCIAL BILLS These commercial bills are in Australian dollars and bear an average interest rate of 2.9% (2008: 7.4%). They have a maturity of less than 3 months. 10 CURRENT ASSETS – TRADE AND OTHER RECEIVABLES Interest receivable Other receivables Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 11 55 66 105 53 11 83 105 30 158 94 135 Information about the Group’s and the parent’s exposure to foreign currency and interest rate risk in relation to other receivables is provided in note 2. Due to the short term nature of these receivables, their carrying amount is assumed to approximate their fair value and at 30 June 2009 no receivables were impaired or past due (30 June 2008: nil). www.qrxpharma.com 51 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 11 CURRENT ASSETS – OTHER CURRENT ASSETS Prepayments 566 458 220 119 Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 12 NON-CURRENT ASSETS – OTHER FINANCIAL ASSETS Investment in subsidiaries (note 23) Less provision for write down to recoverable amount These ﬁ nancial assets are carried at cost. Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 - - - - - - 20,708 (18,367) 20,223 (17,618) 2,341 2,605 A provision for write down to a recoverable amount of $0.75 million (2008: 17.1 million) was recognised in the parent entity to write down the value of the investment in a subsidiary to its net asset value. In the prior year, due to the impairment loss on the Torsin IP asset recognised in the books of the subsidiary, a provision for diminution in value against the investment in the books of the parent entity was recognised. Refer to note 3. During the ﬁ nancial year two new wholly owned subsidiaries, Venomics Pty Ltd and Venomics Hong Kong Limited were incorporated. 52 QRxPharma Annual Report 2009 13 NON–CURRENT ASSETS – PROPERTY, PLANT AND EQUIPMENT Consolidated Plant & Equipment $’000 Parent Plant & Equipment $’000 At 1 July 2007 Cost Accumulated depreciation Net book amount Year ended 30 June 2008 Opening net book amount Additions Depreciation charge Closing net book amount At 30 June 2008 Cost Accumulated depreciation Net book amount Year ended 30 June 2009 Opening net book amount Additions Depreciation charge Closing net book amount At 30 June 2009 Cost Accumulated depreciation Net book amount 127 (102) 25 25 68 (20) 73 195 (122) 73 73 230 (29) 274 425 (151) 274 127 (102) 25 25 28 (16) 37 155 (118) 37 37 - (13) 24 155 (131) 24 www.qrxpharma.com 53 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 14 NON–CURRENT ASSETS – INTANGIBLE ASSETS Consolidated Year ended 30 June 2008 Opening net book amount Impairment of intellectual property* Amortisation charge Closing net book amount At 30 June 2008 Cost Accumulated amortisation and impairment Net book amount Patents, trademarks and other rights $’000 Other intangible assets $’000 Total $’000 15,430 (14,628) (802) - 15,502 (15,502) - - - - 889 (889) - 15,430 (14,628) (802) - 16,391 (16,391) - *The carrying amount of the Torsin IP asset has been reduced to its recoverable amount of $nil through recognition of an impairment loss against the asset. This loss has been disclosed as a separate line item in the income statement. Refer to note 3. Consolidated Year ended 30 June 2009 Opening net book amount Impairment of intellectual property Amortisation charge Closing net book amount At 30 June 2009 Cost Accumulated amortisation and impairment Net book amount Patents, trademarks and other rights $’000 Other intangible assets $’000 Total $’000 - - - - - - - - - - - - 15,502 (15,502) - 889 (889) - 16,391 (16,391) - 54 QRxPharma Annual Report 2009 14 NON–CURRENT ASSETS – INTANGIBLE ASSETS Parent Year ended 30 June 2008 Opening net book amount Closing net book amount At 30 June 2008 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2009 Opening net book amount Closing net book amount At 30 June 2009 Cost Accumulated amortisation and impairment Net book amount Patents, trademarks and other rights $’000 Other intangible assets $’000 Total $’000 - - - - - - - - - - - - 414 (414) - - - 414 (414) - - - 414 (414) - - - 414 (414) - 15 CURRENT LIABILITIES – TRADE AND OTHER PAYABLES Trade payables Amounts due to subsidiaries Accrued employee beneﬁ ts Other payables Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 824 - 768 92 1,684 1,611 - 92 321 2,024 241 2,797 105 120 3,263 158 3,802 32 177 4,169 Accrued employee beneﬁ ts include accruals for annual leave. The entire obligation is presented as current, since the Group does not have an unconditional right to defer settlement. It is expected that employees will use the full amount of accrued leave within the next 12 months. www.qrxpharma.com 55 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 16 CONTRIBUTED EQUITY (A) SHARE CAPITAL Ordinary shares – fully paid Parent Parent 2009 Shares 2008 Shares 2009 $’000 2008 $’000 75,000,000 75,000,000 79,694 79,694 (B) MOVEMENTS IN ORDINARY SHARE CAPITAL: Date Details Notes 1 July 2007 Balance Less: Transaction costs arising on share issues 30 June 2008 Balance 30 June 2009 Balance Number of shares 75,000,000 75,000,000 75,000,000 Issue price $’000 79,932 (238) 79,694 79,694 Transaction costs arising on share issues incurred during the year ended 30 June 2008 represent the share based payments charge for options issued to JPMorgan at the time of the Initial Public Offering (IPO). Refer note 26(b). (C) ORDINARY SHARES Each ordinary shareholder maintains, when present in person or by proxy or by attorney at any general meeting of the company, the right to cast one vote for each ordinary share held. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. (D) OPTIONS Information relating to the QRxPharma Limited Employee Share Option Plan, including details of options issued, exercised and lapsed during the ﬁ nancial year and options outstanding at the end of the ﬁ nancial year are set out in note 26. (E) VOLUNTARY ESCROWS Certain directors, consultants and pre IPO investors had voluntarily escrowed their shareholdings in the Company. At 25 May 2009, the remaining 34,229,407 voluntary escrows on ordinary shares expired. (F) CAPITAL RISK MANAGEMENT The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so they can continue to provide returns for shareholders and beneﬁ ts for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may, return capital to shareholders; issue new shares or sell assets. 56 QRxPharma Annual Report 2009 17 RESERVES AND ACCUMULATED LOSSES Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 (A) RESERVES Share-based payments reserve Foreign currency translation reserve MOVEMENTS: Share-based payments reserve Balance 1 July Option expense Options issued to employees of subsidiaries Balance 30 June 5,432 305 5,737 3,899 1,533 - 5,432 Foreign currency translation reserve Balance 1 July Currency translation differences arising during the year Balance 30 June (315) 620 305 3,899 (315) 3,584 387 3,512 - 3,899 - (315) (315) 5,432 - 5,432 3,899 1,050 483 5,432 - - - 3,899 - 3,899 387 2,691 821 3,899 - - - (54,941) (13,495) (68,436) (18,339) (36,602) (54,941) (55,283) (12,875) (18,295) (36,988) (68,158) (55,283) (B) ACCUMULATED LOSSES Movements in accumulated losses were as follows: Opening accumulated losses Loss for the year Balance 30 June (C) NATURE AND PURPOSE OF RESERVES (i) Share-based payments reserve The share-based payment reserve is used to recognise: (cid:129) the fair value of options issued to employees but not exercised (cid:129) the fair value of shares issued to employees (cid:129) in the parent entity – the fair value of shares and options issued to employees of subsidiaries (ii) Foreign currency translation reserve Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as described in note 1(e). The reserve is recognised in proﬁ t and loss when the net investment is disposed. www.qrxpharma.com 57 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 18 KEY MANAGEMENT PERSONNEL DISCLOSURES (A) DIRECTORS The following persons were directors of QRxPharma Limited during the ﬁ nancial year: (i) Chairman – non executive Dr Peter C Farrell (ii) Executive director Dr John W Holaday, Managing Director and Chief Executive Ofﬁ cer (iii) Non executive directors Michael A Quinn R Peter Campbell Dr Gary W Pace, Consultant (B) OTHER KEY MANAGEMENT PERSONNEL The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the ﬁ nancial year: Name Position Warren C Stern Executive Vice President, Drug Development Chris J Campbell Chief Financial Ofﬁ cer and Company Secretary Joseph J Berry Vice President Operations Philip J Magistro Vice President, Commercial Operations Patricia T Richards Chief Medical Ofﬁ cer All of the above persons were also key management persons during the year ended 30 June 2008. (C) KEY MANAGEMENT PERSONNEL COMPENSATION Short term employee beneﬁ ts Post employment beneﬁ ts Share-based payments Consolidated Parent 2009 $ 2008 $ 2009 $ 2008 $ 2,659,314 2,123,952 979,769 968,263 27,226 28,102 27,226 28,102 1,202,155 2,361,213 771,401 1,674,644 3,888,695 4,513,267 1,778,396 2,671,009 The company has taken advantage of the relief provided by Corporations Regulation 2M.6.04 and has transferred the detailed remuneration disclosures to the directors’ report. The relevant information can be found in sections A-C of the remuneration report on pages 14 to 19. 58 QRxPharma Annual Report 2009 (D) EQUITY INSTRUMENT DISCLOSURES RELATING TO KEY MANAGEMENT PERSONNEL (i) Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section D of the remuneration report on pages 19 to 21. (ii) Option holdings The numbers of options over ordinary shares in the company held during the ﬁ nancial year by each director of QRxPharma Limited and other key management personnel of the Group, including their personally related parties, are set out below. 2009 Name Balance at start of the year Granted as compensation Exercised Forfeited Balance at end of the year Vested and exercisable Unvested Directors of QRxPharma Limited Peter C Farrell John W Holaday Gary W Pace Michael A Quinn R Peter Campbell 604,089 805,452 402,726 402,726 241,635 - - - - - Other key management personnel of the Group Warren C Stern Chris J Campbell Patricia T Richards Philip J Magistro Joseph J Berry 805,452 402,726 500,000 200,000 150,000 75,000 75,000 60,000 60,000 60,000 - - - - - - - - - - - - - - - - - - - - 604,089 805,452 402,726 402,726 241,635 880,452 477,726 560,000 260,000 210,000 402,726 536,968 268,484 268,484 161,090 536,968 268,484 166,667 66,667 50,000 201,363 268,484 134,242 134,242 80,545 343,484 209,242 393,333 193,333 160,000 2008 Name Balance at start of the year Granted as compensation Exercised Forfeited Balance at end of the year Vested and exercisable Unvested Directors of QRxPharma Limited Peter C Farrell John W Holaday Gary W Pace Michael A Quinn R Peter Campbell 604,089 805,452 402,726 402,726 241,635 Other key management personnel of the Group Warren C Stern Douglas A Saltel (resigned 7 March 2008) Chris J Campbell Patricia T Richards (appointed 18 February 2008) Philip J Magistro (appointed 26 November 2007) Joseph J Berry (appointed 12 November 2007) 805,452 805,452 402,726 - - - - - - - - - - - 500,000 200,000 150,000 - - - - - - - - - - - - - - - - 604,089 805,452 402,726 402,726 241,635 201,363 268,484 134,242 134,242 80,545 402,726 536,968 268,484 268,484 161,090 - 805,452 805,452 - 268,484 - 536,968 - - - - - 402,726 500,000 200,000 150,000 134,242 - 268,484 500,000 - - 200,000 150,000 www.qrxpharma.com 59 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 18 KEY MANAGEMENT PERSONNEL DISCLOSURES (CONTINUED) (iii) Share holdings The numbers of shares in the company held during the ﬁ nancial year by each director of QRxPharma Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. 2009 Name Directors of QRxPharma Limited Ordinary shares Peter C Farrell John W Holaday Gary W Pace Michael A Quinn ^ R Peter Campbell Other key management personnel of the Group Ordinary shares Warren C Stern Chris J Campbell Patricia T Richards Philip J Magistro Joseph J Berry Balance at start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 1,280,540 7,543,000 3,230,083 9,471,749 85,000 - - - - - - - - - - - - - - - 100,000 - - (1,174,442) - 1,380,540 7,543,000 3,230,083 8,297,307 85,000 - - - - - - - - - - ^ The Director is also a Director of Innovation Capital Associates Pty Limited, who acted as the trustee of the Innovation Capital QRx I & II Trusts. A net 1,174,442 shares were distributed to beneﬁ ciaries of the Innovation Capital QRx I & II Trusts other than the Director, after the expiration of voluntary escrows on 25 May 2009. The Director has no continuing relevant interest in these shares. 2008 Name Directors of QRxPharma Limited Ordinary shares Peter C Farrell (appointed 27 April 2007) John W Holaday (appointed 27 April 2007) Gary W Pace Michael A Quinn* R Peter Campbell (appointed 27 April 2007) Other key management personnel of the Group Ordinary shares Warren C Stern Douglas A Saltel (resigned 7 March 2008) Chris J Campbell Patricia T Richards Philip J Magistro Joseph J Berry 60 QRxPharma Annual Report 2009 Balance at start of the year Received during the year on the exercise of options Other changes during the year Balance at the end of the year 1,145,540 7,505,000 3,190,083 10,593,090 50,000 - - - - - - - - - - - - - - - - - 135,000 38,000 40,000 (1,121,341) 35,000 1,280,540 7,543,000 3,230,083 9,471,749 85,000 - - - - - - - - - - - - * The Director is also a Director of Innovation Capital Associates Pty Limited, who acts as the trustee of the Innovation Capital QRx I & II Trusts. The movement for the year includes a net distribution of 1,174,441 shares to beneﬁ ciaries of the Innovation Capital QRx I & II Trusts other than the Director, after the expiration of voluntary escrows on 25 May 2008. The Director has no continuing relevant interest in these shares. (E) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL During the year, the company directly engaged and contracted the services of certain key management personnel to perform consulting services for the Group. The total amount paid to key management personnel for contracted services rendered during the year amounted to $131,532 (2008: $239,443). 19 REMUNERATION OF AUDITORS (A) AUDIT SERVICES PricewaterhouseCoopers Australian ﬁ rm Audit and review of ﬁ nancial reports and other audit work under the Corporations Act 2001 Total remuneration for audit services (B) NON-AUDIT SERVICES PricewaterhouseCoopers Australian ﬁ rm Taxation services Related practices of PricewaterhouseCoopers Australian ﬁ rm Total remuneration for audit related services Consolidated Parent 2009 $ 2008 $ 2009 $ 2008 $ 129,250 129,250 86,000 86,000 129,250 129,250 86,000 86,000 88,885 66,218 155,103 284,353 99,270 11,554 110,824 196,824 88,885 - 88,885 99,270 - 99,270 218,135 185,270 20 CONTINGENCIES As detailed in note 3 the Group acquired on 26 April 2007 a 100% interest in CNS Co, Inc. and through this acquisition now holds a license agreement with University of Alabama (USA). Under the terms of this license agreement the Group is obligated to meet certain milestone payments as advances against future royalties from the Torsin programme as follows: (i) USD 750,000 on commencement by the Group of Phase II clinical trial for any Torsin IP product; (ii) USD 1,500,000 on commencement by the Group of Phase III clinical trial for any Torsin IP product; (iii) USD 2,000,000 on the date of receipt by the Group of ﬁ rst market approval for each Torsin IP product. The agreement may be terminated by the Group at any time on 6 months notice to the University of Alabama and upon payment of all amounts due to University of Alabama to the effective termination date. The agreement will expire on the last expire date of the patents licensed under the agreement. www.qrxpharma.com 61 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 21 COMMITMENTS (A) UNIVERSITY OF ALABAMA. The Group also holds a Sponsored Research Agreement with the University of Alabama. The Group is committed to paying the University of Alabama USD 400,000 per annum, payable quarterly for ﬁ ve years from 25 May 2007. This agreement can be terminated by the Group at any time without cause upon 6 months prior written notice to the University of Alabama. (B) UNIVERSITY OF QUEENSLAND On 10 January 2008, the Group entered into a Collaborative Reserach Agreement with the University of Queensland for the conduct of the Australian Research Council linkage project grant; “Pre-clinical evaluation of snake venom proteins with therapeutic potential”. Under the terms of this grant, the Group is contracted to pay a total of $106,000 to the University over the ensuing year. (C) OPERATING LEASES The Group leases ofﬁ ce premises in Sydney, Australia and New Jersey, USA. The leases have varying terms, escalation clauses and renewal rights. Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Within one year Later than one year but not later than ﬁ ve years 22 RELATED PARTY TRANSACTIONS (A) SUBSIDIARIES Interests in subsidiaries are set out in note 23. (B) KEY MANAGEMENT PERSONNEL Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 128 57 185 100 171 271 29 2 31 19 21 40 Disclosures relating to key management personnel are set out in note 18. (C) OUTSTANDING BALANCES The following balances are outstanding at the reporting date in relation to transactions with related parties: Consolidated Parent 2009 $ 2008 $ 2009 $ 2008 $ - - 2,796,779 3,802,332 Current payables Subsidiaries 62 QRxPharma Annual Report 2009 (D) TRANSACTIONS WITH RELATED PARTIES The following transactions occurred with related parties: Consolidated Parent 2009 $ 2008 $ 2009 $ 2008 $ Other income Management services to subsidiary Expenses Research and development service fees and costs from subsidiary - - - - 735,255 515,205 12,472,673 13,107,627 23 SUBSIDIARIES The consolidated ﬁ nancial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(c): Name of entity Country of incorporation Class of shares The Lynx Project Pty Limited Haempatch Pty Limited QRxPharma, Inc. Venomics Pty Limited* Venomics Hong Kong Limited* Australia Australia USA Australia Hong Kong Ordinary Ordinary /Preference Ordinary Ordinary Ordinary *Entities incorporated during the 2009 ﬁ nancial year Equity holding 2009 % 100 100 100 100 100 2008 % 100 100 100 - - 24 RECONCILIATION OF PROFIT AFTER INCOME TAX TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES Loss for the year Depreciation and amortisation Impairment of intangible asset Impairment of ﬁ nancial asset Non cash employee beneﬁ ts expense – share-based payments Net exchange differences on cash and cash equivalents Interest on held-to-maturity investments Change in operating assets and liabilities (Increase)/decrease in other receivables and prepayments Increase/(decrease) in trade creditors and accruals Increase/(decrease) in other operating liabilities Consolidated Parent 2009 $’000 (13,495) 29 - - 1,533 (4,704) - (16) (340) - 2008 $’000 (36,602) 822 14,628 - 3,257 2,353 (355) 511 1,239 - 2009 $’000 2008 $’000 (12,875) 13 - 749 1,050 (5,308) - (36,988) 16 - 16,267 3,305 2,648 (355) (58) (908) - 804 3,309 - Net cash outﬂ ow from operating activities (16,993) (14,147) (17,337) (10,994) www.qrxpharma.com 63 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 25 LOSS PER SHARE Consolidated 2009 Cents 2008 Cents (A) BASIC LOSS PER SHARE Loss from continuing operations attributable to the ordinary equity holders of the company (18.0) (48.8) (B) DILUTED LOSS PER SHARE Loss from continuing operations attributable to the ordinary equity holders of the company (18.0) (48.8) (C) RECONCILIATIONS OF EARNINGS USED IN CALCULATING EARNINGS PER SHARE Basic loss per share Consolidated 2009 $’000 2008 $’000 Loss attributable to the ordinary equity holders of the company used in calculating basic earnings per share (13,495) (36,602) Diluted loss per share Loss attributable to the ordinary equity holders of the company used in calculating diluted earnings per share (13,495) (36,602) (D) WEIGHTED AVERAGE NUMBER OF SHARES USED AS THE DENOMINATOR Weighted average number of ordinary shares used as the denominator in calculating basic loss per share Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted loss per share Consolidated 2009 Number 2008 Number 75,000,000 75,000,000 75,000,000 75,000,000 (E) INFORMATION CONCERNING THE CLASSIFICATION OF SECURITIES (i) Options Options are considered to be potential ordinary shares. The options are not included in the calculation of diluted earnings per share because they are anti-dilutive. These options could potentially dilute basic earnings per share in the future. Details relating to the options are set out in note 26. 64 QRxPharma Annual Report 2009 26 SHARE-BASED PAYMENTS (A) QRXPHARMA EMPLOYEE SHARE OPTION PLAN (ESOP) The QRxPharma Limited Employee Share Option Plan (Limited ESOP) was approved by shareholders at the extraordinary general meet- ing of members held on 24th April 2007. Under the Limited ESOP shares may be issued by the company to eligible employees at an exercise price as determined by the remu- neration committee, being not less than the share price on the grant date of the options. Any person who is employed by, or is a director, ofﬁ cer, executive or consultant of the Company or any related body corporate of the Company and whom the remuneration committee determines is eligible to participate in the option plan are eligible to participate in the plan. Employees may elect not to participate in the scheme. The total number of shares that shall be reserved for issuance under the option plan shall not exceed ten percent (10%) of the Diluted Or- dinary Share Capital in the Company as at the date of issue of the relevant options under the option plan, subject to changes in capitali- zation as provided in clause 16.3 of the option plan. The approval of the Company’s shareholders must be obtained for any amendment to the option plan in relation to: (a) increasing the maximum aggregate number of shares that may be issued under the option plan; (b) any change in the class of employees eligible to receive options under the option plan; (c) any change in the shares reserved for issuance under the option plan; and (d) substitution of another entity in place of the Company as the issuer of shares under the option plan. Options will lapse if they are not exercised before the expiration date or if the option holder leaves the employment of the Group. The Board reserves discretion to waiver the latter provisions. Options granted under the plan carry no dividend or voting rights. The vesting period for each option issued up to 31 December 2008 is 3 years, or as varied by the Board, one third vesting 12 months from the date of grant and the balance vesting equally each year over the remaining two year period. Options issued from 1 January 2009 generally vest over 3 years with the initial vesting on the ﬁ rst anniversary of the date of the grant and subsequent vestings in 8 equal tranches on the ﬁ rst day of each calendar quarter over the following 2 years. When exercisable, each option is convertible into one ordinary share and entitles the holder to the same ordinary share rights as set out in note 16. Shares issued under the scheme may be sold at the expiration of any Restriction Agreement between the eligible employee and the Company. Such restrictions may be imposed by the remuneration committee upon the grant of options under the option plan and such restrictions will be contained in the Option Agreement between the eligible employee and the Company. In all other respects the shares rank equally with other fully paid ordinary shares on issue (refer to note 16(c)). (B) JP MORGAN SECURITIES AUSTRALIA LIMITED DEED In part consideration for underwriting services in relation to the IPO, the Company granted JP Morgan Securities Australia Limited 322,181 options to purchase 322,181 ordinary shares in the Company. These options vested on 25 November 2007 and have a three year term through to 25 May 2010, with the option exercise price being $2.20. www.qrxpharma.com 65 QRxPHARMA LIMITED ABN 16 102 254 151 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 26 SHARE-BASED PAYMENTS (CONTINUED) (C) SET OUT BELOW ARE SUMMARIES OF OPTIONS GRANTED UNDER THE PLANS: Grant Date Expiry date Consolidated and parent 2009 31 March 2007 14 April 2007 25 May 2007 25 May 2007 25 May 2007 1 September 2007 1 October 2007 9 October 2007 1 January 2008 1 April 2008 1 April 2008 1 October 2008 4 November 2008 1 January 2009 Total 31 March 2007 14 April 2014 25 May 2014 25 May 2014 25 May 2010 1 September 2014 1 October 2014 9 October 2014 1 January 2015 1 April 2015 1 April 2015 1 October 2015 4 November 2015 1 January 2016 Exercise price Balance at start of the year Granted during the year Exercised during the year Forfeited during the year Balance at end of the year Vested and exercisable at end of the year Number Number Number Number Number Number $1.42 $1.00 $2.00 $1.00 $2.20 $1.70 $1.45 $1.34 $1.11 $1.05 $1.04 $0.60 $0.37 $0.20 402,726 2,013,630 1,448,450 552,726 322,181 50,000 75,000 50,000 350,000 600,000 75,000 - - - - - - - - - - - - - - 50,000 100,000 710,000 5,939,713 860,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 402,726 2,013,630 1,448,450 552,726 322,181 50,000 75,000 50,000 350,000 600,000 75,000 50,000 100,000 710,000 268,484 1,342,420 965,633 368,484 214,787 16,667 25,000 16,667 116,667 200,000 25,000 - - 10,000 6,799,713 3,569,809 $1.22 $1.39 Weighted average exercise price $1.36 $0.24 Grant Date Expiry date Exercise price Balance at start of the year Granted during the year Exercised during the year Forfeited during the year Balance at end of the year Vested and exer- cisable at end of the year Number Number Number Number Number Number Consolidated and parent 2008 31 March 2007 14 April 2007 25 May 2007 25 May 2007 25 May 2007 1 September 2007 1 October 2007 9 October 2007 1 January 2008 1 April 2008 1 April 2008 Total 31 March 2014 14 April 2014 25 May 2014 25 May 2014 25 May 2010 1 September 2014 1 October 2014 9 October 2014 1 January 2015 1 April 2015 1 April 2015 $1.42 $1.00 $2.00 $1.00 $2.20 $1.70 $1.45 $1.34 $1.11 $1.05 $1.04 402,726 2,819,082 1,448,450 552,726 322,181 - - - - - - - - - - - 50,000 75,000 50,000 350,000 600,000 75,000 5,545,165 1,200,000 Weighted average exercise price $1.36 $1.13 - - - - - - - - - - - - - - - (805,452) - - - - - - - - 402,726 2,013,630 1,448,450 552,726 322,181 50,000 75,000 50,000 350,000 600,000 75,000 134,242 671,210 482,817 184,242 322,181 - - - - - - (805,452) 5,939,713 1,794,692 $1.00 $1.36 $1.42 66 QRxPharma Annual Report 2009 Fair value of options granted The assessed fair value at grant date of options granted during the year ended 30 June 2009 was $0.10 per option (2008: $0.69). The fair value at grant date is independently determined using a binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. The model inputs for options granted during the year ended 30 June 2009 included: (a) exercise price: $0.20 to $0.60 (2008 $1.04 to $1.70) (b) grant date: 1 October 2008, 4 November 2008, 1 January 2009 (2008 – 1 September 2007, 1 October 2007, 9 October 2007, 1 January 2008 and 1 April 2008) (c) expiry date: 1 October 2015, 4 November 2015, 1 January 2016 (2008 -1 September 2014, 1 October 2014, 9 October 2014, 1 January 2015 and 1 April 2015) (d) share price at grant date: $0.20 to $0.60 (2008 - $1.04 to $1.70) (e) expected price volatility of the company’s shares: 60% (2008 - 60%) (f) expected dividend yield: nil% (2008 - nil%) (g) risk free interest rate: 5.18% (2008 - 6.25%). The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. (D) EXPENSES ARISING FROM SHARE-BASED PAYMENT TRANSACTIONS Total expenses arising from share-based payment transactions recognised during the period as part of employee beneﬁ t expense were as follows: Consolidated Parent 2009 $’000 2008 $’000 2009 $’000 2008 $’000 Options issued under employee option plan 1,533 3,327 1,050 2.506 27 EVENTS OCCURRING AFTER THE BALANCE SHEET DATE No signiﬁ cant events have occurred after the balance sheet date which would have a material impact on the ﬁ nancial results of the Group. www.qrxpharma.com 67 QRxPHARMA LIMITED ABN 16 102 254 151 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2009 In the directors’ opinion: (a) the ﬁ nancial statements and notes set out on pages 30 to 67 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the company’s and consolidated entity’s ﬁ nancial position as at 30 June 2009 and of their performance for the ﬁ nancial year ended on that date; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and (c) the audited remuneration disclosures set out on pages 14 to 22 of the directors’ report comply with Accounting Standards AASB 124 Related Party Disclosures and the Corporations Regulations 2001. The directors have been given the declarations by the chief executive ofﬁ cer and chief ﬁ nancial ofﬁ cer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Peter C Farrell Director Sydney 21 August 2009 68 QRxPharma Annual Report 2009 www.qrxpharma.com 69 70 QRxPharma Annual Report 2009 QRxPHARMA LIMITED ABN 16 102 254 151 SHAREHOLDER INFORMATION FOR THE YEAR ENDED 30 JUNE 2009 The shareholder information set out below was applicable as at 2 September 2009. A. DISTRIBUTION OF EQUITY SECURITIES Analysis of numbers of equity security holders by size of holding: 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Shares Options 46 227 179 250 55 757 - - - 12 17 29 There are 19 holders of less than a marketable parcel of ordinary shares. B. EQUITY SECURITY HOLDERS Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name Dr John Holaday and Holaday Foundation Neweconomy Nominees Pty Limited HSBC Custody Nominees (Australia) Limited Four Hats Financial Services Limited Innovation Capital Limited National Nominees Limited Spring Ridge Ventures I, LP Uniquest Pty Limited Dr Gary Pace Innovation Capital LLC UIIT Pty Limited Dr Peter Farrell Bacchus Global Assets LLC Citicorp Nominees Pty Limited Lynx No1 Pty Limited ITR Investments Mr David Stack Joseph and Janine Meadows Gowing Bros Ltd Mr. Ross Richard Eddison Ordinary shares Number held Percentage of issued shares 7,543,000 6,408,730 6,078,314 5,925,586 5,269,090 4,516,002 4,228,673 4,004,499 3,230,083 2,713,685 2,175,338 1,380,540 1,380,366 1,061,822 680,336 572,308 475,895 444,706 400,000 327,632 58,816,605 10.06% 8.54% 8.10% 7.90% 7.03% 6.02% 5.64% 5.34% 4.31% 3.62% 2.90% 1.84% 1.84% 1.42% 0.91% 0.76% 0.63% 0.59% 0.53% 0.44% 78.42% www.qrxpharma.com 71 QRxPHARMA LIMITED ABN 16 102 254 151 SHAREHOLDER INFORMATION (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2009 B. EQUITY SECURITY HOLDERS (CONTINUED) Unquoted equity securities Options issued under the QRxPharma Limited Employee Share Option Plan and JP Morgan Securities Australia Limited Deed to take up ordinary shares 7,337,213* 29** Number on issue Number of holders * Number of unissued ordinary shares under the options. ** No person holds 20% or more of these securities. C. SUBSTANTIAL HOLDERS Substantial holders in the company are set out below: Ordinary shares Innovation Capital Limited, Innovation Capital LLC, Kaylara Pty Ltd Dr John W Holaday and Holaday Foundation JPMorgan Securities Australia Four Hats Financial Services Limited Spring Ridge Ventures I, LP Westpac Banking Corporation Uniquest Pty Limited Number held Percentage 8,297,307 7,543,000 6,600,000 5,925,586 4,228,673 4,156,978 4,004,499 11.06% 10.06% 8.80% 7.90% 5.64% 6.57% 5.34% D. VOTING RIGHTS The voting rights attaching to each class of equity securities are set out below: (a) Ordinary shares On a show of hands every member present at a meeting in person or by proxy shall have one vote and upon a poll each share shall have one vote. (b) Options No voting rights. 72 QRxPharma Annual Report 2009 NOTES: www.qrxpharma.com 73 www.qrxpharma.com

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