Santander Bank Polska
Annual Report 2012

Plain-text annual report

AnnuAl RepoRt 2012 highlights 2011–2012 Developing dendrimer products for pharmaceutical, life science and other applications. VIVAGEL® FDA grants Special Protocol Assessment for VivaGel® BV phase 3 Binding declaration from FDA received approving Starpharma phase 3 VivaGel® trials design for treatment of bacterial vaginosis (BV). Pivotal phase 3 BV treatment trials commenced and recruitment nearing completion Two concurrent international phase 3 VivaGel® trials on track for completion by end 2012. European (EMA) agreement on BV phase 3 trials secured Second largest market in the world delivers regulatory clarity on VivaGel® trials. Phase 2 BV prevention of recurrence trial fully recruited VivaGel® trial launched and fully recruited in the US under an Investigational New Drug Application. There are no existing treatments targeting the recurrence of BV. Executes condom coating agreement with Ansell Starpharma executed a licence agreement with Ansell Limited (ASX:ANN) giving Ansell marketing rights to the VivaGel®– coated condom in markets excluding Japan and certain Asian markets. coRPoRATE Elevation to S&P/ASX 300 Index Starpharma joins top 300 Australian listed companies in recognition of its significant growth and market support. A$35 million placement and Share Purchase Plan Successful financing priced at no discount to market. New appointments to Starpharma Board Board appointment of industry experts Peter Turvey and Zita Peach as non-executive directors. DRUG DELIVERY Drug delivery program shows improved efficacy Dendrimer-docetaxel program advancing rapidly with clinical trial expected to commence in 2013 following strong preclinical data. Lilly drug delivery program expands Expansion of the development program with partner Lilly. AGRochEmIcAL PRoGRAm Crop Protection Agreement Signed with Nufarm Agreement signed to develop innovative crop protection formulations for Nufarm’s product portfolio using Starpharma’s Priostar® dendrimer technology.  ANNUAL REPORT 2012 Starpharma’s Technology Platform Starpharma’s platform technology has applicability across multiple products and industries. Starpharma’s Dendrimer Technology Platform VivaGel Portfolio Drug Delivery Agrochemicals Condom coating Bacterial vaginosis STI Prevention Improved Off Patent Drugs ie. Docetaxel Pharma Partnered Projects Improved Agrochemicals ie. Glyphosate Partnered Projects Prevention Treatment Various other major Pharma companies Contents Chairman’s Letter CEO’s Report Corporate and Social Responsibility Directors’ Report Corporate Governance Statement Annual Financial Report Shareholder Information Intellectual Property Report Corporate Directory 2  3  8  9  25  30  71  73  74  Multibillion dollar US Agrochemical company Various other major Agrochemical companies 1 STARPHARMA HOLDINGS LIMITED Chairman’s Letter Dear Shareholders, On behalf of the board and management of Starpharma l am pleased to present the 2011-2012 annual report for your review. This has been a further year of advancement for Starpharma. Significant clinical progress for our most advanced pharmaceutical product VivaGel® was complemented by major steps forward in our other development programs both internally and with our partnered programs. A successful major capital raise of A$35 million in November 2011 via a $32m Placement and $3 million SPP provided the capacity to advance all our core programs with a particular focus on the bacterial vaginosis application of VivaGel® and the internal drug delivery and agrochemical programs. Starpharma’s strong, geographically diverse shareholder register, significant cash reserves and deep and maturing portfolio has allowed the company to ride the waves of market volatility, but it has not escaped the effect of market forces entirely. We remain philosophical about short- term fluctuations and continue to focus on the consistent and rapid progress made across all of our programs. We were pleased to welcome M&G Investments as a shareholder with the fund taking a 6.7% position in Starpharma during the capital raise in November 2011, a position which has now increased to close to 10% of Starpharma. M&G is Prudential’s UK and European fund management business with assets of more than A$300 billion under management as of 31 March 2012. A number of other significant global funds have also joined our register throughout the year. Attracting investors of this stature adds further credibility to Starpharma and is evidence that the concerted efforts of our CEO, Dr Jackie Fairley, and her management team are elevating the company’s profile in international markets. On the development front, the hard work of our clinical team sees enrolment of our Phase 3 trials for bacterial vaginosis rapidly nearing completion, and continued engagement with the FDA resulting in agreement on the endpoints of these trials which provides much confidence to our investors and partners. The agrochemical and crop protection program continues to produce impressive data in the improvement of major products, and the drug delivery program has yielded results demonstrating Starpharma’s ability to improve the delivery of major cancer drugs and hormones among others. Particularly pleasing was the extension of our collaboration with Lilly and also the first data in a breast cancer model which clearly demonstrated the improvement in efficacy of anti-cancer drug docetaxel using dendrimer enhancement. In the last year we welcomed two new Directors, Zita Peach and Peter Turvey, to the Starpharma board. Ms Peach brings more than 20 years of commercial experience in the pharmaceutical sector including in such industry luminaries as Merck Sharp & Dohme and CSL, where she served as Vice President, Business Development. Among various roles in his nearly 20 years at former employer CSL, Mr Turvey was an Executive Vice President and was closely involved in building CSL into a major international company. Both Ms Peach and Mr Turvey bring invaluable commercial experience and international networks to our board. In closing, I am grateful to my fellow Directors for their wise council and advice, and on behalf of the board I offer our thanks and appreciation to CEO Jackie Fairley, the management team and all the Starpharma staff. An extraordinary amount of hard work and determination drives the progression of our multiple programs, and year-on-year we are seeing the increasing returns from that hard work. Importantly, Starpharma has emerged as a leader in the Australian biotechnology sector and is among a small group of companies with a maturing pipeline and products close to or on market. This progress is helping to drive interest and confidence with investors. Finally, thank you to our shareholders. We are grateful for your ongoing support, and look forward to sharing Starpharma’s successes with you in the year ahead. Yours sincerely, Peter T Bartels, AO Starpharma Chairman 2 CEO’s Report I am pleased to provide my report on the year’s activities and our plans for the future. It has been a year focused on achieving the best outcomes from our clinical trial program to put Starpharma in a strong position as we enter the commercialisation phase for many of our products. Our VivaGel® trials for both preventing the recurrence of bacterial vaginosis (BV) and treating BV have enrolled exceptionally quickly and we look forward to their completion and the release of findings. The VivaGel® Portfolio The commercial prospects for VivaGel® across all its possible indications have strengthened considerably throughout the year. In the near-term, VivaGel® for the treatment of BV has the potential to positively impact on the quality-of-life for many millions of women. Current treatments centre on antibiotics, which have an array of potential side effects and inconvenient precautionary measures accompanying their use. VivaGel®’s differentiation from standard antibiotic treatments and its potential as a treatment for BV recurrence means it represents a major advance for women’s health. BV is the most common vaginal infection globally, and the most common cause of vaginal irritation, discharge and malodour. It is particularly prevalent in the US, where it affects an estimated one- third of the adult female population. Several leading international publications including Marrazzo, et al (2011) indicate as many as 50-60% of women suffering from BV will have recurrent episodes of the condition. Existing treatments for BV are considered suboptimal with relatively low cure rates, high rates of recurrence, unpleasant side- effects, and high levels of bacterial resistance. The market for topical treatments for BV is approximately US$300–$350 million. There are currently no existing treatments for the prevention of recurrence of BV and estimates for this market are in excess of US$1 billion. VivaGel® Approaches Final Stages of Development The past 12 months have seen rapid progress in the late-stage clinical development of VivaGel®. In March 2012 Starpharma commenced two concurrent pivotal phase 3 trials for the treatment of BV. In June 2012 Starpharma advised that enrolment for its clinical studies had proceeded rapidly, with one of the trials reaching 100% enrolment and the other surpassing 70% enrolment. The design of these trials is virtually identical to Starpharma’s successful phase 2 BV treatment trial, which demonstrated that VivaGel® was efficacious in the treatment of BV with a very high level of statistical significance. Approximately 30 international sites, primarily in the US, are involved in the two trials, each of which will involve approximately 220 participants. Trial results are anticipated before the end of 2012. Starpharma is also advancing a second area of investigation for VivaGel® in BV examining VivaGel®’s effectiveness as a preventative for BV. Enrolment for its phase 2 trial was completed in June 2012. This trial, which commenced in August 2011, recruited 205 patients with a prior history of recurrent BV. The primary objective of the study is to determine the efficacy of VivaGel® compared with a placebo gel in preventing BV recurrence. Successful completion of the phase 3 trials will mark the completion of the clinical requirements for VivaGel® for the treatment of BV. After results are compiled, Starpharma plans to prepare and submit a New Drug Application (NDA) to the US Food and Drug Administration (FDA), as well as accelerate discussions ANNUAL REPORT 2012 Our agrochemical and drug delivery programs have both progressed considerably during the year, aided by our successful capital placement in November 2011 which significantly boosted the company’s cash position. This capital raise, and the follow on Share Purchase Plan, were conducted at no discount to the market and gave us the resources to accelerate the programs for all three pillars of our business: VivaGel®, drug delivery and agrochemicals. In particular our VivaGel® clinical program is funded through to registration and we look forward to signing a commercial partnership following successful trial completion. VivaGel® for BV Treatment Effective against the bacteria which cause BV Not absorbed into the bloodstream Lacks common antibiotic side-effects Can be used whilst drinking alcohol Compatible with condoms Designed to have minimal effect on ‘good’ bacteria Can be used long term with potential partners for the marketing rights to VivaGel® for the management of BV. VivaGel® represents an important milestone not only for Starpharma, but also for the Australian biotechnology industry as it is one of the very few examples where a new chemical entity has been discovered by Australian scientists and independently developed by an Australian company through to the completion of pivotal phase 3 trials. In January 2012 Starpharma received agreement from the FDA on the design of its phase 3 clinical studies of VivaGel® for the treatment of bacterial vaginosis under the FDA’s Special Protocol Assessment (SPA) Scheme. The SPA is a binding declaration from the FDA that the phase 3 clinical study design, endpoints, statistical analyses and other aspects of the planned studies are acceptable to support regulatory approval of the product. This declaration gives the Company confidence that prioritising the development of VivaGel® as a treatment for BV provides the most streamlined route to market, meeting a significant medical need. The phase 3 clinical trial program for VivaGel® has also been agreed with the European Medicines Agency (EMA). Starpharma presented to the EMA the proposed design of phase 3 studies and associated aspects of the development program to support a European Marketing Authorisation Application (MAA) for VivaGel® for the treatment of BV. 3 STARPHARMA HOLDINGS LIMITED The significance of the EMA feedback is that Starpharma has now confirmed for both major global markets – Europe and the US – that its Phase 3 program is acceptable, and positive results would support approval of the product. Starpharma is also continuing activities to support the commercial launch of VivaGel®. This has included scale-up of the VivaGel® active ingredient, SPL7013, to the tens of kilograms scale. This is The VivaGel®-coated Condom and Other Applications VivaGel® is also in phase 2 development as a topical microbicide for the prevention of sexually transmitted infections (STIs) such as genital herpes, human papillomavirus (HPV), and HIV. More than 50 million Americans are currently infected with genital herpes, including approximately 26% of the female population. This figure is expected to rise to 50% by 2025 at current rates of infection. Beyond herpes, consumer demand for a broad-spectrum topical treatment for STIs has been identified as being strong, with studies showing 30-40% of female college students in the US willing to buy a product of this type. VivaGel® has also been licensed as a condom coating to market- leading condom companies, Ansell and Okamoto, giving access to the US$1.1 billion branded condom market for Starpharma and important product innovations for its partners. being done under full Good Manufacturing Practices (cGMP) at an FDA and EU-certified manufacturer that supplies marketed pharmaceutical actives globally. Scale-up of the finished (VivaGel®) product to the hundreds of kilograms scale has also been achieved. Final process validation is also well advanced. Both Ansell and Okamoto hold strong market positions in the global condom marketplace and their successes have been strongly founded on a focus of innovation for sales growth. Ansell is ranked number two globally in terms of condom sales, marketing leading brands including Lifestyles®, ZERO® and the highly successful SKYN® brand. It has a leading market position in the rapidly expanding Asia Pacific and South American markets and in Australia with around 70% market share. Okamoto is Japan’s leading marketer of condoms with approximately 60% share of the Japanese condom market - estimated to be in the order of US$500 million. In addition to its dominant position in the Japanese condom market, Okamoto also holds strong market positions in several other Asian markets. VivaGel® Coated Condom Partnerships Partner Market Position Major Brands Okamoto Industries (listed on TSE) Ansell Limited (ASX: ANN)       No.1 in Japan with ~60% Japanese market (the 2nd largest condom market, estimated at ~US$500M) No. 4 globally with strong positions in Korea, Taiwan, Malaysia, Singapore and China Total company revenue >US$ 760M Skinless® 003® Lifestyles® SKYN® ZERO® No. 2 globally for condom sales with ~20% global share of the branded market, ~$1.1B No. 1 in Australia with strong growth in the USA, China, Brazil, India and Eastern Europe Condom business growing ~18% 4 Drug Delivery In the past year Starpharma has made considerable progress in its drug delivery program, via both its internal and partnered programs. Starpharma researchers recently reviewed the chemistry of the top 200 top-selling pharmaceuticals worldwide and found that more than 50% would be amenable to dendrimer conjugation. ANNUAL REPORT 2012 Significant value in Starpharma’s dendrimer technology is derived from both its versatility and its ability to deliver a number of important and valuable benefits for pharmaceuticals. These are outlined in the table below. Feature Potential Benefits for Patients and/or Manufacturers Improved Drug Efficacy More effective treatments or lower doses Reduced Toxicity of Actives Reduced side-effects Improved Drug Solubilisation Less toxic formulations (allowing removal of toxic excipients) Less painful injection formulations Improved Pharmacokinetics Less frequent dosing and less severe side effects Targeted Drug Delivery More effective treatments with reduced side effects Docetaxel Program The delivery of efficacy data as described below was a major achievement for the company docetaxel anticancer program in the last year, and Starpharma’s research team is now focussed on completing the data package prior to clinical studies planned for calendar year 2013. Docetaxel is a leading chemotherapy drug used to treat a wide range of solid tumours including breast, lung and prostate. It is marketed by Sanofi Aventis as Taxotere® and generated sales in excess of US$3 billion in 2010. Sanofi’s patents relating to Taxotere® have lapsed in many markets, enabling the development of this improved dendrimer-docetaxel product by Starpharma. This improved formulation is the subject of new patents pending coverage to 2032. These advances in the docetaxel program were announced in February 2012. These studies demonstrated significant improvements in the efficacy of the dendrimer formulation over the blockbuster cancer drug docetaxel (Taxotere®), in a breast cancer model. The study showed that 60% of the animals treated with Starpharma’s dendrimer-docetaxel formulation had no evidence of tumour 94 days after treatment, whereas all animals treated with Taxotere® only had significant tumour regrowth at the same time point. A further additional benefit demonstrated by Starpharma’s dendrimer-docetaxel formulation is that its plasma half life (i.e. how long it lasts in the blood) is 60 times longer than for the docetaxel/Taxotere® drug alone (30 hours compared to 30 minutes). Partnered Programs Starpharma’s docetaxel program continues to run in parallel with its partnered drug-delivery programs which include a growing list of major pharmaceutical companies including GSK and Eli Lilly and Company (Lilly). In December 2011 Starpharma announced the expansion of the development program with partner Lilly. Starpharma now has a number of projects underway with Lilly to improve the delivery of small molecule and protein based pharmaceuticals using Starpharma’s dendrimer technology. The development program will include further in vivo studies followed by clinical testing, as well as potential commercial terms should a product ultimately be brought to market. Starpharma is also applying its technology to a growing list of other drug candidates, including major oncology drugs. 5 STARPHARMA HOLDINGS LIMITED Other Applications A further new program is the area of antibodies. There are a number of antibodies which have been shown to be effective in targeting tumours, to some extent limiting their growth. The efficacy of these antibodies can be enhanced by the addition of existing small molecule cytotoxic (cell-killing) drugs. As part of Starpharma’s drug delivery program the company is developing ways in which a dendrimer can be used to improve targeted delivery. Agrochemicals and Crop Protection Starpharma’s work in the improvement of chemicals used in agriculture, like pesticides and herbicides, is progressing into new areas. Starpharma and Nufarm signed an agreement in August 2012 to develop innovative crop protection formulations for Nufarm’s product portfolio using Starpharma’s Priostar® dendrimer technology. Nufarm is one of the world's leading crop protection companies with group sales for FY2011 exceeding $2 billion. Nufarm produces products to help farmers protect their crops against damage caused by weeds, pests and disease. In addition to Nufarm, this program already has projects in partnership with major international industry players. This agreement marks the latest development in a rapidly developing agrochemical program. The lead candidate in Starpharma’s internal agrochemical program is an enhanced reformulation of the best-selling herbicide glyphosate (Roundup®), which has annual sales in excess of US$5 billion. In the same way that docetaxel’s off-patent status marks it as a high-value target for improvement, glyphosate represents the largest opportunity for an enhanced formulation in the US$40 billion agrochemical market. The company has already reported results of significant enhancement of effect of glyphosate in studies using its proprietary Priostar® technology and continues further development in this area. Given the huge growth area of antibodies as a treatment class, a demonstrated ability of dendrimers to enhance antibody efficacy would be a major asset for Starpharma. This program will continue in parallel to its major docetaxel program. In addition, Starpharma is now applying its dendrimer technology to a number of other off-patent agrochemical agents with the potential for reduction or removal of environmentally damaging solvents. Some crop protection products contain up to 70% hydrocarbon solvents. Typically growers and regulators prefer formulations without these solvents, which are toxic to handle, highly flammable and expensive to transport and leave a residue when sprayed on crops. A reduction in these solvents would be welcome from social, environmental and economic perspectives, and regulators are increasingly working with agrochemical companies to address these issues. The potential benefits of dendrimer-reformulated agrochemicals include:  Solubility enhancement for more concentrated formulations, reducing transport costs and solvent residues; Improved herbicidal activity;   Modification of soil penetration properties; and  Increased adhesion reducing losses due to rain run-off and the need for multiple applications. Starpharma’s agrochemical and crop protection program has the potential to add further value to the agrochemical industry’s largest products making this an exciting area within Starpharma’s core development program. Other applications The optionality of Starpharma’s dendrimer platform technology has allowed partnerships with a diverse range of companies in very different product areas. These areas include diagnostics and laboratory reagents, animal health and cosmetics. 6 5 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 Overview of financial results 2012 $M 2011 $M 0.9 0.2 1.8 2.9 1.1 1.2 1.0 3.3 ANNUAL REPORT 2012 Year Ended 30 June 2009 $M 2008 $M 2.0 7.7 0.1 9.8 1.4 8.2 0.3 9.9 2010 $M 1.4 3.8 0.7 5.9 (16.6) (12.2) (12.3) (14.1) (18.1) - (13.7) (9.9) (10.0) 33.7 42.8 - (8.9) (7.5) (6.7) 3.6 18.9 - (6.4) (3.9) (3.8) 15.1 22.8 0.2 (4.1) (2.9) (4.2) 7.0 11.6 0.7 (7.5) (6.1) (5.5) 3.5 7.5 For the period ended 30 June 2012, the key metric of net cash burn for the year was $9.9 million, with cash reserves at 30 June 2012 of $42.8 million. Starpharma reported a net loss after tax of $13.7 million and had net cash outflows of $9.8 million from operations. Cash flow from financing activities of $33.7 million included the proceeds of the equity raise and the exercise of options during the year. The reported net loss after tax of $13,658,000 is consistent with the company’s strategic plans and budget estimates. The increase in expenditure includes the phase 2 VivaGel® clinical trial for the prevention of recurrence of bacterial vaginosis and the two pivotal phase 3 VivaGel® clinical trials for the treatment of bacterial vaginosis. Expenditure has also increased with additional Starpharma internal development programs for drug delivery and agrochemicals, including docetaxel and glyphosate. Total revenue and other income for the year was $2,904,000, a reduction of $399,000 from the previous year, on lower grant income from the US National Institutes of Health. The decrease in grant funding is partly offset by interest revenue earned on cash deposits. A contra research and development expense of $1,323,000 has been recorded for research and development activities eligible under the Australian Government tax incentive from 1 July 2011. Outlook Starpharma has delivered major tangible advances across several areas in the last year. Reaching agreement with regulators and executing phase 3 trials is extremely resource-intensive and our swift recruitment and positive interactions with the major regulatory agencies of the FDA and EMA have been achievements in themselves. The end of calendar 2012 should see our current phase 2 and concurrent phase 3 trials for VivaGel® completed, and the next stage of engagement with regulatory agencies underway. We expect to be in a position to achieve the very significant milestone of submitting a New Drug Application in 2013. We look forward to sharing the results of these various trials. Our other major programs in drug delivery and agrochemicals are also progressing well, with significant scientific results announced from our internal docetaxel program in 2012. Clinical trials are planned for this program in 2013. The analysis that 50% of the world’s 200 best-selling pharmaceutical products could potentially be enhanced by dendrimers is testament to the huge versatility of the Starpharma technology platform which underpins all our work and we will continue to expand our extensive partnered programs. These already include many of the top 10 global pharmaceutical companies. We are confident Starpharma’s strong platform technology and business fundamentals will continue to deliver shareholder value in the coming year. Jackie Fairley CEO 7 STARPHARMA HOLDINGS LIMITED 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 and receive periodic assessments and feedback on performance. Policies provide for ongoing training and career development, and are intended to 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, expertise and opinion, as well as diversity are viewed as important 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 medical research organisations and key governmental and non- governmental departments and institutions. These relationships The Environment 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 provide the opportunity for 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, and a safe working culture is promoted and encouraged. There is 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 Starpharma’s pharmaceutical products and 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. 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 field of agrochemicals 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 documented procedures and processes in place to ensure that all waste products (albeit relatively minor in volume) are disposed of strictly in accordance with relevant environment regulations. 8  ANNUAL REPORT 2012 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 2012. 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) Z Peach and P R Turvey were appointed as directors on 1 October 2011 and 19 March 2012 respectively and continue in office at the date of this report. 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, as a condom coating, and prevention of genital herpes and HIV, and the application of dendrimers to drug delivery Business Objective and other life science applications. More broadly, through partners the group is exploring dendrimer opportunities in materials science with applications in areas such as cosmetics, agrochemicals, and coatings. 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 2012. (2011: Nil) Review of Operations Achievements and significant events during the 2012 financial year included: August 2011 Starpharma executes condom coating agreement with Ansell July 2011 Advances agrochemical program with improved performance of major product Starpharma’s studies have demonstrated a number of improvements in these preliminary studies including the ability to increase the effectiveness of agrochemicals such as glyphosate, the most commonly used herbicide globally (also known by the trade name Roundup®) with annual sales in excess of US$5 billion. August 2011 Commences BV Prevention Study of VivaGel® The phase 2 study of VivaGel® for the prevention of bacterial vaginosis (BV) commenced following receipt of ethics approval. The primary objective of the study is to determine the efficacy of two strengths of VivaGel® (1% and 3%) compared with a placebo gel in preventing recurrence of BV. Whilst the duration of use of the product in this study is 16 weeks, it is intended that women would use the product as a long-term prevention tool if proven effective. August 2011 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 took 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 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 coated condom in countries which exclude Japan and a number of Asian markets. 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. September 2011 Starpharma elevated to S&P/ASX300 index The S&P/ASX 300 Index provides additional depth and coverage to the S&P/ASX 200. It provides up to an additional 100 small-cap stocks to the S&P/ASX 200, and is designed to address investment managers' needs to benchmark against a portfolio characterized by sufficient size and liquidity. October 2011 Secures FDA agreement on BV treatment Phase 3 The Phase 3 clinical trial program for the VivaGel® bacterial vaginosis (BV) treatment program was agreed with the US Food and Drug Administration (FDA) following recent positive trial results and subsequent End of Phase 2 (EOP2) Meeting. Following EOP2 meeting discussions, Starpharma and the FDA are in agreement on Phase 3 clinical trial design, including definition of primary and secondary endpoints, patient numbers and other design parameters. 9 STARPHARMA HOLDINGS LIMITED November 2011 Starpharma completes A$32 million placement Starpharma successfully raised A$32 million via a placement to international and domestic institutional, sophisticated and professional investors. The placement was conducted at the last closing price prior to Trading Halt (A$1.075 per share), and was significantly oversubscribed. There was strong participation in the placement from existing institutions including large global funds and local investors. A major new international institution became a significant shareholder via the placement. November 2011 Secures European (EMA) agreement on BV treatment Phase 3 The Phase 3 clinical trial program for VivaGel® bacterial vaginosis (BV) treatment was agreed with the European Medicines Agency (EMA). This European scientific advice is in addition to the agreement recently reached with the US FDA announced in October 2011. December 2011 SPP closes heavily oversubscribed The Share Purchase Plan (SPP) capped at $3 million was oversubscribed by more than 400%. As a result of the strong demand and oversubscription, applications needed to be scaled back. The SPP followed the placement in November to international and domestic institutional, sophisticated and professional investors which raised A$32 million. December 2011 Drug delivery program with Lilly advances In December 2011 Starpharma announced the expansion of the development program with partner Lilly. Starpharma now has a number of projects underway with Lilly to improve the delivery of small molecule and protein based pharmaceuticals using Financial Summary Starpharma’s dendrimer technology. The development program will include further in vivo studies followed by clinical testing, as well as potential commercial terms should a product ultimately be brought to market. January 2012 Receives FDA Special Protocol Assessment for BV Phase 3 Starpharma received final written agreement from the FDA on the design of its Phase 3 clinical studies of VivaGel® for the treatment of bacterial vaginosis (BV) under the FDA’s Special Protocol Assessment (SPA) scheme. The SPA is a binding declaration from the FDA that the Phase 3 clinical study design, endpoints, statistical analyses, and other aspects of the planned studies are acceptable to support regulatory approval of the product. February 2012 Starpharma’s dendrimers improve efficacy of docetaxel in animals Animal data demonstrated that applying Starpharma’s dendrimer technology to the leading chemotherapy drug docetaxel was significantly more efficacious than docetaxel (Taxotere®) in a breast cancer model. March 2012 Commences pivotal phase 3 VivaGel® trials for bacterial vaginosis treatment The commencement of two concurrent pivotal phase 3 clinical trials of VivaGel® for the treatment of bacterial vaginosis (BV), following receipt of ethics approval. June 2012 Full enrolment achieved for BV Phase 2 trial and first Phase 3 trial Reported that recruitment is 100% completed for its Phase 2 clinical trial to investigate the ability of VivaGel® to prevent the recurrence of bacterial vaginosis (BV), and also for the first of two pivotal Phase 3 studies of VivaGel® for the treatment of BV. For the year ended 30 June 2012 the consolidated entity incurred an operating loss after income tax of $13,658,000 (June 2011: $8,930,000). Income statement Revenue from continuing operations Other income Research and development expenses Administration expenses Finance costs Loss attributable to members Year Ended 30 June 2011 $’000 2,125 1,178 (5,986) (6,231) (16) (8,930) 2012 $’000 2,744 160 (12,088) (4,466) (8) (13,658) Income statement The reported net loss after tax of $13,658,000 is consistent with the company’s strategic plans and budget estimates. The increase in expenditure includes the phase 2 VivaGel® clinical trial for the prevention of recurrence of bacterial vaginosis and the two pivotal phase 3 VivaGel® clinical trials for the treatment of bacterial vaginosis. Expenditure has also increased in Starpharma’s internal development programs for drug delivery and agrochemicals. Total revenue and other income for the year was $2,904,000, a reduction of $399,000 from the previous year, on lower grant income from the US National Institutes of Health. The decrease in grant funding is partly offset by higher interest revenue earned on cash deposits. All research and development expenditure, including patenting costs, were fully expensed in the current and prior year. 10 A contra research and development expense of $1,323,000 has been recorded for research and development activities eligible under the Australian Government tax incentive from 1 July 2011. Balance sheet At 30 June 2012 the group’s cash position was $42,812,000 (2011: $18,918,000) resulting from the $35 million capital raised during the year. ANNUAL REPORT 2012 Statement of cash flows Net operating cash outflows for the year were $9,770,000 (2011: $6,476,000). Cash flow from financing activities of $33,665,000 (2011: $3,508,000) included the proceeds on the raise of equity. Earnings per share Basic loss per share Diluted loss per share Net tangible assets Net tangible asset backing per ordinary share Significant changes in the state of affairs 2012 ($0.05) ($0.05) 2012 $0.14 2011 ($0.04) ($0.04) 2011 $0.07 There was an increase in contributed equity of $33,772,000 (2011: $3,633,000) the majority of which were proceeds of the equity raise which occurred during the year. Matters subsequent to the end of the financial year No matters or circumstances have arisen since 30 June 2012 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 2012 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. Employees are encouraged to actively participate in the management of environmental and Occupational Health and Safety (OH&S) issues. The company has adopted an OH&S Policy and has an established OH&S Committee structure as part of its overall approach to workplace safety. The OH&S 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. 11 STARPHARMA HOLDINGS LIMITED Information on Directors Peter T Bartels, AO, FAISM, FRS (age 71) Independent non-executive director Chairman Member of remuneration & nomination committee Member of audit & risk committee 232,930 ordinary shares in Starpharma Holdings Limited Independent non-executive director and Chairman for nine 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 49) Executive director Chief Executive Officer 1,649,197 ordinary shares in Starpharma Holdings Limited 375,000 employee performance rights 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 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 60) Independent Non-executive director Chairman of audit & risk committee until 14 May 2012 Chairman of remuneration & nomination committee until 14 May 2012 Nil ordinary shares in Starpharma Holdings Limited Non-executive director for fifteen 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: Executive Chairman of Acrux Ltd since 1 July 2012, previously non-executive director (director since 2000; 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 70) Independent Non-executive director Member of remuneration & nomination committee until 14 May 2012 Member of audit & risk committee from 14 May 2012 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 66) Independent Non-executive director Deputy Chairman Chairman of remuneration & nomination committee from 14 May 2012 Member of audit & risk committee until 14 May 2012 1,487,462 ordinary shares in Starpharma Holdings Limited Independent non-executive director for fifteen 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. 12 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. ANNUAL REPORT 2012 Zita Peach BSc (age 48) Independent Non-executive director from 1 October 2011 Member of remuneration & nomination committee from 14 May 2012 2,000 ordinary shares in Starpharma Holdings Limited Ms Peach has more than 20 years of commercial experience in the pharmaceutical industry, particularly in marketing and business development, working for major industry players such as CSL Limited and Merck Sharp & Dohme (MSD), the Australian subsidiary of Merck Inc. She is currently the Managing Director and Executive Vice President, South Asia Pacific for Fresenius Kabi Australia, a leader in infusion therapy and clinical nutrition. Until recently Ms Peach was Vice President/Director, Business Development R&D for CSL, a position she held for ten years. Ms Peach is a Non-Executive Director of the ASX-listed Vision Eye Institute Limited. Other current directorships of listed entities: Vision Eye Institute Limited Former directorships of listed entities in last 3 years: None Peter R Turvey BA/LLB, MAICD (age 61) Independent Non-executive director from 19 March 2012 Chairman of audit & risk committee from 14 May 2012 30,000 ordinary shares in Starpharma Holdings Limited Mr Turvey is the former Executive Vice President Licensing and Company Secretary of global specialty biopharmaceutical company CSL Limited having retired in 2011. He is currently a Principal of Foursight Associates Pty Ltd and a director of the industry organisation AusBiotech Limited. After completing an Arts/Law degree at the Australian National University, he joined Biotechnology Australia, then Australia's largest biotechnology company, as Manager of Intellectual Property and Company Secretary. He joined CSL in 1992 as its first in-house Corporate Counsel and was appointed Company Secretary in 1998. He played a key role in the transformation of CSL from a government owned enterprise, through ASX listing in 1994, to a global plasma and biopharmaceutical company. He also had responsibility for the protection and licensing of CSL's intellectual property and for risk management within CSL, which included management of the internal audit function, reporting to the Audit & Risk Management Committee of the Board as well as being the Chairman of the Corporate Risk Management Committee. Among the many licensing deals he was involved with, the most significant included the Gardasil license to Merck & Co., the licensing of the Iscomatrix® adjuvant platform technology to the world’s leading vaccine manufacturers, and establishment of the P.gingivalis vaccine technology collaboration between the CRC for Oral Health and Sanofi-Pasteur. Other current directorships of listed entities: Allied Healthcare Group Former directorships of listed entities in last 3 years: None Company Secretary The Company Secretary is Mr Ben Rogers (age 64). 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. 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 2012, and the numbers of meetings attended by each director were: Name P T Bartels P J Jenkins J K Fairley R Dobinson R A Hazleton Z Peach P R Turvey Full meetings of directors Meetings of committees Audit & risk Remuneration & nomination 9 of 9 9 of 9 9 of 9 9 of 9 8 of 9 6 of 6 2 of 2 2 of 2 2 of 2 N/A 2 of 2 0 of 0 N/A 0 of 0 3 of 4 1 of 1 N/A 3 of 3 3 of 3 1 of 1 N/A 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. 13 STARPHARMA HOLDINGS LIMITED Remuneration Report The Remuneration report sets out remuneration information for non-executive directors, executive directors and other key management personnel of Starpharma Holdings Limited group of companies. Directors and key management personnel disclosed in this report Non-executive and executive directors – see pages 12 to 13 above Other key management personnel N J Baade C P Barrett M L McColl D J Owen J R Paull B P Rogers Chief Financial Officer VP, Business Development VP, Business Development VP, Research VP, Development and Regulatory Affairs Company Secretary The key management personnel of the Starpharma Holdings Limited group include the five highest paid executives of the entity. Role of the remuneration committee 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. 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. Non-executive director remuneration policy 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. Non-executive directors do not receive bonuses, share options or other forms of equity securities, or any performance-related remuneration or retirement allowances. Directors’ fees 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 2012 was $362,097 (2011: $357,833). Superannuation contributions required under the Australian superannuation guarantee legislation continue to be made and are deducted from the directors’ overall fee entitlements. Directors’ Fees Chair Other non-executive directors 2012 120,000 60,000 Executive remuneration policy and framework 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 of:  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. 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 research, development, regulatory and commercial milestones, and therefore performance goals are not necessarily linked to financial performance measures typical of companies operating in other market segments. 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, development and regulatory 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 a demonstrated record of performance, internal and external relativities, and the company’s ability to pay. 14  ANNUAL REPORT 2012 Base pay and benefits Executives receive their base pay and benefits structured as a Total Fixed Remuneration (TFR) package which may be delivered as a combination of cash and prescribed non-financial benefits at the executives’ discretion. 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.  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. 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. Trading in company securities The trading of shares issued to participants under any of the company’s employee equity plans is governed by the company’s securities trading policy. Executives are prohibited from entering into any hedging arrangements over unvested securities. Further information regarding the company’s securities trading policy is set out in Section 3.2 of the Corporate Governance Statement. Use of remuneration consultants If remuneration consultants are to be engaged to provide remuneration recommendations as defined in section 9B of the Corporations Act 2001, they are to be engaged by, and report directly to, the remuneration & nomination committee. No remuneration consultants have been engaged to provide such remuneration services during the financial year. 15 STARPHARMA HOLDINGS LIMITED Voting and comments made at the company’s 2011 Annual General Meeting (AGM) Of the votes cast on the company’s remuneration report for the 2011 financial year, 98% were in favour of the resolution. The company did not receive any specific feedback at the AGM or throughout the year on its remuneration practices. Performance of Starpharma Holdings Limited The executive team of Starpharma achieved important milestones directly related to their key performance indicators in the year. These included:        Commencement and full recruitment of the phase 2 BV prevention of recurrence clinical study of VivaGel®, Securing FDA and European agreement on the clinical design protocols for the BV treatment phase 3 pivotal studies of VivaGel®; Receiving FDA Special Protocol Assessment for BV treatment phase 3 clinical studies; Commencement of the pivotal phase 3 VivaGel® clinical studies for BV treatment; Expanded commercial collaborative partnerships in drug delivery and agrochemicals; Raised $35 million in equity at no discount to market at the placement date; and Elevated to the S&P/ASX300 index on Starpharma’s increasing share price and market capitalisation. These key links between key management personnel performance and remuneration and Starpharma Holdings Limited’s long term performance are evident in the appreciation in share price, with a compounded annual return over the past five years in excess of 30%. Details of remuneration The following tables show details of the remuneration received by the directors and the key management personnel of the group for the current and previous financial year. 2012 Name Short-term benefits Post- employment Long-term benefits Share-based payments Cash salary & fees $ Cash bonus# $ Non-monetary benefits $ Super- annuation $ Long service leave $ Shares# $ Performance Rights# $ Non-executive directors P T Bartels 120,000 R Dobinson 60,000 P J Jenkins 55,046 R A Hazleton 60,000 Z Peach1 P R Turvey2 41,284 – Executive directors – – – – – – – – – – – – – – 4,954 – 3,716 17,097 – – – – – – J K Fairley 341,454 150,000 40,720 18,764 15,732 Other Key Management Personnel (group) B P Rogers 89,496 10,399 5,108 J R Paull 176,847 30,000 11,640 C P Barrett 196,652 25,000 – N J Baade 173,596 25,000 13,561 D J Owen 174,422 25,000 M L McColl 192,303 25,000 339 – 49,712 24,995 17,699 24,500 24,954 17,307 6,772 8,462 8,388 7,658 1,023 248 – – – – – – – 1,000 1,000 1,000 1,000 1,000 1,000 Total $ 120,000 60,000 60,000 60,000 45,000 17,097 – – – – – – 128,540 695,210 23,008 185,495 28,760 281,704 28,760 277,499 28,760 274,075 28,760 255,498 28,760 264,618 Totals 1,681,100 290,399 71,368 203,698 48,283 6,000 295,348 2,596,196 1 Appointed 1 October 2011. 2 Appointed 19 March 2012. # All performance related remuneration, including cash bonuses, shares, and performance rights granted are determined to be an ‘at risk’ component of total remuneration. There were no retirement benefits paid in the current or prior year. 16 2011 Name Short-term benefits Post- employment Long-term benefits Share-based payments ANNUAL REPORT 2012 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 2010. # 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. Service Agreements Remuneration and other terms of employment for the CEO and the 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 that the executive may receive 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 2012 of $395,500, to be reviewed annually by the remuneration and nomination committee. – A cash bonus up to $150,000 for the year to 30 June 2012 allocated proportionately on the achievement of predetermined objectives. For the financial year commencing 1 July 2012 the maximum cash bonus is $200,000, subject to 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 2012 of $139,633 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. 17 STARPHARMA HOLDINGS LIMITED J R Paull VP – Development and Regulatory Affairs – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2012 of $213,632, 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 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 2012 of $219,068, 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 2012 of $212,110, 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 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 (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. D J Owen VP – Research – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2012 of $204,712, 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 – No fixed term of agreement. – Base salary, inclusive of superannuation, per annum as at 30 June 2012 of $215,220, 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 1.54 years (2011: 2.42 years). 18 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. ANNUAL REPORT 2012 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 and prior year were: Number of shares issued on exercise of options during the year Intrinsic value1 $ Name J K Fairley B R Rogers J R Paull C P Barrett N J Baade D J Owen 2012 – – – 75,000 – – 2011 350,000 100,000 350,000 175,000 300,000 200,000 2012 – – – 72,750 – – 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 January 2012 No amounts are unpaid on any shares issued on the exercise of options. Amount paid per share $0.29 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 2012 – – – – – – 2011 – 200,000 275,000 275,000 225,000 225,000 2012 – – – – – – 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. No options lapsed during the year as a result of performance milestones not being met. 19 STARPHARMA HOLDINGS LIMITED 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 2012 – 851 851 851 851 851 851 2011 – 1,190 1,190 1,190 1,190 1,190 1,190 2012 375,000 32,000 40,000 40,000 40,000 40,000 40,000 2011 – 65,000 80,000 80,000 80,000 80,000 80,000 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: Name J K Fairley Number of shares issued on the vesting of performance rights during the year 2012 – 2011 487,500 Number of performance rights lapsed during the year 2012 – 2011 262,500 No performance rights vested in the current year. The value at vesting date of performance rights that vested during 2011 was $407,062. No other performance rights have vested or lapsed; and no other 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 in the current year were as follows: Grant date Vesting Date Holding Lock Expiry date Number of Rights Performance Measure Value per right at grant date % vested 10 November 2011 31 September 2012 31 September 2013 125,000 Share Price ≥ $1.50 10 November 2011 31 September 2012 31 September 2013 125,000 Share Price ≥ $2.00 10 November 2011 31 September 2012 31 September 2013 125,000 Achievement of KPIs 25 November 2011 25 November 2013 25 November 2014 467,500 Achievement of KPIs $0.30 $0.12 $0.96 $1.09 Nil Nil Nil Nil Principles used to determine the nature and amount of remuneration and the relationship between remuneration and company performance are set out in the Executive remuneration policy and framework section of this report. 20 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 21, 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 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. ANNUAL REPORT 2012 Cash bonus Paid Forfeited Grant date value of shares granted during 20122 Grant date value of rights granted during 20122 3 Year Granted Vested Performance rights Remuneration consisting of shares, options & rights4 Financial years in which rights may vest Forfeited 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 % – – – – – – – $ – $ 172,500 1,000 34,880 1,000 43,600 1,000 43,600 1,000 43,600 1,000 43,600 1,000 43,600 2012 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 % % – – – – – – – – – – – – – – – – – – – – – – – – – – 30/06/2013 30/06/2014 30/06/2013 30/06/2014 30/06/2013 30/06/2014 30/06/2013 30/06/2014 30/06/2013 30/06/2014 30/06/2013 30/06/2014 30/06/2013 % 18% 13% 11% 11% 11% 12% 11% 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. - End of remuneration report - 21 STARPHARMA HOLDINGS LIMITED 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 29 June 2009 28 June 2014 $0.37 794,000 No option holder has any right under the options to participate in any other issue of the company or group. 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 21 August 2007 31 October 2007 1 January 2009 29 June 2009 $0.43 $0.50 $0.29 $0.37 1,684,809 30,000 415,000 320,000 Shares under rights Unissued ordinary shares of Starpharma Holdings Limited under the Employee Performance Rights Plan at 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 10 November 2011 30 September 2012 30 September 2013 25 November 2011 25 November 2013 25 November 2014 830,800 375,000 467,500 717,800 375,000 457,500 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 vesting of performance rights granted under the Employee Performance Rights Plan. No amounts are unpaid on any of the shares. Date rights granted 2 September 2010 Issue price of shares (Exercise price of right) Number of shares issued $ - 13,000 Insurance of officers During the financial year, Starpharma Holdings Limited arranged to insure the directors and executive officers of the company and related bodies corporate. The terms of the policy prohibit disclosure of the amount of the premium paid. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. 22 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 2012 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 2012 $ 85,000 - 2011 $ 113,000 18,000 No taxation or advisory services have been provided by the auditor 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 24. 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, 27 August 2012 23 STARPHARMA HOLDINGS LIMITED Auditor’s independence declaration Auditor’s Independence Declaration Auditor’s Independence Declaration As lead auditor for the audit I declare that to the best of my knowledge and belief, there have been: I declare that to the best of my knowledge and belief, there have been: audit of Starpharma Holdings Limited for the for the year ended 30 June 2012, a) no contraventions of the auditor independence requirements of the Corporations Act 2001 no contraventions of th relation to the audit; Corporations Act 2001 in ; and b) no contraventions of any applicable code of professional conduct in relation to the audit. no contraventions of any applicable code of professional conduct in relation to the no contraventions of any applicable code of professional conduct in relation to the This declaration is in respect of Starpharma Holdings Limited and the entities it controlled This declaration is in respect of period. and the entities it controlled during the Anton Linschoten Partner PricewaterhouseCoopers Melbourne 27 August 2012 PricewaterhouseCoopers, ABN 52 PricewaterhouseCoopers, ABN 52 780 433 757 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 Freshwater Place, 2 Southbank Boulevard, SOUTHBANK VIC 3006, GPO Box 1331, MELBOURNE VIC 3001 T: 61 3 8603 1000, F: 61 3 8603 1999, www.pwc.com.au T: 61 3 8603 1000, F: 61 3 8603 1999, Liability limited by a scheme approved under Professional Standards Legislation Liability limited by a scheme approved under Pr 24  ANNUAL REPORT 2012 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 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. Principle 1: Lay solid foundations for management and oversight The relationship between the board and senior management is critical to the group’s long term success. The directors are responsible to the shareholders for the performance of the group in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the group is properly managed. The responsibilities of the board are described in the board charter, which is set out under Principle 2 below. Principle 2: Structure the board to add value The board operates in accordance with the broad principles of the charter set out below. 2.1 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. 2.1.1 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. 2.1.2 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; 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. A performance assessment for senior executives was last conducted in April 2012. The process for these assessments is described in the Remuneration Report under the heading “Performance Review and Development” on page 15 of this report. (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; – 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; 2.1.3 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; and – reporting to shareholders. 2.2 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 six 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. 25 STARPHARMA HOLDINGS LIMITED 2.3 Directors’ independence The company has adopted specific principles for assessing the independence of directors: To be deemed independent, a director must be a non-executive and: – not be a substantial shareholder of the company or an officer of, or otherwise associated directly with, a substantial shareholder of the company; – within the last three years, not have been employed in an executive capacity by the company, or been a director after ceasing to hold any such employment; – within the last three years, not have been a principal of a material professional adviser or a material consultant to the company, or an employee materially associated with the service provided; – not be a material supplier or customer of the company, or an officer of or otherwise associated directly or indirectly with a material supplier or customer; – must have no material contractual relationship with the company other than as a director; and – 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 2001. Under these criteria the board has determined that all non- executive directors were independent at the date of this report. 2.4 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. It is anticipated that non-executive directors would generally hold office for up to ten years, and shall serve a maximum of fifteen years from date of first election by shareholders. The board, on its initiative and on an exceptional basis, may exercise discretion to extend this maximum term where it considers that such an extension would benefit the company. 2.5 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. The board policy is for these separate roles of Chairman and CEO to be undertaken by separate people. 2.6 Commitment The board held nine 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 2012, 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 26 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. 2.7 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. 2.8 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. 2.9 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. Following this assessment the two board committees were reconstituted on 14 May 2012, with a new Chair and two new members for each committee. 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. 2.10 Board committees The board has established two 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. 2.11 Remuneration and nomination committee The company has established a remuneration and nomination committee comprising of three independent non-executive directors. At the date of this report the committee consisted of the following: Dr P J Jenkins (Chairman) Mr P T Bartels Ms Z Peach Details of these directors’ attendance at committee meetings are set out in the directors’ report on page 13. 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 practices generally; and – 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. 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. ANNUAL REPORT 2012 Principle 3: Promote ethical and responsible decision making 3.1 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 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. 3.2 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” (Board, Chairman, CEO or Company Secretary, as appropriate) is given. 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. 3.3 Diversity policy 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 and Anti-Discrimination, Bullying and Harassment policies, providing a framework for Starpharma to achieve a number of diversity objectives. The Diversity Policy is available in the Corporate Governance section of the company’s website. In July 2011 the Starpharma board resolved to commence an orderly renewal process to ensure the company maintained a mix of directors on the board from different backgrounds with complementary skills and experience. In October 2011 Ms Zita Peach was appointed to the board as the first female non- executive director. With five male non-executive directors and CEO Dr Jackie Fairley also a director, total board membership included 28% female directors at the date of this report. Independent of external corporate governance initiatives the company has embraced a culture of inclusion and equal opportunity across diversity areas recognised as potentially impacting upon equality in the workplace - gender, national origin, culture, language, sexual orientation, disability and age. A recent survey indicated that 50% of Starpharma employees were born outside of Australia, representing 13 countries ranging from El Salvador to Eritrea, Switzerland to Sudan, and China to Romania. Almost two thirds of employees (64%) held a PhD or equivalent qualification. Board and Management believe that a culture of diversity has helped the company to tap a deeper pool of talent and has enhanced the collective skillset, contributing to the strong performance of the business. In accordance with the Diversity Policy the board has established measurable objectives for achieving gender diversity and has conducted an assessment of the objectives and progress in achieving them. An excellent gender balance already exists across the company and therefore the initial focus has been on the career development of women rather than on increasing representation of female employees. Objectives set by the board for the 2011-2012 financial year, and progress against these objectives are set out below: Objective: Continue to measure and track gender diversity, and continue to promote a corporate culture that embraces diversity within the company and more widely within the biotech sector. Progress towards objective: The company’s HR policies and processes have been reviewed to ensure they are inclusive in nature and consistent with the aims of the Diversity Policy. A recent survey indicated more than half (57%) of current employees were female, a slight increase on the female population in July 2011 (53%). The table below sets out the proportion of female employees in the whole organisation, in senior executive positions and on the board, at July 2012. Whole organisation Senior Executive positions Total Female % female 35 20 57% 9 3 Board 7 2 33% 28% Objective: Provide career development opportunities for women at middle and senior management levels; encouraging and providing opportunities for female networking and role models. Progress towards objective: Five female middle managers (24% of total female employees) attended at least one management training course during the period July 2011 to June 2012. The company supported all female staff participating in an industry initiative “Connecting Women in Biotechnology” run by the BioMelbourne Network industry group, and including presentations by industry role models, during the 2011/2012 financial year. 27 STARPHARMA HOLDINGS LIMITED Objective: Family friendliness –maintain initiatives to smooth transitions before, during and after parental leave, and to retain employees after they have taken parental leave. Progress towards objective: Where possible, the company provides flexible working hours and part time arrangements, and Principle 4: Safeguard integrity in financial reporting 4.1 Audit and risk committee The company has established an audit and risk committee comprising three independent non-executive directors. At the date of this report the committee consisted of the following: Mr P R Turvey (Chairman) Mr PT Bartels Mr R A Hazleton Details of these directors’ qualifications and attendance at committee meetings are set out in the directors’ report pages 12 to 13. 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; staff are encouraged to approach management to discuss their particular needs before and after parental leave. – review and monitor related party transactions and assess their propriety; – assist the board in the development and monitoring of statutory compliance and ethics programs; – provide assurance to the board that it is receiving adequate, up to date and reliable information; – report to the board on matters relevant to the committee’s role and responsibilities. In fulfilling its responsibilities, the audit and risk committee: – receives regular reports from management and the external auditors; – reviews the processes the CEO and CFO have in place to support their certifications to the board; – reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved; – meets separately with the external auditors at least twice a year without the presence of management; – provides the external auditors with a clear line of direct communication at any time to either the Chairman of the committee or the Chairman of the board. The audit and risk committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party. 4.2 External auditors The company’s policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually. 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. Principle 5 and 6: Make timely and balanced disclosures and respect the rights of shareholders 5.1. 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 Principle 7: Recognise and manage risk 7.1. 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 28 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. The website also has an option for shareholders to register their email address for direct email updates on company matters. All 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). 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 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 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 through the audit and risk committee 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. Principle 8: Remunerate fairly and responsibly The company has established a remuneration and nomination committee comprising of three independent non-executive directors. Details regarding composition, meetings and charter are set out in section 2.11 of this Corporate Governance Statement. Each member of the senior executive team has signed a formal employment contract covering a range of matters including their duties, rights, responsibilities and any entitlements on termination. 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. Further information on directors’ and ANNUAL REPORT 2012 7.2. 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 2012: – 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 in relation to financial reporting risks. executives’ remuneration, including principles used to determine remuneration, is set out in the Remuneration Report on pages 14 to 21. The company’s policy on prohibiting entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under equity-based remuneration schemes is contained in the Securities Dealing Policy which is available in the Corporate Governance section of the company’s website. 29 STARPHARMA HOLDINGS LIMITED Annual Financial Report Contents Financial statements Consolidated income statement Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors’ declaration Independent audit report to the members 31 32 33 34 35 36 68 69 These financial statements are the consolidated financial statements for the consolidated entity consisting of Starpharma Holdings Limited and its subsidiaries. The financial statements are 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 7 and in the review of operations in the directors’ report on pages 9 to 10, which are not part of this financial report. The financial statements were authorised for issue by the directors on 27 August 2012. 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 recent press releases, financial reports and other information are available on the website: www.starpharma.com. 30 Consolidated income statement For the year ended 30 June 2012 Revenue from continuing operations Other income Administration expense Research and development expense Finance costs Loss before income tax Income tax expense 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 Notes 5 5 6 6 7 24 24 The above consolidated income statement should be read in conjunction with the accompanying notes. ANNUAL REPORT 2012 2012 $'000 2,744 160 (4,466) (12,088) (8) (13,658) Consolidated 2011 $'000 2,125 1,178 (6,231) (5,986) (16) (8,930) - - (13,658) (8,930) $ ($0.05) ($0.05) $ ($0.04) ($0.04) 31 STARPHARMA HOLDINGS LIMITED Consolidated statement of comprehensive income For the year ended 30 June 2012 Loss for the year Notes Other comprehensive income (loss) Foreign exchange differences on translation of foreign operations 15 Other comprehensive income (loss) 2012 $'000 (13,658) 421 421 Consolidated 2011 $'000 (8,930) (2,284) (2,284) Total comprehensive income (loss) for the year attributable to members of Starpharma Holdings Limited (13,237) (11,214) The above statement of consolidated comprehensive income should be read in conjunction with the accompanying notes. 32 Consolidated balance sheet As at 30 June 2012 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 ANNUAL REPORT 2012 Consolidated 2011 $'000 18,918 1,023 19,941 280 9,586 9,866 29,807 1,227 49 416 349 2,041 2012 $'000 42,812 2,053 44,865 414 8,989 9,403 54,268 4,492 40 506 397 5,435 Notes 8 9 10 11 12 13 13 100 17 82 182 5,617 48,651 139,171 1,866 (92,386) 48,651 14 15 16 56 73 2,114 27,693 105,399 1,022 (78,728) 27,693 33 The above consolidated balance sheet should be read in conjunction with the accompanying notes. STARPHARMA HOLDINGS LIMITED Consolidated statement of changes in equity For the year ended 30 June 2012 Balance at 30 June 2012 139,171 1,866 (92,386) 48,651 Balance at 1 July 2011 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 plans Employee performance rights plan Total transactions with owners 15 14 14 15 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 $'000 105,399 Reserves Accumulated losses Consolidated Total equity $'000 27,693 (13,658) $'000 (78,728) (13,658) - 421 (13,658) (13,237) - - - - 33,746 26 423 34,195 Consolidated Total equity $'000 34,844 (8,930) $'000 (69,798) (8,930) - (2,284) (8,930) (11,214) - - - - - 3,609 139 24 291 4,063 $'000 1,022 - 421 421 - - 423 423 $'000 2,876 - (2,284) (2,284) - 139 - 291 430 - - - 33,746 26 - 33,772 - - - 3,609 - 24 - 3,633 Notes Contributed capital $'000 101,766 Reserves Accumulated losses Balance at 30 June 2011 105,399 1.022 (78,728) 27,693 The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. 34 Consolidated statement of cash flows For the year ended 30 June 2012 Notes Cash flow from operating activities Receipts from trade and other debtors (inclusive of GST) Grant income (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Interest paid Net cash outflows from operating activities 23 Cash flow from investing activities 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 Net increase (decrease) in cash and cash equivalents held Cash and cash equivalents at the beginning of the year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the year ANNUAL REPORT 2012 2012 $'000 1,141 405 (12,916) 1,608 (8) (9,770) Consolidated 2011 $'000 1,391 829 (9,793) 1,113 (16) (6,476) (133) (138) (133) (138) 35,167 3,609 (1,422) (80) 33,665 23,762 18,918 132 42,812 - (101) 3,508 (3,106) 22,851 (827) 18,918 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. 35 STARPHARMA HOLDINGS LIMITED Notes to the consolidated financial statements 30 June 2012 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 36 37 42 43 44 44 45 45 47 48 49 50 51 51 51 54 54 55 59 60 60 61 61 62 62 62 66 67 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 and Interpretations issued by the Australian Accounting Standards board and the Corporations Act 2001. Starpharma Holdings Limited is a for-profit entity for the purpose of preparing the financial statements. (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 None of the new standards and amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2011 affected any of the amounts recognised in the current period or any prior period and is not likely to affect future periods. (iii) Early adoption of standards The group has not elected to apply any pronouncements before their operative date in the annual reporting period beginning 1 July 2011. (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 2012, the consolidated entity has incurred losses of $13,658,000 (2011: $8,930,000) and experienced net cash outflows of $9,770,000 from operations (2011: $6,476,000), 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 2013. 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 2012 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 ANNUAL REPORT 2012 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. 37 STARPHARMA HOLDINGS LIMITED (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 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 38 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 seven 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 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 1 to 3 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 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 3 to 14 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 ANNUAL REPORT 2012 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. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlements for at least twelve months after the reporting date, regardless of when the actual settlements is expected to occur. 39 STARPHARMA HOLDINGS LIMITED (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”), 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 in 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 or binomial model (or variant of, as appropriate) 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. (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. 40 (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. (y) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2012 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. 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. * In December 2011, the IASB delayed the application date of IFRS 9 to 1 January 2015. The AASB is expected to make an equivalent amendment to AASB 9 shortly. (ii) AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements, AASB 12 Disclosure of Interests in Other Entities, revised AASB 127 Separate Financial Statements and AASB 128 Investments in Associates and Joint Ventures and AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards (effective 1 January 2013) In August 2011, the AASB issued a suite of five new and amended standards which address the accounting for joint arrangements, consolidated financial statements and associated disclosures. AASB 10 replaces all of the guidance on control and consolidation in AASB 127 Consolidated and Separate Financial Statements, and Interpretation 12 Consolidation – Special Purpose Entities. The core principle that a consolidated entity presents a parent and its subsidiaries as if they are a single economic entity remains unchanged, as do the mechanics of consolidation. However, the standard introduces a single definition of control that applies to all entities. It focuses on the need to have both power and rights or exposure to variable returns. Power is the current ability to direct the activities that significantly influence returns. Returns must vary and can be positive, negative or both. Control exists when the investor can use its power to affect the amount of its returns. There is also new guidance on participating and protective rights and on agent/principal relationships. AASB 11 introduces a principles based approach to accounting for joint arrangements. The focus is no longer on the legal structure of joint arrangements, but rather on how rights and obligations are shared by the parties to the joint arrangement. Based on the assessment of rights and obligations, a joint arrangement will be classified as either a joint operation or a joint venture. Joint ventures are accounted for using the equity method, and the choice to proportionately consolidate will no longer be permitted. Parties to a joint operation will account their share of revenues, expenses, assets and liabilities in much the same way as under the previous standard. AASB 11 also provides guidance for parties that participate in joint arrangements but do not share joint control. AASB 12 sets out the required disclosures for entities reporting under the two new standards, AASB 10 and AASB 11, and replaces the disclosure requirements currently found in AASB 127 and AASB 128. ANNUAL REPORT 2012 Amendments to AASB 128 provide clarification that an entity continues to apply the equity method and does not remeasure its retained interest as part of ownership changes where a joint venture becomes an associate, and vice versa. The amendments also introduce a “partial disposal” concept. The amendments are not expected to have any impact on the group’s financial statements. (iii) AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13 (effective 1 January 2013) AASB 13 was released in September 2011. It explains how to measure fair value and aims to enhance fair value disclosures. The group has yet to determine which, if any, of its current measurement techniques will have to change as a result of the new guidance. It is therefore not possible to state the impact, if any, of the new rules on any of the amounts recognised in the financial statements. However, application of the new standard will impact the type of information disclosed in the notes to the financial statements. The group does not intend to adopt the new standard before its operative date, which means that it would be first applied in the annual reporting period ending 30 June 2014. There are no other standards that are not yet effective and that are expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. (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. 41 STARPHARMA HOLDINGS LIMITED 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 audit and risk committee and 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 2012 US $’000 3,059 10 3,969 306 Consolidated 2011 US $’000 3,492 517 534 297 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% 2012 $’000 (131) 108 (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 90 to 212 days. Term Deposits and deposits at call Group Sensitivity 2012 $’000 41,357 Consolidated 2011 $’000 (269) 329 Consolidated 2011 $’000 16,819 At 30 June 2012, 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 $209,000 higher or lower (2011 - change of 50 bps: $269,000 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 42 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. (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 3–14 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 2012 is $8,989,000 (2011: $9,586,000). 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 ANNUAL REPORT 2012 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. undertaken during the ordinary course of business for which the ultimate tax determination may be uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made. The group has recognised deferred tax assets or liabilities, including carried forward losses, not bought to account on the due to the realisation of such benefits as uncertain. The utilisation of tax losses also depends on the ability of the entity to satisfy certain tests at the time the losses are recouped. The group is assessing whether to consolidate for Australian tax purposes from 1 July 2011. The determination has not been made, thus the disclosures remains consistent with prior periods, that the group is not consolidated for tax. iv) R&D Tax Incentives The group research and development activities are eligible under an Australian Government tax incentive for eligible expenditure from 1 July 2011. Management has assessed these activities and expenditure to determine which are likely to be eligible under the incentive scheme. For the period to 30 June 2012 the group has recorded a contra research and development expense of $1,323,000. (b) Critical accounting judgments in applying accounting policies i) 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. 43 STARPHARMA HOLDINGS LIMITED 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 and on the basis of internal reporting and monitoring of the USA operations, it has been determined as a reportable segment. The principal activities of the group consist of development and commercialisation of dendrimer products for pharmaceutical, life- science and other applications. Reportable segments 2012 Revenue and other income Expenses Australia $’000 3,190 (15,795) USA $’000 187 (1,234) Inter-segment Eliminations $’000 (473) 467 Total $’000 2,904 (16,562) Loss before income tax (12,605) (1,047) (6) (13,658) Segment net assets 45,793 3,018 (160) 48,651 2011 Revenue and other income Expenses Australia $’000 3,192 (10,772) USA $’000 659 (2,073) Loss before income tax (7,580) (1,414) Segment net assets 24,096 3,815 Inter-segment Eliminations $’000 (548) 612 64 (218) Total $’000 3,303 (12,233) (8,930) 27,693 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 2012 $’000 881 1,819 44 2,744 5 155 160 2,904 Consolidated 2011 $’000 1,121 981 23 2,125 92 1,086 1,178 3,303 Total revenue and other income for the year was $2,904,000, a reduction of $399,000 from the previous year, on lower grant income from the US National Institutes of Health. The decrease in grant funding is partly offset by higher interest revenue earned on cash deposits. 44 6. Expenses Loss from continuing operations before income tax expense includes the following items: R&D Tax Incentive (contra expense) 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 2012 $’000 (1,323) 134 1,008 329 385 2012 $’000 – – – – – – – – ANNUAL REPORT 2012 Consolidated 2011 $’000 – 172 1,360 285 426 Consolidated 2011 $’000 – – – – – – – – 45 STARPHARMA HOLDINGS LIMITED (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% (2011: 30%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income Eligible expenses claimed under R&D tax incentive Amortisation of intangibles Share-based payments Unearned income Sundry items Difference in overseas tax rates Previously unrecognised tax losses now recouped to reduce current tax expense Future income tax benefits not brought to account Income tax credit (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 (13,658) (4,097) 485 206 134 (102) 91 24 57 3,202 – 78,690 23,817 5,610 1,720 (8,930) (2,679) – – 136 – – 51 – 2,492 – 67,575 20,445 1,140 342 Potential future income tax benefits attributable to tax losses carried forward have not been brought to account at 30 June 2012 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 2012 which it believes will be satisfied. 46 8. Current assets – Cash and cash equivalents Cash at bank and on hand Deposits at call ANNUAL REPORT 2012 2012 $’000 1,455 41,357 42,812 Consolidated 2011 $’000 2,099 16,819 18,918 Cash at bank and on hand The cash is bearing floating interest rates based on current bank rates. Deposits at call The deposits are bearing floating interest rates ranging from 0.05% to 5.97% (2011: 0.05% to 6.19%). These deposits are at call up to 212 day maturities. Cash not available There is $300,000 of cash not available for use due to restrictions associated with a finance lease and credit card facility which is guaranteed by term deposits (2011: $186,000). Interest rate risk With the exception of loans to controlled entities, current receivables are non-interest bearing. 30 June 2012 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 1,608 40,135 – – 1,608 40,135 – – – – – – – – – – – – – – – 1,069 42,812 N/A 2,053 2,053 2,053 3,122 44,865 2,053 2.7% 5.3% –% –% –% –% –% –% – – – – – 40 – 40 – 25 – 25 – 27 – 27 – 30 – 30 – 18 – 18 – – – – 5,080 5,080 5,080 – 397 140 397 140 397 5,477 5,617 5,617 –% 9.0% 8.2% 8.2% 8.2% 8.2% –% –% 47 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 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% –% –% –% –% –% –% 9. Current assets – Trade and other receivables 2012 $’000 1,436 393 136 88 2,053 Consolidated 2011 $’000 604 183 153 83 1,023 Impaired receivables As at 30 June 2012, there were no trade and grant receivables that were past due (2011: $80,000). No receivables are considered impaired at 30 June 2012 (2011: 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. Trade and grant receivables Interest receivables Prepayments Other receivables Trade and grant receivables Trade receivables primarily comprise of revenue associated with research and development projects and are subject to normal terms of settlement within 30 to 90 days. Grant receivables comprise of expenditure reimbursable under grants from the Australian and Victorian Governments, including the R&D tax incentive. 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. 48 10. Non-current assets – Property, plant and equipment ANNUAL REPORT 2012 Consolidated 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 Year ended 30 June 2012 Opening net book amount Additions Disposals Depreciation and amortisation Closing net book amount At 30 June 2012 Cost Accumulated depreciation and amortisation Net book amount Plant and Equipment $’000 Leasehold improvements $’000 Plant and Equipment under finance lease $’000 Total Plant and Equipment $’000 2,246 (2,108) 138 138 (2) 102 (7) (61) 170 2,042 (1,872) 170 170 131 (12) (54) 235 2,138 (1,903) 235 1,141 (1,136) 5 5 – 44 – (11) 38 1,185 (1,147) 38 38 2 – (18) 22 1,187 (1,165) 22 614 (538) 76 76 – 96 – (100) 72 272 (200) 72 72 147 – (62) 157 419 (262) 157 4,001 (3,782) 219 219 (2) 242 (7) (172) 280 3,499 (3,219) 280 280 280 (12) (134) 414 3,744 (3,330) 414 49 STARPHARMA HOLDINGS LIMITED 11. Non-current assets – Intangible assets Consolidated At 30 June 2010 Cost Accumulated depreciation and amortisation Net book amount 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 Year ended 30 June 2012 Opening net book amount Exchange differences Depreciation and amortisation Closing net book amount At 30 June 2012 Cost Accumulated depreciation and amortisation Net book amount Patents & Licences $’000 Goodwill $’000 Total Intangibles $’000 17,578 (6,207) 11,371 11,371 (1,812) (1,360) 8,199 14,854 (6,655) 8,199 8,199 337 (1,008) 7,528 15,417 (7,889) 7,528 1,747 – 1,747 1,747 (360) – 1,387 1,387 – 1,387 1,387 74 – 1,461 1,461 – 1,461 19,325 (6,207) 13,118 13,118 (2,172) (1,360) 9,586 16,241 (6,655) 9,586 9,586 411 (1,008) 8,989 16,878 (7,889) 8,989 (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 2012, goodwill is not considered to be impaired at the end of the reporting period. 50 (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 12. Current liabilities – Trade and other payables ANNUAL REPORT 2012 indicators of impairment at 30 June 2012 and determined that there is no indication that the asset is impaired. Trade payables and accruals Other payables 2012 $’000 4,156 336 4,492 Consolidated 2011 $’000 940 287 1,227 Trade payables and accruals The majority of trade payables related to expenditure associated with clinical trial programs. 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. 2012 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 – 40 25 27 30 18 – 140 Weighted average interest rate –% 9.0% 8.2% 8.2% 8.2% 8.2% –% 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 –% –% –% 14. Contributed equity (a) Share Capital Share Capital Consolidated Consolidated 2012 Shares 2011 Shares 2012 $’000 2011 $’000 Ordinary shares – fully paid 280,802,451 247,743,578 139,171 105,399 51 STARPHARMA HOLDINGS LIMITED (b) Movements in ordinary share capital Date Details Number of shares Issue Price 1 Jul 2010 238,842,208 $’000 101,766 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 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 52  ANNUAL REPORT 2012 Date Details Number of shares Issue Price 01 Jul 2011 14 Jul 2011 Proceeds on exercise of employee options 14 Jul 2011 Employee performance rights plan share issue 09 Aug 2011 Proceeds on exercise of employee options 24 Aug 2011 Proceeds on exercise of employee options 7 Sep 2011 Proceeds on exercise of employee options 247,743,578 40,000 13,000 140,000 10,000 80,000 21 Nov 2011 Share placement 29,767,442 less transaction costs 30 Nov 2011 Proceeds on exercise of employee options 14 Dec 2011 Share placement less transaction costs 22 Dec 2011 Proceeds on exercise of employee options 24 Jan 2012 Employee share plan ($1,000) issue 24 Jan 2012 Proceeds on exercise of employee options 29 Feb 2012 Proceeds on exercise of employee options 14 Mar 2012 Proceeds on exercise of employee options 14 Mar 2012 Proceeds on exercise of options 16 Apr 2012 Proceeds on exercise of employee options 10,000 2,791,305 40,000 22,126 75,000 10,000 10,000 20,000 30,000 $0.37 $ – $0.39 $0.37 $0.37 $1.08 $0.37 $1.08 $0.37 $1.18 $0.29 $0.37 $0.37 $0.29 $0.37 $’000 105,399 15 – 54 4 30 32,000 (1,372) 4 3,000 (50) 15 26 21 4 4 6 11 Balance at 30 June 2012 280,802,451 139,171 (c) Ordinary shares As at 30 June 2012 there were 280,802,451 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. (g) Options Information relating to the Starpharma Holdings Limited Employee Share Option Plan and Individual option deeds, including details of options issued, exercised and expired during the financial year and options outstanding at the end of the financial year are set out in note 25. (h) Capital risk management The group’s and the parent entity’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders. 53 STARPHARMA HOLDINGS LIMITED 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 2012 $’000 3,265 (3,614) 2,215 1,866 2012 $’000 2,842 - 423 3,265 (4,035) 421 (3,614) Consolidated 2011 $’000 2,842 (4,035) 2,215 1,022 Consolidated 2011 $’000 2,412 139 291 2,842 (1,751) (2,284) (4,035) (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. 16. Accumulated Losses Accumulated losses balance at 1 July Net loss for the year Accumulated losses balance at 30 June 54 2012 $’000 (78,728) (13,658) (92,386) Consolidated 2011 $’000 (69,798) (8,930) (78,728) 17. Key management personnel disclosures (a) Key management personnel compensation Short-term employee benefits Post-employment benefits Other long term benefits Share-based payments ANNUAL REPORT 2012 2012 $’000 2,043 204 48 301 2,596 Consolidated 2011 $’000 1,826 255 39 324 2,444 Detailed remuneration disclosures are provided in the remuneration report on pages 14 to 21. (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 the remuneration report. Option holdings The numbers of options over ordinary shares in the company held during the financial year by each director of Starpharma Holdings Limited and other key management personnel of the group, including their personally related parties, are set out below. No non-executive director held options in the current or prior year. 2012 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 – Other key management personnel of the group B P Rogers 200,000 J R Paull C P Barrett N J Baade D J Owen M L McColl 125,000 200,000 125,000 225,000 – – – – – – – – – – – 75,000 – – – – – – – – – – – – 200,000 200,000 125,000 125,000 125,000 125,000 125,000 125,000 225,000 225,000 – – – – – – – – – 55 STARPHARMA HOLDINGS LIMITED 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 – – – – – – – – – # 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 prior year. J K Fairley was granted 375,000 rights to ordinary shares on 10 November 2011. The granting of these performance rights was approved by shareholders on 10 November 2011. 2012 Name Balance at the start of the year Granted during the year as compensation Directors of Starpharma Holdings Limited J K Fairley – 375,000 Other key management personnel of the group B P Rogers 64,000 32,000 J R Paull 80,000 40,000 C P Barrett 80,000 40,000 N J Baade 80,000 40,000 D J Owen 80,000 40,000 M L McColl 80,000 40,000 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 – – – – – – – – – – – – – – 375,000 – 375,000 96,000 120,000 120,000 120,000 120,000 120,000 – – – – – – 96,000 120,000 120,000 120,000 120,000 120,000 # Other Changes during the year relate to the forfeit of performance rights 56  ANNUAL REPORT 2012 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 – – – – – – 64,000 80,000 80,000 80,000 80,000 80,000 – – – – – – – – – – – – 64,000 80,000 80,000 80,000 80,000 80,000 – – – – – – 64,000 80,000 80,000 80,000 80,000 80,000 # Other Changes during the year relate to the forfeit of performance rights 57 STARPHARMA HOLDINGS LIMITED 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. 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. 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. 2012 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 R Dobinson 129,804 1,819,821 – P J Jenkins 1,426,000 R A Hazleton 142,616 Z Peach1 P R Turvey2 – – Other key management personnel of the group Ordinary Shares 41,455 12,608 2,608 132,608 52,608 1,190 B P Rogers J R Paull C P Barrett N J Baade D J Owen M L McColl 1 Appointed 1 October 2011. 2 Appointed 19 March 2012. – – – – – – – 851 851 851 851 851 851 – – – – – – – – – 75,000 – – – – – – – – – – – – – – – – 103,126 232,930 (170,624) 1,649,197 – – 61,462 1,487,462 – 142,616 2,000 30,000 2,334 1,563 – 2,000 30,000 44,640 15,022 78,459 (11,874) 121,585 – – 53,459 2,041 58 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 ANNUAL REPORT 2012 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 67,040 1,418 1,418 1,418 1,418 – 1 Resigned 17 June 2011 18. Remuneration of auditors – – – – – – 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 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 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 2012 $ 85,000 85,000 – – 85,000 Consolidated 2011 $ 113,000 113,000 18,000 18,000 131,000 59 STARPHARMA HOLDINGS LIMITED 19. Contingencies The company has no contingent assets or liabilities at 30 June 2012 (2011: nil). 20. Commitments (a) Capital Commitments There is no capital expenditure contracted for, not recognised as liabilities at the reporting date (2011: nil). (b) Lease Commitments 2012 $’000 389 171 – 560 420 166 (26) 560 2012 $’000 349 71 – 420 Consolidated 2011 $’000 335 355 – 690 624 71 (5) 690 Consolidated 2011 $’000 286 338 – 624 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 The group leases laboratory and offices under a lease until 31 August 2013. 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 60 Finance Leases The group leases plant and equipment under a finance leases expiring within one to five years. ANNUAL REPORT 2012 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 2012 $’000 50 116 – 166 (26) 140 40 100 140 Consolidated 2011 $’000 53 18 – 71 (5) 66 49 17 66 The weighted average interest rate implicit in the lease is 8.4% (2011: 10.1%). (c) Expenditure Commitments The group has entered into various agreements for research, development and clinical 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 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 2011 % 100.00% 100.00% 100.00% 100.00% 2012 % 100.00% 100.00% 100.00% 100.00% 22. Events occurring after the balance sheet date There are no significant events occurring since 30 June 2012 that have significantly affected or may significantly affect the operations of the group, the results of those operations, or the state of the group. 61 STARPHARMA HOLDINGS LIMITED 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 Gain (loss) on sale of property, plant and equipment Change in operating assets and liabilities, net of effects of acquisitions and disposals of entities: Decrease (increase) in receivables and other assets Increase (decrease) increase in trade creditors Increase in employee provisions Increase (decrease) in deferred income Net cash outflows from operating activities 24. Earnings per share Basic loss per share Diluted loss per share Net loss attributable to members of Starpharma Holdings Ltd used as the numerator in calculating diluted and basic earnings per share ($’000) Weighted average number of ordinary shares outstanding during the year used as the denominator in calculating diluted and basic earnings per share 2012 $’000 (13,658) 1,142 (132) 448 (13) (989) 3,266 116 50 Consolidated 2011 $’000 (8,930) 1,532 827 456 (7) 357 (354) 120 (477) (9,770) (6,476) 2012 $ (0.05) (0.05) (13,658) Consolidated 2011 $ (0.04) (0.04) (8,930) 267,652,960 242,556,106 As at 30 June 2012 the company had on issue 2,778,809 (30 June 2011: 3,243,809) share options and 1,550,300 (30 June 2011: 750,800) performance rights that are not considered dilutive. The options and rights have not been included in the determination of basic earnings per share. The options and rights granted are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. Given the entity is currently loss making, the potential shares are anti-dilutive and have therefore not been included in the diluted earnings per share calculation. 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 62 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. Set out below are summaries of options under the schemes: ANNUAL REPORT 2012 (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. 2012 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 21 Aug 2007c 22 Aug 2012 $0.43 1,684,809 – 31 Oct 2007 a 7 Aug 2011 $0.50 30,000 30,000 1 Jan 2009 a 28 Aug 2012 $0.29 395,000 95,000 1 Jan 2009 b 28 Aug 2012 $0.29 20,000 20,000 29 Jun 2009 a 28 Jun 2014 $0.37 1,114,000 320,000 Total 3,243,809 465,000 – – – – – – – – – – – – 1,684,809 1,684,809 – – 300,000 300,000 – – 794,000 794,000 2,778,809 2,778,809 Weighted average exercise price $0.39 $0.36 $ – $ – $0.40 $0.40 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. 63 STARPHARMA HOLDINGS LIMITED 2011 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 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 prior year. The weighted average share price at the date of exercise of options exercised during the year ended 30 June 2012 was $0.36 (2011: $0.43). The weighted average remaining contractual life of share options outstanding at the end of the period was 0.67 years (2011: 1.77 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. 64 (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 2012 was $1.175 (2011: $0.84 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 2012 is as follows: ANNUAL REPORT 2012 Share grant date Number of shares granted Share price at grant date Assessed fair value 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 24 January 2012 22,126 $1.175 $1.175 1 February 2011 28,560 $0.84 $0.84 Performance Rights (a) CEO Equity Incentive Plan Details are provided in 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. (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 2012 was $0.81 per right (2011: $0.39). There were 842,500 performance rights granted in the current year (2011: 830,800). The estimated fair value at grant date was independently determined using either an option pricing or a binomial 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 2012 is as follows: Right grant date 10 November 2011 10 November 2011 10 November 2011 25 November 2011 Number of rights granted 125,000 125,000 125,000 467,500 Vesting date 30 September 2012 30 September 2012 30 September 2012 25 November 2013 Disposal Restriction until 30 September 2013 30 September 2013 30 September 2013 25 November 2014 Performance Measure Share Price ≥ $1.50 Share Price ≥ $2.00 Expected price volatility of the company's shares Risk-free interest rate Expected dividend yield Share price at grant date Assessed fair value 50% 3.8% - $1.08 $0.30 50% 3.8% - $1.08 $0.12 KPIs 50% 3.8% - $1.08 $0.96 KPIs 50% 3.3% - $1.09 $1.09 65 STARPHARMA HOLDINGS LIMITED 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 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 Employee shares issued Employee performance rights issued 2012 $’000 - 26 423 449 2 September 2010 830,800 31 August 2012 31 August 2013 KPIs 31% 5.1% - $0.49 $0.39 Consolidated 2011 $’000 138 26 291 455 26. Related party transactions (a) Parent entity and subsidiaries The parent entity of the group is Starpharma Holdings Limited. Interests in subsidiaries are set out in note 21. (b) Key management personnel Disclosures relating to key management personnel are set out in note 17. (c) Transactions with related parties 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. 66 27. Parent entity financial information (a) Summary financial information The individual financial statements for the parent entity show the following aggregate amounts: ANNUAL REPORT 2012 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 2012 (2011: nil). 2012 $'000 41,232 58,836 832 1,485 139,171 2,755 (84,575) (10,548) (10,548) Parent 2011 $'000 16,876 35,349 988 1,644 105,399 2,333 (74,027) (11,144) (11,144) 67 STARPHARMA HOLDINGS LIMITED Directors’ Declaration In the directors’ opinion: (a) the financial statements and notes set out on pages 30 to 67 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2012 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, 27 August 2012 68 Independent audit report to the members Independent audit report to the members ANNUAL REPORT 2012 ANNUAL REPORT 2012 69 69 PricewaterhouseCoopers,ABN52780433757FreshwaterPlace,2SouthbankBoulevard,SOUTHBANKVIC3006,GPOBox1331,MELBOURNEVIC3001T:61386031000,F:61386031999,www.pwc.com.auLiabilitylimitedbyaschemeapprovedunderProfessionalStandardsLegislation.Independentauditor’sreporttothemembersofStarpharmaHoldingsLimitedReportonthefinancialreportWehaveauditedtheaccompanyingfinancialreportofStarpharmaHoldingsLimited(thecompany),whichcomprisesthebalancesheetasat30June2012,andtheincomestatement,thestatementofcomprehensiveincome,statementofchangesinequityandstatementofcashflowsfortheyearendedonthatdate,asummaryofsignificantaccountingpolicies,otherexplanatorynotesandthedirectors’declarationfortheStarpharmaHoldingsLimitedGroup(theconsolidatedentity).Theconsolidatedentitycomprisesthecompanyandtheentitiesitcontrolledattheyear'sendorfromtimetotimeduringthefinancialyear.Directors’responsibilityforthefinancialreportThedirectorsofthecompanyareresponsibleforthepreparationofthefinancialreportthatgivesatrueandfairviewinaccordancewithAustralianAccountingStandardsandtheCorporationsAct2001andforsuchinternalcontrolasthedirectorsdetermineisnecessarytoenablethepreparationofthefinancialreportthatisfreefrommaterialmisstatement,whetherduetofraudorerror.InNote1,thedirectorsalsostate,inaccordancewithAccountingStandardAASB101PresentationofFinancialStatements,thatthefinancialstatementscomplywithInternationalFinancialReportingStandards.Auditor’sresponsibilityOurresponsibilityistoexpressanopiniononthefinancialreportbasedonouraudit.WeconductedourauditinaccordancewithAustralianAuditingStandards.TheseAuditingStandardsrequirethatwecomplywithrelevantethicalrequirementsrelatingtoauditengagementsandplanandperformtheaudittoobtainreasonableassurancewhetherthefinancialreportisfreefrommaterialmisstatement.Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialreport.Theproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialreport,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialreportinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebythedirectors,aswellasevaluatingtheoverallpresentationofthefinancialreport.OurproceduresincludereadingtheotherinformationintheAnnualReporttodeterminewhetheritcontainsanymaterialinconsistencieswiththefinancialreport.Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinions.IndependenceInconductingouraudit,wehavecompliedwiththeindependencerequirementsoftheCorporationsAct2001. STARPHARMA HOLDINGS LIMITED Independent audit report to the members 70 Auditor’sopinionInouropinion:(a)thefinancialreportofCorporationsAct2001(i)givingatrueandfairviewofthe30June2012(ii)complyingwithAustralianAccountingStandards(includingtheAustralianAccountingInterpretat(b)thefinancialreportandnotesasdisclosedinNoteReportontheRemunerationWehaveauditedtheremunerationended30June2012.Thedirectorsofthecompanyareresponsibleforthepreparationandpresentationoftheremuneration2001.OurresponsibilityistoexpressanopinionontheconductedinaccordancewithAustralianAuditingStandards.Auditor’sopinionInouropinion,theremuneration30June2012,complieswithPricewaterhouseCoopersAntonLinschotenPartnerthefinancialreportofStarpharmaHoldingsLimitedisinaccordancewiththeCorporationsAct2001,including:givingatrueandfairviewoftheconsolidatedentity’sfinancialpositionasat2012andofitsperformancefortheyearendedonthatdate;andcomplyingwithAustralianAccountingStandards(includingtheAustralianAccountingInterpretations)andtheCorporationsRegulations2001thefinancialreportandnotesalsocomplywithInternationalFinancialReportingStandardsasdisclosedinNote1.emunerationReportemunerationreportincludedinpages14-21ofthedirectors’reportfortheThedirectorsofthecompanyareresponsibleforthepreparationandemunerationreportinaccordancewithsection300AoftheOurresponsibilityistoexpressanopinionontheremunerationreport,basedonourauditconductedinaccordancewithAustralianAuditingStandards.emunerationreportofStarpharmaHoldingsLimitedforthewithsection300AoftheCorporationsAct2001.isinaccordancewiththeconsolidatedentity’sfinancialpositionasatperformancefortheyearendedonthatdate;andcomplyingwithAustralianAccountingStandards(includingtheAustralianCorporationsRegulations2001;andInternationalFinancialReportingStandardsofthedirectors’reportfortheyearThedirectorsofthecompanyareresponsibleforthepreparationandeportinaccordancewithsection300AoftheCorporationsActeport,basedonourauditfortheyearendedMelbourne27August2012  ANNUAL REPORT 2012 Shareholder Information The shareholder information set out below was applicable as at 31 July 2012 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 516 1,346 764 1,253 216 4,095 – – 1 6 5 12 – – 4 17 6 27 There were 129 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 1. HSBC Custody Nominees (Australia) Limited 2. National Nominees Limited 3. JP Morgan Nominees Australia Limited 4. Citicorp Nominees Pty 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. Citicorp Nominees Pty Limited 10. JPS Distribution Pty Ltd 11. Applecross Secretarial Services Pty Ltd 12. Mr Kingsley Bryan Bartholomew 13. Dr Stuart Keith Roberts 14. HSBC Custody Nominees (Australia) Limited 15. Durbin Superannuation Pty Ltd 16. Commonwealth Scientific And Industrial Research Organisation 17. UBS Wealth Management Australia Nominees Pty Ltd 18. JPS Distribution Pty Ltd 19. Mr Peter Murray Jackson 20. Mr Mario Argyrides Ordinary shares Percentage Number held of issued shares 50,475,546 47,275,727 29,807,573 12,003,655 7,487,784 5,500,799 4,097,286 4,040,000 3,513,029 3,249,511 2,885,588 2,000,000 1,625,000 1,568,289 1,559,412 1,448,798 1,438,739 1,398,523 1,225,000 1,170,000 17.92 16.78 10.58 4.26 2.66 1.95 1.45 1.43 1.25 1.15 1.02 0.71 0.58 0.56 0.55 0.51 0.51 0.50 0.43 0.42 183,770,259 65.24 71 STARPHARMA HOLDINGS LIMITED 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 Unquoted equity securities over ordinary shares Number on issue Number of holders 944,000 946,859 1,550,300 3,441,159 11 1 27 Substantial shareholders as shown in substantial shareholder notices received by the company as at 31 July 2012: Name Acorn Capital Limited Orbis Investment Management (Australia) Pty Ltd M&G Investment Funds The Dow Chemical Company D. Voting rights Ordinary shares Number held 36,614,463 23,151,172 25,310,817 14,406,827 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) Employee Share Plan ($1,000 Plan) Ordinary Shares Ordinary Shares Ordinary Shares CEO Equity Incentive Plan Ordinary Shares Employee Performance Rights Plan Performance Rights Employee Performance Rights Plan Performance Rights 22,688 26,180 21,275 487,500 717,800 375,000 16 22 25 1 20 25 January 2013 1 February 2014 25 January 2015 1 March 2013 31 August 2013 1 30 September 2013 Employee Performance Rights Plan Performance Rights 457,500 25 25 November 2014 72  ANNUAL REPORT 2012 Intellectual Property Report The Starpharma patent portfolio currently has around 30 active patent families with over 100 granted patents and more than 60 patent applications pending. Three new PCT applications were filed during the year. Key patents within the Starpharma portfolio as at 2 August 2012: Title Priority Date & Publication Number Patents Granted Applications Pending VivaGel® Patent Portfolio Antiviral Dendrimers 15 June 1994 WO95/34595 Anionic Or Cationic Dendrimer Antimicrobial Or Antiparasitic Compositions 14 September 1998 WO00/15240 Agents For The Prevention & Treatment Of Sexually Transmitted Diseases-I 30 March 2001 WO02/079299 Australia, Brazil, Canada, China, Europe, Hong Kong, Japan, Mexico, New Zealand, Singapore, South Korea, USA Australia, Canada, Europe, Japan, Mexico, New Zealand, Singapore, South Korea, USA 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, 22 March 2006 WO2007/106944 16 May 2011 USA Sep 30, 1996 USA 25 October 2005 WO2007/048190 10 August 2006 WO2007/082331 11 August 2006 WO2008/017125 6 June 2011 Contraceptive Composition Method Of Treatment Or Prophylaxis Of Bacterial Vaginosis Drug Delivery Patent Portfolio Disulfide-containing dendritic polymers Macromolecules Compounds Having Controlled Stoichiometry Modified Macromolecules Targeted Polylysine Dendrimer Therapeutic Agent Macromolecules Priostar Patent Portfolio Dendritic Polymers With Enhanced Amplification And Interior Functionality China Brazil 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 China, Europe, India, USA International Application 20 April 2005 WO2006/065266 Canada, India, Israel, Japan, Mexico, New Zealand, Singapore, South Korea, Taiwan, USA Argentina, Brazil, China, Europe, Hong Kong, Dendritic Polymers With Enhanced Amplification And Interior Functionality 21 December 2005 WO2006/115547 Australia, Canada, India, Israel, Mexico, New Zealand, Singapore, South Korea, USA Argentina, Brazil, China, Europe, Hong Kong, Japan, Taiwan, PEHAM Dendrimers for use in Agriculture 26 October 2009 WO2011/053605 Australia, Brazil, China, Europe, India, Japan, USA 73 Solicitors Norton Rose RACV Tower, 485 Bourke Street Melbourne VIC 3000 Australia Stock exchange listing ASX Limited Level 45, North 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 STARPHARMA HOLDINGS LIMITED 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 Z Peach P R Turvey Company Secretary Ben Rogers 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 Pty Limited 452 Johnston Street, Abbotsford VIC 3067 GPO Box 2975 Melbourne, VIC 3001 1300 850 505 (within Australia) +613 9415 4000 (outside Australia) www.computershare.com Auditor PricewaterhouseCoopers Freshwater Place Southbank VIC 3006 Australia 74 Starpharma holdingS limited ABN 20 078 532 180 Baker IDI Building 75 Commercial Road, Melbourne VIC 3004 Australia Telphone +61 3 8532 2700 Facsimile +61 3 9510 5955 www.starpharma.com 

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