Santander Bank Polska Annual Report 2005

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153/05 Starpharma AR'05 9/28/05 8:08 PM Page 1 review 05annual starpharma leading the World in nanomedicine 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 2 welcome > 1 achievements > 2 chairman’s report > 5 ceo’s report > 7 dendrimer nanopharmaceuticals > 9 starpharma’s strategy for value generation> 11 VivaGelTM: to meet an urgent human need > 15 management team > 19 glossary and abbreviations > 20 This Annual Review has been published in conjunction with the 2005 Annual Report of Starpharma Holdings Ltd, which contains all of the information required to be disclosed under the Corporations Act 2001 and by the Australian Stock Exchange. 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 1 Starpharma uses dendrimer nanotechnology to discover, develop and commercialise pharmaceuticals for serious human illnesses. Starpharma’s lead product is VivaGelTM, a vaginal microbicide gel with the potential to prevent the transmission of genital herpes, HIV and other sexually transmitted infections. VivaGelTM is intended to ﬁll the need for a product that offers safety from infection and peace of mind during intercourse whilst being discreet and convenient. Research suggests that the demand for such a product in North America and Europe is very signiﬁcant and Starpharma believes VivaGelTM will have a major impact in this region. VivaGelTM is a versatile product with applications beyond the stand-alone gel. welcome The opportunities to create innovative products with dendrimers are very wide indeed. Beyond VivaGelTM, Starpharma’s strategy is to focus resources on a well deﬁned discovery portfolio that promises valuable products capitalising on the unique properties of dendrimers. Starpharma Holdings Ltd Annual Review 2005 > 1 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 2 achievements 2004 September > Starpharma leads $US5.4M NIH funded project to develop a preventative treatment for HIV and other STIs, collaborating on the project with ReProtect, Inc. (Baltimore, USA), the developer of the microbicide, BufferGelTM. December > Clinical study data shows Starpharma’s VivaGelTM is safe for expanded trials. December > Forbes/Wolfe names Starpharma’s VivaGelTM clinical trial one of the “Top 5 Nanotech breakthroughs of 2004”. > 2 Starpharma Holdings Ltd Annual Review 2005 ments 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 3 2005 January > A signiﬁcant endorsement of Starpharma and Dendritic Nanotechnologies, Inc. (DNT) when The Dow Chemical Company assigns its entire dendrimer nanotech portfolio to DNT for a 30% share of DNT equity. January > Starpharma’s ADRs added to Forbes/Wolfe Nanotech Report’s “Nanosphere” of leading nanotechnology stocks. The Nanosphere recognises “early leaders in nanotechnology, and as such, should interest investors seeking to orient their portfolios toward this revolutionary technology.” Other members of the list include HP and IBM. February > Anadis Ltd (Melbourne, Vic) and Starpharma begin collaboration on respiratory protection and biodefense applications. March > Starpharma and Industrial Research Ltd (Wellington, NZ) establish Joint Venture to commercialise glycodendrimers as pharmaceuticals. March > Starpharma is a founding investor in Dimerix Bioscience Pty Ltd (Perth, WA), a new biotechnology company commercialising GPCR acting dendrimers. April > Starpharma receives grant from Australian Government’s Pharmaceutical Partnerships Program (P3) for product development (up to $5.5M over four years). June > After an exceptional ﬁrst 6 months of the ADR program, 5% of the company has been acquired by US investors, conﬁrming a strong appetite for Starpharma’s equity in North America. August > Starpharma recognised at an international level by the independent market analysis organisation, Frost & Sullivan, with an award for leadership in growth strategy. Starpharma Holdings Ltd Annual Review 2005 > 3 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 4 success Results of Phase 1 human clinical trials indicate that VivaGelTM is safe, well tolerated and suitable to be developed as a vaginal microbicide for the prevention of HIV. > 4 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 5 chairman’s report ss Dear Shareholder, It is now two years since I joined the board of Starpharma as Chairman, and in that time I have come to appreciate the signiﬁcance and unique position of this Australian company in the exceptionally promising ﬁeld of bio-nanotechnology. Starpharma is pioneering the application of dendrimers – nano-sized branching chemical structures – in multiple ﬁelds of human health, and has completed signiﬁcant milestones over the past twelve months. The Company has a strong pipeline of products, of which the leading product in development is VivaGelTM, a microbicide or formulation designed to signiﬁcantly reduce the incidence of sexually transmitted infections. VivaGelTM is initially targeted at genital herpes and HIV. We see tremendous market potential in the USA and Europe for this product, as well as an enormous need in the world more widely. VivaGelTM successfully completed its ﬁrst clinical trial last December, becoming the ﬁrst dendrimer-based pharmaceutical to enter human clinical testing under a US Food and Drug Administration Investigational New Drug Application. This achievement led to VivaGelTM being recognised as one of the Top 5 Nanotech Breakthroughs of 2004 by US Investor magazine, “The Forbes/Wolfe Nanotech Report”. The Company is now in advanced planning for further human trials to take VivaGelTM to the next stage. I see Starpharma’s achievements as founded upon four main strengths: the dendrimer platform, which yields a pipeline rather than a single candidate; a strong portfolio of IP allowing Starpharma to protect its valuable breakthroughs; the partnerships forged with capable and effective organisations leading to assets such as DNT and Dimerix; and above all on its people. The Company has developed a technical team which leads the world in dendrimer bio-nanotechnology, and there is a depth of management expertise and experience that is exceptional for a company of this size. The Board of Directors is very supportive of the management team and is committed to assisting them in making Starpharma realise its full potential. Finally, I would like to thank shareholders for recognising Starpharma’s great potential and for your continued support, which will enable Starpharma to achieve commercial success in its most exciting and worthwhile endeavour. Peter T Bartels AO CHAIRMAN Starpharma Holdings Ltd Annual Review 2005 > 5 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 6 ...internationally competitive for funding, collaboration and investment. results > 6 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 7 ceo’s report Dear Shareholder, It is my pleasure to update you on the substantial progress made at Starpharma over the last 12 months. I believe that products based on Starpharma’s dendrimer nanotechnology will have a lasting global impact. Recognising a rapidly increasing international interest in Starpharma, we introduced a Level 1 American Depository Receipt (ADR) program via the Bank of New York this year. This made Starpharma equity available in a convenient form to US investors for the ﬁrst time. The ﬁgure (below) illustrates the exceptional response we enjoyed: within 6 months 5% of Starpharma’s equity was in the hands of US investors. This commitment by US investors, together with new partnerships for Starpharma this year, encourages us to believe that we have reached a stage where we are internationally competitive for funding, collaboration and investment in general. For some time now we have held the view that a vaginal microbicide represents the most practical and effective means of combating epidemic sexually transmitted infections such as genital herpes and HIV. This view is fast becoming mainstream in medical1 and policy making2 circles and we ﬁnd the spotlight of attention is increasingly upon us and upon VivaGelTM, our ﬁrst contribution to this ﬁeld. This sea-change is timely for Starpharma: VivaGelTM has now been successfully tested in a Phase 1 trial. The results are all that we would wish (ASX Announcement “Clinical Study Shows Starpharma’s VivaGelTM is Safe” Starpharma, Dec 04) and position us well to embark upon broader studies. During the year we have continued to review our discovery program to identify the key areas in which Starpharma will invest in the short to medium term. We now have a product-focused, market-oriented pipeline that we believe will allow us to repeatedly deliver innovative, valuable products. We are pleased to present this streamlined discovery portfolio to you on pages 11 and 12. Looking forward, I see our priorities to be: advancing VivaGelTM through clinical trials; identifying new commercial opportunities for VivaGelTM beyond its stand-alone use, some of them perhaps earlier than would be achievable with a product that followed full drug-approval route; continuing to secure public funding for product development to maximise the impact of investor capital; and ensuring that the company is well positioned to capitalise on arising opportunities that both match our objectives and provide the best of returns for shareholders. I look forward to keeping you up to date with progress against these objectives through the coming year. John W Raff PhD CHIEF EXECUTIVE OFFICER E U S S I N O s R D A 600000 500000 400000 300000 200000 100000 0 Dec 04 Jan 05 Feb 05 Mar 05 Apr 05 May 05 Jun 05 y r a t i s o p e D n a c i r e m A s ’ a m r a h p r a t S f o e k a t p U n o i t c u d o r t n i e c n s i s h t n o m x s i e h t n i i s t p e c e R Starpharma Holdings Ltd Annual Review 2005 1 “Topical Microbicides Become Topical” The New England Journal of Medicine, January 2005 2 “The Microbicide Development Act,” In the Senate of the United States, March 2005 > 7 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 8 leadership January 2005: The Dow Chemical Company transfers its entire dendrimer nanotechnology patent portfolio to Starpharma’s investee company, Dendritic Nanotechnologies, Inc. > 8 rship 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 9 dendrimer nanopharmaceuticals an engine for growth pharmaceuticals nanotechnology > Dendrimer technology offers a high level of control of matter at the nanoscale in the form of a branching structure. > Dendrimers’ “large” size replicates our bodies’ natural multiple molecular interactions, unlike traditional “small” pharmaceuticals. > Starpharma leads the world in making these molecules to the purity required for human use, and controls the associated Intellectual Property, ensuring it will be our shareholders that proﬁt from it. Starpharma is a company focused on generating products such as VivaGelTM that will improve quality of life for millions and reward investors well. Starpharma is also proud to have a world-class technology platform: Dendrimer Nanotechnology for pharmaceutical product development. Starpharma is at the forefront of a revolution in the application of nanotechnology to pharmaceuticals. Nanotechnology is the mastery of matter down to the atomic level: “every atom in its place.” The importance of this technology is recognised in the US Government’s decision to fund nanotechnology development with the “biggest funding program since the space shot”. Nanotechnology is an ideal platform for disease intervention because both the functioning of the human body and the course of disease depend on molecular interactions at the atomic level. The ﬁeld of nanopharmaceuticals builds upon, rather than replaces traditional “small molecule” pharmaceuticals. If the activity of an ordinary pharmaceutical on a drug target is considered to be like a “key” that opens a door, a dendrimer is like a bunch of keys. Often the “doors” being targeted have multiple locks, all of which must be activated at the same time to achieve the desired result. At the molecular scale this is known as “polyvalency”. Starpharma’s differentiation in this area is three fold: • World leading expertise in synthesising nanostructures to the exacting levels of purity required for human therapeutics: This is based on much work in dendrimer chemistry development, both in synthesis and product analysis, and marks a signiﬁcant barrier to entry for competitors. • A strong intellectual property position: Starpharma’s international leadership in this area is supported by its part-ownership of Dendritic Nanotechnologies, Inc. (DNT). In January 2005, The Dow Chemical Company transferred its entire dendrimer nanotechnology patent portfolio to DNT. In addition to being an endorsement of DNT and Starpharma as the major players in this area, the broader IP portfolio gives Starpharma additional freedom to pursue commercial opportunities. • Regulatory expertise: Starpharma is the ﬁrst company to have taken a deﬁned dendrimer nanopharmaceutical to human trials, and has in place the processes and capabilities to repeat this for other products emerging from Starpharma’s discovery pipeline. Starpharma Holdings Ltd Annual Review 2005 > 9 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 10 “In 2014, 16% of goods in healthcare and life sciences by revenue will incorporate emerging nanotechnology.” Lux Research, Oct 2004 value > 10 healthcare and life corporate emerging 2004 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 11 starpharma’s strategy for value generation products, partnerships and spin-out investments Products VivaGelTM is Starpharma’s lead product and has been the key focus for the last few years. As VivaGelTM advances through the key stages of clinical development this product increases in value because the probability that it will reach the market increases. The Company’s strategy is to expand the range of uses available for the active compound in VivaGelTM beyond a stand-alone product against STIs in women. VivaGelTM is discussed in more detail on pages 15 and 16. Pipeline Development for Partnerships ADME Engineering TM BIOLOGICALS SMALL MOLECULES Activity enhancement through polyvalency G-PROTEIN COUPLED RECEPTORS ANGIOGENESIS Targeted Diagnostics IMAGING concept feasibility in vivo proof of concept preclinical lead candidates selected IND filing Starpharma’s discovery pipeline. Please see page 16 for VivaGelTM’s development pipeline. Starpharma’s discovery program is focused on three key ﬁelds that meet strict selection criteria based on: ADME EngineeringTM • market potential, • ability to protect developed IP and • “reusability” of results, i.e. which programs would yield expertise and IP that could be most easily re-applied to generate follow-on products. The above graph presents an overview of these areas and the relative stage of development within each of them. As with all of Starpharma’s activities, great effort has been made to capitalise upon partnerships and external resources to amplify the impact of shareholders’ funds. Starpharma is the world leader in developing polyvalent pharmaceuticals and each of these ﬁelds of discovery is anticipated to be of substantial interest to pharmaceutical industry partners. In the pharmaceutical industry, many drugs that are known to be effective when tested in cells, fail on introduction to the body because they migrate to the wrong location or are removed from the body too quickly. The main factors that contribute to this effect are the body’s Absorption, Distribution, Metabolism and Excretion (ADME) proﬁle for the drug. An unsuitable ADME proﬁle can lead to problems such as toxicity, inability to achieve therapeutic dosing and unmanageable variation in response from individual to individual. Starpharma has demonstrated that dendrimers can effectively be used to re-engineer the ADME proﬁle for drugs. There are two main ways of realizing value from this discovery: in the ﬁrst instance, ADME EngineeringTM forms the basis of a pipeline of novel therapeutics in which much of the risk has already been mitigated because drugs with known effectiveness but with previously problematic ADME proﬁles are being used. These might be developed by Starpharma alone, or in close collaboration with partner organisations. Starpharma Holdings Ltd Annual Review 2005 > 11 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 12 In addition, Starpharma has an opportunity to license dendrimers to pharmaceutical companies either to offer a particular ADME proﬁle to a new development drug, or to “rehabilitate” candidate drugs that fail in late stage ADME studies during development, when a considerable amount of capital has already been invested by the pharmaceutical company. To prove that the technology can be successfully applied in a clinical setting, Starpharma has a number of closely- related projects developing ADME-EngineeredTM candidates from two of the main classes of drugs: biologicals (e.g. peptides, proteins, glycans) and small molecules. Starpharma’s collaboration with Australian company Anadis Ltd to develop a prophylactic that provides short- term protection from airborne biological agents such as anthrax and plague is an example of the Biologicals project, as is the glycodendrimer development partnership with Industrial Research Ltd, New Zealand. On the small molecule side, Starpharma is collaborating with the Melbourne-based Victorian College of Pharmacy to rescue potent but problematic small molecule drugs by modifying their ADME proﬁles. Activity Enhancement through Polyvalency There are numerous instances of biological processes that require activation of two or more receptors simultaneously. Because a dendrimer is large compared to many drugs, it can activate multiple sites in this way to achieve a biological effect that would not be observed with small molecule drugs, which are able to reach only one receptor at a time. This multi-receptor property is known as “polyvalency”. Starpharma believes that polyvalent drugs will form a valuable class of therapeutics with applications in many ﬁelds, including cancer and angiogenesis control. Starpharma has therefore made this a priority area. Starpharma’s investee company, Dimerix Bioscience Pty Ltd, Perth, WA (“Dimerix”), is developing drugs to target GPCRs (G-protein coupled receptors). GPCRs constitute the most signiﬁcant single family of targets for drug development today, with 50% of today’s drug targets as GPCRs. In this area, polyvalency has been shown to be particularly attractive. Inﬂammation is another opportunity for polyvalent intervention and is being investigated by Starpharma at this time with multiple mass-market applications if successful. > 12 Starpharma Holdings Ltd Annual Review 2005 Targeted Diagnostics It is now possible to develop targeting agents that can recognise speciﬁc cell types, such as cancers. Dendrimer technology provides an ideal scaffold on which to assemble combinations of these targeting agents with location- signalling molecules so that scanners external to the body can identify concentrations of the cell type of interest. For example, these molecular assemblies will aid location of newly arising cancers without the need for surgery, allowing improved patient treatments. Starpharma is collaborating with an Australian organisation with expertise in body-imaging to this end. Investments in Equity Starpharma’s dendrimer expertise and intellectual property position mean that the Company can make equity investments under particularly attractive terms. Starpharma’s biggest single investment so far, Dendritic Nanotechnologies, Inc. (DNT), received huge endorsement this year when The Dow Chemical Company assigned its entire dendrimer nanotechnology patent portfolio to it, for a 30% share of equity. Beyond the endorsement, this transaction further positions Starpharma and DNT at the heart of the dendrimer IP landscape, giving Starpharma great freedom to operate and increased control of the ﬁeld. Other advances from DNT this year include the development of PriostarTM dendrimers, an ultra-low cost product which serves as a major nanostructure platform with broad commercial application on many markets including medical and health, food and agriculture, energy and electronics, environmental and industrial safety, personal and household, and chemicals and manufacturing. This year Starpharma was a founding investor in a specialist drug development company, Dimerix Bioscience Pty Ltd formed to commercialise GPCR technology developed at the Western Australian Institute for Medical Research. Receptor coupling is one of the basic signalling mechanisms of biological systems, and because of their size Starpharma’s nano-structures have natural advantages in controlling receptor coupling and cell signaling, opening up a whole new area of drug development. Starpharma assisted with the establishment of Dimerix and is providing in-kind contributions including commercial management expertise, and $200,000 cash. In addition to its equity position Starpharma has entered into a drug development project with Dimerix based on the combination of Starpharma’s dendrimer nano-structures with the Dimerix “Collision” technology. 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 13 growth “Nanotechnology is approaching a phase change… In 2004, $US13 billion worth of products will incorporate emerging nanotechnology, less than one-tenth of 1% of global manufacturing output. In 2014, we project that this ﬁgure will rise to $US2.6 trillion – 15% of manufacturing output in that year.” “Sizing Nanotechnology’s Value Chain,” Lux Research, Oct 2004 Starpharma Holdings Ltd Annual Review 2005 > 13 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 14 trust “Women in the United States also need HIV prevention tools like microbicides. AIDS is now the number 1 cause of death among African- American women between the ages of 25 and 34.” “The Microbicide Development Act,” in the Senate of the United States, March 2005 > 14 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 15 VivaGelTM: to meet an urgent human need > VivaGelTM is a vaginal microbicide with great market potential in Europe and North America. It is this billion-dollar market that is the commercial basis of Starpharma’s development of VivaGelTM. > VivaGelTM is designed to offer safe sex. It has the potential to prevent transmission of genital herpes (HSV-2), HIV, and other sexually transmitted infections (STIs). It is intended to be used throughout a woman’s active sexual lifetime. > Because VivaGelTM’s target diseases are epidemic and global, it can attract a great deal of public funding for its development, both accelerating its availability to humanity and leveraging shareholders’ funds. > VivaGelTM was last year successfully tested in Phase 1 human safety trials. Expanded trials are in an advanced stage of planning. > VivaGelTM is a versatile product with many opportunities for line-extension, including coated condoms. This market is currently worth hundreds of millions of dollars per year and there is a compelling need to ﬁnd an alternative to existing coatings. Studies have shown that individuals who do not use condoms are aware of the need for protection from HIV and other STIs but do not adopt them because of their effects on intimacy and sensitivity during intercourse. Starpharma’s lead development product is VivaGelTM, a vaginally-applied microbicide gel. It is designed to give couples the choice of keeping sex safe through its proposed ability to prevent the transmission of genital herpes, HIV and other STIs. It is intended to be discreetly applied by a woman before intercourse. It is a product that would be used throughout a woman’s active sexual lifetime. Drivers for a microbicide are strong in Europe and North America… There is a billion-dollar market for STI-prevention products in the developed world. According to the World Health Organization3,15-20% of the population of adults in the USA and Europe are infected with HSV-2, the microbial cause of genital herpes. In some parts of Europe, the incidence in women is as high as 30%. Incentives to avoid infection are high: there is currently no cure. Although ulcerative episodes of genital herpes can be suppressed by daily doses of oral anti-virals, these are expensive and HSV-2 is currently a life-long infection with a typical recurrence frequency of four to ﬁve episodes per year. Starpharma Holdings Ltd Annual Review 2005 3 STI factsheet, 2004, World Health Organization > 15 es also need HIV bicides. AIDS is now ath among African- the ages of 25 and 34.” he United States, March 2005 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 16 HIV has now become a signiﬁcant problem in the USA. AIDS (caused by HIV) is now the number one cause of death among African-American women between the ages of 25 and 34 in the USA4. HIV’s high impact on quality of life and rising prevalence in the USA means that together HIV and HSV-2 will drive signiﬁcant demand for protection in North America and Europe. …and globally The developed world’s requirement for a female-managed STI preventative is commercial reason enough for Starpharma to pursue the development of VivaGelTM. However, protection is also urgently needed by anyone whose partner may be one of the world’s 40 million HIV-infected individuals5, and Starpharma believes that VivaGelTM has a big part to play in providing this protection. The award of a number of development grants to Starpharma in this area suggests that this view is shared by health organisations such as the US-based National Institutes of Health (NIH) and the Australian Government. As well as its obvious positive humanitarian implications, VivaGelTM’s potential activity against these epidemic diseases is signiﬁcant for Starpharma because these organisations have a vital interest in the success of VivaGelTM as a microbicide. Their development funding both accelerates the emergence of an effective microbicide against these serious diseases, and serves to amplify the impact of Starpharma investors’ funds in generating value. VivaGelTM as a pipeline The ﬁrst priority is to push VivaGelTM on through expanded clinical trials towards its ultimate goal of an approved product, and preparations are at an advanced stage towards this end. The Company anticipates that these trials will be largely funded through public sources: Starpharma is currently pursuing several such funding opportunities, some of which are at an extremely mature stage. VivaGelTM is a versatile product with applications beyond a stand-alone gel. For example, Starpharma is currently investigating its use as a condom coating. The added level of security this additive offers may allow a premium to be charged for these devices, and could provide important differentiation in the condom market. Starpharma is also looking beyond VivaGelTM’s ﬁrst formulation with externally funded programs to develop contraceptive properties, and to add to the list of pathogens for which VivaGelTM would be indicated. This product is provisionally referred to as the “combination” gel. Projected market entry dates for VivaGel™ family of products 2007 2008 2009 Solid progress towards VivaGelTM approval condom applications HSV-2 prevention HIV prevention combination gel VivaGelTM was successfully tested in a Phase 1 trial in 2004. The purpose of this trial was to identify whether VivaGelTM could be considered safe to proceed to widespread testing. VivaGelTM was found to have a similar safety proﬁle to that of the control (the base gel without the active ingredient, SPL7013). For example, there were no signs of vaginal irritation or inﬂammation related to the product use. The important conclusion of the trial was that this proﬁle is suitable for further development of VivaGelTM as a microbicide. This is another successful step in de-risking VivaGelTM as a product for human use, and in adding value to it as a product. > 16 Starpharma Holdings Ltd Annual Review 2005 4 “The Microbicide Development Act,” in the Senate of the United States, March 2005 5 UNAIDS AIDS Epidemic Update 2004 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 17 prevention Approximately 45 million Americans (26% of women and 18% of men) are infected with HSV-2, the causative agent of genital herpes. Epidemiology of HSV in Developed Countries, HERPES, 11 Supplement 1, 2004 Starpharma Holdings Ltd Annual Review 2005 > 17 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 18 strength August 2005: Starpharma honoured with the 2005 Frost & Sullivan growth strategy leadership award for its development of revolutionary products. > 18 Starpharma Holdings Ltd Annual Review 2005 th 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 19 John Raff CHIEF EXECUTIVE OFFICER management team Tim Grogan VICE PRESIDENT, COMMERCIAL DEVELOPMENT & LICENSING Jackie Fairley CHIEF OPERATING OFFICER Paul Barrett BUSINESS DEVELOPMENT MANAGER Tom McCarthy VICE PRESIDENT, DRUG DEVELOPMENT Ben Rogers COMPANY SECRETARY Jeremy Paull VICE PRESIDENT, REGULATORY AFFAIRS & QA Guy Krippner VICE PRESIDENT, DRUG DISCOVERY Starpharma Holdings Ltd Annual Review 2005 > 19 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 20 glossary and abbreviations ADME – (Absorption, Distribution, Metabolism and Excretion). Relates to the way that a pharmaceutical agent is dealt with by the body. These parameters affect the efﬁcacy, toxicity and other aspects of a pharmaceutical. They can be modiﬁed by attaching the pharmaceutical to a dendrimer. This is refered to as “ADME EngineeringTM”. ADR – American Depositary Receipt, is a negotiable certiﬁcate that represents a non-US company's publicly traded equity or debt. ADRs are created when a broker purchases the company's shares on the home stock market and delivers them to the depositary's local custodian bank, which then instructs the depositary bank to issue ADRs. ADRs may trade freely, just like any other security, either on an exchange or in the over-the-counter market. AIDS – Acquired Immunodeﬁciency Syndrome, is a potentially fatal epidemic disease caused by an infection by human immunodeﬁciency virus (HIV), resulting in immune system failure and debilitation, often accompanied by infections such as tuberculosis. Dendrimers – A class of large molecules with a well-deﬁned, highly-branched, three-dimensional (3D) structure. They have three architectural components: a core, branches, and end groups. They form the basis of Starpharma’s pipeline. Their well deﬁned structure makes them suitable for human pharmaceutical use. FDA – US Food and Drug Administration, is the public organisation in the US responsible for protecting the public health by assuring the safety, efﬁcacy, and security of human and veterinary drugs, biological products, medical devices, food supply, cosmetics, and products that emit radiation. The FDA is also responsible for advancing public health by helping to speed innovations that make medicines and foods more effective, safer, and more affordable. GPCR – G-protein coupled receptor, is a biological receptor which couples to messenger proteins called G-proteins, so-called because of their afﬁnity to guanine nucleotides. Inappropriate stimulation or inhibition of G-protein coupled receptors is found in many disease states, and these receptors are the target of many marketed drugs. HIV – Human immunodeﬁciency virus, is the cause of AIDS, and is spread through direct contact with bodily ﬂuids, for example during sexual intercourse. HSV – Herpes simplex virus; Type 1 HSV causes eruptions on the lips, nostrils, and possibly on the lining of the eyelids; Type 2 HSV (HSV-2) causes eruptions and lesions on and around the genitalia (genital herpes). IND – Investigational New Drug application, allows the conduct of clinical trials of an investigational new drug under US FDA regulations. It marks the start of the clinical process. Microbicide – A gel or other formulation that inactivates, blocks, or otherwise interferes with the transmission of the pathogens such as HIV and other sexually transmitted infections. VivaGelTM is a vaginal microbicide. Nanotechnology – The existence of materials or products at the atomic, molecular or macromolecular levels, where at least one dimension that affects the functional behavior of the drug/device product is in the length scale range of approximately 1-100 nanometers; the creation and use of structures, devices and systems that have novel properties and functions because of their small size; and, the ability to control or manipulate the product on the atomic scale. Dendrimers are a kind of nanotechnology. NIH – US National Institutes of Health, a body of the US government that oversees the health system in the US and also offers funding for medical research, including microbicides. Polyvalence – Refers to the way in which a dendrimer, because of its size and multiple active surface groups, can interact with multiple biological targets simultaneously to achieve a biological effect not observed with small molecule drugs that can only target one receptor at a time. STI – Sexually Transmitted Infection, is any disease, such as genital herpes, HIV, gonorrhoea or Chlamydia, whose usual means of transmission is by sexual contact. > 20 Starpharma Holdings Ltd Annual Review 2005 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 21 hope Over 40 million people are infected worldwide with HIV. VivaGelTM is aimed at all women who desire to remain HIV-negative. 153/05 Starpharma AR'05 9/28/05 8:08 PM Page 22 Starpharma Holdings Limited ABN 20 078 532 180 Baker Building 75 Commercial Road, Melbourne VIC 3004 Australia T +61 3 8532 2700 F +61 3 9510 5955 W www.starpharma.com 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 1 annual report 2005 starpharma leading the World in nanomedicine 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 2 contents Corporate Directory > 3 Review of Operations & Activities > 4 Directors’ Report > 10 Auditors’ Independence Declaration > 25 Corporate Governance Statement > 26 Financial Report > 33 Directors’ Declaration > 70 Independent Audit Report to the Members > 71 Shareholder Information > 74 > 2 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 3 Corporate Directory COMPANY NAME Starpharma Holdings Limited ABN 20 078 532 180 DIRECTORS P T Bartels AO (Chairman) J W Raff Dip Ag Sc, BSc, PhD (Chief Executive Ofﬁcer) P M Colman BSc (Hons), PhD, FAA, FTSE R Dobinson B Bus (Acc) L Gorr B Juris LLB, M.Admin P J Jenkins MB, BS (Melb), FRACP CHIEF EXECUTIVE OFFICER J W Raff Dip Ag Sc, BSc, PhD SECRETARY B P Rogers REGISTERED OFFICE Level 6, Baker Heart Research Building Commercial Road, Melbourne Victoria 3004 Telephone (03) 8532 2700 Facsimile (03) 9510 5955 NOTICE OF ANNUAL GENERAL MEETING The annual general meeting of Starpharma Holdings Ltd will be held at: ASX Theatrette (530 Collins Street, Melbourne) Time: 4:00pm Date: Wednesday 17 November 2004 SHARE REGISTER STOCK EXCHANGE LISTING Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street, Abbotsford VIC 3067 PO Box 103, Abbotsford VIC 3067 Enquiries (within Australia) 1300 850 505 outside Australia 613 6415 4000 Facsimile 613 9473 2500 Australian Stock Exchange Limited (ASX) Level 3, 530 Collins Street, Melbourne VIC 3000 Australia ASX Code: SPL Starpharma’s American Depositary Receipts (ADRs) trade under the code SPHRY (CUSIP number 855563102). Each Starpharma ADR is equivalent to 10 ordinary shares of Starpharma as traded on the Australian Stock Exchange. The Bank of New York is the depositary bank. AUDITOR SOLICITORS BANKERS PricewaterhouseCoopers Freshwater Place Southbank VIC 3006 Australia Blake Dawson Waldron Level 39, 101 Collins Street Melbourne VIC 3000 Australia Commonwealth Bank of Australia National Australia Bank Wachovia Bank, USA WEBSITE www.starpharma.com Starpharma Holdings Limited Annual Report 2005 > 3 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 4 Review of Operations & Activities 1. INTRODUCTION We have pleasure in presenting this annual report to our shareholders. The report includes all information required to be disclosed under the Corporations Act 2001 and by the Australian Stock Exchange. In addition to our statutory obligations we have included additional information to assist you in understanding the activities of Starpharma Holdings Limited (“Starpharma” or “the Company”) and its controlled entities (“the Group”). 2. GROUP OVERVIEW Starpharma Holdings Limited is a public company whose wholly owned subsidiary Starpharma Pty Ltd was established in 1996 to develop a polyvalent technology based on large molecules called dendrimers. The Company is based in Melbourne, Australia and has been listed on the Australian Stock Exchange Limited (“ASX”) since September 2000. The Company’s securities also trade in the USA under the American Depositary Receipts program. Starpharma uses dendrimer nanotechnology to discover, develop and commercialise pharmaceuticals for serious human illnesses. Dendrimers are nano sized branching chemical structures, and are able to be precisely synthesised for many pharmaceutical and other applications. They are one of the main building blocks of the important new science of nanotechnology, and the Company has a strong intellectual property position in the ﬁeld of dendrimers as pharmaceutical products. Starpharma also has equity interests in two companies: • Dendritic Nanotechnologies, Inc. (“DNT”) – a U.S. company incorporated in 2003 and located in Mount Pleasant, Michigan on the campus of Central Michigan University (CMU). DNT is the world’s leading developer and provider of advanced dendritic polymers. • Dimerix Bioscience Pty Ltd (“Dimerix”) – a specialist drug development company established to commercialise unique technology developed at the Western Australian Institute for Medical Research in the new ﬁeld of receptor coupling, speciﬁcally G-Protein coupled receptors (“GPCRs”). The Company’s lead product in development is VivaGel™, a microbicide or formulation designed to signiﬁcantly reduce the incidence of sexually transmitted infections (STIs). VivaGel™ is initially targeted at HIV and genital herpes. The Company also has a broad range of other opportunities for potential pharmaceutical products using dendrimers and the multi-binding phenomenon of polyvalence. 3. HIGHLIGHTS OF THE YEAR A signiﬁcant milestone for the company was reached in December 2004 when VivaGel™, the ﬁrst dendrimer-based pharmaceutical to enter human clinical testing under a US Food and Drug Administration Investigational New Drug Application, successfully completed its ﬁrst clinical trial. This achievement has been recognised by US investor magazine The Forbes/Wolfe Nanotech Report naming VivaGel™ human trials one of the Top 5 Nanotech Breakthroughs of 2004. The Company also received the 2005 Frost & Sullivan Growth Strategy Leadership Award for its leadership in the ﬁeld of dendrimer nanotechnology. Achievements of the 2005 ﬁnancial year included: September 2004 Starpharma leads US$5.4M NIH funded project to develop a second generation, or combination microbicide for HIV and other STIs, collaborating on the project with ReProtect Inc, the developer of the microbicide BufferGel™ > 4 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 5 Review of Operations & Activities cont. December 2004 Initial clinical study shows Starpharma’s VivaGel™ is safe for expanded trials December 2004 Starpharma named in Forbes/Wolfe’s “Top 5 Nanotech breakthroughs 2004” for VivaGel™ clinical trial January 2005 Starpharma Completes Level 1 American Depositary Receipts Program January 2005 DNT, Dow & Starpharma sign major three-way nanotechnology deal. This deal was seen as a signiﬁcant endorsement of both Starpharma and DNT by The Dow Chemical Company which assigned its entire dendrimer nanotech portfolio to DNT in exchange for a 30% share of DNT equity January 2005 Starpharma ADRs added to nanosphere list of leading nano stocks. Other members of the list include Hewlett Packard and IBM February 2005 Anadis Ltd (Melbourne, Vic) and Starpharma begin collaboration on respiratory protection and biodefense applications March 2005 Starpharma and Industrial Research Ltd (New Zealand) establish Joint Venture to commercialise glycodendrimers as pharmaceuticals March 2005 Starpharma founds Dimerix Bioscience Pty Ltd, a new biotechnology company commercializing GPCR acting dendrimers March 2005 Starpharma announces that Jackie Fairley will be joining the Company as Chief Operating Ofﬁcer, bringing 15 years of biotechnology and pharmaceutical experience to bear on Starpharma’s growth April 2005 June 2005 Starpharma receives approval for grant under Australian Government’s Pharmaceutical Partnerships Program (P3) for product development (up to A$5.5M over four years) After an exceptional ﬁrst 6 months of the American Depositary Receipts program 5% of the company has been acquired by US investors, conﬁrming a strong appetite for Starpharma’s equity in North America. 4. REGULATORY ENVIRONMENT There were no signiﬁcant changes in laws or regulations during 2004/05 or since the end of the year affecting our business activities, and the directors are not aware of any such changes in the pipeline. 5. COMPETITION The competitive environment in which Starpharma operates relates to two key areas: the development of precisely deﬁned nano- scale materials for use in pharmaceutical applications, and the development of topical vaginal microbicides for the prevention of STIs, particularly genital herpes and HIV. Starpharma’s dendrimer platform technology provides unique beneﬁts for the design and synthesis of a broad range of molecules suited to life sciences applications, and in particular as pharmaceuticals. The consistent architectural diversity, ‘bio-friendly’ Starpharma Holdings Limited Annual Report 2005 > 5 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 6 Review of Operations & Activities cont. properties, cost of production and reproducibility characteristics provide unique opportunities for the Company to develop and exploit the technology for high value applications as pharmaceuticals. Alternative methods of creating nano-scale materials for pharmaceutical applications may result in poorly deﬁned materials that present manufacturing quality control, scale-up and toxicity challenges that do not apply in the same way to the use of dendrimers, because Starpharma can produce these as highly deﬁned materials. There are other precisely-deﬁned nano-scale materials such as carbon nanotubes and bucky-balls that are being explored for their potential application as pharmaceuticals. However, it appears that these materials do not possess ‘bio-friendly’ properties that would make them as inherently well suited as dendrimers for pharmaceutical uses. In relation to Starpharma’s development of VivaGelTM as a topical microbicide for the prevention of HIV, genital herpes and potentially other STIs, the Company believes that this innovative dendrimer-based product is well placed when compared to topical vaginal microbicides currently being developed by other parties and to other preventative strategies. There are several other microbicides currently in development but VivaGelTM’s current and planned product performance parameters are such that the company is conﬁdent of the product being commercially competitive against these other products. VivaGelTM’s competitive advantages include its relatively broad spectrum of activity against a range of viral and bacterial STIs, its potent activity against clinically relevant HIV isolates and other commercial parameters including its IP protection, cost of production, formulation and toxicity proﬁle. In addition, VivaGelTM is being developed by Starpharma as a product with commercial potential in both the developed and developing world. 6. VALUE STRATEGY: GOALS AND OBJECTIVES Starpharma’s Board and management utilise the following key strategies to create maximum shareholder value: i) ii) developing its lead product, VivaGelTM, for the prevention of HIV and other STIs, as rapidly as is possible in accordance with required FDA and other regulatory requirements with optimum external ﬁnancial and in-kind support; broadening the commercial opportunity for VivaGelTM to additional sexually transmitted infections and line extensions to include a combined microbicide/contraceptive, and coatings for condoms; iii) ensuring that Starpharma’s contractual arrangements and internal R&D efforts result in Starpharma’s continued world-wide iv) leadership position in the development of dendrimers as polyvalent pharmaceuticals; identifying additional dendrimer development candidates for a range of diseases and working towards partnering these at an early stage with external commercial organisations; v) continually assessing strategically relevant opportunities for merger and acquisitions (M&A) to achieve critical mass and commercial synergies; vi) utilising and assessing an appropriate mix of internal (i.e. organic) growth and external (M&A) opportunities; vii) actively communicating the beneﬁts of Starpharma’s technology and its ability to solve unmet medical needs, to key potential partners and potential licensees in the pharmaceutical sector; viii) project managing R&D activities so that the continued funding of these activities is matched against agreed milestones; seeking external grant support from both Australian and international sources to support the Company’s discovery, ix) development and commercialisation activities to leverage shareholders’ funds; and leveraging the Company’s IP position and know-how to invest in new entities with complementary technologies and development resources. x) > 6 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 7 Review of Operations & Activities cont. 7. HUMAN CAPITAL Starpharma was established to develop, build upon and commercialise intellectual property created by a team of scientists. Board and Management fully recognise that people and the knowledge they possess are of vital importance in achieving the Company’s objectives. They are committed to promoting a work environment that fosters the birth of new ideas and products, the improvement of existing concepts and processes, and the creation of shareholder wealth. The Company strives to achieve best practice in recruitment, employment conditions and performance management and development to ensure that the highest calibre of staff are attracted to, and retained by the Company. 8. BUSINESS ACTIVITIES Business Objectives The Company aims to create value for shareholders from dendrimer-based nanotechnology through: • • • the development of high-value dendrimer nanodrugs to address unmet market needs; extending in-house core skills and know-how through licensing and partnering with other companies; partnering with pharmaceutical, medical device, and consumer products companies to create new opportunities and solutions to problems by the application of dendrimer nanotechnology; and parallel investment in new entities with complementary applications for dendrimer nanotechnology. • VivaGelTM Reproductive Health continues to be a major focus for the Company’s research, development and commercialisation activities. In the absence of effective vaccines for HIV prevention, microbicides are increasingly seen as an important means of dealing with this major health issue, and the Company is conﬁdent about the development strategy for VivaGel™ and related products. VivaGel™ is a versatile product with potential applications beyond the initial indication of an HIV preventative, in particular for genital herpes which is estimated to affect 45 million Americans and 10-15% of Europeans. The NIH grant of US$5.6 million awarded in September 2004 to develop a combination product based on VivaGel™, but with a broad spectrum of activity and signiﬁcant contraceptive properties, further enhances the Company’s product pipeline. Other product extensions such as condom coatings, which are likely to require a different and potentially shorter regulatory path to market, are also under investigation to expand the product pipeline. Dendritic Nanotechnologies, Inc. Starpharma established DNT together with Dr Donald A Tomalia, the pioneer of dendrimer nanotechnology. DNT has a laboratory and ofﬁces in Mt Pleasant, Michigan, USA. Its immediate objectives are to generate revenue through the sale of high value research grade dendrimer products, to create new intellectual property for a range of dendrimer applications, and to enter into commercial development partnerships. Starpharma’s investment in DNT received strong endorsement in January 2005 when the Dow Chemical Company assigned its entire dendrimer nanotechnology IP portfolio to DNT in exchange for a 30% equity share in the company. The Dow/DNT transaction also further consolidates the positions of Starpharma and DNT as leaders in the dendrimer IP landscape, providing increased licensing and other partnership opportunities in this area of nanotechnology. In May 2005, DNT announced the development of Priostar™ dendrimers, an ultra-low cost product nanostructure with broad potential applications in a wide range of industries. At the date of this report Starpharma Holdings Limited owned 32.9% of the issued shares of DNT. Starpharma Holdings Limited Annual Report 2005 > 7 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 8 Review of Operations & Activities cont. Dimerix Bioscience Pty Ltd Dimerix Bioscience Pty Ltd (“Dimerix”) is a specialist drug development company located in Perth, Western Australia. It was established in 2005 to commercialise unique technology developed at the Western Australian Institute for Medical Research in the new ﬁeld of receptor coupling, speciﬁcally G-Protein coupled receptors (“GPCRs”). Dimerix has a drug development program for chronic gut disorders such as the inﬂammatory bowel disease Crohn's disease and ulcerative colitis. The lead drug in development targets the cannabinoid receptors outside the brain, and Dimerix has a collaborative project with Starpharma Pty Ltd investigating the use of dendrimer nanostructures to prevent the cannabinoid drug crossing the blood and brain barrier. Starpharma invested $200,000 in Dimerix at start-up, and at the date of this report the Company owned 22% of the issued shares of Dimerix. On 15 September 2005, the Company announced that Dimerix had closed a Series A ﬁnancing and that Starpharma’s equity interest in Dimerix post-ﬁnancing was 22%. American Depositary Receipts Program The Dow/DNT transaction assisted in raising Starpharma’s proﬁle in the US, and the Company was able to take advantage of this exposure through the establishment of a Level 1 American Depositary Receipts (ADR) program. Since establishment of the ADR program in January 2005 there has been a steady uptake of these instruments by US shareholders, with around 5.7% of Starpharma held through ADRs at the date of this report. 9. RISK ASSESSMENT AND MANAGEMENT The Company operates in a challenging and dynamic environment, and risk management is viewed as integral to realising new opportunities as well as identifying issues that may have an adverse effect on the Company’s existing operations and its sustainability. The Board is committed to a proactive approach in managing material business risks, and it aims to ensure that effective risk management practices are a key element of the Company’s culture. The Company’s risk management policy is set out in the corporate governance statement and is available on the Company’s website. Responsibilities for risk management policy approval, oversight, implementation and review have been allocated to the Board, the audit & risk management committee, the Chief Executive Ofﬁcer (CEO), Company Secretary and senior management team. 10. QUALITY MANAGEMENT SYSTEM Starpharma’s quality management system (QMS) extends across all aspects of the Company, including product quality assurance, occupational health and safety, risk management, grant management, and ﬁnance and administration systems. The QMS has been developed and is maintained with a view to ensuring that the Company’s activities comply with international standards, regulations and guidelines, including those of the US Food and Drug Administration (FDA) (e.g. Good Laboratory Practice, Protection of Human Subjects, Quality Systems, Good Manufacturing Practice) and the International Conference on Harmonization (ICH) for pharmaceuticals. Overall responsibility for the QMS resides with the CEO and the senior management team. All Starpharma employees are committed to and embrace organizational quality as a part of their daily activities. The quality of the work is evidenced by the achievement of milestones such as the submission of an Investigational New Drug application (IND) to the US FDA, and the completion of the world’s ﬁrst clinical trial of a dendrimer pharmaceutical, successfully and efﬁciently. There is an ongoing commitment to quality as a cornerstone for the development and commercialisation of dendrimers as pharmaceuticals for unmet medical needs. > 8 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 9 Review of Operations & Activities cont. 11. LEGAL At the date of the directors’ report there are no signiﬁcant legal issues. 12. HEALTH AND SAFETY The Board, CEO and senior management team of Starpharma are committed to providing and maintaining a safe and healthy working environment for the Company’s employees and anyone entering its premises or with connection to the Company’s business operations. The Company has adopted an Occupational Health and Safety (OH&S) Policy and has established an OH&S Committee as part of its overall approach to workplace safety. Further details of the Company’s policy and practices are set out in the corporate governance statement on page 31 of the annual report. 13. ENVIRONMENT The Company recognises the importance of environmental issues and is committed to the highest levels of performance. There are adequate systems in place to ensure compliance with Commonwealth and State environmental regulations and the Directors are not aware of any breach of applicable environmental regulations. 14. CORPORATE GOVERNANCE Corporate governance information is included on page 26 of the annual report. Starpharma Holdings Limited Annual Report 2005 > 9 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 10 Directors’ Report Your directors present their report on the consolidated entity consisting of Starpharma Holdings Limited (“Starpharma” or “the Company”) and the entities it controlled at the end of, or during, the year ended 30 June 2005. DIRECTORS The following persons were directors of Starpharma Holdings Limited during the whole of the ﬁnancial year and up to the date of this report: P T Bartels P M Colman R Dobinson L Gorr P J Jenkins J W Raff PRINCIPAL ACTIVITIES During the year the principal activity of the consolidated entity consisted of investment in, and management and funding of dendrimer based research, development and commercialisation. There were no signiﬁcant changes in the nature of those activities during the ﬁnancial year. DIVIDENDS No dividend has been paid or declared since the end of the previous ﬁnancial year. REVIEW OF OPERATIONS Operating Loss For the year ended 30 June 2005 the consolidated entity incurred an operating loss after income tax of $7,585,992 (2004: $5,497,850). Expenditure on direct research activities was $6,410,293 (2004: $4,119,259). The increase of 38% in the net loss is primarily the result of an increase of $1,822,775 in costs attributable to the development of VivaGel™. Revenue Revenue was $2,049,298 (2004: $1,390,603) and consisted of grant income from a United States Government National Institutes of Health (“NIH”) Grant of $1,409,844 (2004: $656,148 Commonwealth Government R&D START Grant, $47,012 Austrade Export Market Development Grant), Interest revenue of $616,043 (2004: $640,246), and other revenue of $23,411 (2004: $47,196). Material factors affecting the revenues and expenses of the consolidated entity for the current period There was an increase of 38% in the operating loss of the consolidated entity during the current period compared with the previous year. This is attributable to the following factors: > 10 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 11 Directors’ Report cont. Revenue Revenue from ordinary activities increased by $658,695. This was primarily due to the inclusion of revenues associated with the United States Government NIH Grant of $1,409,844 for the combination microbicide project during 2005. The previous year’s result included the ﬁnal revenues associated with the completion of an Australian Government AusIndustry R&D START grant. Operating costs The 2005 costs included an increase of $1,822,775 in research costs attributable to the development of VivaGelTM and in particular the NIH funded combination microbicide project. Share of results of associates The application of equity accounting methods in relation to the results of DNT and Dimerix, including a gain in dilution and provision for diminution has resulted in a net proﬁt of $760,708 (2004: $382,174) on the Consolidated Statements of Financial Performance. Material factors affecting the assets, liabilities and equity of the consolidated entity for the current period Current Liabilities There has been an increase in the accounts payable and deferred revenue balances as at 30 June 2005 due to the timing difference relating to the receipt of cash and timing of revenue recognition from NIH for the combination microbicide project and the payment of the respective contractors. Dendritic Nanotechnologies, Inc – Associated Entity DNT has been treated as an associated company with effect from 27 March 2003. The investment in DNT was initially recorded at cost in the accounts of the consolidated entity. Subsequent to that date, normal equity accounting principles have been applied in the determination of the carrying value of the investment in the accounts of the consolidated entity. Dimerix Bioscience Pty Ltd – Associated Entity Dimerix has been treated as an associated company commencing from the date of investment on 16 March 2005. Normal equity accounting principles have been applied in the determination of the carrying value of the investment in the accounts of the consolidated entity. There were no other material factors affecting the assets, liabilities and equity of the consolidated entity for the current period not otherwise disclosed in this report. Material factors affecting the cash ﬂows of the consolidated entity for the current period Grant Revenue Payments under the NIH Grant totalling $1,787,906 were received during the year ending 30 June 2005. During the comparative corresponding period Commonwealth Government START Grant funds of $560,529 were received. Equity investments Agreement between DNT, The Dow Chemical Company and Starpharma to Commercialize Nanotechnology On 26 January 2005 the Company announced an agreement with DNT and The Dow Chemical Company (“Dow”) under which DNT and Starpharma would secure ownership or access to the world’s broadest patent portfolio in the ﬁeld of dendrimers, establishing the companies as leading providers of market-validated nanotechnology with near-term, tangible commercial applications. The terms of the deal provided for Dow to assign its entire intellectual property portfolio and associated royalties in the ﬁeld of dendrimers Starpharma Holdings Limited Annual Report 2005 > 11 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 12 Directors’ Report cont. (196 patents comprising 41 patent families) to DNT in exchange for a signiﬁcant equity stake in DNT. At the time Starpharma made an additional cash equity investment of US$1 million (A$1.3 million) in DNT in exchange for further equity in DNT and exclusive rights to DNT and former Dow intellectual property for polyvalent, dendrimer-based pharmaceutical applications. Establishment of Dimerix Bioscience Pty Ltd On 16 March 2005 the Company announced that as a foundation shareholder, it established the start-up biotechnology company Dimerix. Based in Perth, Western Australia, Dimerix is a specialist drug development company established to commercialise a unique technology in receptor coupling, speciﬁcally G-Protein coupled receptors (“GPCRs”). Starpharma contributed $200,000 in cash in return for a 30% equity holding. On 15 September 2005, the Company announced that Dimerix had closed a Series A ﬁnancing and that Starpharma’s equity interest in Dimerix post-ﬁnancing was 22%. Payments to Suppliers There was an increase in supplier payments associated with increased levels of research costs primarily attributable to the combination microbicide project for which the Company is receiving an NIH grant as disclosed above. EARNINGS PER SHARE Basic Earnings/(Loss) per share Diluted Earnings/(Loss) per Share Weighted average number of shares used as the denominator Weighted average number of shares used as the denominator in calculating basic earnings per share Potential ordinary shares not considered dilutive: As at the 30 June 2005, the Company had on issue: CONSOLIDATED 2005 CENTS (6.82) 2004 CENTS (5.38) (6.82) (5.38) 2005 2004 NUMBER NUMBER 111,235,000 102,169,098 220,000 options over unissued capital exercisable on or before 31 December 2005 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 220,000 options over unissued capital exercisable on or before 11 April 2007 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 200,000 options over unissued capital exercisable on or before 30 June 2007 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. > 12 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 13 Directors’ Report cont. 200,000 options over unissued capital exercisable on or before 31 December 2008 at the price of 73.00 cents per ordinary share. These options are not considered dilutive. 730,000 options over unissued capital exercisable on or before 8 February 2009 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 182,000 options over unissued capital exercisable on or before 31 December 2009 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 100,000 options over unissued capital exercisable on or before 12 May 2010 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS In the opinion of the directors there were no signiﬁcant changes in the state of affairs of the consolidated entity that occurred during the ﬁnancial year under review not otherwise disclosed in this report or in the ﬁnancial statements. Tax Consolidation Legislation allowing groups, comprising a parent entity and its Australian resident wholly owned entities, to elect to consolidate and be treated as a single entity for income tax purposes has been substantively enacted. As a consequence of Starpharma Holdings Ltd relinquishing its PDF status in March 2004, Starpharma Holdings Ltd and all of its 100% wholly owned subsidiaries are eligible to form a consolidated group for the year ended 30 June 2004 and subsequent years. The Board has made a decision to not elect into tax consolidation for the income years up to and including 30 June 2005. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR The following options were granted to speciﬁed executives who joined the Company subsequent to balance date: C P Barrett MANAGER, BUSINESS DEVELOPMENT J Fairley CHIEF OPERATING OFFICER OPTIONS GRANTED DATE GRANTED 18 July 2005 4 July 2005 100,000 300,000 No further matters or circumstances have arisen since 30 June 2005 that have signiﬁcantly affected, or may signiﬁcantly affect: (a) (b) (c) the consolidated entity’s operations in future ﬁnancial years, or the results of the operations in future ﬁnancial years, or the consolidated entity’s state of affairs in future ﬁnancial years. LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF OPERATIONS In the opinion of the directors, the consolidated entity will continue its activities as described. Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the consolidated entity. Starpharma Holdings Limited Annual Report 2005 > 13 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 14 Directors’ Report cont. ENVIRONMENTAL REGULATION The directors are not aware of any breaches of environmental regulations by the consolidated entity. INFORMATION ON DIRECTORS Peter T Bartels AO. CHAIRMAN – NON-EXECUTIVE Age 64. Experience and expertise Independent non-executive director and Chairman for two years. Previously CEO and Managing Director of Coles Myer Ltd and before that CEO and Managing Director of Fosters Brewing Company Ltd. Has also had broad-based experience in the pharmaceutical industry in previous roles with DHA Pharmaceuticals and Abbott Laboratories. Chairman of the Australian Sports Commission and the Australian Institute of Sport. Past chairman of the Commonwealth Heads of Government Committee for Sport and the Women's and Children's Health Service. Also a Director of the Australian Grand Prix Corporation and Melbourne Business School (Melbourne University). Other current directorships None. Former directorships in last 3 years None. Special responsibilities Chairman of the Board. Member of remuneration & nomination committee. Interests in shares and options 100,000 ordinary shares in Starpharma Holdings Limited John W Raff Dip. Ag. Sc., BSc., PhD CHIEF EXECUTIVE OFFICER Age 56. Experience and expertise Chief Executive Ofﬁcer for eight years. Previously General Manager of the Biomolecular Research Institute. Co-founder, director and major shareholder of a technology based agricultural seed company. Also founder and investor in a number of other start-up technology companies. Other current directorships None. Former directorships in last 3 years None. Special responsibilities Chief Executive Ofﬁcer. Member of research committee. Non-executive director of Dendritic Nanotechnologies, Inc. Interests in shares and options 5,634,421 ordinary shares in Starpharma Holdings Limited > 14 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 15 Directors’ Report cont. Peter M Colman BSc(Hons), PhD, FAA, FTSE. NON-EXECUTIVE DIRECTOR Age 61. Experience and expertise Non-executive director for eight years. Head, Structural Biology Division, The Walter & Eliza Hall Institute of Medical Research. Former Executive Director, Biomolecular Research Institute. Published widely in the ﬁeld of structural biology. In 1983 his Laboratory determined the structure of the surface proteins of inﬂuenza virus, and a major result of that work was the discovery of Relenza. One of the founding directors of Biota Holdings Ltd. Other current directorships None. Former directorships in last 3 years None. Special responsibilities Member of research committee. Non-executive director of Dendritic Nanotechnologies, Inc. Interests in shares and options 5,982,482 ordinary shares in Starpharma Holdings Limited Ross Dobinson B. Bus (Acc) INDEPENDENT NON-EXECUTIVE DIRECTOR Age 53. Experience and expertise Non-executive director for eight years. Merchant banker with a background in investment banking and stockbroking. Has acted as corporate director for two leading stockbrokers, and was an executive director of the NAB’s corporate advisory subsidiary. Later headed the Corporate Advisory Division of Dresdner Australia Ltd. Managing Director of TSL Group Ltd, a corporate advisory company specialising in establishing and advising life sciences companies. Also a director of a number of unlisted companies. Other current directorships Non-executive director of two other public companies: Acrux Ltd (director since 2000) and Roc Oil Company Limited (director since 1997). Former directorships in last 3 years None. Special responsibilities Chairman of audit & risk management committee. Chairman of remuneration & nomination committee. Interests in shares and options 3,155,976 ordinary shares in Starpharma Holdings Limited Starpharma Holdings Limited Annual Report 2005 > 15 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 16 Directors’ Report cont. Leon Gorr B. JURIS LLB, M.Admin INDEPENDENT NON-EXECUTIVE DIRECTOR Age 61. Experience and expertise Non-executive director for ﬁve years. Non-executive director of Starpharma Pty Ltd for eight years. Senior Partner, Herbert Geer & Rundle. 32 years’ experience as a solicitor. Extensive experience in providing advice on the negotiation and interpretation of technology licensing agreements. Clients include investors in, and advisors to the biotechnology industry. Other current directorships None. Former directorships in last 3 years None. Special responsibilities Member of audit & risk management committee. Member of remuneration & nomination committee. Interests in shares and options 5,194,900 ordinary shares in Starpharma Holdings Limited PETER J JENKINS MB, BS (Melb), FRACP INDEPENDENT NON-EXECUTIVE DIRECTOR Age 59. Experience and expertise Independent non-executive director for eight years. Consultant physician and gastroenterologist. Holds clinical and research positions with the Alfred Hospital and has held clinical positions with the Baker Medical Research Centre. Former judge of the Australian Technology Awards. Executive Director of AusBio Ltd, an unlisted public biotechnology company. Other current directorships Non-executive director of bio-pharmaceutical company Anadis Ltd (director since 1994). Former directorships in last 3 years None. Special responsibilities Chairman of research committee. Member of audit & risk management committee. Interests in shares and options 2,191,500 ordinary shares in Starpharma Holdings Limited. Company Secretary The Company Secretary is Mr Ben Rogers. Age 57. He has extensive experience in ﬁnance and human resources management with CSIRO research laboratories in Victoria, South Australia and Western Australia. He also operated his own consulting business providing services to Co-operative Research Centres and CSIRO Divisions. Mr Rogers joined Starpharma on commencement of operations in April 1997 and was appointed to the position of Company Secretary in February 1998. He is a member of the senior management team with responsibilities that include the role of Chief Financial Ofﬁcer. > 16 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 17 Directors’ Report cont. DIRECTORS’ MEETINGS The number of meetings of the Company’s Board of directors and of each committee held during the year ended 30 June 2005, and the numbers of meetings attended by each director were: FULL MEETINGS OF DIRECTORS MEETINGS OF COMMITTEES AUDIT & RISK REMUNERATION RESEARCH MANAGEMENT & NOMINATION A 12 11 9 11 11 12 B 12 12 12 12 12 12 A * * 3 3 3 * B * * 3 3 3 * A 2 * 2 1 * * B 2 * 2 2 * * A * 8 * * 8 9 B * 10 * * 10 10 P T Bartels P M Colman R Dobinson L Gorr P J Jenkins J W Raff A = Number of meetings attended B = Number of meetings held during the time the director held ofﬁce or was a member of the committee during the year. * = Not a member of the relevant committee. RETIREMENT, ELECTION AND CONTINUATION IN OFFICE OF DIRECTORS Mr Ross Dobinson retires by rotation as director at the annual general meeting and, being eligible, offers himself for re-election. Prof Peter Colman retires by rotation as director at the annual general meeting and, being eligible, offers himself for re-election. REMUNERATION REPORT Principles used to determine the nature and amount of remuneration The objective of the company’s remuneration policy is to ensure appropriate and competitive reward for the results delivered. The remuneration and nomination committee, consisting of three independent non-executive directors, advises the Board on remuneration policies and practices generally, and makes speciﬁc recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non-executive directors. Non-executive directors Fees and payments to non-executive directors reﬂect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees consist of a base yearly amount plus additional amounts for membership of board committees or membership of boards of associated entities. The Chairman’s fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-executive directors do not receive share options or bonuses. Non-executive directors’ fees are reviewed annually by the Board, but have not been increased since 1 January 2004. Fees and payments are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by Starpharma Holdings Limited Annual Report 2005 > 17 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 18 Directors’ Report cont. shareholders. The aggregate amount currently stands at $350,000 which was approved by shareholders on 19 November 2003. This amount (or some part of it) is to be divided among the non-executive directors as determined by the Board. The aggregate amount currently paid to non-executive directors is $240,000 per annum. Non-executive directors do not receive any performance-related remuneration. Executive remuneration Remuneration and other terms of employment for the Chief Executive Ofﬁcer and certain other senior executives are formalised in service agreements. Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the Group’s operations. As well as a base salary, remuneration packages include superannuation, retirement and termination entitlements and fringe beneﬁts. Factors taken into account in determining remuneration packages include demonstrated record of performance against targets and key performance indicators (KPIs), internal relativities, data from a national biotechnology salary survey and the Company’s ability to pay. Performance review and development Executives and all other staff participate in a formal two stage performance review and development process consisting of an objectives planning and development session at the commencement of the annual cycle and a performance and pay review towards the end of the cycle. Details of remuneration Details of the nature and amount of each element of the remuneration of each director of Starpharma Holdings Limited and each of the ﬁve executives of the company and the consolidated entity who received the highest remuneration for the year ended 30 June 2005 are set out in the following tables. 2005 NAME PRIMARY POST-EMPLOYMENT EQUITY CASH SALARY & FEES NON-MONETARY BENEFITS SUPER- OPTIONS TOTAL P T Bartels CHAIRMAN P M Colman R Dobinson L Gorr P J Jenkins Total: $ - 36,697 40,000 36,697 36,697 150,091 $ - - - - - - ANNUATION $ 80,000 3,303 - 3,303 3,303 89,909 $ - - - - - - $ 80,000 40,000 40,000 40,000 40,000 240,000 EXECUTIVE DIRECTORS OF STARPHARMA HOLDINGS LIMITED 2005 NAME CASH SALARY & FEES PRIMARY CASH BONUS NON-MONETARY BENEFITS SUPER- OPTIONS TOTAL POST-EMPLOYMENT EQUITY ANNUATION $ 269,000 $ - $ 78,524 J W Raff * $50,000 of the $92,350 contributed to J W Raff’s superannuation was the result of a bonus. $ 92,350* $ - $ 439,874 > 18 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 19 Directors’ Report cont. OTHER EXECUTIVES OF STARPHARMA HOLDINGS LIMITED OR SUBSIDIARY COMPANIES 2005 NAME CASH SALARY & FEES O T Grogan VP-Commercial Development & Licensing B P Rogers Company Secretary T D McCarthy VP-Development Manager G Y Krippner VP-Drug Discovery J R Paull VP – Regulatory Affairs & QA Total $ 139,123 99,666 96,421 99,346 104,739 539,295 CASH BONUSES AND OPTIONS PRIMARY CASH BONUS $ POST-EMPLOYMENT EQUITY NON-MONETARY BENEFITS SUPER- OPTIONS TOTAL ANNUATION $ $ $ $ - - - - - - 22,373 27,368 24,897 19,920 - 94,558 21,711 3,589 186,796 20,065 43,585 190,684 18,682 19,811 159,811 10,734 39,622 169,622 9,426 80,618 15,849 122,456 130,014 836,927 Service agreements for executives do not include pre-determined bonus or option allocations, but bonuses may be awarded, or options offered at the end of the performance review cycle for speciﬁc contributions, or upon achievement of a signiﬁcant Company milestone at the discretion of the Board and in line with the principles disclosed in the directors’ report. As such, of the bonuses awarded and options offered during the year, all were respectively paid or vested. Service Agreements Remuneration and other terms of employment for the CEO and the speciﬁed executives are formalised in service agreements. Each of these agreements provides for the provision of performance-related cash bonuses, and other beneﬁts including participation, when eligible, in the Starpharma Holdings Employee Share Option Plan. Other major provisions of the agreements relating to remuneration are set out below. J W Raff CHIEF EXECUTIVE OFFICER • • Fixed term of three years from 1 September 2004 Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $333,218 plus fully maintained motor vehicle, to be reviewed annually and increased by an amount no less than the annual increase in the Consumer Price Index Fringe beneﬁts - on-site car parking Subject to termination by either party upon the giving of a minimum notice period of one year, except that the Company shall be entitled to terminate the executive’s employment summarily in the following circumstances: • • Starpharma Holdings Limited Annual Report 2005 > 19 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 20 Directors’ Report cont. (i) The Executive wilfully disobeys or disregards a lawful direction given to the Executive or is otherwise guilty of serious misconduct; (ii) The Executive has any direct or indirect interest in any business or matter which conﬂicts with the proper performance of the Executive’s duties unless the Executive has provided prior written disclosure of such interest and the Company has waived any objection to the Executive maintaining such an interest; (iii) The Executive is guilty of any wilful breach or continued neglect of the terms of this Agreement or of the duties and obligations which the Executive is required to perform or meet hereunder; or (iv) The Executive becomes bankrupt or makes a composition or arrangement with the Executive’s creditors generally or takes advantage of any statute for the relief of insolvent debtors such that, in the reasonable opinion of the Company, the performance of the Executive of the Executive’s duties and responsibilities is adversely affected or the commercial and business interests of the Company are prejudiced and/or damaged. O T Grogan VP – COMMERCIAL DEVELOPMENT & LICENSING • No ﬁxed term of agreement. • Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $214,675, to be reviewed annually by the remuneration committee. Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. B P Rogers COMPANY SECRETARY • No ﬁxed term of agreement. • Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $142,996, to be reviewed annually by the remuneration committee. Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. T D McCarthy VP – DRUG DEVELOPMENT • • No ﬁxed term of agreement. Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $150,000, to be reviewed annually by the remuneration committee. Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. • • • • • • G Y Krippner VP – DRUG DISCOVERY No ﬁxed term of agreement. • • Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $130,000, to be reviewed annually by the remuneration committee. > 20 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 21 Directors’ Report cont. • • Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. J R Paull VP – REGULATORY AFFAIRS & QA • • No ﬁxed term of agreement. Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $120,000, to be reviewed annually by the remuneration committee. Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. • • Share-based compensation Options are granted under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) (“the Plan”) which was approved by shareholders at the 2004 annual general meeting. All employees of the Company or associated companies are eligible to participate in the plan. Options are granted under the plan for no consideration. Options are normally granted for a ﬁve year period and become exercisable on the second anniversary of the date of grant. The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as follows: GRANT DATE EXPIRY DATE EXERCISE PRICE VALUE PER OPTION DATE EXERCISABLE 8 February 2004 12 May 2005 8 February 2009 12 May 2010 $0.9375 $0.9375 Options granted under the Plan carry no dividend or voting rights. AT GRANT DATE $0.46 $0.30 9 February 2006 13 May 2007 When exercisable, each option is convertible into one ordinary share of the Company to be allotted not more than ten business days after exercise. Further details relating to options are set out below. NAME REMUNERATION VALUE AT GRANT VALUE AT EXERCISE VALUE AT LAPSE TOTAL OF A B C D E O T Grogan B P Rogers T D McCarthy G Y Krippner J R Paull CONSISTING OF OPTIONS 1.9% 22.8% 12.4% 23.3% 12.2% DATE $ 30,155 - - - - DATE DATE COLUMNS B TO D $ - - - - - $ - - - - - $ 30,155 - - - - A = The percentage of the value of remuneration consisting of options, based on the value at grant date set out in column B. B = The value at grant date calculated in accordance with AASB 1046 Director and Executive Disclosures by Disclosing Entities 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. D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the year. Starpharma Holdings Limited Annual Report 2005 > 21 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 22 Directors’ Report cont. Share options granted to directors and the most highly remunerated ofﬁcers Options over unissued ordinary shares of Starpharma Holdings Limited granted during or since the end of the ﬁnancial year to any of the directors or the most ﬁve highly remunerated ofﬁcers of the Company and consolidated entity with greatest authority as part of their remuneration were as follows: O T Grogan, VP – Commercial Development & Licensing OPTIONS GRANTED 100,000 DATE GRANTED 12 May 2005 The options were granted under the Starpharma Holdings Limited Employee Share Option Plan on the dates indicated. Option holdings There were no options over shares in the Company held by any director of Starpharma Holdings Limited or their personally-related entities during the ﬁnancial year. The numbers of options over ordinary shares in the Company held during the ﬁnancial year by each of the ﬁve most highly remunerated executives of the consolidated entity, including their personally-related entities, are set out below. NAME BALANCE AT THE START OF THE YEAR GRANTED DURING THE YEAR AS REMUNERATION EXERCISED OTHER CHANGES DURING THE YEAR DURING THE YEAR BALANCE AT THE END OF THE YEAR VESTED & EXERCISABLE AT THE END OF THE YEAR Speciﬁed executives of the consolidated entity 200,000 O T Grogan 220,000 B P Rogers 220,000 T D McCarthy 200,000 G Y Krippner 100,000 J R Paull 100,000 - - - - - - - - - - - - - - 300,000 220,000 220,000 200,000 100,000 200,000 - 120,000 - 20,000 SHARES UNDER OPTION Unissued ordinary shares of Starpharma Holdings Limited under option at the date of this report are as follows: DATE OPTIONS GRANTED 31 January 2001 12 April 2002 21 June 2002 6 February 2004 8 February 2004 31 December 2004 12 May 2005 4 July 2005 18 July 2005 EXPIRY DATE 31 December 2005 11 April 2007 30 June 2007 31 December 2008 8 February 2009 31 December 2009 12 May 2010 4 July 2010 18 July 2010 ISSUE PRICE OF SHARES $0.9375 $0.9375 $0.9375 $0.7300 $0.9375 $0.9375 $0.9375 $0.9375 $0.9375 Total: NUMBER UNDER OPTION 220,000 220,000 200,000 200,000 730,000 182,000 100,000 300,000 100,000 2,252,000 4,899,000 options have lapsed since the date of the last report. No option holder has any right under the options to participate in any other issue of the Company or of any other entity. > 22 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 23 Directors’ Report cont. Shares Issued on the Exercise of Options No shares in Starpharma Holdings Limited have been issued on the exercise of options. INSURANCE OF OFFICERS During the ﬁnancial year Starpharma Holdings Limited and ofﬁcers of the Company and related bodies corporate arranged through Willis Australia Ltd for a Directors’ and Ofﬁcers’ Liability insurance policy to indemnify certain ofﬁcers of the Company and related bodies corporate. It is a condition of the policy that the Company not publish details of the nature of the liabilities insured by the policy or the amount of the premium paid. The ofﬁcers of the Company covered by the insurance policy include the directors and executive ofﬁcers. AUDIT & 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 consolidated entity 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 the advice received from the audit and risk management committee is satisﬁed 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 satisﬁed 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: • All non-audit services have been reviewed by the audit & risk management committee to ensure they do not impact the impartiality and objectivity of the auditor • None of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risk and rewards. During the year the following fees were paid or payable for services provided by the auditor (PricewaterhouseCoopers) of the parent entity, its related practices and non-related audit ﬁrms: Audit or review of ﬁnancial reports of the entity or any entity in the consolidated entity Non-audit services: - Grant reviews & AIFRS worshop 2005 $ 92,500 22,000 2004 $ 70,500 38,145 Starpharma Holdings Limited Annual Report 2005 > 23 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 24 Directors’ Report cont. LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 The lead auditor’s independence declaration forms part of the Directors’ Report for the year ended 30 June 2005 and is set out on page 25. AUDITOR PricewaterhouseCoopers continues in ofﬁce in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the Directors: Peter T Bartels AO DIRECTOR 28 September 2005 Melbourne > 24 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 25 Auditors’ Independence Declaration Starpharma Holdings Limited Annual Report 2005 > 25 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 26 Corporate Governance Statement Starpharma Holdings Limited (the Company) and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Board guides and monitors the Company’s activities on behalf of the shareholders. In developing policies and setting standards the Board considers the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations (“the ASX Recommendations”). The Corporate Governance Statement set out below describes current the Company’s corporate governance practices which the Board considers to substantially accord with the ASX Recommendations. All these practices, unless otherwise stated, were in place for the entire year. This corporate governance statement is available on the Company’s website. A table at the end of this statement provides a cross-reference of relevant sections of the statement against the ASX Recommendations. 1. THE BOARD OF DIRECTORS 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. Day to day management of the Group’s affairs and the implementation of the corporate strategy and policy initiatives are delegated by the Board to the Chief Executive Ofﬁcer (“CEO”) and senior executives. These delegations are reviewed on an annual basis. 1.1 Board charter The Board composition and responsibilities are set out the Board charter, which may be viewed in the Corporate Governance section of the Company’s website. 1.2 Board meetings Board meetings are held on a monthly basis, or more frequently if required. A detailed management report is prepared by senior management and distributed with board papers prior to each meeting. The CEO and the Company Secretary attend all Board meetings. 1.3 Board members Details of the members of the Board, their experience, qualiﬁcations, term of ofﬁce and independent status are set out in the directors’ report under the heading “Information on Directors”. There are ﬁve non-executive directors, four of whom are deemed independent under the principles set out below, and one executive director at the date of signing the directors’ report. The composition of the Board has been unchanged over the past year. The Board seeks to ensure that: • 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; and the size of the Board is conducive to effective discussion and efﬁcient decision-making. • 1.4 Directors’ independence The Company has adopted the criteria for assessing the independence of a director as set out in the ASX Recommendations. Materiality for the purposes of applying these criteria is determined on both quantitative and qualitative bases. An amount of 5% of the individual director’s net worth is considered material, and in addition a transaction of any amount or a relationship is deemed > 26 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 27 Corporate Governance Statement cont. material if knowledge of it may impact the shareholders’ understanding of the director’s performance. A director is also not considered independent if he has a substantial shareholding as deﬁned in section 9 of the Corporations Act. The Board has determined that all non-executive directors are independent, with the exception of Prof Peter Colman, who, although meeting other criteria and bringing independent judgement to bear in his role, is not considered independent because he is a substantial shareholder, holding 5.38% of the shares of the Company. 1.5 Term of ofﬁce The Company’s Constitution requires that one third of non-executive directors (or if their number is not a multiple of three then the number nearest to one third) retire at every annual general meeting and be eligible for re-election. 1.6 Chairman and Chief Executive Ofﬁcer The Chairman 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. The CEO is responsible for implementing Group strategies and policies. The Board policy is for these separate roles to be undertaken by separate people. 1.7 Commitment Board meetings are held on a monthly basis, or more frequently if required. Meetings are held at the Company’s corporate ofﬁces and laboratory facility in the Baker Building, 75 Commercial Road, Melbourne. The number of meeting of the Board and of each Board committee held during the year ended 30 June 2005, and the number of meetings attended by each director is disclosed in the Directors’ Report. The commitments of non-executive directors are considered by the remuneration and nomination committee prior to the directors’ appointments to the Board and are reviewed each year as part of the annual performance assessment. Prior to appointment or being submitted for re-election each non-executive director is required to speciﬁcally acknowledge that they have and will continue to have the time available to discharge their responsibilities to the Company. 1.8 Conﬂict of interests An entity associated with a director, Mr Leon Gorr, had business dealings with the consolidated entity during the year, as described in note 23 to the ﬁnancial statements. The director concerned declared his interest in those dealings to the Company and took no part in decisions relating to them or the preceding discussions. Having considered the nature of the services supplied by each of the entities and the materiality criteria set out in section 1.4 above, the Board considers that this relationship is not material for the purpose of independence. 1.9 Independent professional advice Directors and Board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at the Company’s expense. Prior approval of the Chairman is required, but this approval will not be unreasonably withheld. 1.10 Performance assessment The Board undertakes an annual assessment of Board performance. Each director completes a questionnaire on matters such as composition, structure, and role of the Board and performance of individual directors. These questionnaires are reviewed by the remuneration & nomination committee and the Chairman then meets individually with each director to discuss the assessment. Starpharma Holdings Limited Annual Report 2005 > 27 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 28 Corporate Governance Statement cont. 2. CORPORATE REPORTING The CEO and the CFO have made the following certiﬁcations to the Board: • • that the Company’s ﬁnancial reports are complete and present a true and fair view, in all material respects, of the ﬁnancial condition and operational results of the Company and Group and are in accordance with relevant accounting standards; that the above statement is founded on a sound system of risk management and internal compliance and control and which implements the policies adopted by the Board and that the Company’s risk management and internal compliance and control is operating efﬁciently and effectively in all material respects. The Company adopted this reporting structure for the year ended 30 June 2005. 3. 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. The committee structure and membership is reviewed on an annual basis. Board committees are chaired by an independent director other than the Chairman of the Board. Minutes of committee meetings are tabled at the following Board meeting, and all matters determined by committees are submitted to the full Board as recommendations for Board decisions. Current committees of the Board are the following: 3.1 Audit and risk management committee The audit and risk management committee consists of the following independent non-executive directors: Mr Ross Dobinson (Chairman) Mr Leon Gorr Dr Peter Jenkins Details of these directors’ qualiﬁcations and attendance at committee meetings are set out in the directors’ report on pages 14 to 17. The audit and risk management committee has appropriate ﬁnancial expertise and all members are ﬁnancially literate and have an appropriate understanding of the industry in which the Group operates. The committee meets at least twice a year, and has direct access to the Company’s auditors. The charter of this committee is to: • • • review and report to the Board on the annual report, the half-year ﬁnancial report and all other ﬁnancial information published by the company or released to the market assist the Board in reviewing the effectiveness of the organisation’s internal control environment covering: - effectiveness and efﬁciency of operations - reliability of ﬁnancial reporting - compliance with applicable laws and regulations oversee the effective operation of the risk management framework by: - ensuring the effective implementation of the risk management policy and program - deﬁning risk threshold levels for referral to the Board - ensuring that an effective system of internal compliance and control is in place > 28 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 29 Corporate Governance Statement cont. - ensuring staff charged with risk management responsibilities have appropriate authority to carry out their functions and have appropriate access to the audit and risk management committee - ensuring the allocation of sufﬁcient resources for the effective management of risk recommend to the Board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance consider the independence and competence of the external auditor on an ongoing basis review and monitor related party transactions and assess their propriety assist the Board in the development and monitoring of statutory compliance and ethics programs provide assurance to the Board that it is receiving adequate, up to date and reliable information oversee the Group’s transition to Australian equivalent to International Financial Reporting Standards (AIFRS) report to the Board on matters relevant to the committee’s role and responsibilities • • • • • • • 3.2 Remuneration and nomination committee The remuneration and nomination committee consists of the following independent non-executive directors: Mr Ross Dobinson (Chairman) Mr Peter Bartels Mr Leon Gorr Details of these directors’ attendance at committee meetings are set out in the directors’ report on pages 14 to 17. The main responsibilities of the committee are to: • conduct annual reviews of board membership having regard to present and future needs of the Company and make recommendations on board composition and appointments conduct an annual review of and conclude on the independence of each director propose candidates for board vacancies oversee board succession including the succession of the Chairman oversee the annual assessment of board performance advise the board on remuneration and incentive policies and practices generally • • • • • • make speciﬁc recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non-executive directors. When the need for a new director is identiﬁed or an existing director is required to stand for re-election, the committee reviews the range of skills, experience and expertise on the board, identiﬁes its needs and prepares a short-list of candidates with appropriate skills and experience. Where necessary, advice is sought from independent search consultants. Each member of the senior executive team has signed a formal employment contract covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. The standard contract refers to a speciﬁc formal position description. The remuneration and nomination committee’s terms of reference include responsibility for reviewing any transaction between the organisation and the directors, or any interest associated with the directors, to ensure the structure and the terms of the transaction are in compliance with the Corporations Act 2001 and are appropriately disclosed. Starpharma Holdings Limited Annual Report 2005 > 29 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 30 Corporate Governance Statement cont. Details of the nature and amount of each element of the remuneration of each director of Starpharma Holdings Limited and each of the 5 ofﬁcers of the Company and the consolidated entity receiving the highest emoluments are set out in the Remuneration Report on page 17. 3.3 Research committee The research committee consists of the following directors: Dr Peter Jenkins (Chairman) – independent non-executive director Prof Peter Colman – non-executive director Dr John Raff – Chief Executive Ofﬁcer The charter of the research committee is: • • to ensure that the Board is kept fully informed of developments relating to the Company's research activities and development progress against milestones; and to advise the Board on scientiﬁc matters in relation to the Company's continuous disclosure obligations under the listing rules of the Australian Stock Exchange Limited. 4. EXTERNAL AUDITORS The Company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually. PricewaterhouseCoopers were appointed as the external auditors at the commencement of the Company’s operations in 1996. It is PricewaterhouseCoopers policy to rotate audit engagement partners on listed companies at least every ﬁve years, and the current audit engagement partner assumed responsibility for the conduct of the audit in 2005. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in note 24 to the ﬁnancial statements. It is the policy of the external auditors to provide an annual declaration of their independence to the audit and risk management committee. The external auditor is requested to 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 audit report. 5. RISK ASSESSMENT AND MANAGEMENT The Board, through the audit and risk management committee, is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. The Company operates in a challenging and dynamic environment, and risk management is viewed as integral to realising new opportunities as well as identifying issues that may have an adverse effect on the Company’s existing operations and its sustainability. The Board is committed to a proactive approach in managing material business risks, and it aims to ensure that effective risk management practices are a key element of the Company’s culture. The risk management policy, which is available on the Company website, sets out the responsibilities and authorities of the Board, the audit and risk management committee, the CEO and Company Secretary, and the senior management team. The Company Secretary is responsible to the Board for the overall implementation of the risk management program. > 30 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 31 Corporate Governance Statement cont. 6. THE ENVIRONMENT, OCCUPATIONAL HEALTH AND SAFETY The Company recognises the importance of environmental issues and is committed to the highest levels of performance. There are adequate systems in place to ensure compliance with Commonwealth and State environmental regulations and the directors are not aware of any breach of applicable environmental regulations. The Company has adopted an Occupational Health and Safety (OH&S) Policy and has established an OH&S committee as part of its overall approach to workplace safety. This committee meets monthly to review the development and implementation of OH&S policy and procedures, to consider any work related safety matters or incidents, and to ensure compliance with relevant legislation and guidelines. The CEO is represented on the OH&S committee by the Company Secretary. 7. CODE OF CONDUCT The Company has adopted a code of conduct reﬂecting the core values of the Company and setting out the standards of ethical behaviour expected of directors, ofﬁcers and employees in all dealings and relationships including with shareholders, contractors, customers and suppliers, and with the Company. The code of conduct is available in the Corporate Governance section of the Company’s website. 8. ETHICAL STANDARDS The directors are committed to the principles underpinning best practice in corporate governance, with a commitment to the highest standards of legislative compliance and ﬁnancial and ethical behaviour. 9. TRADING IN COMPANY SECURITIES The purchase and sale of Company securities by directors, executives and employees is only permitted during the thirty day period following the annual general meeting and the release of the half yearly and annual ﬁnancial results to the market, unless prior approval is given to each transaction by the Chairman. 10. CONTINUOUS DISCLOSURE AND SHAREHOLDER COMMUNICATION The Board has appointed the Company Secretary as the person responsible for disclosure of information to the Australian Stock Exchange Limited (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. All ASX announcements are posted on the Company’s web site as soon as practicable after release to the ASX. Procedures have been established for reviewing whether there is any price sensitive information that should be disclosed to the market, or whether any price sensitive information may have been inadvertently disclosed. Starpharma Holdings Limited Annual Report 2005 > 31 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 32 Corporate Governance Statement cont. 11. REPORTING AGAINST ASX RECOMMENDATIONS The following table cross-references the Company’s corporate governance statement against the ASX Recommendations. The full text of the ASX Recommendations is available from http://www.asx.com.au/CorporateGovernance. RECOMMENDATION DETAILS 1.1 2.1 2.2 2.3 2.4 2.5 3.1 3.2 3.3 4.1 4.2 4.3 4.4 4.5 5.1 5.2 6.1 6.2 7.1 7.2 7.3 8.1 9.1 9.2 9.3 9.5 10.1 Functions of the Board and management Independent directors Independent chairperson Role of the Chairman and CEO Nomination Committee Reporting on Principle 2 Code of conduct Company security trading policy Reporting on Principle 3 Attestations by CEO and CFO Audit committee Structure of audit committee Audit committee charter Reporting on Principle 4 Continuous disclosure Reporting on Principle 5 Communications strategy Auditor to attend general meetings Risk oversight and management CEO and CFO statements Reporting on Principle 7 Performance evaluation of Board and executives Remuneration disclosures Remuneration committee Executive and non-executive directors’ remuneration Reporting on Principle 9 Company code of conduct CORPORATE GOVERNANCE STATEMENT SECTION 1.1 1.4 1.4, 1.1, 1.6 1, 1.1, 1.6 3.2 1.1 – 1.10 7 9 11 2 3.1 3.1 3.1 3.1, 11 10 Introduction, 11 10 4 2, 5 2 Introduction, 11 1.10, 3.2 3.2 3.2 3.2 3.2 7 > 32 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 33 This ﬁnancial report covers both Starpharma Holdings Limited as an individual entity and the consolidated entity consisting of Starpharma Holdings Limited and its controlled entities. Starpharma Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered ofﬁce and principal place of business is: Starpharma Holdings Limited Baker Building 75 Commercial Road Melbourne Victoria 3004 Australia A description of the nature of the consolidated entity’s operations and its principal activities is included in the Directors’ Report on pages 10 - 25. ﬁnancial report 30 June 2005 contents Statements of Financial Performance > 34 Statements of Financial Position > 35 Statements of Cash Flows > 36 Notes to the Financial Statements > 37 Directors’ Declaration > 70 Independent Audit Report to the Members > 71 Shareholder Information > 74 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 34 Statements of Financial Performance FOR THE YEAR ENDED 30 JUNE 2005 NOTES CONSOLIDATED PARENT ENTITY 2005 $ 2004 $ 2005 $ 2004 $ REVENUE FROM ORDINARY ACTIVITIES (excluding shares of equity accounted net proﬁts of associates) Administration expense Research and development expense Occupancy expense Provision for diminution in loans Share of results of associates accounted for using the equity method Depreciation and amortisation Borrowing costs expense Other expense from ordinary activities LOSS FROM ORDINARY ACTIVITIES BEFORE TAX Income tax attributable to ordinary activities 2 3 3 3 3 4 2,049,298 1,390,603 601,679 618,704 (2,912,003) (6,410,293) (371,547) - (2,211,604) (4,119,259) (324,664) - (1,118,152) - - (6,750,608) (746,935) - - (6,401,548) 760,708 (693,865) (8,290) - 382,174 (603,089) (12,011) - - - - - - - - - (7,585,992) (5,497,850) (7,267,081) (6,529,779) - - - - LOSS FROM ORDINARY ACTIVITIES AFTER INCOME TAX 17 (7,585,992) (5,497,850) (7,267,081) (6,529,779) Loss attributable to outside equity interest - - - - LOSS ATTRIBUTABLE TO MEMBERS OF STARPHARMA HOLDINGS LTD (7,585,992) (5,497,850) (7,267,081) (6,529,779) Net exchange differences on translation of ﬁnancial report of foreign associated entity (40,539) 59,318 Total revenues, expenses and valuation adjustments attributable to members of Starpharma Holdings Ltd recognized directly in equity Total changes in equity attributable to members of Starpharma Holdings Ltd other than those resulting from transactions with owners as owners - - - - (40,539) 59,318 (7,626,531) (5,438,532) (7,267,081) (6,529,779) Basic Earnings/(Loss) per share Diluted Earnings/(Loss) per share 28 28 CENTS (6.82) (6.82) CENTS (5.38) (5.38) The above statements of ﬁnancial performance should be read in conjunction with the accompanying notes. > 34 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 35 Statements of Financial Position AS AT 30 JUNE 2005 CONSOLIDATED PARENT ENTITY NOTES 2005 $ 2004 $ 2005 $ 2004 $ ASSETS CURRENT ASSETS Cash assets Receivables Other TOTAL CURRENT ASSETS NON-CURRENT ASSETS Receivables Property, plant and equipment Investments accounted for using the equity method Other ﬁnancial assets TOTAL NON-CURRENT ASSETS TOTAL ASSETS LIABILITIES CURRENT LIABILITIES Payables Provisions Other Interest-bearing liabilities TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions Interest-bearing liabilities TOTAL NON-CURRENT LIABILITIES 5 6.1 7 6.2 8 9 10 11 12.1 13 14.1 12.2 14.2 8,166,259 42,851 144,805 8,353,915 15,658,300 471,139 113,044 16,242,483 6,322,524 23,784 67,303 6,413,611 14,524,569 346,997 67,262 14,938,828 - 1,232,764 2,913,061 - 4,145,825 - 1,556,265 692,194 - 2,248,459 - - - 5,368,747 5,368,747 - - - 3,868,048 3,868,048 12,499,740 18,490,942 11,782,358 18,806,876 1,647,182 279,589 378,063 60,007 2,364,841 89,184 79,750 168,934 445,908 201,674 - 60,007 707,589 47,341 143,516 190,857 765,276 - - - 765,276 - - - 522,713 - - - 522,713 - - - TOTAL LIABILITIES 2,533,775 898,446 765,276 522,713 NET ASSETS EQUITY Contributed Equity Foreign currency translation reserve Accumulated losses TOTAL EQUITY 9,965,965 17,592,496 11,017,082 18,284,163 15 16 17 46,821,956 (27,830) (36,828,161) 9,965,965 46,821,956 12,709 (29,242,169) 17,592,496 46,821,956 - (35,804,874) 11,017,082 46,821,956 - (28,537,793) 18,284,163 The above statements of ﬁnancial position should be read in conjunction with the accompanying notes. Starpharma Holdings Limited Annual Report 2005 > 35 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 36 Statements of Cash Flows FOR THE YEAR ENDED 30 JUNE 2005 CONSOLIDATED PARENT ENTITY NOTES 2005 $ 2004 $ 2005 $ 2004 $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from trade and other debtors Grant income (Inclusive of GST) Payments to suppliers and employees (Inclusive of GST) Interest received Interest expense NET CASH INFLOWS (OUTFLOWS) FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Equity investment Loans advanced to subsidiaries Loans advanced from subsidiaries Repayment of loans advanced to associated entity Payments for property, plant and equipment NET CASH INFLOWS (OUTFLOWS) FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Share issue transaction costs Payments on ﬁnance leases NET CASH INFLOWS (OUTFLOWS) FROM FINANCING ACTIVITIES 23,411 1,787,906 (8,253,163) 641,547 (8,290) 36,197 560,529 (7,004,923) 613,010 (11,993) 13,772 - (1,123,803) 610,391 - 11,237 - (457,174) 601,271 - 21 (5,808,589) (5,807,180) (499,640) 155,334 (1,500,699) - - 286,306 (405,294) - - - - (153,954) (1,500,699) (6,750,608) 259,294 289,608 - - (6,163,583) - - - (1,619,687) (153,954) (7,702,405) (6,163,583) - - (63,765) 14,494,200 (706,302) (60,007) (63,765) 13,727,891 - - - - 14,494,200 (706,302) - 13,787,898 NET INCREASE (DECREASE) IN CASH HELD Cash at the beginning of the ﬁnancial year (7,492,041) 15,658,300 7,766,757 7,891,543 (8,202,045) 14,524,569 7,779,649 6,744,920 CASH AT THE END OF THE FINANCIAL YEAR 5 8,166,259 15,658,300 6,322,524 14,524,569 The above statements of cash ﬂows should be read in conjunction with the accompanying notes. > 36 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 37 Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2005 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This general purpose ﬁnancial report has been prepared in accordance with Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Consensus Views and the Corporations Act 2001. It is prepared in accordance with the historical cost convention. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year. Comparative information is reclassiﬁed where appropriate to enhance comparability. (a) Principles of consolidation The consolidated ﬁnancial statements incorporate the assets and liabilities of all entities controlled by Starpharma Holdings Limited (‘the Company’ or ‘Parent Entity’) as at 30 June 2005 and the results of all controlled entities for the year then ended. Starpharma Holdings Limited and its controlled entities together are referred to in this ﬁnancial report as the consolidated entity. The effects of all transactions between entities in the consolidated entity are eliminated in full. Where control of an entity ceases during the ﬁnancial year, its results are included for that part of the year during which control existed. Investments in associates are accounted for in the consolidated ﬁnancial statements using the equity method. Under this method, the consolidated entity’s share of the post-acquisition losses of its associate is recognised in the consolidated statement of ﬁnancial performance, and its share of post-acquisition movements in reserves is recognised in consolidated reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment. Associates are those entities over which the consolidated entity exercises signiﬁcant inﬂuence, but not control. (b) Income tax Tax effect accounting procedures are followed whereby the income tax expense in the statement of ﬁnancial performance is matched with the accounting proﬁt or loss after allowing for permanent differences. The future tax beneﬁt relating to tax losses is not carried forward unless the beneﬁt is virtually certain of realisation. Legislation allowing groups, comprising a parent entity and its Australian resident wholly owned entities, to elect to consolidate and be treated as a single entity for income tax purposes has been substantively enacted. As a consequence of Starpharma Holdings Ltd relinquishing its PDF status in March 2004, Starpharma Holdings Ltd and all of its 100% wholly owned subsidiaries are eligible to form a consolidated group for the year ended 30 June 2004 and subsequent years. The Board has made a decision to not elect into tax consolidation for the income years up to and including 30 June 2005. (c) Receivables The debtors comprise interest receivable, and amounts due from related and sundry parties and they are recognised as they are due for settlement. (d) Acquisition of assets The purchase method of accounting is used for all acquisitions regardless of whether shares or other assets are acquired. Cost is determined as the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus incidental costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the Starpharma Holdings Limited Annual Report 2005 > 37 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 38 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 instruments is their market price as at the acquisition date, unless the notional price at which they could be placed in the market is a better indicator of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. (e) Revenue recognition Amounts disclosed as revenue include US Government National Institutes of Health grant income, Federal Government R&D START grant income, Export Market Development Grant income, interest income on short term deposits and sundry items. Revenue is recognised for the major business activities as follows: (i) Grant Funding Grant funding is provided under the consolidated entity’s agreements with the grantors. Grant revenue is recognised when eligible research expenditure has been incurred. (f) Recoverable amount of non-current assets The recoverable amount of an asset is the net amount expected to be recovered through the net cash inﬂows arising from its continued use and subsequent disposal. Where the carrying amount of a non-current asset is greater than its recoverable amount, the asset is revalued to its recoverable amount. The decrement in the carrying amount is recognised as an expense in the statement of ﬁnancial performance in the reporting period in which the recoverable amount write down occurs. In assessing recoverable amounts the relevant cash ﬂows have not been discounted to their present value. (g) Depreciation and amortisation of property, plant and equipment Depreciation is calculated on a straight line basis to write off the net cost of each item of property, plant and equipment over its expected useful life to the consolidated entity. The expected useful life of items of property, plant and equipment ranges from 4 to 8 years. (h) Leasehold Improvements The costs of improvements to or on leasehold properties is amortised over the unexpired period of the lease or the estimated useful life of the improvement to the consolidated entity, whichever is the shorter. Leasehold improvements held at the reporting date are being amortised over the lease term of 6 years. (i) Employee Beneﬁts (i) Wages and salaries, annual leave and sick leave Liabilities for wages and salaries, including non-monetary beneﬁts and annual leave expected to be settled within 12 months of the reporting date are recognised in employee provisions in respect to employees’ services up to the reporting date, and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. (ii) Superannuation The consolidated entity contributes to employee superannuation on the basis of legal and contractual requirements. (iii) Long Service Leave A liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the non-current provision for employee entitlements, and is 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 > 38 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 39 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 interest rates on national government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outﬂows. (iv) Equity based compensation plans Equity based compensation beneﬁts are provided in relation to the Starpharma Holdings Limited Employee Share Option Plan (‘ESOP’). Information relating to this plan is set out in note 27. (v) Employee beneﬁt on-costs Employee beneﬁt on-costs, including payroll tax, are recognised and included in employee beneﬁt liabilities and costs when the employee beneﬁts to which they relate are recognised as liabilities. No accounting entries are made in relation to the ESOP until options are exercised, at which time the amounts receivable from employees are recognised in the statement of ﬁnancial position as share capital. The amounts disclosed for remuneration of directors and executives in note 20 include the assessed fair value of options at the date they were granted. (j) Research expenditure Research expenditure is charged against income when incurred except where future beneﬁts are expected beyond any reasonable doubt to exceed those costs, in which case they are deferred and amortised over future periods on a basis related to expected future beneﬁts. (k) Trade and other creditors These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the ﬁnancial year which are unpaid. These amounts are unsecured and are paid in accordance with supplier terms. (l) Cash For the purpose of the statements of cash ﬂows, cash includes deposits at call which are readily convertible to cash on hand and are subject to an insigniﬁcant risk of changes in value. (m) Transaction costs arising in relation to the issue of equity Transaction costs in relation to the future issue of equity are deferred and recognised directly as a reduction against the proceeds of the future capital raising to which they relate. (n) Investments Investments in controlled entities and associates are accounted for in the consolidated ﬁnancial statements in the manner set out in Note 1(a). Investments in controlled and associated entities within the parent company are brought to account at cost. (o) Earnings per share (i) Basic Earnings per Share Basic Earnings per share is determined by dividing the net loss after income tax attributable to members of the Company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the ﬁnancial year, adjusted for bonus elements in ordinary shares issued during the year. Starpharma Holdings Limited Annual Report 2005 > 39 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 40 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 (ii) Diluted Earnings per Share Diluted earnings per share adjusts the ﬁgures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other ﬁnancing costs associated with dilutive ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (p) Foreign Currency Translation Foreign currency transactions are initially translated into Australian currency at the rate of exchange at the date of the transaction. At balance date amounts payable and receivable in foreign currencies are translated to Australian currency at rates of exchange current at that date. Resulting exchange differences are recognised in determining the proﬁt or loss for the year, except that which is related to the foreign associated entity. As the foreign associated entity is self-sustaining, its assets and liabilities are translated into Australian currency at rates of exchange current at balance date, while its revenues and expenses are translated at the average of rates ruling during the year. Exchange differences arising on translation are taken to the foreign currency translation reserve. Upon disposal or partial disposal of a self- sustaining foreign operation, the balance of the foreign currency translation reserve relating to the operation, or to the part disposed of, is transferred to retained proﬁts. (q) Web Site Costs Costs in relation to web sites controlled by a controlled entity are charged as expenses in the period in which they are incurred unless they relate to the acquisition of an asset, in which case they are capitalised and amortised over the period of expected beneﬁt. As at the reporting date, all costs relating to web site development and maintenance for the controlled entities have been expensed. (r) Leased Non-Current Assets A distinction is made between ﬁnance leases which effectively transfer from the lessor to the lessee substantially all the risks and beneﬁts incident to ownership of leased non-current assets, and operating leases under which the lessor effectively retains substantially all such risks and beneﬁts. Finance leases are capitalised. A lease asset and liability are established at the present value of minimum lease payments. Lease payments are allocated between the principal component of the lease liability and the interest expense. The lease asset is amortised on a straight line basis over the term of the lease, or where it is likely that the consolidated entity will obtain ownership of the asset, the life of the asset. Lease assets held at the reporting date are being amortised over a period of 5 years. Other operating lease payments are charged to the statement of ﬁnancial performance in the periods in which they are incurred, as this represents the pattern of beneﬁts derived from the leased assets. (s) Borrowing Costs Borrowing costs are recognised as expenses in the period in which they are incurred. Borrowing costs include ﬁnance lease charges. > 40 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 41 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 (t) Going Concern For the year ended 30 June 2005, the Company has incurred losses of $7,585,992 and experienced net cash outﬂows of $5,808,589 from operations, as disclosed in the statement of ﬁnancial position and statement of cash ﬂows, respectively. This is consistent with the Company’s strategic plans and budget estimates, and the Directors are satisﬁed regarding the availability of working capital for a period of at least 15 months from balance date in the event that no new equity or grant funding ﬂows in to the company during that period. Accordingly the directors have prepared the ﬁnancial report on a going concern basis in the belief that the Company will realise its assets and settle its liabilities and commitments in the normal course of business and for at least the amounts stated in the ﬁnancial report. (u) Impacts of adopting Australian equivalents to IFRS The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group has issued interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. These Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS will be ﬁrst reﬂected in the consolidated entity’s ﬁnancial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006. Entities complying with AIFRS for the ﬁrst time will be required to restate their comparative ﬁnancial statements to amounts reﬂecting the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004. The consolidated entity has established a project team to manage the transition to AIFRS, including training of staff and system and internal control changes necessary to gather all the required ﬁnancial information. The project team reports to the audit and risk management committee and is managing the timely implementation of the new standards towards adopting AIFRS. The project team has analysed all of the AIFRS and has identiﬁed the accounting policy changes that will be required. In some cases choices of accounting policies are available, including elective exemptions under Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy for the consolidated entity. The known or reliably estimable impacts on the ﬁnancial report for the year ended 30 June 2005 had it been prepared using AIFRS are set out below. No material impacts are expected in relation to the statements of cash ﬂows. Although the adjustments disclosed in this note are based on management’s best knowledge of expected standards and interpretations, and current facts and circumstances, these may change. For example, amended or additional standards or interpretations may be issued by the AASB and the IASB. Therefore, until the company prepares its ﬁrst full AIFRS ﬁnancial statements, the possibility cannot be excluded that the accompanying disclosures may have to be adjusted. INCOME TAX Under AASB 112 Income Taxes, deferred tax balances are determined using the balance sheet method which calculates temporary differences based on the carrying amounts of an entity’s assets and liabilities in the statement of ﬁnancial position and their associated tax bases. In addition, current and deferred taxes attributable to amounts recognised directly in equity are also recognised directly in equity. Starpharma Holdings Limited Annual Report 2005 > 41 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 42 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 This will result in a change to the current accounting policy, under which deferred tax balances are determined using the income statement method, items are only tax-effected if they are included in the determination of pre-tax accounting proﬁt or loss and/or taxable income or loss and current and deferred taxes cannot be recognised directly in equity. On account of the current year losses this will have no material impact on the group as at 30 June 2005. EQUITY-BASED COMPENSATION BENEFITS Under AASB 2 Share-based Payment, from 1 July 2004 the group is required to recognise an expense for those options that were issued to employees under the Starpharma Holdings Limited Employee Share Option Plan (‘ESOP’) after 7 November 2002 but that had not vested by 1 January 2005. This will result in a change to the current accounting policy under which no expense is recognised for equity-based compensation. If the policy required by AASB 2 had been applied during the year ended 30 June 2005, consolidated and parent entity accumulated losses at 30 June 2005 would have been $218,615 higher, with a corresponding increase in the share-based payment reserve. For the year ended 30 June 2005, the consolidated and parent entity employee beneﬁts expense would have been $161,799 higher, with a corresponding increase in the net movement in the share-based payment reserve. FINANCIAL INSTRUMENTS The group will be taking advantage of the exemption available under AASB 1 to apply AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement only from 1 July 2005. This allows the group to apply previous Australian generally accepted accounting principles (Australian GAAP) to the comparative information of ﬁnancial instruments within the scope of AASB 132 and AASB 139 for the 30 June 2006 ﬁnancial report. Under AASB 132, the current classiﬁcation of ﬁnancial instruments issued by entities in the consolidated entity would not change. As a result of the application of the exemption referred to above, there would have been no adjustment to classiﬁcation or measurement of ﬁnancial assets or liabilities from the application of AIFRS during the year ending 30 June 2005. Changes in classiﬁcation and measurement will be recognised from 1 July 2005. FOREIGN CURRENCY TRANSLATION RESERVE: CUMULATIVE TRANSLATION DIFFERENCES On the initial application of AIFRS, the Group will elect to apply the exemption in AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards relating to the debit balance of the foreign currency translation reserve. The cumulative translation differences for all foreign operations represented in the foreign currency translation reserve will be deemed to be zero at the date of transition to AIFRS. As a result of this exemption, the balance of the foreign currency translation reserve of the group at 30 June 2005 will increase by $12,709. Accumulated losses will decrease by this amount. There is no effect on the parent entity. > 42 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 43 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 IMPAIRMENT OF ASSETS Under AASB 136 Impairment of non current assets, on an annual basis, the company is required to consider whether any indicators of the impairment of its assets exist. If it is determined that indicators of impairment exist then an impairment review is required to be performed based upon the concept of cash generating units. If positive cashﬂows are not generated, assets should be written down to the higher of fair value less costs to sell and value in use. In accordance with the requirements of AASB 136, the director's believe that no impairment of assets is required as at 30 June 2005. RECLASSIFICATION OF OTHER INCOME Under AIFRS, government grants are classiﬁed as other income. This is in contrast to the current Australian GAAP treatment under which such items are classiﬁed as revenue. If the policy required under AIFRS had been applied during the year ended 30 June 2005, the consolidated revenue from ordinary activities would have been $1,409,844 lower and the consolidated other income would have been $1,409,844 higher. NOTE 2: REVENUE REVENUE FROM OUTSIDE THE OPERATING ACTIVITIES Government grants Interest revenue Proceeds on sale of property, plant and equipment Sub lease rental revenue Other NOTE 3: LOSS FROM ORDINARY ACTIVITIES CONSOLIDATED PARENT ENTITY 2005 $ 2004 $ 1,409,844 616,043 2,700 6,789 13,922 2,049,298 703,160 640,246 - 31,467 15,730 1,390,603 2005 $ - 587,907 - - 13,772 601,679 2004 $ - 607,467 - - 11,237 618,704 (i) Net gains and expenses Loss from ordinary activities before income tax expense includes the following items: NET GAINS Gain on sale of property plant and equipment CONSOLIDATED PARENT ENTITY 2005 $ 2004 $ 2005 $ 2004 $ 2,700 - - - Starpharma Holdings Limited Annual Report 2005 > 43 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 44 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 3: LOSS FROM ORDINARY ACTIVITIES CONT. EXPENSES Depreciation (plant and equipment) Amortisation (plant and equipment under ﬁnance lease) Research and development expense Rental expense on operating leases Foreign exchange loss Doubtful debts Borrowing costs (ii) Share of results of associates accounted for using the equity method Gain on issue of new equity by associate Equity accounted loss Provision for diminution NOTE 4: INCOME TAX CONSOLIDATED PARENT ENTITY 2005 $ 2004 $ 2005 $ 2004 $ 629,865 64,000 6,410,293 407,808 38,595 - 8,290 539,089 64,000 4,119,259 378,661 10,076 - 12,011 - - - - 51,348 6,750,608 - - - - - 10,076 6,401,548 - 1,235,543 (334,835) (140,000) 760,708 575,610 (193,436) - 382,174 - - - - - - - - The prima facie tax, using tax rates applicable in the country of operation, on proﬁt differs from the income tax provided in the ﬁnancial statements as follows: Loss from ordinary activities before income tax Income tax expense/(beneﬁt) @ 30% (2004: 30%) Tax effect of permanent differences: CONSOLIDATED PARENT ENTITY 2005 2004 2005 2004 $ (7,585,992) (2,275,798) $ (5,497,850) (1,649,355) $ (7,267,081) (2,180,124) $ (6,529,779) (1,958,934) Entertainment Research and development allowance Write down in carrying value of investments Equity accounted loss Write down in carrying value of loans Gain on dilution of equity investments Other Future income tax beneﬁts not booked INCOME TAX EXPENSE ATTRIBUTABLE TO ORDINARY ACTIVITIES 2,890 (284,579) 42,000 100,451 - (370,663) - 2,785,700 - 2,037 (121,681) - - - - 1,198 1,767,801 - - - - - 2,025,182 - - 154,942 - - - - - 1,920,464 - - 38,470 - Income tax losses Future income tax beneﬁts arising from tax losses of a controlled entity not recognised at reporting date as realisation of the beneﬁt is not regarded as virtually certain > 44 Starpharma Holdings Limited Annual Report 2005 10,376,033 7,766,079 193,412 38,470 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 45 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Future income tax beneﬁts Potential future income tax beneﬁts of $10,376,033 (2004: $7,766,079) attributable to tax losses carried forward by controlled entities have not been brought to account at balance date because the directors do not believe it appropriate to regard the realisation of the future income tax beneﬁts as virtually certain. The future income tax beneﬁt will only be obtained if: future assessable income is derived of a nature and of an amount sufﬁcient to enable the beneﬁt to be realised; i. ii. the conditions for deductibility imposed by tax legislation continue to be complied with; and iii. no changes in tax legislation adversely affect the consolidated entity in realising the beneﬁt. Tax consolidation legislation Legislation allowing groups, comprising a parent entity and its Australian resident wholly owned entities, to elect to consolidate and be treated as a single entity for income tax purposes has been substantively enacted. As a consequence of Starpharma Holdings Ltd relinquishing its PDF status in March 2004, Starpharma Holdings Ltd and all of its 100% wholly owned subsidiaries are eligible to form a consolidated group for the year ended 30 June 2004 and subsequent years. The Board has made a decision to not elect into tax consolidation for the income years up to and including 30 June 2005. NOTE 5: CURRENT ASSETS – CASH ASSETS Cash at bank and on hand Deposits at call Balance of cash as shown in the statements of cash ﬂows CONSOLIDATED PARENT ENTITY 2005 $ 2,042,795 6,123,464 8,166,259 2004 $ 2,118,872 13,539,428 15,658,300 2005 $ 199,060 6,123,464 6,322,524 2004 $ 985,141 13,539,428 14,524,569 CONSOLIDATED PARENT ENTITY 2005 $ 8,166,259 2004 $ 15,658,300 2005 $ 6,322,524 2004 $ 14,524,569 Deposits at call The deposits are bearing ﬂoating interest rates of 5.58% (2004: 5.37%). Starpharma Holdings Limited Annual Report 2005 > 45 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 46 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 6.1: CURRENT ASSETS - RECEIVABLES Interest receivable Loans receivable from: - controlled entities - associates Other receivables CONSOLIDATED PARENT ENTITY 2005 $ 42,851 - - - 42,851 2004 $ 50,284 - 289,729 131,126 471,139 2005 $ 23,784 - - - 23,784 2004 $ 46,268 - 289,729 11,000 346,997 Interest receivable The carrying amount of interest receivable approximates net fair values. Other receivables The receivables comprise sundry debtors and are subject to normal terms of settlement within 60 days. NOTE 6.2: NON-CURRENT ASSETS - RECEIVABLES CONSOLIDATED PARENT ENTITY 2005 2004 2005 2004 $ - - - $ - - - $ 18,751,956 (18,751,956) - $ 12,001,548 (12,001,548) - CONSOLIDATED PARENT ENTITY 2005 $ 144,805 - 144,805 2004 $ 113,044 - 113,044 2005 $ 48,003 19,300 67,303 2004 $ 53,818 13,444 67,262 Loans to controlled entities Provision for doubtful debts NOTE 7: CURRENT ASSETS – OTHER Prepayments GST Claimable > 46 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 47 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 8: NON-CURRENT ASSETS – PLANT AND EQUIPMENT Plant and equipment (at cost) Less: Accumulated depreciation Leasehold improvements (at cost) Less: Accumulated depreciation Plant and equipment under ﬁnance lease Less: Accumulated amortisation CONSOLIDATED PARENT ENTITY 2005 $ 1,766,727 (1,248,823) 517,904 1,128,512 (541,652) 586,860 320,000 (192,000) 128,000 1,232,764 2004 $ 1,450,943 (854,145) 596,798 1,121,312 (353,845) 767,467 320,000 (128,000) 192,000 1,556,265 2005 2004 $ - - - - - - - - - - $ - - - - - - - - - - Reconciliations Reconciliations of the carrying amounts of plant & equipment at the beginning and end of the current ﬁnancial year are set out below. Consolidated Carrying amount at 1 July Additions Disposals Depreciation and amortisation Carrying amount at 30 June NOTE 9: NON-CURRENT ASSETS - INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD Shares in associated entities PLANT & EQUIPMENT 2005 $ 2004 $ 1,556,265 370,364 - (693,865) 1,232,764 2,005,400 153,954 - (603,089) 1,556,265 CONSOLIDATED 2005 $ 2,913,061 2004 $ 692,194 Shares in associates Investments in associates are accounted for in the consolidated ﬁnancial statements using the equity method of accounting and are carried at cost by the parent entity (see Note 10). Starpharma Holdings Limited Annual Report 2005 > 47 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 48 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 9: NON-CURRENT ASSETS - INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD CONT. Movements in the carrying amounts of investments in associates Carrying amount at the beginning of the ﬁnancial year Acquisition of investment in associates Gain on issue of equity by associate Share of losses from ordinary activities after income tax Foreign currency reserve (note 16) Writedown of investment in associate Carrying amount at the end of the ﬁnancial year NOTE 10: NON-CURRENT ASSETS - OTHER FINANCIAL ASSETS Other non-traded investments Shares in controlled entities – at cost Provision for diminution in value Shares in associated entities – at cost CONSOLIDATED 2005 $ 2004 $ 692,194 1,500,699 1,235,542 (334,835) (40,539) (140,000) 2,913,061 250,700 - 575,610 (193,436) 59,320 - 692,194 CONSOLIDATED PARENT ENTITY 2005 2004 $ - - - - $ - - - - 2005 $ 2004 $ 17,500,106 (17,500,106) 5,368,747 5,368,747 17,500,106 (17,500,106) 3,868,048 3,868,048 At 30 June 2005 and 2004, the directors undertook to assess the recoverable amount of the parent entity's investments in its subsidiaries. Each subsidiary has a value which is directly linked to the potential cash ﬂows which may be derived from the outcome of their respective research and development activities. At 30 June 2005 and 2004, the directors have assessed that there is not sufﬁcient certainty with respect to those potential future cash ﬂows to warrant the deferral of research and development expenditure (the recovery of which is not assured beyond reasonable doubt) and similarly, to support the carrying value of the parent entity's investments in its subsidiaries. As a result the carrying value of the parent entity's investments in its subsidiaries has been written down to nil as at 30 June 2005 and 2004. > 48 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 49 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 11: CURRENT LIABILITIES – PAYABLES Trade creditors Loans payable to: - controlled entities GST Payable NOTE 12.1: CURRENT LIABILITIES – PROVISIONS Employee entitlements NOTE 12.2: NON-CURRENT LIABILITIES – PROVISIONS Employee entitlements NOTE 13: CURRENT LIABILITIES – OTHER Deferred grant income CONSOLIDATED PARENT ENTITY 2005 $ 1,647,182 - - 1,647,182 2004 $ 428,918 - 16,990 445,908 2005 $ 111,622 653,654 - 765,276 2004 $ 128,273 394,440 - 522,713 CONSOLIDATED PARENT ENTITY 2005 $ 279,589 2004 $ 201,674 2005 2004 $ - $ - CONSOLIDATED PARENT ENTITY 2005 $ 89,184 2004 $ 47,341 2005 2004 $ - $ - CONSOLIDATED PARENT ENTITY 2005 $ 378,063 2004 $ - 2005 2004 $ - $ - NOTE 14.1: CURRENT LIABILITIES – INTEREST-BEARING LIABILITIES Finance lease liability (secured) CONSOLIDATED PARENT ENTITY 2005 $ 60,007 2004 $ 60,007 2005 2004 $ - $ - Starpharma Holdings Limited Annual Report 2005 > 49 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 50 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 14.2: NON-CURRENT LIABILITIES – INTEREST-BEARING LIABILITIES Finance lease liability (secured) NOTE 15: CONTRIBUTED EQUITY (a) Share Capital Ordinary shares - fully paid CONSOLIDATED PARENT ENTITY 2005 $ 79,750 2004 $ 143,516 2005 2004 $ - $ - PARENT ENTITY PARENT ENTITY 2005 SHARES 2004 SHARES 2005 $ 2004 $ 111,235,000 111,235,000 46,821,956 46,821,956 Former share premium account included in equity 2,500,000 2,500,000 (b) Movements in ordinary contributed capital of the company during the past two years were as follows: DATE 30 June 2003 10 September 2003 18 March 2004 30 June 2005 DETAILS Balance Share Issue Less: Issue Costs Share Issue Less: Issue Costs Balance NUMBER OF SHARES 88,900,000 13,335,000 9,000,000 111,235,000 ISSUE PRICE $0.52 $0.84 $ 33,034,058 6,934,200 (328,418) 7,560,000 (377,884) 46,821,956 Share rights 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. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. As at 30 June 2005 there were 111,235,000 issued ordinary shares. Options Information relating to the Starpharma Holdings Limited Employee Share Option Plan, including details of options issued, exercised and expired during the ﬁnancial year and options outstanding at the end of the ﬁnancial year are set out in Note 20 and 27. > 50 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 51 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 16: RESERVES Foreign currency translation reserve Foreign currency translation reserve Opening Balance Net exchange differences on translation of results of associated entity Closing Balance CONSOLIDATED PARENT ENTITY 2005 $ (27,830) 2004 $ 12,709 12,709 (46,609) (40,539) (27,830) 59,318 12,709 2005 2004 $ - - - - $ - - - - Exchange differences arising on translation of the foreign associated entity are taken to the foreign currency translation reserve, as described in note 1(p). NOTE 17: ACCUMULATED LOSSES Accumulated losses at beginning of the year Net loss for the year CONSOLIDATED PARENT ENTITY 2005 2004 2005 2004 $ (29,242,169) (7,585,992) $ (23,744,319) (5,497,850) $ (28,537,793) (7,267,081) $ (22,008,014) (6,529,779) Accumulated losses at end of the year (36,828,161) (29,242,169) (35,804,874) (28,537,793) NOTE 18: COMMITMENTS FOR EXPENDITURE Lease commitments Commitments in relation to leases contracted are payable as follows: Not later than one year Later than one year and not later than ﬁve years Later than ﬁve years Less Future ﬁnance charges Representing: Cancellable operating leases Finance lease CONSOLIDATED PARENT ENTITY 2005 $ 123,293 76,938 - (4,243) 195,988 56,231 139,757 195,988 2004 $ 376,234 214,341 - (12,477) 578,098 374,575 203,523 578,098 2005 2004 $ - - - - - - - - $ - - - - - - - Starpharma Holdings Limited Annual Report 2005 > 51 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 52 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 18: COMMITMENTS FOR EXPENDITURE CONT. Operating Lease commitments Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable: Not later than one year Later than one year and not later than ﬁve years Later than ﬁve years Representing cancellable operating leases Finance Lease commitments Commitments in relation to ﬁnance leases are payable as follows: Not later than one year Later than one year and not later than ﬁve years Less Future ﬁnance charges Representing ﬁnance lease liabilities Current (Note 14.1) Non-Current (Note 14.2) CONSOLIDATED PARENT ENTITY 2005 $ 51,293 4,938 - 56,231 2004 $ 304,234 70,341 - 374,575 2005 2004 $ - - - - $ - - - - CONSOLIDATED PARENT ENTITY 2005 $ 72,000 72,000 (4,243) 139,757 60,007 79,750 139,757 2004 $ 72,000 144,000 (12,477) 203,523 60,007 143,516 203,523 2005 2004 $ - - - - - - - $ - - - - - - - The weighted average interest rate implicit in the lease is 6.26% (2004: 6.26%). NOTE 19: CONTROLLED AND ASSOCIATED ENTITIES Investments in Controlled Entities COUNTRY OF INCORPORATION CLASS OF SHARES 2005 EQUITY HOLDING 2004 EQUITY HOLDING COST OF PARENT COST OF PARENT ENTITY'S HOLDING INVESTMENT 2005 INVESTMENT 2004 $ ENTITY'S HOLDING $ Starpharma Pty. Limited Angiostar Pty. Limited Viralstar Pty. Limited Preclin Pty. Limited Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 9,900,001 3,300,005 4,300,000 100 17,500,106 9,900,001 3,300,005 4,300,000 100 17,500,106 > 52 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 53 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Investments in associates are accounted for in the consolidated ﬁnancial statements using the equity method of accounting and are carried at cost by the parent entity. Information relating to the associates is set out below. Investments in Associated Entities COUNTRY OF INCORPORATION CLASS OF SHARES 2005 EQUITY HOLDING 2004 EQUITY HOLDING COST OF PARENT COST OF PARENT ENTITY'S HOLDING INVESTMENT 2005 INVESTMENT 2004 $ ENTITY'S HOLDING $ Dendritic Nanotechnologies, Inc. USA Dimerix Bioscience Pty Ltd Australia Ordinary Ordinary 32.90% 30.00% 44.54% - 5,168.747 200,000 3,868,048 - Movements in carrying amounts of investments in associates Carrying amount at the beginning of the ﬁnancial year Acquisition of investments in associates Gain on issue of equity by associate Share of losses from ordinary activities after related income tax Foreign currency reserve Provision for diminution Carrying amount at the end of the ﬁnancial year Reserves attributable to associates Foreign currency reserve Balance at the beginning of the ﬁnancial year Net exchange differences on translation of results of associated entity Balance at the end of the ﬁnancial year Summary of the performance and ﬁnancial position of associates - Dendritic Nanotechnologies, Inc. Proﬁts/(Loss) from ordinary activities after related income tax expense Assets Liabilities Summary of the performance and ﬁnancial position of associates - Dimerix Bioscience Pty Ltd Proﬁts/(Loss) from ordinary activities after related income tax expense Assets Liabilities CONSOLIDATED 2005 $ 2004 $ 692,194 1,500,699 1,235,542 (334,835) (40,539) (140,000) 2,913,061 250,700 - 575,610 (193,436) 59,320 - 692,194 12,709 (40,539) (27,830) (46,609) 59,318 12,709 (785,278) 8,927,661 247,219 (427,618) 1,967,538 533,566 (49,980) 151,357 1,337 - - - Starpharma Holdings Limited Annual Report 2005 > 53 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 54 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Equity accounting of Dendritic Nanotechnologies, Inc. On 27th March 2003 the controlled entity Dendritic Nanotechnologies Pty Ltd (“DNT Pty Ltd”) became a wholly owned subsidiary of the US entity Dendritic Nanotechnologies Inc. (“DNT Inc”). The Company acquired 49.99% of the issued shares in DNT Inc in exchange for its shares in DNT Pty Ltd which has subsequently been reduced to 32.9% as a result of the issue of new equity by DNT Inc. The Directors of the Company have resolved that control in DNT Pty Ltd ceased on 27th March 2003 and that the accounts of DNT Pty Ltd and DNT Inc be accounted for using equity accounting principles from that date. Equity accounting of Dimerix Bioscience Pty Ltd On 16 March 2005 the Company announced that as a foundation shareholder, it established the start-up biotechnology company Dimerix Bioscience Pty Ltd. Based in Perth, Western Australia, Dimerix is a specialist drug development company established to commercialise a unique technology in receptor coupling, speciﬁcally G-Protein coupled receptors (“GPCRs”). Starpharma contributed $200,000 in cash in return for a 30% equity holding, making it the largest shareholder in Dimerix. The Directors of the Company have resolved that the Company does not have effective control in Dimerix and that the accounts of Dimerix are to be accounted for using equity accounting principles from 16 March 2005. NOTE 20: DIRECTOR AND EXECUTIVE DISCLOSURES Directors The following persons were directors of Starpharma Holdings Limited for the whole of the ﬁnancial year and up to the date of this report: Chairman – non-executive P T Bartels Executive directors J W Raff, Chief Executive Ofﬁcer Non-executive directors P M Colman R Dobinson L Gorr P J Jenkins Executives (other than directors) with the greatest authority for strategic direction and management The following persons were the executives with the greatest authority for the strategic direction and management of the consolidated entity (‘speciﬁed executives”) during the ﬁnancial year: NAME O T Grogan A Szabo B P Rogers T D McCarthy G Y Krippner J R Paull POSITION VP – Commercial Development & Licensing VP – Business Development (ceased employment 31 January 2005) Company Secretary VP – Drug Development VP – Drug Discovery VP – Regulatory Affairs & QA > 54 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 55 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Principles used to determine the nature and amount of remuneration The objective of the Company’s remuneration policy is to ensure appropriate and competitive reward for the results delivered. The remuneration and nomination committee, consisting of three independent non-executive directors, advises the Board on remuneration policies and practices generally, and makes speciﬁc recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non-executive directors. Non-executive directors Fees and payments to non-executive directors reﬂect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees consist of a base yearly amount plus additional amounts for membership of board committees or membership of boards of associated entities. The Chairman’s fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his own remuneration. Non-executive directors do not receive share options or bonuses. Non-executive directors’ fees are reviewed annually by the Board, but have not been increased since 1 January 2004. Fees and payments are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The aggregate amount currently stands at $350,000 which was approved by shareholders on 19 November 2003. Executive remuneration Remuneration and other terms of employment for the Chief Executive Ofﬁcer and certain other senior executives are formalised in service agreements. Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the Group’s operations. As well as a base salary, remuneration packages include superannuation, retirement and termination entitlements, performance-related bonuses and fringe beneﬁts. Factors taken into account in determining remuneration packages include demonstrated record of performance against targets and key performance indicators (KPIs), internal relativities, data from a national biotechnology salary survey and the Company’s ability to pay. Executives may be offered share options as part of their remuneration package as recognition for speciﬁc achievements or contributions. Performance review and development Executives and other staff participate in a two stage performance review and development process consisting of an objectives planning and development session at the commencement of the annual cycle and a performance and pay review towards the end of the cycle. Details of remuneration Details of the nature and amount of each element of the remuneration of each director of Starpharma Holdings Limited and each of the six speciﬁed ofﬁcers of the Company and the consolidated entity are set out in the following tables. Starpharma Holdings Limited Annual Report 2005 > 55 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 56 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Non-executive directors of Starpharma Holdings Limited 2005 PRIMARY POST-EMPLOYMENT CASH SALARY NON-MONETARY SUPER- EQUITY OPTIONS NAME P T Bartels P M Colman R Dobinson L Gorr P J Jenkins Total: & FEES $ - 36,697 40,000 36,697 36,697 150,091 BENEFITS ANNUATION $ - - - - - - $ 80,000 3,303 - 3,303 3,303 89,909 $ - - - - - - Executive directors of Starpharma Holdings Limited 2005 PRIMARY POST-EMPLOYMENT CASH SALARY CASH BONUS NON-MONETARY SUPER- & FEES $ 269,000 $ - BENEFITS ANNUATION $ 78,524 $ 92,350* NAME J W Raff EQUITY OPTIONS $ - *$50,000 of the $92,350 contributed to J W Raff’s superannuation was the result of a bonus. Other executives of Starpharma Holdings Limited or subsidiary companies NON-MONETARY BENEFITS $ POST-EMPLOYMENT SUPER- ANNUATION $ EQUITY OPTIONS $ TOTAL $ 80,000 40,000 40,000 40,000 40,000 240,000 TOTAL $ 439,874 TOTAL $ 2005 CASH SALARY & FEES $ 97,964 139,123 NAME O T Grogan VP – Commercial Development & Licensing A Szabo* VP – Business Development B P Rogers Company Secretary T D McCarthy VP – Drug Development G Y Krippner VP – Drug Discovery J R Paull VP – Regulatory 104,739 Affairs & QA 637,259 TOTAL: *ceased employment 31 January 2005 96,421 99,666 99,346 PRIMARY CASH BONUS $ - - - - - - - > 56 Starpharma Holdings Limited Annual Report 2005 22,373 21,711 3,589 186,796 - 8,670 12,966 119,600 27,368 20,065 43,585 190,684 24,897 19,920 - 94,558 18,682 19,811 159,811 10,734 39,622 169,622 9,426 89,288 15,849 135,422 130,014 956,527 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 57 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Remuneration of directors and individual speciﬁed executives for the year ended 30 June 2004 is set out below. In some cases different individuals are included from those speciﬁed in the year ended 30 June 2005. Non-executive directors of Starpharma Holdings Limited 2004 PRIMARY POST-EMPLOYMENT CASH SALARY NON-MONETARY SUPER- EQUITY OPTIONS NAME R J Oliver (From 1/7/2003 – 6/8/2003) P T Bartels (From 6/8/2003) P M Colman R Dobinson L Gorr P J Jenkins TOTAL: & FEES $ 3,500 38,733 29,817 29,817 29,817 29,817 161,501 BENEFITS ANNUATION $ - - - - - - - $ - 40,000 2,683 2,683 2,683 2,683 50,732 $ - - - - - - - Executive directors of Starpharma Holdings Limited 2004 PRIMARY POST-EMPLOYMENT CASH SALARY CASH BONUS NON-MONETARY SUPER- & FEES $ 299,368 BENEFITS ANNUATION $ - $ 22,572 $ 46,520 NAME J W Raff EQUITY OPTIONS $ - TOTAL $ 3,500 78,733 32,500 32,500 32,500 32,500 212,233 TOTAL $ 368,460 Starpharma Holdings Limited Annual Report 2005 > 57 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 58 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Other executives of Starpharma Holdings Limited or subsidiary companies 2004 PRIMARY POST-EMPLOYMENT CASH SALARY CASH BONUS NON-MONETARY SUPER- EQUITY OPTIONS & FEES $ 133,085 30,628 92,970 $ - - - BENEFITS ANNUATION $ $ 16,172 23,156 $ - TOTAL $ 172,413 - 2,756 389 33,773 22,508 18,767 17,122 151,367 81,262 10,000 18,733 17,888 7,783 135,666 89,385 - 8,902 9,690 15,566 123,543 84,929 6,205 - 8,202 6,226 105,562 NAME O T Grogan VP – Commercial Development & Licensing A Szabo VP – Business Development B P Rogers Company Secretary T D McCarthy VP – Drug Development G Y Krippner VP – Drug Discovery J R Paull VP – Regulatory Affairs & QA B Braggs Scientiﬁc Affairs Manager (until 3 October 2003) TOTAL: 34,571 546,830 10,000 26,205 - 66,315 6,370 86,829 - 47,086 50,941 773,265 Service Agreements Remuneration and other terms of employment for the CEO and the speciﬁed executives are formalised in service agreements. Each of these agreements provide for the provision of performance-related cash bonuses, and other beneﬁts including participation, when eligible, in the Starpharma Holdings Employee Share Option Plan. Other major provisions of the agreements relating to remuneration are set out below. J W Raff Chief Executive Ofﬁcer • • Fixed term of three years from 1 September 2004 Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $333,218 plus fully maintained motor vehicle, to be reviewed annually and increased by an amount no less than the annual increase in the Consumer Price Index Fringe beneﬁts - on-site car parking Subject to termination by either party upon the giving of a minimum notice period of one year, except that the Company shall be entitled to terminate the executive’s employment summarily in the following circumstances: • • > 58 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 59 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 (i) The Executive wilfully disobeys or disregards a lawful direction given to the Executive or is otherwise guilty of serious misconduct; (ii) The Executive has any direct or indirect interest in any business or matter which conﬂicts with the proper performance of the Executive’s duties unless the Executive has provided prior written disclosure of such interest and the Company has waived any objection to the Executive maintaining such an interest; (iii) The Executive is guilty of any wilful breach or continued neglect of the terms of this Agreement or of the duties and obligations which the Executive is required to perform or meet hereunder; or (iv) The Executive becomes bankrupt or makes a composition or arrangement with the Executive’s creditors generally or takes advantage of any statute for the relief of insolvent debtors such that, in the reasonable opinion of the Company, the performance of the Executive of the Executive’s duties and responsibilities is adversely affected or the commercial and business interests of the Company are prejudiced and/or damaged. O T Grogan VP – Commercial Development & Licensing • • No ﬁxed term of agreement. Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $214,675, to be reviewed annually by the remuneration committee. Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. • • A Szabo VP – Business Development No ﬁxed term of agreement • Base salary, inclusive of superannuation, per annum for period ending 30 June 2005 of $180,000 (ceased employment • 31 January 2005) Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. • B P Rogers Company Secretary No ﬁxed term of agreement. • Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $142,996, to be reviewed annually by the • remuneration committee. Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. • • T D McCarthy VP – Drug Development No ﬁxed term of agreement. • Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $150,000, to be reviewed annually by the • remuneration committee. Starpharma Holdings Limited Annual Report 2005 > 59 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 60 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 • • Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. G Y Krippner VP – Drug Discovery No ﬁxed term of agreement. • Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $130,000, to be reviewed annually by the • remuneration committee. Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. • • J R Paull VP – Regulatory Affairs & QA No ﬁxed term of agreement. • Base salary, inclusive of superannuation, per annum as at 30 June 2005 of $120,000, to be reviewed annually by the • remuneration committee. Fringe beneﬁts - on-site car parking. Payment of termination beneﬁt on termination by the employer, other than for serious breach of obligations to the employer, wilful neglect of duty or serious misconduct, equal to thirteen weeks gross remuneration. • • Share-based compensation The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as follows: GRANT DATE EXPIRY DATE EXERCISE PRICE VALUE PER OPTION DATE 8 February 2004 1 July 2004 12 May 2005 8 February 2009 1 July 2009 12 May 2010 $0.9375 $0.9375 $0.9375 AT GRANT DATE $0.46 $0.44 $0.30 EXERCISABLE 9 February 2006 1 July 2006 13 May 2007 Share options granted to directors and speciﬁed executives Options over unissued ordinary shares of Starpharma Holdings Limited granted during or since the end of the ﬁnancial year to any of the directors or the speciﬁed executives of the Company and consolidated entity with greatest authority as part of their remuneration were as follows: O T Grogan, VP – Commercial Development & Licensing A Szabo, VP – Business Development OPTIONS GRANTED 100,000 100,000 DATE GRANTED 12 May 2005 1 July 2004 The options were granted under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) (“the Plan”) on the dates indicated. The 100,000 options granted to A Szabo expired under the terms of the Plan upon cessation of employment with the Company. > 60 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 61 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Option holdings There were no options over shares in the Company held by any director of Starpharma Holdings Limited or their personally-related entities during the ﬁnancial year. The numbers of options over ordinary shares in the company held during the ﬁnancial year by each of the speciﬁed executives of the consolidated entity, including their personally-related entities, are set out below. NAME BALANCE AT THE START OF THE YEAR GRANTED DURING THE YEAR AS REMUNERATION EXERCISED OTHER CHANGES DURING THE YEAR DURING THE YEAR BALANCE AT THE END OF THE YEAR VESTED & EXERCISABLE AT THE END OF THE YEAR Speciﬁed executives of the consolidated entity 200,000 O T Grogan 5,000 A Szabo 220,000 B P Rogers 220,000 T D McCarthy 200,000 G Y Krippner 100,000 J R Paull 100,000 100,000 - - - - - - - - - - - (105,000) - - - - 300,000 - 220,000 220,000 200,000 100,000 200,000 - - 120,000 200,000 20,000 Share holdings The numbers of shares in the company held during the ﬁnancial year by each director of Starpharma Holdings Limited and each of the speciﬁed executives of the consolidated entity, including their personally-related entities, are set out below. NAME BALANCE AT THE 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 Directors of Starpharma Holdings Limited Ordinary shares P T Bartels P M Colman R Dobinson L Gorr P J Jenkins J W Raff 80,000 5,982,482 3,505,976 5,560,500 2,239,500 5,477,331 Speciﬁed executives of the consolidated entity Ordinary shares O T Grogan A Szabo B P Rogers T D McCarthy G Y Krippner J R Paull 6,200 - 41,700 4,000 - - - - - - - - - - - - - - 20,000 - -350,000 -365,600 -48,000 157,090 40,000 - 20,000 - - - 100,000 5,982,482 3,155,976 5,194,900 2,191,500 5,634,221 46,200 - 61,700 4,000 - - Starpharma Holdings Limited Annual Report 2005 > 61 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 62 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 21: CASH FLOW INFORMATION Reconciliation of net cash ﬂows from operating activities to operating proﬁt/(loss) after income tax Operating loss after income tax: Depreciation and amortisation: Change in operating assets and liabilities, net of effects of acquisitions and disposals of entities (Increase) decrease in receivables and other Assets Increase (decrease) in trade creditors Increase (decrease) in employee provisions Increase (decrease) in deferred income Share in results of associates Gain on sale of property, plant and equipment Gain on sale of investment Provision for doubtful debts Net cash inﬂows/(outﬂows) from operating activities CONSOLIDATED PARENT ENTITY 2005 2004 2005 2004 $ (7,585,992) 693,865 $ (5,497,850) 603,089 $ (7,267,081) - $ (6,529,779) - 141,980 1,204,445 119,758 378,063 (760,708) - - - (5,808,589) (16,386) (274,902) 43,286 (282,243) (382,174) - - - (5,807,180) 33,481 (16,648) - - - - - 6,750,608 (499,640) (40,072) 323,637 - - - - - 6,401,548 155,334 NOTE 22: EVENTS SUBSEQUENT TO BALANCE DATE The following options were granted to speciﬁed executives who joined the Company subsequent to balance date: C P Barrett, Manager, Business Development J Fairley, Chief Operating Ofﬁcer OPTIONS GRANTED 100,000 300,000 DATE GRANTED 18 July 2005 4 July 2005 No further matters or circumstances have arisen since 30 June 2005 that have signiﬁcantly affected, or may signiﬁcantly affect: (a) (b) (c) the consolidated entity’s operations in future ﬁnancial years, or the results of the operations in future ﬁnancial years, or the consolidated entity’s state of affairs in future ﬁnancial years. NOTE 23: RELATED PARTIES Directors The names of persons who were directors of Starpharma Holdings Limited at any time during the ﬁnancial year are as follows: P T Bartels, P M Colman, R Dobinson, L Gorr, P J Jenkins and J W Raff. All of these persons were also directors during the year ended 30 June 2004. > 62 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 63 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Details of directors’ remuneration are set out in Note 20. Other transactions with Directors and Director-related Entities A director, Mr L Gorr is a partner of the ﬁrm, Herbert Geer & Rundle, which rendered legal services to the consolidated entity. All such dealings with the consolidated entity were in the ordinary course of business and on normal terms and conditions. For part of the 2004 year, a director, Prof P M Colman was a director of The Biomolecular Research Institute Limited, which provided some administrative services to the consolidated entity. All such dealings with the consolidated entity were in the ordinary course of business and on normal terms and conditions. Aggregate amounts of each of the above types of transactions with Directors and their Director-related entities are: Administrative Services Legal fees CONSOLIDATED PARENT ENTITY 2005 $ - 1,901 2004 $ 30,526 35,356 2005 2004 $ - - $ - - Apart from the above no director has entered into a material contract with the consolidated entity since the end of the previous ﬁnancial year and there were no material contracts involving directors’ interests subsisting at year end. Wholly owned group The wholly-owned group consists of Starpharma Holdings Limited and its wholly-owned controlled entities, Angiostar Pty. Limited, Starpharma Pty. Limited, Viralstar Pty. Limited and Preclin Pty. Limited. Ownership interests in these controlled entities are set out in note 19. Transactions between Starpharma Holdings Limited and other entities in the wholly-owned group during the year 30 June 2005 consisted of: • • loans advanced by Starpharma Holdings Limited; loans repaid to Starpharma Holdings Limited; The above transactions were made on normal commercial terms and conditions. However, there are no ﬁxed terms for the repayment of principal on loans advanced by Starpharma Holdings Limited. The aggregate amount receivable by the parent entity from entities in the wholly-owned group at balance date is $18,751,956 (2004: $12,001,548). The aggregate amount payable by the parent entity to entities in the wholly owned group at balance date is $653,654 (2004: $394,440). The parent entity has accounted for a doubtful debt provision of $6,750,608 (2004: $6,401,548) attributable to receivables from controlled entities and has written down the carrying value of its investments in its wholly owned subsidiaries to nil - refer note 3. Starpharma Holdings Limited Annual Report 2005 > 63 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 64 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Controlling entity The ultimate parent entity in the wholly owned group is Starpharma Holdings Limited. Associates The aggregate amount receivable by the parent entity from associated entities at balance date is $nil (2004: $289,729) – refer note 6.1. NOTE 24: REMUNERATION OF AUDITORS 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 consolidated entity 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. During the year the following fees were paid or payable for services provided by the auditor (PricewaterhouseCoopers) of the parent entity, its related practices and non-related audit ﬁrms: CONSOLIDATED PARENT ENTITY 2005 $ 92,500 22,000 2004 $ 70,500 38,145 2005 $ 92,500 22,000 2004 $ 70,500 38,145 Audit or review of ﬁnancial reports of the entity or any entity in the consolidated entity Non-audit services: - Grant review & AIFRS worshop. NOTE 25: FINANCIAL INSTRUMENTS (a) Credit risk exposures The credit risk on the ﬁnancial assets of the Company and consolidated entity which have been recognised on the balance sheet is generally the carrying amount of those ﬁnancial assets net of any provisions where raised. (b) Interest rate risk The Company’s and consolidated entity’s exposure to interest rate risk is limited to that exposure which arises from the holding of cash balances and bills of exchange. Interest is earned on cash balances and bills of exchange at the prevailing ﬂoating rate, which at 30 June 2005 was 5.58% (2004: 5.37%). Cash balances are at call and bills of exchange have a maturity of no more than 60 days. The ﬁnance lease on property plant and equipment has an implicit interest rate of 6.26%. All other ﬁnancial assets and liabilities are non interest bearing. (c) Carrying amounts and net fair values of ﬁnancial asset and liabilities The Company’s and the consolidated entity’s balance sheet reﬂect net assets. All balances stated in these balance sheets are, respectively, considered to form part of the Company’s and the consolidated entity’s net ﬁnancial assets and liabilities with the exception of property, plant and equipment assets, other receivables, employee entitlement liabilities and investments in subsidiary companies (where included therein). > 64 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 65 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 The carrying value of ﬁnancial assets and liabilities as stated in the Company’s and consolidated entity’s balance sheets is equivalent to the net fair value of those ﬁnancial assets and liabilities. NOTE 26: SEGMENT INFORMATION Business Segments The consolidated entity operated during the year in the following business segments: • Virology – development and commercialisation of dendrimers for prevention and treatment of virus diseases, particularly sexually transmitted diseases. Angiogenesis – development and commercialisation of dendrimers that inhibit angiogenesis. • • Other Pharmaceuticals – development of dendrimers with novel pharmaceutical activity. Geographical Segments The consolidated entity operates in the one geographical segment of Australia. Equity Accounted Investment The consolidated entity owns 32.9% of Dendritic Nanotechnologies, Inc., a research, development and commercialisation company located in Michigan, USA which in the determination of the full-year result to and balance sheet as at 30 June 2005 and 2004, is accounted for using the equity method. As at 30 June 2004, the consolidated entity owned 44.5% of Dendritic Nanotechnologies, Inc. At balance date the consolidated entity owned 30.0% of Dimerix Bioscience Pty Ltd, a specialist drug development and commercialisation company located in Perth, Western Australia which in the determination of the full-year result to and balance sheet as at 30 June 2005, is accounted for using the equity method. Starpharma is a foundation shareholder of this entity that was established in March 2005. On 15 September 2005, the Company announced that Dimerix had closed a Series A ﬁnancing and that Starpharma’s equity interest in Dimerix post-ﬁnancing was 22%. Segment Information for Year Ending 30 June 2005 PRIMARY BASIS – VIROLOGY ANGIOGENESIS OTHER DENDRITIC UNALLOCATED CONSOLIDATED BUSINESS SEGMENTS REVENUE External Revenue Total Segment Revenue 1,409,844 1,409,844 ASSOCIATED ENTITIES Share of results of associates accounted for using the equity method - - - - PHARMACEUTICALS NANOTECHNOLOGIES TOTAL - - - - - 639,454 639,454 2,049,298 2,049,298 760,708 - - SEGMENT RESULT Proﬁt/(Loss) from Ordinary Activities before Income Tax (2,760,025) (842,499) (4,485,463) 760,708 (258,713) (7,585,992) Starpharma Holdings Limited Annual Report 2005 > 65 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 66 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 PRIMARY BASIS – VIROLOGY ANGIOGENESIS OTHER DENDRITIC UNALLOCATED CONSOLIDATED BUSINESS SEGMENTS DEPRECIATION & AMORTISATION Depreciation 312,239 312,239 69,387 PHARMACEUTICALS NANOTECHNOLOGIES TOTAL - - - - - - 693,865 2,533,775 2,533,775 LIABILITIES Total Segment Liabilities ASSETS Total Segment Assets 639,189 639,189 142,042 2,913,061 8,166,259 12,499,740 SEGMENT ASSETS ACQUIRED DURING THE REPORTING PERIOD Property, Plant & Equipment Investments in Associates 92,650 - 92,650 - 185,303 - - 1,500,699 - - 370,603 1,500,699 Segment Information for Year Ending 30 June 2004 PRIMARY BASIS – VIROLOGY ANGIOGENESIS OTHER DENDRITIC UNALLOCATED CONSOLIDATED BUSINESS SEGMENTS REVENUE External Revenue Total Segment Revenue ASSOCIATED ENTITIES Share of results of associates accounted for using the equity method - - - PHARMACEUTICALS NANOTECHNOLOGIES TOTAL 656,148 656,148 47,012 47,012 - - 687,443 687,443 1,390,603 1,390,603 - - 382,174 - - SEGMENT RESULT Proﬁt/(Loss) from Ordinary Activities before Income Tax (2,347,094) (1,104,520) (1,760,994) DEPRECIATION & AMORTISATION Depreciation 271,390 271,390 60,309 LIABILITIES Total Segment Liabilities ASSETS Total Segment Assets - - - - - - 285,242 (5,497,850) - 603,089 898,446 898,446 832,824 832,824 185,071 981,923 15,658,300 18,490,942 SEGMENT ASSETS ACQUIRED DURING THE REPORTING PERIOD Property, Plant & Equipment 69,279 69,279 15,396 - - 153,954 Investments in Associates - - - 692,194 692,194 > 66 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 67 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 NOTE 27: EMPLOYEE ENTITLEMENTS (a) Employee and related on costs liabilities Provision for employee entitlements current and non-current (Note 12.1 and 12.2) Employee Numbers Number of employees at the reporting date (b) Employee Option Plans CONSOLIDATED PARENT ENTITY 2005 $ 368,773 2004 $ 249,015 2005 2004 $ - $ - 2005 2004 2005 2004 NUMBER NUMBER NUMBER NUMBER 32 30 - - Starpharma Holdings Limited Employee Share Option Plan The revision of the Starpharma Holdings Limited Employee Share Option Plan was approved by shareholders at the Annual General Meeting held on 17 November 2004. All full time or part time employees and directors of the Company or associated companies are eligible to participate in the Plan. The object of the Plan is to assist in the recruitment, reward, retention and motivation of employees of the Company. Options are granted under the plan for no consideration. Options are normally granted for a ﬁve year period and become exercisable on the second anniversary of the date of grant. Options granted under the plan carry no dividend or voting rights. Each option is personal to the participant and is not transferable, transmissible, assignable or chargeable, except in accordance with clause 5.2 or clause 5.3 of the Plan, or with the prior written consent of the Committee. Each option is convertible into one ordinary share by the participant giving to the Company a notice specifying that it exercises the option accompanied by: (a) the Option Certiﬁcate; and (b) payment of the full amount of the Exercise Price by cheque made out in favour of the Company. A total of 300,000 options were granted under the Plan on 7 February 2001. Of these, 80,000 lapsed on cessation of employment of the participant leaving 220,000 of these options on issue. These options were issued for no consideration and may be exercised on or before 31 December 2005. The exercise price under the plan is 93.75 cents per share. A total of 240,000 options were granted under the plan on 12 April 2002. Of these, 20,000 lapsed on cessation of employment of the participant leaving 220,000 of these options on issue. These options were issued for no consideration and may be exercised on or before 11 April 2007. The exercise price under the plan is 93.75 cents per share. Starpharma Holdings Limited Annual Report 2005 > 67 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 68 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 A total of 200,000 options were granted under the plan on 21 June 2002. These options were issued for no consideration and may be exercised on or before 30 June 2007. The exercise price under the plan is 93.75 cents per share. A total of 200,000 options were granted under the plan on 6 February 2004. These options were issued for no consideration and may be exercised on or before 31 December 2008. The exercise price under the plan is 73.00 cents per share. A total of 749,000 options were granted under the plan on 8 February 2004. Of these, 19,000 lapsed on cessation of employment of the participant leaving 730,000 of these options on issue. These options were issued for no consideration and may be exercised on or before 8 February 2009. The exercise price under the plan is 93.75 cents per share. 100,000 options were granted under the plan on 1 July 2004. These options lapsed on cessation of employment of the participant on 31 January 2005. The exercise price under the plan was 93.75 cents per share. A total of 192,000 options were granted under the plan on 31 December 2004. Of these, 10,000 lapsed on cessation of employment of the participant leaving 182,000 of these options on issue. These options were issued for no consideration and may be exercised on or before 31 December 2009. The exercise price under the plan is 93.75 cents per share. 100,000 options were granted under the plan on 12 May 2005. These options were issued for no consideration and may be exercised on or before 12 May 2010. The exercise price under the plan is 93.75 cents per share. At 30 June 2005 the total number of unissued shares under these options was 1,852,000. Options vested at the reporting date NOTE 28: EARNINGS PER SHARE Basic Earnings/(Loss) per share Diluted Earnings/(Loss) per Share CONSOLIDATED PARENT ENTITY 2005 NUMBER 840,000 2004 NUMBER 860,000 2005 NUMBER 840,000 2004 NUMBER 860,000 CONSOLIDATED 2005 CENTS (6.82) 2004 CENTS (5.38) (6.82) (5.38) > 68 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 69 Notes to the Financial Statements cont. FOR THE YEAR ENDED 30 JUNE 2005 Weighted average number of shares used as the denominator Weighted average number of shares used as the denominator in calculating basic earnings per share Potential ordinary shares not considered dilutive: As at the 30 June 2005, the Company had on issue: 2005 2004 NUMBER NUMBER 111,235,000 102,169,098 220,000 options over unissued capital exercisable on or before 31 December 2005 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 220,000 options over unissued capital exercisable on or before 11 April 2007 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 200,000 options over unissued capital exercisable on or before 30 June 2007 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 200,000 options over unissued capital exercisable on or before 31 December 2008 at the price of 73.00 cents per ordinary share. These options are not considered dilutive. 730,000 options over unissued capital exercisable on or before 8 February 2009 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 182,000 options over unissued capital exercisable on or before 31 December 2009 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. 100,000 options over unissued capital exercisable on or before 12 May 2010 at the price of 93.75 cents per ordinary share. These options are not considered dilutive. Starpharma Holdings Limited Annual Report 2005 > 69 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 70 Directors’ Declaration In the directors’ opinion: (a) the ﬁnancial statement and notes set out on pages 33 to 69 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 ﬁnancial position as at 30 June 2005 and of their performance, as represented by the results of their operations and their cash ﬂows, for the ﬁnancial year ended on that date; and (b) there are reasonable grounds to believe that the Starpharma Holdings Limited will be able to pay its debts as and when they become due and payable. The directors have been given the declarations by the chief executive ofﬁcer and chief ﬁnancial ofﬁcer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Peter T Bartels AO DIRECTOR 28 September 2005 Melbourne > 70 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 71 Independent Audit Report Starpharma Holdings Limited Annual Report 2005 > 71 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 72 Independent Audit Report cont. > 72 Starpharma Holdings Limited Annual Report 2005 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 73 Independent Audit Report cont. Starpharma Holdings Limited Annual Report 2005 > 73 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 74 Shareholder Information Supplementary information as required by Australian Stock Exchange listing requirements. A. Distribution of equity shareholders Analysis of numbers of equity security holders by size of holding as at 21 September 2005 1 – 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over As at 21 September 2005 there were 87 holders of less than a marketable parcel of ordinary shares. CLASS OF EQUITY SECURITY ORDINARY SHARES SHARES 175 750 465 730 123 2,243 OPTIONS - 7 2 16 7 32 B. Equity security holders Twenty largest security holders Top 20 shareholders as at 21 September 2005: 1. ANZ Nominees Limited 2. National Nominees Ltd 3. Peter Malcolm Colman 4. Arran Bay Pty Ltd 5. John William Raff 6. Queensland Investment Corporation 7. Gilridge Pty Ltd 8. Biotech Capital Ltd 9. Citicorp Nominees Limited 10. Espasia Pty Ltd 11. UBS Private Clients Australia Nominees Pty Ltd 12. Espasia Pty Ltd 13. Ag-Sun Technologies Pty Ltd 14. Kenneth Nominees Pty Ltd 15. Applecross Secretarial Services Pty Ltd 16. Citicorp Nominees Pty Limited 17. Health Super Pty Ltd 18. Bullant Developments Pty Ltd 19. Dervat Nominees Pty Limited 20. J P Morgan Nominees Australia Limited > 74 Starpharma Holdings Limited Annual Report 2005 NUMBER HELD 10,532,219 7,970,579 5,982,482 3,680,400 3,627,831 3,275,000 3,025,250 3,000,000 2,300,000 1,650,000 1,535,000 1,505,289 1,150,250 1,100,000 1,077,000 1,073,858 911,253 900,000 880,000 772,087 55,948,498 ORDINARY SHARES PERCENTAGE OF ISSUED SHARES 9.47 7.17 5.38 3.31 3.26 2.94 2.72 2.70 2.07 1.48 1.38 1.35 1.03 0.99 0.97 0.97 0.82 0.81 0.79 0.69 50.30 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 75 Shareholder Information cont. Unquoted equity securities Options issued under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) C. Substantial holders NUMBER ON ISSUE NUMBER OF HOLDERS 2,252,000 32 The following information is extracted from the Company’s register of substantial shareholders as at 21 September 2005: Ordinary shares Acorn Capital Limited Peter M Colman D. Voting rights NUMBER HELD PERCENTAGE 10,303,608 5,982,482 9.26 5.38 The voting rights attached 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 on a poll each share shall have one vote. (b) Options No voting rights. Starpharma Holdings Limited Annual Report 2005 > 75 153/05 Star AR'05 FIN f/a 9/28/05 5:16 PM Page 76 Starpharma Holdings Limited ABN 20 078 532 180 Baker Building 75 Commercial Road, Melbourne VIC 3004 Australia T +61 3 8532 2700 F +61 3 9510 5955 W www.starpharma.com

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