Santander Bank Polska
Annual Report 2008

Plain-text annual report

a r m a A N N U A L R E P O R T S t a r p h 08Contents Highlights 2007– 2008 About Starpharma Chairman’s Report Operational Report Directors’ Report Corporate Governance Statement Financial Report Shareholder Information Intellectual Property Report Corporate Directory STARPHARMA HOLDINGS LIMITED ABN 20 078 532 180 01 02 04 05 11 29 35 78 80 81 Starpharma is a world leader in the development of dendrimer products for pharmaceutical, life science and other applications. On-line Annual Report In 2007, the Australian Government introduced legislation allowing the option for annual reports to be provided to shareholders via the company website. As a result more than 88% of Starpharma’s shareholders have elected to receive this year’s annual report electronically. The change in legislation has enabled Starpharma to undertake more environmentally friendly and cost effective production practices with a significant reduction in paper usage and printing costs. The Company’s website (www.starpharma.com) is now the primary medium for report distribution. Accordingly, shareholders may notice a change in this year’s annual report which has been designed to ensure ease of on-line viewing whilst at the same time maintaining the high quality of our hard-copy version as per previous years. We have chosen to print the annual report hard copy on 100% recycled paper in an effort towards establishing more environmentally sustainable corporate practices. Highlights 2007– 2008 Commercial Development • Signing of Durex ® Condom Coating Full Licence Agreement • Collaborative research agreement with Stiefel – world’s largest privately-owned dermatology pharmaceutical company • First commercial product launch of Starpharma’s DNT Priostar ® Dendrimers VivaGel®: Clinical Development and New Indications • Clinical trial results: VivaGel abstinent women when administered twice daily for 14 days ® safe and well-tolerated in sexually • Potential to expand VivaGel (human papillomavirus) ® applications to prevention of HPV Pipeline and Application Development • Dendrimers found to have potential application for arthritis treatments • Water purification technology contract with US Department of Defense • Funding awarded for joint project with Baker IDI Heart and Diabetes Institute to co-develop arterial disease imaging agent • Dendrimer technology applications expanded to food science with Unilever agreement STARPHARMA HOLDINGS LIMITED Annual Report 2008 01 About Starpharma Starpharma Holdings Limited is listed on the Australian Securities Exchange (ASX:SPL) and its securities also trade in the United States under the American Depository Receipts (ADR) program on the OTCQX (OTCQX:SPHRY). It comprises two operating subsidiaries, Starpharma Pty Ltd based in Melbourne, Australia, and Dendritic Nanotechnologies (DNT) Inc, based in Michigan, USA. Dendrimers are man-made, nano-sized compounds with unique properties that make them useful to the health and pharmaceutical industry as both enhancements to existing products and as entirely new products. Starpharma aims to create value through the commercialisation of products based on its proprietary dendrimer nanotechnology and focuses on three key areas of exploitation, with each having the potential for substantial revenues: VivaGel® (SPL7013 Gel) VivaGel®, the most advanced product in Starpharma’s pharmaceutical pipeline, is under development both as a condom coating and as a stand-alone vaginal microbicide to prevent the spread of sexually transmitted infections such as genital herpes and HIV. This is a mass-market application in both developed and developing countries. In addition to being developed as a stand-alone gel, VivaGel® is also under development as a condom coating. For the commercialisation of VivaGel® coated condoms, Starpharma has partnered with the marketers of the world’s best-selling condom brand, Durex®. More recently Starpharma has identified human papillomavirus (HPV) infection as a third disease area to investigate following encouraging pre-clinical data. Preliminary data from humans suggest that VivaGel® may also be effective in the treatment of bacterial vaginosis. Additionally VivaGel® has been shown to possess potent contraceptive activity in animals. Other Medical and Life Science Applications Starpharma is pursuing programs in fields such as cancer, dermatology and targeted diagnostics. Life-science applications include laboratory transfection reagents for the introduction of nucleic acid into cells and to increase the sensitivity and reliability of external diagnostic tests for various human conditions. Industrial Applications of Dendrimers DNT is exploiting opportunities for industrial applications of dendrimers as specialty additive chemicals in the cosmetic, ink and coatings industries. These applications make use of dendrimer properties such as their ability to improve adhesion and cross-linking of polymers or fluids, and their ability to sequester toxins and metals. 02 Starpharma’s Pipeline Pharmaceutical and Life Science Product Pipeline Pharma & Medical VivaGel® Drug Delivery HSV-2 prevention > HIV prevention > Condom coating > Cancer > Dermatology > ADME Engineering Protein Drug Optimization > Drug Optimization Enhanced Solubilization > in vitro Diagnostics Stratus CS®+ (Cardiac) > MRI imaging Targeted Contrast Agent > Life-sciences Gene Transfection Reagents siRNA / DNA Transfection Reagents SuperFect® > PrioFect® > Early Lead / in vivo Clinical Sales * Early Prototype Pre-launch Sales * Condom coating has the potential for an accelerated development program + Registered trade mark of Dade Behring Inc. (Siemens) Partnerships Much of Starpharma’s commercialisation strategy is based on partnered programs, both to gain access to application or disease-area expertise, and to capitalise on established paths to market. Starpharma’s partners and licensees include: • • • • • • • • SSL International plc Stiefel Laboratories Inc. Siemens Qiagen Merck KGaA Unilever The Baker IDI Heart and Diabetes Institute Monash University’s Faculty of Pharmacy and Pharmaceutical Sciences (formerly VCLP) STARPHARMA HOLDINGS LIMITED Annual Report 2008 03 Chairman’s Report Dear Shareholder, On behalf of the Board and management of Starpharma, I am pleased to present the 2007– 08 annual report for your review. Starpharma has focused on three aspects of operations over the last twelve months: commercialisation of Starpharma’s technology; clinical development of VivaGel® both as a condom coating and as a vaginal microbicide; and advancing drug delivery applications of dendrimers through laboratory-based projects. As well as making substantial progress in the clinical development of the HIV and genital herpes applications of VivaGel®, Starpharma has added human papillomavirus (HPV) to the target list of sexually transmitted infections against which VivaGel® will be evaluated. For the first time this year the Company announced that it would also explore an application of VivaGel® based on treatment, rather than prevention, namely against bacterial vaginosis (BV). A major theme over the year has been the advancement of the condom coating opportunity for VivaGel® to a full licence. Initially, this included the signing with SSL International plc of a co- development agreement for the VivaGel® coated condom, then regulatory and product development and most recently the cementing of a licence agreement between the companies, the value of which Starpharma expects to exceed A $100 million over the life of the contract. While Starpharma continues to work on the pharmaceutical applications of SPL7013, the active dendrimer in VivaGel®, we have several programs under way at DNT for industrial applications of dendrimers. The programs are wide-ranging, from cleaning up contaminated ground water to improving the properties of inks and industrial coatings. The pharmaceutical and industrial applications of our dendrimer technology present multiple opportunities for commercialisation. Finally, I would like to take this opportunity to thank my fellow Board members, CEO Jackie Fairley and her management team and all of the company’s staff in Australia and the US for their dedicated work throughout the year. Their collective contributions have produced another year of substantial progress for Starpharma. 04 Peter T Bartels, AO Chairman Operational Report Introduction Starpharma’s commercial and clinical programs have advanced during the year and important progress has been made to broaden the applications and commercial opportunities for VivaGel® substantially. The demand for a product such as VivaGel® continues to build due to the ongoing lack of success in human trials of HIV vaccines and the absence of new technologies to counter the spread of HIV and herpes. Other recent developments are likely to have a favourable impact for the commercial opportunity for VivaGel®. One such development was the launch of vaccines against human papillomavirus (HPV), the primary causative agent for genital warts and cervical cancer. As a result of the promotional activities associated with these launches, there is increased public awareness of STIs and the fact that they can, and should, be prevented. Attention is also increasingly focused on other life-long viral diseases, such as HIV and herpes simplex virus-2 (HSV-2), the cause of genital herpes. Studies published this year showed that the increased risk of people with genital herpes acquiring HIV is not reduced by treatment with an antiviral agent, a finding that highlights the pressing need for prevention of HSV-2 infection in the fight against AIDS. Recently published statistics support the need for effective preventive measures. For example, the incidence of STIs in teenage girls in the US is estimated to be about 25%, and up to 60% of new cases of HIV in women in some areas of the world are attributable to the presence of genital herpes (Freeman 2006). Overview of Financial Results The net loss for the year was A $7.5 million, compared with A $7.2 million for the previous year. With an increased focus on commercialisation, royalty and licensing revenue grew in the year by 64% to A $1.4 million. Research and development programs continue to be leveraged from various grant sources, with other income from grants totaling A $8.2 million for the year. Grant sources include both United States and Australian government, with the majority from the US National Institutes of Health (NIH). At year end, the Company maintained cash reserves of A $7.5 million, with operating and investing cash outflows for the year of A $5.4 million. Financing inflows of A $3.4 million reflect the August 2007 capital placement. Condom Coating In September 2008 Starpharma announced that a full licence agreement has been signed with SSL International plc (LSE:SSL) in relation to the VivaGel® coated condom. SSL manufactures and sells Durex® condoms, the market-leading condom brand worldwide. The agreement extends a co-development partnership with SSL announced in October 2007 and undoubtedly represents the most significant commercial milestone for the company over the last few years. Under the commercial terms of this agreement SSL secures marketing rights to the VivaGel® coated condom in most of the world, including Europe and the USA. Starpharma estimates that its receipts under the agreement will exceed A $100m comprising royalties on SSL sales, further milestone payments, and development support. Dialogue with regulatory agencies has confirmed that the VivaGel® coated condom will be reviewed as a drug/device combination, which will provide a potentially shorter route to market. The regulatory landscape is also maturing with the FDA now requiring that products containing Nonoxynol-9 (N-9) carry warnings that they do not protect against sexually transmitted diseases, including HIV/AIDS, and that their use is associated with an increased risk of HIV. This clear statement by the FDA has helped to clear up consumer confusion and misconceptions about the value of N-9 and has accelerated the search for a safe and effective replacement for this category. This is good news for VivaGel®. Jackie Fairley Chief Executive Officer 05 Operational Report VivaGel® safety profile strengthened A study conducted in the US and Kenya showed that twice daily vaginal administration of VivaGel® for 14 days was safe and well-tolerated in sexually abstinent women, paving the way for continued development of VivaGel® for the prevention of infection by HIV, HSV-2 and potentially other STIs. The results of this NIH supported trial confirmed earlier findings that the active dendrimer of VivaGel® is not absorbed into blood and showed that under the conditions of the study, VivaGel® had no significant effect on vaginal microflora. New applications for VivaGel® Two recent developments for VivaGel® are the demonstration of activity against HPV in vitro and generation of data indicating potential for treatment of bacterial vaginosis (BV). In addition, our observation that SPL7013 (the active dendrimer in VivaGel®) inhibits an enzyme which interferes with certain treatments of arthritis presents an attractive new commercial opportunity. Human Papillomavirus (HPV) HPV, the cause of genital warts, is the most common STI in the US, with over six million new cases of infection each year. HPV is also a factor in the development of most cases of cervical cancer. Both Merck and GSK have vaccines against HPV infection (registered in different parts of the world) that collectively cover approximately 75% of HPV strains associated with cancer. Starpharma has shown that SPL7013 inhibited clinically relevant HPV strains tested in the laboratory. More testing is underway. Interestingly, SPL7013 exhibited potent inhibition of HPV-45, a strain commonly associated with cervical cancer and not covered by either Merck or GSK vaccines. Bacterial Vaginosis (BV) Preliminary findings from our clinical trials also suggest that VivaGel® tends to restore the normal composition of vaginal bacteria in women identified as having asymptomatic BV at the time of enrolment in the trial. This finding, along with in vitro data, provides the basis for development of VivaGel® as a potential treatment for the first time. Bacterial vaginosis is caused by an imbalance in the relative numbers of naturally occurring vaginal bacteria and disease- causing bacteria. The condition is particularly prevalent in the US, reportedly affecting 29% of women, and has been implicated in pelvic inflammatory disease, increased risk of STIs, and miscarriage. If proven effective against BV in forthcoming trials, VivaGel® may offer several advantages over conventional antibiotic treatments. VivaGel® is compatible with condoms and less likely to cause drug interactions or lead to drug resistance and is not absorbed by the body. Hyaluronidase inhibition Last April, Starpharma filed a patent application for a completely new use of the active ingredient in VivaGel®, SPL7013. The finding that SPL7013 inhibits the activity of an enzyme called hyaluronidase has potential in the treatment or prevention of a number of diseases. The inhibitory activity was discovered during studies on the contraceptive activity of SPL7013, because hyaluronidase is involved in fertilisation of an egg by a sperm. The finding is significant because excess hyaluronidase activity is associated with arthritis. Hyaluronidase breaks down a large molecule called hyaluronic acid, which lubricates and cushions joints and also assists with the retention of moisture by skin. 06 Operational Report Multiple Commercial Applications for Starpharma’s Dendrimers Drug Delivery An announcement last December heralded Starpharma’s first collaborative research agreement in the very promising area of drug delivery. The agreement with the world’s largest independent pharmaceutical company specialising in dermatology, Stiefel Laboratories Inc, relates to the application of dendrimer technology to the improved delivery of certain drugs used to treat dermal conditions. Starpharma has a very active business development effort in the drug delivery area with the potential to yield multiple commercial arrangements, both for small molecule drugs and protein therapeutics. Priostar® Dendritic Nanotechnologies Inc. (DNT) has completed several application development projects for its Priostar® Dendritic Additives. These are of relevance to manufacturers of cosmetics, coatings and inks seeking to increase the performance and marketability of their materials and products. Priostar® Additives improve adhesion, cross-linking, and dispersion in formulations to offer greater resistance to shearing and UV radiation damage. DNT’s ongoing project on water remediation with Central Michigan University has received additional funding from the US Department of Defense (DoD). This DoD project is directed at the removal from groundwater of perchlorate discharged from military installations and addresses an important issue for an increasingly scarce resource. However, the novel dendritic polymer system under development will be adaptable to other commercial uses, including the selective recovery of metals such as copper, silver and zinc, and removal from drinking water of the contaminants such as arsenic and mercury. In April, Starpharma signed an agreement with Unilever to co-develop a research tool incorporating DNT’s Priostar® dendrimer technology. Under the agreement, DNT will make its Priostar® dendrimers available to Unilever as imaging agents for use in analysis of the microscopic structure of foods. An understanding of the microstructure is important in creating appetising food and determining properties such as ‘mouth-feel’ and the controlled release of taste and smell. STARPHARMA HOLDINGS LIMITED Annual Report 2008 07 Operational Report Capital investment and market performance In February 2008, US investor Platinum-Montaur Life Sciences built on its initial investment in Starpharma with on-market purchases and lodged a substantial shareholder notice with the ASX. Outlook The Board and Management of Starpharma remain committed to building shareholder value in the coming financial year through focus on a number of high value initiatives. Platinum’s increased share-holding is indicative of the growing awareness of Starpharma in the US, where investors now hold more than 25% of total equity. The fund manager responsible for the Platinum position offered the following reasons behind the decision to purchase Starpharma stock: • • • the size of the markets for Starpharma’s dendrimer technology; the relatively low cost of determining whether the technology works and its proven efficacy against the target in very stringent preclinical studies; and the high level of funding of VivaGel National Institutes of Health. ® programs from the US Starpharma’s involvement with the rapidly expanding International OTCQX exchange has provided visible cross-listing in the US while avoiding the regulatory costs associated with listing on US exchanges. In addition, the OTCQX places Starpharma alongside companies such as pharmaceutical company Roche; multinational chemical manufacturer, BASF; the world’s largest manufacturer of food and industrial ingredients, Tate and Lyle; and the world’s largest paints and coatings company, AkzoNobel. Starpharma now trades between 30% and 40% of its volume through the OTCQX and has approximately 10 market makers actively trading the stock (code SPHRY). The significant near term commercial opportunity of the VivaGel® coated condom is a strong focus for Starpharma in collaboration with our commercial partner SSL. For VivaGel®, the company plans to complete the expanded safety/Phase IIa trials, advance the program to conduct efficacy trials for HIV infection and genital herpes, and initiate a Phase II trial for the new indication of BV. Early findings of VivaGel® activity against clinically relevant strains of HPV will be further investigated and the development program for VivaGel® as a contraceptive will also be progressed. Several exciting opportunities for expanding dendrimer-based commercial relationships and applications are approaching deals in areas including drug delivery, life-science and industrial applications. The company intends to advance its siRNA delivery and drug delivery programs with the objective of forming one or more commercial partnerships for both of them. The finding that SPL7013 may have application in the treatment of arthritis and dermatology through its inhibition of the enzyme hyaluronidase also provides the potential for further commercial arrangements. Jackie Fairley, B.Sc, B.V.Sc. (Hons), MBA Chief Executive Officer 08 The real life potential of VivaGel®: a case study In 1999 Jeannie May’s life was changed forever the day she was diagnosed with genital herpes. As with most people who contract the virus, Jeannie struggled to come to terms with the implications having herpes would have for her health and her future relationships. Jeannie’s first-hand experience living with herpes herself and providing support to others has made her a strong advocate for awareness and the need to break down the taboo that surrounds genital herpes and which has prevented an open discussion of the prevalence of this and other sexually transmitted infections. Jeannie remembers the impact of hearing the news: “Quite suddenly l felt like l was someone else. I now had an incurable STI which l could potentially pass on to any future partner … my self esteem plummeted to an undreamt of low as l struggled to cope with the devastating diagnosis.” When Jeannie sought out support groups and information for people living with genital herpes, she found that although many websites had great information, they lacked any real guidance and support for people living with the disease – despite the shocking reality that 1 in 8 adults in Australia carry the virus. Jeannie was motivated to develop the ‘Living Sphere’ website which provides factual information, peer support and guidance for people with herpes. Jeannie has keenly followed the development of microbicides and their potential to significantly curb the prevalence of STIs by preventing their transmission. “I first heard about microbicides a few years ago … I did some research on the internet, downloaded several helpful e-books about them and was excited about their potential to reduce the transmission of STIs.” “Microbicides will empower women to take greater responsibility for protecting themselves from STIs”, she continued. “Some men don’t like wearing condoms so to have an alternative which enables women to be in control of their own protection will make a huge difference to women the world over.” Starparhama’s VivaGel® is one of the most advanced microbicides in development around the world. VivaGel® is under development for the prevention of HIV, Genital Herpes and the human papillomavirus. 09 STARPHARMA HOLDINGS LIMITED Annual Report 2008Management Jackie Fairley, B.Sc, B.V.Sc. (Hons), MBA Chief Executive Officer Dr Fairley has over 18 years’ experience in the pharmaceutical and biotechnology industries working in business development and senior management roles with companies including CSL and Faulding (now Mayne Hospira). Before joining Starpharma in 2006, she was Chief Executive Officer of Cerylid Biosciences. Dr Fairley also spent five years as a Vice President for Faulding’s injectable division and more than five 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 Melbourne Business School where she was the recipient of the Clemenger Medal. Paul Barrett, BSc (Hons), PhD Vice President, Business Development More than half of Dr Barrett’s 17-year career in the advanced technology sector has been dedicated to product marketing and commercialisation. Prior to joining Starpharma from the UK in 2005 he held positions at Nortel Networks, Smiths Industries Aerospace, Bookham Technology, and the University of Oxford. His areas of professional experience include nanotechnology, drug-delivery, protein science, network and telecommunications infrastructure, optical systems and holography. Robert I. Berry, PhD President of DNT Dr Berry has been involved in the technology and research field for 26 years and has founded four companies and consortia to advance the use of technology and research. Dr. Berry most recently served as the president and CEO of the Central Michigan University Research Corporation and as the chief technology officer at Central Michigan University. Dr. Berry received his doctorate from Northern Arizona University, where he was a faculty member and was Assistant Director of Research. Jeremy Paull, BSc (Hons), PhD Vice President, Development and Regulatory Affairs Dr Paull has 8 years’ experience in drug and device development, quality assurance, and regulatory and clinical affairs and is currently the Principal Investigator for Starpharma’s two NIH-funded programs. He has been instrumental in the VivaGel® development program and was responsible for the first clinical trials of the product under the IND application to the US FDA. Dr Paull has a PhD in pharmacology, and previously worked on the development of a medical device for transdermal drug delivery. Ben Rogers Company Secretary and Chief Financial Officer Mr Rogers has extensive experience in finance 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 Cooperative 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. Nigel Baade, BCom, CPA, Grad Dip Arts (Development) Financial Controller Mr Baade is a CPA-qualified 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 Hospira). Mr Baade has extensive experience in financial control, project and cost management of research activities, commercialisation of global business development opportunities, private equity raising and grant funding. Before joining Starpharma he held a commercial planning role with Dutch multinational Hagemeyer. David Owen, BSc (Hons), PhD Vice President, Research Dr Owen has extensive experience in medicinal chemistry and biochemistry, and in managing teams focused on commercially directed drug discovery. He has held several positions in the biotech industry, starting with Mimotopes (part of Mitokor Inc.) as a senior chemist, and has worked on projects for several major pharmaceutical companies. He was head of chemistry at Cerylid Biosciences, and later Glykoz, where he headed a team of chemists working on a new class of antibacterial agents. Dr Owen has expertise in many areas of chemistry, including the synthesis of natural products, peptides, carbohydrates and heterocyclic compounds, and has worked across therapeutic areas including type 2 diabetes, antimicrobials and anticancer agents. He is a co-author on 20 publications and 5 patents. 10 Directors’ Report Your directors have pleasure in presenting this report on the consolidated entity (referred to hereafter as the Group) consisting of Starpharma Holdings Limited and the entities it controlled at the end of, or during, the year ended 30 June 2008. 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: P T Bartels (Chairman) J K Fairley P J Jenkins R Dobinson R A Hazleton J W Raff L Gorr was a director from the beginning of the financial year until his resignation on 14 November 2007. P M Colman was a director from the beginning of the financial year until his resignation on 11 February 2008. Principal Activities The principal activities of the Group consist of development and commercialisation of dendrimer products for pharmaceutical, life-science and other applications. Activities within the Company are directed towards the development of precisely defined nano-scale materials, with a particular focus on the development of its topical vaginal microbicide VivaGel® for the prevention of genital herpes and HIV, and the application of dendrimers to drug delivery and other life science applications. More broadly, through partners the Company is also exploring dendrimer opportunities in materials science with applications in areas such as adhesives, lubricants and water remediation. These activities are managed by the Company’s wholly owned subsidiaries Starpharma Pty Ltd. in Melbourne, Australia and Dendritic Nanotechnologies (“DNT”), Inc in Michigan, USA. Products based on the Company’s dendrimer technology are on the market in the form of diagnostic elements and laboratory reagents. 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 1 to 10 of this annual report. Operating Loss For the year ended 30 June 2008 the consolidated entity incurred an operating loss after income tax of $7,491,000 (June 2007: $7,245,000). Significant changes in the state of affairs There was an increase in contributed equity of $2,440,000 (from $76,227,000 to $78,667,000) as a result of the issue of 11,881,167 fully paid ordinary shares in a private placement to a US-based institution and an existing Australian institutional shareholder at a price of $0.3212 per share. Attached to the placement were unlisted options of 7,567,119. The options have an exercise price of $0.4346 per option with an expiry date of 21 August 2012. STARPHARMA HOLDINGS LIMITED Annual Report 2008 11 DIRECTORS’ REPORT Matters subsequent to the end of the financial year On 9 September 2008 the Company announced that a full licence agreement has been signed with SSL International plc (LSE:SSL) in relation to the VivaGel® coated condom. SSL manufactures and sells Durex® condoms, the market-leading condom brand worldwide. Under the terms of this agreement SSL secures marketing rights to the VivaGel® coated condom in most of the world, including Europe and the USA. In return, Starpharma will receive further milestone payments, development support, and royalties on net sales which Starpharma estimates will exceed $100 million over the life of the agreement. No other matters or circumstances have arisen since 30 June 2008 that have significantly affected, or may significantly affect: (a) the consolidated entity’s operations in future financial years, or (b) the results of the operations in future financial years, or (c) 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. Additional comments on expected results of certain operations of the Group are included in this annual report under the review of operations and activities on pages 1–10. Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this annual financial 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 2007/08 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 Group is subject to environmental regulations and other licences in respect of its laboratory facilities in Melbourne (Victoria) and Mt Pleasant (Michigan, USA). There are adequate systems in place to ensure compliance with relevant Commonwealth, State and Federal environmental regulations and the Directors are not aware of any breach of applicable environmental regulations by the Group. 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 the Group 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 OH&S Committees 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 33 of this annual report. 12 DIRECTORS’ REPORT Information on Directors Peter T Bartels, AO, FAISM, FRS. Chairman – Non-executive, Age 67. Experience and expertise Independent non-executive director and Chairman for five 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 of listed entities None. Former directorships of listed entities in last 3 years None. Special Responsibilities Chairman of the Board. Member of remuneration & nomination committee. Member of audit & risk committee (since 19 February 2008). Interests in shares and options at the date of the Directors’ Report 129,804 ordinary shares in Starpharma Holdings Limited John W Raff Dip. Ag. Sc., BSc., PhD. Non-executive director Age 59. 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. Chairman, BioMelbourne Network. Also founder and investor in a number of other start-up technology companies. Other current directorships of listed entities None. Former directorships of listed entities in last 3 years None. Special Responsibilities Deputy Chairman Interests in shares and options at the date of the Directors’ Report 7,280,777 ordinary shares in Starpharma Holdings Limited Jacinth (Jackie) K Fairley B.Sc., B.V.Sc.(Hons), MBA Chief Executive Officer, Age 45. Experience and expertise Chief Operating Officer of Starpharma from 4 July 2005 to 30 June 2006. Chief Executive Officer since 1 July 2006. Over 18 years’ experience in the pharmaceutical and biotechnology industries working in business development and senior management roles with companies including CSL and Faulding (now Mayne Hospira). 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 of listed entities None Former directorships of listed entities in last 3 years None. Special Responsibilities Chief Executive Officer Member of research committee (until 11 February 2008). Interests in shares and options at the date of the Directors’ Report 53,750 ordinary shares in Starpharma Holdings Limited 1,150,000 options over ordinary shares in Starpharma Holdings Limited STARPHARMA HOLDINGS LIMITED Annual Report 2008 13 DIRECTORS’ REPORT Information on Directors Peter M Colman BSc(Hons), PhD, FAA, FTSE. Independent non-executive director, Age 64. Experience and expertise Non-executive director for ten 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. Resigned 11 February 2008. Ross Dobinson B. Bus (Acc) Independent Non-executive director, Age 56. Other current directorships of listed entities None. Former directorships of listed entities in last 3 years None. Special Responsibilities Member of research committee (until 11 February 2008). Interests in shares and options at the date of the Directors’ Report 5,992,286 ordinary shares in Starpharma Holdings Limited Experience and expertise Non-executive director for eleven years. Merchant banker with a background in investment banking and stockbroking. Has acted as corporate director for two leading stockbrokers, and was an executive director of the NAB’s corporate advisory subsidiary. Later headed the Corporate Advisory Division of Dresdner Australia Ltd. Managing Director of TSL Group Ltd, a corporate advisory company specialising in establishing and advising life sciences companies. Also a director of a number of unlisted companies. Other current directorships of listed entities Non-executive director of Acrux Ltd (director since 2000 and Chairman since 31 January 2006) Former directorships of listed entities in last 3 years Roc Oil Company Limited (director June 1997 to 31 December 2007). Special Responsibilities Chairman of audit & risk committee. Chairman of remuneration & nomination committee. Interests in shares and options at the date of the Directors’ Report None Leon Gorr B. Juris, LLB, M.Admin Independent non-executive director, Age 64. Experience and expertise Non-executive director for six years. Non-executive director of Starpharma Pty Ltd for ten years. Senior Partner, Herbert Geer. 35 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. Resigned 14 November 2007. Other current directorships of listed entities None. Former directorships of listed entities in last 3 years None. Special Responsibilities Member of audit & risk management committee (until 14 November 2007). Member of remuneration & nomination committee (until 14 November 2007). Interests in shares and options at the date of the Directors’ Report 5,204,704 ordinary shares in Starpharma Holdings Limited 14 DIRECTORS’ REPORT Richard A Hazleton BSChE, MSChE, HonDrEngr, HonDrCommSci Independent Non-executive director, Age 66. Experience and expertise Independent non-executive director since 1 December 2006. Former chairman of US-based global corporation Dow Corning. Joined Dow Corning in 1965 and held numerous positions in engineering, manufacturing and finance, both in the US and Europe, before becoming Chief Executive Officer of the company in 1993, and Chairman of the Board of Directors and CEO in 1994. Retired from Dow Corning in 2001. Chairman of Dendritic Nanotechnologies Inc (DNT) from 2004 until Starpharma’s acquisition of the company in October 2006. Has served on the Boards of the American Chemistry Council and the Chemical Bank and Trust Company (Midland, MI, USA) as well as several non-profit social service agencies in Michigan and Belgium. Peter J Jenkins MB, BS (Melb), FRACP Independent Non-executive director, Age 62. Experience and expertise Independent non-executive director for eleven years. Consultant physician and gastroenterologist. Holds clinical and research positions with the Alfred Hospital and has held clinical positions with the Baker Medical Research Centre. Former judge of the Australian Technology Awards. Executive Director of AusBio Ltd, an unlisted public biotechnology company. Other current directorships of listed entities None Former directorships of listed entities in last 3 years None. Special Responsibilities Member of remuneration & nomination committee (since 14 April 2008). Interests in shares and options at the date of the Directors’ Report 142,616 ordinary shares in Starpharma Holdings Limited Other current directorships of listed entities Non-executive director of bio-pharmaceutical company Anadis Ltd (director since 1994). Former directorships of listed entities in last 3 years None. Special Responsibilities Chairman of research committee (until 11 February 2008). Member of audit & risk committee. Interests in shares and options at the date of the Directors’ Report 1,416,000 ordinary shares in Starpharma Holdings Limited STARPHARMA HOLDINGS LIMITED Annual Report 2008 15 DIRECTORS’ REPORT Company Secretary The Company Secretary is Mr Ben Rogers. Age 60. He has extensive experience in finance, corporate governance and HR 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 was a member of Starpharma’s start-up/IPO management team and has been Company Secretary since February 1998, with responsibilities that include the role of Chief Financial Officer. Mr Rogers is an affiliate of Chartered Secretaries Australia. Key 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. 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 2008, and the numbers of meetings attended by each director were: Full meetings of directors Meetings of committees Audit & risk Remuneration & nomination A B A B A B Research A B P T Bartels P M Colman (retired 11 February 2008) R Dobinson J Fairley L Gorr (retired 14 November 2007) R Hazleton P J Jenkins J W Raff 7 3 6 7 4 5 7 7 7 5 7 7 4 7 7 7 1 * 2 * 0 * 2 * 1 * 2 * 1 * 2 * 3 * 3 * 0 0 * * 3 * 3 * 1 0 * * * 1 * 1 * * 1 * * 1 * 1 * * 1 * Retirement, election and continuation in office of Directors Mr Leon Gorr retired on rotation as a director on 14 November 2007 and did not offer himself for re-election. Prof Peter Colman retired as a director on 11 February 2008. Mr Ross Dobinson retires by rotation as director at the annual general meeting and, being eligible, offers himself for re- election. Mr Peter Bartels retires by rotation as director at the annual general meeting and, being eligible, offers himself for re-election. 16 DIRECTORS’ REPORT – REMUNERATION 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 in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. A. Principles used to determine the nature and amount of remuneration The objective of the company’s remuneration policy is to ensure appropriate and competitive reward for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders. 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. 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 remuneration and nomination committee, 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 $450,000 which was approved by shareholders on 15 November 2006. 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 or retirement allowances. Superannuation contributions required under the Australian superannuation guarantee legislation continue to be made and are deducted from the directors’ overall fee entitlements. Relationship between executive reward and company financial performance The Company’s remuneration policy aligns executive reward with the interests of shareholders. The primary focus remains on the longer term objectives of developing and commercialising products arising out of the research activities of the group, and therefore the remuneration policy is not directly linked to financial performance determined by losses and share price performance. The Company has incurred losses in this financial year and in the previous 4 financial years and has no certainty that this will change in the near term. Remuneration is set based on key performance indicators (KPIs) which include (but are not limited to) successful negotiations of commercial contracts, achieving key research and development milestones, and ensuring the availability of adequate capital to achieve stated objectives. Executive pay structure 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. – Other factors taken into account in determining remuneration packages include demonstrated record of performance, internal relativities, data from a national biotechnology salary survey and the Company’s ability to pay. With the exception of the CEO, executive service agreements do not include pre-determined bonus or option allocations, but cash incentives (bonuses) may be awarded, or share 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. The amount of possible bonus payable to each executive is determined by the remuneration and nomination committee, taking into account factors including the accountabilities of the role and impact on the Company. There are no guaranteed base pay increases in any executives’ contracts. STARPHARMA HOLDINGS LIMITED Annual Report 2008 17 DIRECTORS’ REPORT – REMUNERATION REPORT A. Principles used to determine the nature and amount of remuneration Starpharma Employee Share Option Plan All executives and staff are eligible to participate in the Starpharma Employee Share Option 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. The exercise price of options granted under the Plan must be not less than the market price at the time the decision is made to invite a participant to apply for options. The exercise price is usually calculated on the basis of 15% above market price. Market price is calculated as the volume-weighted average price (VWAP) of the shares in the 15 days preceding the grant of the options. The vesting period is usually 2 years from the date of grant, and the exercise period usually 2 years from the end of the Vesting Period. 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. Further information on the Starpharma Employee Share Option Plan is set out in note 38 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 commence - ment of the annual cycle and a performance and salary review towards the end of the cycle. The objective of the salary review is to ensure that all employees are appropriately remunerated for their contribution to the company, that remuneration is competitive within the relevant industry sector, and that increases in employees’ skills and responsibilities are recognized. 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 13 to 15. The key management personnel of Starpharma Holdings Limited Group includes the directors as per pages 13 to 15. above and the following executive officers, which includes the five highest paid executives of the entity: N J Baade Financial Controller C P Barrett VP, Business Development R I Berry President, Dendritic Nanotechnologies, Inc J K Fairley CEO D J Owen VP, Research J R Paull VP, Development and Regulatory Affairs B P Rogers Company Secretary and CFO Directors and Key management personnel of Starpharma Holdings Limited Cash salary and fees $ Short-term benefits Cash Non-monetary bonus # benefits $ $ Post-employment Retirement Super- Benefits annuation $ $ Long-term benefits Long service leave $ Share-based payment Options # $ Total $ 2008 Name Non-executive directors P T Bartels Chairman P M Colman1 (from 1/07/2007 – 11/02/2008) R Dobinson L Gorr2 (from 1/07/2007 – 14/11/2007) P J Jenkins R A Hazleton J W Raff Deputy Chairman Subtotal non-executive directors Executive directors J K Fairley – 22,936 40,000 13,761 36,697 40,000 – 153,394 – – – – – – – – – – – – – – – – 80,000 2,064 – 1,239 3,303 – 40,000 126,606 295,869 150,000 4,458 53,040 – – – – – – – – – – – – – – – – – – 14 14 – – – – – – – – 80,000 25,000 40,000 15,000 40,000 40,000 40,000 280,000 23,499 526,880 23,499 806,880 Totals 449,263 150,000 4,458 179,646 # All performance related remuneration, including cash bonuses and options granted are at risk. 1 2 Mr L Gorr retired as a director on 14 November 2007. Prof P M Colman retired as a director on 11 February 2008 18 DIRECTORS’ REPORT – REMUNERATION REPORT 2007 Name Short-term benefits Cash Non-monetary bonus # benefits $ $ Post-employment Retirement Super- Benefits annuation $ $ Cash salary and fees $ Long-term benefits Long service leave $ Share-based payment Options# leave $ Total $ 80,000 40,000 40,000 40,000 40,000 23,333 263,333 – – – – – – – – 200,612 Non-executive directors P T Bartels Chairman P M Colman R Dobinson L Gorr P J Jenkins R Hazleton 1 (from 1/12/2006–30/6/2007) Subtotal non-executive directors Executive directors J W Raff Deputy Chairman 2 (from 1/7/2006–30/6/2007) J K Fairley 3 (from 1/7/2006–30/6/2007) Totals – 36,697 40,000 36,697 36,697 23,333 173,424 19,776 306,230 499,430 – – – – – – – – – – – – – – – – – 80,000 3,303 – 3,303 3,303 – 89,909 – – – – – – – 664 40,172 140,000 – – – – – – – – 4,041 4,705 43,769 – 173,850 140,000 964 964 124,015 479,019 124,015 942,964 # All performance related remuneration, including cash bonuses and options granted are at risk. 1 R Hazleton was appointed non-executive director on 1 December 2006. 2 J W Raff retired as CEO on 1 July 2006 and was appointed Deputy Chairman. $40,000 contributed to J W Raff’s superannuation was his Director’s remuneration. He was paid $60,627 on retirement for accrued long service leave entitlements. J K Fairley was appointed CEO and Executive Director on 1 July 2006. 3 STARPHARMA HOLDINGS LIMITED Annual Report 2008 19 DIRECTORS’ REPORT – REMUNERATION REPORT B. Details of remuneration Directors and Key management personnel of Starpharma Holdings Limited or subsidiary companies 2008 Name Cash salary and fees $ Short-term benefits Cash Non-monetary bonus# benefits $ $ Post-employment Retirement Super- Benefits annuation $ $ Long-term benefits Long service leave $ Share-based payment Options# $ Total $ Non-executive directors P T Bartels Chairman P M Colman1 (from 1/07/2007 – 11/02/2008) R Dobinson L Gorr2 (from 1/07/2007 – 14/11/2007) P J Jenkins R A Hazleton J W Raff Deputy Chairman Subtotal non-executive directors Executive directors – 22,936 40,000 13,761 36,697 40,000 – 153,394 – – – – – – – – – – – – – – – – 80,000 2,064 – 1,239 3,303 – 40,000 126,606 – – – – – – – – – – – – – – – – – – – – – 80,000 25,000 40,000 15,000 40,000 40,000 40,000 280,000 J K Fairley3 295,869 150,000 4,458 53,040 – 14 23,499 526,880 Other Key Management Personnel B P Rogers J R Paull C P Barrett N J Baade D J Owen4 R I Berry5 74,612 148,758 151,750 132,762 137,618 195,138 – 10,000 10,000 7,000 – – Totals 1,289,901 177,000 11,899 11,942 1,366 327 358 13,567 43,917 80,838 22,300 26,880 18,489 12,386 6,830 347,369 – – – – – – – 6,576 4,044 201 123 206 – 19,122 21,544 19,531 19,122 14,276 29,959 193,047 218,588 209,728 177,823 164,844 245,494 11,164 147,053 2,016,404 # All performance related remuneration, including cash bonuses and options granted are at risk. 1 Prof P M Colman retired as a director on 11 February 2008 2 Mr L Gorr retired as a director on 14 November 2007. 3 J K Fairley was appointed CEO and Executive Director on 1 July 2006. 4 D J Owen was appointed VP, Research on 15 February 2007. 5 R I Berry is President of Dendritic Nanotechnologies Inc, which became a wholly owned subsidiary on 20 October 2006. 20 DIRECTORS’ REPORT – REMUNERATION REPORT 2007 Name Cash salary and fees $ Short-term benefits Cash Non-monetary bonus# benefits $ $ Post-employment Retirement Super- Benefits annuation $ $ Long-term benefits Long service leave $ Share-based payment Options# leave $ Non-executive directors P T Bartels Chairman P M Colman R Dobinson L Gorr P J Jenkins R Hazleton1 (from 1/12/2006–30/6/2007) Subtotal non-executive directors Executive directors J W Raff Deputy Chairman2 (from 1/7/2006–30/6/2007) J K Fairley3 (from 1/7/2006–30/6/2007) – 36,697 40,000 36,697 36,697 23,333 173,424 19,776 306,230 Other Key Management Personnel – – – – – – – – – B P Rogers J R Paull C P Barrett N J Baade D J Owen4 (from 15/2/2006–30/6/2007) R I Berry5 (from 20/10/2006–30/6/2007) T D McCarthy (from 1/7/2006–17/11/2006) G Y Krippner (from 1/7/2006–8/12/2006) O T Grogan (from 1/7/2006–12/1/2007) 64,159 137,210 130,818 110,005 43,091 151,797 63,216 52,176 85,964 – – – 10,000 – – – – – – – – – – – – 80,000 3,303 – 3,303 3,303 – 89,909 – – – – – – – 664 40,172 140,000 – – – – – – – – Total $ 80,000 40,000 40,000 40,000 40,000 23,333 263,333 – – – – – – – – 200,612 4,041 43,769 27,354 4,115 383 7,219 70,165 23,249 19,182 23,559 – 3,878 14,488 – 15,802 9,215 11,933 5,220 20,427 15,432 – – – – – – – – – – 964 124,015 479,019 3,815 10,153 383 344 10,439 13,962 18,299 10,439 175,932 188,689 169,065 161,566 117 3,393 50,479 – – – – 21,855 188,140 – 88,233 (23,930) 45,399 (25,330) 96,493 Totals 1,337,866 10,000 106,426 343,750 140,000 15,776 153,142 2,106,960 # All performance related remuneration, including cash bonuses and options granted are at risk. 1 R Hazleton was appointed non-executive director on 1 December 2006. 2 J W Raff retired as CEO on 1 July 2006 and was appointed Deputy Chairman. $40,000 contributed to J W Raff’s superannuation was his Director’s remuneration. He was paid $60,627 on retirement for accrued long service leave entitlements. 3 J K Fairley was appointed CEO and Executive Director on 1 July 2006. 4 D J Owen was appointed VP, Research on 15 February 2007. 5 R I Berry is President of Dendritic Nanotechnologies Inc, which became a wholly owned subsidiary on 20 October 2006. STARPHARMA HOLDINGS LIMITED Annual Report 2008 21 DIRECTORS’ REPORT – REMUNERATION REPORT C. Service Agreements Remuneration and other terms of employment for the CEO and the specified executives are formalised in service agreements which include a formal position description and set out duties, rights and responsibilities, and entitlements on termination. Each of these agreements provides for the provision of performance-related cash bonuses, and other benefits including participation, when eligible, in the Starpharma Holdings Employee Share Option Plan. Other major provisions of the agreements relating to remuneration are set out below. J K Fairley Chief Executive Officer – No fixed term of agreement – Base salary, inclusive of superannuation, per annum as at 30 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 2008 of $350,000, to be reviewed annually by the remuneration committee. – A maximum cash bonus of $150,000 per year, commencing on 1 July 2008 allocated proportionately on the achievement of predetermined objectives. – The Remuneration & Nomination Committee is in the process of developing a specific long term incentive plan for Dr Fairley. Shareholder approval for this plan will be sought once agreement has been reached on the quantum and relevance of performance hurdles. – Fringe benefits – on-site car parking. – Subject to termination at any time by: (i) the Executive giving to the Company twelve months’ notice in writing; or June 2008 of $165,500, 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 – Development and Regulatory Affairs – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2008 of $185,500, to be reviewed annually by the remuneration committee. – Fringe benefits – on-site car parking. (ii) the Company giving to the Executive six months’ notice in – Subject to termination at any time by: writing. If the Company gives notice in accordance with this clause, the Executive will be entitled to a termination payment upon the expiration of the notice period, of an amount equal to 6 months’ total remuneration. – The Executive’s employment may be terminated by the Company at any time without notice if the Executive: (i) (ii) becomes unable to pay the Executive’s debts as they is guilty of serious misconduct; become due; or (iii) is found guilty be a court of a criminal offence. R I Berry President – Dendritic Nanotechnologies, Inc – No fixed term of agreement. – Minimum annual base salary, at 30 June 2008 of US$175,000. – Subject to termination by the Company without cause by giving the Executive 30 days notice, in which case the Executive shall be entitled to payment of salary for six months. – Subject to termination by the Executive giving the Company 90 days written notice. – Subject to termination by the Company for serious breach of obligations to the Company or conviction of a felony involving moral turpitude, other criminal acts or illegal acts that are injuries to the Company, in which case the Executive shall receive salary and benefits including unused vacation through to the effective date of such termination, and no severance amount or termination payments or benefits of any nature. (i) the Executive giving to the Company not less than three months written notice; or (ii) the Company giving to the Executive written notice, or payment in lieu of that notice, which notice period shall be six months. – The Executive’s employment may be terminated by the Company at any time without notice for serious breach of obligations to the employer, wilful neglect of duty, serious misconduct or bankruptcy. C P Barrett VP – Business Development – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2008 of $190,000, to be reviewed annually by the remuneration committee. – Subject to termination at any time by: (i) the Executive giving to the Company not less than two months written notice; or (ii) the Company giving to the Executive written notice, or payment in lieu of that notice, which notice period shall be four months. – The Executive’s employment may be terminated by the Company at any time without notice for serious breach of obligations to the employer, wilful neglect of duty, serious misconduct or bankruptcy. 22 DIRECTORS’ REPORT – REMUNERATION REPORT D J Owen VP – Research – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 N J Baade Financial Controller – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2008 of $150,000, to be reviewed annually by the remuneration committee. June 2008 of $155,000, to be reviewed annually by the remuneration committee. – Subject to termination at any time by: – Subject to termination at any time by: (i) the Executive giving to the Company not less than three months written notice; or (ii) the Company giving to the Executive written notice, or payment in lieu of that notice, which notice period shall be three months. (i) the Executive giving to the Company not less than two months written notice; or (ii) the Company giving to the Executive written notice, or payment in lieu of that notice, which notice period shall be four months. – The Executive’s employment may be terminated by the – The Executive’s employment may be terminated by the Company at any time without notice for serious breach of obligations to the employer, wilful neglect of duty, serious misconduct or bankruptcy. Company at any time without notice for serious breach of obligations to the employer, wilful neglect of duty, serious misconduct or bankruptcy. 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 2007 annual general meeting. All employees of the Company or associated companies are eligible to participate in the plan. Options are granted under the plan for no consideration and when exercised, enable the holder to subscribe for one fully paid ordinary share of the Company to be allotted not more than ten business days after exercise, at the exercise price. The vesting period is usually 2 years from the date of grant, and the exercise period usually 2 years from the end of the Vesting Period. 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 4 July 2005 18 July 2005 6 October 2006 17 November 2006 4 April 2007 14 November 2007 14 November 2007 8 February 2009 4 July 2010 18 July 2010 6 October 2010 30 June 2009 4 April 2011 4 April 2011 8 August 2011 $0.94 $0.94 $0.94 $0.50 $0.45 $0.50 $0.50 $0.50 $0.46 $0.15 $0.16 $0.24 $0.20 $0.14 $0.16 $0.17 9 February 2006 5 July 2007 19 July 2007 6 October 2008 1 July 2007 4 April 2009 4 April 2009 8 August 2009 Options granted under the Plan carry no dividend or voting rights. The weighted average remaining contractual life of share options outstanding at the end of the period was 2.10 years (2007: 2.78 years). Fair value of options granted The weighted average assessed fair value at grant date of options granted to key management personnel during the year ended 30 June 2008 was $0.18 per option (2007: $0.21 ). 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. 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. STARPHARMA HOLDINGS LIMITED Annual Report 2008 23 DIRECTORS’ REPORT – REMUNERATION REPORT D. Share-based compensation Options granted to each director of the company and the key management personnel of the group during the year ended 30 June 2008 and the prior year were: 2008 Options granted on: Number of options granted 14 November 2007 14 November 2007 200,000 150,000 6 October 2006 700,000 17 November 2006 500,000 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 April 2011 $0.50 8 August 2011 $0.50 6 October 2010 $0.50 4 April 2011 $0.45 59.8% 6.3% – $0.39 $0.16 59.8% 6.3% – $0.39 $0.17 42.5% 5.5% – $0.55 $0.24 44.0% 5.5% – $0.45 $0.20 2007 4 April 2007 550,000 4 April 2011 $0.50 38.8% 6.2 – $0.43 $0.14 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. 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 N J Baade C P Barrett R I Berry J K Fairley G Y Krippner D J Owen J R Paull B P Rogers 2008 – – – 350,000 – – – – 2007 200,000 200,000 250,000 500,000 100,000 200,000 200,000 200,000 2008 – 100,000 – 800,000 – – – – 2007 – – – – – – – – 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 23. No options have been granted to directors or key management personnel since the end of the year. No other directors or key management personnel hold options under the Plan. 24 E. Additional Information 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 Further details relating to options are set out below. DIRECTORS’ REPORT – REMUNERATION REPORT phase and is not generating significant earnings, service agreements for executives do not include pre-determined bonus or share option allocations, except for the CEO. 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 17 to 18. Name N J Baade C P Barrett R I Berry J K Fairley D J Owen J R Paull B P Rogers A Remuneration consisting of options – – – 10.8% – – – B Value at grant date $ – – – 57,022 – – – C Value at exercise date $ – – – – – – – D Value at lapse date $ – – – – – – – 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 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. Details of remunerations: cash bonuses and options For each cash bonus and grant of options included in the tables on pages 18 to 25, 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. 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 2008 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 Name N J Baade Paid % 100% Forfeited % – C P Barrett 100% R I Berry – J K Fairley 100% D J Owen – J R Paull 100% B P Rogers – – – – – – – Year Granted 2008 2007 2008 2007 2006 2008 2007 2008 2008 2007 2006 2008 2007 2008 2007 2004 2008 2007 2004 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% – – – – – – – – – – – 30/06/2009 30/06/2009 30/06/2008 30/06/2009 30/06/2010 30/06/2009 30/06/2008 30/06/2008 30/06/2009 30/06/2009 30/06/2006 30/06/2009 30/06/2006 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 8,630 8,630 – 8,022 21,324 12,946 – – 10,843 7,524 – 8,630 – STARPHARMA HOLDINGS LIMITED Annual Report 2008 25 DIRECTORS’ REPORT Shares under option Unissued ordinary shares of Starpharma Holdings Limited under option at the date of this report are as follows: Date options granted Expiry date Issue price of shares Number under option 6 February 2004 8 February 2004 31 December 2004 4 July 2005 18 July 2005 17 November 2006 6 October 2006 2 January 2007 2 January 2007 4 April 2007 21 August 2007 12 October 2007 12 October 2007 12 October 2007 12 October 2007 31 October 2007 14 November 2007 14 November 2007 31 December 2008 8 February 2009 31 December 2009 4 July 2010 18 July 2010 30 June 2009 6 October 2010 2 January 2009 2 January 2011 4 April 2011 21 August 2012 31 May 2009 30 June 2009 31 July 2009 31 August 2009 7 August 2011 7 August 2011 8 August 2011 $0.73 $0.94 $0.94 $0.94 $0.94 $0.45 $0.50 $0.52 $0.52 $0.50 $0.43 $0.43 $0.43 $0.43 $0.43 $0.50 $0.50 $0.50 Total: 200,000 358,000 86,000 300,000 100,000 500,000 1,038,000 45,000 20,000 590,000 7,567,119 10,000 10,000 10,000 10,000 550,000 150,000 200,000 11,744,119 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. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. 26 DIRECTORS’ REPORT Audit & non audit services The Company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the Company and/or the consolidated entity are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below. The board of directors has considered the position and, in accordance with the advice received from the audit and risk 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 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 APES 110 Code of Ethics for Professional Accountants. 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 & program audits Audits performed by other auditors of controlled entities: No taxation or advisory services have been provided in either the current or prior year. 2008 $ 102,684 22,500 68,186 2007 $ 107,000 57,500 74,646 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 28. Auditor PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of the Directors. Peter T Bartels, AO Director Melbourne, 29th September 2008 STARPHARMA HOLDINGS LIMITED Annual Report 2008 27 28 Corporate Governance Statement 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 Australian Securities Exchange (“ASX”) Corporate Governance Principles and Recommendations (Second Edition 2007) (“the CGC Recommendations”). The Corporate Governance Statement set out below describes the Company’s current corporate governance principles and practices which the Board considers to comply with the CGC Recommendations, with the following exceptions: • Composition of Board committees • For part of the year (15 November 2007 to 14 April 2008) following the resignation of Mr Leon Gorr the remuneration and nomination committee consisted of two, rather than three members. For the remainder of the year and in all other respects the structure of the committee complied with CGC Recommendation 2.4 (nomination committee) and 8.1 (remuneration committee). 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 of Starpharma Holdings Limited operates in accordance with the charter set out below. 1.1.1 Board Composition – The Board is to be composed of both executive and non- executive directors with a majority of non-executive directors. – In recognition of the importance of independent views and the Board’s role in supervising the activities of management the Chairman must be an independent non-executive director, the majority of the Board must be independent of management and all directors are required to bring independent judgement to bear in their Board decision making. – The Chairman is elected by the full Board and meets regularly with the CEO. – The Board may decide to appoint one of the non-executive directors as Deputy Chairman. – The Company is to maintain a mix of directors on the Board from different backgrounds with complementary skills and experience. • For part of the year (15 November 2007 to 18 February 2008) following the resignation of Mr Leon Gorr the audit and risk committee consisted of two, rather than three members. For the remainder of the year and in all other respects the structure of the audit committee complied with CGC Recommendation 4.2 (audit committee). All other practices stated below were in place for the entire year. This corporate governance statement is available on the Company’s website. The company and its controlled entities together are referred to as the Group in this statement. – The Board is to undertake an annual Board performance review and consider the composition, structure, and role of the Board and individual responsibilities of directors. – The minimum number of directors is three and the maximum is fifteen unless the Company passes a resolution varying that number. – There is no requirement for a director to hold shares in the Company. 1.1.2 Responsibilities The responsibilities of the Board include: – Contributing to the development of and approving the corporate strategy; – Reviewing and approving business plans, the annual budget and financial plans including available resources and major capital expenditure initiatives; – Overseeing and monitoring organisational performance and the achievement of the Group’s strategic goals and objectives; – Monitoring financial performance including approval of the annual and half-year financial reports and liaison with the Company’s auditors; – Appointment, performance assessment and, if necessary, removal of the CEO; – Ratifying the appointment and, if necessary, the removal of senior executives; – Ensuring there are effective management processes in place and approving major corporate initiatives; – Enhancing and protecting the reputation of the Group; – Overseeing the operation of the Group, including its systems for control, accountability, and risk management; – Reporting to shareholders. STARPHARMA HOLDINGS LIMITED Annual Report 2008 29 CORPORATE GOVERNANCE STATEMENT 1.The Board of Directors 1.2 Board members Details of the members of the Board, their experience, qualifications, term of office and independent status are set out in the directors’ report under the heading “Information on Directors”. There are five non-executive directors, four of whom are deemed independent under the principles set out below, and one executive director at the date of signing the directors’ report. 1.4 Term of office The Company’s Constitution specifies that all non-executive directors must retire from office no later than the third annual general meeting following their last election, and 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. 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. 1.3 Directors’ independence The Company has adopted specific principles for assessing the independence of directors: To be deemed independent, a director must be a non-executive and: – Not be a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company; – within the last three years, not have been employed in an executive capacity by the Company, or been a director after ceasing to hold any such employment; – within the last three years, not have been a principal of a material professional adviser or a material consultant to the Company, or an employee materially associated with the service provided; – not be a material supplier or customer of the Company, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; – must have no material contractual relationship with the Company other than as a director; – be free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the company. 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 substantial shareholder for the purposes of applying these criteria is a person with a substantial shareholding as defined in section 9 of the Corporations Act. The Company has also considered directors’ periods of service on the board, particularly in the context of the long term nature of the Company’s research, development and commercialisation activities, and has concluded that length of service does not, and should not reasonably be perceived to, adversely impact upon a director’s ability to act in the best interests of the company. 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 1 July 2006. 1.5 Chairman and Chief Executive Officer (CEO) The current Chairman Mr Peter Bartels is an independent non-executive director appointed in 2003. The CEO Dr Jackie Fairley was appointed as a director and CEO on 1 July 2006. 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 Company’s senior executives. The CEO is responsible for implementing Company strategies and policies. The Board policy is for these separate roles to be undertaken by separate people. 1.6 Commitment The Board held seven meetings during the year. Meetings are usually held at the Company’s corporate offices and laboratory facility in the Baker Building, 75 Commercial Road, Melbourne, Australia. The number of meeting of the Board and of each Board committee held during the year ended 30 June 2008, 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 their appointment to the Board and are reviewed each year as part of the annual performance assessment. Prior to appointment or being submitted for re-election each non-executive director is required to specifically acknowledge that they have and will continue to have the time available to discharge their responsibilities to the Company. 1.7 Conflict of interests Directors are expected to avoid any action, position or interest that may result 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 and is precluded from participating in discussions or decision making on such dealings. 1.8 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. 1.9 Performance assessment The Board undertakes an annual self assessment of its performance. Each director is asked to consider matters such as composition, structure and role of the Board, and performance of individual directors. The Chairman then meets individually with each director to discuss the assessment. The CEO’s performance is assessed taking into account attainment of predetermined targets or goals based on various financial and other measurable indicators related to the Company. The CEO meets with the remuneration and nomination committee annually to discuss attainment of key performance indicators of both the CEO and the senior management team. 30 CORPORATE GOVERNANCE STATEMENT 2. Corporate reporting The Company prepares audited financial statements for each year ending 30 June, and reviewed financial statements for each half year period ending 31 December. In accordance with ASX Listing Requirements the annual financial statements (preliminary final report) is lodged with the ASX by 31 August, and half year statements are lodged with the ASX by 28 February each year. 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 subsequent Board meeting, and where applicable 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 committee The audit and risk committee consists of the following independent non-executive directors: Mr Ross Dobinson (Chairman) Mr Peter Bartels (from 19 February 2008) Dr Peter Jenkins Mr Leon Gorr was a member until his resignation as a director on 14 November 2007. Details of these directors’ qualifications and attendance at committee meetings are set out in the directors’ report pages 13 to 16. The audit and risk committee has appropriate financial expertise and all members are financially literate and have an appropriate understanding of the industry in which the Group operates. The committee meets at least twice a year, and has direct access to the Company’s auditors. The charter of this committee is to: – review and report to the Board on the annual report, the half-year financial report and all other financial information published by the company or released to the market – assist the Board in reviewing the effectiveness of the organisation’s internal control environment covering: > effectiveness and efficiency of operations > reliability of financial reporting > compliance with applicable laws and regulations – oversee the effective operation of the risk management framework by: > ensuring the effective implementation of the risk management policy and program > defining risk threshold levels for referral to the Board – 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. > 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 committee > ensuring the allocation of sufficient resources for the effective 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 – report to the Board on matters relevant to the committee’s role and responsibilities. In fulfilling its responsibilities, the audit and risk committee: – receives regular reports from management and the external auditors; – reviews the processes the CEO and CFO have in place to support their certifications to the board; – reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved; – meets separately with the external auditors at least twice a year without the presence of management; – provides the external auditors with a clear line of direct communication at any time to either the Chairman of the committee or the Chairman of the board. The audit and risk committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. STARPHARMA HOLDINGS LIMITED Annual Report 2008 31 CORPORATE GOVERNANCE STATEMENT 3. Board committees 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 Richard Hazleton (from 14 April 2008) Mr Leon Gorr was a member until his resignation as a director on 14 November 2007. Details of these directors’ attendance at committee meetings are set out in the directors’ report on page 16. 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 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. Each contract refers to a specific formal position description which is reviewed by the committee as necessary in consultation with the CEO and relevant executive. 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 17 to 25. 3.3 Research committee For part of the year (1 July 2007 to 11 February 2008) the research committee consisted of the following directors: – propose candidates for board vacancies – oversee board succession including the succession of the Dr Peter Jenkins (Chairman) Independent non-executive director 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 Prof Peter Colman Independent non-executive director Dr Jackie Fairley Chief Executive Officer and director Following the resignation of Prof Peter Colman the board reviewed the need for a research committee and determined that the future needs of the Company would be better served by periodic scientific reviews involving non-executive directors together with scientific advisors. Prof Colman was subsequently appointed as a scientific adviser to the Company on a consultancy basis. The Company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually. The current auditors are PricewaterhouseCoopers who have been the external auditors of the Company since it commenced operations. 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 2008. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in note 29 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 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. 32 CORPORATE GOVERNANCE STATEMENT 5. Risk assessment and management The Board, through the audit and risk 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 Company is committed to a proactive approach towards risk management throughout its entire business operations. The Board aims to ensure that effective risk management practices become embedded in the Company culture and in the way activities are carried out at all levels in the Company. The Board and Management recognise the importance that risk management plays in ensuring the business is able to fully capitalise on the opportunities available to it as well as mitigating potential loss. Health and Safety (see item 6) are considered to be of paramount importance and are the focus of significant risk management activities within the company. Other risk areas that are addressed include business continuity and disaster recovery, reputation, intellectual property, product development and clinical trials. Adherence to the Code of Conduct (see item 7) is required at all times and the board actively promotes a culture of quality and integrity. The risk management policy, which is available on the Company website, sets out the responsibilities and authorities of the Board, the audit and risk committee, the CEO and Company Secretary, and the senior management team. The CEO and Company Secretary are responsible to the Board for the overall implementation of the risk management program. 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 environmental regulations, and employees are encouraged to actively participate in the management of environmental and Occupational Health and Safety (OH&S) issues. In order to conduct activities within Australia the wholly owned subsidiary Starpharma Pty Ltd has obtained the necessary accreditations, laboratory certifications and licenses from the applicable Commonwealth and State authorities. In the US the wholly owned subsidiary DNT has obtained the necessary accreditations, laboratory certifications and licenses as applicable from Central Michigan University, State of Michigan and US federal authorities. The directors are not aware of any breach of applicable environmental regulations. The Company has adopted an OH&S Policy and has established OH&S committees at each of its sites as part of its overall approach to workplace safety. These committees provide a forum for management and employees to consult on health and safety matters. The primary role of the committees is to coordinate 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. Each committee includes representatives of executive management and members representing each operational area generally in proportion to the number of people working in the area and the perceived safety risks associated with working in that area. The OH&S committees meet on a monthly basis. 7. Code of conduct 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. 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. Areas covered include employment practices, equal opportunity, harassment and bullying, conflicts of interest, use of company assets and disclosure of confidential information. The code of conduct is available in the Corporate Governance section of the Company’s website. STARPHARMA HOLDINGS LIMITED Annual Report 2008 33 CORPORATE GOVERNANCE STATEMENT 8. Trading in Company securities The purchase and sale of Company securities by directors, executives and employees is only permitted (subject also to complying with applicable laws) during the thirty day period following the annual general meeting and the release to the market of the half yearly and annual financial results, 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. 9. Continuous disclosure and shareholder communication The Board has appointed the Company Secretary as the person responsible for disclosure of information to the 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. 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. All ASX announcements are posted on the Company’s website as soon as practicable after release to the ASX. Announcements are also posted on the OTCQX website (www.otcqx.com) in order to provide timely disclosure to US investors trading in the Company’s Level One ADRs (OTCQX:SPHRY). 34 Annual Financial Report FINANCIAL REPORT 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 36 37 38 39 40 75 76 This financial report covers both the separate financial statements of Starpharma Holdings Limited as an individual entity and the consolidated financial statements for the consolidated entity consisting of Starpharma Holdings Limited and its subsidiaries. The financial report is presented in the Australian currency. Starpharma Holdings Limited is a company limited by shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Starpharma Holdings Limited Baker Building, 75 Commercial Road Melbourne, Victoria, 3004, Australia A description of the nature of the consolidated entity’s operations and its principal activities is included in the review of operations and activities on pages 1 to 10 and in the directors’ report on pages 11 to 27, both of which are not part of this financial report. The financial report was authorised for issue by the directors on 29th September 2008. The directors have the power to amend and reissue the financial report. Through the use of the internet, we have ensured that our corporate reporting is timely and complete. All press releases, financial reports and other information are available on our website: www.starpharma.com. STARPHARMA HOLDINGS LIMITED Annual Report 2008 35 FINANCIAL REPORT Income statements For the year ended 30 June 2008 Revenue from continuing operations Other income Administration expense Research and development expense Provision for impairment of receivables Finance costs Impairment of financial assets Share of results of associates accounted for using the equity method Loss before income tax Income tax credit Loss attributable to members of Starpharma Holdings Limited Loss per share for loss from continuing operations attributable to ordinary equity holders of the company Basic loss per share Diluted loss per share Notes 5 5 10 33 33 7 37 Parent 2007 $’000 581 – (1,900) – (4,443) – – – (5,762) – (5,762) 2008 $’000 414 – (2,661) – (3,758) – (40) – (6,045) – (6,045) Consolidated 2007 $’000 1,463 8,091 (5,325) (11,985) – (33) – (178) (7,967) 722 (7,245) 2008 $’000 1,709 8,212 (5,816) (12,224) – (27) (76) – (8,222) 731 (7,491) ($0.04) ($0.04) ($0.04) ($0.04) The above income statements should be read in conjunction with the accompanying notes. 36 Balance Sheets As at 30 June 2008 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 Deferred tax assets Other financial assets Total non-current assets Total assets Current Liabilities Trade and other payables Borrowings Provisions Deferred income Total current liabilities Non-current liabilities Borrowings Provisions Deferred income Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity Notes 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 FINANCIAL REPORT Parent 2007 $’000 5,584 1,436 7,020 – – 3,689 – – 16,292 19,981 27,001 1,370 – – – 1,370 – – – – – 2008 $’000 2,420 197 2,617 2,631 – 3,144 – – 16,252 22,027 24,644 1,477 – – – 1,477 – – – – – 1,477 1,370 Consolidated 2007 $’000 10,073 1,335 11,408 – 1,111 17,786 76 43 – 19,016 30,424 1,855 69 356 980 3,260 260 57 169 954 1,440 4,700 2008 $’000 7,482 1,773 9,255 – 758 14,640 – – – 15,398 24,653 1,623 124 417 1,551 3,715 293 37 97 128 555 4,270 20,383 25,724 23,167 25,631 78,667 1,009 (59,293) 20,383 76,227 1,299 (51,802) 25,724 78,667 1,838 (57,338) 23,167 76,227 697 (51,293) 25,631 The above balance sheets should be read in conjunction with the accompanying notes. STARPHARMA HOLDINGS LIMITED Annual Report 2008 37 FINANCIAL REPORT Statements of changes in equity For the year ended 30 June 2008 Total equity at the beginning of the year Exchange differences on translation of foreign operations Revaluation of identifiable net assets of an associate on acquisition of remaining assets Net income recognised directly in equity Loss for the year Total recognised income and expense for the year Transactions with equity holders in their capacity as equity holders: Share based payments Fair value of options granted In private placement Contributions of equity, net of transaction costs Total equity at the end of the year Notes 25 25 25 25 24 Consolidated 2007 $’000 21,316 (1,688) 2,215 527 (7,245) (6,718) 275 – 10,851 25,724 2008 $’000 25,724 (1,532) – (1,532) (7,491) (9,023) 209 1,033 2,440 20,383 Parent 2007 $’000 20,267 – – – (5,762) (5,762) 275 – 10,851 25,631 2008 $’000 25,631 – – – (6,045) (6,045) 108 1,033 2,440 23,167 The above statements of changes in equity should be read in conjunction with the accompanying notes. 38 Cash flow Statements For the year ended 30 June 2008 Notes 35 27 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 Net cash outflows from operating activities Cash flow from investing activities Loans advanced to subsidiaries Loans advanced from subsidiaries Receipts from property, plant and equipment Payments for property, plant and equipment Payments for transaction costs on acquisition of subsidiary (net of cash acquired) Net cash outflows from investing activities Cash flow from financing activities Proceeds from issue of shares and options Share issue transaction costs Lease repayments Net cash inflows / (outflows) from financing activities Net decrease in cash and cash equivalents held Cash and cash equivalents at the beginning of the period Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the period Consolidated 2007 $’000 1,042 10,567 (15,590) 636 (35) (3,380) – – 1 (182) (91) (272) – – (127) (127) (3,779) 14,284 (432) 10,073 2008 $’000 1,168 8,566 (15,357) 298 (27) (5,352) – – – (36) – (36) 3,817 (344) (75) 3,398 (1,990) 10,073 (601) 7,482 The above cash flow statements should be read in conjunction with the accompanying notes. FINANCIAL REPORT Parent 2007 $’000 – – (1,463) 545 – (918) (5,597) – – – (232) (5,829) – – – – (6,747) 12,361 (30) 5,584 2008 $’000 – – (1,667) 235 – (1,432) (4,897) – – – – (4,897) 3,817 (344) – 3,473 (2,856) 5,584 (308) 2,420 STARPHARMA HOLDINGS LIMITED Annual Report 2008 39 FINANCIAL REPORT Notes to the financial statements 30 June 2008 Contents Summary of significant accounting policies Financial Risk Management Critical accounting estimates and judgments Segment information Revenue Expenses Income tax expense Current assets – Cash and cash equivalents Current assets – Trade and other receivables 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Non-current assets – Receivables 11. Non-current assets – Property, plant and equipment 12. Non-current assets – Intangible assets 13. Non-current assets – Investments accounted for using the equity method 14. Non-current assets – Deferred tax assets 15. Non-current assets – Other financial 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. Non-current liabilities – Deferred tax liabilities 24. Contributed equity 25. 26. 27. 28. 29. 30. Contingencies 31. Commitments 32. 33. 34. 35. 36. Non–cash financing activities 37. 38. 39. Reserves Accumulated Losses Business Combination Key management personnel disclosures Remuneration of auditors Earnings per share Share-based payments Related party transactions Subsidiaries Investments in associates Events occurring after the balance sheet date Reconciliation of profit after income tax to net cash inflow from operating activities Page 41 47 48 49 50 50 51 52 53 54 54 55 56 57 57 57 58 58 58 58 59 59 59 60 61 62 62 63 66 66 67 68 69 69 70 70 70 71 74 40 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 IFRS Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (“AIFRS”). Compliance with AIFRS ensures that the financial report of Starpharma Holdings Limited complies with International Financial Reporting Standards (IFRS). Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property. Critical accounting estimates The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. For the year ended 30 June 2008, the consolidated entity has incurred losses of $7,491,000 (2007: $7,245,000) and experienced net cash outflows of $5,352,000 from operations (2007: $3,380,000), as disclosed in the balance sheet and cash flow statement, respectively. This is consistent with the consolidated entity’s strategic plans and budget estimates, and the directors are satisfied regarding the availability of working capital (including ongoing royalty revenue and the remaining balance of the contracted NIH grant funding) for the period up to at least October 2009. Accordingly the directors have prepared the financial report on a going concern basis in the belief that the consolidated entity will realise its assets and settle its liabilities and commitments in the normal course of business and for at least the amounts stated in the financial report. (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 2008 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. 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. STARPHARMA HOLDINGS LIMITED Annual Report 2008 41 FINANCIAL REPORT 1. Summary of significant accounting policies (c) Segment reporting A business segment is identified for a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is identified when products or services are provided within a particular economic environment subject to risks and returns that are different from those of segments operating in other economic environments. (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. (iii) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: – assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet – income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and – all resulting exchange differences are recognised as a separate component of equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. (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. Licence revenue is recognised in accordance with the underlying agreement. Upfront payments are brought to account as revenues unless there is a correlation to ongoing research and both components are viewed as one agreement, in which case the licence income is amortised over the anticipated period of the associated research program. Unamortised licence revenue is recognised on the balance sheet as deferred income. 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. (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 applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. Deferred 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. 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. 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 31). 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 42 FINANCIAL REPORT 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 31). 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. (i) Business combinations The purchase method of accounting is used to account for all business combinations, including business combinations involving entities or businesses under common control, regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the fair value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. 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(p)). 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 Goodwill and intangible assets that have an indefinite life are not subject to amortisation and are tested annually for impairment. Other assets 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 inflows (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 note 8. (l) Trade Receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Trade receivables are generally due for settlement within 30 days. Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly. An allowance account (provision for impairment of trade receivables) is used when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the impairment allowance is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the income statement within other expenses. When a trade receivable for which an impairment allowance had been recognised becomes uncollectible in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against other expenses in the income statement. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. (m) Investments and other financial assets Classification The Group classifies its financial assets 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, in the case of assets classified as held-to- maturity, 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 are included in current assets, except for those with maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are included in trade and other receivables (note 9) and receivables (note 10) in the balance sheet. STARPHARMA HOLDINGS LIMITED Annual Report 2008 43 FINANCIAL REPORT 1. Summary of significant accounting policies (n) 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. 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. 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. (o) 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. (p) 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 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 impairment 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 4 to 15 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. (q) 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. (r) 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. (s) 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. (t) 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. 44 FINANCIAL REPORT (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. (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”). Information relating to these plans is set out in note 38 and section D of the Remuneration report under the Directors’ Report. 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. The impact of the revision to original estimates, if any, is recognised in the income statement with a corresponding adjustment to equity. (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. (vii) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than12 months after reporting date are discounted to present value. (u) 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. (v) 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. (w) 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. (x) 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. STARPHARMA HOLDINGS LIMITED Annual Report 2008 45 FINANCIAL REPORT 1. Summary of significant accounting policies 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. (y) Rounding of amounts The company is of a kind referred to in Class order 98/100, issued by the Australian Securities and Investments Commission, relating to the ‘’rounding off’’ of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. (z) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2008 reporting periods. The Group’s and the parent entity’s assessment of the impact of these new standards and interpretations is set out below. (i) AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arising from AASB 8 AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1 January 2009. AASB 8 will result in a significant change in the approach to segment reporting, as it requires adoption of a ‘management approach’ to reporting on financial performance. The information being reported will be based on what the key decision makers use internally for evaluating segment performance and deciding how to allocate resources to operating segments. The Group has not yet decided when to adopt AASB 8. Application of AASB 8 may result in different segments, segment results and different types of information being reported in the segment note of the financial report. However, at this stage, it is not expected to affect any of the amounts recognised in the financial statements. (ii) Revised AASB 123 Borrowing Costs and AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116 & AASB 138 and Interpretations 1 & 12] The revised AASB 123 is applicable to annual reporting periods commencing on or after 1 January 2009. It has removed the option to expense all borrowing costs and - when adopted - will require the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. There will be no impact on the financial report of the Group, as the Group already capitalises borrowing costs relating to qualifying assets. (iii) Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian Accounting Standards arising from AASB 101 A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods beginning on or after 1 January 2009. It requires the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts recognised in the financial statements. If an entity has made a prior period adjustment or has reclassified items in the financial statements, it will need to disclose a third balance sheet (statement of financial position), this one being as at the beginning of the comparative period. The Group intends to apply the revised standard from 1 July 2009. (iv) AASB 2008-1 Amendments to Australian Accounting Standard - Share-based Payments: Vesting Conditions and Cancellations AASB 2008-1 was issued in February 2008 and will become applicable for annual reporting periods beginning on or after 1 January 2009. The revised standard clarifies that vesting conditions are service conditions and performance conditions only and that other features of a share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group will apply the revised standard from 1 July 2009, but it is not expected to affect the accounting for the Group’s share-based payments. (v) Revised AASB 3 Business Combinations, AASB 127 Consolidated and Separate Financial Statements and AASB 2008-3 Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127 Revised accounting standards for business combinations and consolidated financial statements were issued in March 2008 and are operative for annual reporting periods beginning on or after 1 July 2009, but may applied earlier. The Group has not yet decided when it will apply the revised standards. However, the new rules generally apply only prospectively to transactions that occur after the application date of the standard. Their impact will therefore depend on whether the Group will enter into any business combinations or other transactions that affect the level of ownership held in the controlled entities in the year of initial application. For example, under the new rules: – all payments (including contingent consideration) to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments subsequently remeasured at fair value through income – all transaction cost will be expensed – the Group will need to decide whether to continue calculating goodwill based only on the parent’s share of net assets or whether to recognise goodwill also in relation to the non- controlling (minority) interest, and – when control is lost, any continuing ownership interest in the entity will be remeasured to fair value and a gain or loss recognised in profit or loss. (vi) Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate In May 2008, the IASB made amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards and IAS 27 Consolidated and Separate Financial Statements. The new rules will apply to financial reporting periods commencing on or after 1 January 2009. Amendments to the corresponding Australian Accounting Standards are expected to be issued shortly. After application of these revised rules, all dividends received from investments in subsidiaries, jointly controlled entities or associates will be recognised as revenue, even if they are paid out of pre-acquisition profits, but the investments may need to be tested for impairment as a result of the dividend payment. Furthermore, when a new intermediate parent entity is created in internal reorganisations it will measure its investment in subsidiaries at the carrying amounts of the net assets of the subsidiary rather than the subsidiary’s fair value. 46 FINANCIAL REPORT 2. Financial risk management The Group’s activities expose it to a variety of financial risks; including market risk and liquidity. 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 (i) Foreign Exchange 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 use derivative financial instruments to hedge such exposures, but maintains cash and deposits in both Australian and US dollars. The directors are regularly monitoring the potential impact of movements in foreign exchange exposure. The exposure to foreign currency risk at the reporting date was as follows: Cash and cash equivalents Trade and other receivables Receivables - intercompany loans Trade and other payables Deferred Income Consolidated 2007 US $’000 4,309 851 – 874 711 2008 US $’000 6,313 1,515 – 1,097 1,423 Parent 2007 US $’000 1,209 – 1,028 24 – 2008 US $’000 2,172 – 2,279 5 – Group and Parent Sensitivity The Group is mainly exposed to US dollars. The following table details the Group’s sensitivity to a 10% increase and decrease in the Australian dollar against the US dollar. A sensitivity of 10% represents the possible change in foreign exchange rates based on historic trends. A positive number indicates a favourable movement; that is an increase In profit or reduction in the loss. Impact on profit / (loss) on a movement of the US Dollar: Australian dollar strengthens (increases) against the US Dollar by 10% Australian dollar weakens (decreases) against the US Dollar by 10% Consolidated 2007 $’000 (383) 468 2008 $’000 (501) 613 2008 $’000 11 13 Parent 2007 $’000 (17) 21 (ii) Fair Value Interest Rate Risk The Group and Parent hold interest bearing assets and therefore the income and operating cash flows are exposed to market interest rates. As at the reporting date, The Group and Parent had the following at call and short term deposits of 30 days. Deposits at call Consolidated 2008 $’000 2,976 2007 $’000 6,054 2008 $’000 2,407 Parent 2007 $’000 5,523 STARPHARMA HOLDINGS LIMITED Annual Report 2008 47 FINANCIAL REPORT 2. Financial risk management Group and Parent Sensitivity At 30 June 2008, if interest rates had changed by 50 basis points either higher or lower from the year end rates with all other variables held constant, Group profit for the year would have been $17,000 higher or lower (2007 - change of 50 bps: $32,000 higher/lower) due to either higher or lower interest income from cash or cash equivalents. The Parent’s profit for the year would have been $12,000 higher or lower (2007 - change of 50 bps: $28,000 higher/lower). (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 and royalty receivables from large, well respected companies. (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) Fair value estimation The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price. The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives and investments in unlisted subsidiaries) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward exchange contracts is determined using forward exchange market rates at the reporting date. The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. 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. 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 4–15 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 2008 is $14,640,000 (2007: $17,786,000). ii) Impairment of Goodwill The group tests annually whether goodwill has suffered any impairment. In accordance with the accounting policy stated in notes 1(j) and 1(q). Impairment of goodwill is considered based on the fair value less cost to sell of the cash generating units over which the goodwill is allocated. Performing the assessment of fair value less costs to sell requires the use of assumptions. Refer to note 12 for details of these assumptions. iii) Income Taxes The Group is subject to income taxes in Australia and the United States of America. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination may be uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. The Group has recognised deferred tax assets relating to carried forward losses to the extent there are sufficient taxable temporary differences (deferred tax liabilities) relating to the same taxation authority and the same subsidiary against which the unused tax losses can be utilised. However, utilisation of the tax losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped. 48 FINANCIAL REPORT (b) Critical accounting judgments in applying accounting policies i) Fair value of intellectual property in purchase price allocation of subsidiary The Group engaged a professional firm to undertake a valuation of the fair value of the intellectual property assets recognised on acquisition of the remaining share of the US based associate Dendritic Nanotechnologies Inc (“DNT”). The methodology used was a discounted cash flow analysis based on the future potential revenue derived from the intellectual property to support the fair value of the asset acquired. To allocate the purchase price of the business combination, management attributed a value of $14.9 million being the mid point of the experts’ valuation range. ii) Impairment of Assets 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. 4. Segment information Business Segment The consolidated entity operates in one business segment, being the discovery, development and commercialisation of dendrimers for pharmaceutical and other life science applications. Geographic Segment The consolidated entity operates in Australia, with the exception of Dendritic Nanotechnologies Inc. (“DNT”) which operates in the United States of America (“USA”). The results of DNT were accounted for by the equity method up until it became a wholly owned subsidiary of the consolidated group. Following the 100% acquisition of DNT, it has been determined that on the basis of monitoring of the USA operations, these operations represent a separate geographical segment. In prior periods, the results of DNT were equity accounted. Secondary reporting format-geographical segments 2008 Revenue and other income Expenses Share of results of associates Loss before income tax Segment net assets Secondary reporting format-geographical segments 2007 Revenue and other income Expenses Share of results of associates Loss before income tax Segment net assets Australia $’000 8,486 (14,261) (5,775) USA $’000 1,696 (4,067) (2,371) Inter-segment Eliminations $’000 (261) 261 – 11,879 8,425 79 Australia $’000 8,363 (13,993) (5,630) USA $’000 1,246 (3,405) (2,159) Inter-segment Eliminations $’000 (55) 55 – 13,354 12,405 (35) Total $’000 9,921 (18,067) (8,146) (76) (8,222) 20,383 Total $’000 9,554 (17,343) (7,789) (178) (7,967) 25,724 STARPHARMA HOLDINGS LIMITED Annual Report 2008 49 FINANCIAL REPORT 5. Revenue Revenue and Other Income Royalty, Customer & License revenue Interest Revenue Other Revenue Total Revenue Australian Government Grants USA Government Grants Total Other Income Total Revenue and Other Income Consolidated Parent 2008 $’000 1,408 297 4 1,709 108 8,104 8,212 9,921 2007 $’000 860 599 4 1,463 276 7,815 8,091 9,554 2008 $’000 – 414 – 414 – – – 414 2007 $’000 – 581 – 581 – – – 581 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 recognised above. The Group did not benefit from any other form of government assistance. 6. Expenses Loss from ordinary activities before income tax expense includes the following items: Depreciation Amortisation Rental expense on operating leases Defined contribution superannuation expense Consolidated 2007 $’000 647 1,373 441 575 2008 $’000 553 1,546 521 591 Parent 2007 $’000 – 398 – 130 2008 $’000 – 545 – 127 50 7. Income tax expense Notes a) Income tax expense/(credit) Current Tax Deferred Tax Income tax expense is attributable to: Profit from continuing operations Profit from discontinued operations Aggregate income credit Deferred income tax credit included in income tax expenses comprises: (Decrease) in deferred tax liabilities 23 FINANCIAL REPORT Consolidated Parent Entity 2008 $’000 (731) (731) (731) – (731) (731) (731) 2007 $’000 – (722) (722) (722) – (722) (722) (722) 2008 $’000 2007 $’000 – – – – – – – – – – – – – – – – b) Numerical reconciliation to income tax prima facie tax payable Loss from continuing operations before income tax Tax at the Australian tax rate of 30% Tax effect of amounts which are not deductible (taxable) in calculating taxable income Equity accounted loss Write down in carrying value of investments Gain in dilution of equity investments Write down in carrying value of loans Share-based payments Difference in overseas tax rates Future income tax benefits not brought to account Income tax credit c) Amounts recognised directly in equity (8,222) (2,467) (7,967) (2,390) (6,045) (1,814) (5,762) (1,729) – 23 – – 61 44 1,608 (731) 81 – (28) – 83 87 1,445 (722) – – – 1,127 30 – 657 – Reduction of deferred tax liabilities of $267,000 (2007: $131,000) arising due to foreign exchange movements have been recognised within the foreign currency translation reserve 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 e) Unrecognised temporary differences Temporary differences for which no deferred tax asset has been recognised as recoverability is not probable Unrecognised deferred tax relating to the temporary differences 49,740 14,922 43,415 13,024 2,570 771 2,577 773 5,309 1,593 406 122 – – – 1,333 – – 396 – 3,284 985 588 176 STARPHARMA HOLDINGS LIMITED Annual Report 2008 51 FINANCIAL REPORT 7. Income tax expense Potential future income tax benefits attributable to tax losses carried forward have not been brought to account at 30 June 2008 because the directors do not believe that it is appropriate to regard realisation of the 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. Realisation of the benefit of tax losses would be subject to the Group satisfying the conditions for deductibility imposed by tax legislation and no subsequent changes in tax legislation adversely affecting the Group. The Group made an assessment as to the satisfaction of deductibility conditions at 30 June 2006, however no such similar assessment has been performed at 30 June 2007 or 30 June 2008. 8. Current assets – Cash and cash equivalents Cash at bank and on hand Deposits at call Consolidated Parent Entity 2008 $’000 4,506 2,976 7,482 2007 $’000 4,019 6,054 10,073 2008 $’000 13 2,407 2,420 2007 $’000 61 5,523 5,584 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 1.25% to 7.59% (2007: 6.10% to 6.26%). These deposits are of 30 day maturities. Cash not available There is $260,000 of cash not available for use due to restrictions associated with a finance lease which is guaranteed by term deposit (2007: $329,000). Interest rate risk 30 June 2008 Floating Interest rate Fixed interest maturing Financial Assets Notes 1 year or less $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 More than 5 years $’000 Non-interest bearing $’000 $’000 Total $’000 Contractual cash flows 8 9 395 – 395 2,976 – 2,976 – – – – – – – – – – – – – – – 4,111 1,773 5,884 7,482 1,773 9,255 N/A 1,773 1,773 3.5% 2.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16/18/21 17/20 19/22 – – – – – 124 – 124 – 133 – 133 – 160 – 160 – – – – – – – – – – – – 2,076 – 1,648 3,724 2,076 417 1,648 4,141 2,076 417 1,048 4,141 0.0% 8.0% 8.0% 7.8% 0.0% 0.0% 0.0% 0.0% Cash and deposits Receivables Weighted average interest rate Financial Liabilities Payables and provisions Borrowings Deferred income Weighted average interest rate 52 FINANCIAL REPORT 30 June 2007 Floating Interest rate Fixed interest maturing Financial Assets Cash and deposits Receivables Weighted average interest rate Financial Liabilities Payables and provisions Borrowings Deferred income Weighted average interest rate Notes 8 9 1 year or less $’000 1 to 2 years $’000 2 to 3 years $’000 3 to 4 years $’000 4 to 5 years $’000 More than 5 years $’000 Non-interest bearing $’000 $’000 Total $’000 Contractual cash flows 703 – 6,054 – 703 6,054 – – – – – – – – – – – – – – – 3,316 10,073 1,335 1,335 4,651 11,408 N/A 1,335 1,335 5.0% 5.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16/18/21 17/20 19/22 – – – – – 69 – 69 – 73 – 73 – 79 – 79 – 108 – 108 – – – – – – – – 2,268 – 1,149 2,268 329 1,149 3,417 3,746 2,268 329 1,149 3,746 0.0% 7.2% 7.2% 7.2% 7.2% 0.0% 0.0% 0.0% 9. Current assets – Trade and other receivables Trade and grant receivable Interest receivable Prepayments Loans to controlled entities Other receivables Consolidated Parent Entity 2008 $’000 1,311 2 370 – 90 1,773 2007 $’000 865 14 436 – 20 1,335 2008 $’000 75 – 48 – 74 197 2007 $’000 – 58 64 1,254 60 1,436 Trade and grant receivables Trade receivables comprise of customer royalty and licence revenue and are subject to normal terms of settlement within 30 to 90 days. Grant receivables comprise expenditure reimbursable under grants from USA National Institutes of Health (“NIH”) and are subject to normal terms of settlement within 30 to 60 days. Impaired receivables As at 30 June 2008 there are no receivables aged past due date (2007: nil). Accordingly, no receivables are considered impaired at 30 June 2008 (2007: nil) other than from subsidiaries within the group. Loans to controlled entities At 30 June 2008, the directors reclassified the inter-company loan to DNT as a non-current receivable. The terms of the loan agreement are that the principal and accrued interest is currently due at 30 June 2009. At 30 June 2007 the loan was classified as a current asset. Other receivables Other receivables comprise sundry debtors and GST claimable and are subject to normal terms of settlement within 30 days. STARPHARMA HOLDINGS LIMITED Annual Report 2008 53 FINANCIAL REPORT 10. Non-current assets – Receivables Loans to controlled entities Impairment provision Consolidated Parent Entity 2008 $’000 – – – 2007 $’000 – – – 2008 $’000 37,639 (35,008) 2,631 2007 $’000 31,250 (31,250) – Interest rate risk With the exception of loans to controlled entities, current and non-current receivables are non-interest bearing. Information concerning the effective interest rate is detailed in note 8. Credit risk The Group considers that there is no significant concentration of credit risk with respect to current and non-current receivables. Grant receivables are with government bodies and royalty receivables are from large, well respected companies. Loans to controlled entities are assessed for recoverability and provisions are applied as considered appropriate. 11. Non-current assets – Property, plant and equipment Consolidated Plant and Equipment $’000 Leasehold improvements $’000 Plant and Equipment under finance lease $’000 Total Plant and Equipment $’000 At 30 June 2006 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2007 Opening net book amount Exchange differences Acquisition of subsidiary Additions Disposals Depreciation and amortisation Closing net book amount At 30 June 2007 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2008 Opening net book amount Exchange differences Additions Disposals Depreciation and amortisation Closing net book amount At 30 June 2008 Cost Accumulated depreciation and amortisation Net book amount 1,947 (1,346) 601 601 (7) 151 180 (2) (303) 620 2,251 (1,631) 620 620 (9) 36 (3) (256) 388 2,270 (1,882) 388 1,136 (753) 383 383 – – 5 – (193) 195 1,141 (946) 195 195 (178) 17 1,141 (1,124) 17 758 (311) 447 447 – – – – (151) 296 757 (461) 296 296 176 (119) 353 614 (261) 353 3,841 (2,410) 1,431 1,431 (7) 151 185 (2) (647) 1,111 4,149 (3,038) 1,111 1,111 (9) 212 (3) (553) 758 4,025 (3,267) 758 The parent entity has no plant and equipment in 2008 (2007: Nil). 54 12. Non-current assets – Intangible assets Consolidated Patents & Licences $’000 Goodwill $’000 Total Intangibles $’000 FINANCIAL REPORT At 30 June 2006 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2007 Opening net book amount Acquisition of subsidiary Exchange differences Depreciation and amortisation Closing net book amount At 30 June 2007 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2008 Opening net book amount Exchange differences Depreciation and amortisation Closing net book amount At 30 June 2008 Cost Accumulated depreciation and amortisation Net book amount 4,374 (287) 4,087 4,087 14,900 (1,583) (1,373) 16,031 17,634 (1,603) 16,031 16,031 (1,392) (1,546) 13,093 16,065 (2,972) 13,093 – – – – 1,972 (217) – 1,755 1,755 – 1,755 1,755 (208) – 1,547 1,547 – 1,547 4,374 (287) 4,087 4,087 16,872 (1,800) (1,373) 17,786 19,389 (1,603) 17,786 17,786 (1,600) (1,546) 14,640 17,612 (2,972) 14,640 Identifiable intangible assets with finite lives are carried at cost less accumulated amortisation and adjusted for any accumulated impairment loss. The assets are assessed at each reporting date as to whether there is any indication that the asset is impaired. Goodwill is tested annually for impairment based on the fair value less costs to sell of the cash generating units over which the goodwill is allocated. The Group operates in one business segment being the discovery, development and commercialisation of dendrimers for pharmaceutical and other life science applications. Following the acquisition of the DNT business during 2007, the Group has operations in both Australia and the United States – these geographical segments are also determined to be the Cash Generating Units (CGUs) of the Starpharma Group. The directors have determined that the goodwill arising on the acquisition of the remaining share of the DNT business should be allocated across these CGUs as the business combination gives rise to synergies within both Starpharma’s Australian operations and the DNT business in the United States. Allocation of the goodwill across geographical segments is considered appropriate as the goodwill is allocated across the same business segment. The market capitalisation of the Starpharma Group is used to determine an approximation of the fair value less costs to sell of the two CGUs which make up the Starpharma Group. Given the excess of the market capitalisation of Starpharma Holdings Limited over the carrying value of total assets (including goodwill) at 30 June 2008, goodwill is not considered to be impaired at year end. STARPHARMA HOLDINGS LIMITED Annual Report 2008 55 FINANCIAL REPORT 12. Non-current assets – Intangible assets Parent Patents & Licences $’000 Goodwill $’000 Total Intangibles $’000 At 30 June 2006 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2007 Opening net book amount Depreciation and amortisation Closing net book amount At 30 June 2007 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2008 Opening net book amount Depreciation and amortisation Closing net book amount At 30 June 2008 Cost Accumulated depreciation and amortisation Net book amount 4,374 (287) 4,087 4,087 (398) 3,689 4,374 (685) 3,689 3,689 (545) 3,144 4,374 (1,230) 3,144 – – – – – – – – – – – – – – – 4,374 (287) 4,087 4,087 (398) 3,689 4,374 (685) 3,689 3,689 (545) 3,144 4,374 (1,230) 3,144 13. Non-current assets – Investments accounted for using the equity method Consolidated Parent Entity Shares in associated entities Notes 33 2008 $’000 – 2007 $’000 76 2008 $’000 – 2007 $’000 – Shares in associates Investments in associates are accounted for in the consolidated financial statements using the equity method of accounting and carried at cost less provision for impairment by the parent entity (refer to note 33). The carrying value of Dimerix Bioscience Pty Ltd at 30 June 2008 has been written down to Nil (2007: $76,000) with a $76,000 impairment charge to profit and loss. 56 FINANCIAL REPORT 14. Non-current assets – Deferred tax assets Temporary differences recognised on the acquisition of subsidiary during the year Total deferred tax asset Consolidated 2007 $’000 43 43 2008 $’000 – – Parent 2007 $’000 – – 2008 $’000 – – The Group has future income tax benefits not brought to account at balance date because the directors do not believe it is probable that the benefit of these losses will be realised in the near future. Refer to note 7 for additional detail on unused tax losses. 15. Non-current assets – Other financial assets Other non-traded investments Shares in controlled entities Provision for impairment in value Shares in associated entities Consolidated Parent Entity Notes 32 33 2008 $’000 2007 $’000 – – – – – – – – 2008 $’000 33,752 (17,500) – 16,252 2007 $’000 33,752 (17,500) 40 16,292 At 30 June 2008 and 2007, 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 2008 and 2007, 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 values of the parent entity’s investments in its subsidiaries, excluding DNT, remain written down to nil as at 30 June 2008 and 2007. 16. Current liabilities – Trade and other payables Trade creditors Loans from controlled entities Consolidated Parent Entity 2008 $’000 1,623 – 1,623 2007 $’000 1,855 – 1,855 2008 $’000 823 654 1,477 2007 $’000 716 654 1,370 STARPHARMA HOLDINGS LIMITED Annual Report 2008 57 FINANCIAL REPORT 17. Current liabilities – Borrowings Finance lease liability (secured) Consolidated Parent Entity 2008 $’000 124 2007 $’000 69 2008 $’000 – 2007 $’000 – Details of the security relating to each of the secured liabilities are set out in Note 20. 18. Current liabilities – Provisions Employee entitlements Consolidated Parent Entity 2008 $’000 417 2007 $’000 356 2008 $’000 – 2007 $’000 – 19. Current liabilities – Deferred income Consolidated Parent Entity 2008 $’000 1,551 2007 $’000 980 2008 $’000 – 2007 $’000 – Deferred income 20. Non-current liabilities – Borrowings Finance lease liability (secured) Consolidated Parent Entity 2008 $’000 293 2007 $’000 260 2008 $’000 – 2007 $’000 – 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. The carrying value of leased assets is $417,000 at 30 June 2008 (2007: $329,000). 58 FINANCIAL REPORT 20. Non-current liabilities – Borrowings 2008 Floating Interest rate Notes 1 year or less $’000 Over 1–2 years $’000 Over 2–3 years $’000 Over 3–4 years $’000 Fixed interest rate Over 5 years $’000 Over 4–5 years $’000 Lease Liabilities 17/20/31 Weighed average interest rate 124 8.0% 133 8.0% 160 7.8% – – – – Total $’000 417 2007 Floating Interest rate Fixed interest rate Notes Lease Liabilities 17/20/31 Weighed average interest rate 1 year or less $’000 69 7.2% – – Over 1–2 years $’000 73 Over 2–3 years $’000 79 Over 3–4 years $’000 108 Over 4–5 years $’000 – Over 5 years $’000 – Total $’000 329 7.2% 7.2% 7.2% – –- 21. Non-current liabilities – Provisions Employee entitlements 2008 $’000 37 2007 $’000 57 2008 $’000 – 2007 $’000 – Consolidated Parent Entity 22. Non-current liabilities – Deferred income Deferred income 2008 $’000 97 2007 $’000 169 2008 $’000 – 2007 $’000 – Consolidated Parent Entity 23. Non-current liabilities – Deferred tax liabilities Balance at 1 July Recognised during the year on the acquisition of subsidiary due to the difference in fair value of intangible asset and its tax base Offset of deferred tax asset arising from tax losses on acquisition Reduction in deferred tax liability arising from Amortisation of intangible asset Impacts of foreign exchange Offset of deferred tax asset arising from post acquisition tax losses Net deferred tax liability Consolidated Parent Entity 2008 $’000 954 – – (241) (95) (490) 128 2007 $’000 – 3,178 (1,371) (325) (131) (397) 954 2008 $’000 – 2007 $’000 – – – – – – – – – – – – – – – STARPHARMA HOLDINGS LIMITED Annual Report 2008 59 FINANCIAL REPORT 24. Contributed equity (a) Share Capital Share Capital Ordinary shares – fully paid (b) Movements in ordinary share capital Date 1-Jul-06 20-Oct-06 Details Opening Balance DNT acquisition share placement 22-Aug-07 Balance at 30 June 2007 Share Placement less Transaction costs Balance at 30 June 2008 Parent Entity Parent Entity 2008 Shares 2007 Shares 2008 $’000 2007 $’000 179,715,153 167,833,986 78,667 76,227 Number of shares 147,739,245 20,094,741 167,833,986 11,881,167 179,715,153 Issue Price $0.54 $0.321 $’000 65,376 10,851 76,227 2,784 (344) 78,667 1 Shares with unlisted options attached were issued at a price of $0.32. The fair value of the options of $1,033,000 has been taken to reserves. c) Ordinary shares As at 30 June 2008 there were 179,715,153 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. 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. (d) Options Information relating to the Starpharma Holdings Limited Employee Share Option Plan and Individual option deeds, 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 38. (e) Capital risk management The Group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders. 60 25. Reserves (a) Reserves Share-based payments reserve Foreign currency translation reserve Asset revaluation reserve (b) Movement in reserves Share-based payments reserve Balance at 1 July Fair value of options granted on share placement Option expense Balance at 30 June Foreign currency translation reserve Balance at 1 July Currency translation differences arising during the year Balance at 30 June Asset revaluation reserve Balance at 1 July Uplift in fair value of the identifiable net assets of DNT on acquisition of the remaining share in associate have been taken to the asset revaluation reserve Balance at 30 June FINANCIAL REPORT Consolidated Parent Entity 2007 $’000 697 (1,613) 2,215 1,299 2008 $’000 1,838 – – 1,838 2007 $’000 697 – – 697 Consolidated Parent Entity 2008 $’000 697 1,033 108 1,838 – – – – – – 2007 $’000 422 – 275 697 – – – – – – 2008 $’000 1,939 (3,145) 2,215 1,009 2008 $’000 697 1,033 209 1,939 (1,613) (1,532) (3,145) 2007 $’000 422 – 275 697 76 (1,689) (1,613) 2,215 – – 2,215 2,215 2,215 (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 associate/subsidiary are taken to the foreign currency translation reserve, as described in Note 1(d). The reserve is recognised in income statement when the net investment is disposed of. (iii) Asset revaluation reserve Uplift in fair value of the identifiable net assets of DNT on acquisition of the remaining share in associate. STARPHARMA HOLDINGS LIMITED Annual Report 2008 61 FINANCIAL REPORT 26. Accumulated Losses Accumulated losses balance at 1 July Net loss for the year Accumulated losses balance at 30 June 27. Business Combination Consolidated Parent Entity 2008 $’000 (51,802) (7,491) (59,293) 2007 $’000 (44,557) (7,245) (51,802) 2008 $’000 (51,293) (6,045) (57,338) 2007 $’000 (45,531) (5,762) (51,293) (a) Summary of acquisition On 20 October 2006, Starpharma Holdings Ltd acquired the remaining 67% of equity in Dendritic Nanotechnologies Inc. (“DNT”), an unlisted USA Delaware corporation, located in Michigan State, USA. DNT focuses on dendrimer nanotechnology applications, within the life-science and other sectors. Pre the acquisition, Starpharma Holdings Limited was a 33% shareholder in DNT. (b) Purchase consideration The total cost of the acquisition was $11,082,790 comprising the issue of ordinary shares in Starpharma Holdings Limited and the costs directly attributable to the acquisition. The Group issued 20,094,741 shares with a fair value of $0.5400 per share, based on the closing quoted price of Starpharma Holdings Limited shares at the date of the exchange. (c) Assets and liabilities acquired The fair value of the identifiable assets and liabilities of DNT as at the date of acquisition were: 100% Acquiree’s carrying value $’000 100% fair value acquired $’000 Recognised on 67% of acquisition $’000 Assets Cash and cash equivalents Trade & other receivables Other assets Property, plant & equipment Intangible assets Deferred tax asset Liabilities Trade & other payables Other current liabilities Employee provisions Deferred tax liability Fair Value of identifiable net assets Goodwill arising on consolidation Cost of the combination: Shares issued at fair value Costs associated with the acquisition Total cost of the acquisition The cash outflow on the acquisition is as follows: Net cash acquired with the subsidiary Costs associated with the acquisition Net cash outflow 62 141 357 53 151 5,837 – (158) (39) (61) – 6,281 141 357 53 151 14,900 1,371 (158) (39) (61) (3,178) 13,537 95 240 35 101 10,023 919 (106) (26) (41) (2,129) 9,111 1,972 10,851 232 11,083 141 (232) (91) FINANCIAL REPORT Prior to the business combination, Starpharma Holdings Limited held a 33% investment in DNT. The identifiable net assets have been uplifted to fair value; this has been recognised through the revaluation reserve. The intellectual property acquired through the DNT business combination was valued at $14,900,000. The carrying value of $9,949,000 at 30 June 2008 is adjusted for exchange rate movements and is net of amortisation charged from 20 October 2006 to 30 June 2008. Refer to Note 12 Intangible assets for additional detail on the movement and carrying value of intangible assets. 28. Key management personnel disclosures (a) Directors The following persons were directors of Starpharma Holdings Limited during the financial year: Name P T Bartels J K Fairley J W Raff R Dobinson P J Jenkins R A Hazleton P M Colman L Gorr Position Non-executive Chairman Chief Executive Officer and Executive Director Non-executive Deputy Chairman Non-executive Non-executive Non-executive Non-executive (resigned 11 February 2008) Non-executive (resigned 14 November 2007) (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: Name B P Rogers J R Paull C P Barrett N J Baade R I Berry D J Owen Position Company Secretary and Chief Financial Officer VP – Development and Regulatory Affairs VP – Business Development Financial Controller President, DNT VP – Research Key management personnel during the year ended 30 June 2007 were: Position Name Company Secretary and Chief Financial Officer B P Rogers VP – Development and Regulatory Affairs (Previously VP – Regulatory and Clinical Affairs) J R Paull VP – Business Development C P Barrett Financial Controller N J Baade President, DNT (from 20 October 2006) R I Berry VP – Research (from 15 February 2007) D J Owen VP – Drug Development (until 17 November 2006) T D McCarthy Head of Chemistry (until 8 December 2006) G Y Krippner VP – Commercial Development & Licensing (until 12 January 2007) O T Grogan STARPHARMA HOLDINGS LIMITED Annual Report 2008 63 FINANCIAL REPORT 28. Key management personnel disclosures (c) Key management personnel compensation Short term employee benefits Post employment benefits Other long term benefits Share based payments Consolidated Parent Entity 2008 $’000 1,511 347 11 147 2,016 2007 $’000 1,454 484 16 153 2,107 2008 $’000 604 180 – 23 807 2007 $’000 504 314 1 124 943 (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 23 to 24. 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. With the exception of J K Fairley, no director held options in the current or prior year. 2008 Balance at the start of the year Granted during the year as compensation Name Directors of Starpharma Holdings Limited J K Fairley 800,000 350,000 Other key management personnel of the Group B P Rogers J R Paull C P Barrett N J Baade R I Berry D J Owen 420,000 280,000 300,000 200,000 250,000 200,000 – – – – – – 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 – – – – – – – – – – – – – – 1,150,000 800,000 420,000 280,000 300,000 200,000 250,000 200,000 220,000 80,000 100,000 – – – 2007 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 Name Directors of Starpharma Holdings Limited J K Fairley 300,000 Other key management personnel of the Group B P Rogers J R Paull C P Barrett N J Baade R I Berry D J Owen T D McCarthy G Y Krippner O T Grogan 220,000 100,000 100,000 – – – 200,000 200,000 200,000 500,000 200,000 200,000 200,000 200,000 250,000 200,000 – 100,000 – 64 – – – – – – – – – – – 800,000 – – (20,000) – – – – (200,000) (300,000) (200,000) 420,000 280,000 300,000 200,000 250,000 200,000 – – – 220,000 80,000 – – – – – – – FINANCIAL REPORT 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. 2008 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 J K Fairley J W Raff P M Colman1 R Dobinson L Gorr1 P J Jenkins R A Hazleton 109,804 30,250 5,706,689 5,992,286 2,720,976 5,204,704 1,635,608 42,616 Other key management personnel of the Group Ordinary Shares B P Rogers J R Paull C P Barrett N J Baade R I Berry D J Owen 65,622 – – – 70,296 – – – – – – – – – – – – – – – 20,000 23,500 790,185 – (2,720,976) – (219,608) – – – – – – – 129,804 53,750 6,496,874 5,992,286 – 5,204,704 1,416,000 42,616 65,622 – – – 70,296 – 1 At 30 June 2008 these individuals were not Directors of Starpharma Holdings Limited. 2007 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 Name Directors of Starpharma Holdings Limited Ordinary Shares P T Bartels J K Fairley J W Raff P M Colman R Dobinson L Gorr P J Jenkins R A Hazleton 109,804 5,000 5,381,689 5,992,286 2,905,976 5,204,704 1,635,608 – – – – – – – – – – 25,250 325,000 – (185,000) – – 42,616 109,804 30,250 5,706,689 5,992,286 2,720,976 5,204,704 1,635,608 42,616 STARPHARMA HOLDINGS LIMITED Annual Report 2008 65 FINANCIAL REPORT 28. Key management personnel disclosures Other key management personnel of the Group Ordinary Shares B P Rogers J R Paull C P Barrett N J Baade R I Berry D J Owen T D McCarthy1 G Y Krippner1 O T Grogan1 65,622 – 8,935 – – – 4,000 – – – – – – – – – – – – – (8,935) – 70,296 – N/A N/A N/A 65,622 – – – 70,296 – N/A N/A N/A 1 At 30 June 2007 these individuals were not key management personnel of the Group. No director has entered into a material contract with the consolidated entity in either the current or previous financial year and there were no material contracts involving directors’ interests subsisting at year end. 29. Remuneration of auditors The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the consolidated entity are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below. During the year the following fees were paid or payable for services provided by the auditor (PricewaterhouseCoopers) of the parent entity, its related practices and non-related audit firms: Consolidated Parent Entity 2008 $ 2007 $ 2008 $ 2007 $ 102,684 68,186 170,870 22,500 22,500 193,370 107,000 74,646 181,646 102,684 – 102,684 107,000 – 107,000 57,500 57,500 239,146 – – – – 102,684 107,000 (a) Audit services Audit or review of financial reports of the entity or any entity in the consolidated entity PricewaterhouseCoopers Other auditors of controlled entities Total remuneration for audit services (b) Non-audit services Non-audit services: Grant reviews & program audits PricewaterhouseCoopers Total remuneration for non-audit services Total remuneration of auditors 30. Contingencies The Company has no contingent liabilities. 66 31. Commitments (a) Capital Commitments Capital expenditure contracted for at the reporting date but not recognised as liabilities is as follows: FINANCIAL REPORT Property, plant and equipment Within one year Later than one year but not later than five years Later than five years (b) Lease Commitments Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable: Not later than one year Later than one year and not later than five years Later than five years Representing: Cancellable operating leases Non-cancellable finance lease Future finance charges on finance leases Consolidated Parent Entity 2008 $’000 19 – – 19 2007 $’000 – – – – 2008 $’000 – – – – 2007 $’000 – – – – Consolidated Parent Entity 2008 $’000 2007 $’000 2008 $’000 2007 $’000 185 329 514 97 466 (49) 514 574 323 – 897 568 378 (49) 897 – – – – – – – – – – – – – – – – Operating leases The Group leases laboratory and offices under a lease until 31 August 2008 and leases various plant and equipment under cancellable operating leases. Consolidated Parent Entity 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 Representing cancellable operating leases 2008 $’000 2007 $’000 2008 $’000 2007 $’000 61 36 – 97 505 63 – 568 – – – – – – – – STARPHARMA HOLDINGS LIMITED Annual Report 2008 67 FINANCIAL REPORT 31. Commitments Finance Leases The Group leases plant and equipment with a carrying amount of $417,000 (2007: $329,000) under a finance lease expiring within three years. Consolidated Parent Entity 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 Notes Future finance charges Recognised as a liability Representing finance lease liabilities: Current Non-Current 17 20 2008 $’000 151 315 466 (49) 417 124 293 417 2007 $’000 89 289 – 378 (49) 329 69 260 329 2008 $’000 – – – – – – – – – 2007 $’000 – – – – – – – – – The weighted average interest rate implicit in the lease is 7.9% (2007: 7.2%). (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 22 and 23 for details of these commitments. 32. 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). Equity Holding Cost of Parent Entity’s Holding Investment Name of entity Starpharma Pty Limited Angiostar Pty Limited Viralstar Pty Limited Preclin Pty Limited Dendritic Nanotechnologies Inc. Country of Incorporation Australia Australia Australia Australia USA Class of Shares Ordinary Ordinary Ordinary Ordinary Ordinary 2008 % 100.00% 100.00% 100.00% 100.00% 100.00% 2007 % 100.00% 100.00% 100.00% 100.00% 100.00% 2008 $’000 9,900 3,300 4,300 – 16,252 33,752 2007 $’000 9,900 3,300 4,300 – 16,252 33,752 68 FINANCIAL REPORT 33. 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 Equity Holding Cost of Parent Entity’s Holding Investment Name of entity Country of Incorporation Notes Dimerix Bioscience Pty Ltd Australia Class of Shares Ordinary 2008 % 8.50% 2007 % 8.72% 2008 $’000 – 2007 $' 000 40 (b) Movements in carrying amounts Movements in carrying amounts of investments in associates Carrying amount at the beginning of the financial year Impairment of associate Acquisition of associate previously equity accounted Gain on issue of equity by associate Share of losses from ordinary activities after related income tax Foreign currency reserve Carrying amount at the end of the financial year Notes 25 (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 2007 $' 000 2,387 – (2,057) 92 (270) (76) 76 Consolidated 2007 $’000 76 (76) – 2008 $’000 76 (76) – – – – – 2008 $’000 – – – 34. Events occurring after the balance sheet date On 9 September 2008 the Company announced that a full license agreement has been signed with SSL International plc (LSE:SSL) in relation to the VivaGel® coated condom. SSL manufactures and sells Durex® condoms, the market-leading condom brand worldwide. Under the terms of this agreement SSL secures marketing rights to the VivaGel® coated condom in most of the world, including Europe and the USA. In return, Starpharma will receive further milestone payments, development support, and royalties on net sales which Starpharma estimates will exceed $100 million over the life of the agreement. There are no other significant events occurring since 30 June 2008 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. STARPHARMA HOLDINGS LIMITED Annual Report 2008 69 FINANCIAL REPORT 35. Reconciliation of profit after income tax to net cash inflow from operating activities Consolidated Parent Entity Operating loss after tax: Depreciation and amortisation Exchange rates movement Non-cash employee benefits -share-based payments Change in operating assets and liabilities, net of effects of acquisitions and disposals of entities: (Increase) decrease in receivables and other assets (Increase) decrease in deferred tax assets (Decrease) increase in trade creditors Increase (decrease) in deferred tax liabilities Increase (decrease) in employee provisions Increase in deferred income Share in results of associates Gain on sale of property, plant and equipment Impairment of financial asset Provision for doubtful debts 2008 $’000 (7,491) 2,099 601 209 (370) 43 (232) (826) 40 499 – – 76 – 2007 $’000 (7,245) 2,019 502 275 1,848 (43) (217) (852) (87) 246 178 (4) – – 2008 $’000 (6,045) 545 308 108 (253) – 107 – – – – – 40 3,758 Net cash outflows from operating activities (5,352) (3,380) (1,432) 2007 $’000 (5,762) 398 30 – (88) – 61 – – – – – – 4,443 (918) 36. Non–cash financing activities Acquisition of property, plant and equipment by means of equipment loan Outright acquisition of associate by means of share issue 37. Earnings per share Consolidated Parent Entity 2008 $’000 176 – 176 2007 $’000 – 10,851 10,851 2008 $’000 – – – 2007 $’000 – 10,851 10,851 Basic loss per share Diluted loss per share Net loss attributable to members of Starpharma Holdings Ltd used as the numerator in calculating diluted and basic earnings per share ($’000 ) Weighted average number of ordinary shares outstanding during the year used as the denominator in calculating diluted and basic earnings per share 2008 $ (0.04) (0.04) (7,491) Consolidated 2007 $ (0.04) (0.04) (7,245) 177,994,656 161,667,928 70 FINANCIAL REPORT 38. 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 and re-approved on 14 November 2007. 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 three 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. (b) Individual Option Deeds The company infrequently issues options to key consultants of the company. The objective of the option issues is to assist in the reward, retention and motivation of consultants of the company. Options are granted for no consideration, usually in lieu of some proportion of cash compensation. Options are normally granted for a two to five year period, with various exercisable dates. Options granted 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. (c) Options Attached to a Share Placement The company issued 7,567,119 unlisted options attached to a share placement in the current year. The options have an exercise price of $0.4346 per option with an expiry date of 21 August 2012. Options granted carry no dividend or voting rights. The options are not transferable, transmissible, assignable or chargeable, except with written consent. Set out below are summaries of options granted under the schemes: Granted during the year Number Forfeited during the year Number Expired during the year Number Balance at end of the year Number Exercisable at end of the year Number 2008 Grant Date Expiry Date Consolidated and parent entity 6 Feb 2004a 8 Feb 2004a 31 Dec 2004a 4 Jul 2005a 18 Jul 2005a 6 Oct 2006a 17 Nov 2006a 2 Jan 2007b 4 Apr 2007a 21 Aug 2007c 12 Oct 007b 12 Oct 007b 12 Oct 007b 12 Oct 007b 31 Oct 2007a 14 Nov 2007a 14 Nov 2007a 31 Dec 2008 8 Feb 2009 31 Dec 2009 4 Jul 2010 18 Jul 2010 6 Oct 2010 30 Jun 2009 2 Jan 2009 4 Apr 2011 22 Aug 2012 31 May 2009 30 Jun 2009 31 Jul 2009 31 Aug 2009 7 Aug 2011 4 Apr 2011 8 Aug 2011 Total Exercise Price $ $0.73 $0.94 $0.94 $0.94 $0.94 $0.50 $0.45 $0.52 $0.50 $0.43 $0.43 $0.43 $0.43 $0.43 $0.50 $0.50 $0.50 Balance at start of the year Number 200,000 410,000 147,000 300,000 100,000 1,194,000 500,000 65,000 590,000 – – – – – – – – – – – – – – – – – 7,567,119 10,000 10,000 10,000 10,000 690,000 150,000 200,000 – 42,000 46,000 – – 106,000 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 200,000 368,000 101,000 300,000 100,000 1,088,000 500,000 65,000 590,000 7,567,119 10,000 10,000 10,000 10,000 690,000 150,000 200,000 200,000 368,000 101,000 – 100,000 – 500,000 45,000 – 7,567,119 10,000 10,000 10,000 10,000 – – – 11,959,119 8,921,119 3,506,000 8,647,119 194,000 Weighted average exercise price $0.92 $0.44 $0.70 $ – $0.49 $0.49 STARPHARMA HOLDINGS LIMITED Annual Report 2008 71 FINANCIAL REPORT 38. Share-based payments 2007 Grant Date Expiry Date Exercise Price $ Balance at start of the year Number Granted during the year Number Forfeited during the year Number Expired during the year Number Balance at end of the year Number Exercisable at end of the year Number Consolidated and parent entity 12 Apr 2002a 21 Jun 2002a 6 Feb 2004a 8 Feb 2004a 31 Dec 2004a 12 May 2005a 4 Jul 2005a 18 Jul 2005a 6 Oct 2006a 17 Nov 2006a 2 Jan 2007b 4 Apr 2007a 11 Apr 2007 30 Jun 2007 31 Dec 2008 8 Feb 2009 31 Dec 2009 12 May 2010 4 Jul 2010 18 Jul 2010 6 Oct 2010 30 Jun 2009 2 Jan 2009 4 Apr 2011 Total Weighted average exercise price $0.94 $0.94 $0.73 $0.94 $0.94 $0.94 $0.94 $0.94 $0.50 $0.45 $0.52 $0.50 220,000 200,000 200,000 720,000 167,000 100,000 300,000 100,000 – – – – – – – – – – – – 1,324,000 500,000 65,000 590,000 2,007,000 2,479,000 $0.92 $0.49 200,000 – – 310,000 20,000 100,000 – – 130,000 – – – 760,000 $0.86 20,000 200,000 – – – – – – – – – – 220,000 $0.94 – – 200,000 410,000 147,000 – 300,000 100,000 1,194,000 500,000 65,000 590,000 3,506,000 $0.63 – – 200,000 410,000 147,000 – – – – – 45,000 – 802,000 $0.86 a Options granted under the Employee Option Plan. b Options granted under individual option deeds. c Options granted under a share placement. No options were exercised during the current or prior year. The weighted average remaining contractual life of share options outstanding at the end of the period was 3.39 years (2007: 2.78 years). Fair value of options granted The weighted average assessed fair value at grant date of options granted during the year ended 30 June 2008 was $0.14 per option (2007: $0.21). 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. 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, and have varying exercise and expiry dates. Options granted during the year ended 30 June 2008 were: Option grant date Number of options Exercise price Expiry date Expected price volatility of the company’s shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value 21 Aug 2007 12 Oct 2007 12 Oct 2007 12 Oct 2007 12 Oct 2007 7,567,119 $0.43 10,000 $0.43 10,000 $0.43 10,000 $0.43 10,000 $0.43 21 Aug 2012 31 May 2009 30 Jun 2009 31 Jul 2009 31 Aug 2009 46.9% 5.9% 0.0% $0.34 $0.14 54.6% 6.3% 0.0% $0.36 $0.09 54.6% 6.3% 0.0% $0.36 $0.09 54.6% 6.3% 0.0% $0.36 $0.09 54.6% 6.3% 0.0% $0.36 $0.10 72 Option grant date Number of options Exercise price Expiry date Expected price volatility of the company’s shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value FINANCIAL REPORT 31 Oct 2007 14 Nov 2007 14 Nov 2007 690,000 $0.50 150,000 $0.50 200,000 $0.50 7 Aug 2011 4 Apr 2011 8 Aug 2011 59.2% 6.3% 0.0% $0.41 $0.18 59.8% 6.3% 0.0% $0.39 $0.16 59.8% 6.3% 0.0% $0.39 $0.17 Options granted during the year ended 30 June 2007 were: Option grant date Number of options Exercise price Expiry date Expected price volatility of the company’s shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value 6 Oct 2006 17 Nov 2006 2 Jan 2007 2 Jan 2007 4 Apr 2007 1,324,000 $0.50 500,000 $0.45 45,000 $0.52 20,000 $0.52 590,000 $0.50 6 Oct 2010 30 Jun 2009 2 Jan 2009 2 Jan 2011 4 Apr 2011 42.5% 5.5% 0.0% $0.55 $0.24 44.0% 5.5% 0.0% $0.45 $0.20 44.1% 6.2% 0.0% $0.47 $0.12 44.1% 6.2% 0.0% $0.47 $0.18 38.8% 6.2% 0.0% $0.43 $0.14 b) Expenses arising from share-based payment transactions Total expenses arising from share-based payment transactions recognised during the period were as follows: Options issued under employee option plan Options issued under deed Consolidated Parent Entity 2008 $’000 203 6 209 2007 $’000 269 6 275 2008 $’000 99 9 108 2007 $’000 – – – STARPHARMA HOLDINGS LIMITED Annual Report 2008 73 FINANCIAL REPORT 39. 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 32. (b) Key management personnel Disclosures relating to key management personnel are set out in note 28. (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 from subsidiary Management services to subsidiaries Interest changed on loan to subsidiary Impairment of loans to related entities Consolidated Parent Entity 2008 $’000 2007 $’000 – – – – – – – – – – – – – – 2008 $’000 4,897 – 101 (654) 78 190 (3,758) 2007 $’000 5,597 – 275 (553) 63 48 (4,443) 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 Consolidated Parent Entity 2008 $’000 2007 $’000 – – – – – – – – 2008 $’000 238 2,393 75 719 2007 $’000 48 1,254 60 539 Receivables Interest on loan to subsidiary Loan to subsidiary Management services to subsidiaries Payables Management services from subsidiary Outstanding balances are payable in cash. 74 Directors’ Declaration In the directors’ opinion: (a) the financial statements and notes set out on pages 34 to 74 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2008 and of their performance for the financial year ended on that date; and (b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable; and (c) the remuneration disclosures set out on pages 17 to 25 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 officer and chief financial officer required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the directors. Peter T Bartels, AO Director Melbourne, 29th September 2008 STARPHARMA HOLDINGS LIMITED Annual Report 2008 75 76 STARPHARMA HOLDINGS LIMITED Annual Report 2008 77  Shareholder information The shareholder information set out below was applicable as at 12 September 2008 Supplementary information as required by ASX listing requirements. A. Distribution of equity shareholders Analysis of numbers of equity security holders by size of holding as at 12 September 2008 1–1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,000 and over There were 239 holders of less than a marketable parcel of ordinary shares. B. Equity security holders Twenty largest quoted equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Class of equity security Ordinary shares Options – - 1 32 12 45 Shares 148 714 425 796 164 2,247 Name The Dow Chemical Company Irrewarra Investments Pty Ltd JPS Distribution Pty Ltd 1. ANZ Nominees Limited 2. 3. National Nominees Ltd 4. HSBC Custody Nominees (Australia) Limited-GSI ECSA 5. Peter Malcolm Colman 6. 7. Commonwealth Scientific and Industrial Research Organisation 8. 9. Kenneth Nominees Pty Ltd 10. Gilridge Pty Ltd 11. Applecross Secretarial Services Pty Ltd 12. Biotech Capital Ltd 13. J P Morgan Nominees Australia Limited 14. Strategic Industry Research Foundation Limited 15. Citicorp Nominees Pty Limited 16. Merrill Lynch (Australia) Nominees Pty Ltd 17. Citicorp Nominees Limited 18. T & N Argyrides Investments P/L 19. Mr Peter Murray Jackson 20. JPS Distribution Pty Ltd Unquoted equity securities Options issued under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) Options issued under individual option deeds Total 78 Ordinary shares Percentage of issued shares 13.00 8.02 7.78 5.09 3.07 3.06 2.51 1.99 1.79 1.69 1.67 1.67 1.46 1.45 1.28 0.99 0.97 0.91 0.72 0.69 59.81 Number held 23,362,758 14,406,827 13,976,512 9,149,957 5,522,286 5,500,000 4,514,698 3,567,831 3,220,000 3,035,054 3,004,000 3,000,000 2,621,575 2,597,302 2,305,403 1,776,386 1,738,409 1,630,000 1,300,000 1,233,142 107,462,140 Number on issue Number of holders 4,072,000 7,672,119 11,744,119 38 7 45 SHAREHOLDER INFORMATION C. Substantial holders The following information is extracted from the Company’s register of substantial shareholders as at 12 September 2008: Number held Percentage Ordinary shares Acorn Capital Limited The Dow Chemical Company Starpharma Holdings Limited has the power to control disposal of 10,805,120 of these shares pursuant to a voluntary escrow deed with The Dow Chemical Company. (refer also Item E below) Platinum-Montaur Life Sciences LLC 17,151,577 14,406,827 9,046,365 9.54 8.02 5.03 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 The following ordinary shares are subject to voluntary escrow until the dates indicated: Number of shares 3,601,707 7,203,413 Number of holders 1 1 Release date 18 October 2008 18 October 2009 STARPHARMA HOLDINGS LIMITED Annual Report 2008 79  Intellectual Property Report Starpharma’s Patent Porfolio Starpharma patent portfolio consists of around 39 active patent families with over 100 granted patents and 109 patent applications pending. Five new provisional patent applications were filed during the year in areas such as platform technology, therapeutics, drug delivery, dyes and water remediation. Key patents within the Starpharma portfolio comprise: Title VivaGel® Patent Portfolio Antiviral Dendrimers 15 June 1994 WO95/34595 Priority Date & International Publication Number Patents Granted Applications Pending Australia, Austria, Brazil, Canada, China, Europe, Hong Kong, Mexico, New Zealand, Singapore, South Korea, USA Australia, New Zealand, Singapore, USA Australia, China, New Zealand, Singapore Korea, Singapore Japan Brazil, Canada, China, Europe, Japan, Mexico, South Korea, USA Brazil, Canada, Europe, Hong Kong, Japan, Mexico, South Korea, USA Argentina, Australia, Canada, China, Europe, India, Japan, Malaysia, Mexico, New Zealand, South Korea, Taiwan, USA Australia, Canada, China, Europe, India, Japan, USA Australia, Canada, Europe, USA Australia, Canada, China, India, Japan, Europe, USA Argentina, Brazil, Canada, China, Europe, Hong Kong, Israel, India, Japan, Mexico, New Zealand, Taiwan, USA Argentina, Brazil, Canada, China, Europe, Hong Kong, India, Israel, Japan, Korea, Mexico, New Zealand, Singapore, Taiwan, USA International (PCT) International (PCT) International (PCT) International (PCT) International (PCT) Antimicrobial & Antiparasitic Agents 17 September 1998 WO00/15240 Agents for the Prevention & Treatment of Sexually Transmitted Diseases-I 30 March 2001 WO02/079299 Delivery System Composition Platform Patent Portfolio Macromolecules Compounds having Controlled Stoichiometry Modified Macromolecule Dendritic Polymers with Enhanced Amplification and Interior Functionality (Priostar) Dendritic Polymers with Enhanced Amplification and Interior Functionality (PEHAMS 2) 18 October 2005 WO07/045009 22 March 2006 WO07/082331 25 October 2005 WO07/048190 10 August 2006 WO07/082331 20 April 2005 WO06/065266 Process for Preparing Alkyne Intermediates for Dendritic Polymers 21 June 2006 (not yet published) Imaging Project Patent Portfolio Imaging Macromolecule siRNA Project Patent Portfolio 11 August 2006 WO08/017122 Delivery of Biologically Active Materials Using Core-Shell Tecto(Dendritic Polymers) 3 March 2006 WO08/054466 Drug Delivery Project Patent Portfolio Modified Macromolecule 2 Formulations Containing Hybrid Dendrimers 11 August 2006 WO2008017125 21 June 2006 WO07/149500 80 21 December 2005 WO06/115547 Australia 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 R Dobinson R A Hazleton P J Jenkins Company Secretary B P Rogers Registered office Baker Building 75 Commercial Road, Melbourne, Victoria 3004 Australia Share Register Computershare Investor Services 452 Johnston Street, Abbotsford VIC 3067 1300 850 505 (within Australia) +613 6415 4000 (outside Australia) Auditor PricewaterhouseCoopers Freshwater Place Southbank VIC 3006 Australia Solicitors Blake Dawson Level 39, 101 Collins Street, Melbourne VIC 3000 Australia Deacons RACV Tower, 485 Bourke Street Melbourne VIC 3000 Australia Greenberg Traurig LLP MetLife Building, 200 Park Avenue, New York, NY 10166 USA Bankers Commonwealth Bank of Australia National Australia Bank Wachovia Bank, USA Stock exchange listing ASX Limited Level 45, South Tower, Rialto, 525 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 ASX. The Bank of New York Mellon is the depositary bank. Starpharma’s ADRs are listed on International OTCQX (www.otcqx.com), a premium market tier in the U.S. for international exchange-listed companies, operated by Pink OTC Markets, Inc. Principal American Liaison (PAL) for International OTCQX: Merriman Curhan Ford & Co Website address www.starpharma.com Starpharma Holdings Limited Baker Building 75 Commercial Road, Melbourne VIC 3004 Australia Telephone +61 3 8532 2700 Facsimile +61 3 9510 5955 www.starpharma.com publication design ektavo

Continue reading text version or see original annual report in PDF format above