Santander Bank Polska Annual Report 2006

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Starpharma Annual Report 2006 STARPHARMA HOLDINGS LIMITED ABN 20 078 532 180 Contents Review of Operations Directors’ Report Corporate Governance Statement Financial Report Shareholder Information Patent Report Corporate Directory 02 19 36 41 80 82 85 2005–06 Highlights HIV Funded: $26m Genital Herpes Funded National Institutes of Health (NIH) funds VivaGel™ HIV Development: $26m non-dilutive funding NIH funds VivaGel™Genital Herpes Development HIV Fast–tracked US regulator, FDA designates VivaGel™ a fast track product. Herpes IND Cleared FDA clears VivaGel™ genital herpes IND Contraceptive Activity Identiﬁ ed VivaGel™ shown to be a potent contraceptive in animals Future Revenues Improved Royalty for stock swap: future revenues enhanced $15m Funds Raised $15m raised in institutional and SPP capital raising Patent Estate Expanded Substantial program of patent ﬁ ling completed Priostar™ Rolled Out Investee company DNT rolls out Priostar™industrial dendrimer platform ADRs: Near 10% US uptake of ADRs nears 10% of SPL capital Starpharma uses dendrimer nanotechnology to discover, develop and commercialise pharmaceuticals for serious human illness. Starpharma Holdings Limited Annual Report 2006 2 “The environment for VivaGel™ has greatly improved from a funding, clinical, regulatory and global awareness perspective” 3 Starpharma Holdings Limited Annual Report 2006 CEO and Chairman’s Report Dear Shareholder, It is with pleasure that we present the Starpharma Annual Report 2005–2006. It has been a year in which the environment for our lead product VivaGel™ (SPL7013 Gel) has greatly improved from a funding, clinical, regulatory and global awareness perspective. We have a product that is scientiﬁ cally and commercially viable and gaining signiﬁ cant international interest, especially in the USA. In October 2005, Starpharma secured A$26m of non-dilutive funding from the US-based National Institute of Allergy and Infectious Diseases (NIAID), part of the National Institutes of Health (NIH), for the development of VivaGel™ against HIV. This award provides many of the beneﬁ ts of a commercial licensing deal – security of development funding, validation of product concept, access to clinical expertise and inﬂ uence – but without the loss of product ownership that is the usual cost of such transactions. VivaGel™ continues to make good clinical progress and we are now preparing for new clinical trials to begin for both HIV and genital herpes indications. These trials have already commenced in Australia and will be extended shortly into the USA and Kenya. Starpharma believes that VivaGel™ is the ﬁ rst microbicide to have both NIH funding and a Food and Drug Administration (FDA) IND application for the genital herpes indication, a disease affecting 45 million Americans today. VivaGel™’s attraction to end users and to potential licensees was further enhanced by the discovery that its active ingredient is a potent contraceptive in rabbits. The proposition that VivaGel™ could protect against sexually transmitted infections and unplanned pregnancy could result it becoming a very attractive product for sexually active women globally. Additionally, through DNT we also beneﬁ t from an extensive portfolio of dendrimer products for industrial and other life science applications. Already earning revenues, the commercial prospects for DNT’s technology have been substantially boosted this year by the launch of Priostar™ for a range of applications. We continue to view our equity stake in DNT as a highly valuable and complementary asset in Starpharma’s portfolio. The combination of successful fundraising activity in November 2005 – where Starpharma raised $15million through a share placement and share purchase plan – together with the funding allocated from the NIH for VivaGel™, means that Starpharma has a solid ﬁ nancial basis for the commercialisation of VivaGel™ and the development of additional applications of dendrimers. We strengthened our intellectual property position by acquiring the outright ownership of technology from the Biomolecular Research Institute (BRI). As a result Starpharma will not need to pay any future royalties to the BRI and this is anticipated to result in much greater value for shareholders. US interest in Starpharma continues to grow with an extremely successful American Depositary Receipts program that now represents almost 10% of the company’s equity – more than double that reported in last year’s annual review. Finally, on behalf of the board we would like to thank staff and management for their contribution to an excellent year. In particular we thank Dr John Raff, who retired as CEO in July 2006 for his enormous contribution to Starpharma’s success: in many ways the company as it stands today is his creation. We consider it a privilege to build upon this foundation, and to turn the investment that has been made in the company and its technology into a valuable return for shareholders. We also look forward to John’s continued support on the Starpharma Board. Signiﬁ cantly, the demand for the accelerated development of microbicides has gained momentum with world leaders such as former US president Bill Clinton and Microsoft founder Bill Gates further emphasizing the importance of prevention strategies such as microbicides in the ﬁ ght against HIV/AIDS. Beyond VivaGel™ Starpharma’s long term growth will come from our own discovery pipeline and from investee company Dendritic Nanotechnologies Inc (DNT). Starpharma’s pipeline holds great promise in areas as diverse as cancer, ophthalmology, infectious diseases and diagnostics. Peter T Bartels AO Chairman Jackie Fairley B.Sc., B.V.Sc.(Hons), MBA. Jackie Fairley B.Sc., B.V.Sc.(Hons), MBA. Chief Executive Ofﬁ cer Starpharma Holdings Limited Annual Report 2006 4 “Australian scientists are at the vanguard of microbicide development.” Sir Gus Nossal, December 2005 Revenue and other income: A$7.0M (up from A$2.0M) Research and development costs: A$9.9M (up from A$7.0M) Loss from ordinary activities: Down 3% to A$7.5M Cash at hand: Up A$6M to A$14.2M Financial Snapshot Cash Balances F06 F05 F04 F06 F05 F04 - 5 10 15 20 Millions Grant Income - 1 2 3 4 5 6 7 Millions 5 Starpharma Holdings Limited Annual Report 2006 About Starpharma Below Starpharma’s Dendrimer particles are a few nanometres in size. This makes them very applicable to the modiﬁ cation of biological interactions, for example those of the surface proteins of viruses. The virus shown here is approximately 100nm in size. Starpharma is an Australian-based bio-nanotechnology company. Starpharma’s objective is to discover, develop and commercialise proﬁ table products based on dendrimers. Dendrimers are man-made chemical particles in the nanometre size range – that is, around one billionth of a metre. They have precisely-deﬁ ned surface features and wide range of applications from healthcare and personal care to manufacturing and electronics. Much of Starpharma’s value comes from its opportunities for substantial revenues from three key areas: VivaGel™ (SPL7013 Gel): The most advanced product in Starpharma’s pipeline. It is being developed as a vaginal microbicide intended to prevent the transmission of the sexually transmitted infections genital herpes and HIV. This is a mass-market application in both developed and developing countries. Other Medical and Life Science Applications: Within its own discovery pipeline, Starpharma is pursuing promising leads in ﬁ elds such as cancer, ophthalmology and targeted diagnostics. Its investee companies, including Dendritic Nanotechnologies, Inc (DNT), also provide additional avenues of commercialisation, for example, in drug delivery, transfection reagents and contrast agents. Contrast agents improve the ability of diagnostic imaging tools to discern features in the body, improving diagnoses and patient outcomes. It is expected that returns will be made in these areas primarily by licensing rights to successful innovations to third parties. Industrial Applications of Dendrimers: This is an opportunity being exploited through our investee company DNT. The market for these kinds of specialty chemicals tends to be larger volume, and hence also represents a very substantial commercial opportunity. Dendrimers may have applications in areas such as electronics, oil and plastics industries, just to name a few. Together Starpharma and DNT hold a strong Intellectual Property (IP) position with regard to dendrimers and their applications. Stock Exchange Listing Starpharma is listed on the Australian Stock Exchange (ASX:SPL) and its American Depository Receipts trade under the symbol SPHRY. Starpharma Holdings Limited Annual Report 2006 6 “If I had a magic bullet to accelerate something it would be the microbicide.” Bill Gates, July 2006 7 Starpharma Holdings Limited Annual Report 2006 VivaGel™ The product Below HIV virus (purple) including gp–120 protein (yellow). Dendrimers are believed to bind to gp–120, preventing transmission of the HIV virus. Starpharma’s aim is for women to be able to use VivaGel™ (SPL7013 Gel) as a “Vaginal Microbicide” to protect themselves from sexually transmitted infections (STIs), such as genital herpes and HIV. There are currently no vaginal microbicides available to women. A global medical problem The spread of genital herpes and AIDS (caused by HSV-2 and HIV viruses respectively) continues apace, despite education campaigns designed to promote safe-sex messages and practices. Around the world, researchers in academia and industry have been attempting to develop vaccines for these diseases, so far with limited or no success. Genital Herpes Approximately 45 million Americans are infected with HSV-2. Genital herpes is a recurrent, lifelong viral infection and one of the most prevalent sexually transmitted infections, estimated to infect between 15% and 25% of male and female adults, respectively, in developed countries. This ﬁ gure is expected to rise to almost 40% for males and 50% for females by 2025, unless effective preventive measures can reverse the trend. Additionally, HSV-2 infection can make people more susceptible to infection by HIV, making its prevention even more important. HIV HIV infection is a major health burden in both the Western world and developing countries. Approximately 40 million people worldwide are infected with HIV. In the US, AIDS is the number one cause of death among African-American women aged 25 to 34. The United Nations has estimated that as many as 90 million people in Africa alone may be infected with HIV over the next 20 years if the spread cannot be stopped. AIDS is difﬁ cult and expensive to treat and there is no cure. Prevention is better than cure A new approach is required to control the spread of HIV/AIDS and genital herpes. With no available cure and limited success of existing strategies for prevention of HIV and HSV-2 infection, a vaginal microbicide is recognised as a key element in the ﬁ ght to slow the spread of genital herpes and AIDS. Starpharma’s goal is to show that VivaGel™ is a safe and effective vaginal microbicide that women could use to protect themselves from these infections, and to address the problem at its source. Much work is already done: in very stringent animal models for these diseases the gel has proven very effective. It has also been successfully tested for safety in animals and in an initial human trial. Starpharma and expert partners are now working on a program to demonstrate safety in larger populations, and to determine whether VivaGel™ is in fact as effective in women as animal studies have indicated. Another important feature of microbicides such as VivaGel™, if approved, is that it would be women who would most directly manage their use (unlike condoms), giving them more power to protect themselves from Sexually Transmitted Infections (“STIs”). VivaGel™ would be used with a single-use, pre-ﬁ lled vaginal applicator. The economics of the product – active ingredient, formulation and applicator – are seen to be well matched to a mass market application. VivaGel™ has also been shown to be a contraceptive in rabbits, and compatible with condoms in laboratory tests. The active ingredient of VivaGel™ is a dendrimer. Dendrimers are carefully- assembled tiny particles with many potential applications in medicine and industry. The surface of the active dendrimer in VivaGel™ is covered with regions that are thought to bind to the HIV or HSV-2 viruses. Scientists believe that the microbicidal activity already proven in animals arises because the viruses cannot enter cells when the dendrimer is attached, and so cannot cause infection. Starpharma Holdings Limited Annual Report 2006 8 VivaGel™ clinical trial commencing for HSV-2 San Francisco Microbicide safety test development Texas “You shouldn’t wait for a vaccine” Eric Goemaere, Médecins Sans Frontières, July 2006 on the future of HIV medicine. VivaGel™ ﬁnished product manufacturing Kentucky Dendritic NanoTechnologies Inc Head Ofﬁce Michigan Additional Microbicide indication development Baltimore Maryland NIH Funding – HSV-2 Bethesda Maryland NIH Funding – HIV Bethesda Maryland FDA designates VivaGel™ “Fast Track” Maryland VivaGel™ contraceptive testing Baltimore, Maryland Microbicide safety testing Washington State Further VivaGel™ patents issued Europe VivaGel™ clinical trial commencing for HSV-2 Kisumu, Kenya VivaGel™ clinical trial planned for HIV Bangkok Thailand Clinical trial commencing for HIV Melbourne Starpharma Head Ofﬁce Melbourne Additional Microbicide indication development Melbourne VivaGel™ active ingredient manufacturing Wellington 9 Starpharma Holdings Limited Annual Report 2006 VivaGel™ Progress to market Below A representation of VivaGelTM’s active ingredient SPL7013. Shown here in red and yellow are active groups that are believed to bind to HIV and HSV-2 viruses, rendering them inactive. The VivaGel™ (SPL7013 Gel) development plan is conducted with the aim of approval by the US-based Food and Drug Administration and other major regulatory authorities around the world. Starpharma works closely with these authorities to ensure that their needs are properly met in the data that is compiled. The program for VivaGel™’s clinical development includes trials in both developing and developed countries: USA, Kenya, Thailand and Australia. The data from all these locations will be drawn upon to support the case for its approval for marketing. The map (opposite) illustrates the global nature of VivaGel™ related activities. Beyond the safety trial in men and the genital herpes safety trial in women described previously, a number of further clinical trials are proposed to start in the coming year, including a safety trial in HIV positive women conducted through the Thai Red Cross Aids Research Centre in Bangkok. VivaGel™ development timeline Previously October 2005 January 2006 April 2006 *July 2006 *July 2006 Extensive safety and efﬁcacy trials in animals. Phase I randomized clinical trial involving 36 healthy female volunteers showed VivaGel™ to be safe and well tolerated over a range of doses of active component, when applied vaginally once daily for seven consecutive days. Starpharma received an award of A$26 million toward the development of VivaGel™ from the National Institute of Allergy and Infectious Diseases of the US NIH. This is one of the largest awards ever made in Australia by the NIAID. The NIH is the primary Federal agency in the US for conducting and supporting medical research, comprising 27 institutes and centres. VivaGel™ was designated as a Fast Track product by the US FDA for use against HIV, meaning that the New Drug Application to the FDA can be reviewed within a shorter time period (as short as 6 months compared to a more usual 13). Starpharma signed a second agreement with the NIAID for clinical trial funding of VivaGel™ for genital herpes. In a recent independent study undertaken at Johns Hopkins University in the USA, the active ingredient in VivaGel™, SPL7013, exhibited a potent contraceptive effect in animals. The proposition that VivaGel™ could provide protection from STIs and also contraceptive protection may make the product particularly attractive to women. The FDA allowed an IND to conduct a clinical trial for genital herpes. The trial will be run concurrently in Kenya (Kisumu), and the USA (San Francisco), and is expected to commence shortly. *August 2006 Commencement of a safety trial in men for VivaGel™ following successful review by local ethics committees, the FDA and the NIH. * Post June 30 2006 events. Starpharma Holdings Limited Annual Report 2006 10 Nanotechnology: “ Research and technology development at the atomic, molecular or macromolecular levels, in the length scale of approximately 1–100 nanometer range. “ Creating and using structures, devices and systems that have novel properties and functions because of their small and/or intermediate size. Ability to control or manipulate on the atomic scale.” US National Nanotechnology Initiative deﬁnition of nanotechnology. 11 Starpharma Holdings Limited Annual Report 2006 Dendrimer Nanotechnology Potential applications of Dendrimers Personal and Household · Cleaners and lotions · Cosmetics · Pigments and Dyes · UV absorber · Sacriﬁ cial Carrier (Nutritionals) · Surfactancy · Improved binders Medical and Health · Pharmaceuticals · Diagnostic imaging · Diagnostic sensing · Drug delivery · Drug discovery · Remote and in-vivo devices · Transfection · Tissue engineering · Controlled release Environment · Chemical sensors and biosensors · Environmental sensing · Remediation · Clean water (ion exchange) · Clean air (super absorbers) · Improved catalysts Energy and Electronics · Fuel cells (membranes, catalysts) · Energy storage (hydrogen) · Solid state lighting · Thermal management for devices · LEDs, displays, Electronic inks · Interlayer dielectric, Photoresistors · Molecular Electronics · Telecom devices (waveguides) Nanotechnology can be deﬁ ned as the manipulation of matter at the atomic level. It can also be deﬁ ned with reference to a size: nano-products or their components are in the 1-100 nanometre range (i.e. from 1 billionth of a metre, to one hundred times this size.) Dendrimers are nanoscale molecular building blocks with precisely deﬁ ned properties. They have applications in ﬁ elds as diverse as energy, electronics, food, agriculture, ﬁ ne chemicals, manufacturing, environmental engineering, medicine, health, as well as personal and household applications. Chemicals and Manufacturing · High performance Chemical Catalysis · Chemical Separations · Filtration Systems · Petrochemical Processing (nanocatalysts) · Toxic leak sensors · Highly selective control sensors Food and Agriculture · Targeted, non-toxic biodegradable pesticides, herbicides · Time-release fertilizers and pesticides · Packaging (microbe resistant plastics) · Freshness, Contamination, and/or tampering sensors · Delivery of genes and drugs to plants and animals Dendrimers Many of Starpharma’s dendrimers are constructed using one of the body’s own building blocks, a constituent of protein called lysine. Starpharma constructs dendrimers by taking a small core molecule, then repeatedly adding the lysine branching unit until a spherical nanoparticle is created. The well-deﬁ ned method of construction means each nanoparticle is identical: it is this fundamental manipulation of atoms into a nanoscale structure that gives dendrimers their versatility, reproducibility and power. Starpharma has focused its dendrimer research efforts to capture value from applications of nanoparticles in pharmaceutical and bioscience markets. Other applications are exploited through its investee company Dendritic Nanotechnologies Inc (DNT). Illustrative areas of Starpharma’s dendrimer patent protection Intellectual Property (IP) During the year the Company signiﬁ cantly enhanced its patent portfolio as a result of ﬁ ling a further twelve patent applications. These applications have arisen as a result of the Company’s further substantial development of its dendrimer technologies in high value applications. In additon, the Company’s patent portfolio has been enhanced by the granting of various patents in a range of jurisdictions. As at the date of this report the Company owns 19 patent families consisting of 36 granted patents and 60 pending applications. This augments the 196 dendrimer patents transferred to DNT by the Dow Chemical Company in 2005, from which Starpharma has all rights for polyvalent pharmaceutical applications. VivaGel™ Dendrimers as Drug Modiﬁ ers Dendrimers as Drugs Other Life Science Applications • Composition of matter • STI Prevention HIV HSV-2 Other STIs • Contraception • Condom coatings • Drug Delivery • ADME1 engineering and Pharmacokinetic modiﬁ cation • Solubility enhancement • GPCRs • Angiogenesis • The creation of inhibitors Age-related Macular Degeneration Oncology Inﬂ ammation Other • Anti-toxins macromolecules with highly deﬁ ned, structural surfaces • Targeted diagnostics 1 ADME: Adsorption, Distribution, Metabolism and Excretion Refer to pages 82 to 84 for a full list of Starpharma Patents Starpharma Holdings Limited Annual Report 2006 12 “Dendrimers can be prepared with the precision of small organic molecules, yet they behave like macromolecules” B.Helms and E.W. Meijer, Science, August 2006 13 Starpharma Holdings Limited Annual Report 2006 Growth Strategy Below Artist’s impression of the dendrimer SPL7013 binding to HIV surface proteins to inactivate them. Without active surface proteins HIV cannot infect human cells. Platforms and Products Starpharma has created a number of nanotechnology “platforms” that meet important challenges in today’s pharmaceutical and life-science industries. As well as making them available to partners, Starpharma applies these platforms within its own laboratories to address speciﬁc human diseases. VivaGelTM is the most advanced such product. Both the compounds arising from this pipeline and also the underlying platforms can yield revenues from licensing. Nanotechnology Platforms Dendrimers are well-deﬁned molecules with many surface attachment locations. They can be “adaptors” connecting different elements together into a multifunctional molecule. This capability is of value in many pharmaceutical and life-science applications but historically has been difﬁcult to achieve reproducibly. Starpharma’s technology provides this capability, and it is being developed as four principal platforms. Drug Delivery Many drugs would be enhanced if more accurately directed to their target tissues. Efﬁcacy could be increased and toxicity reduced. Dendrimers may be a good choice for drug delivery: they may be used to transport drugs through the body, to be released at an appropriate site or time. Starpharma has demonstrated that both small molecule drugs and “biologicals” can be attached to dendrimers. Biologicals – peptides, proteins and other compounds derived from biological sources such as antibodies – are of particular signiﬁcance because of growing interest in their use, particularly in chronic diseases such as Rheumatoid Arthritis and Cancer. ADME Engineering™ The properties of a drug can be modiﬁed by attaching it to a dendrimer more permanently. Starpharma refers to this technique as ADME Engineering™ (ADME: “Absorption, Distribution, Metabolism, Excretion”). For example, the rate at which the body expels a drug can be minimised allowing reduced dosing frequency. Alternatively a drug can be excluded from certain tissues or organs. This technology has been demonstrated in a number of applications by Starpharma and the company is now investigating opportunities to apply ADME Engineering™ within our partners’ development programmes. Targeted Diagnostics Diagnostic imaging tools like MRI and PET scans allow today’s clinicians to deliver better patient outcomes through earlier intervention and more tailored therapies. The success of this approach is governed by the quality of the images from the scans. By introducing “contrast agents” into the body – scan-visible compounds which target deﬁned tissues - the scans can be enhanced. Starpharma’s Targeted Diagnostics platform offers the opportunity to connect “targeting” molecules to multiple “signaling” molecules to improve scan images and quality of care. Polyvalency Another beneﬁcial property of dendrimers is “polyvalency”. By arranging multiple copies of a binding group on the surface of the dendrimer, multiple simultaneous target- binding events can be achieved (rather like Velcro™) yielding potency far beyond that of a single binding group. VivaGel™’s active ingredient SPL7013 exempliﬁes this approach: its surface groups have strong anti-viral properties when multiply-presented on SPL7013, but not as free molecules. Biotechnology Product Applications Starpharma’s “in-house” applications of these platforms include: Cancer Therapeutics – (based on Drug Delivery and ADME Engineering™ platforms) Starpharma is using dendrimers to improve the characteristics of existing anticancer drugs. Attaching established, marketed oncology drugs to dendrimers may make these drugs easier to administer whilst being safer and more effective for the patient. Ophthalmic Diseases – (based on Polyvalency platform) Starpharma has a range of dendrimer molecules under development that have been shown to reduce angiogenesis in in vivo assays. One indication for this mode of action is in ophthalmic disorders such as Age-related Macular Degeneration (AMD) – a disease with an estimated 15 million sufferers in the U.S. alone – and Starpharma will work with specialist partners to assist in the development of this and other ophthalmic applications of dendrimers. Anti-virals – (based on Polyvalency platform) Starpharma’s dendrimers have already demonstrated convincing in vivo antiviral activity in VivaGel™. Starpharma’s dendrimer library has also shown in vitro or in vivo activity against many other viruses in early studies beyond HIV and HSV-2, including in RSV, inﬂuenza, Hepatitis B, and other widespread, lethal viral disorders. Starpharma will work with partners to advance these opportunities into preclinical and clinical studies. Cardiovascular Diagnostics – (based on Targeted Diagnostic platform) Starpharma is developing a dendrimer based contrast agent for targeted cardiovascular diagnostics in association with a specialist organisation in the area of cardiac health. Starpharma Holdings Limited Annual Report 2006 14 “The majority of dendrimer IP is pooled in one company, Dendritic Nanotechnologies (DNT)” Lux Research, 2006 15 Starpharma Holdings Limited Annual Report 2006 Dendritic Nanotechnologies Inc Below Artists impression of a “polyvalent” dendrimer forming multiple Velcro-like interactions with proteins in a cell membrane. Dendritic Nanotechnologies Inc (DNT) is a US based company founded by Starpharma and dendrimer pioneer Don Tomalia, to commercialise applications of dendrimers in pharmaceutical as well as industrial settings. In 2005 the Dow Chemical Company became a major share holder of DNT, assigning its entire dendrimer IP portfolio to DNT in the process. DNT also has particular value to Starpharma providing a US base with important commercial and ﬁ nancial linkages. Starpharma identiﬁ es four key classes of assets associated with DNT: A dominance of the Intellectual Property landscape with over 100 dendrimer nanotechnology patents. The portfolio was initially established by Dr Donald Tomalia and the Dow Chemical Company and was assigned by Dow in its entirety to DNT in exchange for a share of the company’s equity. As well as sharing in the proﬁ ts that will accrue from this dominant position, Starpharma has exclusive right to existing and future polyvalent pharmaceutical applications of dendrimers. Established revenue streams DNT receives revenue each year both through sales of dendrimer material, and through existing licensing agreements. As well as providing a contribution to the company’s bottom line, this revenue stream supports the view that dendrimers are already a viable commercial proposition. This is a major differentiator compared to many other nanotechnology companies today. Relationships with key industry corporations DNT has a range of valuable commercial, research and development relationships, including with: • Pﬁ zer, • Sigma-Aldrich, • Dharmacon, • Dade Behring, • Lumera, and • Qiagen DNT also has established relationships with other organization such as the NIH, the National Cancer Institute, the US Army and Caltech. Priostar™ Priostar™ is a particularly robust, low-cost, versatile class of dendrimers very well suited to large scale, industrial applications. DNT is currently in commercial discussions with a number of potential partners to apply this technology in the areas of plastics, high performance oil, and household products. Extract from DNT’s product catalogue Starpharma Holdings Limited Annual Report 2006 16 Left to right Guy Krippner Tom McCarthy Tim Grogan Paul Barrett Jeremy Paull Jackie Fairley Nigel Baade Ben Rogers Nigel Baade Financial Controller B.Com, CPA, Grad. Dip. Arts (Development) Nigel Baade is a CPA qualiﬁ ed accountant with experience in the pharmaceutical and biotechnology industries. His previous roles have included Finance Manager of Cerylid Biosciences; and Manager Accounting, International Business Development for Faulding (now Mayne Pharma). Prior to joining Starpharma in January 2006, Nigel held a commercial planning role with multinational, Hagemeyer. Paul Barrett Vice President Business Development B.Sc. (Hons), Ph.D. Paul has 6 years’ experience in marketing and business development gained in both start-up and multinational technology companies in the UK. His employers have included Nortel Networks, Smiths Industries Aerospace and Bookham Technology. His doctoral and post-doctoral studies were conducted at Heriot-Watt University and the University of Oxford, UK. Paul’s technical publications range from molecular biology and bioinformatics to photonics and telecommunications. Headed by recently appointed CEO, Dr Jackie Fairley, Starpharma’s management team provides the expertise and experience necessary to fulﬁ ll its commitment to create value, through the development and commercialisation of new pharmaceutical products based on dendrimers. Jackie Fairley Chief Executive Ofﬁ cer B.Sc., B.V.Sc.(Hons), MBA Jackie has over 15 years’ experience in the pharmaceutical and biotechnology industries working in business development and senior management roles with companies including CSL and Faulding (now Mayne Pharma). Before joining Starpharma in 2005 she was Chief Executive Ofﬁ cer of Cerylid Biosciences. She also spent 5 years as a Vice President for Faulding’s injectable division and 5 years with CSL in various executive roles. Jackie holds ﬁ rst class honours degrees in Science (pharmacology/ pathology) and Veterinary Science, and has an MBA from the Melbourne Business School where she was the recipient of the Clemenger Medal. 17 Starpharma Holdings Limited Annual Report 2006 Management Team Left to right Guy Krippner Tom McCarthy Tim Grogan Paul Barrett Jeremy Paull Jackie Fairley Nigel Baade Ben Rogers Tim Grogan Vice President Commercial Development and Licensing LLB, B.Sc. Tim has had extensive experience in business and technology management including positions at Monsanto Australia Ltd, Freehill Hollingdale & Page and as a Director of Ag-Seed Research Pty Ltd. Tim was a driving force behind Starpharma’s venture with Donald Tomalia, Ph.D. which resulted in the establishment of DNT. Tim completed his law and science degrees at Melbourne University and was admitted as a Barrister and Solicitor of the Supreme Court of Victoria and High Court in 1991. Guy Krippner Head of Chemistry BSc (Hons), Ph.D Prior to joining Starpharma in 2002 Guy headed Prana’s chemistry program targeting Alzheimer’s disease. Previously he was a Senior Research Scientist at Biota Holdings Ltd developing antiviral therapeutics and diagnostics. Guy’s doctoral and post doctoral research was conducted at the University of Adelaide, South Australia and the University of Oxford, UK. Tom McCarthy Vice President Drug Development B.Sc. (Hons), Ph.D. Tom joined Starpharma in 2001. He is Principal Investigator of Starpharma’s NIH grant “Development of Dendrimer and Combination Microbicides, and of a US$20.3M NIH contract to develop VivaGel™. Prior to Starpharma at the Biomolecular Research Institute Tom managed the discovery chemistry aspects of in-house and collaborative projects, including with Prana Biotechnology Ltd and the Austin Research Institute. Tom’s early research was conducted at the University of Oxford, UK and at CSIRO, Australia. Jeremy Paull Vice President Regulatory and Clinical Affairs B.Sc. (Hons), Ph.D. Jeremy has several years’ experience in regulatory affairs and quality assurance, gained at Starpharma and previously at another Australian biotechnology company, Norwood Abbey. At Starpharma, Jeremy has been instrumental in the VivaGelTM development program since its inception, and was responsible for the implementation of the ﬁ rst clinical trials conducted by Starpharma under the IND. At Norwood Abbey he worked on the development of a medical device which was approved to improve transdermal drug delivery. Jeremy received a Ph.D. in Pharmacology from Monash University. Ben Rogers Company Secretary and Chief Financial Ofﬁ cer Ben Rogers has extensive experience in ﬁ nance and human resources management with the 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. Ben joined Starpharma on commencement of operations in April 1997 and was appointed to the position of Company Secretary in February 1998. Starpharma Holdings Limited Annual Report 2006 Starpharma Holdings Limited Annual Report 2006 18 Directors’ report Your directors have pleasure in presenting this report on the consolidated entity consisting of Starpharma Holdings Limited and the entities it controlled at the end of, or during, the year ended 30 June 2006. P T Bartels (Chairman) P M Colman R Dobinson L Gorr P J Jenkins J W Raff J K Fairley was appointed a director on 1 July 2006 and continues in ofﬁce at the date of this report. applications, with a particular focus on the development of topical vaginal microbicides for the prevention of HIV and other sexually transmitted diseases. These activities are managed by the wholly owned subsidiary Starpharma Pty Ltd. Directors The following persons were directors of Starpharma Holdings Limited (“the Company”) during the whole of the ﬁnancial year and up to the date of this report: Principal Activities The principal activities of the Company consist of investment in, and management and funding of dendrimer based research, development and commercialisation. Activities within the Company are directed towards the development of precisely deﬁned nano-scale materials for use in pharmaceutical Dividends No dividend has been paid or declared during or since the end of the ﬁnancial year. Review of Operations Information on the operations and ﬁnancial position of the Group and its business strategies and prospects is set out in the review of the operations and activities on pages 2 to 18 of this annual report. Operating Loss For the year ended 30 June 2006 the consolidated entity incurred an operating loss after income tax of $7,522,789 (June 2005: $7,747,791). 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. 19 Starpharma Holdings Limited Annual Report 2006 Matters subsequent to the end of the ﬁnancial year On 1 July 2006, Dr J W Raff retired as Chief Executive Ofﬁcer (CEO) of the Company and the Chief Operating Ofﬁcer, Dr J K Fairley, was appointed to the position of CEO. Dr Fairley was also appointed as a director. Dr Raff remained a director of the Company and accepted the role of Deputy Chairman of the Board. No further matters or circumstances have arisen since 30 June 2006 that have signiﬁcantly affected, or may signiﬁcantly affect: 1. the consolidated entity’s operations in future financial years, or 2. the results of the operations in future ﬁnancial years, or 3. 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. Regulatory Environment There were no signiﬁcant changes in laws or regulations during 2005/06 or since the end of the year affecting the business activities of the consolidated entity, and the directors are not aware of any such changes in the pipeline. Environmental regulation 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 by the consolidated entity. Legal At the date of the Directors’ Report there are no signiﬁcant legal issues. 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 39 of the annual report. Starpharma Holdings Limited Annual Report 2006 20 Director's report Information on Directors Peter T Bartels, AO Chairman – Non-executive, Age 65. Experience and expertise Independent non-executive director and Chairman for three 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. 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 109,804 ordinary shares in Starpharma Holdings Limited John W Raff Dip. Ag. Sc., BSc., PhD. Executive director (until 30 June 2006) Non-executive director, (from 1 July 2006) Age 57. Experience and expertise Chief Executive Ofﬁcer for nine years until retirement on 1 July 2006. 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. Peter M Colman BSc(Hons), PhD, FAA, FTSE. Independent non-executive director, Age 62. Experience and expertise Non-executive director for nine 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 Limited. Other current directorships None. Former directorships in last 3 years None. Special Responsibilities Deputy Chairman Non-executive director of Dendritic Nanotechnologies, Inc. Member of research committee (until 30 June 2006) Interests in shares and options 5,381,689 ordinary shares in Starpharma Holdings Limited 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 5,992,286 ordinary shares in Starpharma Holdings Limited 21 Starpharma Holdings Limited Annual Report 2006 Information on Directors (continued) Ross Dobinson B. Bus (Acc) Independent Non-executive director, Age 54. Experience and expertise Non-executive director for nine 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. Leon Gorr B. Juris, LLB, M.Admin Independent non-executive director, Age 62. Experience and expertise Non-executive director for ﬁve years. Non-executive director of Starpharma Pty Ltd for nine years. Senior Partner, Herbert Geer & Rundle. 33 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. Director's report Other current directorships Non-executive director of two other public companies: Acrux Ltd (director since 2000 and Chairman since 31 January 2006) 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 2,905,976 ordinary shares in Starpharma Holdings Limited 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 5,204,704 ordinary shares in Starpharma Holdings Limited Starpharma Holdings Limited Annual Report 2006 22 Director's report Information on Directors (continued) Peter J Jenkins MB, BS (Melb), FRACP Independent Non-executive director, Age 60. Experience and expertise Independent non-executive director for nine 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. Jacinth K Fairley B.Sc., B.V.Sc.(Hons), MBA Chief Executive Ofﬁcer (From 1 July 2006), Age 43. Experience and expertise Chief Operating Ofﬁcer of Starpharma from 4 July 2005 to 30 June 2006. Over 15 years’ experience in the pharmaceutical and biotechnology industries working in business development and senior management roles with companies including CSL and Faulding (now Mayne Pharma). Former Chief Executive Ofﬁcer of Cerylid Biosciences. 5 years as a Vice President for Faulding’s injectable division and 5 years with CSL in various executive roles. She holds ﬁrst class honours degrees in Science (pharmacology/pathology) and Veterinary Science, and has an MBA from the Melbourne Business School where she was the recipient of the Clemenger Medal. 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 1,635,608 ordinary shares in Starpharma Holdings Limited Other current directorships None Former directorships in last 3 years None. Special Responsibilities Chief Executive Ofﬁcer Member of research committee (from 1 July 2006) Interests in shares and options 5,000 ordinary shares in Starpharma Holdings Limited 300,000 options over ordinary shares in Starpharma Holdings Limited 500,000 options over ordinary shares in Starpharma Holdings Limited (subject to shareholder approval at the next Annual General Meeting of the Company) 23 Starpharma Holdings Limited Annual Report 2006 Company Secretary The Company Secretary is Mr Ben Rogers. Age 58. 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. Director's report Meetings of Directors The number of meetings of the Company’s Board of directors and of each committee held during the year ended 30 June 2006, and the numbers of meetings attended by each director were: Full meetings of directors Meetings of committees Audit & risk management Remuneration & nomination Research Key P T Bartels P M Colman R Dobinson L Gorr P J Jenkins J W Raff A 12 13 13 11 12 13 B 13 13 13 13 13 13 A * * 3 2 3 * B * * 3 3 3 * A 3 * 3 2 * * B 3 * 3 3 * * A * 8 * * 8 7 B * 9 * * 9 9 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 Peter Bartels retires by rotation as director at the annual general meeting and, being eligible, offers himself for re-election. Dr John Raff retires by rotation as director at the annual general meeting and, being eligible, offers himself for re-election. Dr Jacinth Fairley was appointed a director on 1 July 2006. In accordance with the Constitution Dr Fairley retires as a director at the annual general meeting and, being eligible, offers herself for re-election. Starpharma Holdings Limited Annual Report 2006 24 Director's report Remuneration report The Remuneration report is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration B. Details of remuneration C. Service Agreements D. Share-based compensation E. Additional Information The information provided under headings A–D includes remuneration disclosures that are required under AASB 124 Related Party Disclosures. These disclosures have been transferred from the ﬁnancial report and have been audited. The disclosures in Section E are additional disclosures required by the Corporations Act 2001 and the Corporations Regulations 2001 which have not been audited. A. 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. Directors’ fees 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. 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 pay Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the Group’s operations. The executive pay and reward framework comprises: – base pay and beneﬁts, – short term performance incentives, – long term incentives through participation in the Starpharma Employee Share Option Plan, and – superannuation. 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. 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. Starpharma Employee Share Option Plan Information on the Starpharma Employee Share Option Plan is set out in note 36 to the ﬁnancial statements. 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. 25 Starpharma Holdings Limited Annual Report 2006 Director's report B. Details of remuneration Details of the nature and amount of each element of the remuneration of each director of Starpharma Holdings Limited and the key management personnel (as deﬁned in AASB 124 Related Party Disclosures) of the Company and the consolidated entity are set out in the following tables. The key management personnel of Starpharma Holdings Limited includes the directors as per pages 21 to 23. The key management personnel of Starpharma Holdings Limited Group includes the directors as per pages 21 to 23 above and the following executive ofﬁcers, which includes the ﬁve highest paid executives of the entity: N J Baade C P Barrett J K Fairley O T Grogan G Y Krippner T D McCarthy J R Paull B P Rogers Key management personnel of Starpharma Holdings Limited 2006 Name Short-term beneﬁts Post-employment Share-based payment Cash salary and fees $ Cash bonus $ Non-monetary beneﬁts $ Superannuation $ Options $ Total $ Non-executive directors P T Bartels Chairman P M Colman R Dobinson L Gorr P J Jenkins Subtotal non-executive directors Executive directors J W Raff Totals – 36,697 40,000 36,697 36,697 150,091 258,500 408,591 – – – – – – – 80,000 3,303 – 3,303 3,303 89,909 110,420 110,420 96,215 A 186,124 There were no retirement beneﬁts paid during the year ended 30 June 2006. A $49,983 of $96,215 contributed to J Raff’s superannuation was the result of a bonus. – – – – – – – 80,000 40,000 40,000 40,000 40,000 240,000 465,135 705,135 Starpharma Holdings Limited Annual Report 2006 26 Director's report B. Details of remuneration (continued) Key management personnel of Starpharma Holdings Limited or subsidiary companies 2006 Name Short-term beneﬁts Post-employment Share-based payment Cash salary and fees $ Cash bonus $ Non-monetary beneﬁts $ Superannuation $ Options $ Total $ Non-executive directors P T Bartels Chairman P M Colman R Dobinson L Gorr P J Jenkins Subtotal non-executive directors Executive directors – 36,697 40,000 36,697 36,697 150,091 J W Raff 258,500 Other Key Management Personnel J K Fairley 1 (from 4/7/05–30/6/06) O T Grogan B P Rogers T D McCarthy G Y Krippner J R Paull C P Barrett 2 (from 18/7/05–30/6/06) N J Baade 3 (from 16/1/06–30/6/06) 233,776 163,749 106,681 119,882 103,872 113,088 102,361 43,162 – – – – – – 24,000 – 10,000 10,000 – 10,000 – – 80,000 3,303 – 3,303 3,303 89,909 – – – – – 80,000 40,000 40,000 40,000 40,000 240,000 110,420 96,215 A – 465,135 4,552 26,881 34,225 27,700 25,030 4,602 38,340 B 28,648 20,991 32,019 C 11,187 29,411D 21,602 322,270 11,962 231,240 41,170 213,067 18,714 208,315 37,427 177,516 14,971 172,072 – 11,832 7,494 121,687 Totals 1,395,162 54,000 235,270 1,860 7,155 365,707 – 52,177 153,340 2,203,479 There were no retirement beneﬁts paid during the year ended 30 June 2006. A $49,983 of $96,215 contributed to J W Raff’s superannuation was the result of a bonus. B $15,000 of $38,340 contributed to J K Fairley’s superannuation was the result of a bonus. C $10,000 of $32,019 contributed to T D McCarthy’s superannuation was the result of a bonus. D $10,000 of $29,411 contributed to J R Paull’s superannuation was the result of a bonus. 1 J K Fairley was appointed Chief Operating Ofﬁcer on 4 July 2005. 2 C P Barrett was apponted VP, Business Development on 18 July 2005. 3 N J Baade was appointed Financial Controller on 16 January 2006. 27 Starpharma Holdings Limited Annual Report 2006 B. Details of remuneration (continued) Key management personnel of Starpharma Holdings Limited or subsidiary companies 2005 Name Short-term beneﬁts Post-employment Share-based payment Cash salary and fees $ Cash bonus $ Non-monetary beneﬁts $ Superannuation $ Options $ Total $ Director's report Non-executive directors P T Bartels Chairman P M Colman R Dobinson L Gorr P J Jenkins Subtotal non-executive directors Executive directors – 36,697 40,000 36,697 36,697 150,091 J W Raff 269,000 Other Key Management Personnel O T Grogan 139,123 A Szabo (1 Jul 04 to 31 Jan 05) B P Rogers T D McCarthy G Y Krippner J R Paull Totals 97,964 99,666 96,421 99,346 104,739 1,056,350 – – – – – – – – – – – – – 80,000 3,303 – 3,303 3,303 89,909 78,524 92,350 A 22,373 – 27,368 24,897 19,920 – 21,711 8,670 20,065 18,682 10,734 9,426 – – – – – – 80,000 40,000 40,000 40,000 40,000 240,000 439,874 3,589 186,796 12,966 43,585 19,811 39,622 15,849 119,600 190,684 159,811 169,622 130,014 173,082 271,547 135,422 1,636,401 There were no retirement beneﬁts paid during the year ended 30 June 2005. A $50,000 of $92,350 contributed to J W Raff’s superannuation was the result of a bonus C. 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 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 2006 of $333,218, to be reviewed annually and increased by an amount no less than the annual increase in the Consumer Price Index – Fringe beneﬁts – fully maintained motor vehicle and 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: (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 including participation, when eligible, in the Starpharma Holdings Employee Option Plan. Other major provisions of the agreements relating to remuneration are set out below. 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; 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. Starpharma Holdings Limited Annual Report 2006 28 Director's report C. Service Agreements (continued) J K Fairley Chief Operating Ofﬁcer – No ﬁxed term of agreement – Base salary, inclusive of superannuation, per annum as at 30 June 2006 of $260,000, 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. – 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 six months gross remuneration. O T Grogan VP – Commercial Development & Licensing – No ﬁxed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2006 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 and Chief Financial Ofﬁcer – No ﬁxed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2006 of $157,295, 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 2006 of $180,000, 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. D. 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 G Y Krippner Head of Chemistry – No ﬁxed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2006 of $145,000, 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 and Clinical Affairs – No ﬁxed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2006 of $145,000, 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. C P Barrett VP – Business Development – No ﬁxed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2006 of $125,725, to be reviewed annually by the remuneration committee. – 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. N J Baade Financial Controller – No ﬁxed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2006 of $110,000, 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 four weeks gross remuneration. granted under the plan for no consideration. Options are normally granted for a four or 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 of each director of the company and the key management personnel of the group in this or future reporting periods are as follows: Grant date Expiry date Exercise price Value per option at grant date Date exercisable 8 February 2004 8 February 2009 12 May 2005 12 May 2010 4 July 2005 18 July 2005 4 July 2010 18 July 2010 $0.9375 $0.9375 $0.9375 $0.9375 Options granted under the Plan carry no dividend or voting rights. 29 Starpharma Holdings Limited Annual Report 2006 $0.46 $0.25 $0.15 $0.16 9 February 2006 13 May 2007 5 July 2007 19 July 2007 D. Share-based compensation (continued) When exercisable, each option is convertible into one ordinary share of the Company to be allotted not more than ten business days after exercise. The weighted average remaining contractual life of share options outstanding at the end of the period was 2.65 years (2005: 2.99 years). Director's report Fair value of options granted The weighted average assessed fair value at grant date of options granted during the year ended 30 June 2006 was $0.15 cents per option (2005: $0.33 cents). The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and the expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option. Options granted during the year ended 30 June 2006 were: The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. Options are granted for no consideration, have a four or ﬁve year life and become exercisable on the second anniversary of the date of grant. Options granted on: Number of options granted Expiry date Exercise price Expected price volatility of the company’s shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value Options granted during the year ended 30 June 2005 were: Options granted on: Number of options granted Expiry date Exercise price Expected price volatility of the company’s shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value 4 July 2005 300,000 4 July 2010 93.75 cents 46.9% 5.2% – 50 cents 14.56 cents 18 July 2005 100,000 18 July 2010 93.75 cents 46.9% 5.2% – 52 cents 15.74 cents 1 July 2004 31 Dec 2004 12 May 2005 100,000 1 July 2009 93.75 cents 75.0% 5.9% – 192,000 100,000 31 Dec 2009 12 May 2010 93.75 cents 93.75 cents 47.6% 5.3% – 46.9% 5.7% – 74 cents 74 cents 66 cents 45.00 cents 30.52 cents 25.33 cents Shares issues on the exercise of options No shares in Starpharma Holdings Limited have been issued on the exercise of options in either the current or prior year. Starpharma Holdings Limited Annual Report 2006 30 Director's report D. Share-based compensation (continued) Share options granted to directors and key management personnel Details of options over unissued ordinary shares of Starpharma Holdings Limited provided as remuneration to any of the directors or the key management personnel of the Company and consolidated entity with greatest authority as part of their remuneration were as follows: Number of options granted during the year Number of options vested during the year Name C P Barrett J K Fairley O T Grogan G Y Krippner T D McCarthy J R Paull B P Rogers 2006 100,000 300,000 – – – – – 2005 – – 100,000 – – – – 2006 2005 – – – 200,000 100,000 80,000 220,000 – – – – – – – The options were granted under the Starpharma Holdings Limited Employee Share Option Plan on the dates indicated. Details of options granted to the directors and the ﬁve most highly remunerated ofﬁcers of the Group can be found in section D of the remuneration report on page 29. No options have been granted since the end of the year. No other directors or key management personnel hold options under the Plan. 500,000 Employee Share Options were offered to Dr J K Fairley subject to shareholder approval at the next Annual General Meeting of the Company. E. Additional Information – Unaudited The options will be granted in accordance with the terms of the Company’s Employee Share Option Plan and will include the following terms and conditions: – Issue price: nil. – Exercise price: 45.08 cents per share (determined on the basis of market value plus 15%. Market value is based on a 15 day volume weighted average price of the Company’s shares prior to 1 July 2006, the date of appointment of the Executive to the position of CEO). – Exercise period: From 1 July 2007 to 30 June 2009. Principles used to determine the nature and amount of remuneration: relationship between remuneration and company performance Policies are structured to reward performance that could reasonably be expected to increase shareholder value, and the performance of the Company over the current and prior year is taken into account in determining overall levels of executive reward. As the company is in a research and development phase and is not generating earnings, service agreements for executives do not include pre-determined bonus or share option allocations. Bonuses may be awarded or options offered for outstanding performance that contributes to achievement of speciﬁc milestones. Further details of the company’s remuneration policy are set out in Section A of the Remuneration Report on page 25. Further details relating to options are set out below. Name J K Fairley O T Grogan B P Rogers T D McCarthy G Y Krippner J R Paull C P Barrett N J Baade A Remuneration consisting of options 14.97% B Value at grant date $ 45,000 – – – – – – – – – – 14.01% – 16,000 – C Value at exercise date $ D Value at lapse date $ – – – – – – – – – – – – – – – – E Total of columns B to D $ 45,000 – – – – – 16,000 – 31 Starpharma Holdings Limited Annual Report 2006 E. Additional Information – Unaudited (continued) Director's report 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 2 Share-based payments of options granted during the year as part of remuneration. C = The value at exercise date of options that were granted Details of remunerations: cash bonuses and options For each cash bonus and grant of options included in the tables on pages 26 to 31, the percentage of the available bonus or grant that was paid, or that vested, in the ﬁnancial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. No part of the bonuses is payable in future years. 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. The options vest over the speciﬁed periods providing vesting criteria are met. No options will vest if the conditions are not satisﬁed, hence at 30 June 2006 the minimum value of the options yet to vest is nil. The maximum value of the options yet to vest has been determined assuming all conditions are met. Cash bonus Options Paid % Forfeited % Year Granted Vested % Forfeited % Financial years in which options may vest Minimum total value of grant yet to vest Maximum total value of grant yet to vest 100 100 – 100 100 – 100 – – – – – – – – – – – – 2006 2003 2005 2004 2004 2004 2004 2006 – – 100 50 100 100 100 – – – – – – – – – – – 30/06/2008 – 30/06/2007 30/06/2008 – – nil nil nil nil nil nil nil nil – – 22,081 nil 10,356 nil nil nil nil 8,248 – Name J W Raff J K Fairley O T Grogan B P Rogers T D McCarthy G Y Krippner J R Paull C P Barrett N J Baade Starpharma Holdings Limited Annual Report 2006 32 Director's report E. Additional Information – Unaudited (continued) Shares under option Unissued ordinary shares of Starpharma Holdings Limited under option at the date of this report are as follows: Date options granted 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 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 Number under option $0.9375 $0.9375 $0.7300 $0.9375 $0.9375 $0.9375 $0.9375 $0.9375 Total: 220,000 200,000 200,000 720,000 167,000 100,000 300,000 100,000 2,007,000 No option holder has any right under the options to participate in any other issue of the company or of any other entity. Insurance of ofﬁcers During the ﬁnancial year, Starpharma Holdings Limited arranged to insure the directors and executive ofﬁcers of the Company and related bodies corporate. The terms of the policy prohibit disclosure of the amount of the premium paid. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the ofﬁcers in their capacity as ofﬁcers of entities in the Group, and any other payments arising from liabilities incurred by the ofﬁcers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the ofﬁcers or the improper use by the ofﬁcers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. 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. Audit & non audit services (continued) 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: No taxation or advisory services have been provided in either the current or prior year. Assurance Services Audit or review of ﬁnancial reports of the entity or any entity in the consolidated entity under the Corporations Act 2001 Other assurance services:– Grant reviews & program audits 2006 $ 114,990 7,500 2005 $ 92,500 22,000 33 Starpharma Holdings Limited Annual Report 2006 Director's report Auditors’ Independence Declaration A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 35. Auditor PricewaterhouseCoopers continues in ofﬁ ce in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the Directors. Peter T Bartels, AO Director 26th September 2006 Melbourne Starpharma Holdings Limited Annual Report 2006 34 35 Starpharma Holdings Limited Annual Report 2006 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 the Company’s current 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 in 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 six non-executive directors, ﬁve 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 changed on 1 July 2006 when Dr J K Fairley was appointed as a director and Dr J W Raff reverted to a non-executive capacity. 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 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 or if he has been employed in an executive capacity within the last three years. Under these criteria the Board has determined that all non-executive directors were independent at the date of this report with the exception of Dr J W Raff, who was an executive director until 30 June 2006. 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 2006, 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. Starpharma Holdings Limited Annual Report 2006 36 Corporate Governance Statement 1. The Board of Directors (continued) 1.7 Commitment (cotinued) 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 Directors are expected to avoid any action, position or interest that results in a conﬂict with an interest of the Company. A director who has a material personal interest in a matter that relates to the affairs of the Company must give notice of such interest. 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; and 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 pages 21 to 24. 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 37 Starpharma Holdings Limited Annual Report 2006 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. – 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 2006. – 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 > 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. Board committees (continued) 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 21 to 24. 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. 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. 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 Corporate Governance Statement 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. The Remuneration Report is set out on pages 25 to 33. 3.3 Research committee The research committee consists of the following directors: Dr Peter Jenkins (Chairman) Independent non-executive director Dr Jackie Fairley Chief Executive Ofﬁcer and director (From 1 July 2006) Prof Peter Colman Independent non-executive director Dr John Raff (Until 30 June 2006) Director (Chief Executive Ofﬁcer until 30 June 2006) 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. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in note 27 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. 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. Starpharma Holdings Limited Annual Report 2006 38 Corporate Governance Statement 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 (subject to also complying with applicable laws) 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. Except with the prior approval of the Chairman, no director or executive may enter into any transaction which would have the effect of hedging or otherwise transferring to any other person the risk of any ﬂuctuation in the value of: (a) securities in the Company which are subject to a restriction on disposal under an employee share or incentive plan; or (b) options or performance rights (or any unvested securities in the Company underlying them). The Company’s share trading policy is discussed with each new employee as part of their induction training. 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 of 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. 39 Starpharma Holdings Limited Annual Report 2006 Corporate Governance Statement 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 Corporate Governance Statement section 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 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 1.1 1.4 1.4 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 Performance evaluation of Board and executives 1.10, 3.2 Remuneration disclosures Remuneration committee Executive and non-executive directors’ remuneration Reporting on Principle 9 10.1 Company code of conduct 3.2 3.2 3.2 3.2 7 Starpharma Holdings Limited Annual Report 2006 40 Financial Report Annual Financial Report 30 June 2006 Contents Income statements Balance sheets Statements of changes in equity Cash ﬂow statements Notes to the ﬁnancial statements Directors’ declaration Independent audit report to the members 42 43 44 45 46 77 78 This ﬁnancial report covers both Starpharma Holdings Limited as an individual entity and the consolidated entity consisting of Starpharma Holdings Limited and its subsidiaries. The ﬁnancial report is presented in the Australian currency. A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations on pages 2–18 and in the directors’ report on pages 19–34, both of which are not part of the ﬁnancial report. Starpharma Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered ofﬁce and principal place of business is: The ﬁnancial report was authorised for issue by the directors on 26th September 2006. The company has the power to amend and reissue the ﬁnancial report. Starpharma Holdings Limited Baker Building, 75 Commercial Road Melbourne, Victoria, 3004, Australia 41 Starpharma Holdings Limited Annual Report 2006 Income statements For the year ended 30 June 2006 Financial Report Consolidated Parent Entity Notes 2006 $ 2005 $ 2006 $ 2005 $ 5 6 8 Revenue from continuing operations Other income Administration expense Research and development expense Provision for diminution Finance costs Share of results of associates accounted for using the equity method Loss before income tax Income tax expense Loss for the year Loss attributable to minority interests Loss attributable to members of Starpharma Holdings Limited Loss per share for loss from continuing operations attributable to the ordinary equity holders of the company 571,837 639,454 526,606 601,679 6,422,066 1,409,844 – – (3,906,186) (3,541,814) (2,037,530) (1,118,152) (9,945,396) (7,007,693) – – – – (7,996,332) (6,912,407) (23,285) (8,290) (641,825) 760,708 – – – – (7,522,789) (7,747,791) (9,507,256) (7,428,880) – – – – (7,522,789) (7,747,791) (9,507,256) (7,428,880) – – – – (7,522,789) (7,747,791) (9,507,256) (7,428,880) Basic loss per share Diluted loss per share 35 35 (5.69) cents (6.97) cents (5.69) cents (6.97) cents The above income statements should be read in conjunction with the accompanying notes. Starpharma Holdings Limited Annual Report 2006 42 Financial Report Balance Sheets As at 30 June 2006 Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Receivables Property, plant and equipment Intangible assets Investments accounted for using the equity method Other ﬁnancial assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Borrowings Deferred Income Total current liabilities Non-current liabilities Borrowings Provisions Deferred Income Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity Consolidated Parent Entity Notes 2006 $ 2005 $ 2006 $ 2005 $ 9 10 11 14 15 12 13 16 18 17 19 20 21 22 23 24 25 14,283,824 8,166,259 12,361,134 6,322,524 2,824,267 187,656 94,292 91,087 17,108,091 8,353,915 12,455,426 6,413,611 – – 1,431,124 1,232,764 – – 4,086,538 – 4,086,538 2,387,312 2,913,061 – – – – – – – 5,208,750 5,368,747 7,904,974 4,145,825 9,295,288 5,368,747 25,013,065 12,499,740 21,750,714 11,782,358 1,897,819 1,647,182 1,484,154 765,276 331,447 279,589 142,092 60,007 661,337 378,063 – – – – – – 3,032,695 2,364,841 1,484,154 765,276 315,412 107,630 241,342 79,750 89,184 – 664,384 168,934 – – – – – – – – 3,697,079 2,533,775 1,484,154 765,276 21,315,986 9,965,965 20,266,560 11,017,082 65,375,467 46,821,956 65,375,467 46,821,956 497,374 178,076 421,838 218,615 (44,556,855) (37,034,067) (45,530,745) (36,023,489) 21,315,986 9,965,965 20,266,560 11,017,082 The above balance sheets should be read in conjunction with the accompanying notes. 43 Starpharma Holdings Limited Annual Report 2006 Financial Report Statements of changes in equity For the year ended 30 June 2006 Notes Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ Total equity at the beginning of the year 9,965,965 17,592,496 11,017,082 18,284,163 Exchange differences on translation of foreign operations 24 116,075 (40,539) Net income recognised directly in equity 116,075 (40,539) – – – – Proﬁt (loss) for the year Total recognised income and expense for the year Transactions with equity holders in their capacity as equity holders: Employee share options Contributions of equity, net of transaction costs (7,522,789) (7,747,791) (9,507,256) (7,428,880) (7,406,714) (7,788,330) (9,507,256) (7,428,880) 24 23 203,223 161,799 203,223 161,799 18,553,512 – 18,553,512 – Total equity at the end of the year 21,315,986 9,965,965 20,266,560 11,017,082 The above statements of changes in equity should be read in conjunction with the accompanying notes. Starpharma Holdings Limited Annual Report 2006 44 Financial Report Cash ﬂow Statements For the year ended 30 June 2006 Cash ﬂow 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 paid Consolidated Parent Entity Notes 2006 $ 2005 $ 110 23,411 4,360,527 1,787,906 2006 $ – – 2005 $ 13,772 – (12,405,980) (8,253,163) (1,046,208) (1,123,803) 574,151 641,547 538,295 610,391 (18,756) (8,290) – – Net cash outﬂows from operating activities 33 (7,489,948) (5,808,589) (507,913) (499,640) Cash ﬂow from investing activities Equity investment Loans advanced to subsidiaries Loans advanced from subsidiaries Repayment of loans advanced to associated entity Receipts from property, plant and equipment Payments for property, plant and equipment (1,500,699) – (1,500,699) – – – – – – 286,306 25,904 – (463,184) (405,294) (7,683,238) (6,750,608) 50,129 – – – 259,294 289,608 – – Net cash outﬂows from investing activities (437,280) (1,619,687) (7,633,109) (7,702,405) Cash ﬂows from ﬁnancing activities Proceeds from issue of shares Share issue transaction costs Payments of ﬁnance leases 14,990,045 (810,413) – – 14,990,045 (810,413) (134,839) (63,765) – Net cash inﬂows (outﬂows) from ﬁnancing activities 14,044,793 (63,765) 14,179,632 – – – – Net increase (decrease) in cash and cash equivalents held Cash and cash equivalents at the beginning of the period 6,117,565 (7,492,041) 6,038,610 (8,202,045) 8,166,259 15,658,300 6,322,524 14,524,569 Cash and cash equivalents at the end of the period 9 14,283,824 8,166,259 12,361,134 6,322,524 The above cash ﬂow statements should be read in conjunction with the accompanying notes. 45 Starpharma Holdings Limited Annual Report 2006 Notes to the ﬁnancial statements Financial Report 30 June 2006 Contents 1. Summary of signiﬁcant accounting policies 2. Financial Risk Management 3. Critical accounting estimates and judgments 4. Segment information 5. Revenue 6. Other income 7. Expenses 8. Income tax expense 9. Current assets – Cash and cash equivalents 10. Current assets – Trade and other receivables 11. Non-current assets – Receivables 12. Non-current assets – Investments accounted for using the equity method 13. Non-current assets – Other ﬁnancial assets 14. Non-current assets – Property, plant and equipment 15. Non-current assets – Intangible assets 16. Current liabilities – Trade and other payables 17. Current liabilities – Borrowings 18. Current liabilities – Provisions 19. Current liabilities – Deferred Income 20. Non-current liabilities – Borrowings 21. Non-current liabilities – Provisions 22. Non-current liabilities – Deferred Income 23. Contributed equity 24. Reserves 25. Accumulated Losses 26. Key management personnel disclosures 27. Remuneration of auditors 28. Contingencies 29. Commitments 30. Subsidiaries 31. Investments in associates 32. Events occurring after the balance sheet date 33. Reconciliation of proﬁt after income tax to net cash inﬂow from operating activities 34. Non–cash ﬁnancing activities 35. Earnings per share 36. Share-based payments 37. Related party transactions 38. Explanation of transition to Australian equivalents to IFRSs Page 47 52 52 52 53 53 53 54 55 55 56 56 57 57 58 58 58 59 59 59 59 59 60 60 61 61 65 65 65 67 68 69 70 70 70 71 73 74 Starpharma Holdings Limited Annual Report 2006 46 Financial Report 1. Summary of signiﬁcant accounting policies The principal accounting policies adopted in the preparation of the ﬁnancial report are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated. The ﬁnancial report includes separate ﬁnancial statements for Starpharma Holdings Limited as an individual entity and the consolidated entity consisting of Starpharma Holdings Limited and its subsidiaries. Subsidiaries are all those entities (including special purpose entities) over which the Group has power to govern the ﬁnancial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. (a) Basis of preparation This general purpose ﬁnancial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Compliance with IFRSs Australian Accounting Standards include AIFRS. Compliance with AIFRS ensures that the consolidated ﬁnancial statements and notes of Starpharma Holdings Limited comply with international Financial Reporting Standards (IFRSs). The parent entity ﬁnancial statements and notes also comply with IFRSs except that is has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Presentation and Disclosure. Application of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards (AIFRS) These ﬁnancial statements are the ﬁrst Starpharma Holdings Limited ﬁnancial statements to be prepared in accordance with AIFRS. AASB 1 First time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied in preparing these ﬁnancial statements. Financial statements of Starpharma Holdings Limited until 30 June 2005 had been prepared in accordance with previous Australian Generally Accepted Accounting Principles (AGAAP). AGAAP differs in certain respects from AIFRS. When preparing the Starpharma Holdings Limited 2006 ﬁnancial statements, management has amended certain accounting, valuation and consolidation methods applied in the previous AGAAP ﬁnancial statements to comply with AIFRS. With the exception of ﬁnancial instruments, the comparative ﬁgures in respect of 2005 were restated to reﬂect these adjustments. The Group has taken the exemption available under AASB 1 to only apply AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement from 1 July 2005. Reconciliations and descriptions of the effect of transition from previous AGAAP to AIFRS on the Group’s equity and its net income are given in note 38. Historical cost convention These ﬁnancial statements have been prepared under the historical cost convention. (b) Principles of consolidation (i) Subsidiaries The consolidated ﬁnancial statements incorporate the assets and liabilities of all subsidiaries of Starpharma Holdings Limited (“company” or “parent company”) as at 30 June 2006 and the results of all subsidiaries for the year then ended. Starpharma Holdings Limited and its subsidiaries together are referred to in this ﬁnancial report as the Group or the consolidated entity. 47 Starpharma Holdings Limited Annual Report 2006 Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(i)). Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively. Investments in subsidiaries are accounted for at cost in the individual ﬁnancial statements of Starpharma Holdings Limited. (ii) Associates Associates are all entities over which the Group has signiﬁcant inﬂuence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for in the parent entity ﬁnancial statements using the cost method and in the consolidated ﬁnancial statements using the equity method of accounting, after initially being recognised at cost. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identiﬁed on acquisition The Group’s share of its associates’ post-acquisition proﬁts or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s income statement, while in the consolidated ﬁnancial statements they reduce the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the group. Financial Report 1. Summary of signiﬁcant accounting policies (continued) (c) Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different to those of segments operating in other economic environments. (g) Income Tax The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the ﬁnancial statements, and to unused tax losses. (d) Foreign currency translation (i) Functional and presentation currency Items included in the ﬁnancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated ﬁnancial statements are presented in Australian dollars, which is Starpharma Holdings Limited’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting proﬁt or taxable proﬁt or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. (iii) Group companies Assets and liabilities of associated entities are translated into Australian currency at rates of exchange current at balance date, while their incomes and expenses are translated at the average of rates during the year. Exchange differences arising on translation are taken to the foreign currency translation reserve. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. (e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Interest revenue is recognised on a time proportion basis using the effective interest rate method. All revenue is stated net of the amount of Goods and Services Tax (GST). (f) Government Grants Government grants include contract income awarded by government bodies for research and development projects. Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight line basis over the expected lives of the related assets. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Starpharma Holdings Limited and its wholly-owned Australian controlled entities have not implemented the tax consolidation legislation. (h) Leases Leases of plant and equipment where the Group has substantially all the risks and rewards of ownership are classiﬁed as ﬁnance leases (note 29). Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of ﬁnance charges, are included in other long term payables. Each lease payment is allocated between the liability and ﬁnance cost. The ﬁnance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The plant and equipment acquired under ﬁnance leases is depreciated over the shorter of the asset’s useful life and the lease term. Leases in which a signiﬁcant portion of the risks and rewards of ownership are retained by the lessor are classiﬁed as operating leases (note 29). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the lease term. Lease income from operating leases is recognised in income on a straight-line basis over the lease term. Starpharma Holdings Limited Annual Report 2006 48 Financial Report 1. Summary of signiﬁcant accounting policies (continued) (i) Business combinations The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identiﬁable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identiﬁable net assets acquired is recorded as goodwill (refer to note 1(q)). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identiﬁcation and measurement of the net assets acquired. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent ﬁnancier under comparable terms and conditions. (j) Impairment of assets Assets that have an indeﬁnite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identiﬁable cash ﬂows (cash generating units). (k) Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with ﬁnancial institutions and other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insigniﬁcant risk of changes in value. The amount of signiﬁcant cash and cash equivalents not available for use is disclosed in the note 9. (l) Trade Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement no more than 30 days from date of recognition. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash ﬂows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement. (m) Investments and other ﬁnancial assets From 1 July 2004 to June 2005 The Group has taken the exemption available under AASB 1 to apply AASB 132 and AASB 139 only from 1 July 2005. The Group has applied previous AGAAP to the comparative information on ﬁnancial instruments within the scope of AASB 132 and AASB 139. From 1 July 2005 The Group classiﬁes its investments in the following categories: ﬁnancial assets at fair value through proﬁt or loss, loans and receivables, held-to-maturity investments, and available-for-sale ﬁnancial assets. The classiﬁcation depends on the purpose for which the investments were acquired. Management determines the classiﬁcation of its investments at initial recognition and re- evaluates this designation at each reporting date. (i) Loans and receivables Loans and receivables are non-derivative ﬁnancial assets with ﬁxed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after balance sheet date, which are classiﬁed as non-current assets. Loans and receivables are included in receivables in the balance sheet (notes 10 and 11). (n) Fair Value Estimation The fair value of ﬁnancial assets and ﬁnancial liabilities must be estimated for recognition and measurement or disclosure purposes. The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of ﬁnancial liabilities for disclosure purposes is estimated by discounting the future contractual cash ﬂows at the current market interest rate that is available to the Group for similar ﬁnancial instruments. (o) Property, Plant and Equipment Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash ﬂow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the item will ﬂow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the ﬁnancial period in which they are incurred. 49 Starpharma Holdings Limited Annual Report 2006 Financial Report 1. Summary of signiﬁcant accounting policies (continued) Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of the residual values, over their estimated useful lives. The expected useful lives are 2 to 10 years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1 (j)). Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the income statement. When revalued assets are sold, it is Group policy to transfer the amounts included in other reserves in respect of those assets to retained earnings. (p) Leasehold improvements The cost 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 between 5 to 6 years, whichever is shorter. (q) Intangible Assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identiﬁable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating units represents the Group’s investment in each company. (ii) Patents and licences Costs associated with patents are charged to the income statement in the periods in which they are incurred. Licences and acquired patents with a ﬁnite useful life are carried at cost less accumulated amortisation and impaired losses. Amortisation is calculated using the straight-line method to allocate the cost of licences and patents over the period of the expected beneﬁt, which varies from 8 to 12 years. (iii) Research and development Expenditure on research activities, undertaken with the prospect of obtaining new scientiﬁc or technical knowledge and understanding, is recognised in the income statement as an expense when it is incurred. Expenditure on development activities, being the application of research ﬁndings or other knowledge to a plan or design for the production of new or substantially improved products or services before the start of commercial production or use, is capitalised if the product or service is technically and commercially feasible and adequate resources are available to complete development. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in the income statement as an expense as incurred. To date no development costs have been capitalised. (r) Trade and other payables These amounts represent liabilities for goods and services provided to the Group prior to the end of the reporting date which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. (s) Borrowings Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classiﬁed as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. (t) Provisions Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events when it is more probable than not that an outﬂow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outﬂow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outﬂow with respect to any one item in the same class of obligations may be small. Provisions are measured at the present value of management’s best estimate for the expenditure required to settle the present obligation at the balance date. The discount rate used to determine the present value reﬂects current market assessment at the time, value of money, and the risks speciﬁc to liability. The increase of the provision due to the passage of time is recognised as interest expense. (u) Employee beneﬁts (i) Wages and salaries and annual 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 payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. (ii) Long service leave The liability for long service leave is recognised in the provision for employee beneﬁts and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outﬂows. Starpharma Holdings Limited Annual Report 2006 50 Financial Report 1. Summary of signiﬁcant accounting policies (continued) (iii) Superannuation Group companies make the statutory superannuation guarantee contribution in respect of each employee to their nominated complying superannuation fund. In certain circumstances pursuant to an employee’s employment contract the group companies may also be required to make additional superannuation contributions and/or agree to make salary sacriﬁce superannuation contributions in addition to the statutory guarantee contribution. The Group’s legal or constructive obligation is limited to the above contributions. Contributions to the employees’ superannuation plans are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. (iv) Employee beneﬁts on-costs Employee beneﬁt on-costs, including payroll tax, are recognised and included in other liabilities and costs when the employee beneﬁts to which they relate are recognised as liabilities. (v) Share-based payments Share-based compensation beneﬁts are offered to the directors and employees via the Starpharma Holdings Limited Employee Share Option Plan (“SPLAM”). Share options granted before 7 November 2002 and/or vested before 1 January 2005 No expense is recognised in respect of these options. The shares are recognised when the options are exercised and the proceeds received allocated to share capital. Share options granted after 7 November 2002 and vested after 1 January 2005 The fair value of options granted under SPLAM is recognised as an employee beneﬁt expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options. The fair value at grant date is determined using a Black-Scholes option model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, proﬁtability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee beneﬁt expense recognised in each period takes into account the most recent estimate. (vi) Bonus payments The Group recognises a liability and an expense for bonuses based on a formula that takes into consideration performance criteria that has been set. The group recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. (v) Contributed equity Ordinary shares are classiﬁed as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, for the acquisition of a business, are not included in the cost of the acquisition as part of the purchase consideration. (w) Dividends Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the period but not distributed at balance date. (x) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the proﬁt attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the ﬁnancial year, adjusted for bonus elements in ordinary shares issued during the year. (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 tax effect of interest and other ﬁnancing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (y) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash ﬂows are presented on a gross basis. The GST components of cash ﬂows arising from investing or ﬁnancing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash ﬂow. (z) New accounting standards and UIG interpretations Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2006 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is only relevant to the below: (i) UIG 4 Determining whether an Asset Contains a Lease UIG 4 is applicable to annual periods beginning on or after 1 January 2006. The Group has not elected to adopt UIG 4 early. It will apply UIG 4 in its 2007 ﬁnancial statements and the UIG 4 transition provisions. The Group will therefore apply UIG 4 on the basis of facts and circumstances that existed as of 1 July 2006. Implementation of UIG 4 is not expected to change the accounting for any of the Group’s current arrangements. 51 Starpharma Holdings Limited Annual Report 2006 2. Financial risk management The Group’s activities expose it to a variety of ﬁnancial risks; market risk (including currency risk, fair value, interest rate risk and price risk), credit risk, liquidity risk and cash ﬂow interest rate risk. The Group’s overall risk management program focuses on the unpredictability of ﬁnancial markets and seeks to minimise potential adverse effects on the ﬁnancial performance of the Group. The chief executive ofﬁcer and company secretary, under the guidance of the board, have responsibility for the risk management program. (a) Market risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures to major currencies including the US dollar. On the basis of the nature of these transactions, the Group does not consider that any potential foreign exchange exposure is material and as a consequence does not use derivative ﬁnancial instruments to hedge such exposures. Financial Report (b) Credit risk The Group has no signiﬁcant concentrations of credit risk as it does not have signiﬁcant third party receivables other than under government funded research and development programs. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufﬁcient cash and marketable securities. The directors regularly monitor the cash position of the consolidated entity, giving consideration to the level of expenditure and future capital commitments entered into. (d) Cash ﬂow interest rate risk As the company has interest-bearing assets, the company’s income and operating cash ﬂows are subject to changes in market interest rates. The company uses ﬁxed rate term deposits with maturities of no greater than three months. 3. Critical accounting estimates and judgments Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a ﬁnancial impact on the entity and that are believed to be reasonable under the circumstances. (a) Critical accounting estimates and assumptions The group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by deﬁnition, seldom equal the related actual results. The estimates and assumptions that have a signiﬁcant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next ﬁnancial year are discussed below. i) Amortisation of ﬁnite life intangible assets The Group’s management determines the estimated life of the patents underlying the core technology of the business and calculates amortisation accordingly. The estimate is based on the period of expected beneﬁt which currently stands at 8–12 years. This could change as a result of technical innovations or competitor actions in response to severe industry cycles. Management will increase amortisation charges when the useful lives are less than previously estimated lives. The carrying value of intangible assets at 30 June 2006 is $4,086,538 (2005: nil). 4. Segment information A change in accounting policy has been adopted for segment reporting to be consistent with the Group’s stated goal of discovery, development and commercialisation of dendrimers for pharmaceuticals and other life science applications. It is the view of the Directors that the risks and returns associated with each of the previous segments is substantially similar to one another. The previous segments do not reﬂect the Group’s current strategies, including combining disease indications within the one development program. ii) Fair value of intellectual property in associate company Prior to the application of the equity method of accounting to the results of associated entities, management will consider the underlying assets, liabilities and performance of the associated entity under the requirements of AIFRS. The appropriate fair valuation of Intellectual Property within US based associate Dendritic Nanotechnologies (DNT) has been determined using valuation techniques. The Group uses its judgment to select methods and make assumptions based on conditions existing at each balance sheet date. The Group has used a discounted cash ﬂow analysis based on the royalties derived from the Intellectual Property to support the fair value of the asset. (b) Critical accounting judgments in applying accounting policies The Group follows the guidance of AASB 136 on determining when an investment is other-than-temporarily impaired. This determination requires signiﬁcant judgment. In making these judgments, the Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost and the ﬁnancial health of the near-term business outlook for the investee. This includes factors such as industry performance, changes in technology, operating and ﬁnancing cash ﬂow and recent transactions involving equity instruments. Hence, the nature of the change is the combining of all of the previous segments of virology, angiogenesis, other pharmaceuticals, dendritic nanotechnologies and unallocated into the one segment. The disclosure impact is that no additional information is provided by segment reporting. The change in policy has no ﬁnancial impact on the Group. The consolidated entity operates in Australia, with the exeception of the associated entity DNT Inc., which operates in the USA. The investment is accounted for by the equity method. The carrying value of the investment in DNT, the aggregate of losses and contribution to net proﬁt/(loss) are outlined in note 31. Starpharma Holdings Limited Annual Report 2006 52 Financial Report 5. Revenue Revenue from continuing operations Interest revenue Other revenue Total revenue Other Income Government grants Total other income Consolidated 2006 $ 2005 $ 571,337 500 571,837 616,043 23,411 639,454 6,422,066 1,409,844 6,422,066 1,409,844 Parent Entity 2006 $ 2005 $ 526,606 – 526,606 – – 587,907 13,772 601,679 – – Total revenue and other income 6,993,903 2,049,298 526,606 601,679 6. Other income Consolidated 2006 $ 2005 $ Other income from government grants USA Government NIH contract 4,372,797 – USA Government NIH grant 1,495,266 1,409,844 Australian Government P3 grant 554,003 – Total Government grants 6,422,066 1,409,844 With the exception of normal audit requirements, there are no unfulﬁlled conditions or other contingencies attached to the portions of Government grant and contract incomes recognized above. The Group did not beneﬁt from any other form of government assistance. 7. Expenses Loss from ordinary actvities before income tax expense includes the following items: Depreciation Amortisation Rental expense Consolidated Parent Entity 2006 $ 2005 $ 2006 $ 2005 $ 434,596 530,736 385,495 629,865 64,000 353,004 – 287,342 – – – – 53 Starpharma Holdings Limited Annual Report 2006 8. Income tax expense a) Income tax expense Current Tax Deferred Tax Under (over) provision in prior years Financial Report Consolidated Parent Entity 2006 $ 2005 $ 2006 $ 2005 $ - - - - - - - - - - - - - - - - b) Numerical reconciliation to income tax prima facie tax payable Loss from continuing operations before income tax (7,522,789) (7,747,791) (9,507,256) (7,428,880) Tax at the Australian tax rate of 30% (2,256,837) (2,324,337) (2,852,177) (2,228,664) Tax effect of amounts which are not deductible (taxable) in calculating taxable income Amortisation of intangibles Professional and legal fees Research and development allowance Equity accounted loss 86,203 (42,941) - - 86,203 (42,941) - (284,579) 209,217 100,451 - - Write down in carrying value of investments - 42,000 48,000 - - - - - - Gain in dilution of equity investments Write down in carrying value of loans Share-based payments Sundry items (16,670) (370,663) - - 60,967 62,068 - 2,350,900 2,073,722 48,539 - 2,889 72,992 - - Future income tax beneﬁts not brought to account 1,897,993 2,785,700 337,023 154,942 Income tax expense - - - - c) Amounts recognised directly in equity There are no amounts recognised directly in equity. d) Tax losses Unused tax losses for which no deferred tax asset has been recognised (as recovery is currently not probable) Potential tax beneﬁt at 30% 38,124,998 34,586,777 2,124,498 11,437,499 10,376,033 637,349 644,707 193,412 Potential future income tax beneﬁts attributable to tax losses carried forward have not been brought to account at 30 June 2006 because the directors do not believe that it is appropriate to regard the realisation of future income tax beneﬁt as probable. Similarly, future beneﬁts attributable to net temporary differences have not been brought to account as the directors do not regard the realisation of such beneﬁts as probable. Starpharma Holdings Limited Annual Report 2006 54 Financial Report 8. Income tax expense (continued) Consolidated Parent Entity 2006 $ 2005 $ 2006 $ 2005 $ e) Unrecognised temporary differences Unrecognised temporary differences for which deferred tax assets have not been recognised 519,072 406,575 129,548 19,380 Unrecognised temporary differences for which deferred liabilities have not been recognised (35,392) (7,453) (6,674) (7,135) 9. Current assets – Cash and cash equivalents Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ Cash at bank and on hand 1,500,259 2,042,795 79,012 199,060 Deposits at call 12,783,565 6,123,464 12,282,122 6,123,464 14,283,824 8,166,259 12,361,134 6,322,524 Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ Balance per statement of cash ﬂows 14,283,824 8,166,259 12,361,134 6,322,524 Cash at bank and on hand The cash is bearing ﬂoating interest rates based on current bank rates. Deposits at call The deposits are bearing ﬂoating interest rates ranging from 5.00% to 5.86% (2005: 5.58%). These deposits are of 30–90 day maturities. Cash not available There is $481,879 of cash not available for use due to restrictions associated with a ﬁnance lease which is guaranteed by term deposit (2005: nil). 10. Current assets – Trade and other receivables Consolidated Parent Entity Grant receivable Interest receivable Prepayments Other receivables 2006 $ 2,628,146 29,054 160,445 6,622 2005 $ – 42,851 144,805 – 2,824,267 187,656 2006 $ – 22,247 72,045 – 94,292 2005 $ – 23,784 48,003 19,300 91,087 55 Starpharma Holdings Limited Annual Report 2006 Financial Report 10. Current assets – Trade and other receivables (continued) Grant receivables Grant receivables comprise expenditure reimbursable under grants from NIH and P3 are subject to normal terms of settlement within 30 to 90 days. Other receivables Other receivables comprise sundry debtors and GST claimable and are subject to normal terms of settlement within 30 to 90 days. 11. Non-current assets – Receivables Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ Loans to controlled entities Provision for doubtful debts – – 26,806,901 18,970,569 – – (26,806,901) (18,970,569) – – – – Interest rate risk Current and non-current receivables are non-interest bearing. Credit risk The Group considers that there is no concentration of credit risk with respect to current and non-current receivables. Grant receivables are with government bodies. Loans to controlled entities are assessed for recoverability and provisions are applied as considered appropriate. 12. Non-current assets – Investments accounted for using the equity method Shares in associated entities Consolidated 2006 $ 2005 $ 2,387,312 2,913,061 Notes 31 Parent Entity 2006 $ – 2005 $ – Shares in associates Investments in associates are accounted for in the consolidated ﬁnancial statements using the equity method of accounting and carried at carrying value by the parent entity (refer to note 31). Consolidated 2006 $ 2005 $ Notes Movements in the carrying amounts of investments in associates Carrying amount at the beginning of the ﬁnancial year 2,913,061 692,194 Acquisition of investment in associates – 1,500,699 Gain (loss) on issue of equity by associate Share of losses from ordinary activities after tax 55,566 1,235,542 (697,390) (334,835) Foreign currency reserve 24 116,075 (40,539) Write-down of investment in associate – (140,000) Carrying amount at the end of the ﬁnancial year 2,387,312 2,913,061 Starpharma Holdings Limited Annual Report 2006 56 Financial Report 13. 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 Consolidated 2006 $ 2005 $ – – – – – – – – Parent Entity 2006 $ 2005 $ 17,500,106 17,500,106 (17,500,106) (17,500,106) 5,208,750 5,368,747 5,208,750 5,368,747 At 30 June 2006 and 2005, 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 2006 and 2005, 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 2006 and 2005. 14. Non-current assets – Property, plant and equipment Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ Plant and equipment (at cost) 1,946,944 1,766,727 Less: Accumulated Depreciation (1,345,639) (1,248,823) 601,305 517,904 Leasehold improvements (at cost) 1,135,956 1,128,512 Less: Accumulated Depreciation (753,182) (541,652) Plant and equipment under ﬁnance lease 382,774 758,072 586,860 320,000 Less: Accumulated Depreciation (311,027) (192,000) 447,045 128,000 1,431,124 1,232,764 – – – – – – – – – – – – – – – – – – – – Reconciliations of carrying amounts Consolidated Year ended 30 June 2006 Opening amount at 1 July 2005 Additions Disposals Depreciation and amortisation Carrying amount at 30 June 2006 Plant and Equipment 2006 $ 517,904 455,740 (24,906) (347,433) 601,305 Leasehold improvements Plant and Equipment under ﬁnance lease 2006 $ 586,860 7,444 – (211,530) 382,774 2006 $ 128,000 438,072 – (119,027) 447,045 57 Starpharma Holdings Limited Annual Report 2006 14. Non-current assets – Property, plant and equipment (continued) Financial Report Consolidated Year ended 30 June 2005 Opening amount at 1 July 2004 Additions Disposals Depreciation and amortisation Carrying amount at 30 June 2005 Plant and Equipment 2005 $ 596,798 363,164 – (442,058) 517,904 15. Non-current assets – Intangible assets Patents and Licences Less: Accumulated amortisation Net book value Opening amount at 1 July Additions Amortisation charge Carrying amount at 30 June Consolidated 2005 $ – – – – – – – 2006 $ 4,373,880 (287,342) 4,086,538 – 4,373,880 (287,342) 4,086,538 Leasehold improvements Plant and Equipment under ﬁnance lease 2005 $ 767,467 7,200 – (187,807) 586,860 2005 $ 192,000 – – (64,000) 128,000 Parent Entity 2005 $ – – – – – – 2006 $ 4,373,880 (287,342) 4,086,538 – 4,373,880 (287,342) 4,086,538 Starpharma acquired outright ownership of its core technology including the patents underlying the VivaGel™ family of products and the 25% royalty that was payable to BRI under the original licence was cancelled. The ownership rights were acquired through the issue of Starpharma shares to BRI. The value of the shares issued, measured at the published market price on the date of the agreement, was recorded to the balance sheet as an intangible asset. To the year end amortisation of $287,342 has been recorded to the income statement reducing the carrying value of the intangible asset to $4,086,538. 16. Current liabilities – Trade and other payables Consolidated 2006 $ 2005 $ Trade creditors 1,897,819 1,647,182 Loans from controlled entities – – 1,897,819 1,647,182 17. Current liabilities – Borrowings Consolidated 2006 $ 2005 $ Finance lease liability (secured) 142,092 60,007 Details of the security relating to each of the secured liabilities are set out in Note 20. Parent Entity 2005 $ 111,622 653,654 765,276 2006 $ 830,499 653,655 1,484,154 Parent Entity 2006 $ – 2005 $ – Starpharma Holdings Limited Annual Report 2006 58 Financial Report 18. Current liabilities – Provisions Employee entitlements 331,447 279,589 Consolidated 2006 $ 2005 $ 19. Current liabilities – Deferred Income Consolidated 2006 $ 2005 $ Deferred grant income 661,337 378,063 20. Non-current liabilities – Borrowings Finance lease liability (secured) 315,412 79,750 Consolidated 2006 $ 2005 $ Parent Entity 2005 $ – Parent Entity 2005 $ – 2006 $ – 2006 $ – Parent Entity 2006 $ – 2005 $ – Lease liabilities are effectively secured as the rights to the leased assets recognised in the ﬁnancial statements revert to the lessor in the event of default. Floating Interest rate Fixed interest rate 2006 Lease Liabilities (notes 17, 20 and 29) Weighed average interest rate 1 year or less Over 1–2 years Over 2–3 years Over 3–4 years Over 4–5 years Over 5 years Total – – 142,092 68,979 73,844 79,052 93,537 – 457,504 6.72% 7.20% 7.20% 7.20% 7.20% – Floating Interest rate Fixed interest rate 2005 Lease Liabilities (notes 17, 20 and 29) Weighed average interest rate 1 year or less Over 1–2 years Over 2–3 years Over 3–4 years Over 4–5 years Over 5 years Total – – 60,007 60,007 19,743 6.26% 6.26% 6.26% – – – – – 139,757 – 21. Non-current liabilities – Provisions Consolidated 2006 $ 2005 $ Employee entitlements 107,630 89,184 22. Non-current liabilities – Deferred Income Parent Entity 2006 $ – 2005 $ – Deferred grant income (equipment purchase) 241,342 59 Starpharma Holdings Limited Annual Report 2006 2006 $ Consolidated Parent Entity 2005 $ – 2006 $ – 2005 $ – Financial Report 23. Contributed equity (a) Share Capital Parent Entity and Consolidated 2006 Shares 2005 Shares Parent Entity and Consolidated 2006 $ 2005 $ Share Capital Ordinary shares – fully paid 147,739,245 111,235,000 65,375,467 46,821,956 Former share premium account included in equity 2,500,000 2,500,000 (b) Movements in ordinary share capital Date Details Number of Shares Issue Price $ 111,235,000 7,112,000 9,573,250 $0.62 $0.51 46,821,956 4,373,880 4,882,358 (244,118) 19,818,995 $0.51 10,107,687 147,739,245 (566,296) 65,375,467 The value of the shares issued, measured at the published market price on the date of the agreement, was recorded to the balance sheet as an intangible asset. 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. 1 July 2004 Opening Balance 10 October 2005 BRI Share Placement 17 November 2005 Share Placement 29 December 2005 Less: Transaction Costs Share Placement and Share Purchase Plan Less: Transaction Costs Under the BRI share placement, Starpharma acquired outright ownership of its core technology including the patents underlying the VivaGel™ family of products and the 25% royalty that was payable to BRI under the original licence was cancelled. (c) Ordinary shares As at 30 June 2006 there were 147,739,245 issued ordinary shares. Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. (d) Options Information relating to the 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 36. 24. Reserves (a) Reserves Share-based payments reserve Foreign currency translation reserve Consolidated 2006 $ 421,838 75,536 497,374 2005 $ 218,615 (40,539) 178,076 Parent Entity 2006 $ 2005 $ 421,838 218,615 – – 421,838 218,615 Starpharma Holdings Limited Annual Report 2006 60 Financial Report 24. Reserves (continued) b) Movement in reserves Share-based payments reserve Balance 1 July Option expense Balance 30 June Consolidated 2006 $ 2005 $ 218,615 203,223 421,838 56,816 161,799 218,615 Foreign currency translation reserve Balance 1 July (40,539) – Currency translation differences arising during the year Balance 30 June 116,075 75,536 (40,539) (40,539) Parent Entity 2006 $ 2005 $ 218,615 203,223 421,838 56,816 161,799 218,615 – – – – – – (c) Nature and purpose of reserves (i) Share-base payments reserve The share-based payments reserve is used to recognise the fair value of options issued but not exercised. (ii) Foreign currency translation reserve Exchange differences arising on translation of the foreign associated entity are taken to the foreign currency translation reserve, as described in Note 1(d). The reserve is recognised in proﬁt and loss when the net investment is disposed of. 25. Accumulated Losses Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ Accumulated losses balance 1 July (37,034,067) (29,286,276) (36,023,489) (28,594,609) Net loss for the year (7,522,789) (7,747,791) (9,507,256) (7,428,880) Accumulated losses balance 30 June (44,556,855) (37,034,067) (45,530,745) (36,023,489) 26. Key management personnel disclosures (a) Directors The following persons were directors of Starpharma Holdings Limited during the ﬁnancial year: Name PT Bartels J W Raff P M Colman R Dobinson L Gorr P J Jenkins Position Chairman – non executive Executive director, Chief Executive Ofﬁcer Non-executive director Non-executive director Non-executive director Non-executive director J W Raff retired from the position of Chief Executive Ofﬁcer on 1 July 2006. He will remain a non-executive director and was appointed Deputy Chairman. J K Fairley was appointed to the position of Chief Executive Ofﬁcer and Executive director on 1 July 2006. 61 Starpharma Holdings Limited Annual Report 2006 26. Key management personnel disclosures (continued) (b) Other key management personnel The following persons also had authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the ﬁnancial year: Financial Report Name J K Fairley B P Rogers O T Grogan T D McCarthy G Y Krippner J R Paull C P Barrett N J Baade Position Chief Operating Ofﬁcer (from 4 July 2005) Company Secretary and Chief Financial Ofﬁcer VP – Commercial Development & Licensing VP – Drug Development Head of Chemistry VP – Regulatory and Clinical Affairs VP – Business Development (from 18 July 2005) Financial Controller (from 16 January 2006) Key management personnel during the year ended 30 June 2005 were: Name B P Rogers O T Grogan A Szabo T D McCarthy G Y Krippner J R Paull Position Company Secretary and Chief Financial Ofﬁcer VP – Commercial Development & Licensing VP – Business Development (ceased employment 31 January 2005) VP – Drug Development Head of Chemistry VP – Regulatory and Clinical Affairs (c) Key management personnel compensation Consolidated 2006 $ 2005 $ Short-term employee beneﬁts 1,684,432 1,229,432 Post-employment beneﬁts Share-based payments 365,707 153,340 271,547 135,422 Parent Entity 2005 $ 497,615 182,259 – 2006 $ 519,011 186,124 – 2,203,479 1,636,401 705,135 679,874 The company has taken advantage of the relief provided by ASIC Class Order 06/50 and has transferred the detailed remuneration disclosures to the directors’ report. The relevant information can be found in sections A-C of the remuneration report on pages 25 to 29. (d) Equity instrument disclosures relating to key management personnel Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section D of the remuneration report on pages 29 to 31. Starpharma Holdings Limited Annual Report 2006 62 Financial Report 26. Key management personnel disclosures (continued) Option holdings The numbers of options over ordinary shares in the company held during the ﬁnancial year by each director of Starpharma Holdings Limited and other key management personnel of the Group, including their personally related parties, are set out below. No options are held by Directors in either the current or prior year. 2006 Name Balance at the start of the year Granted during the year as compensation Exercised during the year Other changes during the year Balance at the end of the year Vested and exercisable at the end of the year Other key management personnel of the Group J K Fairley O T Grogan B P Rogers T D McCarthy G Y Krippner J R Paull C P Barrett N J Baade 2005 Name – 300,000 300,000 220,000 220,000 200,000 100,000 – – – – – – – 100,000 – – – – – – – – – – (100,000) – (20,000) – – – – 300,000 200,000 220,000 200,000 200,000 100,000 100,000 – – 100,000 220,000 200,000 200,000 100,000 – – Balance at the start of the year Granted during the year as compensation Exercised during the year Other changes during the year Balance at the end of the year Vested and exercisable at the end of the year Other key management personnel of the Group O T Grogan B P Rogers A Szabo T D McCarthy G Y Krippner J R Paull 200,000 220,000 5,000 220,000 200,000 100,000 100,000 – 100,000 – – – – – – – – – – – (105,000) – – – 300,000 220,000 – 220,000 200,000 100,000 200,000 – – 120,000 – 20,000 63 Starpharma Holdings Limited Annual Report 2006 Financial Report 26. Key management personnel disclosures (continued) Share holdings The numbers of ordinary shares in the company held during the ﬁnancial year by each director of Starpharma Holdings Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation. 2006 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 100,000 5,982,482 3,155,976 5,194,900 1,606,000 5,362,081 Other key management personnel of the Group Ordinary Shares J K Fairley O T Grogan B P Rogers T D McCarthy G Y Krippner J R Paull C P Barrett N J Baade 2005 Name 5,000 – 61,700 4,000 – – – – – – – – – – – – – – – – – – 9,804 9,804 (250,000) 9,804 29,608 19,608 – – 3,922 – – – 8,935 – 109,804 5,992,286 2,905,976 5,204,704 1,635,608 5,381,689 5,000 – 65,622 4,000 – – 8,935 – 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 Jenkins1 J W Raff1 80,000 5,982,482 3,505,976 5,560,500 1,654,000 5,322,081 Other key management personnel of the Group Ordinary Shares O T Grogan1 B P Rogers A Szabo T D McCarthy G Y Krippner J R Paull – 41,700 – 4,000 – – – – – – – – – – – – – – 20,000 – (350,000) (365,600) (48,000) 40,000 – 20,000 – – – – 100,000 5,982,482 3,155,976 5,194,900 1,606,000 5,362,081 – 61,700 – 4,000 – – 1A difference from 2005 disclosures is due to a change in deﬁnition under AASB 124 Related Party Disclosures. Starpharma Holdings Limited Annual Report 2006 64 Financial Report 26. Key management personnel disclosures (continued) (e) Other transactions with key management personnel 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. Aggregate amounts of each of the above types of other transactions with key management personnel of Starpharma Holdings Limited and the Group. Amounts recognised as expense Legal fees Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ – 1,901 – – 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. 27. 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: Assurance Services Audit or review of ﬁnancial reports of the entity or any entity in the consolidated entity under the Corporations Act 2001 Other assurance services:– Grant reviews and program audits Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ 114,990 92,500 114,990 92,500 7,500 122,490 22,000 114,500 7,500 122,490 22,000 114,500 No Taxation or Advisory Services were provided in the current or previous year. 28. Contingencies The Company has no contingent liabilities. 29. Commitments (a) Capital Commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: Property, plant and equipment Within one year Later than one year but not later than ﬁve years Later than ﬁve years 65 Starpharma Holdings Limited Annual Report 2006 Consolidated 2005 $ – – – – 2006 $ 69,108 – – 69,108 Parent Entity 2006 $ 2005 $ – – – – – – – – 29. Commitments (continued) (b) Lease Commitments Financial Report Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ 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 Non-cancellable ﬁnance lease Future ﬁnance charges on ﬁnance leases 423,681 683,283 – 123,293 72,695 – 1,106,964 195,988 649,461 539,745 (82,242) 1,106,964 56,231 144,000 (4,243) 195,988 – – – – – – – – – – – – – – – – Operating leases The Group leases laboratory and ofﬁces under a lease until 31 August 2008 and leases various plant and equipment under cancelable operating leases. Consolidated 2006 $ 2005 $ Parent Entity 2006 $ 2005 $ Commitments for minimum lease payments in relation to cancellable operating leases are payable as follows: Not later than one year Later than one year and not later than ﬁve years Later than ﬁve years 287,246 362,215 – 51,293 4,938 – Representing cancellable operating leases 649,461 56,231 – – – – – – – – Starpharma Holdings Limited Annual Report 2006 66 Financial Report 29. Commitments (continued) Finance Leases The Group leases various plant and equipment with a carrying amount of $457,504 (2005: $139,757) under ﬁnance leases expiring within one to ﬁve years. 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 Later than ﬁve years Minimum lease payments Future ﬁnance charges Recognised as a liability Representing ﬁnance lease liabilities: Current (note 17) Non-Current (note 20) Consolidated 2006 $ 2005 $ 161,443 378,303 – 72,000 72,000 – 539,746 144,000 (82,242) 457,504 (4,243) 139,757 142,092 315,412 457,504 60,007 79,750 139,757 Parent Entity 2006 $ 2005 $ – – – – – – – – – – – – – – – – – – The weighted average interest rates implicit in the leases range from 6.26% to 7.20% (2005: 6.26%). (c) Expenditure Commitments The Group has entered into various agreements for the research and development services. All material committed expenditure is reimbursable under existing grant funding sources. (d) Termination Commitments The service contracts of key management personnel include beneﬁts payable by the Group on termination of the employee’s contract. Refer to section C of the remuneration report on pages 28 and 29 for details of these commitments. 30. Subsidiaries The consolidated ﬁnancial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b). Name of entity Country of Incorporation Class of Shares Starpharma Pty. Limited Australia Angiostar Pty. Limited Viralstar Pty. Limited Preclin Pty. Limited Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Equity Holding 2006 % 100% 100% 100% 100% 2005 % 100% 100% 100% 100% Cost of Parent Entity’s Holding Investment 2006 $ 2005 $ 9,900,001 9,900,001 3,300,005 3,300,005 4,300,000 4,300,000 100 100 17,500,106 17,500,106 67 Starpharma Holdings Limited Annual Report 2006 31. Investments in associates Investments in associates are accounted for in the consolidated ﬁnancial statements using the equity method of accounting and are carried at carrying value by the parent entity. Information relating to the associates is set out below. (a) Carrying amounts Financial Report Name of entity Country of Incorporation Dendritic Nanotechnologies, Inc. USA Dimerix Bioscience Pty Ltd Australia Class of Shares Ordinary Ordinary Equity Holding Carrying value of Parent Entity’s Holding Investment 2006 % 2005 % 2006 $ 2005 $ 32.91% 32.90% 5,168,747 5,168,747 22.00% 30.00% 40,003 200,000 5,208,750 5,368,747 The value of Dimerix Bioscience Pty Ltd has been reduced from its cost base of $200,000 to a carrying value of $40,003. A provision for diminution of $159,997 has been booked in the year. (b) Movements in carrying amounts Movements in the carrying amounts of investments in associates Carrying amount at the beginning of the ﬁnancial year Acquisition of investment in associates Gain (loss) on issue of equity by associate Share of losses from ordinary activities after tax Foreign currency reserve (note 24) Write-down of investment in associate Carrying amount at the end of the ﬁnancial year (c) 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 Consolidated 2006 $ 2005 $ 2,913,061 692,194 – 1,500,699 55,566 1,235,542 (697,390) (334,835) 116,075 (40,539) – (140,000) 2,387,312 2,913,061 Consolidated 2006 $ 2005 $ (40,539) 116,075 75,536 – (40,539) (40,539) Starpharma Holdings Limited Annual Report 2006 68 Financial Report 31. Investments in associates (continued) (d) Summary of the performance and ﬁnancial position of associates Dendritic Nanotechnologies, Inc. Proﬁts (Loss) from ordinary activities after related income tax expenses Assets Liabilities Dimerix Bioscience Pty Ltd Proﬁts (Loss) from ordinary activities after related income tax expenses Assets Liabilities 32. Events occurring after the balance sheet date Consolidated 2006 $ 2005 $ (1,877,870) (785,278) 7,395,480 8,927,661 264,218 247,219 (347,206) 507,758 104,943 (49,980) 151,357 1,337 There are no other signiﬁcant events occurring since 30 June 2006 that have signiﬁcantly affected or may signiﬁcantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group. Dr Jacinth Fairley was appointed Chief Executive Ofﬁcer and director on 1 July 2006. Dr J W Raff reverted to a non-executive director capacity and was appointed Deputy Chairman. 500,000 Employee Share Options were offered to Dr J K Fairley subject to shareholder approval at the next Annual General Meeting of the Company. The options will be granted in accordance with the terms of the Company’s Employee Share Option Plan and will include the following terms and conditions: – Issue price: nil. – Exercise Price: 45.08 cents per share. (Determined on the basis of market value plus 15%. Market value is based on a 15 day volume weighted average price of the Company’s shares prior to 1 July 2006, the date of appointment of the Executive to the position of CEO.) – Exercise period: From 1st July 2007 to 30 June 2009. 69 Starpharma Holdings Limited Annual Report 2006 33. Reconciliation of proﬁt after income tax to net cash inﬂow from operating activities Financial Report Operating loss after tax: Depreciation and amortisation Non-cash employee beneﬁts -share-based payments Change in operating assets and liabilities, net of effects of acquisitions and disposals of entities: Consolidated Parent Entity 2006 $ 2005 $ 2006 $ 2005 $ (7,522,789) (7,747,791) (9,507,256) (7,428,880) 965,333 203,223 693,865 161,799 287,342 – – – (Increase) decrease in receivables and other assets (2,602,581) 141,980 Increase (decrease) in trade creditors 250,637 1,204,445 (3,208) 718,877 33,481 (16,648) Increase in employee provisions Increase in deferred income Share in results of associates Gain on sale of property, plant and equipment Provision for doubtful debts 70,304 524,616 641,825 (20,516) – 119,758 378,063 (760,708) – – – – – – – – – – 7,996,332 6,912,407 Net cash outﬂows from operating activities (7,489,948) (5,808,589) (507,913) (499,640) 34. Non–cash ﬁnancing activities Acquisition of property, plant and equipment by means of ﬁnance lease Outright acquisition of IP by means of share issue 35. Earnings per share Consolidated Parent Entity 2006 $ 438,000 4,373,880 2005 $ – – 2006 $ – 4,373,880 2005 $ – – Basic loss per share Diluted loss per share Net loss attributable to members of Starpharma Holdings Limited used as the numerator in calculating diluted and basic earnings per share Weighted average number of ordinary shares outstanding during the year used as the denominator in calculating diluted and basic earnings per share Consolidated 2006 Cents (5.69) (5.69) 2005 Cents (6.97) (6.97) (7,522,789) (7,747,791) 132,297,514 111,235,000 Starpharma Holdings Limited Annual Report 2006 70 Financial Report 36. Share-based payments (a) Employee Option Plan The establishment 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 objective 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 four or 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 with the written consent of the remuneration and nomination committee. Set out below are summaries of options granted under the plan: 2006 Grant Date Expiry Date Exercise Price Balance at start of the year Granted during the year Forfeited during the year Expired during the year Balance at end of the year Exercisable at end of the year Number Number Number Number Number Number Consolidated and parent entity 7 Feb 2001 31 Dec 2005 93.75 cents 220,000 12 Apr 2002 11 Apr 2007 93.75 cents 220,000 21 Jun 2002 30 Jun 2007 93.75 cents 200,000 6 Feb 2004 31 Dec 2008 73.00 cents 200,000 8 Feb 2004 8 Feb 2009 93.75 cents 730,000 31 Dec 2004 31 Dec 2009 93.75 cents 182,000 12 May 2005 12 May 2010 93.75 cents 100,000 – – – – – – – 4 Jul 2005 4 Jul 2010 93.75 cents 18 Jul 2005 18 Jul 2010 93.75 cents – – 300,000 100,000 – – – – 10,000 15,000 – – – 220,000 – – – – – – – – – – 220,000 220,000 200,000 200,000 200,000 200,000 720,000 720,000 167,000 100,000 300,000 100,000 – – – – Total 1,852,000 400,000 25,000 220,000 2,007,000 1,340,000 Weighted average exercise price No options were exercised during the year. 2005 91.51 cents 93.75 cents 93.75 cents 93.75 cents 91.68 cents 90.65 cents Grant Date Expiry Date Exercise Price Balance at start of year Granted during the year Forfeited during the year Expired during the year Balance at end of the year Exercisable at end of the year Number Number Number Number Number Number Consolidated and parent entity 7 Feb 2001 31 Dec 2005 93.75 cents 240,000 12 Apr 2002 11 Apr 2007 93.75 cents 220,000 21 Jun 2002 30 Jun 2007 93.75 cents 200,000 6 Feb 2004 31 Dec 2008 73.00 cents 200,000 8 Feb 2004 8 Feb 2009 93.75 cents 749,000 – – – – – 20,000 – – – 19,000 1 Jul 2004 1 Jul 2009 93.75 cents 31 Dec 2004 31 Dec 2009 93.75 cents 12 May 2005 12 May 2010 93.75 cents – – – 100,000 100,000 182,000 100,000 – – Total 1,609,000 382,000 139,000 – – – – – – – – – 220,000 220,000 220,000 220,000 200,000 200,000 200,000 200,000 730,000 – 182,000 100,000 – – – – 1,852,000 840,000 Weighted average exercise price No options were exercised during the year. 71 Starpharma Holdings Limited Annual Report 2006 91.17 cents 93.75 cents 93.75 cents – cents 91.51 cents 88.81 cents Financial Report 36. Share-based payments (continued) The weighted average remaining contractual life of share options outstanding at the end of the period was 2.65 years (2005: 2.99 years). Fair value of options granted The weighted average assessed fair value at grant date of options granted during the year ended 30 June 2006 was $0.15 per option (2005: $0.33). The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and the expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option. Options granted during the year ended 30 June 2006 were: The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for any expected changes to future volatility due to publicly available information. Options are granted for no consideration, have a four or ﬁve year life and become exercisable on the second anniversary of the date of grant. Options granted on: Number of options granted Expiry date Exercise price Expected price volatility of the company’s shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value Options granted during the year ended 30 June 2005 were: Options granted on: Number of options granted Expiry date Exercise price Expected price volatility of the company’s shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value 4 July 2005 300,000 4 July 2010 93.75 cents 46.9% 5.2% – 50 cents 14.56 cents 18 July 2005 100,000 18 July 2010 93.75 cents 46.9% 5.2% – 52 cents 15.74 cents 1 July 2004 31 Dec 2004 12 May 2005 100,000 1 July 2009 93.75 cents 75.0% 5.9% – 192,000 100,000 31 Dec 2009 12 May 2010 93.75 cents 93.75 cents 47.6% 5.3% – 46.9% 5.7% – 74 cents 74 cents 66 cents 45.00 cents 30.52 cents 25.33 cents (b) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period as part of employee beneﬁt expense were as follows: Options issued under employee option plan Consolidated Parent Entity 2006 $ 2005 $ 203,223 161,799 2006 $ – 2005 $ – Starpharma Holdings Limited Annual Report 2006 72 Financial Report 37. Related Party Transactions (a) Parent entity and subsidiaries The parent entity of the Group is Starpharma Holdings Limited. Interests in subsidiaries are set out in note 30. (b) Key management personnel Disclosures relating to key management personnel are set out in note 26. (c) Transactions with related parties The following transactions occurred with related parties: Other Transactions Funds advanced to subsidiary Funds advanced from subsidiary Share-based payments Management services to parent Consolidated Parent Entity 2006 $ 2005 $ 2006 $ 2005 $ – – – – – – – – 7,683,238 6,750,600 (50,129) (259,290) 203,223 161,790 (640,467) – All transactions were made on normal commercial terms and conditions and at market rates, except that there are no ﬁxed terms for the repayment of outstanding balances. (d) Outstanding balances arising from sales/ purchases of goods and services Current Receivables Management services to parent Outstanding balances are payable in cash. Consolidated Parent Entity 2006 $ 2005 $ 2006 $ 2005 $ – – 704,514 – 73 Starpharma Holdings Limited Annual Report 2006 38. Explanation of transition to Australian equivalents to IFRSs 1 Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles (AGAAP) to equity under Australian equivalents to IFRSs (AIFRS) (a) At the date of transition to AIFRS: 1 July 2004 Consolidated Parent Entity Financial Report Notes Previous AGAAP Effect of transition to AIFRS AIFRS Previous AGAAP $ Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets 15,658,300 584,183 16,242,483 Property, plant and equipment 1,556,265 Intangible assets Investments accounted for using the equity method Other ﬁnancial assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Borrowings Deferred Income Total current liabilities Non-current liabilities Borrowings Provisions Deferred Income Total non-current liabilities Total liabilities – 692,194 – 2,248,459 18,490,942 445,908 249,015 60,007 – 754,930 143,516 – – 143,516 898,446 Net assets 17,592,496 Equity – – – – – – – – – – – – – – – – – – – – 15,658,300 14,524,569 584,183 414,259 16,242,483 14,938,828 1,556,265 – 692,194 – 2,248,459 – – – 3,868,048 3,868,048 18,490,942 18,806,876 445,908 249,015 60,007 – 522,713 – – – 754,930 522,713 143,516 – – 143,516 898,446 – – – – 522,713 17,592,496 18,284,163 Effect of transition to AIFRS $ – – – – – – – – – – – – – – – – – – – – AIFRS $ 14,524,569 414,259 14,938,828 – – – 3,868,048 3,868,048 18,806,876 522,713 – – – 522,713 – – – – 522,713 18,284,163 Contributed equity 46,821,956 – 46,821,956 46,821,956 – 46,821,956 Share based payment reserve 38.4(b) – 56,816 56,816 Foreign currency translation reserve 38.4(a) 12,709 (12,709) – – – 56,816 56,816 – – Accumulated losses 38.4(d) (29,242,169) (44,107) (29,286,276) (28,537,793) (56,816) (28,594,609) Total equity 17,592,496 – 17,592,496 18,284,163 – 18,284,163 Starpharma Holdings Limited Annual Report 2006 74 Financial Report 38. Explanation of transition to Australian equivalents to IFRSs (continued) (b) At the end of the last reporting period under previous AGAAP: 30 June 2005 Consolidated Parent Entity Notes Previous AGAAP $ 8,166,259 187,656 8,353,915 1,232,764 – 2,913,061 – 4,145,825 12,499,740 1,647,182 279,589 60,007 378,063 2,364,841 79,750 89,184 – 168,934 2,533,775 9,965,965 Effect of transition to AIFRS $ – – – – – – – – – – – – – – – – – – – – AIFRS $ Previous AGAAP $ 8,166,259 6,322,524 187,656 91,087 8,353,915 6,413,611 1,232,764 – 2,913,061 – 4,145,825 – – – 5,368,747 5,368,747 12,499,740 11,782,358 1,647,182 765,276 279,589 60,007 378,063 – – – 2,364,841 765,276 79,750 89,184 – 168,934 – – – – 2,533,775 765,276 9,965,965 11,017,082 Effect of transition to AIFRS $ – – – – – – – – – – – – – – – – – – – – AIFRS $ 6,322,524 91,087 6,413,611 – – – 5,368,747 5,368,747 11,782,358 765,276 – – – 765,276 – – – – 765,276 11,017,082 Current assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Property, plant and equipment Intangible assets Investments accounted for using the equity method Other ﬁnancial assets Total non-current assets Total assets Current liabilities Trade and other payables Provisions Borrowings Deferred Income Total current liabilities Non-current liabilities Borrowings Provisions Deferred Income Total non-current liabilities Total liabilities Net assets Equity Contributed equity 46,821,956 – 46,821,956 46,821,956 – 46,821,956 Share based payment reserve 38.4(b) – 218,615 218,615 Foreign currency translation reserve 38.4(a) (27,830) (12,709) (40,539) – – 218,615 218,615 – – Accumulated losses 38.4(d) (36,828,161) (205,906) (37,034,067) (35,804,874) (218,615) (36,023,489) Total equity 9,965,965 – 9,965,965 11,017,082 – 11,017,082 75 Starpharma Holdings Limited Annual Report 2006 38. Explanation of transition to Australian equivalents to IFRSs (continued) 2 Reconciliation of loss for year ended 30 June 2005 Consolidated Parent Entity Financial Report Notes Previous AGAAP Effect of transition to AIFRS $ $ AIFRS $ Previous AGAAP $ Revenue from continuing operations 38.4(c) 2,049,298 (1,409,844) 639,454 601,679 Other income 38.4(c) – 1,409,844 1,409,844 – Administration expense 38.4(b) (3,380,015) (161,799) (3,541,814) (1,118,152) Effect of transition to AIFRS $ – – – – AIFRS $ 601,679 – (1,118,152) – Research and development expense Provision for diminution Finance costs Share of results of associates accounted for using the equity method (7,007,693) – (8,290) 760,708 – – – – (7,007,693) – – (6,750,608) (161,799) (6,912,407) (8,290) 760,708 – – – – – – Loss before income tax (7,585,992) (161,799) (7,747,791) (7,267,081) (161,799) (7,428,880) Income tax expense Loss for the year Loss attributable minority interests Loss attributable to members of Starpharma Holdings Limited – – – – – – (7,585,992) (161,799) (7,747,791) (7,267,081) (161,799) (7,428,880) – – – – – – (7,585,992) (161,799) (7,747,791) (7,267,081) (161,799) (7,428,880) 3 Reconciliation of cash ﬂow statement for the year ended 30 June 2005 The adoption of AIFRS has not resulted in any material adjustments to the cash ﬂow statement. 4 Notes to the reconciliations (a) Foreign currency translation reserve: cumulative translation differences The Group has elected to apply the exemption in AASB 1 First-time Adoption of Australian Equivalents to international Financial Reporting Standards. The cumulative translation differences for all foreign operations represented in the foreign currency translation reserve are deemed to be zero at the date of transition to AIFRS. The effect is: (i) At 1 July 2004 For the Group the balance of the $12,709 credit in the foreign currency translation reserve is reduced to zero. Retained earnings is decreased by this amount. There is no effect on the parent entity. (ii) At 30 June 2005 For the Group the balance of the foreign currency translation reserve is reduced by $12,709. Retained earnings is decreased by this amount. There is no effect on the parent entity. (iii) For the year ended 30 June 2005 There is no effect on the Group or parent entity. (b) Share-based payments 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 Option Plan after 7 November 2002 but that had not vested by 1 January 2005. No such expense was required to be recognised under previous AGAAP. The effect of this is: (i) At 1 July 2004 For the Group there has been a decrease in retained earnings of $56,816 and a corresponding increase in reserves. The effect is the same for the parent entity. (ii) At 30 June 2005 For the Group there has been a decrease in retained earnings of $218,615 and a corresponding increase in reserves. The effect is the same for the parent entity. (iii) For the year ended 30 June 2005 For the Group there has been an increase in administration expense of $161,799. This is recognised in a wholly owned subsidiary and accounted through intercompany transactions. The effect for the parent entity is to increase the Provision for diminution by $161,799. Starpharma Holdings Limited Annual Report 2006 76 Financial Report 38. Explanation of transition to Australian equivalents to IFRSs (continued) (c) Reclassiﬁ cation of grant income Under AIFRS from 1 July 2004 the Group is required to recognise government grant income as other income, rather than revenue from continuing operations. The effect of this is: (i) At 1 July 2004 No impact, since the reclassiﬁ cation in the income statement does not affect retained losses. (ii) At 30 June 2005 No impact, since the reclassiﬁ cation in the income statement does not affect retained losses. (iii) For the year ended 30 June 2005 For the Group there has been a increase in other income of $1,409,844 and a corresponding decrease in revenue from continuing operations. (d) Retained Earnings The effect on retained earnings of the changes are set out above are as follows: Foreign currency translation reserve Share-based payments reserve Total adjustment Notes 38.4(a) 38.4(b) Consolidated Parent Entity 1 July 2004 $ 30 June 2005 $ 1 July 2004 $ 30 June 2005 $ 12,709 12,709 (56,816) (218,615) (56,816) (218,615) (44,107) (205,906) (56,816) (218,615) Attributable to members of Starpharma Holdings Limited (44,107) (205,906) (56,816) (218,615) 5. Financial instruments The Group has no ﬁ nancial instruments that require restatement of comparatives for AASB 132 Financial Instruments: Disclosure and Presentation and AASB 139 Financial Instruments: Recognition and Measurement. Directors’ Declaration In the directors’ opinion: (a) the ﬁ nancial statements and notes set out on pages 41 to 77 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the company’s and consolidated entity’s ﬁ nancial position as at 30 June 2006 and of their performance, as represented by the results of their operations, changes in equity and their cash flows, for the financial year ended on that date; and (b) there are reasonable grounds to believe that Starpharma Holdings Limited will be able to pay its debts as and when they become due and payable; and (c) the audited remuneration disclosures set out on pages 25 to 31 of the directors’ report comply with Accounting Standards AASB 124 Related Party Disclosures and the Corporations Regulations 2001. The directors have been given the declarations by the chief executive ofﬁ cer and chief ﬁ nancial ofﬁ cer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Peter T Bartels, AO Director Melbourne, 26th September 2006 77 Starpharma Holdings Limited Annual Report 2006 Independent audit report to the members of Starpharma Holdings Limited PricewaterhouseCoopers ABN 52 780 433 757 Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331L MELBOURNE VIC 3001 DX 77 Website:www.pwc.com/au Telephone 61 3 8603 1000 Facsimile 61 3 8603 1999 Matters relating to the electronic presentation of the audited financial report This audit report relates to the financial report and remuneration disclosures of Starpharma Holdings Limited (the Company) and the Starpharma Holdings Group (defined below) for the financial year ended 30 June 2006 included on Starpharma Holdings Limited’s web site. The Company’s directors are responsible for the integrity of the Starpharma Holdings Limited web site. We have not been engaged to report on the integrity of this web site. The audit report refers only to the financial report and remuneration disclosures identified below. It does not provide an opinion on any other information which may have been hyperlinked to/from the financial report or the remuneration disclosures. If users of this report are concerned with the inherent risks arising from electronic data communications they are advised to refer to the hard copy of the audited financial report and remuneration disclosures to confirm the information included in the audited financial report and remuneration disclosures presented on this web site. Audit opinion In our opinion: 1. the financial report of Starpharma Holdings Limited: • • gives a true and fair view, as required by the Corporations Act 2001 in Australia, of the financial position of Starpharma Holdings Limited and the Starpharma Holdings Group (defined below) as at 30 June 2006, and of their performance for the year ended on that date, and is presented in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia, and the Corporations Regulations 2001; and 2. the remunerations disclosures that are contained on pages 25 to 31 of the directors’ report comply with Accounting Standard AASB 124 Related Party Disclosures (AASB 124) and the Corporations Regulations 2001. This opinion must be read in conjunction with the rest of our audit report. Scope The financial report, remunerations disclosures and directors’ responsibility The financial report comprises the balance sheet, income statement, cash flow statements, statement of changes in equity, accompanying notes to the financial statements, and the directors’ declaration for both Starpharma Holdings Limited (the company) and the Starpharma Holdings Group (the consolidated entity), for the year ended 30 June 2006. The consolidated entity comprises both the company and the entities it controlled during that year. Liability limited by a scheme approved under Professional Standards Legislation The company has disclosed information about the remuneration of directors and executives (remuneration disclosures) as required by AASB 124, under the heading “remuneration report” on pages 25 to 31 of the directors’ report, as permitted by the Corporations Regulations 2001. The directors of the company are responsible for the preparation and true and fa report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounti the accounting policies and accounting estimates inherent in the financial report. The directors are also responsible for the remuneration disclosures contained in the directors’ report. ng records and internal controls that are designed to prevent and detect fraud and error, and for ir presentation of the financial Audit approach We conducted an independent audit in order to express an opinion to the members of the company. Our audit was conducted in accordance with Australian Auditing Standards, in order to provide reasonable assu whether the financial report is free of material misstatement and the remuneration disclo AASB 124 and the Corporations Regulations 200 1. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of persuasive rather than conclusive evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected. For further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit. sures comply with rance as to We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia, a view which is consistent with our understanding of the company’s and the consolidated entity’s financial position, and of their performance as represented by the results of their operations, changes in equity and cash flows. We also performed procedures to assess whether the remuneration disclosures comply with AASB 124 and the Corporations Regulations 2001. We formed our audit opinion on the basis of these procedures, which included: • • examining, on a test basis, information to provide evidence support financial report and remuneration disclosures, and ing the amounts and disclosures in the assessing the appropriateness of the accounti significant accounting estimates made by the directors. ng policies and disclosures used and the reasonableness of Our procedures include reading the other information in the Annual Report to determine whether it contains any material in consistencies with the financial report. While we considered the effectiveness of management’s internal controls over financial reporting when determining the nature and extent of our procedures, our audit was not designed to provide assurance on internal controls. Our audit did not involve an analysis of the prudence of business decisions made by directors or management. Independence In conducting our audit, we followe pronouncements and the C orporations Act 2001. d applicable independence requirements of Australian professional ethical PricewaterhouseCoopers SC Bannatyne Partner Melbourne 26 September 2006 Shareholder Information Shareholder information The shareholder information set out below was applicable as at 14 September 2006 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 14 September 2006 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,000 and over Class of equity security Ordinary shares Shares Options 162 728 464 934 162 2,450 – 6 2 15 7 30 As at 14 September 2006 there were 169 holders of less than a marketable parcel of ordinary shares. B. Equity security holders Twenty largest security holders Top 20 shareholders as at 14 September 2006: 1. ANZ Nominees Limited 2. National Nominees Ltd 3. Biomolecular Research Institute Limited 4. Peter Malcolm Colman 5. Arran Bay Pty Ltd 6. JPS Distribution Pty Ltd 7. Citicorp Nominees Pty Limited 8. Gilridge Pty Ltd 9. Biotech Capital Ltd 10. Queensland Investment Corporation 11. J P Morgan Nominees Australia Limited 12. Espasia Pty Ltd 13. Irrewarra Investments Pty Ltd 14. Citicorp Nominees Limited 15. UBS Wealth Management Australia Nominees Pty Ltd 16. Kenneth Nominees Pty Ltd 17. Ag-Sun Technologies Pty Ltd 18. Irrewarra Investments Pty Ltd 19. Applecross Secretarial Services Pty Ltd 20. Equity Trustees Limited Unquoted equity securities Number held Percentage of issued shares Ordinary shares 17,690,522 11,210,619 7,112,000 5,522,286 3,690,204 3,567,831 3,416,267 3,035,054 3,000,000 2,841,031 2,791,200 2,788,700 2,320,000 1,651,250 1,215,500 1,200,000 1,150,250 1,129,196 1,077,000 1,031,812 11.97 7.59 4.81 3.74 2.50 2.41 2.31 2.05 2.03 1.92 1.89 1.89 1.57 1.12 0.82 0.81 0.78 0.76 0.73 0.70 77,440,722 52.42 Starpharma Holdings Limited Annual Report 2006 80 Shareholder Information Shareholder information (continued) Options issued under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) C. Substantial holders Number on issue Number of holders 2,007,000 30 The following information is extracted from the Company’s register of substantial shareholders as at 14 September 2006: Number held Percentage 10,303,608 7,112,000 7,112,000 9.26 4.81 4.81 Ordinary shares Acorn Capital Limited Biomolecular Research Institute Limited Starpharma Holdings Limited (voluntary escrow deed between the Company and Biomolecular Research Institute Limited) D. Voting rights 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. E. Securities subject to voluntary escrow 7,112,000 ordinary shares held by the Biomolecular Research Institute Limited are subject to a voluntary escrow deed which expires on 10 October 2006. 81 Starpharma Holdings Limited Annual Report 2006 Patent Report Current at 7 September 2006 Patent Report Summary of Patents & Patent Applications Assigned to Starpharma Pty Limited Title: Granted Patents Antiviral Dendrimers Priority Date & PCT Number: 15 June 1994 PCT/AU 95/00350 Angiogenic Inhibitory Compounds 17 July 1996 PCT/AU 97/00447 Antiviral Linear Polymers 17 July 1996 PCT/AU 97/00446 Country: Number: Status: Australia Brazil Canada China Europe Hong Kong Japan Mexico New Zealand Singapore South Korea USA Australia Brazil Canada China Europe Japan Mexico New Zealand Singapore South Korea USA Australia Brazil Canada China Europe Japan Mexico New Zealand Singapore South Korea USA 682970 PI9508031.7 2192446 Z L95194145.3 0765357 1002899 2005-268847 231031 287819 36429 0365028 6,190,650 715761 PI 9710375-6 2262862 Z L97196452.1 0927217 506372/98 990655 333488 61126 0564714 6,426,067 730899 PI 9710376-4 2262863 Z L97196437.8 97929037.6 506371/98 231030 333541 61123 0589022 6,740,635 Granted Granted Granted Granted Granted Granted Pending Granted Granted Granted Granted Granted Granted Pending Granted Granted Granted Pending Pending Granted Granted Granted Granted Granted Pending Pending Granted Pending Pending Granted Granted Granted Granted Granted Starpharma Holdings Limited Annual Report 2006 82 Patent Report Patents & Patent Applications Assigned to Starpharma Pty Limited (continued) Title: Antimicrobial & Antiparasitic Agents Priority Date & PCT Number: 14 Sept 1998 PCT/AU 99/00763 Inhibition of Toxic Materials or Substances 14 Sept 1998 PCT/AU 99/00762 Agents for the Prevention and Treatment of Sexually Transmitted Diseases – I 30 March 2001 PCT/AU 02/00407 Country: Australia Brazil Canada China Europe Japan Mexico New Zealand Singapore South Korea USA Australia Brazil Canada China Europe Japan Mexico New Zealand Singapore South Korea USA Australia Brazil Canada China Europe Hong Kong Japan Mexico New Zealand Singapore South Korea USA Number: 767970 PI9913712-7 2343113 99812270.X 99945773.2 569824/00 PAA/2001/002667 510289 79613 10-2001-7003211 6,464,971 767971 P I9913718-6 2343205 99812271.8 99945772.4 569823/00 PAA/2001/002665 510376 79618 10-2001-7003255 09/786972 2002245932 PI0208411-2 2441357 02807728.8 02713925.2 04106895.9 2002-578313 PA/a/2003/008909 528230 99592 10-2003-7012867 10/472439 Status: Granted Pending Pending Pending Pending Pending Pending Granted Granted Pending Granted Granted Pending Pending Pending Pending Pending Pending Granted Granted Pending Pending Pending Pending Pending Pending Pending Pending Pending Pending Granted Granted Pending Pending 83 Starpharma Holdings Limited Annual Report 2006 Patents & Patent Applications Assigned to Starpharma Pty Limited (continued) Patent Report Number: 2002325648 PI0212251-0 2457676 02816972.7 02759901.8 2003-523201 PA/a/2004/001583 530759 102800 10-2004-7002770 10/487644 Status: Pending Pending Pending Pending Pending Pending Pending Pending Granted Pending Pending PCT/AU2006/000120 Pending 060100368 0212-2006 PI20060435 095103811 29356 Pending Pending Pending Pending Pending PCT/AU2006/000636 Pending PCT/AU2006/000637 PCT Filed Title: Chemotherapeutic Agents Priority Date & PCT Number: 30 August 2001 PCT/AU 02/01180 National Phase PCT/Complete Filed Delivery System 18 October 2005 PCT/AU2006/000120 Country: Australia Brazil Canada China Europe Japan Mexico New Zealand Singapore South Korea USA PCT Argentina Chile Malaysia Taiwan Uruguay Inhibitory Compounds Modiﬁed Macromolecule Provisional Polymer Dendrimer Polymers Composition 21 Oct 2005 PCT/AU2006/000636 20 Jan 2006 PCT/AU2006/000637 PCT PCT 25 Oct 2005 1 Feb 2006 Provisional ﬁled Provisional ﬁled 22 March 2006 Provisional ﬁled Imaging Macromolecule 31 March 2006 Provisional ﬁled Therapeutic Macromolecules 7 April 2006 Provisional ﬁled Anti-viral Compounds 21 April 2006 Provisional ﬁled Ligand Bearing Macromolecules 15 June 2006 Provisional ﬁled Modiﬁed Macromolecule 2 11 August 2006 Provisional ﬁled Modiﬁed Macromolecule 3 11 August 2006 Provisional ﬁled Starpharma Holdings Limited Annual Report 2006 84 Corporate directory Company Name Starpharma Holdings Limited ABN 20 078 532 180 Directors P T Bartels AO – Chairman J K Fairley – Chief Executive Ofﬁcer J W Raff – Deputy Chairman P M Colman R Dobinson L Gorr P J Jenkins B P Rogers Baker Building 75 Commercial Road, Melbourne, Victoria 3004 Company Secretary Registered ofﬁce Notice of Annual General Meeting The annual general meeting of Starpharma Holdings Limited will be held at: Share Register Auditor Solicitors Blake Dawson Waldron Level 39, 101 Collins Street, Melbourne Time: 4.00pm Date: Wednesday 15 November 2006 Computershare Investor Services 452 Johnston Street, Abbotsford VIC 3067 1300 850 505 (within Australia) +613 6415 4000 (outside Australia) PricewaterhouseCoopers Freshwater Place Southbank VIC 3006 Australia Blake Dawson Waldron Level 39, 101 Collins Street, Melbourne VIC 3000 Australia Bankers Commonwealth Bank of Australia, National Australia Bank, Wachovia Bank, USA Stock exchange listing 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 ten ordinary shares of Starpharma as traded on the Australian Stock Exchange. The Bank of New York is the depositary bank. Website address www.starpharma.com 85 Starpharma Holdings Limited Annual Report 2006

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