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14 April 2009 THE MANAGER COMPANY ANNOUNCEMENTS OFFICE ASX LIMITED Dear Sir/Madam re : PHOSPHAGENICS LIMITED 2008 ANNUAL REPORT 2009 ANNUAL GENERAL MEETING (“AGM”) OPTION EXPIRY NOTICE Annual Report and Annual General Meeting. Attached for release to the market is a copy of the 2008 Annual Report for the year ended 31 December 2008. Also attached for release to the market is the 2009 Annual General Meeting (“AGM”) documentation consisting of: Notice of Meeting; Explanatory Memorandum; and Proxy Form The AGM is to be held on Friday 29 May 2009 at 2.00 p.m. in the Conference Centre, Minter Ellison, Level 23, Rialto South Tower, 525 Collins Street, Melbourne. Option Expiry Notice In addition to the dispatch of the Annual Report and the AGM documentation to Shareholders the Company is dispatching to all option holders an Option Expiry Notice (“OEN”) in relation to the Company’s quoted share options (ASX code: “POHOB”) which, unless exercised, will expire/lapse on Sunday 7 June 2009. As required the option exercise price of A$0.20 an option is shown on the OEN together with the information stipulated under Listing Rule 6.24 – For personal use only Appendix 6A – 6.1. __________________________________________________________________ Phosphagenics Limited ACN 056 482 403 ABN 32 056 482 403 11 Duerdin Street, Clayton Victoria 3168 Australia Telephone: +61 3 9565 1119 Facsimile: +61 3 9565 1151 Web : www.phosphagenics.com Email: [email protected] All of the above documentation has been posted to the Company’s website and can be viewed in full at http://www.phosphagenics.com/main/Investors_Announcements.htm Yours faithfully Phosphagenics Limited per Mourice Garbutt Company Secretary poh\asx\2009 (2008) AR cover letter For personal use only For personal use only CORPORATE DIRECTORY Phosphagenics Limited (ABN 32 056 482 403) BOARD OF DIRECTORS REGISTERED OFFICE AUSTRALIAN STOCK Associate Professor Level 2 EXCHANGE LIMITED Andrew Lancelot Vizard 90 William Street The Company’s securities are quoted (Chairman and Independent Director) Melbourne Vic 3000 Australia on the offi cial lists of the Australian Stock Exchange Limited (ASX). The Mr Harry Rosen PRINCIPAL BUSINESS OFFICE Company’s ASX Code is POH and (President & Chief Executive Offi cer) 11 Duerdin Street the home exchange is in Melbourne. Clayton Vic 3168 Australia Option code is POHOB. Dr Esra Ogru Telephone: 03 9565 1119 (Chief Operating Offi cer) Facsimile: 03 9565 1151 AMERICAN DEPOSITORY RECEIPT www.phosphagenics.com In July 2007, the Company upgraded Professor John Mills Email: [email protected] its level 1 American Depository (Independent Director) Receipt (ADR) on the U.S. Over-The- SHARE REGISTRAR Counter (OTC) securities market to the Mr Jonathan Lancelot Addison Computershare Investor Services Pty Ltd international OTCQX, a premium market (Independent Director) Yarra Falls tier in the U.S. for international 452 Johnston Street exchange-listed companies, operated Mr Michael Ashton Abbotsford Vic 3067 Australia by Pink Sheets, LLC. The Company’s (Independent Director) Telephone: 1300 850 505 ADR ticker symbol is PPGNY. Facsimile: 03 9473 2500 COMPANY SECRETARY ANNUAL GENERAL MEETING (AGM) Mr Mourice Reginald Garbutt AUDITORS The Company’s AGM will be held on Ernst & Young Friday 29th May 2009 in the CHIEF FINANCIAL OFFICER 8 Exhibition Street Conference Centre, Minter Ellison, Mr Alister John Hodges Melbourne Vic 3000 Australia Level 23, South Rialto Tower, 525 Collins Street, Melbourne, commencing at 2pm. SCIENTIFIC ADVISORS Dr Simon West Dr William Hsu Professor Thomas Rades For personal use only CONTENTS 02 Chairman & CEO’s Joint Report 08 Technology 09 Intellectual Property 10 Product Pipeline 12 Year in Summary 13 Consolidated Year in Review 14 Board Members ANNUAL FINANCIAL Report 15 Directors’ Report 2008 REPORT | ANNUAL 27 Auditor’s Independence Declaration 28 Corporate Governance Statement 35 Income Statement 36 Balance Sheet 37 Cash Flow Statement LIMITED PHOSPHAGENICS 38 Statement of Changes in Equity 39 Notes to the Financial Statements 66 Directors’ Declaration 67 Independent Auditor’s Report | 69 Additional Shareholders’ Information For personal use only 1 CHAIRMAN AND CEO’S JOINT REPORT “...during a rapidly deteriorating world economy, we raised $9.1 million, ensuring sufficient cash to sustain our operations and research programs well into 2010.” Dear Shareholders, While 2007 was a year where Phosphagenics aggressively pursued our R&D programs, 2008 became a year for consolidation where only previously commenced programs were progressed. During the reporting year, Phosphagenics initiated or completed the following clinical trials: • A Phase 2 insulin trial on patients with type 1 diabetes; • A Phase 2 Phospha E® metabolic syndrome trial in partnership with Nestlé Nutrition; • A Phase 1 lidocaine trial; • A Phase 1 diclofenac trial; and • A retinoic acid, safety and irritation human trial. Additionally we completed a substantial pre-clinical program using a combination of APA-01 and Atorvastatin. The study demonstrated that the two compounds had a synergistic activity in reducing the inflammatory biomarkers associated with the onset of cardiovascular disease. The Company attained GRAS (Generally Recognised as Safe) status for our Phospha E® product in the U.S., opening the way to selling this product into the U.S. food market. Importantly, during a rapidly deteriorating world economy, we raised $9.1 million, ensuring sufficient cash to sustain our operations and programs well into 2010. RESEARCH AND DEVELOPMENT Our researchers continually strive to improve our technologies while being mindful of the need for the company to expeditiously pursue the commercialisation of its products. During 2008, we made significant improvements to our delivery systems. These improvements, which go beyond vesicular delivery,For personal use only have been applied to several of our current initiatives as well as our narcotic analgesics program which aims at delivering oxycodone, morphine and other opioids into the systemic circulation. It is unusual for one technology to be capable of topically delivering many drugs safely and effectively, as each drug has unique delivery challenges. Our novel delivery technology TPM has shown that it is capable of efficiently delivering both small and large molecules through the skin without causing any sensitisation or irritation. 2 CHAIRMAN AND CEO’S JOINT REPORT INSULIN – PHASE 2 CLINICAL TRIAL In January 2009, Phosphagenics completed its Phase 2 insulin trial on subjects with type 1 diabetes. The results met both end points of the study: the evaluation of the glucose lowering efficacy of transdermal insulin and its safety and tolerability in patients with type 1 diabetes. This was a world first as insulin has never before been delivered topically into the systemic circulation of type 1 diabetics without the use of a mechanical device. Since the conclusion of the Phase 2 trial, we have further optimised our insulin formulation by significantly reducing the amount of insulin in the new formulation. Trialled in diabetic animal models, the new formulation demonstrated that it is significantly more effective in lowering blood glucose levels and maintaining a steady level of basal insulin compared to the previous formulation. | ANNUAL REPORT 2008 REPORT | ANNUAL RETINOIC ACID – SAFETY AND IRRITATION HUMAN TRIAL Retinoic acid is the drug most often prescribed by dermatologists for the topical treatment of acne. However, side effects such as dryness of the skin and irritation, affect almost 90 per cent of patients using this drug. Half of the patients who withdraw from retinoic acid treatment prematurely do so because of irritation. Consequently, practitioners often prescribe retinoic acid in formulations that contain small amounts of the active, thereby diminishing the effectiveness of the treatment. PHOSPHAGENICS LIMITED PHOSPHAGENICS Despite its limitations, the U.S. market for topically prescribed retinoids for acne treatment, such as retinoic acid, exceed U.S.$300 million annually. A number of pre-clinical studies conducted by Phosphagenics clearly demonstrated both an increase in dermal absorption of retinoic acid when formulated with our TPM drug delivery platform and a significant reduction in irritation scores. In the second quarter of 2008, Phosphagenics completed a U.S.-based trial to assess the safety, irritation and erythema profile of TPM/Retinoic acid. | In the trial, TPM/Retinoic acid was compared to Retin A®, a leading commercial product. The results demonstrated that TPM/ Retinoic acid (applied topically everyday for 21 days) did not induce any major irritation or erythema and scored significantly less than Retin A® for both these parameters. LIDOCAINE – PHASE 1 CLINICAL TRIAL In December 2008, Phosphagenics announced the successful completion of its Phase 1 lidocaine trial. Lidocaine is a well known topical anaesthetic used for a wide variety of ailments, including temporary relief of rashes, stings, sprains, strains, bites and burns. The clinical trial compared the dermal penetration and systemic exposure of lidocaine in our lidocaine formulation (TPM/lidocaine) against one of the leading marketed products, Xylocaine® (lidocaine). OneFor personal use only hour after application, our formulation delivered 500 per cent more (p<0.001) lidocaine into the stratum corneum, the outer layer of the skin, than the commercial product, Xylocaine® (refer to figure 1). Phosphagenics’ TPM/lidocaine also augmented the depth of