Santander Bank Polska
Annual Report 2011

Plain-text annual report

Starpharma Holdings Limited ABN 20 078 532 180 Baker IDI Building 75 Commercial Road, Melbourne VIC 3004 Australia Telephone +61 3 8532 2700 Facsimile +61 3 9510 5955 www.starpharma.com Annual Report 2011 Starpharma is a world leader in the development of dendrimer products for pharmaceutical, life science and other applications. US $5 bn Starpharma has shown improvements in the formulation of agrochemical, glyphosate (Round Up®) which has annual sales of US$5bn Starpharma Holdings Limited ABN 20 078 532 180 US $1 bn Starpharma estimates the addressable global market for the treatment and prevention of recurrence of BV is in excess of US$1bn 30% BV is the most common vaginal infection worldwide, affecting an estimated 30% of the adult female population in the US US $3 bn Starpharma’s drug delivery candidate, docetaxel is an important chemo- therapy drug used to treat breast cancer, lung cancer and prostate cancer, and last year generated sales of approx. US$3bn US $500 m Japanese condom market is an estimated US$500m in condom sales annually. Okamoto has approximately 60% of the market  ANNUAL REPORT 2011 Highlights 2010-2011  VivaGel® demonstrates efficacy in the treatment of bacterial vaginosis Major Phase 2 clinical trial provides strong evidence for VivaGel®’s efficacy in treating bacterial vaginosis (BV); 74% of patients were cured of BV compared with just 22% in a placebo group  VivaGel®-coated condom rights reassigned to Ansell Reckitt Benckiser agreement terminated - Ansell new VivaGel®-coated condom commercial partner excluding Japan and a number of Asian markets  Japanese VivaGel®-coated condom deal secures access to the world’s second largest condom market Agreement with Okamoto, Japan’s largest condom manufacturer with 60% share of the Japanese market - estimated at US$500 million  Docetaxel selected as a candidate for internal drug delivery program Reformulation of the important chemotherapy drug docetaxel showed a 2,000 to 8,000-fold improvement in water solubility, potentially allowing for the development of a novel, improved formulation  Lilly relationship expanded with new co-development program Additional drug delivery program expands on two previous agreements between the companies  Priostar® dendrimers result in improved performance of glyphosate (Roundup®) Characteristics of major agrochemicals including glyphosate (Roundup®) improved when reformulated with dendrimers - potential to tap into US$40B agrochemical market  Agrochemical program receives Government funding Starpharma awarded $250,000 funding from the Victorian Government’s Small Technologies Industry Uptake Program for internal agrochemical program  Starpharma ranked in top ASX-listed biotechnology companies Market capitalisation increased substantially in the year following strong domestic and international investment support Contents Chairman’s Letter - 2 CEO’s Report - 3 Corporate and Social Responsibility - 9 Directors’ Report - 10 Corporate Governance Statement - 27 Annual Financial Report - 31 Shareholder Information - 70 Intellectual Property Report - 72 Corporate Directory - 73 1 STARPHARMA HOLDINGS LIMITED Chairman’s Letter Dear Shareholders, On behalf of the Board and management of Starpharma l am pleased to present the 2010-2011 annual report for your review. Over the last 12 months Starpharma has emerged as one of the clear leaders in the biotech sector with a maturing portfolio that has expanded in number of products and advanced in clinical progress. The company has demonstrated its ability to maximise the value of the powerful platform technology it possesses through successful application to pharmaceuticals, drug delivery and diagnostics, agrochemicals and a wide array of other products. In our VivaGel® portfolio, a Phase 2 clinical trial provided strong evidence for VivaGel®’s efficacy in treating bacterial vaginosis. We also signed an agreement with Okamoto Industries for the VivaGel®-coated condom securing access to the major Japanese market, second only to the US market. Starpharma’s achievements have translated on the share market and resonated with investors both locally and internationally. Throughout the year, Starpharma’s market capitalisation has increased substantially and the Company now sits in the leading group of biotech companies by market capitalisation on the Australian Securities Exchange. The Company has welcomed new institutional investors from Europe, Asia and Australia. The diversity of our shareholders places us in good stead to trade well through periods of market volatility and our cash reserves put us in a strong position to progress our internal development programs as planned. Our business model is one that supports our ability to progress multiple products. Through commercial partners including Ansell, Okamoto, Lilly, Elanco, Stiefel, Siemens Healthcare, Merck, Aldrich and Qiagen we benefit from co-development and funding of our products and access to a world class network of people with the skills to complement our team in commercialising our portfolio. Since the end of the reporting period but of significance we signed a commercial agreement for the VivaGel®- coated condom with flagship Australian company Ansell, replacing the deal we had with Reckitt Benckiser. Terminating the agreement with RB due to non-performance of the contract was a difficult decision for the Board and management but one we are confident was in the best interest of the successful commercialisation of this product. This year we have also added several internal programs that are being developed in parallel with our partnered programs. These include a project involving a reformulation of the blockbuster chemotherapeutic docetaxel. In agrochemicals we have reformulated the well-known herbicide in Roundup® (glysophate) using dendrimers to improve its performance, thereby reducing the amount of herbicide required. These exciting initial results provide a foundation for several opportunities in this sector. In June, founding Director Dr John Raff retired from the Board after 14 years. As an early steward of the business, he established much of the foundation of what is being achieved today and we thank him for his contribution. John remains a strong supporter of the Company. Finally, I thank CEO Jackie Fairley and all Starpharma staff for their ongoing dedication and commitment to the Company. Starpharma continues to mature as a strong leader in the Australian biotechnology sector. I would also like to thank our shareholders, both existing and new for their continued support of Starpharma and we look forward to another exciting and successful year ahead. Peter T Bartels, AO Chairman 2 CEO’s Report Over the past 12 months Starpharma has demonstrated the value and enormous versatility of its platform technology. The company’s programs, both internal and with its partners, are in four key areas: VivaGel®, drug delivery, agrochemical and other, which includes cosmetics, water treatment, diagnostics, reagents and industrial applications. Of major significance, the company delivered very strong clinical results supporting VivaGel®’s efficacy in treating bacterial vaginosis. In addition, the Company’s research teams have made exciting progress exploring the value of its proprietary dendrimers in the areas of drug delivery and agrochemicals. Starpharma’s partnerships with leading global companies continue to help fund and accelerate its development programs as well as enhance the Company’s commercial positioning as its products approach the market. In parallel, Starpharma has added a number of new and exciting internal development programs with the potential to deliver significant value to shareholders in the future. VivaGel® product range VivaGel® for the treatment and prevention of bacterial vaginosis In May 2011 Starpharma announced the very encouraging results from its Phase 2 clinical trial assessing the efficacy of VivaGel® in treating bacterial vaginosis (BV). This was an important milestone for the Company and its shareholders. The evidence from this trial was significant and supportive: following completion of treatment, 74% of patients were cured of BV compared with just 22% in a placebo group. Two to three weeks after the treatment concluded, the cure rate was 46% compared to just 12% in the placebo group. Unpleasant vaginal odour was cured in 78% of the VivaGel® treated patients. Finally, in assessments of patients’ perceptions of VivaGel® and its use, 83% of patients using a VivaGel® formulation of 1% active ingredient (SPL7013) were extremely satisfied, very satisfied or satisfied with the product, compared with just 35% of patients using the placebo. The high BV cure rates seen in the completed Phase 2 trial, combined with the high tolerability and patient satisfaction ratings also give the company further confidence in the additional indication for VivaGel®: prevention of recurrence through extended usage. Recurrence is a very common problem with BV and existing treatments have a number of undesirable characteristics. Furthermore, as typically these are conventional antibiotics they are considered unsuitable for long term use. The Company will be commencing a second BV trial for VivaGel® in Q3 2011 to determine the efficacy of VivaGel® for the prevention of BV recurrence, opening up a whole new area of application for the product. The recent Phase 2 BV trial results were also used to support new patent filing which will extend protection of VivaGel® to at least 2032. Starpharma is now in discussions with regulatory agencies to commence a Phase 3 registration trial for VivaGel® in the next six months. ANNUAL REPORT 2011 In 2010/11 Starpharma maintained momentum with its lead products VivaGel®, and the Company expanded its global reach through a new commercial partnership with Okamoto Industries for the VivaGel®-coated condom in Japan. In August 2011 we signed an agreement with Ansell for the VivaGel®-coated condom which covers marketing rights to the coated condom in countries excluding Japan and a number of Asian markets. This replaced the agreement we had with Reckitt Benckiser which was terminated due to the failure to achieve satisfactory progress in relation to certain commercialisation milestones. The strategic diversification of Starpharma’s technology continues to yield excellent results, and the market has responded positively to its ongoing success. The Company’s delivery of major milestones and strong share price performance places Starpharma in the top tier of Australian biotech companies. With a number of achievements to relate, I am pleased to now report in detail on the Company’s operations for the 2010/2011 financial year. Market opportunity The US market remains the initial target for VivaGel® as a treatment for BV. This is a major market: More than 21 million women are estimated to be currently infected with BV in the US, with an infection rate of 51% reported in certain demographics. One third of US women will have BV during their lives. Current antibiotic treatments for BV have significant disadvantages including: low cure rates (and a high rate of recurrence); adverse effects of treatment occurring such as gastrointestinal side effects and adverse reactions with alcohol; and incompatibility with condoms (see Table 1 overleaf). The lack of significant competition and high prevalence of infection, not only in the US market but internationally, indicates a market worth in excess of US$1 billion for a long term prevention of BV recurrence product. As a leading developer in this space, Starpharma’s positioning as a company able to rapidly seize this market opportunity has continued to strengthen in the last year, given the growing evidence supporting the company’s unique platform technology and the strong partnerships with major industry players. Further link between HIV and BV identified In July 2011, independent international research found that men were three times more likely to contract HIV from their female partners if the women also had BV in the three months before the men became infected. These findings were reported at the International HIV/AIDS Conference in Rome by researchers from the University of California. This study builds on the growing evidence to prove the reported link between HIV and BV previously observed in women with BV, but is the first to demonstrate an association between BV in HIV infected female partners and the risk of HIV transmission to their male partners. 3 STARPHARMA HOLDINGS LIMITED Table 1: Advantages of VivaGel® over existing treatments Advantages VivaGel® Metronidazole Tablets Metronidazole Gel, 0.75% Clindamycin Cream, 2% Active Ingredient Not Carcinogenic† Compatible with Condoms No Absorption into blood stream Sexual Intercourse permitted during use Compatible with Alcohol Consumption No Other Significant Warnings / Side Effects‡ Antiviral Activity                      ?       † Metronidazole has been shown to be carcinogenic in mice and rats. Clindamycin has not been tested for carcinogenicity in long-term studies in animals but is not genotoxic or mutagenic in other nonclinical studies. ‡ Central and peripheral nervous system effects, such as convulsive seizures and peripheral neuropathy, have been reported in patients treated with metronidazole. Use of clindamycin phosphate is associated with Clostridium difficile-Associated Diarrhoea. Sources: Flagyl® Oral Tablet (metronidazole) Label Information, LAB-0162-5.0, revised August 2010; Vandazole® Vaginal Gel (metronidazole) Label Information, Rev. C 12/2010; Clindesse® Vaginal Cream (clindamycin) Label Information, Revised 12/2010. VivaGel® for the prevention of transmission of sexually transmitted infections (STIs) The development of VivaGel® as a stand-alone product continues. The widespread prevalence of sexually transmitted infections (STIs) such as genital herpes (HSV), genital warts (HPV), and HIV indicates a high market value for an efficacious, broad-spectrum, and consumer-friendly product. Consumer demand has been identified as strong, with studies showing that 30-40% of female college students in the US would buy a product of this type. Market opportunity More than 50 million Americans are currently infected with genital herpes. This includes approximately 26% of the female population, which is estimated to rise to 50% by 2025 at current rates of infection. In particular, VivaGel® has demonstrated broad-spectrum action against a range of viral agents. This includes the various viral strains which cause cervical cancer and genital warts, as well as genital herpes, against which VivaGel® remains the only microbicide in development. Starpharma’s five human clinical trials have displayed an excellent safety profile and strong antiviral activity. VivaGel®-coated condom In May 2011 Starpharma entered a commercial agreement with Okamoto Industries Inc (TSE: JP3192800005), granting Okamoto marketing rights to the VivaGel®-coated condom in Japan in exchange for royalty and milestone payments made to Starpharma. In addition, Okamoto will undertake the Japanese registration and launch process. While outside the reporting timeframe of this report it is of significance to the commercialistion of the VivaGel®-coated condom that we include details of an agreement struck with Ansell in August 2011 which covers marketing rights to the coated condom in countries excluding Japan and a number of Asian markets. Market opportunity Okamoto has a 60% share of the estimated US$500 million condom market in Japan (see Table 2), the second largest in the world. In addition to its leading position in Japan, Okamoto also holds strong positions in several other Asian markets including China, Korea, Malaysia, Taiwan and Singapore. Under the agreement Ansell will pay Starpharma royalties on sales of VivaGel®-coated condom and will support registration and other commercialisation costs. Ansell is also responsible for manufacturing the VivaGel®-coated condom and marketing of the product, which will include the VivaGel® brand together with the respective Ansell brand. Table 2: Japanese condom market Condom shipments by major company in Japan (2005)[i] Company Okamoto Industries Sagami Rubber Industries Fuji Latex Co Others Total Market Share 60% 20% 16% 4% 100% This commercial arrangement replaced the agreement we had with Reckitt Benckiser (formerly with SSL International) which was terminated due to the failure to achieve satisfactory progress in relation to certain commercialisation milestones for the VivaGel®- coated condom. Securing revenue streams as well as forming vital distribution networks with these established major players represents a key building block in the value structure of the VivaGel®-coated condom. The strong partnered brands, secure supply and global market coverage that Starpharma’s partners provide, all act to maximise the anticipated revenues from this product. [i] Market Data Bank (MDB) Report issued February 2009, Condoms: A Global Strategic Business Report (2005, 2008) and Industry Data 4 Drug delivery Building concurrent revenue streams through diversifying the applications for Starpharma’s dendrimer technology is core to Starpharma’s commercial strategy. In June 2011 Starpharma announced preliminary results from the drug delivery program, which aims to improve the delivery of existing drugs through conjugation with customised dendrimers. Success in this area has a high potential value for Starpharma. The performance profile of many drugs could be improved with Table 3: Major anti-cancer drugs ANNUAL REPORT 2011 alteration of key characteristics such as solubility, toxicity and half- life, especially in the case of cancer drugs. Many of the most profitable cancer drugs (see Table 3) have severe side-effects which limit their use and represent an opportunity for improvement. One example is docetaxel, widely used as a chemotherapy treatment for some types of lung, breast and prostate cancer. Docetaxel is marketed worldwide under the name Taxotere by Sanofi-Aventis with sales of US$3.1 billion in 2010. Trade name Active ingredient Market value US$M Manufacturer Taxotere® Eloxatin® Alimta® Gemzar® Camptosar® Vidaza® Docetaxel Oxaliplatin Pemetrexed Gemcitabine Irinotecan Azacitidine 3,000 1,484 1,306 1,107 329 299 Sanofi Aventis Sanofi Aventis Lilly Lilly Pfizer Celgene Starpharma’s reformulation of docetaxel with dendrimers resulted in a 2,000 to 8,000-fold improvement in water solubility. This enhanced water solubility could potentially allow the development of a docetaxel formulation which would not require pre-medication with high doses of cortisone and would avoid the need for inclusion of formulation components thought to cause the severe allergic reactions and fluid retention experienced by some patients. Following the results from this work, Starpharma will advance pre- clinical studies of dendrimer-docetaxel formulations as a lead candidate in the drug delivery program. Starpharma has also filed a new patent application with the United States Patent and Trademark Office, incorporating recent docetaxel data. This patent builds on Starpharma’s already extensive patent filings and captures the potential uses of a class of dendrimers in a range of applications related to drug delivery, laying the groundwork for securing further intellectual property in this area. Precedent in the nano-pharmaceutical space may be found in the example of American nano-pharmaceutical developer Abraxis, who developed Abraxane®, a highly successful water-soluble formulation of paclitaxel (a molecule very similar to docetaxel). Abraxis was acquired in 2010 for US$2.9 billion by Celgene, displaying the market’s valuation of major improvements on existing drugs. Agrochemicals Another industry Starpharma has selected as a key target for value-added product development is the US$40 billion agricultural chemical industry, which has both a large market size and considerable potential for product enhancement. Agrochemicals represent a significant cost to farmers. More effective chemical formulations could reduce the expense of a crop treatment cycle and the need for reapplication, potentially improving the environmental profile of such products. In July 2011 Starpharma announced encouraging early-stage success with applying its Priostar® dendrimer technology to the improvement of a number of globally significant agrochemicals including glyphosate (Roundup®) which has annual sales in excess of US$5 billion. In addition to glyphosate, the Company’s research has also included the major insecticide imidacloprid and the herbicide trifluralin which have annual sales of US$1 billion and US$300 million respectively. The addition of Starpharma’s patented dendrimers to the glyphosate solution resulted in an increase in the brownout, or rate of vegetation dying off. This suggests that the dendrimer was significantly increasing the activity of the glyphosate. 5 STARPHARMA HOLDINGS LIMITED Table 4: Major agrochemicals Trade name Active ingredient Activity Market value US$M Manufacturer Roundup® Confidor® Regent® Fastac® Glyphosate Imidacloprid Fipronil Herbicide Insecticide Insecticide Alpha-cypermethrin Insecticide Gramoxone® Paraquat Orthene® Stomp® TreflanTM Acephate Pendimethalin Trifluralin Herbicide Insecticide Herbicide Herbicide 5,000 1,000 420 400 380 360 350 300 Monsanto Bayer CropScience BASF FMC Syngenta Sumitomo, Arysta BASF Dow Starpharma’s key patents in this area have already been allowed or granted by the US and other patent offices for broad protection of Priostar® dendrimer technology, relevant to both agrochemical and industrial applications. Additionally Starpharma has filed for protection for specific agrochemical applications, which if granted would provide patent coverage to 2029. In March 2011 Starpharma announced that its agrochemicals program had received $250,000 additional funding support from the Victorian Government’s Small Technologies Industry Uptake Program (STIUP). In addition, Starpharma also has partnered programs with a growing number of leading agrochemical companies. Other applications The optionality of Starpharma’s platform technology has allowed the company to develop multiple products across diverse industries and with a growing number of commercial partners:    Diagnostics and laboratory reagents: in collaboration with Siemens, Sigma Aldrich, Merck, and Qiagen. Animal health: in collaboration with Elanco. Cosmetics: in collaboration with unnamed, in-confidence, partners. Starpharma's primary product areas Product / application Indication Partnering status Commercial strategy Market opportunity VivaGel® for bacterial vaginosis (BV) Treatment Internal Licence at late stage US$300-$350M Prevention of recurrence Internal Licence at late stage Estimated >US$1B VivaGel® for STIs Prevention of HIV / HSV / HPV Internal Licence at late stage US$3-6B VivaGel®-coated condom Antiviral coating Partnered: Ansell & Okomoto Industries Partnered US$1.1-1.7B Docetaxel (chemotherapeutic) Internal Program Licence at late stage US$3B Multiple others Partnered: Lilly, GSK, Elanco, undisclosed Co-development arrangements in place Undisclosed Glyphosate Internal Program Licence at late stage US$5B Multiple others Partnered: multibillion US-based partner, undisclosed Co-development payments, royalty on sales US$40B Drug delivery Agrochemical 6 Overview of financial results 4 Year Financial Summary Royalty, customer and licence revenue Grant income Interest revenue Total revenue & income Expenditure Income tax credit Net loss after tax Cash outflow before new capital (Cash Burn) Cash Burn adjusted for exchange rate movements New share capital net proceeds Cash at end of year For the period ended 30 June 2011, the key metric of net cash burn for the year was $3.9 million, with cash reserves at 30 June 2011 of $18.9 million (2010: $22.8 million). Starpharma reported a net loss after tax of $8.9 million (2010: $6.4 million) and experienced net cash outflows of $6.5 million from operations (2010: $3.6 million). A further $3.6 million of cash inflows in the current year was a result from proceeds on the exercise of options. ANNUAL REPORT 2011 Year Ended 30 June 2009 $M 2008 $M 2.0 7.7 0.1 9.8 1.4 8.2 0.3 9.9 (14.1) (18.1) 0.2 (4.1) (2.9) (4.2) 7.0 11.6 0.7 (7.5) (6.1) (5.5) 3.5 7.5 2010 $M 1.4 3.8 0.7 5.9 (12.3) - (6.4) (3.9) (3.8) 15.1 22.8 2011 $M 1.1 1.2 1.0 3.3 (12.2) - (8.9) (7.5) (6.7) 3.6 18.9 The results were consistent with the company’s strategic plans and budget estimates. The increase in the reported net loss included expenditure for the successful phase 2 VivaGel® clinical trial for the treatment of bacterial vaginosis and on Starpharma’s internal development programs for drug delivery and agrochemicals. Total revenue and other income for the year was $3.3 million, a reduction of $2.6 million from the previous year, due to lower grant income from the US National Institutes of Health. Revenue from partners continues to be an important component in developing and commercialising the pipeline while minimising cash flows. Cash at 30 June 2011 $18.9M Net cash burn for 2011 $3.9M 7 STARPHARMA HOLDINGS LIMITED Outlook Financial year 2011/12 has been a highly productive year for Starpharma. The Company has successfully explored the options for the Company’s core technology, producing a diverse range of promising commercial opportunities. In addition, the positive results received across our programs during the period have been very encouraging. New commercial partnerships and strong ongoing relationships have furthered the potential reach of Starpharma’s product portfolio, which itself has made major advances both in the clinic and commercially. Market awareness of Starpharma continues to grow. Retail and institutional investment interest alike continues to flourish; strong liquidity, a diversifying investor register and a continual appreciation in share price bear this out. This year has seen increasing interest in the company from investors, not only in Australia but also in Asia and Europe. Starpharma has clearly outperformed the broader market and sector during the year, which has been noted by leading analysts that identified Starpharma as a strongly performing stock. Cash flows for the year reflect the investment in the VivaGel® clinical trial for the treatment of BV, which has delivered great value to the Company. In 2011/12, VivaGel® will now be advanced to Phase 3, the last and most important stage of trials before approval is given and sales can begin. As Starpharma looks ahead to 2012 and beyond, we will continue to focus on driving our lead products through the final stages of development and registration while diversifying the underlying portfolio and building the value of our core technology. The multiple indications for VivaGel® are Starpharma’s most advanced and well known work, but we anticipate that as our research programs progress we will build an increasing amount of value across a broadening range of applications for our dendrimer technology. I would like to sincerely like to thank our staff who remain enthusiastic and firmly committed to ongoing product innovation and actively driving the commercialisation of our products. Finally, to our long term investors we thank you for your enduring support and to our new investors welcome aboard to what is certainly an exciting period for Starpharma and those who will benefit from our products. Jackie Fairley CEO 8  ANNUAL REPORT 2011 Corporate and Social Responsibility Starpharma is a world leader in the development of dendrimer products for pharmaceutical, life science and other applications, and aims to create value through the commercialisation of its proprietary products. In striving for this objective, Starpharma acknowledges its role within society and believes its success will deliver long term positive benefits to all stakeholders. Starpharma’s corporate governance principles and code of conduct set the framework for how the company, management and employees are expected to conduct themselves: always ethically and responsibly. Our People The employees of Starpharma are critical for achieving business success. To ensure Starpharma remains a safe, healthy, and attractive workplace for our employees, Starpharma has established work place policies and practices. Policies assist to ensure employees have engaging and satisfying roles, receive periodic assessments and feedback on performance, provide ongoing training and career development, and ensure a balanced work and home life. Starpharma’s Code of Conduct reflects the core values of the Company and sets out standards of behaviour in matters including equal employment opportunity and best practice in recruitment. Employees are rewarded for their performance, dedication, and contribution to the results of Starpharma. Employees are recruited into and retained in positions based on merit. A balance of skills, The Community The very nature of Starpharma products affords the opportunity of changing lives for the better. Through innovative research and development, Starpharma is creating products for needs which are currently unmet, either within the public health, medical, life sciences or other markets. Our Partners Starpharma has established important business and scientific partnerships with leading global companies, international scientific and medical research organisations and key governmental and non-governmental departments and institutions. These The Environment expertise and opinion, as well as gender and diversity are viewed as important cultural elements within the collegiate team environment. The Board has adopted a Diversity Policy to provide a framework for Starpharma to achieve a number of diversity objectives, with an initial focus on gender. Employee equity participation schemes are used to allow all staff to share in the business success of the Company and to assist in aligning the objectives of employees with those of shareholders. Occupational health and safety is considered every employee’s responsibility, with an active committee structure to eliminate, reduce or mitigate risks associated with Starpharma’s activities. Occupational Health & Safety Committee members represent all sections of the workplace including management and employees. All of our pharmaceutical products and our clinical research activities comply with strict regulatory and ethical approval processes. These include the FDA in the United States and other regulatory bodies as applicable. relationships offer critical analysis of research concepts from world experts in their field and provide the pathway for products to enter the market and change daily lives. The broad application of Starpharma’s dendrimer research extends into projects that may assist the environment. Research in the fields of agrochemicals and water may improve existing products and reduce the negative impact of current practices on the environment. More effective chemical formulations for agrochemicals could reduce the frequency of application and potentially improve the environmental profile of such products. Early studies in combining the company’s proprietary dendrimer technology with major agrochemicals indicate that improvements such as enhanced solubility, better adhesion to plants and modification of soil penetration properties are possible. In conducting its research and operations Starpharma has processes in place to ensure that all wastes products (albeit relatively minor in volume) are disposed of strictly in accordance with relevant environment regulations. 9 STARPHARMA HOLDINGS LIMITED 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 2011. 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) R Dobinson P J Jenkins (Deputy Chairman) R A Hazleton J K Fairley (Chief Executive Officer) J W Raff was a director and deputy chairman from the beginning of the financial year until his resignation on 17 June 2011. 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 group 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 treatment and prevention of bacterial vaginosis, and prevention of genital herpes and HIV, and the application of dendrimers to drug delivery and other life Business Objective science applications. More broadly, through partners the group is exploring dendrimer opportunities in materials science with applications in areas such as cosmetics, agrochemicals, coatings, adhesives and water. Products based on the group’s dendrimer technology are on the market in the form of diagnostic elements and laboratory reagents. The Company aims to create value for shareholders through the commercial exploitation of proprietary products based on its dendrimer technology in pharmaceutical, life science and other applications. Dividends No dividends were paid or declared during the period and no dividends are recommended in respect to the financial year ended 30 June 2011. (2010: Nil) Review of Operations Achievements and significant events during the 2011 financial year included: July 2010 FDA clearance to commence Phase 2 BV Study The US Food and Drug Administration (FDA) gave clearance for commencement of a phase 2 study to investigate VivaGel® for the treatment of bacterial vaginosis (BV). VivaGel® is under investigation for both the short term treatment and longer term suppression of recurrence of BV in women, and this initial phase was to investigate the treatment of BV with a once daily for seven days treatment of VivaGel®. Findings of this study would guide further investigation of suppression of recurrence. August 2010 Phase 2 BV Study Commences The phase 2 study of VivaGel® for the treatment BV commenced following receipt of ethics approval. The primary objective of the clinical program was to identify the efficacy and optimal dosing with three strengths (0.5%, 1% and 3%) being compared with a placebo gel. Subjects were assessed at the end of treatment and then two to three weeks after the end of treatment. August 2010 VivaGel® Condom Patent Grant Extends Coverage Starpharma announced the extension of the VivaGel® patent portfolio with the first grant of a patent specifically for the VivaGel®- coated condom. The application was granted on 20 August 2010 by the Russian patent office. Starpharma has also filed this patent in major markets including the USA, Canada, Europe, China, India and Japan. 0 1 Both the VivaGel® coated condom and the VivaGel® standalone gel are already protected by a portfolio of granted VivaGel® patents in major markets, and this new patent family provides additional protection for the condom product, and also extends the duration of coverage in each market for which it is granted. In the case of this grant in Russia it provides coverage for the coated condom until at least 2026. September 2010 Lilly Partnership Expanded The signing of a collaborative research agreement with leading US pharmaceutical corporation Eli Lilly and Company was announced. The new agreement related to a co-development program for one of Starpharma’s dendrimer-drug conjugates. Under the agreement Lilly will receive an option on the conjugate, will pay research fees to Starpharma and will conduct studies in animal models to advance the compound. This latest announcement followed on from two previous agreements between the companies. In February 2010, an agreement was announced for the application of Starpharma’s dendrimer drug delivery technology to the enhancement of compounds in Lilly’s human pharmaceutical portfolio, and in May 2009 an agreement was signed with Lilly’s animal health division, Elanco, to develop new animal health products with enhanced properties. March 2011 Agricultural Program Expanded through $250,000 Funding Starpharma was awarded $250,000 funding to enhance agrochemicals using its Priostar® dendrimers. The funding was provided under the Victorian Government’s Small Technologies Industry Uptake Program (STIUP), to allow Starpharma to expand its Melbourne-based agricultural programs, further enhancing the commercial prospects of promising candidates. Starpharma’s Priostar® dendrimer technology is being applied to improve delivery of agrochemicals to enable healthier plant growth and fight plant disease. As well as increasing efficacy, improved delivery control of chemicals can reduce both the frequency of application and amount applied. Such innovations have the potential to reduce farmers’ costs and also reduce environmental impact. March 2011 Enrolment Completed for Phase 2 BV Study Enrolment and all patient follow-up visits in the phase 2 study of VivaGel® for the treatment of bacterial vaginosis (BV) were completed, with data being processed and results to be available in the second quarter of the year. May 2011 VivaGel® Coated Condom: Licence Agreement for Japan with Okamoto A licence agreement was signed with Okamoto Industries Inc in relation to the VivaGel®-coated condom for the Japanese market. Japan is the world’s second largest condom market, and Okamoto is the market leader for condoms sold in Japan. Under the terms of the agreement Okamoto secured marketing rights to the VivaGel®-coated condom in Japan. Starpharma will receive royalty and milestone payments and Okamoto will undertake registration and launch of the product in Japan. The coated condoms marketed by Okamoto will carry the VivaGel® brand. ANNUAL REPORT 2011 May 2011 VivaGel® Demonstrates Efficacy in BV Starpharma released results of a major phase 2 clinical study that demonstrated efficacy of VivaGel® for the treatment of bacterial vaginosis (BV) Key Points: • VivaGel® meets primary endpoint, demonstrating significant efficacy for treatment of BV • VivaGel® expected to avoid many shortcomings of existing therapies • Trial results support new patent filing which extends VivaGel® protection to at least 2032 • Planning underway for Phase 3 trials for VivaGel® for BV treatment • BV prevention trial of VivaGel® to commence Q3 2011 • Addressable global market for BV treatment and prevention potentially exceeds US$1 billion. June 2011 Dendrimer-docetaxel formulation advanced as lead candidate in drug delivery cancer program. Starpharma announced the nomination of leading anti-cancer drug docetaxel as a lead candidate in its cancer drug delivery program following encouraging early results. The Company has been applying its dendrimer technology to the reformulation of existing off-patent cancer drugs, and following promising initial results, announced that it will advance a dendrimer-docetaxel formulation to further pre-clinical studies as a lead candidate in its drug delivery cancer program. Docetaxel is an important chemotherapy drug to treat breast cancer, lung cancer and prostate cancer, and last year generated sales of €2.122 billion (US$3 billion). Docetaxel reformulated with a suite of Starpharma’s dendrimers showed a 2,000 to 8,000-fold improvement in water solubility, potentially allowing for the development of a novel, improved formulation of this important cancer drug. Financial Summary For the year ended 30 June 2011 the consolidated entity incurred an operating loss after income tax of $8,930,000 (June 2010: $6,378,000). Income statement Revenue from continuing operations Other income Research and development expenses Administration expenses Finance costs Loss attributable to members Year Ended 30 June 2010 $’000 2,103 3,805 (5,723) (6,548) (18) (6,378) 2011 $’000 2,125 1,178 (5,986) (6,231) (16) (8,930) Income statement The reported net loss after tax of $8,930,000 is consistent with the company’s strategic plans and budget estimates, the increase includes expenditure for the successful major phase 2 VivaGel® clinical trial for the treatment of bacterial vaginosis; and Starpharma’s internal development programs for drug delivery and agrochemicals. Total revenue and other income for the year was $3,303,000, a reduction of $2,605,000 from the previous year, on lower grant income from the US National Institutes of Health. Revenue from partners continues to be an important component in developing and commercialising our pipeline while minimising cash flows. All research and development expenditure, including patenting costs, were fully expensed in the current and prior year. Balance sheet At 30 June 2011 the group’s cash position was $18,918,000 (2010: $22,851,000). There was an increase in contributed equity of $3,633,000 (2010: $16,126,000) on the exercise of options during the year. Statement of cash flows Net operating cash outflow for the year was $6,476,000 (2010: $3,630,000). Cash flow from financing activities of $3,508,000 (2010: $14,965,000) included the proceeds on the exercise of options. 1 1 STARPHARMA HOLDINGS LIMITED Earnings per share Basic loss per share Diluted loss per share Net tangible assets Net tangible asset backing per ordinary share 2011 ($0.04) ($0.04) 2011 $0.07 2010 ($0.03) ($0.03) 2010 $0.09 Significant changes in the state of affairs There was an increase in contributed equity of $3,633,000 (2010: $16,126,000) the majority on the exercise of options during the year. Matters subsequent to the end of the financial year On 17 August 2011 Starpharma announced two important developments in relation to the commercialisation of its VivaGel®- coated condom. coated condom. The Agreement covers marketing rights to the coated condom in countries which exclude Japan and a number of Asian markets. Starpharma terminates condom coating agreement with Reckitt Benckiser Due to the failure to achieve satisfactory progress in relation to certain commercialisation milestones for the VivaGel®-coated condom, Starpharma’s Board has taken the decision to terminate the Licence granted to Reckitt Benckiser (RB; formerly SSL International plc) to commercialise the VivaGel®-coated condom and all of RB’s rights to the product, effective immediately. Starpharma executes condom coating agreement with Ansell Starpharma has executed a Licence Agreement with Ansell Limited (ASX:ANN) giving Ansell marketing rights to the VivaGel®- Under the agreement Ansell will pay Starpharma royalties on sales of VivaGel®-coated condoms and will support registration and other commercialisation costs. Ansell is also responsible for manufacturing the VivaGel®-coated condom and marketing of the product, which will include the VivaGel® brand together with the respective Ansell brand. No other matters or circumstances have arisen since 30 June 2011 that have significantly affected, or may significantly affect: (a) the consolidated entity’s operations in future financial years, or (b) the results of those 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 group will continue its activities as described. Additional comments on expected results of operations of the group are included in this report under the review of operations. Further information on likely developments in the operations of the group 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 group. Regulatory Environment There were no significant changes in laws or regulations during the 2011 financial year or since the end of the year affecting the business activities of the group, and the directors are not aware of any such changes in the near future. Environmental regulation The group is subject to environmental regulations and other licences in respect of its research and development facilities. There are adequate systems in place to ensure compliance with relevant Federal, State and Local 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 an established OH&S Committee structure 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 30 of this annual report. 2 1 Information on Directors Peter T Bartels, AO, FAISM, FRS (age 70) Independent non-executive director Chairman Member of remuneration & nomination committee Member of audit & risk committee ANNUAL REPORT 2011 129,804 ordinary shares in Starpharma Holdings Limited Independent non-executive director and Chairman for eight years. Mr. Bartels has considerable experience in the pharmaceutical industry; while working for Abbott Laboratories he was responsible for the introduction of a wide range of industrial, agricultural, veterinary and human pharmaceuticals into the Australian market. He was a director of Drug Houses of Australia and was managing director of DHA Pharmaceuticals. He has been a major player in corporate Australia, having held the positions of CEO and Managing Director of both Coles Myer Ltd and Fosters Brewing Company Ltd. He is a past Chairman of the Australian Sports Commission, the Australian Institute of Sport, the Commonwealth Heads of Government Committee for Sport and the Royal Women's and Royal Children's Hospitals. Peter is presently Chair of the Dean's external Advisory Council, for the Faculty of Medicine, Dentistry and Health Sciences at The University of Melbourne. Other current directorships of listed entities: None Former directorships of listed entities in last 3 years: None Jacinth (Jackie) K Fairley BSc, BVSc (Hons), MBA (age 48) Executive director Chief Executive Officer 1,819,821 ordinary shares in Starpharma Holdings Limited Dr Fairley was appointed Chief Executive Officer of Starpharma on 1 July 2006 after serving in the role of Chief Operating Officer from July 2005. As CEO and a Director of the Board, Jackie's responsibilities include involvement in setting strategic direction, oversight of operations and financing activities for the group. She is also plays an active role in driving key commercial negotiations and development programs and corporate activity. Jackie has more than 20 years’ experience in the pharmaceutical and biotechnology industries working in business development and senior management roles with companies including CSL and Faulding (now Hospira). Former CEO of Cerylid Biosciences, Jackie also spent 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 and Veterinary Science, and has an MBA from the Melbourne Business School (MBS) where she was the recipient of the Clemenger Medal. In 2010, Jackie was appointed to the board of directors of MBS. Other current directorships of listed entities: None Former directorships of listed entities in last 3 years: None Ross Dobinson B Bus (Acc) (age 59) Independent Non-executive director Chairman of audit & risk committee Chairman of remuneration & nomination committee Nil ordinary shares in Starpharma Holdings Limited Non-executive director for fourteen 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: Executive Chairman of Hexima Limited (delisted 17 June 2011) since 21 July 2010 Richard A Hazleton BSChE, MSChE, HonDrEngr, HonDrCommSci (age 69) Independent Non-executive director Member of remuneration & nomination committee 142,616 ordinary shares in Starpharma Holdings Limited 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. Other current directorships of listed entities: None Former directorships of listed entities in last 3 years: None Peter J Jenkins MB, BS (Melb), FRACP (age 65) Independent Non-executive director Member of audit & risk committee Deputy Chairman from 17 June 2011 1,426,000 ordinary shares in Starpharma Holdings Limited Independent non-executive director for fourteen years. Consultant physician and gastroenterologist. Holds clinical and research positions with the Alfred Hospital and has held clinical research 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: Nil Former directorships of listed entities in last 3 years: Non-executive director and chairman of bio-pharmaceutical company Immuron (formerly Anadis Ltd), resigned February 2009. 1 3 STARPHARMA HOLDINGS LIMITED John W Raff Dip. Ag Sc, BSc, PhD (age 62) Non-executive director Deputy Chairman until his resignation on 17 June 2011 7,280,777 ordinary shares in Starpharma Holdings Limited Former CEO of Starpharma, holding the position for nine years until his 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. Past Chairman of the BioMelbourne Network. Also founder and investor in a number of other start-up technology companies. Resigned 17 June 2011. Other current directorships of listed entities: None Former directorships of listed entities in last 3 years: None Company Secretary The Company Secretary is Mr Ben Rogers (age 63). He was a member of Starpharma’s start-up/IPO management team and has been Company Secretary since February 1998, with responsibilities that included the role of Chief Financial Officer until 31 December 2008. Mr Rogers has extensive experience in finance, corporate governance and HR management with CSIRO research laboratories and Co-operative Research Centres and is an affiliate of Chartered Secretaries Australia. 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 2011, and the numbers of meetings attended by each director were: Name P T Bartels J W Raff J K Fairley R Dobinson P J Jenkins R A Hazleton Full meetings of directors Meetings of committees Audit & risk Remuneration & nomination 6 of 6 5 of 5 6 of 6 6 of 6 5 of 6 6 of 6 2 of 2 N/A N/A 2 of 2 2 of 2 N/A 1 of 1 N/A N/A 1 of 1 N/A 1 of 1 The table above illustrates the number of meetings attended compared with the number of meetings held during the period that the director held office or was a member of the committee. N/A denotes that the director is not a member of the relevant committee. Retirement, election and continuation in office of Directors Dr J W Raff retired as a director on 17 June 2011. Mr P Bartels retires by rotation as director at the annual general meeting and, being eligible, offers himself for re-election. 4 1  ANNUAL REPORT 2011 Remuneration Report The Remuneration report is set out under the following main headings: A. B. C. D. Principles used to determine the nature and amount of remuneration Details of remuneration Service Agreements Share-based compensation 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 from 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 bonuses, share options or other forms of equity securities, or any performance-related remuneration or retirement allowances. Non-executive directors’ fees are reviewed annually by the remuneration and nomination committee, taking into account comparable data from the biotechnology sector. Non- executive directors’ fees were last increased with effect from 1 January 2010. Fees and payments are determined within an aggregate non-executive 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 paid to non- executive directors for the year ended 30 June 2011 was $357,833 (2010: $300,000). 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 is on sustained growth in shareholder value through achievement of R&D and commercial milestones, and therefore performance goals are not necessarily linked to financial performance measures typical of companies operating in other market segments. The Company has incurred losses in this financial year and in the previous 5 financial years and has no certainty that this will change in the near term. Remuneration is set based on key performance indicators (KPIs) typical of a biotechnology company in Starpharma’s lifecycle, which may 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. Improvement in the rating of the Company against peer biotechnology companies may also be taken into consideration in determining the performance of the executive team, and can be assessed on a qualitative basis by reviewing external sources such as biotechnology publications and non-commissioned research reports. Other factors taken into account in determining remuneration packages include demonstrated record of performance, internal and external relativities, and the Company’s ability to pay. Executive pay structure Remuneration packages are set at levels that are intended to attract and retain high calibre executives capable of managing the group’s operations. The executive pay and reward framework comprises: – base pay and benefits, including superannuation – short term performance incentives, and – long term incentives through participation in the Starpharma employee equity plans. The combination of these comprises an executive's total remuneration. Short-term performance incentives With the exception of the CEO, executive service agreements do not include pre-determined bonus or equity allocations, but cash incentives (bonuses) may be awarded at the end of the performance review cycle for specific contributions, or upon achievement of significant Company milestones at the discretion of the Board. Following a performance evaluation, 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. Long-term incentives Long-term incentives for executives and employees to deliver long- term shareholder returns are provided by a combination of equity plans that may include:  an Employee Performance Rights Plan;  an Employee Share Plan ($1,000 Plan); and  an Employee Share Option Plan. Participation in these plans is at the board’s discretion and no individual has a contractual right to participate in a plan or to receive any guaranteed benefits. Starpharma Employee Performance Rights Plan In 2010 the Board approved the introduction of the Starpharma Employee Performance Rights Plan (ASX code SPLAK). The objective of the Plan is to assist in the recruitment, reward, retention and motivation of employees of the company. The Plan allows for the issue of performance rights (being rights to receive fully paid ordinary shares subject to continued employment with the Company and the satisfaction of certain performance hurdles over a specified period). The key points of the Plan are:  All executives and staff and certain contractors may be invited to apply for Rights under the scheme.  One Right once vested is equivalent to one fully paid ordinary share.  Rights and the resultant shares are granted for no consideration.  Appropriate vesting conditions can be applied to each allocation. The standard vesting condition in the plan rules is continued employment for two years.  At the end of the vesting period a further disposal restriction (Holding Lock) may be applied to restrict disposal of the resulting shares. The standard Holding Lock in the plan rules is one year after vesting.  Rights will lapse on cessation of employment before the vesting date, except for good leaver and change of control provisions at the Board’s discretion. 1 5 STARPHARMA HOLDINGS LIMITED  In the event of a change of control of the Company the Board has the discretion to determine whether Rights will vest and become exercisable. In making its decision, the Board must consider: (i) the portion of the Vesting Period elapsed; and (ii) the extent to which the Performance Conditions (if any) have been met.  In the event of cessation due to death, illness, permanent disability, redundancy or any other circumstance approved by the Board unvested Rights will lapse, unless the Board determines otherwise having regard to: (i) the portion of the Vesting Period elapsed; and (ii) the extent to which the Performance Conditions (if any) have been met.  The Holding Lock on the resulting shares will be automatically removed on cessation of employment. Starpharma Employee Share Plan ($1,000 Plan) All executives and staff, excluding directors, are eligible to participate in the Starpharma Employee Share Plan ($1,000 Plan). The objective of the $1,000 Plan is to assist in the reward, retention and motivation of employees of the company. An annual allocation of up to $1,000 of shares may be granted and taxed on a concessional basis. Shares are granted under the $1,000 Plan for no consideration and are escrowed for 3 years while participants are employed by the Company. 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) and the specified executives of Starpharma Holdings Limited and the consolidated entity are set out in the following tables. The key management personnel of Starpharma Holdings Limited include the directors as per pages 13 to 14. The key management personnel of the Starpharma Holdings Limited group include the directors as per pages 13 to 14 above and the following executive officers, which include the five highest paid executives of the entity: Starpharma Employee Share Option Plan Options are granted under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) which was approved by shareholders at the 2007 annual general meeting. All executives and staff 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. 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 approval to grant the options. Performance review and development Executives and all other staff participate in a formal two stage performance review and development process consisting of an objectives planning and development session at the commencement of the annual cycle and a performance and 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 recognised. During the year an evaluation of all executives and other staff took place in accordance with this process. N J Baade C P Barrett J K Fairley M L McColl D J Owen J R Paull B P Rogers Chief Financial Officer VP, Business Development Chief Executive Officer VP, Business Development (from 16 August 2010) VP, Research VP, Development and Regulatory Affairs Company Secretary Directors and Key management personnel of Starpharma Holdings Limited 2011 Short-term benefits Post- employment Long-term benefits Share-based payments Name Cash salary & fees $ Cash bonus# $ Non-monetary benefits $ Super- annuation $ Long service leave $ Options# $ Shares# $ Performance Rights# $ Total $ Non-executive directors P T Bartels 114,896 J W Raff1 11,773 R Dobinson 60,000 P J Jenkins 30,000 R A Hazleton 60,000 Executive directors – – – – – – – – – – 5,104 46,060 – 30,000 – – – – – – J K Fairley 310,852 150,000 39,570 24,961 2,765 Totals 587,521 150,000 39,570 106,125 2,765 1 Resigned 17 June 2011. – – – – – – – – – – – – – – – – – 120,000 57,833 60,000 60,000 60,000 – 164,904 693,052 – 164,904 1,050,885 # All performance related remuneration, including cash bonuses, shares, performance rights and options granted, are determined to be an ‘at risk’ component of total remuneration. 6 1 There were no retirement benefits paid in the current or prior year. Directors and Key management personnel of Starpharma Holdings Limited 2010 Short-term benefits Post- employment Long-term benefits ANNUAL REPORT 2011 Share-based payments Name Cash salary & fees $ Cash bonus# $ Non-monetary benefits $ Super- annuation $ Long service leave $ Options# $ Shares# $ Performance Rights# $ Total $ Non-executive directors P T Bartels 73,395 J W Raff – R Dobinson 50,000 P J Jenkins – R A Hazleton 50,000 Executive directors – – – – – – – – – – 26,605 50,000 – 50,000 – – – – – – – – – – – – – – – – – – – – – 100,000 50,000 50,000 50,000 50,000 J K Fairley 343,396 200,0001 6,393 24,961 9,842 2,059 985,714 81,556 1,653,921 Totals 516,791 200,000 6,393 151,566 9,842 2,059 985,714 81,556 1,953,921 1 In 2010, the Board offered an additional $50,000 bonus to J K Fairley above the contractual $150,000 payable per year on the achievement of predetermined objectives. In the prior year, J K Fairley offered and the Board agreed to reduce the maximum bonus payable to $50,000 in view of the Company’s cash reserves at that time. # All performance related remuneration, including cash bonuses, shares, performance rights and options granted, are determined to be an ‘at risk’ component of total remuneration. 1 7 STARPHARMA HOLDINGS LIMITED Directors and Key management personnel of Starpharma Holdings Limited or subsidiary companies 2011 Short-term benefits Post- employment Long-term benefits Share-based payments Name Cash salary & fees $ Cash bonus# $ Non-monetary benefits $ Super- annuation $ Long service leave $ Options# $ Shares# $ Performance Rights# $ Total $ Non-executive directors P T Bartels 114,896 J W Raff1 11,773 R Dobinson 60,000 P J Jenkins 30,000 R A Hazleton 60,000 Executive directors – – – – – – – – – – 5,104 46,060 – 30,000 – – – – – – J K Fairley 310,852 150,000 39,570 24,961 2,765 Other Key Management Personnel – – – – – – – – – – – – – – – – – 120,000 57,833 60,000 60,000 60,000 164,904 693,052 B P Rogers 87,729 4,333 2,013 49,999 4,568 12,752 1,000 10,344 172,738 J R Paull 175,212 18,349 13,337 18,238 23,308 16,212 1,000 12,931 278,587 C P Barrett 189,524 18,349 – 18,708 1,733 16,212 1,000 12,931 258,457 N J Baade 159,473 18,349 12,643 22,228 2,200 15,668 1,000 12,931 244,492 D J Owen 161,926 18,349 528 24,945 4,487 15,668 1,000 12,931 239,834 M L McColl2 162,382 6,881 – 15,234 268 – 1,000 12,931 198,696 Totals 1,523,767 234,610 68,091 255,477 39,329 76,512 6,000 239,903 2,443,689 1 Resigned 17 June 2011. 2 Employed from 16 August 2011. # All performance related remuneration, including cash bonuses, shares, performance rights and options granted are determined to be an ‘at risk’ component of total remuneration. There were no retirement benefits paid in the current or prior year. 8 1  ANNUAL REPORT 2011 Directors and Key management personnel of Starpharma Holdings Limited or subsidiary companies 2010 Short-term benefits Post- employment Long-term benefits Share-based payments Name Cash salary & fees $ Cash bonus# $ Non-monetary benefits $ Super- annuation $ Long service leave $ Options# $ Shares# $ Performance Rights# $ Total $ Non-executive directors P T Bartels 73,395 J W Raff – R Dobinson 50,000 P J Jenkins – R A Hazleton 50,000 Executive directors – – – – – – – – – – 26,605 50,000 – 50,000 – – – – – – – – – – – – – – – – – – – – – 100,000 50,000 50,000 50,000 50,000 J K Fairley 343,396 200,0001 6,393 24,961 9,842 2,059 985,714 81,556 1,653,921 Other Key Management Personnel B P Rogers 80,431 6,932 8,090 49,977 6,131 18,319 1,000 J R Paull 172,469 11,009 10,198 17,061 5,548 24,555 1,000 C P Barrett 183,132 13,761 – 17,720 5,302 24,555 1,000 N J Baade 153,662 11,009 8,875 15,272 4,244 21,243 1,000 D J Owen 153,165 13,761 528 15,023 407 21,243 1,000 – – – – – 170,880 241,840 245,470 215,305 205,127 Totals 1,259,650 256,472 34,084 266,619 31,474 111,974 990,714 81,556 3,032,543 1 In 2010, the Board offered an additional $50,000 bonus to J K Fairley above the contractual $150,000 payable per year on the achievement of predetermined objectives. In the prior year, J K Fairley offered and the Board agreed to reduce the maximum bonus payable to $50,000 in view of the Company’s cash reserves at that time. # All performance related remuneration, including cash bonuses, shares, performance rights and options granted are determined to be an ‘at risk’ component of total remuneration. 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 Equity Plans. 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 June 2011 of $371,315, to be reviewed annually by the remuneration and nomination committee. – A cash bonus up to $150,000 per year, commencing on 1 July 2008 allocated proportionately on the achievement of predetermined objectives. – Fringe benefits consist of on-site car parking. – Subject to termination at any time by: (i) the Executive giving to the Company twelve months’ notice in writing; or (ii) the Company giving to the Executive six months’ notice in 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) is guilty of serious misconduct; (ii) becomes unable to pay the Executive’s debts as they become due; or (iii) is found guilty by a court of a criminal offence. B P Rogers Company Secretary – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2011 of $135,580 part-time, to be reviewed annually by the remuneration and nomination committee. – Fringe benefits consist of 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 2011 of $203,721, to be reviewed annually by the remuneration and nomination committee. 1 9 STARPHARMA HOLDINGS LIMITED – Fringe benefits consist of on-site car parking. – 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 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 2011 of $209,634, to be reviewed annually by the remuneration and nomination 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. N J Baade Chief Financial Officer – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2011 of $201,291, to be reviewed annually by the remuneration and nomination committee. – Fringe benefits consist of on-site car parking. – 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. D. Share-based compensation Options 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 group 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 – 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. D J Owen VP – Research – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2011 of $194,040, to be reviewed annually by the remuneration and nomination committee. – 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. – 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. M L McColl VP – Business Development (from 16 August 2010) – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2011 of $204,000, to be reviewed annually by the remuneration and nomination committee. – 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. – 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. period is 1 to 2 years from the date of grant, and the exercise period is 2 to 3 years from the end of the vesting period. There were no options granted in the current or prior year. 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 Date exercisable Expiry date Exercise price Value per option at grant date 1 January 2009 29 August 2010 28 August 2012 29 June 2009 29 June 2011 28 June 2014 $0.29 $0.37 $0.11 $0.23 % vested 100% 100% 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 year was 2.42 years (2010: 1.55 years). 0 2  ANNUAL REPORT 2011 Fair value of options granted There were no options granted in the current or prior year. For earlier years, the fair value at grant date was 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. Shares issued to directors and key management personnel on the exercise of options Details of ordinary shares issued to the key management personnel of the group on the exercise of options in the current year were: Name J K Fairley B R Rogers J R Paull C P Barrett N J Baade D J Owen Number of shares issued on exercise of options during the year 2011 350,000 100,000 350,000 175,000 300,000 200,000 2010 – – – – – – Intrinsic value1 $ 2010 – – – – – – 2011 74,775 22,500 82,250 60,125 128,000 60,500 1 The intrinsic value of each option exercised has been determined as opening share price on the date of allotment of shares less the option exercise price. The amount paid per ordinary share by the key management personnel of the group on the exercise of options were as follows: Share allotment date on exercise of options 24 Sep 2010 3 Nov 2010 10 Nov 2010 11 Nov 2010 17 Nov 2010 17 Nov 2010 26 Nov 2010 10 Dec 2010 10 Dec 2010 19 May 2011 Amount paid per share $0.50 $0.50 $0.50 $0.50 $0.50 $0.29 $0.50 $0.50 $0.29 $0.29 No amounts are unpaid on any shares issued on the exercise of options. 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 group with greatest authority as part of their remuneration were as follows: Number of options vested during the year Number of options expired during the year Name J K Fairley B R Rogers J R Paull C P Barrett N J Baade D J Owen 2011 – 200,000 275,000 275,000 225,000 225,000 2010 200,000 – – – – – 2011 300,000 100,000 – 200,000 – – The options were granted under the Starpharma Holdings Limited Employee Share Option Plan. No options have been granted to directors or key management personnel in the current or prior year, or since the end of the year. No other directors or key management personnel hold options under the Plan. 2010 – – – – – – 2 1 STARPHARMA HOLDINGS LIMITED No options lapsed during the year as a result of performance milestones not being met. Shares and Performance Rights Details of ordinary shares and performance rights over unissued ordinary shares of Starpharma Holdings Limited provided as remuneration to any of the directors or the key management personnel of the group with greatest authority as part of their remuneration were as follows: Name J K Fairley B R Rogers J R Paull C P Barrett N J Baade D J Owen M L McColl Number of shares granted during the year Number of performance rights granted during the year 2011 – 1,190 1,190 1,190 1,190 1,190 1,190 2010 1,428,571 1,418 1,418 1,418 1,418 1,418 – 2011 – 65,000 80,000 80,000 80,000 80,000 80,000 2010 750,000 – – – – – – CEO Equity Incentive Plan (Performance Rights) Details of ordinary shares issued on the vesting of performance rights of Starpharma Holdings Limited provided as remuneration to any of the directors or the key management personnel of the group with greatest authority as part of their remuneration were as follows: Number of shares issued of the vesting of performance rights during the year Number of performance rights lapsed during the year Name J K Fairley 2011 487,500 2010 – 2011 262,500 2010 – The value at vesting date of performance rights under the CEO Equity Incentive Plan that vested during 2011 was $407,062. No other performance rights have vested or lapsed; and other no shares were issued on the vesting of performance rights in the current or prior year provided as remuneration to any of the directors or the key management personnel of the group. The terms and conditions of the grant of performance rights under the CEO Equity Plan were as follows: Grant date Vesting Date Holding Lock Expiry date Number of Rights Performance Measure Value per right at grant date % vested 31 March 2010 31 December 2010 1 March 2013 262,500 Share Price ≥ $0.65 31 March 2010 31 December 2010 1 March 2013 262,500 Share Price ≥ $1.00 31 March 2010 31 December 2010 1 March 2013 225,000 Achievement of KPIs $0.37 $0.09 $0.55 100% Nil 100% Principles used to determine the nature and amount of remuneration and the relationship between remuneration and company performance are set out in section A of the remuneration report. Details of remuneration: cash bonuses, shares, performance rights and options For each cash bonus and grant of equity included in the tables on pages 16 to 23, 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 individual performance objectives is set out below. The options vest over the specified periods providing vesting criteria are met. No options or rights will vest if the conditions are not satisfied, hence at the minimum value of the options and rights yet to vest is nil. The maximum value of the options and rights yet to vest has been determined as the amount of the grant date fair value of the options and rights that is yet to be expensed. 2 2  ANNUAL REPORT 2011 Cash bonus Performance rights Grant date value of shares granted during 20112 Grant date value of rights granted during 20112 Accounting values being amortised in respect of the 2011 equity grants in future years3 Remuneration consisting of shares, options & rights4 Paid Forfeited Vested Forfeited 2012 2013 Name J K Fairley B P Rogers J R Paull C P Barrett N J Baade D J Owen M L McColl % % % % 100% –1 –1 –1 –1 –1 –1 – – – – – – – 65% 35% – – – – – – – – – – – – $ – 1,000 1,000 1,000 1,000 1,000 1,000 $ – $ – $ – 25,088 12,579 2,165 31,360 15,723 2,706 31,360 15,723 2,706 31,360 15,723 2,706 31,360 15,723 2,706 31,360 15,723 2,706 % 24% 14% 11% 12% 12% 12% 7% 1 The bonuses paid are at the absolute discretion of the Board based on an individual’s performance within the year. There is no unpaid component of the bonuses awarded. 2 The value at grant date calculated in accordance with AASB 2 Share-based Payments of shares and performance rights granted during the year as part of remuneration. 3 The maximum value of options and performance rights is determined at grant date and is amortised over the applicable vesting period. The amount which will be included in a given key management personnel’s remuneration for a given year is consistent with this amortisation amount. No options or performance rights will vest if the conditions are not satisfied, hence the minimum value yet to vest is nil. 4 The percentage of the value of remuneration consisting of equity, based on the market value of shares at grant date, and the fair value of options and performance rights expensed during the current year. Shares under option Unissued ordinary shares of Starpharma Holdings Limited under option at the date of this report are as follows: Grant date Expiry date Issue price of shares Number under options 21 August 2007 21 August 2012 1 January 2009 28 August 2012 29 June 2009 28 June 2014 $0.43 $0.29 $0.37 1,684,809 395,000 974,000 No option holder has any right under the options to participate in any other issue of the Company or group. 2 3 STARPHARMA HOLDINGS LIMITED Shares issued on the exercise of options The following ordinary shares of Starpharma Holdings Limited were issued during the year to the date of this report on the exercise of options. No amounts are unpaid on any of the shares. Date options granted Issue price of shares (Option exercise price) Number of shares issued 6 October 2006 2 January 2007 4 April 2007 21 August 2007 31 October 2007 14 November 2007 1 January 2009 29 June 2009 $0.50 $0.50 $0.50 $0.43 $0.50 $0.50 $0.29 $0.37 280,000 20,000 590,000 5,882,310 330,000 350,000 983,000 100,000 Shares under rights Unissued ordinary shares of Starpharma Holdings Limited under the Employee Performance Rights Plan granted during the year to the date of this report are as follows: Grant date Vesting date Holding Lock date Number of rights granted Balance of rights at date of report 2 September 2010 31 August 2012 31 August 2013 830,800 750,800 Rights and the resultant shares are granted for no consideration. Shares issued on the vesting of rights The following ordinary shares of Starpharma Holdings Limited were issued during the year to the date of this report on the exercise of performance granted under the CEO Equity Incentive Plan and Employee Performance Rights Plan. No amounts are unpaid on any of the shares. Date rights granted 31 March 2010 2 September 2010 Issue price of shares (Exercise price of right) Number of shares issued $ - $ - 487,500 13,000 4 2 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 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 group are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below. The board of directors has considered the position and, in accordance with 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 ANNUAL REPORT 2011 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. 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 and 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 group under the Corporations Act 2001 Other assurance services – Grant reviews & program audits 2011 $ 113,000 18,000 2010 $ 124,500 27,300 No taxation or advisory services have been provided in either the current or prior year. 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 26. 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 directors’ report. Amounts in the directors’ report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor PricewaterhouseCoopers continues in 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, 29 August 2011 2 5 PricewaterhouseCoopers ABN 52 780 433 757 Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331 MELBOURNE VIC 3001 DX 77 Telephone 61 3 8603 1000 Facsimile 61 3 8603 1999 www.pwc.com/au Auditor’s Independence Declaration As lead auditor for the audit of Starpharma Holdings Limited for the year ended 30 June 2011, I declare that to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) no contraventions of any applicable code of professional conduct in relation to the audit This declaration is in respect of Starpharma Holdings Limited and the entities it controlled during the period. Anton Linschoten Partner PricewaterhouseCoopers Melbourne 29 August 2011 Liability limited by a scheme approved under Professional Standards Legislation 26 Corporate Governance Statement Starpharma Holdings Limited (“the Company”) and the Board are committed to achieving and demonstrating the highest standards of corporate governance. The Board guides and monitors the Company’s activities on behalf of the shareholders. In developing policies and setting standards the Board considers the Australian Securities Exchange (“ASX”) Corporate Governance Principles and Recommendations (2nd Edition with 2010 Amendments) (“the CGC Recommendations”). The Corporate Governance Statement 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”). These delegations are reviewed on an annual basis. 1.1 Board charter The charter of the Board of Starpharma Holdings Limited, matters reserved for the board and matters delegated to the CEO are 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. – 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 Functions Reserved for the Board The Company has established matters reserved for the board. These are: (a) Strategic Issues – approving the Company's corporate strategy; – overseeing and monitoring organisational performance and the achievement of the group’s strategic goals and objectives; – approving any major transaction not included in the budget or outside the ordinary course of the business; – determining the structure of the Company and the definition of the business; (b) Shareholding Items – issuing shares, options or performance rights; – granting special rights to shares; – determining the amount of a dividend; (c) Financial Items – approving the Company's credit policy; – reviewing and approving the annual budget and financial plans including available resources and major capital expenditure initiatives; ANNUAL REPORT 2011 set out below describes the Company’s current corporate governance principles and practices which the Board considers to comply with the CGC Recommendations. All of these practices, unless otherwise stated, 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. – seeking credit in excess of $50,000; – giving any guarantee or letter of credit or any security over the Company's assets; (d) Expenditure Items – approval of the annual and half-year financial reports; – approving expenditure exceeding $100,000, unless reimbursable by an external funding body in which case the limit is $250,000; – approving divestments of assets exceeding $50,000; (e) Audit – approving appointment or removal of external auditors; – considering any external audit reports; (f) Board and Senior Management – establishing corporate governance policies; – appointment, performance assessment and, if necessary, removal of the CEO – determining remuneration of the CEO; – ratifying the appointment and, if necessary, the removal of senior executives; 1.1.3 Other Board Responsibilities – enhancing and protecting the reputation of the group; – overseeing the operation of the group, including its systems for control, accountability, and risk management; – monitoring financial performance; – liaison with the Company’s auditors; – ensuring there are effective management processes in place and approving major corporate initiatives; – reporting to shareholders. 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 four non-executive directors, all of whom are deemed independent under the principles set out below, and one executive director at the date of signing the directors’ report. 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; 2 7 STARPHARMA HOLDINGS LIMITED – 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. 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. 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 Board has established the functions delegated to the CEO. The CEO is responsible for implementing Company strategies and policies, and for the day to day business operations of the group in accordance with the strategic objectives of the group as approved by the Board from time to time. 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 are 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 for the year ended 30 June 2011: 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. 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 Company has established an audit and risk committee, which consists of the following independent non-executive directors: Mr Ross Dobinson (Chairman) Mr Peter Bartels Dr Peter Jenkins 8 2 The Board policy is for these separate roles of Chairman and CEO to be undertaken by separate people. 1.6 Commitment The Board held six meetings during the year. Meetings are usually held at the Company’s corporate offices and laboratory facility in the Baker IDI Building, 75 Commercial Road, Melbourne, Australia. The number of meetings of the Board and of each Board committee held during the year ended 30 June 2011, 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. During the year an assessment of the Board and its committees was conducted in accordance with these procedures. 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. – 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 – that the above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board and that the Company’s risk management and internal compliance and control is operating efficiently and effectively in all material respects. Details of these directors’ qualifications and attendance at committee meetings are set out in the directors’ report pages 13 to 14. 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, and > compliance with applicable laws and regulations. – oversee the effective operation of the risk management framework by: > ensuring the effective implementation of the risk management policy and program, > defining risk threshold levels for referral to the Board, > ensuring that an effective system of internal compliance and control is in place, > ensuring staff charged with risk management responsibilities have appropriate authority to carry out their functions and have appropriate access to the audit and risk committee, and > ensuring the allocation of sufficient resources for the effective management of risk – recommend to the Board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance; – consider the independence and competence of the external auditor on an ongoing basis; – review and monitor related party transactions and assess their propriety; ANNUAL REPORT 2011 3.2 Remuneration and nomination committee The Company has established a remuneration and nomination committee which consists of the following independent non- executive directors: Mr Ross Dobinson (Chairman) Mr Peter Bartels Mr Richard Hazleton Details of these directors’ attendance at committee meetings are set out in the directors’ report on page 14. The charter of the remuneration and nomination committee is to: – conduct annual reviews of board membership having regard to present and future needs of the Company and make recommendations on board composition and appointments; – conduct an annual review of and conclude on the independence of each director; – propose candidates for board vacancies; – oversee board succession including the succession of the Chairman; – oversee the annual assessment of board performance; – advise the board on remuneration and incentive policies and – assist the Board in the development and monitoring of statutory practices generally; 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. 4. External auditors – make specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non-executive directors. When the need for a new director is identified or an existing director is required to stand for re-election, the committee reviews the range of skills, experience and expertise on the board, identifies its needs and prepares a short-list of candidates with appropriate skills and experience. Where necessary, advice is sought from independent search consultants. Each member of the senior executive team has signed a formal employment contract covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. 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 interests 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 15 to 24. 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 2010. An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in note 18 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. 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 Board has required management to design and implement a risk management and internal control system to manage the group’s material business risks. The risk management policy, which is available on the Company website, sets out policies for the oversight of material business risks, and describes the responsibilities and authorities of the Board, the audit and risk committee, the CEO, CFO, Company Secretary, and the senior management team. The CEO, CFO and Company Secretary are responsible to the Board for the overall implementation of the risk management program. During the financial year management has reported to the board as to the effectiveness of the group’s management of its material risks. 2 9 STARPHARMA HOLDINGS LIMITED 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 the group has obtained the necessary accreditations, laboratory certifications and licenses from the relevant authorities. The directors are not aware of any breach of applicable environmental regulations. The Company has adopted an OH&S Policy and has established an OH&S committee as part of its overall approach to workplace 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 established 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 8. Trading in Company securities The dealing in Company securities by directors, executives and employees is only permitted (subject also to complying with applicable laws) during the following periods (trading windows): • the period starting 24 hours after the release of Starpharma’s annual results and ending on 31 December; • the period starting 24 hours after the release of the Starpharma’s half-year results and ending on 30 June; and • such other period as determined by the Chairman or a Committee of the Board. Notwithstanding the existence of these trading windows, the Company may notify Employees not to buy, sell or otherwise deal in securities of the Company during all or part of any trading window. The other periods of the year are considered black-out periods (or closed periods) during which time Employees must not deal in securities of the Company unless there are exceptional circumstances and prior written permission from the “approving officer” (Chairman, CEO or Board, as appropriate) is given. safety. The committee provides a forum for management and employees to consult on health and safety matters. The primary role of the committee 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. The committee includes representatives of management, and employees from 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 committee meets on a monthly basis. 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. An Employee who wishes to enter into a margin loan must obtain written permission from the “approving officer” prior to entering into the margin loan. Except with prior written permission from the “approving officer”, Employees may not 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. The Securities Trading Policy approved by the Board of Directors and released to the ASX on 16 December 2010, and is effective from that date. The Securities Trading Policy is available in the Corporate Governance section of the Company’s website. 9. Continuous disclosure and shareholder communication The Company has developed a continuous disclosure and shareholder communication policy to ensure compliance with the ASX Listing Rules and to facilitate effective communication with shareholders. A copy of this policy is available on the Company’s website. 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). 10. Diversity The Company is committed to workplace diversity, and the Board values the level of diversity already present within the organisation, believing that continuing to promote diversity is in the best interests of the Company, its employees and its shareholders. In June 2011 the Board approved a Diversity Policy which operates alongside the Code of Conduct, providing a framework for Starpharma to achieve a number of diversity objectives. The Diversity Policy requires the Board to establish measurable objectives for achieving gender diversity and to assess annually both the objectives and progress in achieving them. The Diversity Policy is available in the Corporate Governance section of the Company’s website. 0 3  ANNUAL REPORT 2011 Annual Financial Report Contents Income statement Statement of comprehensive income Balance sheet Statement of changes in equity Statement of cash flows Notes to the financial statements Directors’ declaration Independent audit report to the members 32 33 34 35 36 37 67 68 This financial report covers the consolidated financial statements for the group 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 IDI Building, 75 Commercial Road Melbourne, Victoria, 3004, Australia A description of the nature of the group’s operations and its principal activities is included in the CEO’s Report on pages 3 to 8 and in the review of operations in the directors’ report on pages 10 to 11, which are not part of this financial report. The financial report was authorised for issue by the directors on 29 August 2011. The directors have the power to amend and reissue the financial report. Through the use of the internet, Starpharma ensures that corporate reporting is timely and complete. All press releases, financial reports and other information are available on the website: www.starpharma.com. 3 1 STARPHARMA HOLDINGS LIMITED Income statement For the year ended 30 June 2011 Revenue from continuing operations Other income Administration expense Research and development expense Finance costs Loss before income tax Income tax credit Loss from continuing operations attributable to members of Starpharma Holdings Limited Loss per share for loss from continuing operations attributable to the ordinary equity holders of the company Basic loss per share Diluted loss per share 2011 $'000 2,125 1,178 (6,231) (5,986) (16) (8,930) - Consolidated 2010 $'000 2,103 3,805 (6,548) (5,723) (18) (6,381) 3 (8,930) (6,378) ($0.04) ($0.04) ($0.03) ($0.03) Notes 5 5 7 24 24 The above income statement should be read in conjunction with the accompanying notes. 2 3 Statement of comprehensive income For the year ended 30 June 2011 Loss for the year Notes Other comprehensive income (loss), net of income tax Foreign exchange differences on translation of foreign operations 15 Other comprehensive income (loss), net of income tax ANNUAL REPORT 2011 2010 $'000 (8,930) (2,284) (2,284) Consolidated 2010 $'000 (6,378) (667) (667) Total comprehensive income (loss) for the year attributable to members of Starpharma Holdings Limited (11,214) (7,045) The above statement of comprehensive income should be read in conjunction with the accompanying notes. 3 3 STARPHARMA HOLDINGS LIMITED Balance Sheet As at 30 June 2011 Current Assets Cash and cash equivalents Trade and other receivables Total current assets Non-current assets Property, plant and equipment Intangible assets Total non-current assets Total assets Current Liabilities Trade and other payables Borrowings Provisions (employee entitlements) Deferred income Total current liabilities Non-current liabilities Borrowings Provisions (employee entitlements) Total non-current liabilities Total liabilities Net assets Equity Contributed equity Reserves Accumulated losses Total equity Notes 8 9 10 11 12 13 2011 $'000 18,918 1,023 19,941 280 9,586 9,866 29,807 1,227 49 416 349 2,041 Consolidated 2010 $'000 22,851 1,379 24,230 219 13,118 13,337 37,567 1,581 160 295 629 2,665 13 17 - 56 73 2,114 58 58 2,723 27,693 34,844 105,399 1,022 (78,728) 27,693 101,766 2,876 (69,798) 34,844 14 15 16 The above balance sheet should be read in conjunction with the accompanying notes. 4 3 Statement of changes in equity Consolidated For the year ended 30 June 2011 Balance at 1 July 2010 Loss for the year Other comprehensive income Foreign exchange differences on translation of foreign operations Total comprehensive income (loss) for the year Transactions with owners, recorded directly in equity Contributions of equity, net of transaction costs Employee share options plan Employee share plans Employee performance rights plan Total transactions with owners 15 14 15 14 15 Notes Contributed capital $'000 85,640 Balance at 1 July 2009 Loss for the year Other comprehensive income Foreign exchange differences on translation of foreign operations Total comprehensive income (loss) for the year Transactions with owners, recorded directly in equity Contributions of equity, net of transaction costs Employee share options plan Employee share plans Employee performance rights plan Total transactions with owners 15 14 15 14 15 ANNUAL REPORT 2011 Notes Contributed capital $'000 101,766 Reserves Accumulated losses $'000 (69,798) (8,930) 2011 Total equity $'000 34,844 (8,930) $'000 2,876 - (2,284) (2,284) - 139 - 291 430 - (2,284) (8,930) (11,214) - - - - - 3,609 139 24 291 4,063 Reserves Accumulated losses $'000 3,279 - (667) (667) - 182 - 82 264 $'000 (63,420) (6,378) - (6,378) - - - - - 2010 Total equity $'000 25,499 (6,378) (667) (7,045) 15,122 182 1,004 82 16,390 - - - 3,609 - 24 - 3,633 - - - 15,122 - 1,004 - 16,126 Balance at 30 June 2011 105,399 1.022 (78,728) 27,693 For the year ended 30 June 2010 Balance at 30 June 2010 101,766 2,876 (69,798) 34,844 The above statement of changes in equity should be read in conjunction with the accompanying notes. 3 5 STARPHARMA HOLDINGS LIMITED Statement of cash flows For the year ended 30 June 2011 Notes 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 Income tax paid 2011 $'000 1,391 829 (9,793) 1,113 (16) - Consolidated 2010 $'000 1,524 3,719 (9,268) 418 (18) (5) Net cash outflows from operating activities 23 (6,476) (3,630) Cash flow from investing activities Receipts from disposals of property, plant and equipment Payments for property, plant and equipment Net cash outflows from investing activities Cash flow from financing activities Proceeds from issue of shares Share issue transaction costs Lease repayments Net cash inflows from financing activities - (138) 23 (27) (138) (4) 3,609 15,685 - (101) (563) (157) 3,508 14,965 Net increase (decrease) in cash and cash equivalents held (3,106) 11,331 Cash and cash equivalents at the beginning of the year 22,851 11,595 Effects of exchange rate changes on cash and cash equivalents (827) (75) Cash and cash equivalents at the end of the year 18,918 22,851 The above statement of cash flows should be read in conjunction with the accompanying notes. 6 3 Notes to the financial statements 30 June 2011 Contents 1. Summary of significant accounting policies 2. 3. 4. 5. 6. 7. 8. 9. Financial risk management Critical accounting estimates and judgments Segment information Revenue and other income Expenses Income tax expense Current assets – Cash and cash equivalents Current assets – Trade and other receivables 10. Non-current assets – Property, plant and equipment 11. Non-current assets – Intangible assets 12. Current liabilities – Trade and other payables 13. Current and non-current liabilities – Borrowings 14. Contributed equity 15. Reserves 16. Accumulated losses 17. Key management personnel disclosures 18. Remuneration of auditors 19. Contingencies 20. Commitments 21. Subsidiaries 22. Events occurring after the balance sheet date 23. Reconciliation of profit after income tax to net cash inflow from operating activities 24. Earnings per share 25. Share-based payments 26. Related party transactions 27. Parent entity financial information ANNUAL REPORT 2011 38 43 44 44 45 46 46 47 49 49 50 51 52 52 54 55 55 58 59 59 60 60 61 61 61 65 66 3 7 STARPHARMA HOLDINGS LIMITED 1. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the consolidated entity consisting of Starpharma Holdings Limited and its subsidiaries. (a) Basis of preparation These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. (i) Compliance with IFRS The consolidated financial statements of the Starpharma Holdings Limited group also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). (ii) New and amended standards adopted by the group The following new standards and amendments to standards are mandatory for the first time for the financial year beginning 1 July 2010:  AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project – adopted early by Starpharma Holdings Limited in the 2010 financial report  AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-settled Share-based Payment Transactions  AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues  AASB Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments and AASB 2009-13 Amendments to Australian Accounting Standards arising from Interpretation 19, and  AASB 2010-3 Amendments to Australian Accounting Standards arising from the Annual Improvements Project. The adoption of these standards did not have any impact on the current period or any prior period and is not likely to affect future periods. (iii) Early adoption of standards The group has elected to apply the following pronouncements to the annual reporting period beginning 1 July 2010:  AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project This includes applying the revised pronouncement to the comparatives in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. None of the items in the financial statements had to be restated as the result of applying this standard. (iv) Historical cost convention These financial statements have been prepared under the historical cost convention. (v) Critical accounting estimates The preparation of financial statements 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 2011, the consolidated entity has incurred losses of $8,930,000 (2010: $6,378,000) and experienced net cash outflows of $6,476,000 from operations (2010: 8 3 $3,630,000), as disclosed in the balance sheet and statement of cash flows, 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 for the period up to at least August 2012. 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 entity”) as at 30 June 2011 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 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. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. Investments in subsidiaries are accounted for at cost in the separate financial statements of Starpharma Holdings Limited. (c) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. (d) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the group’s 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 profit or loss. Foreign exchange gains and losses that relate to borrowings are presented in the income statement, within finance costs. All other foreign exchange gains and losses are presented in the income statement on a net basis within other income or other expenses. (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 and statement of comprehensive income 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 in other comprehensive income.   On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign operation 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 profit or loss 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 ANNUAL REPORT 2011 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 other comprehensive income or equity are also recognised directly in other comprehensive income or equity, respectively. Starpharma Holdings Limited and its wholly-owned Australian controlled entities have not implemented the tax consolidation legislation. (h) Leases Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases (note 20). Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property, or if lower the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in short-term and long term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss 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 property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as lessee are classified as operating leases (note 20). Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Lease income from operating leases where the group is a lessor is recognised in income on a straight-line basis over the lease term. (i) Impairment of assets Goodwill and intangible assets that have an indefinite life are not subject to amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested 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 which are largely independent of the cash inflows from other assets or groups of assets (cash generating units). (j) Cash and cash equivalents For the purpose of presentation in the statement of cash flows, 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 six 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. (k) 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. They are presented as current assets unless collection is not expected for more than 12 months after reporting date. 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 3 9 STARPHARMA HOLDINGS LIMITED 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 profit or loss within administration 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 profit or loss. (l) 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 period. (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) in the balance sheet. (m) 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. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss 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 3 to 15 years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1 (i)). Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in profit or loss. (n) 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 group between 2 to 6 years, whichever is shorter. (o) 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 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. The allocation is made to those cash-generating units or groups of cash-generating units 0 4 that are expected to benefit from the business combination in which goodwill arose, identified according to operating segments (note 4). (ii) Patents and licences Costs associated with patents are charged to profit or loss 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 profit or loss as an expense when it is incurred. Costs incurred on development activities (relating to 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 are recognised as intangible assets when it is probable that the project will, after considering its technically and commercially feasible and adequate resources are available to complete development, generate future economic benefits and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Other development expenditure is recognised in profit or loss as an expense as incurred. To date no development costs have been capitalised. (p) Trade and other payables These amounts represent liabilities for goods and services provided to the group prior to the end of the financial year which are unpaid. The amounts are unsecured and are usually paid within 30 to 45 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. (q) 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 profit or loss 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 reporting period. (r) Provisions Provisions for legal claims, service claims and make good obligations are recognised when the group has a present legal or constructive obligation as a result of past events, 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 of 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. (s) 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 after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the period and are measured at the amounts expected to be paid when the liabilities are settled. The liability for annual leave and accumulating sick leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as payables. (ii) Other long-term employee benefit obligations The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related services 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 end of the reporting period 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 end of the reporting period on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. (iii) Superannuation and Pension Benefits Group companies make the statutory superannuation guarantee contribution in respect of each employee to their nominated complying superannuation or pension fund. In certain circumstances pursuant to an employee’s employment contract the group companies may also be required to make additional superannuation or pension contributions and/or agree to make salary sacrifice superannuation or pension 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 or pension plans are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in future payments is available. (iv) Employee benefits on-costs Employee benefit on-costs, including payroll tax, are recognised and included in other payables 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”), a CEO Equity Incentive Plan, an Employee Share Plan ($1,000 Plan), and an Employee Performance Rights Plan. Information relating to these plans is set out in note 25 and section D of the remuneration report under the directors’ report. The fair value of options and performance rights granted 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 or rights The fair value at grant date is determined using a Black-Scholes model (or variant of) that takes into account any exercise price, the term, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option or share right, 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. The fair value 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 or share rights that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options or share rights 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. Under the Employee Share Plan ($1,000 Plan) shares are issued to employees for no cash consideration and vest immediately on grant. On this date, the market value of the shares issued is recognised as an employee benefits expense with a corresponding increase in equity. ANNUAL REPORT 2011 (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 than 12 months after the end of the reporting period are discounted to present value. (t) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares, performance rights 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. (u) 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 reporting period but not distributed at the end of the reporting period. (v) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners 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 and excluding treasury shares. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. (w) 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 from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. (x) 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 statements. Amounts in the financial statements have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. 4 1 STARPHARMA HOLDINGS LIMITED (y) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2011 reporting periods. The group's assessment of the impact of these new standards and interpretations is set out below. (i) AASB 9 Financial Instruments, AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 and AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (effective from 1 January 2013) AASB 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until 1 January 2013 but is available for early adoption. When adopted, the standard will affect in particular the group’s accounting for its available-for-sale financial assets, since AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not held for trading. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss. In the current reporting period, the group recognised $15,000 of such gains in other comprehensive income. There will be no impact on the group’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the group does not have any such liabilities. The derecognition rules have been transferred from AASB 139 Financial Instruments: Recognition and Measurement and have not been changed. The group has not yet decided when to adopt AASB 9. (ii) Revised AASB 124 Related Party Disclosures and AASB 2009- 12 Amendments to Australian Accounting Standards (effective from 1 January 2011) In December 2009 the AASB issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The group will apply the amended standard from 1 July 2011. When the amendments are applied, the group will need to disclose any transactions between its subsidiaries and its associates. However, there will be no impact on any of the amounts recognised in the financial statements. (iii) AASB 2009-14 Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement (effective from 1 January 2011) In December 2009, the AASB made an amendment to Interpretation 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The amendment removes an unintended consequence of the interpretation related to voluntary prepayments when there is a minimum funding requirement in regard to the entity's defined benefit scheme. It permits entities to recognise an asset for a prepayment of contributions made to cover minimum funding requirements. The group does not make any such prepayments. The amendment is therefore not expected to have any impact on the group's financial statements. The group intends to apply the amendment from 1 July 2011. (iv) AASB 1053 Application of Tiers of Australian Accounting Standards and AASB 2010-2 Amendments to Australian Accounting Standards arising from Reduced Disclosure Requirements (effective from 1 July 2013) On 30 June 2010 the AASB officially introduced a revised differential reporting framework in Australia. Under this framework, a two-tier differential reporting regime applies to all entities that prepare general purpose financial statements. Starpharma Holdings Limited is listed on the ASX and is not eligible to adopt the new Australian Accounting Standards – Reduced Disclosure Requirements. The two standards will therefore have no impact on the financial statements of the entity. (v) AASB 2010-6 Amendments to Australian Accounting Standards – Disclosures on Transfers of Financial Assets (effective for annual reporting periods beginning on or after 1 July 2011) Amendments made to AASB 7 Financial Instruments: Disclosures in November 2010 introduce additional disclosures in respect of risk exposures arising from transferred financial assets. The amendments will affect particularly entities that sell, factor, securitise, lend or otherwise transfer financial assets to other parties. They are not expected to have any significant impact on the group's disclosures. The group intends to apply the amendment from 1 July 2011. (vi) AASB 2010-8 Amendments to Australian Accounting Standards – Deferred Tax: Recovery of Underlying Assets (effective from 1 January 2012) In December 2010, the AASB amended AASB 112 Income Taxes to provide a practical approach for measuring deferred tax liabilities and deferred tax assets when investment property is measured using the fair value model. AASB 112 requires the measurement of deferred tax assets or liabilities to reflect the tax consequences that would follow from the way management expects to recover or settle the carrying amount of the relevant assets or liabilities that is through use or through sale. The amendment introduces a rebuttable presumption that investment property which is measured at fair value is recovered entirely by sale. The group will apply the amendment from 1 July 2012. There will be no impact on any of the amounts recognised in the financial statements. (z) Parent entity financial information The financial information for the parent entity, Starpharma Holdings Limited, disclosed in note 27 has been prepared on the same basis as the consolidated financial statements, except as set out below. (i) Investments in subsidiaries, associates and joint venture entities Investments in subsidiaries, associates and joint venture entities are accounted for at cost in the financial statements of Starpharma Holdings Limited. Dividends received from associates are recognised in the parent entity’s profit or loss, rather than being deducted from the carrying amount of these investments. (ii) Share-based payments The grant by the company of options and rights over its equity instruments to the employees of subsidiary undertakings in the group is treated as a capital contribution to that subsidiary undertaking. The fair value of employee services received, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity. 2 4  ANNUAL REPORT 2011 2. Financial risk management The group’s activities expose it to a variety of financial risks; including market risk, credit risk and liquidity risk. The group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the group. The chief executive officer, chief financial 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 Trade and other payables Deferred Income Group Sensitivity 2011 US $’000 3,492 517 534 297 Consolidated 2010 US $’000 3,890 733 898 508 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 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% 2011 $’000 (269) 329 (ii) Cash Flow Interest Rate Risk The group hold interest bearing assets and therefore the income and operating cash flows are exposed to market interest rates. At the end of the reporting period, the group had the following at call and short term deposits maturing in of 30 to 180 days. Deposits at call Group Sensitivity 2011 $’000 16,819 Consolidated 2010 $’000 (343) 420 Consolidated 2010 $’000 20,141 At 30 June 2011, 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 $269,000 higher or lower (2010 - change of 50 bps: $103,000 higher/lower) due to either higher or lower interest income from cash or cash equivalents. (b) Credit risk Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures from royalty and licensing agreements and product sales. Credit risk for cash and deposits with banks and financial institutions is managed by maximising deposits held under major Australian and US banks. Other than government funded research and development programs, third party receivables largely consist of research fees, royalty and licensing receivables from leading, multinational organisations. 4 3 STARPHARMA HOLDINGS LIMITED (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities. The directors regularly monitor the cash position of the group, 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 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 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 their previously estimated lives. The carrying value of intangible assets at 30 June 2011 is $9,586,000 (2010: $13,118,000). ii) Impairment of Goodwill The group tests annually whether goodwill has suffered any impairment. In accordance with the accounting policy stated in notes 1(i) and 1(o). 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 11 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 4. Segment information Management has determined the operating segments based on separate reportable segments to the Chief Executive Officer, who is the chief operating decision maker. There are two reportable segments within the group, with companies operating across two jurisdictions - in Australia and United States of America (“USA”). Dendritic Nanotechnologies Inc. (“DNT”) is domiciled in the USA 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. 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. (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 in February 2007 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. and it has been determined that on the basis of internal reporting and monitoring of the USA operations. The principal activities of the group consist of development and commercialisation of dendrimer products for pharmaceutical, life-science and other applications. 4 4 Reportable segments 2011 Revenue and other income Expenses ANNUAL REPORT 2011 Australia $’000 3,192 (10,772) USA $’000 659 (2,073) Inter-segment Eliminations $’000 (548) 612 Total $’000 3,303 (12,233) Loss before income tax (7,580) (1,414) 64 (8,930) Segment net assets 24,096 3,815 (218) 27,693 2010 Revenue and other income Expenses Australia $’000 5,363 (10,244) USA $’000 1,160 (2,639) Loss before income tax (4,881) (1,479) Segment net assets 28,172 6,701 Inter-segment Eliminations $’000 (615) 594 (21) (29) Total $’000 5,908 (12,289) (6,381) 34,844 Sales between segments are carried out at arm's length and are eliminated upon consolidation. The revenue from external parties reported to the board is measured in a manner consistent with that in the income statement. 5. Revenue and other income Revenue and other income Royalty, customer & licence revenue Interest revenue Other revenue Total revenue Australian Government grants USA Government grants Total other income Total revenue and other income 2011 $’000 1,121 981 23 2,125 92 1,086 1,178 3,303 Consolidated 2010 $’000 1,404 699 – 2,103 167 3,638 3,805 5,908 Australian Government grants consisted of export market development grants of $86,000 (2010: $161,000) and the Victorian Government science and technology international partnering program $6,000 (2010: Nil). USA Government grants consisted of grants from the National Institutes of Health, USA Department of Health. 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 directly from any other form of government assistance. 4 5 STARPHARMA HOLDINGS LIMITED 6. Expenses Loss from continuing operations before income tax expense includes the following items: Depreciation Amortisation Rental expense on operating leases Defined contribution superannuation expense 7. Income tax expense (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 tax credit Deferred income tax credit (revenue) / expense included in income tax credit comprises: (Decrease) in deferred tax liabilities (b) Numerical reconciliation to income tax credit prima facie tax payable Loss from continuing operations before income tax Tax at the Australian tax rate of 30% (2009: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income Share-based payments Difference in overseas tax rates Future income tax benefits not brought to account Income tax credit 6 4 2011 $’000 172 1,360 285 426 2011 $’000 – – – – – – – – (8,930) (2,679) 136 51 2,492 – Consolidated 2010 $’000 227 1,470 341 383 Consolidated 2010 $’000 5 (8) (3) (3) – (3) – – (6,380) (1,914) 380 47 1,484 (3) (c) Tax losses Unused tax losses for which no deferred tax asset has been recognised (as recovery is currently not probable) Potential tax benefit (d) 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 ANNUAL REPORT 2011 67,575 20,445 1,140 342 55,179 16,554 694 208 Potential future income tax benefits attributable to tax losses carried forward have not been brought to account at 30 June 2011 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 is making an assessment as to the satisfaction of deductibility conditions at 30 June 2011 which it believes will be satisfied. 8. Current assets – Cash and cash equivalents Cash at bank and on hand Deposits at call Cash at bank and on hand The cash is bearing floating interest rates based on current bank rates. Deposits at call 2011 $’000 2,099 16,819 18,918 Consolidated 2010 $’000 2,710 20,141 22,851 The deposits are bearing floating interest rates ranging from 0.05% to 6.19% (2010: 0.15% to 6.00%). These deposits are of 30-180 day maturities. Cash not available There is $186,000 of cash not available for use due to restrictions associated with a finance lease and credit card facility which is guaranteed by term deposits (2010: $165,000). Interest rate risk With the exception of loans to controlled entities, current receivables are non-interest bearing. 4 7 STARPHARMA HOLDINGS LIMITED 30 June 2011 Floating Interest rate Fixed interest maturing Notes $’000 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 Contractual cash flows Total $’000 Financial Assets Cash and deposits Receivables 8 9 Weighted average interest rate Financial Liabilities Payables and provisions Borrowings 12 13 Deferred income Weighted average interest rate 30 June 2010 1,584 15,858 – – 1,584 15,858 – – – – – – – – – – – – – – – 1,476 18,918 N/A 1,023 1,023 1,023 2,499 19,941 1,023 3.6% 5.5% –% –% –% –% –% –% – – – – – 66 – 66 – – – – – – – – – – – – – – – – – – – – 1,699 1,699 1,699 – 349 66 349 66 349 2,048 2,114 2,114 –% 10.1% –% –% –% –% –% –% Floating Interest rate Fixed interest maturing Notes $’000 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 Contractual cash flows Total $’000 Financial Assets Cash and deposits Receivables 8 9 Weighted average interest rate Financial Liabilities Payables and provisions Borrowings 12 13 Deferred income Weighted average interest rate 8 4 1,280 19,339 – – 1,280 19,339 – – – – – – – – – – – – – – – 2,232 22,851 N/A 1,379 1,379 1,379 3,611 24,230 1,379 3.1% 5.4% –% –% –% –% –% –% – – – – – 160 – 160 – – – – – – – – – – – – – – – – – – – – 1,934 1,934 1,934 – 629 160 629 160 629 2,563 2,723 2,723 –% 7.8% –% –% –% –% –% –% 9. Current assets – Trade and other receivables Trade and grant receivables Interest receivables Prepayments Other receivables ANNUAL REPORT 2011 2011 $’000 604 183 153 83 1,023 Consolidated 2010 $’000 932 315 56 76 1,379 Trade and grant receivables Trade receivables primarily comprise of customer royalty and licence revenue and are subject to normal terms of settlement within 30 to 90 days. Grant receivables comprise of expenditure reimbursable under grants from the USA government, including the National Institutes of Health (“NIH”) which are subject to normal terms of settlement within 30 days from invoice. Credit risk The group considers that there is no significant concentration of credit risk with respect to current receivables. Grant receivables are with government bodies and trade receivables are from large, well respected companies. Loans to controlled entities are assessed for recoverability and provisions are applied as considered appropriate. Impaired receivables As at 30 June 2011, trade and grant receivables of $80,000 (2010: $140,000) were past due. These relate to grant funding and customers for whom there is no recent history of default. No receivables are considered impaired at 30 June 2011 (2010: nil) other than from subsidiaries within the group. Other receivables Other receivables comprise sundry debtors and GST claimable and are subject to normal terms of settlement within 30 to 90 days. 10. Non-current assets – Property, plant and equipment Consolidated At 30 June 2009 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2010 Opening net book amount Exchange differences Additions Disposals Depreciation and amortisation Closing net book amount Plant and Equipment $’000 Leasehold improvements $’000 Plant and Equipment under finance lease $’000 Total Plant and Equipment $’000 2,337 (2,112) 225 225 (4) 26 (24) (85) 138 1,141 (1,133) 8 8 – – – (3) 5 294 (80) 214 214 – – – (138) 76 3,772 (3,325) 447 447 (4) 26 (24) (226) 219 4 9 STARPHARMA HOLDINGS LIMITED At 30 June 2010 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2011 Opening net book amount Exchange differences Additions Disposals Depreciation and amortisation Closing net book amount At 30 June 2011 Cost Accumulated depreciation and amortisation Net book amount 11. Non-current assets – Intangible assets Consolidated At 30 June 2009 Cost Accumulated depreciation and amortisation Net book amount Year ended 30 June 2010 Opening net book amount Exchange differences Depreciation and amortisation Closing net book amount At 30 June 2010 Cost Accumulated depreciation and amortisation Net book amount 0 5 2,246 (2,108) 138 138 (2) 102 (7) (61) 170 2,042 (1,872) 170 1,141 (1,136) 5 5 – 44 – (11) 38 1,185 (1,147) 38 614 (538) 76 76 – 96 – (100) 72 272 (200) 72 4,001 (3,782) 219 219 (2) 242 (7) (172) 280 3,499 (3,219) 280 Patents & Licences $’000 Goodwill $’000 Total Intangibles $’000 18,244 (4,855) 13,389 13,389 (548) (1,470) 11,371 17,578 (6,207) 11,371 1,835 – 1,835 1,835 (88) – 1,747 1,747 – 1,747 20,079 (4,855) 15,224 15,224 (636) (1,470) 13,118 19,325 (6,207) 13,118 Year ended 30 June 2011 Opening net book amount Exchange differences Depreciation and amortisation Closing net book amount At 30 June 2011 Cost Accumulated depreciation and amortisation Net book amount ANNUAL REPORT 2011 1,747 (360) – 1,387 1,387 – 1,387 13,118 (2,172) (1,360) 9,586 16,241 (6,655) 9,586 11,371 (1,812) (1,360) 8,199 14,854 (6,655) 8,199 (a) Impairment tests for goodwill 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 has companies in both Australia and the United States – these are also determined to be the Cash Generating Units (CGUs) of the Group. The directors have determined that the goodwill (which arose on the acquisition of the remaining share of the US business and intellectual property) should be allocated across these CGUs as the business combination gives rise to synergies within both Starpharma’s Australian and United States companies and their intellectual property. The recoverable amounts of the group’s CGUs have been determined based on estimation of their fair value less costs to sell. (b) Key assumptions used for fair value less costs to sell estimation 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 group. Given the excess of the market capitalisation of Starpharma Holdings Limited over the carrying value of total assets (including goodwill) at 30 June 2011, goodwill is not considered to be impaired at the end of the reporting period. (c) Impairment tests for finite life intangible assets Identifiable intangible assets with finite lives are carried at cost less accumulated amortisation and adjusted for any accumulated impairment loss. The directors have assessed these assets for indicators of impairment at 30 June 2011 and determined that there is no indication that the asset is impaired. 12. Current liabilities – Trade and other payables Trade payables Other payables 2011 $’000 940 287 1,227 Consolidated 2010 $’000 1,346 235 1,581 5 1 STARPHARMA HOLDINGS LIMITED 13. Current and Non-current liabilities – Borrowings 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 $66,000 at 30 June 2011 (2010: $160,000). 2011 Floating Interest rate Fixed interest rate Notes 1 year or less $’000 Over 1–2 years $’000 Over 2–3 years $’000 Over 3–4 years $’000 Over 4–5 years $’000 Over 5 years $’000 Total $’000 Lease Liabilities 20 – 49 17 Weighted average interest rate –% 10.1% 10.1% – –% – – – 66 –% –% –% 2010 Floating Interest rate Fixed interest rate Notes 1 year or less $’000 Over 1–2 years $’000 Over 2–3 years $’000 Over 3–4 years $’000 Over 4–5 years $’000 Over 5 years $’000 Total $’000 Lease Liabilities 20 – 160 Weighted average interest rate –% 7.8% – –% – –% – – – 160 –% –% –% 14. Contributed equity (a) Share Capital Share Capital Consolidated Consolidated 2011 Shares 2010 Shares 2011 $’000 2010 $’000 Ordinary shares – fully paid 247,743,578 238,842,208 105,399 101,766 (b) Movements in ordinary share capital Date Details Number of shares Issue Price 01 Jul 2009 207,218,113 24 Nov 2009 Share placement 30,000,000 $0.52 less transaction costs 25 Jan 2010 Employee share plan ($1,000) issue 29 Jan 2010 Proceeds on exercise of employee options 11 Feb 2010 Proceeds on exercise of employee options 22 Feb 2010 Proceeds on exercise of employee options 25 Feb 2010 Proceeds on exercise of employee options 31 Mar 2010 CEO equity incentive plan share issue 24 Jun 2010 Proceeds on exercise of employee options Balance at 30 June 2010 2 5 25,524 10,000 60,000 40,000 20,000 1,428,571 40,000 238,842,208 $0.70 $0.50 $0.50 $0.50 $0.50 $0.69 $0.50 $’000 85,640 15,600 (563) 18 5 30 20 10 986 20 101,766  ANNUAL REPORT 2011 Date Details Number of shares Issue Price 9 Sep 2010 Proceeds on exercise of employee options 24 Sep 2010 Proceeds on exercise of employee options 13 Oct 2010 Proceeds on exercise of employee options 25 Oct 2010 Proceeds on exercise of employee options 3 Nov 2010 Proceeds on exercise of employee options 10 Nov 2010 Proceeds on exercise of employee options 11 Nov 2010 Proceeds on exercise of employee options 17 Nov 2010 Proceeds on exercise of employee options 17 Nov 2010 Proceeds on exercise of options 26 Nov 2010 Proceeds on exercise of employee options 2 Dec 2010 Proceeds on exercise of options 10 Dec 2010 Proceeds on exercise of employee options 20 Dec 2010 Proceeds on exercise of employee options 24 Dec 2010 Proceeds on exercise of options 10 Jan 2011 CEO equity incentive plan share issue 1 Feb 2011 Employee share plan ($1,000) issue 3 Feb 2011 Proceeds on exercise of options 14 Feb 2011 Proceeds on exercise of options 17 Feb 2011 Proceeds on exercise of employee options 7 Mar 2011 Proceeds on exercise of options 22 Mar 2011 Proceeds on exercise of employee options 28 Mar 2011 Proceeds on exercise of options 4 Apr 2011 Proceeds on exercise of options 19 May 2011 Proceeds on exercise of employee options 14 Jun 2011 Proceeds on exercise of options 250,000 280,000 50,000 50,000 172,000 350,000 150,000 290,000 20,000 168,000 600,000 175,000 30,000 750,000 487,500 28,560 600,000 600,000 150,000 639,453 210,000 1,010,000 1,500,000 158,000 182,857 $0.29 $0.50 $0.29 $0.29 $0.35 $0.50 $0.50 $0.39 $0.52 $0.48 $0.43 $0.41 $0.29 $0.43 $ – $0.84 $0.43 $0.43 $0.43 $0.43 $0.43 $0.43 $0.43 $0.34 $0.43 $’000 72 140 14 14 60 176 75 114 10 81 261 72 9 327 – 24 261 261 65 278 95 439 652 54 79 Balance at 30 June 2011 247,743,578 105,399 (c) Ordinary shares As at 30 June 2011 there were 247,743,578 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. There is no current on- market share buy-back. (d) Employee Share Plan ($1,000 Plan) Information relating to the Employee Share Plan, including details of shares issued under the plan, is set out in note 25. (e) CEO Equity Incentive Plan Information relating to the CEO Equity Incentive Plan, including details of shares issued under the plan, is set out in note 25. (f) Employee Performance Rights Plan Information relating to the Employee Performance Rights Plan, including details of rights issued under the plan, is set out in note 25. 5 3 STARPHARMA HOLDINGS LIMITED (g) Options (h) Capital risk management 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 25. 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. 15. 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 Share option expense Performance right expense Balance at 30 June Foreign currency translation reserve Balance at 1 July Currency translation differences arising during the year Balance at 30 June 2011 $’000 2,842 (4,035) 2,215 1,022 2011 $’000 2,412 139 291 2,842 (1,751) (2,284) (4,035) Consolidated 2010 $’000 2,412 (1,751) 2,215 2,876 Consolidated 2010 $’000 2,148 182 82 2,412 (1,084) (667) (1,751) (c) Nature and purpose of reserves (i) Share-based payments reserve The share-based payments reserve is used to recognise the fair value of options and performance rights granted. (ii) Foreign currency translation reserve Exchange differences arising on translation of the foreign 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 The uplift in fair value of the identifiable net assets of DNT on the company’s acquisition of the remaining share in October 2006 was recognised in reserves. 4 5 16. Accumulated Losses Accumulated losses balance at 1 July Net loss for the year Accumulated losses balance at 30 June 17. Key management personnel disclosures (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Other long term benefits Termination benefits Share-based payments ANNUAL REPORT 2011 Consolidated 2010 $’000 (63,420) (6,378) (69,798) Consolidated 2010 $’000 1,550 267 31 – 1,185 3,033 2011 $’000 (69,798) (8,930) (78,728) 2011 $’000 1,826 255 39 – 324 2,444 Detailed remuneration disclosures are provided in sections A-D of the remuneration report on pages 15 to 24. (b) Equity instrument disclosures relating to key management personnel (i) Options provided as remuneration and shares issued on exercise of such options Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section D of the remuneration report on pages 20 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. 2011 Name Balance at the start of the year Granted during the year as compensation Directors of Starpharma Holdings Limited 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 Unvested J K Fairley 650,000 Other key management personnel of the group B P Rogers 400,000 J R Paull C P Barrett N J Baade D J Owen M L McColl 475,000 575,000 425,000 425,000 – – – – – – – – 350,000 (300,000) – – 100,000 (100,000) 200,000 200,000 350,000 – 125,000 125,000 175,000 (200,000) 200,000 200,000 300,000 200,000 – – – – 125,000 125,000 225,000 225,000 – – – – – – – – – 5 5 STARPHARMA HOLDINGS LIMITED 2010 Name Balance at the start of the year Granted during the year as compensation Directors of Starpharma Holdings Limited 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 Unvested J K Fairley 650,000 Other key management personnel of the group B P Rogers 400,000 J R Paull C P Barrett N J Baade D J Owen 475,000 575,000 425,000 425,000 – – – – – – – – – – – – # Other Changes during the year relate to the expiry of options. Performance rights holdings The numbers of rights 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. Except for J K Fairley, no other director held share rights in the current or – – – – – – 650,000 650,000 – 400,000 200,000 200,000 475,000 200,000 275,000 575,000 300,000 275,000 425,000 200,000 225,000 425,000 200,000 225,000 prior year. J K Fairley was granted 750,000 rights to ordinary shares as part of a CEO equity incentive plan on 31 March 2010. The granting of these performance rights was approved by shareholders on 25 March 2010. 2011 Name Balance at the start of the year Granted during the year as compensation Directors of Starpharma Holdings Limited Vested during the year Other changes during the year# Balance at the end of the year Vested and exercisable at the end of the year Unvested J K Fairley 750,000 – 487,500 (262,500) – – – Other key management personnel of the group B P Rogers J R Paull C P Barrett N J Baade D J Owen M L McColl – – – – – – 65,000 80,000 80,000 80,000 80,000 80,000 – – – – – – – – – – – – 65,000 80,000 80,000 80,000 80,000 80,000 – – – – – – 65,000 80,000 80,000 80,000 80,000 80,000 # Other Changes during the year relate to the forfeit of performance rights 6 5 2010 Name Balance at the start of the year Granted during the year as compensation Directors of Starpharma Holdings Limited J K Fairley – 750,000 Other key management personnel of the group B P Rogers J R Paull C P Barrett N J Baade D J Owen – – – – – – – – – – ANNUAL REPORT 2011 Vested during the year Other changes during the year Balance at the end of the year Vested and exercisable at the end of the year Unvested – – – – – – – – – – – – 750,000 – 750,000 – – – – – – – – – – – – – – – 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 received during the prior reporting period on the exercise of options. Key management personnel of the group, excluding directors, were eligible to participate in the Employee Share Plan ($1,000 Plan). Shares to the value of $1,000 where granted to Australian- based permanent employees under the plan during the current and prior year. On 10 January 2011, 487,500 of shares were issued to J K Fairley as part of the CEO equity incentive plan based on performance achievements to 31 December 2010. On 31 March 2010, J K Fairley was granted 1,428,571 fully paid ordinary shares as part of the CEO equity incentive plan. The granting of shares and rights was approved by shareholders on 25 March 2010. No director has entered into a material contract with the group in either the current or previous financial year and there were no material contracts involving directors’ interests subsisting at year end. 2011 Name Balance at the start of the year Granted during the year as compensation On exercise of share options during the year On vesting of performance rights during the year 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 Raff1 R Dobinson 129,804 1,482,321 7,280,777 - P J Jenkins 1,426,000 R A Hazleton 142,616 Other key management personnel of the group Ordinary Shares B P Rogers J R Paull C P Barrett N J Baade D J Owen M L McColl 1 Resigned 17 June 2011 67,040 1,418 1,418 1,418 1,418 – – – – – – – 1,190 1,190 1,190 1,190 1,190 1,190 – – – 129,804 350,000 487,500 (500,000) 1,819,821 – – – – 100,000 350,000 175,000 300,000 200,000 – – – – – – – – – – – – – – – 7,280,777 – 1,426,000 142,616 (126,775) (340,000) (175,000) 41,455 12,608 2,608 (170,000) 132,608 (150,000) – 52,608 1,190 5 7 STARPHARMA HOLDINGS LIMITED 2010 Name Balance at the start of the year Granted during the year as compensation 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 R Dobinson P J Jenkins R A Hazleton 129,804 53,750 7,280,777 - 1,416,000 142,616 Other key management personnel of the group Ordinary Shares B P Rogers J R Paull C P Barrett N J Baade D J Owen 65,622 – – – – – 1,428,571 – – – – 1,418 1,418 1,418 1,418 1,418 – – – 129,804 1,482,321 7,280,777 - 10,000 1,426,000 - – – – – – 142,616 67,040 1,418 1,418 1,418 1,418 18. 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 group are important. Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below. 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: (a) Statutory 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 statutory audit services (b) Other audit services Other audit services: Grant reviews & program audits PricewaterhouseCoopers Total remuneration for other audit services Total remuneration of auditors 8 5 2011 $ 113,000 – 113,000 18,000 18,000 131,000 Consolidated 2010 $ 124,500 – 124,500 27,300 27,300 151,800  ANNUAL REPORT 2011 19. Contingencies The Company has no contingent assets or liabilities at 30 June 2011 (2010: nil). 20. Commitments (a) Capital Commitments There is no capital expenditure contracted for, not recognised as liabilities at the reporting date (2010: nil). (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 Operating leases 2011 $’000 335 355 – 690 624 71 (5) 690 Consolidated 2010 $’000 452 59 – 511 351 164 (4) 511 The group leases laboratory and offices under a lease until 31 August 2013 and leases various plant and equipment under cancellable operating leases. 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 2011 $’000 286 338 – 624 Consolidated 2010 $’000 293 58 – 351 5 9 STARPHARMA HOLDINGS LIMITED Finance Leases The group leases plant and equipment with a carrying amount of $66,000 (2010: $160,000) under a finance leases expiring within two years. Commitments in relation to finance leases are payable as follows: Notes Not later than one year Later than one year and not later than five years Later than five years Minimum lease payments Future finance charges Recognised as a liability Representing finance lease liabilities: Current Non-Current 13 13 2011 $’000 53 18 – 71 (5) 66 49 17 66 Consolidated 2010 $’000 164 – – 164 (4) 160 160 – 160 The weighted average interest rate implicit in the lease is 10.1% (2010: 7.8%). (c) Expenditure Commitments The group has entered into various agreements for research and development services. These agreements have typical termination provisions to limit the commitment to the time and materials expended at termination, or up to an approved work order amount. (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 for details of these commitments. 21. Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b). Name of entity Starpharma Pty Limited Angiostar Pty Limited Viralstar Pty Limited Dendritic Nanotechnologies Inc. Country of Incorporation Class of Shares Australia Australia Australia USA Ordinary Ordinary Ordinary Ordinary Equity Holding 2010 % 100.00% 100.00% 100.00% 100.00% 2011 % 100.00% 100.00% 100.00% 100.00% 22. Events occurring after the balance sheet date On 17 August 2011, Starpharma announced two important developments in relation to the commercialisation of its VivaGel®- coated condom. the Licence granted to Reckitt Benckiser (RB; formerly with SSL International plc) to commercialise the VivaGel®-coated condom and all of RB’s rights to the product, effective immediately. 1. Starpharma terminates condom coating agreement with 2. Starpharma executes condom coating agreement with Ansell Reckitt Benckiser Due to the failure to achieve satisfactory progress in relation to certain commercialisation milestones for the VivaGel®-coated condom, Starpharma’s Board has taken the decision to terminate Starpharma has executed a Licence Agreement with Ansell Limited (ASX:ANN) giving Ansell marketing rights to the VivaGel®- coated condom. The Agreement covers marketing rights to the 0 6 coated condom in countries which exclude Japan and a number of Asian markets. product, which will include the VivaGel® brand together with the respective Ansell brand. Under the agreement Ansell will pay Starpharma royalties on sales of VivaGel®-coated condoms and will support registration and other commercialisation costs. Ansell is also responsible for manufacturing the VivaGel®-coated condom and marketing of the There are no other significant events occurring since 30 June 2011 that have significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of the group. ANNUAL REPORT 2011 23. Reconciliation of profit after income tax to net cash inflow from operating activities Operating loss after tax: Depreciation and amortisation Foreign exchange (gains) / losses Non-cash employee benefits: share-based payments Change in operating assets and liabilities, net of effects of acquisitions and disposals of entities: Decrease in receivables and other assets Increase (decrease) increase in trade creditors Increase in employee provisions Decrease in deferred income Gain (loss) on sale of property, plant and equipment Net cash outflows from operating activities 24. Earnings per share Basic loss per share Diluted loss per share 2011 $’000 (8,930) 1,532 827 456 357 (354) 120 (477) (7) Consolidated 2010 $’000 (6,378) 1,697 75 1,268 202 (183) 15 (326) – (6,476) (3,630) 2011 $ (0.04) (0.04) Consolidated 2010 $ (0.03) (0.03) Net loss attributable to members of Starpharma Holdings Ltd used as the numerator in calculating diluted and basic earnings per share ($’000) (8,930) (6,378) Weighted average number of ordinary shares outstanding during the year used as the denominator in calculating diluted and basic earnings per share 242,556,106 225,551,542 25. Share-based payments Options (a) Employee Option Plan The establishment of the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) 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. The vesting period is 1 to 2 years from date of grant, with the exercise period 2 to 3 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. (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 6 1 STARPHARMA HOLDINGS LIMITED 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 August 2007. 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. Set out below are summaries of options under the schemes: 2011 Grant Date Expiry Date Exercise Price Balance at start of the year Exercised during the year Forfeited during the year Expired during the year Balance at end of the year Exercisable at end of the year $ Number Number Number Number Number Number Consolidated and parent entity 4 Jul 2005 a 4 Jul 2010 $0.94 300,000 18 Jul 2005 a 18 Jul 2010 $0.94 100,000 – – 6 Oct 2006 a 6 Oct 2010 $0.50 898,000 280,000 2 Jan 2007 b 2 Jan 2011 $0.52 20,000 20,000 4 Apr 2007 a 4 Apr 2011 $0.50 590,000 590,000 21 Aug 2007c 22 Aug 2012 $0.43 7,567,119 5,882,310 – – – – – – 31 Oct 2007 a 7 Aug 2011 $0.50 370,000 300,000 40,000 14 Nov 2007 a 4 Apr 2011 $0.50 150,000 150,000 14 Nov 2007 a 8 Aug 2011 $0.50 200,000 200,000 1 Jan 2009 a 28 Aug 2012 $0.29 1,358,000 963,000 1 Jan 2009 b 28 Aug 2012 $0.29 20,000 29 Jun 2009 a 28 Jun 2014 $0.37 1,144,000 – – – – – – 30,000 300,000 100,000 618,000 – – – – – – – – – – – – – – – – – – – 1,684,809 1,684,809 30,000 30,000 – – – – 395,000 395,000 20,000 20,000 1,114,000 1,114,000 Total 12,717,119 8,385,310 70,000 1,018,000 3,243,809 3,243,809 Weighted average exercise price $0.44 $0.43 $0.45 $0.67 $0.39 $0.39 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 granted in the current year. 2 6  ANNUAL REPORT 2011 2010 Grant Date Expiry Date Consolidated and parent entity Exercise Price Balance at start of the year Exercised during the year Forfeited during the year Expired during the year Balance at end of the year Exercisable at end of the year $ Number Number Number Number Number Number 31 Dec 2004 a 31 Dec 2009 $0.94 86,000 4 Jul 2005 a 4 Jul 2010 $0.94 300,000 18 Jul 2005 a 18 Jul 2010 $0.94 100,000 – – – – – – 6 Oct 2006 a 6 Oct 2010 $0.50 1,038,000 130,000 10,000 2 Jan 2007 b 2 Jan 2011 $0.52 20,000 4 Apr 2007 a 4 Apr 2011 $0.50 590,000 21 Aug 2007c 22 Aug 2012 $0.43 7,567,119 12 Oct 2007 b 31 Jul 2009 $0.43 10,000 12 Oct 2007 b 31 Aug 2009 $0.43 10,000 – – – – – – – – – – 31 Oct 2007 a 7 Aug 2011 $0.50 550,000 40,000 140,000 14 Nov 2007 a 4 Apr 2011 $0.50 150,000 14 Nov 2007 a 8 Aug 2011 $0.50 200,000 1 Jan 2009 a 28 Aug 2012 $0.29 1,578,000 1 Jan 2009 b 28 Aug 2012 $0.29 20,000 29 Jun 2009 a 28 Jun 2014 $0.37 1,464,000 – – – – – – – 220,000 – 320,000 86,000 – – – – – – – – 300,000 300,000 100,000 100,000 898,000 898,000 20,000 20,000 590,000 590,000 7,567,119 7,567,119 10,000 10,000 – – – – – – – – – – 370,000 370,000 150,000 150,000 200,000 200,000 1,358,000 20,000 1,144,000 – – – Total 13,683,119 170,000 690,000 106,000 12,717,119 10,195,119 Weighted average exercise price $0.44 $0.50 $0.37 $0.76 $0.44 $0.47 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 granted in the prior year. The weighted average share price at the date of exercise of options exercised during the year ended 30 June 2011 was $0.43 (2010: $0.50). The weighted average remaining contractual life of share options outstanding at the end of the period was 1.77 years (2010: 1.98 years). Where options are issued to employees of subsidiaries within the group, the subsidiaries compensate Starpharma Holdings Limited for the amount recognised as expense in relation to these options. (d) Fair value of options granted There were no options granted in the current or prior year. The fair value at grant date of options granted in earlier years were 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. Shares (a) Employee Share Plan ($1,000 Plan) All executives and staff, excluding directors, are eligible to participate in the Starpharma Employee Share Plan ($1,000 Plan). The objective of the $1,000 Plan is to assist in the reward, retention and motivation of employees of the group. An annual allocation of up to $1,000 of shares may be granted and taxed on a concessional basis. Shares are granted under the $1,000 Plan for no consideration and are escrowed for 3 years while participants are employed by the group. 6 3 STARPHARMA HOLDINGS LIMITED (b) Fair value of shares granted The weighted average assessed fair value at grant date of employee shares granted during the year ended 30 June 2011 was $0.84 (2010: $0.69 per share). The fair value at grant date is determined by the share price on the date of grant. Employee shares were granted for no consideration. Information used in assessing the fair value of shares granted during the year ended 30 June 2011 is as follows: Share grant date Number of shares granted Share price at grant date Assessed fair value 1 February 2011 28,560 $0.84 $0.84 Information used in assessing the fair value of shares granted during the year ended 30 June 2010 is as follows: Share grant date Number of shares granted Share price at grant date Assessed fair value 1 Shares issued under the CEO Equity Incentive Plan. Employee Performance Rights (a) CEO Equity Incentive Plan Details are provided in section D of the remuneration report. (b) Employee Performance Rights Plan In 2010 the Board approved the introduction of the Starpharma Employee Performance Rights Plan. All executives and staff are eligible to participate in the Plan. The Plan allows for the issue of performance rights (being rights to receive fully paid ordinary shares subject to continued employment with the Company and the satisfaction of certain performance hurdles over a specified period). A further holding lock period may also be applied to restrict disposal after the vesting date. Performance rights are granted under the Plan for no consideration. The objective of the Plan is to assist in the recruitment, reward, retention and motivation of employees of the company. 24 Jan 2010 31 March 20101 25,524 $0.70 $0.70 1,428,571 $0.69 $0.69 (c) Fair value of performance rights granted The weighted average assessed fair value at grant date of performance rights granted during the year ended 30 June 2011 was $0.39 per right (2010: $0.33). There were 830,800 performance rights granted in the current year (2010: 750,000). The estimated fair value at grant date is determined using a modified Black-Scholes option pricing model that takes into account the exercise price, the performance measure, the term of the right, 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, adjusted for any expected changes to future volatility due to publicly available information. Information used in assessing the fair value of performance rights granted during the year ended 30 June 2011 is as follows: Right grant date Number of rights granted Vesting date Disposal Restriction until Performance Measure Expected price volatility of the company's shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value 4 6 2 September 2010 830,800 31 August 2012 31 August 2013 KPIs 31% 5.1% - $0.49 $0.39 KPIs 41% 5.3% - $0.69 $0.55 Consolidated 2010 $’000 182 – 1,004 82 1,268 Information used in assessing the fair value of performance rights granted during the year ended 30 June 2010 is as follows: ANNUAL REPORT 2011 Right grant date Number of rights granted Vesting date Disposal Restriction until Performance Measure Expected price volatility of the company's shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value 31 March 2010 31 March 2010 31 March 2010 262,500 262,500 225,000 31 December 2010 31 December 2010 31 December 2010 1 March 2013 1 March 2013 1 March 2013 Share Price ≥ $0.65 Share Price ≥ $1.00 41% 5.3% - $0.69 $0.37 41% 5.3% - $0.69 $0.09 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 Employee shares issued Employee performance rights issued 26. Related party transactions 2011 $’000 138 – 26 291 455 (a) Parent entity and subsidiaries (c) Transactions with related parties The parent entity of the group is Starpharma Holdings Limited. Interests in subsidiaries are set out in note 21. (b) Key management personnel Disclosures relating to key management personnel are set out in note 17. There are related party transactions within the group between the parent and subsidiaries. Transactions include funds advanced to/from entities and the associated interest charge; and management and services fees. All transactions were made on an arm’s length basis. 6 5 STARPHARMA HOLDINGS LIMITED 27. Parent entity financial information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: Balance Sheet Current assets Total assets Current liabilities Total liabilities Shareholders’ equity Contributed equity Reserves Accumulated losses Loss for the year Total comprehensive income (b) Contingencies of the parent entity The parent entity has no contingent assets or liabilities at 30 June 2011 (2010: nil). 2011 $'000 16,876 35,349 988 1,644 105,399 2,333 (74,027) (11,144) (11,144) Parent 2010 $'000 19,553 42,410 1,624 1,624 101,766 1,903 (62,883) (4,663) (4,663) 6 6  ANNUAL REPORT 2011 Directors’ Declaration In the directors’ opinion: (a) the financial statements and notes set out on pages 31 to 66 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 consolidated entity’s financial position as at 30 June 2011 and of its 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. Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board. 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, 29 August 2011 6 7 Independent auditor’s report to the members of Starpharma Holdings Limited Report on the financial report PricewaterhouseCoopers ABN 52 780 433 757 Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331 MELBOURNE VIC 3001 DX 77 Telephone 61 3 8603 1000 Facsimile 61 3 8603 1999 www.pwc.com/au We have audited the accompanying financial report of Starpharma Holdings Limited (the company), which comprises the balance sheet as at 30 June 2011, and the income statement, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for the Starpharma Holdings Group (the consolidated entity). The consolidated entity comprises the company and the entities it controlled at the year's end or from time to time during the financial year. Directors’ responsibility for the financial report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error. In Note 1 (a), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Liability limited by a scheme approved under Professional Standards Legislation 68 Independent auditor’s report to the members of Starpharma Holdings Limited (continued) Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: (a) the financial report of Starpharma Holdings Limited is in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of its performance for the year ended on that date; and complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001,and (b) the financial report and notes also comply with International Financial Reporting Standards as disclosed in Note 1 (a). Report on the Remuneration Report We have audited the remuneration report included in pages 15 to 25 of the directors’ report for the year ended 30 June 2011. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion In our opinion, the remuneration report of Starpharma Holdings Limited for the year ended 30 June 2011, complies with section 300A of the Corporations Act 2001. PricewaterhouseCoopers Anton Linschoten Partner Melbourne 29 August 2011 69 STARPHARMA HOLDINGS LIMITED Shareholder Information The shareholder information set out below was applicable as at 31 July 2011 Supplementary information as required by ASX listing requirements. A. Distribution of equity shareholders Analysis of numbers of equity security holders by size of holding 1 –1,000 1,001–5,000 5,001–10,000 10,001–100,000 100,000 and over Total Shares Options Performance rights Class of equity security 465 1,342 775 1,196 186 3,964 – – – 14 9 23 – – – 22 – 22 There were 104 holders of less than a marketable parcel of ordinary shares. B. Equity security holders The names of the twenty largest holders of quoted equity securities are listed below: Name Number held of issued shares Ordinary shares Percentage 1. National Nominees Limited 2. J P Morgan Nominees Australia Limited 3. Citicorp Nominees Pty Limited 4. HSBC Custody Nominees (Australia) Limited 5. JP Morgan Nominees Australia Limited 6. T & N Argyrides Investments P/L 7. Mr Peter Malcolm Colman 8. Kenneth Nominees Pty Ltd 9. Auckland Trust Company Ltd 10. JPS Distribution Pty Ltd 11. Applecross Secretarial Services Pty Ltd 12. Citicorp Nominees Pty Ltd 13. Mr Kingsley Bryan Bartholomew 14. JPS Distribution Pty Ltd 15. Commonwealth Scientific And Industrial Research Organisation 16. VCAMM Limited 17. HSBC Custody Nominees (Australia) Limited - A/C 2 18. Dr Stuart Keith Roberts 19. Ms Jacinth Fairley 20. Mr Peter Murray Jackson 0 7 57,203,840 21,165,720 14,775,416 12,638,129 5,925,251 5,566,589 4,157,286 4,000,000 3,625,307 3,567,831 2,882,462 2,539,223 2,000,000 1,969,142 1,448,798 1,397,302 1,386,766 1,350,000 1,278,571 1,225,000 23.09 8.54 5.96 5.10 2.39 2.25 1.68 1.61 1.46 1.44 1.16 1.02 0.81 0.79 0.58 0.56 0.56 0.54 0.52 0.49 150,102,633 60.57 Name Options issued under the Starpharma Holdings Limited Employee Share Option Plan (ASX code SPLAM) Options issued under individual option deeds Employee Performance Rights Total C. Substantial holders ANNUAL REPORT 2011 Unquoted equity securities over ordinary shares Number on issue Number of holders 1,499,000 1,704,809 750,800 2,457,108 19 4 22 45 Substantial shareholders as shown in substantial shareholder notices received by the Company as at 31 July 2011: Name Acorn Capital Limited Orbis Investment Management (Australia) Pty Ltd The Dow Chemical Company Platinum-Montaur Life Sciences LLC Ordinary shares Number held 29,920,807 23,151,172 14,406,827 9,046,365 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. (c) Performance Rights No voting rights. E. Securities subject to voluntary escrow The following equity securities are subject to voluntary escrow until the date indicated: Type of equity securities Number of equity securities Number of holders Release date Employee Share Plan ($1,000 Plan) Employee Share Plan ($1,000 Plan) Ordinary Shares Ordinary Shares CEO Equity Incentive Plan Ordinary Shares Employee Performance Rights Plan Performance Rights 25,524 28,560 487,500 750,800 18 24 1 22 25 January 2013 1 February 2014 1 March 2013 31 August 2013 7 1 STARPHARMA HOLDINGS LIMITED Intellectual Property Report The Starpharma patent portfolio currently has around 30 active patent families with over 110 granted patents and more than 70 patent applications pending. Two new provisional patent applications were filed during the year. Key patents within the Starpharma portfolio as at 9 August 2011: Title Priority Date & Publication Number Patents Granted Applications Pending VivaGel® Patent Portfolio Antiviral Dendrimers 15 June 1994 WO95/34595 Australia, Brazil, Canada, China, Europe, Hong Kong, Mexico, New Zealand, Singapore, South Korea, USA, Japan Anionic Or Cationic Dendrimer Antimicrobial Or Antiparasitic Compositions 14 September 1998 WO00/15240 Australia, Canada, Europe, Mexico, New Zealand, Singapore, South Korea, USA Agents For The Prevention & Treatment Of Sexually Transmitted Diseases-I 30 March 2001 WO02/079299 Australia, Canada China, Europe, Hong Kong, Japan, Mexico, New Zealand, Singapore, South Korea, USA Microbicidal Dendrimer Composition Delivery System 18 October 2005 WO2007/045009 New Zealand, Russian Federation, Contraceptive Composition Method Of Treatment Or Prophylaxis Of Bacterial Vaginosis Platform Patent Portfolio Macromolecules Compounds Having Controlled Stoichiometry Modified Macromolecules 22 March 2006 WO2007/106944 16 May 2011 Not yet published 25 October 2005 WO2007/048190 10 August 2006 WO2007/082331 China, Japan Brazil, USA Argentina, Australia, Canada, China, Europe, Hong Kong, India, Japan, Malaysia, Mexico, South Korea, Taiwan, USA Australia, Canada, China, Europe, Japan, USA International application Australia, Canada, Europe, USA Australia, Canada, China, Europe, India, Japan, USA Core-Shell Tectodendrimers 16 February 1999 Canada, Europe, USA, Mexico Dendritic Polymers With Enhanced Amplification And Interior Functionality Dendritic Polymers With Enhanced Amplification And Interior Functionality Imaging Project Patent Portfolio WO00/049066 20 April 2005 WO2006/065266 Canada, India, Japan, New Zealand Singapore , South Korea, USA Argentina, Brazil, China, Europe, Hong Kong, Israel, Mexico, Taiwan, 21 December 2005 WO2006/115547 Australia, India, Singapore, South Korea, USA Argentina, Brazil, Canada, China, Europe, Hong Kong, Israel, Mexico, New Zealand, Taiwan, Polylysine Dendrimer Contrast Agent 11 August 2006 China, Europe, USA siRNA Project Patent Portfolio Delivery Of Biologically Active Materials Using Core-Shell Tectodendritic Polymers WO2008/017122 3 March 2006 WO2008/054466 Drug Delivery Project Patent Portfolio Targeted Polylysine Dendrimer Therapeutic Agent 11 August 2006 WO2008/017125 Agricultural Chemicals Patent Portfolio PEHAM Dendrimers for use in Agriculture 26 October 2009 WO2011/053605 2 7 Europe, USA China, Europe, India, USA International , USA  ANNUAL REPORT 2011 Solicitors Norton Rose RACV Tower, 485 Bourke Street Melbourne VIC 3000 Australia 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 OTCQX International (www.otcmarkets.com), a premium market tier in the U.S. for international exchange-listed companies, operated by OTC Markets Group. Website address www.starpharma.com Annual General Meeting Thursday 10 November 2011 at 4.00pm Norton Rose RACV Tower, 485 Bourke Street, Melbourne VIC 3000 Corporate Directory Company name Starpharma Holdings Limited ABN 20 078 532 180 Directors P T Bartels AO – Chairman P J Jenkins – Deputy Chairman J K Fairley – Chief Executive Officer R Dobinson R A Hazleton Company Secretary Ben Rogers Other Management Chief Financial Officer Nigel Baade Paul Barrett VP, Business Development Malcolm McColl VP, Business Development David Owen Jeremy Paull VP, Research VP, Development and Regulatory Affairs Registered office Baker IDI Building 75 Commercial Road, Melbourne, Victoria 3004 Australia Telephone +61 3 8532 2700 Fax +61 3 9510 5955 Postal address GPO Box 6535 St Kilda Road Central VIC 8008 Australia Share register Computershare Investor Services 452 Johnston Street, Abbotsford VIC 3067 GPO Box 2975 Melbourne, VIC 3001 1300 850 505 (within Australia) +613 6415 4000 (outside Australia) www.computershare.com Auditor PricewaterhouseCoopers Freshwater Place Southbank VIC 3006 Australia 7 3 Starpharma Holdings Limited ABN 20 078 532 180 Baker IDI Building 75 Commercial Road, Melbourne VIC 3004 Australia Telephone +61 3 8532 2700 Facsimile +61 3 9510 5955 www.starpharma.com Annual Report 2011 

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