Tableof Contents

 

 

 

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

** **

**FORM 20-F**

 
| **(Mark One)** |
|----------------|
| **o**          | **REGISTRATION STATEMENT PURSUANT TO  SECTION 12(b)OR 12(g) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|           |   |
|           | **OR** |
|           |   |
| **x**          | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d)OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|           | **For the fiscal year ended June 30, 2008** |
|           |   |
|           | **OR** |
|           |   |
| **o**          | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|           |   |
|           | **OR** |
|           |   |
| **o**          | **SHELL COMPANY REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **     | **Date of event requiring this  shell company report                      For the transition period from             to           ** |

 

**Commissionfile number 0-51373**

** **

**CHEMGENEX PHARMACEUTICALS LIMITED**

(Exact name of Registrant asspecified in its charter)

 

**Australia**(Jurisdiction of incorporation or organization)

 

**EricMerrigan**

**Level 4,199 Moorabool Street**

**Geelong**

**Victoria3220 Australia**

**Telephonenumber: 011-613-5223-9903**

**rmerrigan@chemgenex.com**(Name, Telephone, E-mail and Address of CompanyContact Person)

 

Securities registered or to be registered pursuant to Section 12(b) ofthe Act:

**None**

** **

Securities registered or to be registered pursuant to Section 12(g) ofthe Act:

**Ordinaryshares without par value (“ordinary shares”)**

**AmericanDepositary Shares each representing the right to receive 15 ordinary shares**

** **

Securities for which there is a reporting obligation pursuant to Section 15(d) ofthe Act:

**None**

** **

Indicate the number of outstanding shares of each of the issuer’s classof capital or common stock as of June 30, 2008:

**187,112,274ordinary shares without par value**

 

Indicate if the registrant is a well-known seasoned issuer, as definedin Rule 405 of the Securities Act

 

Yes /No                  **No**

 

If this report is an annual or transition report, indicate if theregistrant is not required to file report pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934

 

Yes /No                  **No**

 

Note- Checking the above will not relieve any registrant required tofile reports pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934 from their obligations under those sections.

 

Indicate by whether the registrant (1) has filed all reportsrequired to be filed by Sections 13 or 15(d) of the Securities ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and  (2) has been subject to such filingrequirements for the past 90 days.

 

Yes /No                  **Yes**

** **

Indicate whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.(Check one)

 
| ** ** | Large accelerated filer | **No**     |
|------------|-------------------------|------------|
| ** ** | ** **              | ** ** |
| ** ** | Accelerated filer       | **Yes**    |
| ** ** | ** **              | ** ** |
| ** ** | Non-accelerated filer   | **No**     |

** **

Indicate by check mark whichbasis of accounting the registrant has used to prepare the financial statementsincluded in this filing:

 
| o U.S. GAAP |   | **x**  International Financial Reporting Standards as issued |   | o Other |
|-------------|--------|--------------------------------------------------------------|--------|---------|
|        |   | by the International Accounting Standards Board              |   |    |

 

If “Other” has been checked in response to the previous question,indicate by check mark which financial statement item the registrant haselected to follow.

 
| Item 17 o |   | Item 18 o |
|----------------|--------|----------------|

 

If this is an annual report indicate whether the registrant is a shellcompany (as defined by Rule 12b-2 of the Exchange Act

 

Yes /No                  **No**

** **

 (APPLICABLE ONLY TO ISSUERSINVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicate by check mark whether the registrant has filed all documentsand reports required to be filed by Sections 12, 13 or 15(d) of theSecurities Exchange Act of 1934 subsequent to the distribution of securitiesunder a plan confirmed by a court.

 
| o Yes | o No |
|-------|------|

 

 

** **

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Table of Contents

 

**TABLE OF CONTENTS**

** **
| ** **        | ** **     | ** **                                                                                          | ** **                                                  | **Page**     |
|-------------------|----------------|-----------------------------------------------------------------------------------------------------|-------------------------------------------------------------|--------------|
| ** **        | ** **     | ** **                                                                                          | ** **                                                  | ** **   |
| ***GLOSSARY***    | * *       |
|              |           |
| ***PART I*** | * *       | * *                                                                                            | ***1***                                                     |
| ** **        | ** **     |                                                                                                |                                                        |         |
| *** ***      | ***ITEM 1.***  | *** ***                                                                                        | ***IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS*** | ***1***      |
| *** ***      | *** ***   | *** ***                                                                                        | *** ***                                                | *** *** |
| *** ***      | ***ITEM 2.***  | *** ***                                                                                        | ***OFFER STATISTICS AND EXPECTED TIMETABLE***               | ***1***      |
| *** ***      | *** ***   | *** ***                                                                                        | *** ***                                                | *** *** |
| *** ***      | ***ITEM  3.*** | *** ***                                                                                        | ***KEY  INFORMATION***                                      | ***1***      |
|              | A.             | Selected consolidated financial data                                                                | 1                                                           |
|              | B.             | Capitalization and indebtedness                                                                     | 3                                                           |
|              | C.             | Reasons for the offer and use of proceeds                                                           | 3                                                           |
|              | D.             | Risk factors                                                                                        | 4                                                           |
|              |           |                                                                                                |                                                        |         |
| *** ***      | ***ITEM 4.***  | *** ***                                                                                        | ***INFORMATION ON THE COMPANY***                            | ***11***     |
|              | A.             | History and development of the Company                                                              | 11                                                          |
|              | B.             | Business overview                                                                                   | 13                                                          |
|              | C.             | Organizational structure                                                                            | 19                                                          |
|              | D.             | Property, plant and equipment                                                                       | 19                                                          |
|              |           |                                                                                                |                                                        |         |
| *** ***      | ***ITEM 5.***  | *** ***                                                                                        | ***OPERATING AND FINANCIAL REVIEW AND PROSPECTS***          | ***20***     |
|              | A.             | Operating results                                                                                   | 22                                                          |
|              | B.             | Liquidity and capital resources                                                                     | 27                                                          |
|              | C.             | Research and product development programs                                                           | 27                                                          |
|              | D.             | Trend information                                                                                   | 30                                                          |
|              | E.             | Off-balance Sheet Arrangements                                                                      | 30                                                          |
|              | F.             | Tabular Disclosure of Contractual  Obligations                                                      | 30                                                          |
|              | G.             | Assets Acquired in a Business Combination  to be used in Research & Development Activities | 30                                                          |
|              |           |                                                                                                |                                                        |         |
| *** ***      | ***ITEM 6.***  | *** ***                                                                                        | ***DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES***            | ***32***     |
|              | A.             | Directors and senior management                                                                     | 32                                                          |
|              | B.             | Compensation                                                                                        | 35                                                          |
|              | C.             | Board practices                                                                                     | 37                                                          |
|              | D.             | Employees                                                                                           | 41                                                          |
|              | E.             | Share ownership and options                                                                         | 41                                                          |
|              |           |                                                                                                |                                                        |         |
| *** ***      | ***ITEM 7.***  | *** ***                                                                                        | ***MAJOR SHAREHOLDERS AND RELATED PARTY  TRANSACTIONS***    | ***47***     |
|              | A.             | Major shareholders                                                                                  | 47                                                          |
|              | B.             | Related party transactions                                                                          | 48                                                          |
|              | C.             | Interests of experts and counsel                                                                    | 48                                                          |
|              |           |                                                                                                |                                                        |
| *** ***      | ***ITEM 8.***  | *** ***                                                                                        | ***FINANCIAL INFORMATION***                                 | ***48***     |
|              | A.             | Consolidated statements and other financial  information                                            | 48                                                          |
|              | B.             | Significant changes                                                                                 | 49                                                          |
|              |           |                                                                                                |                                                        |         |
| *** ***      | ***ITEM 9.***  | *** ***                                                                                        | ***THE OFFER AND LISTING***                                 | ***49***     |
|              | A.             | Offer and listing details                                                                           | 49                                                          |
|              | B.             | Plan of distribution                                                                                | 51                                                          |
|              | C.             | Markets                                                                                             | 51                                                          |
|              | D.             | Selling shareholders                                                                                | 51                                                          |
|              | E.             | Dilution                                                                                            | 52                                                          |
|              | F.             | Expenses of the issue                                                                               | 52                                                          |
|              |           |                                                                                                |                                                        |         |
| *** ***      | ***ITEM 10.*** | *** ***                                                                                        | ***ADDITIONAL INFORMATION***                                | ***52***     |
|              | A.             | Share capital                                                                                       | 52                                                          |
|              | B.             | Memorandum and articles of incorporation                                                            | 52                                                          |
|              | C.             | Material contracts                                                                                  | 52                                                          |
|              | D.             | Exchange controls and other limitations  affecting security holders                                 | 52                                                          |
|              | E.             | Taxation                                                                                            | 53                                                          |
|              | F.             | Dividends and paying agents                                                                         | 59                                                          |
|                   |                |                                                                                                     |                                                             |              |  |  |  |

 

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|                | G.              | Statement by experts                                                          | 59                                                                                 |
|---------------------|-----------------|-------------------------------------------------------------------------------|------------------------------------------------------------------------------------|
|                | H.              | Documents on display                                                          | 59                                                                                 |
|                | I.              | Subsidiary information                                                        | 59                                                                                 |
|                |            |                                                                          |                                                                               |   |
| *** ***        | ***ITEM 11.***  | *** ***                                                                  | ***QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK***                  | ***59*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| *** ***        | ***ITEM 12.***  | *** ***                                                                  | ***DESCRIPTION OF SECURITIES OTHER THAN EQUITY  SECURITIES***                      | ***60*** |
|                | A.              | Debt Securities                                                               | 60                                                                                 |
|                | B.              | Warrants and Rights                                                           | 60                                                                                 |
|                | C.              | Other Securities                                                              | 60                                                                                 |
|                | D.              | American Depositary Shares                                                    | 60                                                                                 |
|                |            |                                                                          |                                                                               |   |
| ***PART II***  | *** ***    | *** ***                                                                  | ***61***                                                                           |
| ** **          | ** **      | ** **                                                                    | ** **                                                                         | ** ** |
| *** ***        | ***ITEM 13.***  | *** ***                                                                  | ***DEFAULTS, DIVIDEND ARREARAGES AND  DELINQUENCIES***                             | ***61*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| *** ***        | ***ITEM 14.***  | *** ***                                                                  | ***MATERIAL MODIFICATIONS TO THE RIGHT OF  SECURITY HOLDERS AND USE OF PROCEEDS*** | ***61*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| *** ***        | ***ITEM 15.***  | *** ***                                                                  | ***CONTROLS AND PROCEDURES***                                                      | ***61*** |
|                | A.              | Disclosure Controls and Procedures                                            | 61                                                                                 |
|                | B.              | Management’s Annual Report on Internal  Control over Financial Reporting | 61                                                                                 |
|                | C.              | Attestation Report of the Registered Public  Accounting Firm                  | 62                                                                                 |
|                | D.              | Changes in Internal Control over Financial  Reporting                         | 63                                                                                 |
|                |            |                                                                          |                                                                               |   |
| *** ***        | ***ITEM 16A.*** | *** ***                                                                  | ***AUDIT COMMITTEE FINANCIAL EXPERT***                                             | ***63*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| *** ***        | ***ITEM 16B.*** | *** ***                                                                  | ***CODE OF ETHICS***                                                               | ***63*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| *** ***        | ***ITEM 16C.*** | *** ***                                                                  | ***PRINCIPAL ACCOUNTANT FEES AND SERVICES***                                       | ***64*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| *** ***        | ***ITEM 16D.*** | *** ***                                                                  | ***EXEMPTIONS FROM THE LISTING STANDARDS FOR  AUDIT COMMITTEES***                  | ***64*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| *** ***        | ***ITEM 16E.*** | *** ***                                                                  | ***PURCHASES OF EQUITY SECURITIES BY THE  ISSUER AND AFFILIATED PURCHASERS***      | ***64*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| ***PART III*** | *** ***    | *** ***                                                                  | ***65***                                                                           |
| ** **          | ** **      | ** **                                                                    | ** **                                                                         | ** ** |
| *** ***        | ***ITEM 17.***  | *** ***                                                                  | ***FINANCIAL STATEMENTS***                                                         | ***65*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| *** ***        | ***ITEM 18.***  | *** ***                                                                  | ***FINANCIAL STATEMENTS***                                                         | ***65*** |
| *** ***        | *** ***    | *** ***                                                                  | *** ***                                                                       | *** *** |
| ** **          | **ITEM  19.**   | ** **                                                                    | **EXHIBITS**                                                                       | **65** |

 

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# **GLOSSARY**

# ** **

**AML****                                                               **AcuteMyelogenous Leukemia is a malignant cancer of the myeloid line of white bloodcells, characterized by the rapid proliferation of abnormal cells thataccumulate in the bone marrow and interfere with the production of normal bloodcells. AML is the most common acute leukemia affecting adults with an estimated30,000 new cases per year in the developed world. The incidence of AML isincreasing with increased life expectancy and ageing of the general population.

 

**CML****                                                               **ChronicMyelogenous Leukemia is a malignant cancer of the bone marrow that causes rapidgrowth of the blood-forming cells (known as myeloid precursors) in the bonemarrow, peripheral blood, and body tissues. CML can occur in adults (usuallymiddle-aged) and children. CML affects 1 to 2 people per 100,000 and accountsfor 7-20% cases of leukemia.

** **

**HHT****                                                                 **Homoharringtonineis a natural compound isolated from the Chinese evergreen tree *Cephalotaxus harringtonia*. HHT has a broad antitumoractivity in rodents and antileukemic effects in humans. HHT is used in Chinafor the treatment of leukemia.

 

**MDS****                                                               **MyelodysplasticSyndrome is a group of conditions caused by abnormal blood-forming cells of thebone marrow. In MDS, the bone marrow cannot produce blood cells effectively,and many abnormal cells are destroyed before they leave the bone marrow orshortly after entering the bloodstream. This results in low blood countscausing anemia and other complications. It is estimated that there are between10,000 and 15,000 new cases of MDS in the USA each year.

 

**TKI****                                                                      **Tyrosineinhibitor. A class of drugs that can be used to alleviate the symptoms of CMLby blocking the activity of the causative protein, Bcr-Abl.

 

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**USE OFCERTAIN DEFINED TERMS**

** **

As used herein the terms “ChemGenex” and the “Company” refer toChemGenex Pharmaceuticals Limited and its consolidated subsidiaries as at thedate of filing.

 

**PRESENTATIONOF FINANCIAL INFORMATION; AVAILABLE INFORMATION**

** **

The Company’s fiscal year ends on June 30 of each year. Referencesin this document to a particular year are to the fiscal year unless otherwiseindicated.  The Company prepares annualreports (including this annual Report on Form 20-F) containing consolidatedfinancial statements and an opinion thereon by an independent registered publicaccounting firm. Such financial statements comply with Australian AccountingStandards and International Financial Reporting Standards (“IFRS”) as issued bythe International Accounting Standards Board. The Company also prepareshalf-yearly reports prepared in conformity with IFRS, which contain interimcondensed consolidated financial information that are subjected to a review byan independent registered public accounting firm.

 

The Company’s consolidated financial statements are reported inAustralian dollars. In this Annual Report on Form 20-F, references to “U.S.dollars”, US$ or “$” are to U.S. currency and references to “Australian dollars”or “A$” are to Australian currency.

 

**ENFORCEMENTOF LIABILITIES AND SERVICE OF PROCESS**

 

The Company isincorporated under the laws of New South Wales, Commonwealth of Australia.  The majority of its directors and executiveofficers, and the experts named in this Annual Report, reside outside the U.S.A substantial part of the Company’s assets, its directors’ and officers’ assetsand such experts’ assets are located outside the U.S. As a result, it may notbe possible for investors to effect service of process within the U.S. upon theCompany or its directors, executive officers or such experts, or to enforceagainst them or the Company, judgments obtained in U.S. courts based upon thecivil liability provisions of the federal securities laws of the U.S. Inaddition, the Company has been advised by its Australian lawyers, McCulloughRobertson, that there is doubt that the courts of Australia will enforceagainst the Company, its officers, directors and experts named herein,judgments obtained in the U.S. based upon the civil liability provisions of thefederal securities laws of the U.S. or will enter judgments in original actionsbrought in Australian courts based upon the federal securities laws of the U.S.

 

**FORWARD-LOOKINGSTATEMENTS**

** **

Except forhistorical information contained herein, the matters discussed in this AnnualReport are “forward-looking statements.” These forward-looking statementsinclude, but are not limited to, statements about the Company’s and itsstrategic partners’ respective plans, objectives, expectations, estimates,strategies, product approvals and development plans, and anticipated financialresults. These statements are typically identified by the use of terms such as “anticipates,”“believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “could,” “should,”“seeks,” “will,” “would” and similar words. These statements are based on theCompany’s current expectations and beliefs concerning future events but aresubject to risks and uncertainties, including but not limited to economic,competitive, governmental and technological factors affecting the Company’soperations, results of operations, markets, products, prices and prospects, andother factors discussed below and elsewhere in this Annual Report. Thesefactors may cause the Company’s results to differ materially from thestatements made in this Annual Report or otherwise made by or on behalf of theCompany. Item 3.D. “Risk Factors”is a summary (not listed in order of priority) of some of the risk factors thatcould adversely affect the Company’s results. The risks and uncertaintiesdescribed are not the only ones the Company faces. Additional risks notpresently known to the Company or other factors not perceived by the Company topresent significant risks to its business at this time also may impair itsbusiness operation. The Company does not undertake to update any of theseforward-looking statements or to announce the results of any revisions to theseforward-looking statements except as required by law.

 

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# **PART I**

# ** **

## **ITEM 1.                  IDENTITY OF DIRECTORS, SENIORMANAGEMENT AND ADVISORS**

## ** **

Not applicable.

 

## **ITEM 2.                  OFFER STATISTICS AND EXPECTEDTIMETABLE**

## ** **

Not applicable.

 

## **ITEM 3.                  KEY INFORMATION**

## ** **

### **A**.            Selected consolidated financial data

### ** **

The following table presentsselected financial data of the Company as of the dates and for each of theperiods indicated. You should read the selected financial data set forth belowtogether with Item 5. “Operating and Financial Review and Prospects” as well asthe Company’s audited consolidated financial statements and notes theretoappearing elsewhere in this Annual Report.

 

The following selectedfinancial data for the four years ended June 30, 2008 is derived from theaudited consolidated financial statements of ChemGenex Pharmaceuticals Limited,prepared in accordance with International Financial Reporting Standards (“IFRS”),which became effective for our company as of our fiscal year ended June 30,2006.

 

Under IFRS 1, “*First-time Adoption of International FinancialReporting Standards*,” or IFRS 1, a company adopting IFRS for thefirst time is required to adopt accounting policies that comply with IFRS andrelated interpretations that are in effect at the reporting date of its firstannual financial statements prepared in accordance with IFRS, in our case June 30,2006.  IFRS 1 also requires that thosepolicies be applied as of the date of transition to IFRS, in our case July 1,2004, and consistently throughout all periods presented in the first annualfinancial statements prepared in accordance with IFRS.  However, the Company was not required torecast its financial statements prior to July 1, 2004 in accordance withIFRS, and is therefore unable to provide the selected data for the year ended June 30,2004 prepared in accordance with IFRS. Accordingly, IFRS selected data for the 2004 financial year has beenremoved.  Our consolidated financialstatements appearing in this report comply with both the IFRS as issued byInternational Accounting Standards Board and Australian equivalents toInternational Financial Reporting Standards, or A-IFRS.

 

The balance sheet data as ofJune 30, 2008 and 2007 and the income statement data for fiscal years2008, 2007 and 2006 are derived from our audited consolidated financialstatements included in this annual report. Balance sheet data as of June 30, 2006 and 2005 and incomestatement data for the 2005 financial years are derived from our auditedconsolidated financial statements which are not included in this AnnualReport.  The data should be read inconjunction with the consolidated financial statements, related notes and otherfinancial information included herein.

 

All amounts are stated inAustralian dollars as of June 30 as noted.

 

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**Consolidated Income Statement Data ****in Accordancewith IFRS****:**

 
| **A$ , except per share data**          | ** ** | **2008**    | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|------------------------------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Revenues from ordinary activities                                |       | 2,703,774   |       | 1,677,733   |       | 241,634     |       | 463,889     |       |
|                                                             |       |        |       |        |       |        |       |        |       |
| Research expenditure                                             |       | (9,233,641  | )          | (4,320,602  | )          | (3,325,103  | )          | (556,289    | )          |
| Employee costs                                                   |       | (7,298,615  | )          | (2,517,915  | )          | (2,710,341  | )          | (2,631,862  | )          |
| Patent costs                                                     |       | (406,783    | )          | (310,189    | )          | (232,433    | )          | (49,574     | )          |
| Legal costs                                                      |       | (210,971    | )          | (66,434     | )          | (114,416    | )          | (105,945    | )          |
| Depreciation                                                     |       | (113,773    | )          | (271,344    | )          | (272,198    | )          | (269,937    | )          |
| Travel Expenses                                                  |       | (445,706    | )          | (101,409    | )          | (152,751    | )          | (108,800    | )          |
| Accounting and audit expenses                                    |       | (568,228    | )          | (298,526    | )          | (380,259    | )          | (129,208    | )          |
| Other expenses from ordinary activities(a)                       |       | (1,790,230  | )          | (1,967,094  | )          | (892,857    | )          | (1,607,805  | )          |
| Loss from continued operations                                   |       | (17,364,173 | )          | (8,175,780  | )          | (7,838,724  | )          | (4,955,531  | )          |
| Profit/(Loss) from discontinued operations                       |       | 10,944,247  |       | (3,525,139  | )          | (2,530,995  | )          | (1,279,652  | )          |
| Net loss                                                         |       | (6,419,926  | )          | (11,700,919 | )          | (10,369,719 | )          | (6,235,183  | )          |
|                                                             |       |        |       |        |       |        |       |        |       |
| Basic and diluted loss per share (A$)                            |       | (0.03       | )          | (0.07       | )          | (0.09       | )          | (0.06       | )          |
| Basic and diluted loss per share (A$) for  continuing operations |       | (0.09       | )          | (0.05       | )          | (0.07       | )          | (0.05       | )          |
| Basic and diluted weighted average number  of shares(b)          |       | 186,802,718 |       | 162,281,115 |       | 117,647,158 |       | 105,707,630 |       |

 

**Consolidated Balance Sheet Data in Accordance with IFRS:**

 
| **A$**                   | ** ** | **2008**    | ** ** | **2007**    | ** ** | **2006**    | ** ** | **2005**    | ** ** |
|--------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Cash assets              |       | 10,081,629  |       | 25,366,562  |       | 15,553,696  |       | 8,511,952   |       |
| Plant and equipment, net |       | 355,462     |       | 81,546      |       | 328,820     |       | 587,022     |       |
| Total assets             |       | 27,944,777  |       | 42,761,109  |       | 32,965,251  |       | 26,575,624  |       |
| Long-term debt           |       | —      |       | —      |       | —      |       | —      |       |
| Total liabilities        |       | 3,435,411   |       | 2,891,511   |       | 1,960,342   |       | 1,340,176   |       |
| Net assets               |       | 24,509,366  |       | 39,869,598  |       | 31,004,909  |       | 25,235,448  |       |
| Accumulated deficit      |       | (99,143,847 | )          | (92,723,921 | )          | (81,023,002 | )          | (70,653,283 | )          |
| Contributed equity       |       | 108,999,144 |       | 120,773,060 |       | 99,892,615  |       | 84,592,891  |       |
| Reserves                 |       | 14,654,069  |       | 11,820,459  |       | 12,135,296  |       | 11,295,840  |       |

 

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(a)     Other expenses from continuedordinary activities comprise consulting and advisory costs, s, company taxationand outsourced employee costs.

 

(b)    Basic loss per share isdetermined by dividing the loss after income tax by the weighted average numberof ordinary shares, outstanding during the period. The computation of dilutedloss per share is similar to basic loss per share, except that it assumes thepotentially dilutive securities, such as options, were converted to shares atthe beginning of the period. For all periods presented, diluted loss per shareis equivalent to basic loss per share as the potentially dilutive securitiesare excluded from the computation of diluted loss per share because the effectis anti-dilutive.

 

**Dividends**

** **

No dividend has been paid by the Company in the three fiscal years upto and including fiscal 2008.

 

**Exchange rates**

** **

The consolidated financial statements of the Company which form part ofthis Annual Report are presented in Australian dollars (A$).

 

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The following table sets forth, for the periods and dates indicated,certain information concerning the noon buying rate in New York City forAustralian dollars expressed in U.S. dollars per A$1.00 as certified forcustoms purposes by the Federal Reserve Bank of New York.

 
| **Month**           | ** ** | **Month’s highest exchange rate** | ** ** | **Month’s lowest exchange rate** | ** ** |
|---------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
|                |       |                                                  |       |                                                 |       |
| November 2008  |       | 0.6960                                                |       | 0.6090                                               |       |
|                |       |                                                  |       |                                                 |       |
| October 2008   |       | 0.7800                                                |       | 0.6080                                               |       |
|                |       |                                                  |       |                                                 |       |
| September 2008 |       | 0.8509                                                |       | 0.7895                                               |       |
|                |       |                                                  |       |                                                 |       |
| August 2008    |       | 0.9302                                                |       | 0.8567                                               |       |
|                |       |                                                  |       |                                                 |       |
| July 2008      |       | 0.9779                                                |       | 0.9420                                               |       |
|                |       |                                                  |       |                                                 |       |
| June 2008      |       | 0.9633                                                |       | 0.9343                                               |       |

 
| **Years ended June 30,** | ** ** | **Average** | ** ** |
|-----------------------------------------|------------|-------------|------------|
|                                    |       |        |       |
| 2008                                    |       | 0.8985      |       |
|                                    |       |        |       |
| 2007                                    |       | 0.7865      |       |
|                                    |       |        |       |
| 2006                                    |       | 0.7475      |       |
|                                    |       |        |       |
| 2005                                    |       | 0.7535      |       |
|                                    |       |        |       |
| 2004                                    |       | 0.7134      |       |

 

As at December 12, 2008 the Australian dollar closed at US$0.6580

 

### **B**.            Capitalization and indebtedness

### ** **

Not applicable.

 

### **C.            Reasonsfor the offer and use of proceeds**

### ** **

Not applicable.

 

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### **D.            Risk factors**

### ** **

Prospective investors and shareholders should be aware that anyinvestment in the Company involves a degree of risk and should be made only bythose with the necessary expertise to appraise the investment. In addition tothe other information in this document, the following risk factors should beconsidered in evaluating whether to make or hold an investment in the Company.Any or all of these factors could have a material and adverse effect on theCompany’s operational results, financial condition and prospects. Furthermore,the trading price of ChemGenex shares could decline resulting in the loss ofall or part of any investment therein.

 

**The Company has a history of operating losses and negative cash flowand may never become profitable**

 

ChemGenex is a company that has a history of operating losses. Theselosses have arisen mainly from the costs incurred in research and developmentof its products and general administrative costs. For the year ended June 30,2008, the Company’s net loss was A$6,419,926 and its accumulated deficit as of June 30,2008 was A$99,143,847. The Company expects to continue to incur operatinglosses over the next two years and may never be profitable. To date, theCompany has generated revenues through research and development funding fromits partners, milestone payments and contract research. Based on anticipatedcash flow requirements of the Company’s existing research and developmentactivities, the directors consider that the Company will have sufficient fundsto support existing operations to mid 2009. The Directors plan to continue theCompany’s and the consolidated entity’s operations on the basis of the mattersreferred to above, and believe that future fund raising activities and thevalue of the Group’s existing net assets will generate sufficient funds for theGroup to operate in its normal manner.

 

In order to support the research and development of the Company’s business,the Company plans to incur expenses in excess of revenue. The Company’sstrategy is to utilize its understanding of the genetics of cancer and itsexpertise in medicinal chemistry to identify novel targets for therapeuticintervention and to develop personalized medicines in the field of cancer. TheCompany’s cancer program has led to the development of two therapeutic agentsthat are currently in clinical trial. The Company may not develop any productsand any other products it may develop may not generate revenues.

 

**Additional funding is likely to be required to give the Company time toreach profitability. Raising such additional funding could entail restrictionson the rights of holders of ordinary shares. If the Company is unable to raiseadditional funds it may have to curtail its operations.**

 

The Company’s need for capital at any given time depends on a number offactors, including:

 

·                  the ability toenter collaborations to support its research and development programs;

 

·                  the rate ofprogress and cost of the Company’s research activities;

 

·                  the costs ofpreparing, filing, prosecuting, maintaining and enforcing patent claims andother intellectual property rights;

 

·                  the costs and timing of obtainingregulatory approvals for the Company’s products;

 

·                  the emergence ofcompeting products and other adverse market development; and

 

·                  changes in, ortermination of, the Company’s existing collaboration and licensingarrangements.

 

The Company may not receive further revenues from collaboration andlicensing agreements or changes in the development of the Company’s drugcandidates may cause available capital resources to be used more quickly thanexpected.

 

The Company is likely in the future to require additional funds, inaddition to funds received from licensing and collaboration agreements, tocontinue research and development. It is likely that the Company will seekfunds through further licensing and collaboration agreements and throughadditional sale of the Company’s securities. The Company may not be able tosecure licensing and collaboration agreements on satisfactory terms, if at all.Also, the public markets for issues of biotechnology company securities arevolatile and competitive. The Company may not be able to attract additionalfunds on acceptable terms, if at all. The Company also may decide to access thepublic equity markets whenever conditions are favorable, even if the Companydoes not have an immediate need for 

 

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additional capital at that time. If the Company raises additional funds by issuing equity securities,dilution to shareholders may result. This might be the case, for example,because U.S. investors may not be able to participate in certain fund raising,such as rights offerings, under applicable securities laws and may therefore bediluted. Other shareholders may not have the means to exercise their rights insuch an offering, and will see their interests diluted, and the price at whichany further capital raising is made also may be below the price at which otherinvestors acquired their shares.

 

Ifadequate funds are not available, the Company may have to significantly reduceits research and development programs or obtain funds through licensing andcollaboration agreements at an earlier stage in the drugs’ development than theCompany envisaged. If adequate funds are not available on acceptable terms, itsability to invest in the progress of its development programs and productportfolio will be materially and adversely affected, with the result that itsprospects are less favorable.  ChemGenexhad working capital of approximately A$7 million as at June 30, 2008 andraised a further A$12.9 million with the issue of 15,216,153 shares at A$0.85cents each in September 23,2008. Based on the anticipated cash flowrequirements of the Company’s existing research and development activities, theBoard has concluded that these funds should be sufficient to support operationsto mid calendar 2009. The Board remains confident that adequate funds tocontinue the Company’s operations will be raised from partnership agreementsand/or equity placements as required in the future.

 

The Company anticipates a net loss in fiscal 2009.

 

**If the Company is unable to retain and attract key employees, itsscientific and management capabilities could be reduced.**

 

The loss of key employees could weaken the Company’s scientific andmanagement capabilities, resulting in delays in the development of its cancerclinical trials and broader research programs thus impacting negatively on theCompany’s business. ChemGenex is significantly dependent on certain scientificand management personnel, including Dr. Gregory R. Collier, Dr. DennisM. Brown, Dr. Adam R. Craig, Dr. James A. Campbell, Eric P. Merrigan,Tina Herbert, Luana Staiger and Eric Humphriss. Although the Company hasentered into employment or consultancy arrangements with each of the Company’skey personnel with the aim of securing their services, the retention of suchservices cannot be guaranteed. Companies such as ChemGenex are highly dependenton employees who have an in-depth and long-term understanding of theircompanies’ technologies, products, programs, collaborative relationships andstrategic goals. The loss of these key employees and the Company’s inability torecruit new employees to replace them could have a negative impact on thebusiness and prospects of the Company because the Company’s scientific andmanagement capabilities would be reduced.

 

**The Company is dependent on its academic collaborators, consultants andscientific advisors and their confidentiality.**

 

The Company has relationships withcollaborators and consultants at academic and other scientific institutions whoconduct trials under contractually defined terms at the Company’s request.  It is the Company’s policy that all of itsemployees, academic collaborators, consultants and scientific advisors enterinto confidentiality agreements that control the dissemination of allintellectual property produced that results from their work for the Company.  It is possible; however, that unauthorizeddissemination of such confidential information could materially adverselyaffect the Company’s business, financial condition and results ofoperations.  Such collaborators alsocould enter into employment agreements or consulting arrangements withcompetitors.

 

**The Company may not be successful in its clinical trials programs.  These programs are costly, time consuming andof uncertain outcome.  If such programsare not successful, the Company may invest substantial amounts of time and moneywithout developing revenue-producing products.**

 

Clinical trials of promising products can take years, the durationdepending among other factors on type, complexity, novelty and intended use ofthe product candidate. The Company may fail to successfully complete clinicaltrials and bring products to market for a number of reasons, including:

 

·                  as the Companyenters a more extensive clinical program in several different diseases, thedata generated in these studies may not be as compelling as the earlierresults;

 

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·                  unforeseen safety issues or sideeffects;

 

·                  variability inthe number and types of patients available for each study, and difficulty inmaintaining contact with patients after treatment, resulting in incompletedata;

 

·                  delays resulting from review boardaction at institutions assisting the Company with its clinical trials; and

 

·                  the failure toobtain required regulatory approvals.

 

**If the products that the Company brings to market are not commerciallysuccessful, the Company’s liquidity may be adversely affected.**

 

The Company’s success depends on acceptance of the Company’s productsby the market, including physicians and third-party payers, and consequentlythe Company’s liquidity and viability as a going concern may be adverselyaffected if it is unable to achieve market acceptance of its products. Factorsthat may affect the rate and level of market acceptance of any of the Company’sproducts include:

 

·                  the existence orentry onto the market of superior competing products or therapies;

 

·                  the price of theCompany’s products compared to competing products;

 

·                  publicperception regarding the safety, efficacy and benefits of the Company’sproducts compared to competing products or therapies;

 

·                  theeffectiveness of the Company’s sales and marketing efforts and those of theCompany’s marketing partners;

 

·                  regulatorydevelopments related to manufacturing or use of the Company’s products;

 

·                  the willingnessof physicians to adopt a new treatment regimen; and

 

·                  publicityconcerning the product type in general.

 

**Even if the Company’s products are approved, they may still face laterregulatory difficulties, which could impair its ability to market its productsor force it to incur substantial additional expenses.**

 

Even if the Company receives regulatory approval to sell any of itsproducts, the U.S. Food and Drug Administration (“FDA”), the Australian TherapeuticsGoods Administration or comparable foreign regulatory agencies could requirethe Company to conduct post-marketing trials to further evaluate safety andefficacy or could prevent the Company from using the labeling claims which theCompany would like to use to promote its products. Regulators will undertakeperiodic reviews and inspections. If they discover previously unknown problemswith a product or its manufacturing facility or if the Company fails to complywith regulatory requirements, regulators could:

 

·                  impose finesagainst the Company;

 

·                  imposerestrictions on the product, its manufacturer, or the Company;

 

·                  require theCompany to recall or remove a product from the market;

 

·                  suspend orwithdraw its regulatory approvals;

 

·                  require theCompany to conduct additional clinical trials;

 

·                  require theCompany to change its product labeling; or

 

·                  require theCompany to submit additional marketing applications.

 

If any of these events occur, the Company’s ability to sell itsproducts will be impaired and the Company may incur substantial additionalexpense to comply with the regulatory requirements. In addition, in certaincountries, even after regulatory approval, the Company is still required toobtain price reimbursement approval. This may delay the marketing of theCompany’s products or, when approval cannot be obtained, mean that the productcannot be sold at all.

 

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**If the Company is unable to keep pace with technological change or withthe advances of its competitors, its technology and products may becomeobsolete or non-competitive.**

 

The biotechnology and pharmaceutical industries are subject to rapidtechnological change which could affect the success of the Company’s drugs ormake them obsolete. The field of biotechnology is characterized by significantand rapid technological change. Research and discoveries by others may resultin medical insights or breakthroughs which render the Company’s drug candidatesless competitive or even obsolete before they generate revenue.

 

**The Company’s business faces intense competition from majorpharmaceutical companies and specialized biotechnology companies engaged in thedevelopment of drugs directed at the conditions and disorders that are thefocus of the Company’s therapeutics programs. As a result its competitors may be able to establish superiorproprietary positions.**

 

The Company’s competitors in the biotechnology and pharmaceuticalindustries may have superior research and development capabilities, drugs,manufacturing capability or marketing expertise. Many of the Company’scompetitors have significantly greater financial and human resources and mayhave more experience in research and development. As a result, the Company’scompetitors may develop safer or more effective drugs, or implement moreeffective sales and marketing programs or be able to establish superiorproprietary positions. In addition, the Company anticipates that it will faceincreased competition in the future as new companies enter the Company’smarkets and alternative drugs become available.

 

The Company’s products under development are expected to address abroad range of markets including, but not limited to anti-cancer drugs for thetreatment of chronic myelogenous leukemia (“CML”) and other forms of leukemia,prostate cancer and other solid tumors. The Company’s competitive position willbe determined in part by the potential indications for which the Company’sproducts are developed and ultimately approved by regulatory authorities. Therelative speed with which the Company or its collaborative partners can developproducts, complete the clinical trials and approval processes and supplycommercial quantities of the products to the market, are expected to beimportant competitive factors.

 

The Company’s competitors may be developing products that could competewith the products the Company is developing. The Company and its collaboratorswill need to persuade patients and physicians to adopt its products over itscompetitors’ products.

 

In the field of cancer therapeutics the Company faces intensecompetition from major pharmaceutical companies and specialized biotechnologycompanies engaged in the development of product candidates and othertherapeutic products. Several of these companies have products in the sameindications or utilize similar technologies and/or personalized medicinetechniques.  The FDA has approved twodrugs for CML patients who are resistant to the therapy imatinib mesylate(Gleevec®); Sprycel® (dasatinib), a drug developed andcommercialized by Bristol-Myers Squibb was approved in June 2006, andNilotinib® (nilotinib) a drug developed and commercialized byNovartis was approved in October 2007. Significantly, neither Sprycel®nor Nilotinib® have demonstrated efficacy against the T315I Bcr-Ablmutation, and it is this sub-set of resistant CML patients that are beingtargeted by the Company for initial approval. Several biotechnology andpharmaceutical companies are seeking to develop effective therapeuticsspecifically for CML patients with the T315I mutation. Vertex Pharmaceuticalsand its partner Merck are developing an aurora kinase inhibitor referred to asMK-0457 or VX-680. Phase 2 clinical trials for this agent were underway butwere suspended in 2007. Nerviano Medical Sciences in collaboration with the U.SNational Cancer Institute is conduction a small phase 2 study of the novelaurora kinase inhibitor PHA-739358. Astex Therapeutics is developing AT9283, an inhibitor of severaltargets including Bcr-Abl. This agent is currently in phase 1/2 clinicaltrials. Several companies have agents in phase 1 clinical trials, includingExelixis (XL228), Kyowa Hakko (KW2449) and Medimmune/Infinity Pharmaceuticals(IPI504).  Xanthus Pharmaceuticals is currently conducting a phase 3 study withamonafide malate (listed as an example product candidate – Refer Item 4B.Business Overview – ChemGenex’s development pipeline) in acute myeloid leukemia.  The previous list is indicative only, andthere may be other competitive trials or technologies elsewhere in the world.Additionally, many of the Company’s competitors, including large pharmaceuticalcompanies, have greater financial and human resources and more experience thanthe Company does.

 

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**If the healthcare industry limits coverage orreimbursement levels, the acceptance of the Company’s products couldsuffer.  It may not be able to sell itsdrug profitably.**

 

The healthcare industry is subject to changing political, economic andregulatory influences that may affect the procurement practices and operationsof healthcare facilities.  During thepast several years, the healthcare industry has been subject to increasedgovernment regulation of reimbursement rates and capital expenditures.  Among other things, third party payers areincreasingly attempting to contain or reduce healthcare costs by limiting bothcoverage and levels of reimbursement for healthcare products and procedures.Cost control policies of third party payers, including government agencies, mayadversely affect acceptance and use of the Company’s product line.

 

**If the Company is unable to successfully establish and protect itsintellectual property, which is significant to the Company’s competitiveposition, its competitors may be able to take advantage of its research anddevelopment efforts.**

 

The Company’s success depends in part on its ability to obtain andmaintain protection for its inventions and proprietary information, so that itcan stop others from making, using or selling its inventions or proprietaryrights. The Company owns a portfolio of patents and patent applications. Thereis a significant delay between the time of filing of a patent application andthe time its contents are made public, and others may have filed patentapplications for subject matter covered by the Company’s pending patentapplications without the Company being aware of those applications. The Company’spatent applications may not have priority over patent applications of othersand its pending patent applications may not result in issued patents. Even if theCompany obtains patents, they may not be valid or enforceable against others.Moreover, even if the Company receives patent protection for some or all of itsproducts, those patents may not give the Company an advantage over competitorswith similar products.

 

To develop and maintain its competitive position, the Company alsorelies on unpatented trade secrets and improvements, unpatented know-how andcontinuing technological innovation, which it protects with security measuresit considers to be reasonable, including confidentiality agreements with itscollaborators, consultants and employees. The Company may not have adequateremedies if these agreements are breached and the Company’s competitors mayindependently develop any of this proprietary information.

 

If the Company fails to obtain adequate protection for its intellectualproperty, the Company’s competitors may be able to take advantage of theCompany’s research and development efforts. The Company’s success will depend,in large part, on its ability to obtain and maintain patent or otherproprietary protection for its technologies in general and, in particular,drugs and processes. The Company may not be able to obtain patent protectionfor the use of certain drug compounds, processes developed by its employees ormedical uses of compounds discovered through its technology. Legal standardsrelating to patents covering pharmaceutical or biotechnological inventions andthe scope of claims made under these patents are still developing. There is no consistentpolicy regarding the breadth of claims allowed in biotechnology patents. TheCompany’s patent position is therefore uncertain and involves complex legal andfactual issues. This risk factor is one that faces many companies in thebiotechnology industry and the Company is not aware of any Company-specificrisks.

 

**The Company may incur substantial costs as a result of disputesrelating to intellectual property.**

 

The Company may have to initiate litigation to enforce its patent andlicense rights. If the Company’s competitors file patent applications thatclaim technology also claimed by the Company, the Company may have toparticipate in interference or opposition proceedings to determine the priorityof invention. An adverse outcome could subject the Company to significantliabilities and require the Company either to cease using a technology or topay license fees.

 

The Company could incur substantial costs in any litigation or otherproceeding relating to patent rights, even if it is resolved in the Company’sfavor. Some of the Company’s competitors may be able to sustain the costs ofcomplex litigation more effectively or for a longer time than the Company canbecause of their substantially greater resources. In addition, uncertaintiesrelating to any patent, pending patent or intellectual property litigationcould have a material adverse effect on the Company’s ability to bring atechnology to market, enter into collaborations in respect of the disputed orother technologies, or raise additional funds.

 

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**The Company may not be able to bring any of the drug candidates it isdeveloping to market.**

 

Development of drug candidates involves a lengthy and complex process.Any drug candidate that the Company seeks to offer commercially to the publicmust be put through extensive research, development and pre-clinical andclinical testing which will be costly to the Company. This development processtakes several years. In addition, the Company or its partners will need toobtain regulatory approvals to conduct clinical trials and manufacture drugsbefore they can be marketed. Results of pre-clinical studies are not necessarilyindicative of results that may be obtained in clinical trials and results inearly clinical trials may be different from those obtained in long-term testingor in general use. Adverse or inconclusive results from pre-clinical testing orclinical trials may substantially delay, or halt entirely, the development ofproducts.

 

The Company may fail to successfully develop a drug candidate for manyreasons, including:

 

·                  the failure toestablish any collaborative third party agreements to support drug development;

 

·                  the failure toproduce a promising compound in sufficient quantities to conduct clinicaltrials or to manufacture the compound at commercially acceptable quantities andprices;

 

·                  the failure ofthe drug in pre-clinical studies;

 

·                  the inability ofclinical trials to demonstrate that the drug is safe and effective in humans;or

 

·                  the failure toobtain required regulatory approvals.

 

**ChemGenex Pharmaceuticals Limited shares may fluctuate in value.**

 

The market price for ChemGenex Pharmaceuticals Limited shares and thesecurities of other similar companies have been volatile. Factors that couldsignificantly impact the market price of ChemGenex Pharmaceuticals Limitedshares in the future other than those described elsewhere in this Annual Reportinclude:

 

·                  announcementsconcerning research activities, technological innovations, clinical trials orfinancial results by the Company or its competitors;

 

·                  termination ofcollaborations by the Company or its partners;

 

·                  governmentalregulatory initiatives;

 

·                  the FDA, theAustralian Therapeutic Goods Administration or European Medicines EvaluationAgency approving or denying new applications;

 

·                  patent orproprietary rights developments;

 

·                  public concernas to the safety or ethical implications of biotechnology products;

 

·                  sales ofsubstantial amounts of the Company’s shares by existing shareholders;

 

·                  price and volumefluctuations in the stock market at large that do not relate to the Company’soperating performance;

 

·                  changes infinancial estimates by securities analysts, comments by securities analysts, orthe Company’s failure to meet analysts’ expectation;

 

·                  actual oranticipated variations in periodic operating results;

 

·                  new products orservices introduced or announced by the Company or its competitors;

 

·                  changes in themarket valuations of other similar companies;

 

·                  announcements bythe Company of significant acquisitions, strategic partnerships, joint venturesor capital commitments; and

 

·                  additions ordepartures of key personnel.

 

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**The Company’s products may not receive and maintain regulatoryapproval. The complexity and multi-jurisdictional nature of the applicableregulatory processes could result in delays in achieving such regulatoryapproval, which would have an adverse effect on the Company’s financialconditions, its programs and projected revenues.**

 

The international pharmaceutical industry is highly regulated bynumerous governmental authorities in the U.S., Australia and Europe and byregulatory agencies in other countries where the Company intends to marketproducts it may develop. National regulatory authorities administer a widerange of laws and regulations governing the testing, approval, manufacturing,labeling and marketing of drugs and also review the quality, safety andeffectiveness of such products. These regulatory requirements are a majorfactor in determining whether a technology can be developed into a marketableclinical application or a specific product and the amount of time and expenseassociated with such development.

 

Government regulation imposes significant costs and restrictions on thedevelopment of pharmaceutical products for human use, including those theCompany is developing. The development, clinical evaluation, manufacture andmarketing of the Company’s products and ongoing research and developmentactivities are subject to regulation by governments and regulatory agencies inall territories within which the Company intends to manufacture and market itsproducts (whether themselves or through a partner). The Company’s products maynot successfully complete the clinical trial process. Similarly, regulatoryapprovals to manufacture and market the Company’s products may not ultimatelybe obtained.

 

The time taken to obtain regulatory approval varies between countries.The Company’s products may not be approved in any country within the timescaleenvisaged, or at all. This may result in a delay, or make impossible, thecommercialization of its products. Furthermore, each regulatory authority mayimpose its own requirements (for instance, by restricting the product’sindicated uses) and may refuse to grant, or may require additional data beforegranting, an approval, even though the relevant product candidate may have beenapproved by another country’s authority.

 

If regulatoryapproval is obtained, the product and its manufacture will be subject tocontinual review and this approval may be withdrawn or restricted. Changes inapplicable legislation or regulatory policies, or discovery of problems withthe product, or its production process, site or manufacturer, may result in theimposition of restrictions on the product, its sale, manufacture or use,including withdrawal of the product from the market, or may otherwise have anadverse effect on the Company’s liquidity and financial condition.

 

The Company has not had any of its product candidates receive approvalfor commercialization in Australia, the U.S. or elsewhere.

 

**The Company may be unable to secure adequate insurance at an acceptablecost.  Failure to secure such insurancemay expose the Company to liability in the event of a claim.**

 

The Company’s business exposes it to potential product liability,professional indemnity and other risks which are inherent in the research anddevelopment, pre-clinical studies, clinical trials, manufacturing, marketingand use of pharmaceutical products.  TheCompany in carrying out its activities will potentially face contractual andstatutory claims, or other types of claims. Consumers, healthcare producers or persons selling products based on theCompany’s technology may be able to bring claims against the Company based onthe use of such products in clinical trials and the sale of products based onthe Company’s technology. The Company is insured for product liability with apolicy covering US$10,000,000 to April 30, 2009 that covers bodily injuryor property damage arising out of the Company’s products used in the regularcourse of the clinical trials. The Company also carries directors’ and officers’liability policies in the U.S. and Australia, with coverage of US$10,000,000,and customary employer’s liability, fiduciary liability and property insurancecoverages in amounts that are considered usual for similarly situatedcompanies. Product liability or any future necessary insurance cover may not beavailable to the Company at an acceptable cost, if at all, and if there is anyclaim, the level of the insurance the Company carries now or in the future maynot be adequate. Similarly, a product liability, professional indemnity orother claim may materially and adversely affect the Company’s liquidity or itsability to continue to progress its product development. In addition, it may benecessary for the Company to secure certain levels of insurance as a conditionto the conduct of clinical trials. In the event of any claim, the Company’sinsurance coverage may not be adequate.

 

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**The Company may face product liability claims.**

 

The testing, marketing and sale of human health care products entailsan inherent risk of product liability. The Company in carrying out its activities will potentially facecontractual and statutory claims, or other types of claim. In addition, theCompany is exposed to potential product liability risks that are inherent inthe research and development, pre-clinical study, clinical trials,manufacturing, marketing and use of medical devices and drug products.Consumers, healthcare producers or persons selling products based on theCompany’s technology may be able to bring claims against the Company based onthe use of such products in clinical trials and the sale of products based onthe Company’s technology.

 

**The Company may be subject to special interest groups and adversepublic opinion.**

 

Government bodies and regulatory agencies require that potentialpharmaceutical products are subject to pre-clinical studies, including animaltesting, prior to conducting human trials. ChemGenex arranges for such workeither directly or through its collaborators. While the Company has not beensubject to the attention of special interest groups, or any adverse publicopinion of which it is aware, such work entails the risk of adverse publicopinion and the attention of special interest groups, including those of animalrights activists.  These groups may inthe future focus on the Company’s activities or those of its licensees orcollaborators, and this might adversely affect the Company’s operations, byrequiring it to curtail its activities or to change its testing procedures.

 

The pharmaceutical and biotechnology industries are frequently subjectto adverse publicity on many topics, including corporate governance oraccounting issues, product recalls and research and discovery methods, as wellas political controversy over the impact of novel techniques and therapies onhumans, animals and the environment. While there has to date been no adversepublicity about the Company, its collaborators, or its products, such adversepublicity in the future, should it arise, may hurt the Company’s public image,which could harm its operations, cause its share price to decrease or impairits ability to gain market acceptance for its products.  The Company has adopted an ethics policy forgenetic research.

 

**ITEM 4.****                                       INFORMATIONON THE COMPANY**

## ** **

### **A**.            Historyand development of the Company

### ** **

The Company was founded in September 1958 as N & BFinance and Development Corporation. It was renamed the Kingsway Finance Groupin August 1964 and then became Australia Wide Industries Limited in May 1986.Australia Wide Industries Limited listed on the Australian Stock Exchange (“ASX”)in July 1986 and operated for ten years as a listed mining and explorationcompany (ASX: AWI). The Company commenced biotechnology activities in July 1996and changed its name to Autogen Limited (ASX: AGT) in May 1999. AutogenLimited, in turn, changed its name to AGT Biosciences Limited in March 2003and then to ChemGenex Pharmaceuticals Limited (ASX: CXS) in June 2004.Biotechnology remains the focus of the Company’s activities. The Company’s AustralianBusiness Number (ABN) is 79 000 248 304. It operates pursuant to itsconstitution, the Australian Corporations Act 2001, other legislation inAustralia and the U.S., and the rules of the ASX.  The Company’s registered office is C/- LBWChartered Accountants, Suite 3 Level 2, 10 Moorabool Street, Geelong,Victoria 3220 Australia.  Its principaladministration office is Level 4, 299 Moorabool Street, Geelong, Victoria 3220Australia.  Its telephone number is+613-5223-9900.  The Company’s websiteaddress is www.chemgenex.com. Information on the Company’s website and websites linked to it does notconstitute part of this Annual Report.

 

The Company in its present form is the result of the merger of AGTBiosciences Limited and ChemGenex Therapeutics, Inc. which was approved byshareholders in the General Meeting on June 21, 2004 and concluded on thesame date. Following approval by shareholders at the Annual General Meeting on November 28,2007 ChemGenex spun out its Australian based operations in the fields ofmetabolic syndrome ( obesity and diabetes) and depression in December 2007.ChemGenex is now a genomics-driven pharmaceutical development company dedicatedto improving the lives of patients by developing novel personalized cancertherapeutics. The Company has two molecules in Phase 2 clinical trials in theU.S. and has a pipeline of pre-clinical anti-cancer compounds in development.Details of the financial impact of the discontinued metabolic syndromeactivities on operations are provided in Note 4 of the attached financialstatements.

 

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The Company’s development platform is more fully discussed at Items 4B.“Business Overview” and 4C “Research and Product Development Programs.”

 

The Company’s research commitments (not including fees payable toscientific consultants and advisors to the Company) as of June 30, 2008are as follows:

 

An agreement signed in June 16, 2006 with Premier Research Groupplc to provide clinical study services which ChemGenex may submit to the FDA insupport of clinical studies being conducted with omacetaxine (formerly calledCeflatonin).  The agreement is called “theMaster Clinical Service Agreement”. The services to be provided by thisagreement cover a period of approximately 24 months but may be terminated, byeither party, during that time within the terms provided in the agreement.

 

The Company has no fixed asset commitments as at June 30, 2008,and has incurred no significant fixed asset expenditure since that date.Expenditure on plant and equipment is usually minimal due to the Company’soutsourcing arrangements. Recent capital expenditure on plant and equipment isas follows:

 
| ** **                    | ** ** | **Plant and equipment expenditure (A$000)** | ** ** |
|-------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                    | ** ** | ** **                                                      | ** ** |
| Year ended June 30, 2008 |       | 388                                                             |       |
|                          |       |                                                            |       |
| Year ended June 30, 2007 |       | 24                                                              |       |
|                          |       |                                                            |       |
| Year ended June 30, 2006 |       | 14                                                              |       |

 

**Important events since June 30, 2008**

 

On July 23, 2008, followingshareholder approval at an Extraordinary General Meeting held on July 22,2008, the Company issued 37,235,343 ordinary fully paid shares to StragenInternational N.V. The shares were issued as a condition to an IntellectualProperty Assignment Deed under which the Company obtained full commercialcontrol of omacetaxine mepesuccinate (formerly known as Ceflatonin) in Europe.

 

On August 5, 2008 Mr Jean-LucTétard, President of Stragen Pharma SA, became a director of the Company.

 

On September 17, 2008 theCompany announced the placement of 15,216,153 ordinary fully paid shares at 85cents each, raising a total of $12,933,730.These funds will be applied to thecontinued clinical trial program for omacetaxine.

 

On October 13, 2008 theCompany announced that 150,568 shares had been issued under a Share PlacementProgramme to existing shareholders on the same terms as the issue on September 17,2008. These issues brought the total fully paid ordinary shares issued byCompany to 239,714,338.

 

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### **B.            Business overview**

### ** **

The Company focuses on the development of novel therapeutic agents incancer. ChemGenex currently has two small molecule drug candidates in Phase 2human trials (omacetaxine, formerly called Ceflatonin® and Quinamed®).

 

**ChemGenex’s competitive advantage**

 

The Company’s competitive advantage can be considered in terms ofprotected intellectual property (IP), the research and development platformsthat support the development of existing IP and the creation of new IP and theorganizational ability to realize the commercial value of the Company’s IP andother assets.

 

The Company owns or has exclusive licenses to 24 patent familiesrelated to omacetaxine, and 9 patent families pertaining to Quinamed®. Thesepatent applications are in various states of protection ranging fromprovisional applications through to granted patents in a number ofjurisdictions. In addition to IP that is protected by patents there issignificant know how and expertise within the senior research staff of theCompany.

 

**Business strategy**

 

The Company’s business strategy for growth and profitability is todiscover, develop and commercialize novel therapeutics that address significantunmet needs in the pharmaceutical industry, based on the Company’sunderstanding of the genetic basis of disease. The Company keeps its core competencies in-house (such as laboratoryresearch management, pre-clinical work, clinical strategy and management),outsourcing the majority of laboratory research and all clinical testing tospecialists, to minimize its infrastructure and fixed overhead costs. TheCompany regularly reviews the commercial opportunities for its clinical stageassets and will seek to maximize value creation for these assets. This mayentail either direct commercialization efforts, territory-specific distributionarrangements or the complete out-licensing of product candidates followingPhase 2 clinical evaluation.

 

**ChemGenex’s drug development platform**

 

TheCompany’s pre-clinical and clinical development efforts are based in Australia,California and Europe.  In vitro and invivo screening models are used to evaluate lead compounds. Data from thesemodels is fed back into extensive in-house databases for iterative analysis. Aparallel series of profiling assays is performed to determine the potentialpharmaceutical attributes and vulnerabilities of a compound.

 

Compoundsthat merit further development proceed through pre-formulation and advancedpre-clinical in support of regulatory filings for human clinical evaluation.These include non- Good Laboratory Practice (GLP) and GLP pharmacology,efficacy and toxicology studies in laboratory animal models. Additionally,compound manufacturing, scale-up considerations and dosage form stabilitystudies are also performed.

 

Thoseagents with acceptable pharmacological and toxicological profiles may becomethe subject of evaluation in humans. This requires submission to the U.S. FDA of an Investigational New Drug(IND) application for permission to begin Phase 1 dose escalation studies.After the Maximum Tolerated Dose is identified at the schedule contemplated fortherapeutic use, Phase 2 studies evaluating potential disease indications areperformed. If significant activity is identified, then larger Phase 3 studiesare conducted in support of a New Drug Application (NDA). If approved theproduct can then be commercialized.

 

**ChemGenex’s development pipeline**

 

In the field of cancer the Company has two clinical stage productcandidates, and three pre-clinical stage product candidates.

 

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*Clinical stage product candidates*

 

The Company has applied its genomic and clinical development expertisewith its knowledge of cancer to identify small molecule therapeutic targets inoncology. By focusing on compounds with confirmed clinical activity and usinggenomic tools to optimize their development, the Company has been able tocreate a pipeline of product candidates described below:

 

Omacetaxine (formerly Ceflatonin® homoharringtonine)

 

Omacetaxine is a small molecule withestablished clinical activity as a single agent in hematological malignancies.The Company’s scientists have discovered that it affects a number of criticalcellular pathways, including the regulation of genes associated with programmedcell death (apoptosis) and the inhibition of formation of new blood vessels insolid tumors (angiogenesis). The Company has received Orphan Drug Statusprotection for omacetaxine in CML in both the U.S.A. and Europe, as well asFast Track Status from the U.S. F.D.A. In previous published Phase 2 clinicaltrials, 70% of patients showed complete hematological remission (CHR) inchronic myeloid leukemia (“CML”) after interferon-a failure. In more recent pilot studiesin CML patients who had failed imatinib, 100% of chronic-phase patients and 70%of accelerated-phase patients achieved a CHR. The Company is currentlyconducting Phase 2/3 trials in the U.S.A. and Europe for CML patients who havethe T315I Bcr-Abl mutation that confers resistance to imatinib and other TKIs.Data published in 2007 indicated that omacetaxine had positive clinicalactivity against imatinib-resistant, chronic myeloid leukemia (CML) associatedwith the T315I Bcr-Abl mutation, and these findings were supported bypresentations at the Society of Hematology (ASH) Annual Meeting in Atlanta,Georgia (December 2007), the New Directions in Leukemia Research (NDLR)conference in Queensland, Australia (April 2008) and the EuropeanHematology Association (EHA) Annual Congress in Copenhagen, Denmark (June 2008).The Company is also conducting a complementary phase 2 clinical trial in theU.S.A. for CML patients who have failed multiple TKIs regardless of mutationstatus. Positive clinical activity from this trial was reported at the EuropeanHematology Association (EHA) Annual Congress in Copenhagen, Denmark (June 2008).  In March 2008 the Company initiated aphase 2 study evaluating the use of omacetaxine in refractory or relapsed acutemyeloid leukemia (AML) patients who have failed intensive chemotherapy. Thestudy will be conducted in France and is designed as a two-stage study withpotential enrolment of up to 27 patients. The primary endpoint will be theproportion of patients achieving complete and partial remissions, and thesecondary endpoints will include survival. The Company is also conducting Phase2 trials in patients with the bone marrow disease called myelodysplasticsyndrome (“MDS”) in collaboration at the M.D. Anderson Cancer Center.  Including intellectual property exclusivelyassigned from Stragen Pharma S.A., the Company has 24 active patent familiesfor omacetaxine, covering  omacetaxineformulations, purification, synthesis and uses.

 

Quinamed® (amonafide dihydrochloride)

 

Amonafide dihydrochloride(amonafide) is a synthetic organic compound with established anti-cancerclinical activity. The Company has recently discovered that amonafide effects anumber of targets in the epidermal growth factor receptor pathway, whichcontrols the growth of a number of tumor types, in addition to affects on anenzyme that is critical for normal cell replication, topoisomerase II.  In National Cancer Institute (“NCI”)-sponsoredclinical studies with amonafide monohydrochloride, 25% of breast cancer patientsand 15% of prostate cancer patients showed either partial (>50% reduction intumor volume) or complete (no measurable disease) responses.  However, researchers also noted someunpredictable side effects.  It was laterdiscovered that differences in how patients metabolize the drug has asignificant impact on toxicities.  Thesemetabolic differences can now be determined by testing a patient’s NAT-2genotype. The Company’s development strategy is to determine a patient’s NAT-2genotype and then treat them with a more precise and personal dose needed toproduce the optimal result.  At theAmerican Association of Clinical Oncologists (ASCO Annual Meeting in June 2007,data was presented from the phase 1/2a dose-escalation study of Quinamed. Thekey outcomes from this study were (i) demonstration that dose level couldbe optimised according to patient genotype, (ii) the drug was welltolerated, with predictable and manageable side effects, and (iii) therewas evidence of anticancer activity in several solid tumor types. The Companyhas nine patent families under prosecution, including two issued patents andapplications covering amonafide salts, formulations, synthesis and uses.

 

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*Pre-clinicalstage product candidates*

* *

In addition to omacetaxine and Quinamed® theCompany is developing several other pre-clinical oncology compounds, includingthe following:

 

CXS2101:  This compound inhibitsNF-Kappa B and has been shown to increase the anti-cancer activity of otheragents in animal models.

 

CXS6001:  This compound affectslevels of the structural protein tubulin in cancer cells and has shownanti-tumor efficacy in mouse models.

 

CXS273:  This compound affectsthe integrity of DNA and has been shown to increase the anti-cancer activity ofcisplatin in a mouse model.

 

The company suspended development of CXS299 in June 2008.

 

**Research and product development programs**

 

The Company was an inaugural recipient of the PharmaceuticalPartnership Program (P3) of the Australian Federal government, through whichthe Company had the ability to earn grant revenue based on expansion of theCompany’s research in Australia over the grant period.  Over the past three years the Companyreceived payments totaling more than A$2 million from P3. With the divestmentof the Company’s diabetes and obesity discovery assets and program in November 2007the Company’s eligibility for P3 was reduced and the Company terminated itsparticipation in the scheme effective November 2007.

 

**Commercial and research and development collaborations**

 

The followingsection describes the Company’s existing commercial collaborators and thecommercial agreements with respect to the Company’s principal research anddevelopment programs and commercialization agreement:

 

Research,License and Commercialization Agreement (Research Services Provision):  A contract dated April 21, 2005 betweenChemGenex Pharmaceuticals Limited and Deakin University consolidated theprovision of research services by Deakin University previously defined in theagreements of June 26, 2000 (Research Services (Subcontracting), August 16,2000 (Research, License and Commercialization Agreement (Gene Discovery inDepression) and February 28, 1997 (Research Agreement). Under theconsolidated agreement ChemGenex undertakes to fund research and developmentprograms with Deakin University in the fields of diabetes, obesity, cancer,respiratory diseases, inflammatory diseases, osteoporosis, allergy, asthma,depression and autoimmunity.  Allintellectual property developed under the terms of the agreement belongs to theCompany.  If ChemGenex commercializes orlicenses products resulting from the research program conducted under thecontract, it is obligated to pay Deakin University a royalty on net sales.  The contract may be terminated if theUniversity does not timely commence its work, if it fails to achieve milestonesor use appropriate professional standards or if the program is not producingresults in the opinion of the Company, among other conditions.  It may also be terminated by DeakinUniversity if ChemGenex fails to provide the agreed funding.  Under certain circumstances the Company isobligated to pay the royalties to Deakin University even in the event of earlytermination.  The original term of thisagreement from January 1, 2005 to December 31, 2005 was twiceextended by 12 months to December 31, 2006 and December 30, 2007 (on December 18,2006). ChemGenex incurred expenses of A$2,420,000 in fiscal 2006, andA$2,410,000 in fiscal 2007 for services provided under the agreement. Theagreement was extended by mutual agreement in December 2007 to December 31,2008 to conduct research in the field of cancer. The value of this extensionwas A$150,000. Further expenses of A$75,000 will be incurred until expiry date.

 

**Patents, licenses and proprietary rights**

 

The Company pursues a policy of seeking to obtain patent protection forits inventions in Australia, the U.S., Europe, Japan and in selected othercountries. The Company also relies upon trade secrets, know-how, continuingtechnological innovations and licensing opportunities to develop and maintainits competitive position. To date, the Company has not threatened or institutedproceedings against any third party on patent or other proprietary rights norhas any third party threatened or instituted proceedings against the Company.

 

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Certain products and processes currently being developed or consideredfor development by the Company are in the area of biotechnology. The number ofpatent filings by biotechnology firms in major jurisdictions is particularlyhigh and the outcome of such applications is generally uncertain and involvescomplex legal and factual questions. To date, no consistent internationalpolicy has emerged regarding the breadth of claims allowed in biotechnologypatents. Accordingly, there can be no assurance that the Company will developproducts or processes that are patentable, that patent applications made by theCompany, or made by parties who have agreed to license their inventions to theCompany, will result in patents being issued or that, if issued, the claimsallowed will be sufficiently broad to protect what the Company believes to beits proprietary rights or that such patents will prevent others from developingsimilar or functionally equivalent products or processes. In addition, productsor processes covered by such patents, or any other products or processesdeveloped by the Company or licensed to the Company, may infringe patents ownedby third parties or be subject to claims of patent infringement by theseparties. In such a situation, the Company may have to obtain a license, defendan infringement action in court or challenge the scope or validity of anyinfringed or allegedly infringed patents. Such required licenses may not beavailable to the Company at all, or if available, such licenses may not be onterms acceptable to the Company or that the Company will prevail in any patentlitigation. Failure to obtain a license or prevail in any patent litigationrelating to any technology that the Company may require to commercialize itsproducts or processes may have a material adverse impact on the Company.

 

Litigation may also be necessary to enforce any patents granted to theCompany or to determine the scope and validity of third party patents. Patentlitigation is time consuming and expensive. The Company may not have, or beable to devote the necessary resources to conduct patent litigation. Patentapplications made by or licensed to the Company may not result in patents beingissued or, if issued, the patents may not provide the right to excludecompetitors with similar technology.

 

The Company maintains an active policy of filing patentapplications.  It is possible thatpatents may not be granted on pending applications made by the Company orparties that have licensed their inventions to the Company. Similarly, issuedpatents may not provide significant proprietary protection or commercialadvantage or may be infringed or designed around by others. Since publicationof inventions or discoveries in scientific or patent literature often lagsbehind actual invention or discovery, it is possible that the inventionscovered by each of the Company’s pending patent applications may not havedominant status in terms of date of invention. The Company’s patents or patentapplications may become involved in opposition proceedings instituted by thirdparties. If such proceedings were initiated against the Company’s rights, thedefense of such rights could involve substantial costs and the outcome cannotbe anticipated. If patents are issued to other parties that contain validclaims that are interpreted to cover any of the Company’s products, it ispossible that the Company may not be able to obtain licenses to such patents ata reasonable cost, if at all, or may not be able to develop or obtainalternative technology. Competitors or potential competitors may have filedapplications for, may have received patents covering, or may obtain additionalpatents and proprietary rights that may relate to, compounds or processescompetitive with those of the Company.

 

The Company also relies upon unpatented proprietary technology, and noassurance can be given that others will not independently develop substantiallyequivalent proprietary technology and techniques, or otherwise gain access tothe Company’s proprietary technology or disclose such technology, or that theCompany can meaningfully protect its rights to its unpatented proprietarytechnology, secrets and know-how.

 

It is the Company’s policy generally to require its consultants,outside scientific collaborators, sponsored researchers and other advisors toexecute confidentiality agreements prior to the commencement of consulting orother relationships with the Company. Employees have a similar confidentialityprovision in their employment contracts. These agreements provide that allconfidential information developed or made known to the individual during thecourse of the individual’s relationship with the Company is to be keptconfidential and not disclosed to third parties except in specific, limitedcircumstances. The Company also requires signed confidentiality or materialtransfer agreements from any person who is to receive confidential data orproprietary material from the Company. In the case of consultants, theagreements generally provide that all inventions conceived by the individualwhile rendering services to the Company shall be assigned to the Company as theexclusive property of the Company. Similar provisions are contained in theCompany’s employment contracts, and provisions of many national laws, includingAustralia, provide that intellectual property rights created during the courseof employment belong to the employer. There can be no assurance, however, thatthese agreements and provisions will provide meaningful protection or adequateremedies for the Company’s intellectual property rights, trade secrets or otherconfidential information in the event of unauthorized use or disclosure.

 

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Patentprotection is being sought in major markets through the filing of U.S. andInternational Patent Cooperation Treaty (“PCT”) applications. The portfolioincludes 10 PCT applications and currently derived from these applications arenumerous national and regional patent applications in various jurisdictions,including the U.S., Europe and Japan. The portfolio also includes 15provisional patents.

 

Underthe PCT, a single patent application is filed which designates variouscountries or regions. The application is referred to as an Internationalapplication. All major countries and regions (e.g. Europe) can be designatedand this effectively reserves the right to lodge patent applications in thosecountries and regions up to 18 months following the filing of the PCTapplication. During that period, an International Search Report and anInternational Preliminary Examination Report are issued by the relevantnational patent office (e.g. the United States Patent and Trademark Office (“USPTO”),or Australian Patent Office) and there are opportunities to amend the claimsand specification although new matters cannot be added. At the end of the 18month period (i.e. generally 30 months after filing of the initial provisionalapplication), the applicant decides in which countries to pursue national orregional applications.

 

**Competition**

 

TheCompany faces, and will continue to face, intense competition from one or moreof the following entities:

 

·                  biotechnologycompanies;

·                  pharmaceuticalcompanies;

·                  academicand research institutions; and

·                  governmentagencies.

 

TheCompany is also subject to significant competition from organizations that arepursuing approaches, technologies and products that are the same as, or similarto, its technology and products. Any products that are developed through theCompany’s technologies will compete in highly competitive markets. Further, theCompany’s competitors may be more effective at using their technologies todevelop commercial products. Many of the organizations competing with theCompany have greater capital resources, larger research and development staffsand facilities, more experience in obtaining regulatory approvals and moreextensive product manufacturing and marketing capabilities. As a result, theCompany’s competitors may be able to more easily develop technologies andproducts that would render the Company’s technologies and products, and thoseof its collaborators, obsolete and noncompetitive.  In addition, there may be product candidatesof which the Company is not aware at an earlier stage of development that maycompete with the Company’s product candidates.

 

Specificcompetition risk according to disease class is summarized below.

 

Cancer

 

In the field of cancer therapeutics the Company faces intensecompetition from major pharmaceutical companies and specialized biotechnologycompanies engaged in the development of product candidates and other therapeuticproducts. Several of these companies have products in the same indications orutilize similar technologies and/or personalized medicine techniques.  The FDA has approved two drugs forimatinib-resistant CML; Sprycel® (dasatinib), a drug developed and commercializedby Bristol-Myers Squibb was approved in June 2006, and Nilotinib®(nilotinib) a drug developed and commercialized by Novartis was approved in October 2007.Significantly, neither Sprycel® nor Nilotinib® havedemonstrated efficacy against the T315I Bcr-Abl mutation, and it is thissub-set of resistant CML patients that are being targeted by the Company forinitial approval. Several biotechnology and pharmaceutical companies areseeking to develop effective therapeutics specifically for CML patients withthe T315I mutation. Vertex Pharmaceuticals and its partner Merck are developingan aurora kinase inhibitor referred to as MK-0457 or VX-680. Phase 2 clinicaltrials for this agent were underway but were suspended in 2007. NervianoMedical Sciences in collaboration with the U.S  National Cancer Institute isconducting a small phase 2 study of the novel aurora kinase inhibitorPHA-739358. Astex Therapeuticsis developing AT9283, an inhibitor of several targets including Bcr-Abl.This agent is currently in phase 1/2 clinical trials. Several companies haveagents in phase 1 clinical trials, including Exelixis (XL228), Kyowa Hakko(KW2449) and Medimmune/Infinity Pharmaceuticals (IPI504). Xanthus Pharmaceuticals iscurrently conducting a phase 3 study with amonafide malate in acute myeloidleukemia.  There are also a numberof other competitive trials or technologies elsewhere in the world.

 

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Materialeffects of government regulation

 

Theinternational pharmaceutical industry is highly regulated by numerousgovernmental authorities in Australia, the U.S., the U.K., Europe and byregulatory agencies in other countries where the Company intends to test ormarket products it may develop. National regulatory authorities administer awide range of laws and regulations governing the testing, approval,manufacturing, labeling and marketing of drugs and devices and also review thequality, safety and effectiveness of pharmaceutical products and devices. Theseregulatory requirements are a major factor in determining whether a substancecan be developed into a marketable product and the amount of time and expenseassociated with such development.

 

Thenational regulatory authorities have high standards of technical appraisal.Consequently, the introduction of new pharmaceutical products generally entailsa lengthy development and approval process. Of particular importance is therequirement that products be authorized or registered prior to marketing andsuch authorization or registration be maintained. Of particular significance inthe U.S. are the U.S. FDA requirements covering research and development,testing, manufacturing, quality control, labeling and marketing of drugs forhuman use. A pharmaceutical product cannot be marketed in the U.S. until it hasbeen approved by the FDA, and then can only be marketed for the indications andclaims approved by the FDA. As a result of these requirements, the length oftime, the level of expenditure and the laboratory and clinical informationrequired for approval of a New Drug Application (“NDA”) or a product licenseapplication are substantial and can require a number of years, althoughrecently revised regulations are designed to reduce the time for approval ofnew products. In Europe, two systems for the registration of pharmaceuticalproducts are in operation, the centralized procedure and the mutual recognitionprocedure. In the centralized system, review of the proposed new product isco-coordinated by the European Medicines Evaluation Agency (“EMEA”) located inLondon and, if the product is found to meet the criteria for marketingauthorization, a European Marketing Authorization is granted which is validthroughout the EU. In the mutual recognition procedure, the initial review isundertaken by the national health authority of one of the EU member states and,if this country considers the product acceptable for marketing authorization,the other EU member states are asked to recognize this approval and issue theirown authorization. The mutual recognition procedure thus results in a nationalauthorization in each member state. However, irrespective of the procedurefollowed, the technical requirements for marketing authorization are the same.For European countries that are outside the EU, national marketingauthorization procedures with similar technical standards exist. The Companyanticipates that the introduction of new products will continue to requiresubstantial effort, time and expense in order to comply with regulatoryrequirements.

 

Nonew drug is permitted to be sold in developed countries without extensive dataon its quality, safety and efficacy first being obtained, organized andsubmitted to governmental regulatory authorities. The development stage of thisprocess may be divided into two parts: (i) pre-clinical; and (ii) clinicaldevelopment. Included in pre-clinical development are the development ofprocesses for manufacturing the product candidate, toxicology studies and otheractivities such as pharmacology and drug metabolism studies. Clinical trialsrun until, and in some cases after, the product is marketed and covers several,sometimes overlapping, phases.

 

InPhase 1 trials, a small number of healthy human volunteers are exposed to aproduct candidate. Typically, the volunteers are administered single ormultiple doses, following which the effects of the candidate drug are closelymonitored. The way the body deals with the product candidate fromadministration to elimination (pharmacokinetics) is also studied. Phase 2trials involve the first studies on patients and explore the doses required toproduce the desired benefits.  Safety andpharmacokinetic information is also collected. Phase 3 trials typically involvelarger numbers of patients and geographically dispersed test sites. The trialsin this Phase may compare the new agent with other available treatments. InPhase 3 trials, costs are significantly higher than in earlier Phases due tothe larger number of patients and longer duration of trial.

 

Inaddition to the forms of regulation referred to above, the prices ofpharmaceutical products in many countries are controlled by law. In somecountries, such as France and Japan, the prices of individual products areregulated. By contrast, in the U.K., prices are controlled by reference tolimits upon the overall profitability, measured by the rate of return oncapital employed, of sales of products supplied under the U.K. National HealthService. The permitted rate of return on capital employed for eachpharmaceutical company is determined through negotiations with the U.K.Department of Health under the 1999 Pharmaceutical Price Regulation Scheme. Ifa company’s actual rate of return exceeds the agreed rate, it is required tonegotiate either a repayment of past profits which the Department of Healthconsiders to be excessive or future price reductions. There is no assurancethat the current arrangements will continue in the future.

 

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Governmentsmay also influence the price of pharmaceutical products through their controlof national healthcare organizations which may bear a large part of the cost ofsupply of such products to consumers. In the U.S. and Germany, indirectpressure can be exerted on prices by government funded or private medical careplans. The Company is unable to predict whether, or to what extent, itsbusiness may be affected by legislative and regulatory developments relating tospecific pharmaceutical products or the pricing of such products, or to itsoverall business. The uncertainties involved, or any adverse regulatorydevelopments, could significantly affect the Company’s operational results andits ability to achieve profitability.

 

### **C**.                                    Organizational structure

### ** **

ChemGenex Pharmaceuticals Limited is a limited liability corporationlisted on the ASX. Details of its only subsidiary company as at June 30,2008 are set out below:

 
| **Name of entity**                                                                 | ** ** | **Country of  incorporation** | ** ** | **Ownership interest  (%)** | ** ** | **Business**             |
|------------------------------------------------------------------------------------|------------|-------------------------------|------------|-----------------------------|------------|--------------------------|
| ChemGenex Pharmaceuticals, Inc. (formerly ChemGenex  Therapeutics, Inc.) |       | U.S. (Delaware)               |       | 100                         |       | Research and development |

 

ChemGenex Europe S.A.S., a 100% owned subsidiary based in France wasestablished on September 18, 2008. The former Australian subsidiaryAutogen Research Pty Ltd was divested in December 2007 (Refer Item 4A, page 17).

 

### **D.**                                    Property, plant and equipment

### ** **

The Company’s headquarters are in Geelong, Victoria, Australia.  Its headquarters, comprising leased premisesof approximately 140 square meters, contains office space and storage space.The property plant and equipment recorded includes leasehold improvements,furniture and fittings, computer equipment, and equipment used in research anddevelopment by external providers.

 

These properties are in good condition.

 

The headquarters premises are leased from DVDP Group No 4 Pty Ltd undera 5 year lease agreement which expires on December 31, 2012.

 

ChemGenex Pharmaceuticals, Inc. leases premises of approximately5,000 square feet in Menlo Park under a 38 month lease agreement which expireson October 31, 2010. This lease allows for an option for a further 2 yearsto October 31, 2012.

 

The U.S. subsidiary also leases approximately 2,400 square feet ofcorporate office space in Menlo Park, California, under a lease agreement thatterminates on December 31, 2009, and also subleases approximately 500square feet of laboratory space to conduct *in vitro*experiments to support oncology discovery and development programs in MenloPark, California under a sublease that terminates on December 31, 2009.

 

Environmental

 

The Company’s operations are not subject to any significantenvironmental regulations under either Australian Commonwealth or Statelegislation. The Company uses hazardous materials that could be dangerous tohuman health, safety or the environment. As appropriate, the Company storesthese materials and various wastes resulting from their use at its facilitiespending ultimate use and disposal. The Company is subject to a variety offederal, state and local laws in both Australia and the U.S. and regulationsgoverning the use, generation, manufacture, storage, handling and disposal ofthese materials and wastes resulting from the use of such materials. While thecosts for compliance, including costs related to the disposal of hazardousmaterials, to date have been nominal, the Company may incur significant costscomplying with both existing and future environmental laws and regulations.ChemGenex Pharmaceuticals, Inc. is subject to regulation by theOccupational Safety and Health Administration, or OSHA, the California andfederal environmental protection agencies and to regulation under the ToxicSubstances Control Act. OSHA or the California or federal EPA may adoptregulations that may affect the U.S. subsidiary’s research and developmentprograms. The Company is unable to predict whether any agency will adopt anyregulations that could have a material adverse effect on its operations.

 

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## **ITEM 5.**     OPERATING AND FINANCIAL REVIEW ANDPROSPECTS

## ** **

The following discussion and analysis should be read in conjunctionwith Item 3A. “Selected consolidated financial data” and the Company’s auditedconsolidated financial statements, the notes thereto and other financialinformation appearing elsewhere in this Annual Report.  In addition to historical information, thefollowing discussion and other parts of this Annual Report containforward-looking statements that reflect the Company’s plans, estimates,intentions, expectations and beliefs. Actual results could differ materially from those discussed in theforward-looking statements.  See the “RiskFactors” section of Item 3D and other forward-looking statements in this AnnualReport for a discussion of some, but not all factors that could cause orcontribute to such differences.

 

The following review is based on the Company’s audited consolidatedfinancial statements prepared in accordance with Australian AccountingStandards and International Financial Reporting Standards (“IFRS”) as issued bythe International Accounting Standards Board.

 

For all periods up to and including the year ended June 30, 2005,the Company prepared its financial statements in accordance with Australiangenerally accepted accounting practice (“AGAAP”).  Since June 30,2006 the financial statements have been prepared in accordance with IFRS.  In preparing these consolidatedfinancial statements, the Company has started from an opening balance sheetdate as at July 1, 2004, the Company’s date of transition to IFRS.

 

**Significant accounting policies**

 

The preparation of financialstatements requires management to make estimates and assumptions that affectthe reported financial results of operations. Management believes thesignificant accounting policies contained as Note 2 to the attached financialstatements affect judgments and estimates used in the preparation ofconsolidated financial statements and are critical to the business operationsand the understanding of the results of the operations.

 

**Recently issued but not yet adopted accounting pronouncementsapplicable to ChemGenex**

 

The financial report complies with Australian Accounting Standards andInternational Financial Reporting Standards (“IFRS”) as issued by theInternational Accounting Standards Board.

 

Certain InternationalFinancial Reporting Standards have recently been issued or amended but are notyet effective and have not been adopted by the Group for the annual reportingperiod ended 30 June 2008. The directors’ have assessed the impact ofthese new or amended standards (to the extent relevant to the group) andinterpretations as follows:

 

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| **Reference**   | ** ** | **Title**                                                                                                        | ** ** | **Summary**                                                                                                                                                                                                                                                                                                                                                                      | ** ** | **Application  date of  standard*** | ** ** | **Impact  on Group  financial report**                                                                                                                                                                                                                                                                                                                          | ** ** | **Application  date for  Group*** |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|
| IFRS 8          |       | Operating Segments and  consequential amendments to other Australian Accounting Standards                        |       | New standard replacing  IAS14 Segment Reporting, which adopts a management reporting approach to  segment reporting.                                                                                                                                                                                                                                                             |       | January 1, 2009                |       | IFRS 8 is a disclosure  standard so will have no direct impact on the amounts included in the Group’s  financial statements, although it may indirectly impact the level at which  goodwill is tested for impairment. In addition, the amendments may have an  impact on the Group’s segment disclosures.                                             |       | July 1, 2009                 |
| IAS 1 (Revised) |       | Presentation of Financial  Statements and consequential amendments to other Australian Accounting  Standards     |       | Introduces a statement of  comprehensive income.Other  revisions include impacts on the presentation of items in the statement of  changes in equity, new presentation requirements for restatements or  reclassifications of items in the financial statements, changes in the  presentation requirements for dividends and changes to the titles of the  financial statements. |       | January 1, 2009                |       | These amendments are only  expected to affect the presentation of the Group’s financial report and will  not have a direct impact on the measurement and recognition of amounts  disclosed in the financial report. The Group has not determined at this stage  whether to present a single statement of comprehensive income or two separate  statements. |       | July 1, 2009                 |
| IFRS 2          |       | Amendments to Australian  Accounting Standard – Share-based Payments: Vesting Conditions and  Cancellations |       | The amendments clarify the  definition of ‘vesting conditions’, introducing the term ‘non-vesting  conditions’ for conditions other than vesting conditions as specifically  defined and prescribe the accounting treatment of an award that is  effectively cancelled because a non-vesting condition is not satisfied.                                     |       | January 1, 2009                |       | The Group has share-based  payment arrangements that may be affected by these amendments. However, the  Group has not yet determined the extent of the impact, if any.                                                                                                                                                                                          |       | July 1, 2009                 |

 

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| Amendments to  International Financial Reporting Standards*** |   | Improvements to IFRSs |   | The improvements project  is an annual project that provides a mechanism for making non-urgent, but  necessary, amendments to IFRSs. The IASB has separated the amendments into  two parts: Part 1 deals with changes the IASB identified resulting in  accounting changes; Part II deals with either terminology or editorial  amendments that the IASB believes will have minimal impact. |   | January 1, 2009  except for amendments to IFRS 5, which are effective from July 1, 2009. |   | The Group has not yet  determined the extent of the impact of the amendments, if any. |   | July 1, 2009 |
|---------------------------------------------------------------|--------|-----------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|--------|-------------------|

 

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*designates the beginning ofthe applicable annual reporting period unless otherwise stated

 

Adoption of new accountingstandard

 

The Group has adopted IFRS 7Financial Instruments: Disclosures and all consequential amendments whichbecame applicable on January 1, 2007. The adoption of this standard hasonly affected the disclosure in these financial statements. There has been noaffect on profit and loss or the financial position of the entity.

 

**Application of critical accounting policies**

 

The Company prepares its financial statementsin accordance with generally accepted accounting principles. As such, it isrequired to make estimates, judgments, and assumptions that management believesare reasonable based upon the information available. The estimates, judgmentsand assumptions affect the reported amounts of assets and liabilities at thedate of the financial statements and the reported amounts of revenues andexpenses during the periods presented. The significant accounting policieslisted in Note 2 of the Company’s audited consolidated financial statementsthat management believes are the most critical to aid in fully understandingand evaluating its financial condition and results of operations are discussedbelow.

 

### **A**.                                    Operating results

### ** **

The Company’s principal activity since July 1996 has been researchand development of novel targets and therapeutics for human diseases includingobesity, diabetes, depression and cancer. The Company has made losses sincecommencing its current principal activities. As at June 30, 2008, theCompany’s accumulated deficit was A$99,143,847 compared to A$92,723,921 as at June 30,2007.

 

The Company’s losses fluctuate from year to year principally due to thecommencement or termination of collaborative research and developmentagreements, the timing of milestone payments, government grants, the level ofinterest income and variations in the level of expenditures relating toresearch and clinical development programs. The Company expects to incurcontinued losses in coming years. The Company continues to incur the greaterpart of its costs on personnel and external contract costs needed to support theresearch and development of its platforms, including expenses related to theprotection of patent and other intellectual property rights.

 

**Overview**

 

The Company is abiopharmaceutical company committed to advancing patient care by discovering,developing and commercializing novel medicines for cancer. ChemGenexPharmaceuticals Limited was formed through the merger of AGT BiosciencesLimited and ChemGenex Therapeutics, Inc. on June 21, 2004. AGTBiosciences Limited was a publicly-listed company that specialized in the useof genomics tools to identify and validate novel targets for therapeuticintervention in diabetes, obesity, depression and anxiety. AGT BiosciencesLimited, which had previously been called Autogen Limited (from May 1999to March 2003) and Australia Wide Industries Limited (from July 1986to May 1999), commenced biotechnology activities on July 10, 1996.ChemGenex Therapeutics,

 

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Inc. was a private companyincorporated in the state of Delaware on September 14, 1999 to use genomictools and medicinal chemistry to accelerate the development of anti-cancertherapeutics. The merged entity commenced trading on the ASX as ChemGenexPharmaceuticals Limited on June 29, 2004. At June 30, 2008 the mergedentity has an aggregate of 187,112,274 shares of ordinary stock outstanding.

 

To date, theCompany has devoted substantially all of its resources to the development ofits target discovery and validation technologies, research and development andpreclinical and early stage clinical testing of omacetaxine and Quinamed®(amonafide dichloride) and other product candidates. It has incurred net lossessince the commencement of biotechnology operations and expects to incursubstantial and increasing losses for the next several years as it expands itsresearch and development activities and moves its product candidates into laterstages of development. To date, the Company has no product revenue and hasfunded its operations primarily through the payments from pharmaceuticalindustry partners, issue of equity securities and interest income. It hadongoing long term partnership agreement in diabetes and obesity with Merck Santéwhich was divested in Deceember 2007. Planned core activities over the next several years are to:

 

·                  continue the development of omacetaxine,currently in Phase 2/3 clinical trial for the treatment of CML;

·                  continue the development of Quinamed®,currently in Phase 2 clinical trial for the treatment of solid tumors including prostate, breastand ovarian cancer;

·                  continue the development of its othercancer-treating product candidates;

·                  establish and maintain sales and marketingoperations;

·                  commercialize any product candidates thatreceive regulatory approval; and

·                  in-license technology and acquire or investin businesses, products or technologies that are synergistic with the Company’sown.

 

ChemGenex hasa limited history of operations with its current management team and businessfocus.

 

The Company’sbusiness is subject to significant risks, including but not limited to therisks inherent in its ongoing clinical trials and the regulatory approvalprocess, the results of its research and development efforts, competition fromother products and technologies and uncertainties associated with obtaining andenforcing patent rights.

 

**Results of operations – fiscal years**

 

The following tables are intended to illustrate a tabular analysis ofthe consolidated income statements for the 2008, 2007 and 2006 fiscal years.

 

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The table below shows contribution of different revenue and otherincome types to total revenue and other income for fiscal 2008, 2007 and 2006.All revenue was earned in Australia and is expressed in A$.

** **
| ** **                                            | ** ** | **2008**   | ** ** | **2007**  | ** ** | **2006**  | ** ** |
|-------------------------------------------------------|------------|------------|------------|-----------|------------|-----------|------------|
| ** **                                            | ** ** | ** ** | ** ** | **A$**    | ** ** | **A$**    | ** ** |
| Research revenue                                      |       | —     |       | —    |       | —    |       |
| Interest revenue                                      |       | 1,055,093  |       | 862,096   |       | 241,634   |       |
| Other revenue                                         |       |       |       |      |       |      |       |
| -Patent reimbursement                                 |       | —     |       | —    |       | —    |       |
| -Exchange rate benefit                                |       | 181,122    |       | 157,917   |       | —    |       |
| -Government grants                                    |       | 1,407,495  |       | 655,809   |       | —    |       |
| -Other revenue                                        |       | 60,064     |       | 1,911     |       | —    |       |
| Revenues and other income from continuing  activities |       | 2,703,774  |       | 1,667,733 |       | 241,634   |       |
| Revenue associated with discontinued  business        |       | 12,545,688 |       | 610,401   |       | 2,055,388 |       |
| Total revenue and other income                        |       | 15,249,462 |       | 2,278,134 |       | 2,297,022 |       |

 

The table below shows percentage change in revenue and other incomefrom continuing activities for fiscal 2008, 2007, and 2006:

 
| ** **                                            | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenues and other income from continuing  activities |       | 62.1     | %          | 590.2    | %          | -9.5     | %          |

 

The table below shows the proportion of individual expenses items tototal operating costs for continuing activities for fiscal 2008, 2007, and2006.

 
| ** **                              | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Research expenditure                    |       | 45.9     | %          | 45.3     | %          | 41.2     | %          |
| Employee costs                          |       | 36.3     | %          | 26.4     | %          | 33.5     | %          |
| Patent costs                            |       | 2.0      | %          | 3.3      | %          | 2.9      | %          |
| Legal costs                             |       | 1.1      | %          | 0.7      | %          | 1.4      | %          |
| Depreciation                            |       | 0.6      | %          | 2.8      | %          | 3.3      | %          |
| Travel costs                            |       | 2.2      | %          | 1.1      | %          | 1.9      | %          |
| Accounting and audit costs              |       | 2.8      | %          | 3.1      | %          | 4.7      | %          |
| Other expenses from ordinary activities |       | 9.1      | %          | 17.3     | %          | 11.1     | %          |
|                                    |       |     |       |     |       |     |       |
| TOTAL EXPENSES                          |       | 100.0    | %          | 100.0    | %          | 100.0    | %          |

 

While the level of research and development expenditure has remainedrelatively constant for the past three fiscal years, the relativity of employeecosts and other expenses has altered significantly as research specialistsoriginally retained as consultants have been employed by the Company.

 

**Comparison of fiscal year 2008 with fiscal year 2007 for continuingactivities**

 

*Revenue*

 

Revenue increased by A$1,036 thousand or 62.1% fromA$1.7 million in fiscal 2007 to A$2.7 million in fiscal 2008. The increasereflects an increase in interest and government grants during the year.

 

*Costs and expenses*

 

The Company’scosts and expenses are detailed in the consolidated statements of income.

 

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*Researchexpenditure*

 

Researchexpenditure increased by 114% from A$4.3 million in fiscal 2007 to A$9.2million in fiscal 2008. This reflects continued increased expenses associatedwith clinical trials for omacetaxine incurred during the year.

 

*Employeecosts*

 

Employeeexpenses increased by A$4.8 million or 192% to A$7.3 million in fiscal 2008, asthe numbers employed at the Menlo Park increased to support the clinicaltrials.

 

*Patentcosts*

 

**Patent costsinclude regulatory charges involved in applying for, and maintaining, patentprotection together with charges from patent attorneys for specialist advice onthese matters. Patent costs are expensed as incurred. Patent costs increased by30.9% to A$0.4 million in fiscal 2008.**

** **

*Legalcosts*

 

Legal costsincreased by 220% to A$210 thousand in fiscal 2008.

 

*Depreciation*

 

Depreciationcosts reduced by A$157 thousand in fiscal 2008 as all research equipment wasfully depreciated

 

*Travelcosts*

 

Travel costsincreased by 337% to A$446 thousand in fiscal 2008.

 

*Accountingand audit costs*

 

Accounting andaudit costs increased by 91% to A$568 thousand in fiscal 2008.

 

*Otheradministration expenses from continuing activities*

 

Other expensesfrom continuing activities increased by 12% from A$1.6 million in fiscal 2007to A$1.8 million in fiscal 2008.

 

*Net loss*

 

The Company’snet loss decreased by A$5.3 million, after including A$10.9 million profit fromdiscontinued operations. The loss from continuing activities increased by A$9.2million or 111% from A$8.2 million in fiscal 2007 to A$17.4 million infiscal 2008 for the reasons described above.

 

**Comparison of fiscal year 2007 with fiscal year 2006 for continuingactivities**

 

*Revenue*

 

Revenue increased by approximately 600% from A$0.24million in fiscal 2006 to A$1.7 million in fiscal 2007. The increase reflectsan increase in interest and government grants of $655,809 (previously $Nil)obtained during the year.

 

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*Costs and expenses*

 

The Company’scosts and expenses are detailed in the consolidated statements of income.

 

*Researchexpenditure*

 

Researchexpenditure increased by 32% from A$3.3 million in fiscal 2006 to A$4.3 millionin fiscal 2007. This reflects increased expenses associated with clinicaltrials incurred during the year.

 

*Employeecosts*

 

Employeeexpenses reduced slightly in 2007 due to a reduction in the amortisation ofshare based compensation costs that year.

 

*Patentcosts*

 

**Patent costsinclude regulatory charges involved in applying for, and maintaining, patentprotection together with charges from patent attorneys for specialist advice onthese matters. Patent costs are expensed as incurred. Patent costs increased by33% in fiscal 2007 due to different timing of various patent activities.**

** **

*Legalcosts*

 

Legal costsreduced slightly in 2007.

 

*Depreciation*

 

No substantivechange from previous year.

 

*Travelcosts*

 

Travel costsreduced slightly in 2007.

 

*Accountingand audit costs*

 

Accounting andaudit costs reduced by 22% to A$298 thousand in fiscal 2007

 

*Otherexpenses from ordinary activities*

 

Otheradministration expenses from continued activities increased by 78% from A$0.9million in fiscal 2006 to A$1.6 million in fiscal 2007.

 

*Net loss*

 

The Company’snet loss increased by A$1.3 million, after including A$3.5 million loss fromdiscontinued operations. The loss from continuing activities increased by A$0.4million or 5% from A$7.8 million in fiscal 2006 to A$8.2 million in fiscal2007 for the reasons described above.

 

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### **B**.            Liquidityand capital resources

### ** **

The Company’s future revenues, liquidity and capital requirements aredependent upon several factors, including, but not limited to, its success ingenerating significant revenues from partnerships and/or sales; the time andcost required to manufacture and find partners for its products; the time andcost required for clinically developed products to obtain regulatory approvals;competitive technological developments; additional government-imposedregulation and control; and changes in healthcare systems which affectreimbursement, pricing or availability of drugs and market acceptance of drugsand drug technologies.

 

To date, the Company has funded its operations primarily through theissue of equity securities.

 

In common with biotechnology and drug development companies the Company’soperations are subject to considerable risks and significant uncertainty dueprimarily to the nature of the development and commercialisation undertaken. Toallow the Company to execute its near term and longer term plans, it will benecessary to raise additional capital in the future. The Directors areinvestigating the opportune time to raise capital and/or enter intolicensing/commercialisation arrangements. Having regard to the current marketconditions and the Company’s development programs, the Directors haveestablished a Board sub-committee to assess strategic alternatives including possiblepartnership, mergers, acquisitions and capital raising alternatives. TheDirectors plan to continue operations on the basis of the matters referred toabove, and believe that future fund raising activities and the value of theGroup’s existing net assets will generate sufficient funds for the Group tocontinue to operate in its normal manner in the future.

 

Net cash used in operating activities of A$15,999,781 in fiscal 2008,A$11,154,291 in fiscal 2007 and A$8,485,618 in fiscal 2006. During the sameperiod a total of A$36,906,083 was raised from the issue of securities.

 

While minimal cash (apart from interest on cash assets) has beenprovided by, or used for, investing activities during each of the three yearsin the period ended June 30, 2008, plant and equipment of A$387,689 wasacquired in fiscal 2008 as new office locations were established in Menlo Parkand Geelong.

 

While the Company’s cash resources are currently held in Australiandollars (A$), a significant part of its cash flow burden over the next year iscommitted to funding clinical trial programs in the U.S. The Company monitorsthe potential foreign currency exposure from this situation and utilizesforward exchange contracts when appropriate to manage this risk. (Refer Note 19of the attached Financial Statements)

 

### **C.            Researchand product development programs**

### ** **

Included within research and development expenditure for continuedoperations is the following external expenditure on research and developmentprojects.

 

Over the last three years total expenditure on continuing research anddevelopment has resulted in the consumption of significant cash resources,totaling A$19,538,372. The principal expenditures have been as follows:

 
| **Program** | ** ** | **Annual Expenditure  Fiscal 2008** | ** ** | **Annual Expenditure  Fiscal 2007** | ** ** | **Annual Expenditure  Fiscal 2006** | ** ** |
|-------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|-----------------------------------------------|------------|
| Cancer      |       | A$                                            | 9,233,641  |                                          | A$         | 4,320,602                                     |       | A$ | 3,325,103 |   |
|             |            |                                               |            |                                               |            |                                               |            |  |  |  |

 

Whilst the Company made no expenditure in cancer research until fiscal2005, ChemGenex Therapeutics, Inc. had expended US$5,955,000 (A$9,353,000)in cancer related research. This expenditure is reflected in the purchase pricepaid by the Company for ChemGenex Therapeutics, Inc.

 

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The major expenditure during the last three years by specific researchundertaking is as follows:

 
| **Collaborator** | ** ** | **Agreement and commencement date**           | ** ** | **Commitment at June 30,  2008** | ** ** | **Expiry date** | ** ** | **Expenditure** |
|------------------|------------|-----------------------------------------------|------------|---------------------------------------|------------|-----------------|------------|-----------------|
|             |       |                                          |       |                                  |       |            |       |            |
| Premier          |       | Premier Research CRO Agreement:June 2006 |       | US$                                   | 4,670,539  |            | Trial      |            | 2008:A$1,829,791 |
| Research         |       |                                          |       | A$                                    | (4,805,598 | )               | dependent  |            | 2007:A$4,320,6027 |
|             |       |                                          |       |                                  |       |            |       |            | 2006:A$3,325,103 |
|             |       |                                          |       |                                  |       |            |       |            |   |
| Medpace          |       | Medpace  Master Agreement: May 2008      |       | US$                              | 1,557,703  |            | Trial      |            | 2008:A$306,006 |
|             |       |                                          |       | A$                                    | (1,629,074 | )               | dependent  |            |   |
|             |       |                                          |       |                                  |       |            |       |            |   |
| Xerimis          |       | Xerimis  Protocols: January 2008         |       | US$                                   | 125,000    |            | Trial      |            | 2008:A$113,903 |
|             |       |                                          |       | A$                                    | (130,726   | )               | dependent  |            |   |

 

See Item 4B. “Business overview - Components of the ChemGenexDiscovery, Development and Validation Platforms” for further information on thecurrent status of the development programs.

 

See Item 4B. “Business overview - Commercial Collaborations” forfurther information on the status of research and development and commercialcollaborations.

 

See Item 3D. “Risk Factors” for the risks associated with developingand bringing drug candidates to market.

 

**Researchand Development**

 

TheCompany has two therapeutic agents in Phase 2 clinical trials for threeindications in the USA and several molecules in pre-clinical development.

 

Omacetaxineis currently in a Phase 2/3 trial in the U.S.A. and Europe for CMLpatients who have the T315I Bcr-Abl mutation that confers resistance toimatinib and other tyrosine kinase inhibitors (“TKIs”). The company is alsoconducting a complementary phase 2 trial in CML patients who have failedimatinib and one otherTKI. The Company is also conducting Phase 2 trials in patients withmyelodysplastic syndrome (“MDS”) and acute myeloid leukemia (AML).

 

APhase 1 clinical trial of Quinamed was completed successfully in early 2004,and the Company initiated a Phase 2 trial in solid cancer patients in late 2004at the Sarah Cannon Cancer Center in Nashville, Tennessee. This trial in solidcancer patients was completed in early 2007 and data was presented at the ASCOmeeting in June 2007. The key outcomes from this study were (i) demonstrationthat dose level could be optimised according to patient genotype, (ii) thedrug was well tolerated, with predictable and manageable side effects, and (iii) therewas evidence of anticancer activity in several solid tumor types.

 

Theregulatory authorities in each country may impose their own requirements andmay refuse to grant, or may require additional data before granting approvaleven though the relevant product has been approved by another authority. TheUS, Australia and European Union countries have very high standards oftechnical appraisal and, consequently, in most cases, a lengthy approvalprocess for pharmaceutical products. The time required to obtain such approvalin particular countries varies, but if obtained generally takes from six monthsto several years, if approval is received at all, from the date of application,depending upon the degree of control exercised by the regulatory authority, theduration of its review procedures, and the nature of the product. The trend inrecent years has been towards stricter regulation and higher standards.

 

Inthe US, the primary regulatory authority is the FDA. In addition to regulatingclinical procedures and processes, the FDA investigates and approves marketapplications for new pharmaceutical products and is responsible for regulatingthe labeling, marketing and monitoring of all pharmaceutical products, whethercurrently marketed or under investigation. Upon approval in the US, a drug maybe marketed only for the approved indications in the 

 

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approveddosage forms and dosages. In addition to obtaining FDA approval for eachindication to be treated with each product, each domestic drug manufacturingfirm must register with the FDA, list its drug products with the FDA, complywith current Good Manufacturing Practice (cGMP) requirements and besubject to inspection by the FDA. In Australia, a similar role is played by theTherapeutic Goods Administration, and in Europe, the European Committee forProprietary Medicinal Products provides a mechanism for European Union-memberstates to exchange information on all aspects of product licensing and assesseslicense applications submitted under two different procedures (the multistateand the high-tech concentration procedures).

 

TheCompany has an active international Phase 2/3 study in CML patients with theT315I Bcr-Abl point mutation, which confers resistance to TKI therapy. Thefirst patients were dosed in September 2006, and enrollment under FDAapproved protocols is ongoing. The Company was awarded Fast Track status fromthe FDA for this trial on November 15, 2006. The Fast Track designationwill enable the Company to file a New Drug Application (“NDA”) on a rollingbasis as data becomes available. This permits the FDA to review the filing asit is received, rather than waiting for an entire document prior to commencingthe review process. It is anticipated that data from this trial will besubmitted to the U.S. FDA for review in mid 2009.

 

TheCompany has an additional Phase 2 study in CML patients who have failed imatiniband an additional TKI. This study is currently enrolling patients globally.

 

Omacetaxineis currently in two separate Phase 2 clinical trials; treating MDS patients andAML patients respectively.

 

APhase 2a clinical trial of Quinamed in solid cancer patients was completed inearly 2007 and data was presented at the ASCO meeting in June 2007.  The trial was performed at the Sarah CannonCancer Center in Nashville, Tennessee. The key outcomes from this studywere (i) demonstration that dose level could be optimised according topatient genotype, (ii) the drug was well tolerated, with predictable andmanageable side effects, and (iii) there was evidence of anticanceractivity in several solid tumor types.

 

Dueto the high level of funds required to support clinical trials the Company hasdecided to concentrate its activities on the trial involving omacetaxine on CMLpatients with the T315I mutation, as this has been deemed to provide the bestprospects for an early product approval at this time.

 

Duringthese studies, the Company may seek to license the compounds to apharmaceutical industry partner who would support appropriateregistration-directed trials.

 

Actualand estimated direct expenditures associated with the progression of the cancerprograms since June 21, 2004 (the merger with ChemGenex Therapeutics, Inc)to the end of fiscal 2008 are shown below.

 
| ** **                  | ** ** | **Fiscal 2009  (Estimated)** | ** ** | **Fiscal 2008  (Actual)** | ** ** | **Fiscal 2007  (Actual)** | ** ** | **Fiscal 2006  (Actual)** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|--------------------------------|------------|--------------------------------|------------|--------------------------------|------------|
| ** **                  | ** ** | **A$ 000’s**            | ** ** |
| Omacetaxine                 |       | 9,700                             |       | 9,020                          |       | 4,281                          |       | 2,002                          |       |
| Quinamed                    |       | 387                               |       | 202                            |       | 97                             |       | 111                            |       |
| Other pre-clinical projects |       | 0                                 |       | 12                             |       | 0                              |       | 27                             |       |
| Total                       |       | 10,087                            |       | 9.234                          |       | 4,378                          |       | 2,140                          |       |

 

None of ourproduct candidates have been approved for commercialization in the U.S. orelsewhere. We, or any of our collaborators, may not be able to conduct clinicaltesting or obtain the necessary approvals from the FDA or other regulatoryauthorities for some products. Failure by us, or our collaborators, to obtainrequired governmental approvals will delay or preclude our collaborators or usfrom marketing therapeutics or diagnostic products developed with us or limitthe commercial use of such products and could have a material adverse effect onour business, financial condition and results of operations.

 

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*Diabetesand Obesity*

 

TheDiabetes and Obesity programs ceased in December 2007 with the demerger ofthe Autogen Research Pty Ltd subsidiary.

 

### **D.            Trendinformation**

### ** **

The Company is a development stage company and it is difficult topredict with any degree of accuracy the outcome of the Company’s research anddevelopment efforts.  The following aredevelopments that the Company considers a possible progression in the near termin its business:

 

·                  Phase 2 clinicaltrials for Quinamed® and omacetaxine,

·                  Phase 2/3clinical trials for omacetaxine,  and

·                  possiblepartnering of these therapeutics with a pharmaceutical or biotechnologypartner;

 

For additional information on the current status of the Company’sproduct development and research programs, see above Item 4B, “Businessoverview - Commercial and Research and Development Collaborations” and Item 5C,“Research and Product Development Programs.” The Company is not aware of anychanges bearing upon its financial condition since the date of the financialstatements included in this Annual Report.

 

### **E**.             Off-balanceSheet Arrangements

### ** **

The Company has no off-balance sheet arrangements that have or arereasonably likely to have current or future effect on the Company’s financialcondition, changes in financial condition, revenues or expenses, results ofoperations, liquidity, capital expenditures or capital resources that arematerial to investors.

 

### **F.             Tabular Disclosure of ContractualObligations**

### ** **

The table below shows the contractual obligations and commercialcommitments as at June 30, 2008:

 

| ** **                          | ** ** | ** ** | ** ** | **Payments due by period** | ** ** |
|-------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| **In A$ ’s**         | ** ** | **Total**  | ** ** | **Less than 1 year**       | ** ** | **1-3 years** | ** ** | **After 3 years** | ** ** |
|                                |       |       |       |                                      |       |   |   |   |   |
| Operating leases                    |       | 440,015    |       | 168,719                                   |       | 217,446 |   | 53,850 |   |
|                                |       |       |       |                                      |       |   |   |   |   |
| Research expenditure commitments(a) |       | 6,644,295  |       | 3,542,428                                 |       | 3,101,867 |   | — |   |
|                                |       |       |       |                                      |       |   |   |   |   |
| Total contractual cash obligations  |       | 7,084,310  |       | 3,711,147                                 |       | 3,319,313 |   | 53,850 |   |

 

----

| (a)  | Research expenditure commitments include fees payable under the major  research and development programs discussed in Item 5C. “Research and Product  Development Programs” as well as fees payable to scientific consultants and  advisors to the Company. |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

### **G.            Assets Acquired in a BusinessCombination to be used in Research & Development Activities**

### ** **

InJune 2004 ChemGenex Pharmaceuticals Limited (then AGT Biosciences Limited)acquired all of the shares in ChemGenex Therapeutics Inc. for a total purchaseprice, including direct acquisition costs, of approximately A$17.1 million. Thefair value of net tangible assets amounted to approximately A$0.1 million.

 

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Theremaining value received from the acquisition relates primarily to the relevantpatents for the anti-cancer compounds omacetaxine and Quinamed held byChemGenex Therapeutics Inc. at the time of the acquisition, and the in processresearch and development already undertaken on these compounds.

 

Omacetaxineis a small molecule with established clinical activity as a single agent inblood cell cancers. Phase 2 trials of omacetaxine commenced in patients withCML in US and European hospitals.

 

Quinamedis a synthetic small molecule with established anti-cancer activity in humans.Quinamed affects the growth of a number of tumor types; however, researchershave also noted some unpredictable side effects. Researchers have been workingon treating patients with a precise and personal dose that maximizes Quinamed’sclinical effect while minimizing its side effects.

 

Thedevelopment history of these compounds prior to the acquisition is as follows-

 

(a)          NCI in the USA began funding early research relating to the twoprojects in the early 1980’s.

(b)         In early 1999 management of ChemGenex Therapeutics Inc. began work onboth research and development projects, continuing the drug development phasefrom the initial NCI development work.

(c)          From 2000 ChemGenex Therapeutics Inc. continued chemical development,and by the business combination date of June 30, 2004 approximately A$3.9million (or 20%) of the total expected research and development program costsof A$19.7 million had been spent on the omacetaxine project and approximatelyA$5.3 million (or 28%) of the total program costs of A$19.1 million had beenspent on the Quinamed project.

 

Therecoverable amount of the anti-cancer compounds have been determined based on avalue in use calculation using cash flow projections based on financial budgets,information from scientific journals on the existing incidence of the disease,projections of patients that would be eligible for the proposed treatment andthe expected growth figures.

 

Thevaluation has been based on a cash flow projection covering the remaining termfor each relevant patent application, which can exceed 5 years yet does notexceed 20 years. No residual values have been included.

 

Independentvaluers (Acuity Technology Management Pty Ltd) were engaged to carry out thisvaluation and chose to use the discounted cash flow method. They, inco-operation with ChemGenex’s senior management, prepared long term cash flowprojections.

 

TheCompany is currently investing significant funds in research and development,as products move through each phase of required clinical development to achieveregulatory approval in regulated markets. Product development can take severalyears. Due to the product development timeline, significant sales areforecasted to be earned once products reach certain stages of regulatoryapproval. Therefore it is appropriate to recognise the potential sales, andexpected strong growth in sales, beyond a five year projection. The cash flowmodel has incorporated projected cash flows from between 5 to 20 years based onthe patent life in lieu of using a terminal value to better reflect the natureof the cash flows to be received over the product life cycle. The applicationof extended cash flow projections beyond five years is consistent with IAS36.33(b).

 

Thecalculation of value in use for the anti-cancer compounds is most sensitive tothe following assumptions-

 

·                  Availabilityof patients

·                  Discountrate

·                  Rawmaterial costs

·                  Indirectcosts

 

Theavailability of patients is dependent upon the incidence of the disease(estimated determined from scientific journals) from projections of the likelyuse of the products (based on the current status of alternative treatments).

 

Dueto the uncertainty associated with cash flow projections for products that havenot yet received regulatory approval an implied pre-tax discount rate ofapproximately 25% has been applied.

 

Rawmaterials costs used in the projection are based on the latest manufacturingagreement with Stragen which provides exclusive access to omacetaxine at anagreed price for the remainder of the valuation period.

 

Indirectcosts have been based on industry standards for companies with pharmaceuticalproducts in the market as cost structures in the company’s current developmentstage are not deemed to be appropriate.

 

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## **ITEM 6.                  DIRECTORS, SENIOR MANAGEMENTAND EMPLOYEES**

## ** **

### **A**.            Directorsand senior management.

### ** **

Certain information concerning the current directors of the Company isset forth below. Non-executive directors are not full-time employees of theCompany. There exists no arrangement or understanding with major shareholders,customers, suppliers or others pursuant to which any person referred to belowwas selected as a director or member of senior management.

 

No director is related to any other. Biographical information withrespect to the directors in office at June 30, 2008, or appointed sincethat date,  is as follows:

 

**Mr Brett Heading                B Com LLB (Hons) ASIA (Non-executive Chairman)**

 

Mr Heading is an experienced corporate lawyer, a partner of McCulloughRobertson for over 24 years.  He specialises in capital raisings, mergersand acquisitions and board advice. He has a wide ranging client base includingemerging companies in the biotechnology and agribusiness sectors. Hisgovernment appointments include membership of the Takeovers Panel, and theBoard of Taxation. Mr Heading is a non-executive director ofAustralian Agricultural Company Ltd, Capilano Honey Ltd and Peanut Companyof Australia Ltd and is a former director and Chairman of Ambri Limited. MrHeading is a member of the company’s Remuneration Committee. Age 52.

 

**Dr Greg Collier                   B.Sc (Hons) PhD (Chief Executive Officer andManaging Director)**

 

Dr. Collier is one of Australia’s leading biotechnologyexecutives, and is credited with leading the transformation of the formerAustralian genomics company Autogen into the integrated internationalbiopharmaceutical company ChemGenex Pharmaceuticals. As CEO of the company, Dr. Collierhas overseen the partnering of major research programs, the $14 millionacquisition of a private US biotechnology company and listing of the company’ssecurities on the NASDAQ exchange. Dr. Collier is recognisedinternationally as a leader who has guided his company along a value-creatingpath towards marketed products, and is a regular invited speaker atinternational research and biotechnology conferences. Age 50.

 

**Mr Elmar Schnee                B.ComM.Mktg (Non-executive Director)**

 

Mr Schnee held management positions in marketing and sales in theconsumer goods industry before commencing with the pharmaceuticals industry in1988. Following senior appointments with Fisons Pharmaceuticals PLC,Migliara/Kaplan Associates, Sanofi-Synthelabo and UCB Pharma he took aDirectorship position at Merck subsidiary Merck Santé S.A.S in May 2003.In addition to his duties at the French subsidiary, he took on responsibilityfor the global operations of the Ethicals division in January 2004 and wasnamed Head of the Ethicals division in 2005. In November 2005 Mr Schnee wasappointed Deputy Member of the Executive Board and Head of the Pharmaceuticalsbusiness sector. In 2006 he was appointed Regular Member of the Executive Boardand General Partner of Merck KGaA. Mr. Schnee is a non-executive directorof Arpida AG.  Age 49.

 

**Dr Dennis Brown                B.ScM.A PhD (Executive Director)**

 

Dr. Brown has over 25 years experience in the biotechnology andbiopharmaceutical industries with specific experience in cancer research andproduct development. Dr. Brown received his PhD. degree from New YorkUniversity, and held academic positions at Stanford University and HarvardUniversity Medical School prior to beginning his industry career. Dr. Brownwas a co-founder of Matrix Pharmaceutical Inc. and was the scientific founderof ChemGenex Therapeutics Inc. in 1999, shaping and leading the company’sclinical and early stage research programs. Age 59.

 

**Dr Geoff Brooke                  MBBSMBA (Non-executive Director)**

 

Dr. Brooke is Managing Director of GBS Venture Partners and has 20years’ venture capital experience. He was formerly President of Medvest Inc, aUS-based early stage venture capital group he co-founded with Johnson &Johnson. Dr. Brooke’s experience includes company formation andacquisitions, as well as public listings on both NASDAQ and ASX. Dr. Brookeis a director of Sunshine Heart Inc and retired as a director of CogStateLimited in October 2007. Dr. Brooke is a member of the company’sAudit Committee and Remuneration Committee.  Age 52.

 

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**Mr Dan Janney                    BAMBA (Non-executive Director**)

 

Mr Janney joined Alta Partners immediately following the firm’sfounding in 1996, and was a co-founder of the Alta BioPharma effort. Mr Janneyfocuses on investments in biopharmaceutical products and therapeutics and hasbeen directly involved in the funding and development of over 25 life sciencescompanies. Prior to joining Alta Partners he was a senior investment banker atMontgomery Securities focusing on life sciences companies. Mr Janney was adirector of public companies CoTherix Inc. (April 2001 to January 2007),Dynavax Technologies Corporation (December 1996 to December 2006) andAnesiva Inc. (November 2000 to December 2005). Mr Janney is Chairmanof the company’s Remuneration committee. Age 42

 

**Dr GeorgeMorstyn           ****MS BS BMedSci MAICD PhD FRACP (Non-executive Director)**

 

Dr Morstyn has substantialclinical, research and commercial experience in biotechnology and oncology. Heis a former Head of the Clinical Program of the Ludwig Institute of CancerResearch (Melbourne Branch) and held a number of positions including SeniorVice President of Development and Chief Medical Officer of Amgen Inc from 1991to 2002. He was a director of Bionomics until 2006. He is currently a directorof Proacta Limited, Neuprotect and the Royal Women’s Hospital, Melbourne. He ischairman of the SAB of Symbio (Japan). Dr Morstyn is a member of the company’sAudit Committee. Age 57

 

**Mr Donald Santel                MSBSE (Non-executive Director, appointed December 6, 2007)**

 

Mr. Santel has 25 yearsexperience in management, development and marketing with life sciencescompanies. Mr. Santel was a co-founder, Chief Executive Officer anddirector of CoTherix Inc. from 2000 to 2007. Prior to CoTherix Inc. he heldsenior positions with Reflow Inc., Cardiac Pathways Corporation and Medtronic.Inc. Mr. Santel currently serves on the board of a number of privatecompanies and is Chairman of the company’s Audit Committee. Age 47

 

**Dr Julie Cherrington         BS MSPhD (Non-executive Director, appointed January 7, 2008)**

 

Dr Cherrington has substantialresearch, drug development, and management experience in the biotechnologyindustry. She is President of Phenomix Corporation, where she has overallresponsibility for Research and Development, and is a senior decision maker inthe finance, intellectual property, business and corporate development aspectsof the company. She previously held senior management and research/development positionswith SUGEN, Inc. (a wholly owned subsidiary of Pharmacia) and GileadSciences. Her research and development expertise includes virology, oncologyand diabetes. Dr Cherrington is a member of AACR (American Association forCancer Research), ASC0 (American Society of Clinical Oncology), ASH (AmericanSociety of Hematology) and ADA (American Diabetes Association). She is on theScientific Advisory board of Progen Pharmaceuticals, and the ClearityFoundation, a non-profit organization dedicated to the treatment of ovariancancer. Age 50.

 

**Mr Jean-Luc Tétard           (Non-executive Director appointed August 5, 2008)**

** **

Mr. Tétardis the CEO of Stragen Pharma and Stragen Chemical. Mr. Tétard has morethan 35 years of experience in the chemicals and pharmaceuticalsindustries.  He participated during 17years in the development of SANOFI chemical division as a director, he was incharge of 5 chemical manufacturing plants worldwide. He then created Stragen todevelop APIs and a range of generic drugs mainly in antibiotics, hormones andcancer drugs. Age 63

 

Note:Non-Executive Director Mr Patrick Owen Burns resigned November 28, 2007.

 

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Biographical information with respect Senior Management is asfollows:

 

Senior Management based at Geelong, Victoria

 
| **James Campbell, PhD, MBA** | ** ** | **Vice President of Operations and Chief Operating Officer** |
|-----------------------------------|------------|--------------------------------------------------------------|

 

Dr. Campbell has more than 20years of international experience in scientific research, research management,management consulting and venture capital. Dr. Campbell held researchpositions at the CNRS and the CSIRO, and after completing an MBA worked for theinternational management consultancy Booz Allen Hamilton. Dr. Campbelllater joined the University of Melbourne, where he was instrumental in thespin-out of four biotechnology companies. Dr. Campbell is a past member ofthe investment committees of the pre-seed venture capital funds UniSeed and theSymbiosis Group. Dr. Campbell has served as a director of Hatchtech PtyLtd. Dr. Campbell sits on the Victorian State Government AdvisoryCommittee on Biotechnology Investment Attraction/Competitive BusinessEnvironment.

 
| **Rick Merrigan, MBA** | ** ** | **Chief Financial Officer and Company Secretary** |
|------------------------|------------|---------------------------------------------------|

 

Mr. Merrigan has been ChiefFinancial Officer and Company Secretary for a number of Australian public andprivate Australian companies, with significant experience in all facets offinancial management and control across a variety of industry sectors,including entertainment, manufacturing, transport and retailing in bothdomestic and international markets. Mr. Merrigan is a CPA with particularexpertise in corporate management, due diligence, capital raising and financialprocess management.

 

Senior Management based at Menlo Park, California

 
| **Adam R. Craig MD, PhD, MBA** | ** ** | **Senior Vice President and Chief Medical Officer** |
|-------------------------------------|------------|-----------------------------------------------------|

** **

Dr. Craig leverages more than15 years of clinical, oncology, management and drug development experience todirect ChemGenex’s global clinical development strategies and to lead ChemGenex’sclinical development and translational medicine team. Dr. Craig hasextensive expertise in building and managing clinical teams focused on productregistration, with particular experience in developing therapies forhematologic malignancies such as chronic myeloid leukemia (CML). Most recently,he was Vice President and founding Chief Medical Officer at InnovivePharmaceuticals, Inc., an oncology and hematology drug development companybased in New York. Previously, Dr. Craig held positions of increasingresponsibility including Vice President and Medical Director at ArQule Inc.,Senior Director at Ilex Oncology Inc., and Medical Advisor at Antisoma plc. Dr. Craigreceived his medical qualifications from London University, a PhD in molecularmedicine at the University of Leeds, and an MBA from the Open Business School,in the United Kingdom. Dr. Craig is a member of the Royal College ofPhysicians (UK) and undertook post-graduate training in pediatrics andpediatric oncology.

 
| **Tina Herbert, MBA** | ** ** | **Senior Director of Finance** |
|-----------------------|------------|--------------------------------|

 

Ms. Herbert has over 16 yearsof experience in the pharmaceutical and biotechnology industry. Prior toChemGenex, she served as Controller at Metabolex Inc., a biopharmaceuticalcompany. Tina served as Corporate Controller, Acting Vice President and ChiefFinancial Officer at Sunrise Technologies Inc., a medical device company, from August 1998to June 1999. Ms. Herbert held various financial management positionsat Matrix Pharmaceutical Inc., a biotechnology company, from September 1992to July 1998. Ms. Herbert has a BS degree in Business Management fromSan Jose State University and an MBA from New York Institute of Technology.

 
| **Eric Humphriss, BA** | ** ** | **Senior Director Clinical Affairs** |
|------------------------|------------|--------------------------------------|

 

Mr. Humphriss has over 20years of experience in pharmaceutical clinical development, clinical trialdesign and management. Prior to joining ChemGenex, Eric was an AssociateDirector in Clinical Affairs at Genentech in South San Francisco, and formerlyDirector, Clinical Operations at Matrix Pharmaceutical Inc. Mr. Humphrisshas a BA degree in Biology/Psychology from the University of California, SanDiego.

 
| **Luana Staiger, BS** | ** ** | **Vice President Regulatory Affairs** |
|-----------------------|------------|---------------------------------------|

 

Ms. Staiger has more than 25years experience in the pharmaceutical and biotechnology industry, withsignificant experience in regulatory affairs, quality assurance, and projectmanagement. Ms. Staiger’s regulatory affairs experience includes productsubmissions with both the U.S. FDA and European regulatory authorities. Priorto ChemGenex, Ms. Staiger was a Regulatory Affairs consultant, leveragingexperience gained at a range of companies including Matrix Pharmaceutical Inc.(Vice President, Regulatory Affairs and Quality Assurance), Gilead Sciences(Associate Director of Regulatory Affairs), Landec Corporation, Syntex 

 

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(U.S.A.) Inc.; and ZoeconCorporation. Ms. Staiger has a BS degree in Biochemistry from theUniversity of California, Davis.

 
| **Tim  Trapp, BS** | ** ** | **Senior  Director of Manufacturing** |
|--------------------|------------|---------------------------------------|

 

Mr. Trapp has almost 30 years of manufacturingexperience in the pharmaceutical and biotechnology industry, with deepexpertise in contract manufacturing, GMP and EU compliance, project management,product scale-up and transfer. Prior to joining ChemGenex, Tim was Director,R&D Operations at ALZA Corporation, a biopharmaceutical company. Previousappointments include Project Executive/Consulting Director at Bovis Lend LeasePharmaceutical, Director of Technology at Inamed/McGhan/Collagen Corporationand Director of Biopharmaceutical Operations at Industrial Design Corporation(IDC). Mr. Trapp has a BS degree in Biochemistry from Loma LindaUniversity.

 
| **Paul  Lynch, BSc. MCIM** | ** ** | **Director  of Medical Affairs** |
|----------------------------|------------|----------------------------------|

 

Mr. Lynch has over 20 years ofexperience in the pharmaceutical and agrochemical industries. Paul joinedChemGenex from Novartis (UK) where he was a Senior Product Manager. Prior tojoining Novartis, Paul held positions of increasing responsibility in a rangeof chemical companies, and was a Product Manager at Zeneca Agrochemicals. Mr. Lynchhas a BSc degree in Biology from Queen’s University in Belfast, UK, and has apost graduate Diploma in Marketing.

 

### **B**.            Compensation

### ** **

The aggregate amount of compensation paid to all directors of theCompany as a group by the Company and its subsidiaries for services in allcapacities during fiscal 2008 was A$1,862,490 including A$760,635 ofoptions.  This amount includes directors’fees, salaries and bonus payments, but excludes amounts set aside or accrued toprovide pension, retirement or similar benefits. The aggregate amount set asideor accrued to provide pension, retirement or similar benefits for directors ofthe Company by the Company and its subsidiaries during fiscal 2008 wasA$58,500.

 

The Company’s remuneration policy for directors and key managementpersonnel  is to:

 

·      have regard to the directors’experience and the nature and complexity of their work and due regard todirectors’ remuneration in comparable companies in order to pay a competitivesalary that attracts and retains management of the highest quality;

 

·      link individual remunerationpackages to the Company’s long-term performance through the award of shareoptions and incentive schemes; and

 

·      provide post-retirementbenefits through the Company’s pension schemes.

 

There are four main elements of the remunerationpackage for directors and key management personnel:

 

·      basic salary;

 

·      benefits in kind;

 

·      share options andincentives; and

 

·      pension arrangements.

 

The remuneration of each of the directors and key management personnelwho served during fiscal 2008 is set out below. For details regarding shareoptions held by directors and senior management, see Item 6E. Share Ownershipand Options.

 

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Remuneration packages, which consist of base salary, fringe benefits,incentive schemes (including performance-related bonuses), superannuation, andentitlements upon retirement or termination, are reviewed with due regard toperformance and other relevant factors. The following table discloses the remuneration of the directors andsenior management of the Company:

 
| ** **                       | ** ** | **Short-term**            | ** ** | ** **     | ** ** | ** **   | ** ** | ** **         | ** ** |
|----------------------------------|------------|---------------------------|------------|----------------|------------|--------------|------------|--------------------|------------|
| ** **                       | ** ** | ** **                | ** ** | ** **     | ** ** | **Non-**     | ** ** | **Post **     | ** ** | **Share Based** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **Salary **          | ** ** | **Cash ** | ** ** | **Monetary** | ** ** | **Employment**     | ** ** | **Payments** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | **& Fees ** | ** ** | **Bonus**      | ** ** | **Benefits** | ** ** | **Superannuation** | ** ** | **Options** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | **$**                     | ** ** | **$**          | ** ** | **$**        | ** ** | **$**              | ** ** | **$** | ** ** | **$** | ** ** |
| **Non-executive directors** |       |                      |       |           |       |         |       |               |       |   |   |   |   |
| J.B.L. Heading                   |       | 70,850                    |       | —         |       | —       |       | —             |       | 46,200 |   | 117,050 |   |
| E.J. Schnee                      |       | 54,500                    |       | —         |       | —       |       | —             |       | 46,200 |   | 100,700 |   |
| P. Burns                         |       | 22,708                    |       | —         |       | —       |       | —             |       | — |   | 22,708 |   |
| Dr. G.E.D. Brooke           |       | 54,500                    |       | —         |       | —       |       | —             |       | 46,200 |   | 100,700 |   |
| D.S. Janney                      |       | 54,500                    |       | —         |       | —       |       | —             |       | 46,200 |   | 100,700 |   |
| Dr. G Morstyn               |       | 50,000                    |       | —         |       | —       |       | 4,500              |       | 46,200 |   | 100,700 |   |
| D. Santel                        |       | 38,150                    |       | —         |       | —       |       | —             |       | 46,200 |   | 84,350 |   |
| Dr. J. Cherrington          |       | 27,250                    |       | —         |       | —       |       | —             |       | 47,520 |   | 74,770 |   |
| **Executive  directors**         |       |                      |       |           |       |         |       |               |       |   |   |   |   |
| Dr. G. R. Collier           |       | 355,008                   |       | —         |       | 34,815       |       | 54,000             |       | 162,205 |   | 606,028 |   |
| Dr. D.M. Brown              |       | 306,085                   |       | —         |       | 33,489       |       | —             |       | 273,710 |   | 613,284 |   |
| **Key  Management**              | ** ** | ** **                | ** ** | ** **     | ** ** | ** **   | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Dr. J. Campbell             |       | 202,899                   |       | —         |       | —       |       | 40,532             |       | 407,940 |   | 651,371 |   |
| E. Merrigan                      |       | 105,000                   |       | —         |       | —       |       | 45,833             |       | 305,420 |   | 456,253 |   |
| Dr. A. Craig                |       | 274,084                   |       | 83,477         |       | 18,144       |       | —             |       | 1,194,580 |   | 1,570,285 |   |
| T. Herbert                       |       | 211,348                   |       | —         |       | 14,447       |       | —             |       | 174,480 |   | 400,275 |   |
| E. Humphriss                     |       | 230,952                   |       | —         |       | 17,860       |       | —             |       | 136,870 |   | 385,682 |   |
| L. Staiger                       |       | 73,459                    |       | —         |       | 5,908        |       | —             |       | 14,920 |   | 94,287 |   |
| T.Trapp                          |       | 88,654                    |       | 11,130         |       | 10,211       |       | —             |       | 60,030 |   | 170,025 |   |
| P.Lynch                          |       | 73,011                    |       | —         |       | 12,387       |       | —             |       | 10,360 |   | 95,758 |   |
| **Total**                        | ** ** | **2,292,958**             | ** ** | **94,607**     | ** ** | **147,261**  | ** ** | **144,865**        | ** ** | **3,065,235** | ** ** | **5,744,926** | ** ** |

 

Profit schemes, Bonuses and Share Options.

 

Key Management Personnel are employed under contracts which have a termof 12 months and provide for termination, by either party, with notice periodsbetween 2 and 4 months. These contracts provide for bonuses of between 10% to20% of the base salary to be payable each year, subject to achievement ofagreed performance objectives. The performance objectives for each executiveare approved as part of the contract renewal process each year and bonuspayments are subject to approval by the Board, Remuneration Committee or ChiefExecutive Officer as is appropriate for each contract.

 

Key Management Personnel have the opportunity to qualify forparticipation in the Employee Option Plan which currently provides incentiveswhere specified criteria are met including criteria relating to profitability,cash flow, share price growth and environmental performance.  These options will vest according to lengthof service to the Company, with 50% of options granted based on the performanceconditions applicable to each employee. Details regarding the issue of shareoptions under this plan are provided in notes 15 and 23 of the attachedfinancial statements.

 

The Company’s current remuneration policies provide some degree oflinkage between an Executive’s performance-based remuneration and the overallfinancial performance of the Company. However, given the stage of developmentof the Company, the remuneration is aimed at retaining key individuals toensure the success of product development, which will in turn impact the futureoverall profitability of the Company and shareholder wealth.

 

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### **C.**            Board practices

### ** **

All executives hold service contracts with the Company or itssubsidiary. Service contracts can be for a fixed or indefinite term. Allservice contracts are approved by the Chief Executive Officer, the RemunerationCommittee or the Board of Directors. The Company’s purpose in entering intoservice contracts with executives is to enable the recruitment of high qualityexecutives and to obtain protection from their sudden departure to competitorcompanies. Additionally, service contracts optimize protection for the Company’sintellectual property rights and other commercially sensitive information.

 

The details of the senior management executives’ contracts aresummarized below:

 
| **Executive**               | ** ** | **Date of Contract**                        | ** ** | **Notice period for termination** |
|-----------------------------|------------|---------------------------------------------|------------|-----------------------------------|
| Dr. Gregory R. Collier |       | July 1, 2007 – June 30, 2012 |       | Six months                        |
| Dr. Dennis M. Brown    |       | July 1, 2006 –ongoing             |       | Four months                       |
| Dr. J. Campbell        |       | September 1, 2006 —ongoing        |       | Four months                       |
| E. Merrigan                 |       | December 1,  2007 —ongoing        |       | Four months                       |
| Dr. A.  Craig          |       | September 27,  2007 –ongoing      |       | Six months                        |
| T. Herbert                  |       | December 1,  2007 –ongoing        |       | At will  agreement                |
| E. Humphriss                |       | December 1,  2007 –ongoing        |       | At will  agreement                |
| L. Staiger                  |       | August 18,  2008 – ongoing        |       | At will agreement                 |
| T.Trapp                     |       | January 28,  2008 – ongoing       |       | At will  agreement                |
| P.Lynch                     |       | January 11,  2008 – ongoing       |       | At will  agreement                |

 

The terms and conditions of the appointment of non-executive directorsare set out in a formal letter of appointment which deals with the followingmatters:  duration of appointment(subject to approval of shareholders), remuneration, expectations concerningpreparation and attendance at Board meetings, conflict resolution and the rightto seek independent legal and professional advice (subject to the priorapproval of the Chairman).  The Companyis committed to practicing good corporate governance of its affairs as part ofits management of relationships with its shareholders and other stakeholders.The Company seeks to uphold, and to report on compliance with, best practice incorporate governance. During the fiscal year ended June 30, 2006, and atpresent, the Company paid a premium in respect of a contract insuring thedirectors of the Company, the Company Secretary, and all executive officers ofthe Company and of any affiliate against a liability incurred as such by adirector, Secretary or executive officer to the extent permitted by theAustralian Corporations Act 2001, including

 

(a)           awillful breach of duty; or

 

(b)           acontravention of sections 182 or 183 of the Corporations Act 2001,

 

as permitted by section 199B of the Corporations Act 2001.

 

The contract of insurance prohibits disclosure of the nature of theliability and the amount of the premium.

 

**The Board**

** **

The Board of the Company is responsible for the Company’s system ofcorporate governance.  This includesresponsibility for the approval of the annual and half-year financial report,the establishment of the long-term goals of the Company and strategic plans toachieve those goals, the review and adoption of annual budgets for thefinancial performance of the Company and monitoring the results on a quarterlybasis, and ensuring that the Company has implemented adequate systems ofinternal controls together with appropriate monitoring of complianceactivities. The Board currently comprises five directors: a Chairman withnon-executive responsibilities, an executive director, and three non-executivedirectors.  The role of non-executive directorsis to ensure that independent judgment is brought to Board deliberations anddecisions.  The non-executive directorspossess a wide range of skills and experience, relevant to the development ofthe Company, which complement those of the Chairman.  It is the Company’s policy that the Boardshould comprise a majority of non-executive directors.

 

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The number of meetings ofdirectors (including meetings of committees of directors) held during the yearand the number of meetings attended by each director was as follows:

 
| ** **             | ** ** | **Directors’ Meetings**  | ** ** | **Meetings of Committees  Audit Committee   Meetings** | ** ** | **Remuneration   Committee Meetings** | ** ** |
|------------------------|------------|------------------------------------|------------|----------------------------------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **             | ** ** | **Eligible   to Attend** | ** ** | **Meetings   Attended**                                               | ** ** | **Eligible   to Attend**              | ** ** | **Meetings   Attended** | ** ** | **Eligible   to Attend** | ** ** | **Meetings   Attended** | ** ** |
| J.B.L. Heading         |       | 12                                 |       | 12                                                                         |       | —                                          |       | — |   | — |   | — |   |
| Dr. G.R. Collier  |       | 12                                 |       | 12                                                                         |       | —                                          |       | — |   | — |   | — |   |
| E.J. Schnee            |       | 12                                 |       | 7                                                                          |       | —                                          |       | — |   | — |   | — |   |
| P.O. Burns        |       | 6                                  |       | 6                                                                          |       | 2                                               |       | 2 |   | 3 |   | 3 |   |
| Dr. D.M. Brown    |       | 12                                 |       | 11                                                                         |       | —                                          |       | — |   | — |   | — |   |
| Dr. G.E.D. Brooke |       | 12                                 |       | 12                                                                         |       | 4                                               |       | 4 |   | 3 |   | 3 |   |
| D.S. Janney            |       | 12                                 |       | 12                                                                         |       | —                                          |       | — |   | 3 |   | 3 |   |
| Dr. G. Morstyn    |       | 12                                 |       | 11                                                                         |       | 5                                               |       | 4 |   | — |   | — |   |
| D. Santel              |       | 6                                  |       | 6                                                                          |       | 3                                               |       | 1 |   | — |   | — |   |
| Dr. J Cherrington |       | 5                                  |       | 5                                                                          |       | —                                          |       | — |   | — |   | — |   |

 

The Board of Directors of the Company is responsible for the corporategovernance of the Company.  The Boardguides and monitors the business and affairs of the Company on behalf of theshareholders by whom they are elected and to whom they are accountable. In 2004the Australian Stock Exchange Corporate Governance Council’s (the Council’s) “Principlesof Good Corporate Governance and Best Practice Recommendations” (theRecommendations) were introduced. ChemGenex Pharmaceuticals Limited’s Corporate Governance Statement isnow structured with reference to the Council’s principles and recommendations,which are as follows:

 

Principle 1.             Laysolid foundations for management and oversight

 

Principle 2.             Structurethe board to add value

 

Principle 3.             Promoteethical and responsible decision making

 

Principle 4.             Safeguardintegrity in financial reporting

 

Principle 5.             Maketimely and balanced disclosure

 

Principle 6.             Respectthe rights of shareholders

 

Principle 7.             Recognizeand manage risk

 

Principle 8.             Encourageenhanced performance

 

Principle 9.             Remuneratefairly and responsibly

 

Principle 10.           Recognizethe legitimate interests of stakeholders

 

ChemGenex Pharmaceuticals Limited’s corporate governance practices werein place throughout the year ended June 30, 2008 and, with the exceptionof the Nominations Committee recommendation as noted below, were compliant withthe Council’s best practice recommendations.

 

The Board has not yet established a Nominations Committee as includedin the Council’s recommendations. At this stage of the Company’s developmentthe Board considers it appropriate that the duties associated with aNominations Committee are best handled by the Remuneration Committee and theBoard.

 

For further information on corporate governance policies adopted byChemGenex Pharmaceuticals Limited, refer to the Company’s website:www.chemgenex.com.

 

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**Board committees**

** **

In accordance with best practice, the Company has established an AuditCommittee with written terms of reference that deal with its authorities andduties.  The terms of reference of theAudit Committee have been reviewed during the year and updated to ensurecompliance with current best practice.

 

**Audit committee**

** **

The Board has established an audit committee, which operates under acharter approved by the Board.  It is theBoard’s responsibility to ensure that an effective internal control frameworkexists within the entity.  This includesinternal controls to deal with both the effectiveness and efficiency ofsignificant business processes, the safeguarding of assets, the maintenance ofproper accounting records, and the reliability of financial information as wellas non-financial considerations such as the benchmarking of operational keyperformance indicators.  The Board hasdelegated the responsibility for the establishment and maintenance of aframework of internal control and ethical standards for the management of theCompany to the audit committee.

 

The committee also provides the Board with additional assuranceregarding the reliability of financial information for inclusion in thefinancial reports.  All members of theaudit committee are non-executive directors.

 

The members of the audit committee during the year ended June 30,2008 were: Patrick O Burns , Geoff Brooke, Don Santel and George Morstyn .

* *

*Qualifications of audit committee members*

* *

Patrick O. Burns has over 40 years experience as a corporate lawyer,senior executive and director of public and private companies.

 

Geoff Brooke has over 20 years experience as a senior executive anddirector of public and private companies.

 

Don Santel has over 25 years experience as a senior executive anddirector of public and private companies.

 

George Morstyn has over 15 years experience as a senior executive anddirector of public and private companies.

 

The Audit Committee held five meetings during fiscal year 2008.

 

**Remuneration committee**

** **

The Board has established a Remuneration Committee to review allcompensation arrangements for the directors, the chief executive officer andthe executive team, under the direction of the Board, and to makerecommendation to the Board on these matters.

 

Members of the remuneration committee during the year ended June 30,2008 were: Patrick .O. Burns, Geoff Brooke, Brett Heading and Dan Janney.

 

*Qualifications of remuneration committee members*

* *

Patrick O. Burns has over 40 years experience as a corporate lawyer,senior executive and director of public and private companies.

 

Geoff E. D. Brooke has over 20 years experience as a senior executiveand director of public and private companies.

 

Brett Heading has over 20 years experience as a corporate lawyer,senior executive and director of public and private companies.

 

Daniel S. Janney has over 15 years experience as a senior executive anddirector of public and private companies.

 

The Remuneration Committee held three meetings during fiscal year 2008.

 

It is the Company’s objective to provide maximum stakeholder benefitfrom the retention of a high quality board and executive team by remuneratingdirectors and key executives fairly and appropriately with reference torelevant employment market conditions. To assist in achieving this objective,the Board links the nature and amount of executive directors’ and officers’emoluments to the Company’s financial and operational performance. The expectedoutcomes of the remuneration structure are:

 

·      retention and motivation ofkey executives;

 

·      attraction of qualitymanagement to the company; and

 

·      performance incentives thatallow executives to share the rewards of the success of the Company.

 

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The Board assesses the appropriateness of the nature and amount ofemoluments of such officers on a periodic basis by reference to relevantemployment market conditions with the overall objective of ensuring maximumstakeholder benefit from the retention of a high quality board and executiveteam.  Such officers are given theopportunity to receive their base emolument in a variety of forms includingcash and fringe benefits such as motor vehicles and expense payment plans.  It is intended that the manner of paymentchosen will be optimal for the recipient without creating undue cost for theCompany. Further details on the remuneration of directors and executives are alsoprovided in Note 23 to the Company’s audited consolidated financial statementsincluded elsewhere in this Annual Report.

 

All senior executives have the opportunity to qualify for participationin the Senior Executive Share Option Plan which currently provides incentiveswhere specified criteria are met including criteria relating to profitability,cash flow, share price growth and environmental performance.  Details regarding the issue of share optionsunder this plan are provided in Note 15 to the Company’s audited consolidatedfinancial statements included elsewhere in this Annual Report.

 

In relation to the payment of bonuses, options and other incentivepayments, discretion is exercised by the Board, having regard to the overallperformance of the Company and the performance of the individual during theperiod. There is no scheme to provide retirement benefits, other than statutorysuperannuation, to non-executive directors.

 

***Compliance with NASDAQ Rules***

*** ***

NASDAQ listing rules requirethat the Company disclose the home country practices that it follows in lieu ofcompliance with NASDAQ corporate governance rules.  The following describes the home countrypractices and the related NASDAQ rule:

 

Majority of Independent Directors:  The Company follows home country practicerather than NASDAQ’s requirement in Marketplace Rule 4350(c)(1) thatthe majority of the Board of each issuer be comprised of independent directorsas defined in Marketplace Rule 4200. The Company’s Board of Directors is comprised of a majority ofindependent directors.  The ASXrecommends that each issuer’s Board be comprised of a majority of independentdirectors.  However, no law, rule orregulation of the ASX or the Australian Securities and Investments Commission (“ASIC”),the public authority which exercises securities law jurisdiction over theCompany, has such a requirement nor does the Corporations Act (the “Act”),which is the applicable corporate law legislation.

 

Compensation of Officers:  The Company follows home country practicerather than NASDAQ’s requirement in Marketplace Rule 4350(c)(3) thatchief executive compensation be determined or recommended to the Board by themajority of independent directors of a compensation committee of independentdirectors.  Similarly, compensation ofother officers is not determined or recommended to the Board by a majority ofthe independent directors or a compensation committee comprised solely ofindependent directors.  These decisionsare made by the Company’s Board as a whole, and it is not comprised of amajority of independent directors.  TheASX does not have a requirement that each listed issuer have a remunerationcommittee or otherwise follow the procedures embodied in NASDAQ’s MarketplaceRule.  Furthermore, no law, rule orregulation of the ASIC has such a requirement nor does the applicable corporatelaw legislation.  Such home countrypractices are not prohibited by the laws of Australia.

 

Nomination: The Company follows home country practice rather than NASDAQ’srequirement in Marketplace Rule 4350(c)(4) that director nominees beselected or recommended by a majority of the independent directors or by anominations committee comprised of independent directors.  These decisions are made by the Company’sBoard as a whole, and it is not comprised of a majority of independentdirectors; the Company has no nominations committee.  The ASX does not have a requirement that eachlisted issuer have a nominations committee or otherwise follow the proceduresembodied in NASDAQ’s Marketplace Rule. Furthermore, no law, rule or regulation of the ASIC has such arequirement nor does the applicable corporate law legislation.  Accordingly, selections or recommendations ofdirector nominees by a board of directors that is not comprised of a majorityof directors that are not independent is not prohibited by the laws ofAustralia.

 

Quorum:  TheCompany follows home country practice rather than NASDAQ’s requirement inMarketplace Rule 4350(f) that each issuer provide for a quorum of atleast 331/3 percent of the outstanding shares of the issuer’s common stock(voting stock).  Pursuant to itsConstitution the Company is currently required to have a quorum for a 

 

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general meeting of two persons holding ordinaryshares.  The practice followed by theCompany is not prohibited by Australian law.

 

Pursuant to the Sarbanes-Oxley Act of 2002, the Securities and ExchangeCommission issued new rules that, among other things, require NASDAQ toimpose independence requirements on each member of the audit committee of alisted company and the NASDAQ also reformulated its corporate governancerequirements.  The recently-adopted SECand NASDAQ rules apply to the Company as of July 31, 2005.  The Company has taken the appropriate stepswith respect to its corporate governance system, including the addition ofindependent directors to its audit committee, to assure timely compliance withthe SEC rules and the amended corporate governance standards of NASDAQ.

 

### **D.**            Employees

### ** **

As at June 30, 2008, the Company employed eight individuals on afull-time basis.

 

The Company employs a number of contract employees in research anddevelopment.  During the last fiscalyear, the average number of contract employees was 50.

 

The following table summarizes the number of full-time employeesemployed by the Company, including executive directors, as at the year end ofthe last three fiscal years:

 
| **June 30,** | ** ** |
|-------------------|------------|
| **2008**          | ** ** | **2007** | ** ** | **2006** | ** ** |
| 17                |       | 8 |   | 7 |   |

** **

### **E.**             Share ownership and options

### ** **

The relevant interest of each director in the sharecapital of the Company as notified by the directors to the ASX in accordancewith S205G(1) of the Corporations Act 2001 at November 30, 2008 is asfollows:

 
| ** **                  | ** ** | **Ordinary shares** | ** ** | **% of shares   issued** | ** ** | **Options over   ordinary shares** | ** ** | **% of options   issued** | ** ** |
|-----------------------------|------------|--------------------------|------------|-----------------------------------------|------------|---------------------------------------------------|------------|------------------------------------------|------------|
| Brett  Heading              |       | 110,000                  |       | 0.05                                    |       | 253,333                                           |       | 0.47                                     |       |
| Dr. Gregory  Collier   |       | —                   |       | —                                  |       | 4,600,000                                         |       | 8.45                                     |       |
| Elmar Schnee  *             |       | 20,609,550               |       | 8.60                                    |       | 4,689,308                                         |       | 8.61                                     |       |
| Dr. Dennis  Brown      |       | 13,876,552               |       | 5.79                                    |       | 1,750,000                                         |       | 3.21                                     |       |
| Dr.Geoff  Brooke *          |       | 18,453,883               |       | 7.70                                    |       | 2,986,065                                         |       | 5.49                                     |       |
| Dan Janney *                |       | 41,067,906               |       | 17.13                                   |       | 6,338,053                                         |       | 11.64                                    |       |
| Dr. George  Morstyn    |       | —                   |       |                                    |       | 250,000                                           |       | 0.46                                     |       |
| Don Santel                  |       | —                   |       |                                    |       | 250,000                                           |       | 0.46                                     |       |
| Dr. Julie  Cherrington |       | —                   |       |                                    |       | 250,000                                           |       | 0.46                                     |       |
| Jean-Luc  Tetard*           |       | 37,235,343               |       | 15.53                                   |       | 250,000                                           |       | 0.46                                     |       |

 

----

*Includes shares and options held by entitiesin which Messrs Schnee, Tetard and Janney, and Dr. Brooke holddirectorships.

 

The relevant interest of Key Management Personnel inthe share capital of the Company at November 30, 2008 is as follows:

 
| ** **           | ** ** | **Ordinary shares** | ** ** | **% of shares   issued** | ** ** | **Options over   ordinary shares** | ** ** | **% of options   issued** | ** ** |
|----------------------|------------|--------------------------|------------|-----------------------------------------|------------|---------------------------------------------------|------------|------------------------------------------|------------|
| Dr. J. Campbell |       | 5,500                    |       | —                                  |       | 1,885,167                                         |       | 3.46                                     |       |
| E. Merrigan          |       | 55,000                   |       | 0.02                                    |       | 1,701,667                                         |       | 3.13                                     |       |
| Dr. A. Craig    |       | —                   |       | —                                  |       | 2,262,500                                         |       | 4.16                                     |       |
| T. Herbert           |       | 760,027                  |       | 0.32                                    |       | 550,000                                           |       | 1.01                                     |       |
| E. Humphriss         |       | —                   |       | —                                  |       | 590,000                                           |       | 1.08                                     |       |
| L. Staiger           |       | —                   |       | —                                  |       | 500,000                                           |       | 0.92                                     |       |
| T.Trapp              |       | —                   |       | —                                  |       | 500,000                                           |       | 0.92                                     |       |
| P.Lynch              |       | —                   |       | —                                  |       | 400,000                                           |       | 0.73                                     |       |

 

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Employee share option plan

 

An employeeshare option plan (ESOP) has been established where the Company may, at thediscretion of the Board, grant options over the ordinary shares of the Companyto directors, executives, advisors and support staff of the Company. Theseoptions, issued for nil consideration, are granted in accordance withperformance guidelines established by the directors of the Company.  The options cannot be transferred and willnot be quoted on the ASX.  There arecurrently 9 directors, 17 employees and 20 scientific advisors and supportstaff who hold options issued under the ESOP.

 

Informationwith respect to the number of options granted under the ESOP is as follows:

 
| ** **                     | ** ** | **Year to June 30, 2008** | ** ** | **Year to June 30, 2007**  | ** ** |
|--------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------|------------|
| ** **                     | ** ** | **Number of  options**                   | ** ** | **Weighted average  exercise price** | ** ** | **Number of  options** | ** ** | **Weighted average  exercise price** | ** ** |
| ** **                     | ** ** | ** **                                    | ** ** | **(A$)**                                       | ** ** | ** ** | ** ** | **(A$)** | ** ** |
| Balance at beginning of period |       | 7,359,500                                     |       | 0.54                                           |       | 6,879,500 |   | 0.54 |   |
| -   granted     |       | 14,116,500                                    |       | 1.00                                           |       | 1,000,000 |   | 0.64 |   |
| -   forfeited   |       | (145,000                                      | )          | 1.02                                           |       | — |   | — |   |
| -   exercised   |       | (910,000                                      | )          | 0.50                                           |       | (520,000 | ) | 0.37 |   |
| Balance at end of period       |       | 20,421,000                                    |       | 0.88                                           |       | 7,359,500 |   | 0.54 |   |
| Exercisable at end of period   |       | 7,779,500                                     |       | 0.52                                           |       | 5,544,500 |   | 0.53 |   |

 

Share optionsissued under ESOP and outstanding at the end of the year have the followingexercise prices:

 
| **Expiry date**   | ** ** | **Exercise price $ ** | ** ** | **Outstanding 2008** | ** ** | **Outstanding 2007** | ** ** |
|------------------------|------------|--------------------------------------|------------|---------------------------|------------|---------------------------|------------|
| March 24, 2010    |       | 1.08                                 | #          | 300,000                   |       | 400,000                   |       |
| March 24, 2010    |       | 0.83                                 | #          | 190,000                   |       | 215,000                   |       |
| March 24, 2010    |       | 0.57                                 | #          | 269,500                   |       | 269,500                   |       |
| March 24, 2010    |       | 0.50                                 |       | —                    |       | 300,000                   |       |
| March 24, 2010    |       | 0.49                                 | #          | 350,000                   |       | 350,000                   |       |
| March 24, 2010    |       | 0.43                                 | #          | 3,520,000                 |       | 3,550,000                 |       |
| March 24, 2010    |       | 0.36                                 | #          | 275,000                   |       | 275,000                   |       |
| May 7, 2010       |       | 0.78                                 | #          | 400,000                   |       | 400,000                   |       |
| June 27,2010      |       | 0.68                                 | #          | 1,000,000                 |       | 1,000,000                 |       |
| June 6, 2012      |       | 0.50                                 |       | —                    |       | 600,000                   |       |
| November 26, 2012 |       | 0.95                                 |       | 2,262,500                 |       | —                    |       |
| November 26, 2012 |       | 0.80                                 |       | 25,000                    |       | —                    |       |
| November 26, 2012 |       | 0.63                                 |       | 90,000                    |       | —                    |       |
| November 26, 2012 |       | 0.47                                 |       | 100,000                   |       | —                    |       |
| November 26, 2012 |       | 0.45                                 |       | 300,000                   |       | —                    |       |
| November 26, 2012 |       | 0.41                                 |       | 300,000                   |       | —                    |       |
| November 27, 2012 |       | 1.22                                 |       | 600,000                   |       | —                    |       |
| November 27, 2012 |       | 0.41                                 |       | 250,000                   |       | —                    |       |
| November 30, 2012 |       | 1.11                                 |       | 4,660,000                 |       | —                    |       |
| November 30, 2012 |       | 1.04                                 |       | 600,000                   |       | —                    |       |
| November 30, 2012 |       | 0.92                                 |       | 15,000                    |       | —                    |       |
| November 30, 2012 |       | 0.91                                 |       | 500,000                   |       | —                    |       |
| November 30, 2012 |       | 0.82                                 |       | 64,000                    |       | —                    |       |
| November 30, 2012 |       | 0.79                                 |       | 500,000                   |       | —                    |       |
| March 26, 2013    |       | 1.22                                 |       | 2,100,000                 |       | —                    |       |
| March 26, 2013    |       | 1.16                                 |       | 250,000                   |       | —                    |       |
| March 26, 2013    |       | 1.11                                 |       | 1,500,000                 |       | —                    |       |

 

Note: Exerciseprices marked # have been reduced by 7 cents reflecting the demerger capitalreduction approved by shareholders at the AGM on November 28, 2007. Thisreduction does not give rise to an alteration in fair value of the award as atthe modification date and therefore no incremental expense in relation to theseawards is to be recognised.

 

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Under Australian Corporate Law all options granted under ESOP todirectors have to be approved by shareholders at General Meeting prior toissue.

 

The following table summarises information about options issued to DrGreg Collier

 
| **Number of options** | ** ** | **Grant date**     | ** ** | **Last Vesting date** | ** ** | **Expiry date**    | ** ** | **Exercise price $** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------------------------------|------------|-------------------------|------------|--------------------------------|------------|
|                            |       |                    |       |                            |       |                    |       |                           |       |
| 100,000                         |       | March 24,2000      |       | March 24,  2003            |       | March 24,  2010    |       | 1.08                           | #          |
| 100,000                         |       | March 8,  2001     |       | March 8,  2004             |       | March, 2010             |       | 0.83                           | #          |
| 300,000                         |       | November 28,  2002 |       | November 28,  2002         |       | March 24,  2010    |       | 0.50                           |       |
| 300,000                         |       | November 21,  2003 |       | November 21,  2003         |       | December 26,  2006 |       | 0.30                           |       |
| 1,000,000                       |       | June 21,  2004     |       | June 21,  2004             |       | March 24,  2010    |       | 0.50                           |       |
| 1,000,000                       |       | June 21,  2004     |       | June 21,  2006             |       | March 24,  2010    |       | 0.50                           |       |
| 500,000                         |       | June 21,  2004     |       | June 21,  2007             |       | March 24,  2010    |       | 0.50                           |       |
| 500,000                         |       | June 21,  2004     |       | June 21,  2008             |       | March 24,  2010    |       | 0.50                           |       |
| 600,000                         |       | November 28,  2007 |       | November 27,  2011         |       | November 27,  2012 |       | 1.22                           |       |
| 600,000                         |       | March 27,  2008    |       | March 26,  2012            |       | March 26,  2013    |       | 1.22                           |       |

 

Following shareholder approval 1,200,000 options were issued to Dr GCollier in 2007/2008. 600,000 on November 28, 2007 and 600,000 on March 27,2008. No options were issued to Dr Collier during the year ended June 30,2007.

 

No options previously issued to Dr Collier were exercised during theyear ended June 30, 2008. (2007: 400,000. The market price for the company’sordinary fully paid share at the date these options were issued was 58 centsfor 300,000 and 80 cents for 100,000.)

 

The following share options issued to Dr Greg Collier remainoutstanding at the end of the year -

 
| **Number of options** | ** ** | **Grant date**     | ** ** | **Last Vesting date** | ** ** | **Expiry date**    | ** ** | **Exercise price $** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------------------------------|------------|-------------------------|------------|--------------------------------|------------|
|                            |       |                    |       |                            |       |                    |       |                           |       |
| 100,000                         |       | March 24,2000      |       | March 24,  2003            |       | March 24,  2010    |       | 1.08                           | #          |
| 100,000                         |       | March 8,  2001     |       | March 8,  2004             |       | March, 2010             |       | 0.83                           | #          |
| 300,000                         |       | November 28,  2002 |       | November 28,  2002         |       | March 24,  2010    |       | 0.43                           | #          |
| 900,000                         |       | June 21,  2004     |       | June 21,  2004             |       | March 24,  2010    |       | 0.43                           | #          |
| 1,000,000                       |       | June 21,  2004     |       | June 21,  2006             |       | March 24,  2010    |       | 0.43                           | #          |
| 500,000                         |       | June 21,  2004     |       | June 21,  2007             |       | March 24,  2010    |       | 0.43                           | #          |
| 500,000                         |       | June 21,  2004     |       | June 21,  2008             |       | March 24,  2010    |       | 0.43                           | #          |
| 600,000                         |       | November 28,  2007 |       | November 27,2011           |       | November 27,  2012 |       | 1.22                           |       |
| 600,000                         |       | March 27,  2008    |       | March 26,  2012            |       | March 26,  2013    |       | 1.22                           |       |

 

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The fair value of the options issued to Dr Collier are estimated at thedate of grant using the Black Scholes Valuation Method. The following tablegives the assumptions made in determining fair value of these options-

 
| **Grant Date** | ** ** | **Dividend  Yield  %** | ** ** | **Expected  Volatility  %** | ** ** | **Risk-free  Interest rate  %** | ** ** | **Expected  Life  (years)** | ** ** | **Exercise  Price  $** | ** ** | **Share Price  at Grant  Date $** | ** ** |
|---------------------|------------|------------------------|------------|-----------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------------------|------------|--------------------------------------------------|------------|
| March, 2000         |       | 0.0                    |       | 75.00                       |       | 6.06                                 |       | 10.00                       |       | 1.15                   |       | 1.75                                             |       |
| March, 2001         |       | 0.0                    |       | 75.00                       |       | 6.06                                 |       | 9.00                        |       | 0.90                   |       | 1.28                                             |       |
| November, 2002      |       | 0.0                    |       | 85.00                       |       | 5.52                                 |       | 7.33                        |       | 0.50                   |       | 0.26                                             |       |
| November, 2003      |       | 0.0                    |       | 65.00                       |       | 5.77                                 |       | 3.0                         |       | 0.30                   |       | 0.53                                             |       |
| June, 2004          |       | 0.0                    |       | 65.00                       |       | 5.77                                 |       | 5.75                        |       | 0.50                   |       | 0.54                                             |       |
| November, 2007      |       | 0.0                    |       | 55.00                       |       | 6.5                                  |       | 5                           |       | 1.22                   |       | 0.94                                             |       |
| March, 2008         |       | 0.0                    |       | 55.00                       |       | 6.5                                  |       | 5                           |       | 1.22                   |       | 0.80                                             |       |

 

When calculating the expected life of the options it is assumed theoptions will not be exercised until the expiry date.

 

The expected volatility rates used reflect the assumption thathistorical volatility is indicative of future trends and may not necessarily bethe actual outcome.

 

The following table summarises information about options issued to DrDennis Brown

 
| **Number of options** | ** ** | **Grant date**     | ** ** | **Last Vesting date** | ** ** | **Expiry date**    | ** ** | **Exercise price $** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------------------------------|------------|-------------------------|------------|--------------------------------|------------|
|                            |       |                    |       |                            |       |                    |       |                           |       |
| 250,000                         |       | November 28,  2007 |       | November 28,  2007         |       | November 27,  2012 |       | 0.41                           |       |
| 1,500,000                       |       | March 27,  2008    |       | March 26,  2012            |       | March 26,  2013    |       | 1.11                           |       |

 

Following shareholder approval 1,750,000 options were issued to DrDrown in 2007/2008. 250,000 on November 28, 2007 and 1,500,000 on March 27,2008. No options were issued to Dr Brown previously.

 

No options issued to Dr Brown have been exercised.

 

The fair value of the options issued to Dr Brown are estimated at thedate of grant using the Black Scholes Valuation Method. The following tablegives the assumptions made in determining fair value of these options-

 
| **Grant Date** | ** ** | **Dividend  Yield  %** | ** ** | **Expected  Volatility  %** | ** ** | **Risk-free  Interest rate  %** | ** ** | **Expected  Life  (years)** | ** ** | **Exercise  Price  $** | ** ** | **Share Price  at Grant  Date $** | ** ** |
|---------------------|------------|------------------------|------------|-----------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------------------|------------|--------------------------------------------------|------------|
| November, 2007      |       | 0.0                    |       | 55.00                       |       | 6.5                                  |       | 5                           |       | 0.41                   |       | 0.94                                             |       |
| March, 2008         |       | 0.0                    |       | 55.00                       |       | 6.5                                  |       | 5                           |       | 1.11                   |       | 0.80                                             |       |

 

When calculating the expected life of the options it is assumed theoptions will not be exercised until the expiry date.

 

The expected volatility rates used reflect the assumption thathistorical volatility is indicative of future trends and may not necessarily bethe actual outcome.

 

The following table summarises information about options issued to DrJulie Cherrington

 

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| **Number of options** | ** ** | **Grant date**  | ** ** | **Last Vesting date** | ** ** | **Expiry date** | ** ** | **Exercise price $** | ** ** |
|---------------------------------|------------|----------------------|------------|---------------------------------|------------|----------------------|------------|--------------------------------|------------|
|                            |       |                 |       |                            |       |                 |       |                           |       |
| 250,000                         |       | March 27,  2008 |       | March 26,  2011            |       | March 26,  2013 |       | 1.16                           |       |

 

Following shareholder approval 250,000 options were issued to DrCherrington on March 27, 2008. No options were issued to Dr Cherringtonpreviously.

 

No options issued to Dr Cherrington have been exercised.

 

The fair value of the options issued to Dr Cherrington are estimated atthe date of grant using the Black Scholes Valuation Method. The following tablegives the assumptions made in determining fair value of these options-

 
| **Grant Date** | ** ** | **Dividend  Yield  %** | ** ** | **Expected  Volatility  %** | ** ** | **Risk-free  Interest rate  %** | ** ** | **Expected  Life  (years)** | ** ** | **Exercise  Price  $ ** | ** ** | **Share Price  at Grant  Date $** | ** ** |
|---------------------|------------|------------------------|------------|-----------------------------|------------|--------------------------------------|------------|-----------------------------|------------|------------------------------|------------|--------------------------------------------------|------------|
| March, 2008         |       | 0.0                    |       | 55.00                       |       | 6.5                                  |       | 5                           |       | 1.16                         |       | 0.80                                             |       |

 

When calculating the expected life of the options it is assumed theoptions will not be exercised until the expiry date.

 

The expected volatility rates used reflect the assumption thathistorical volatility is indicative of future trends and may not necessarily bethe actual outcome.

 

The following table summarises information about options issued to eachof Mr Brett Heading, Mr Elmar Schnee, Mr Dan Janney, Dr Geoff Brook, Dr GeorgeMorstyn and Mr Don Santel

 
| **Number of options** | ** ** | **Grant date**  | ** ** | **Last Vesting date** | ** ** | **Expiry date** | ** ** | **Exercise price $** | ** ** |
|---------------------------------|------------|----------------------|------------|---------------------------------|------------|----------------------|------------|--------------------------------|------------|
|                            |       |                 |       |                            |       |                 |       |                           |       |
| 250,000                         |       | March 27,  2008 |       | March 26,  2010            |       | March 26,  2013 |       | 1.22                           |       |

 

Following shareholder approval 250,000 options each were issued to MrHeading, Mr Schnee, Mr Janney, Dr Brook, Dr Morstyn and Mr Santel on March 27,2008. No options were issued to Mr Heading, Mr Schnee, Mr Janney, Dr Brook, DrMorstyn or Mr Santel previously.

 

None of these options have been exercised.

 

The fair value of the options issued are estimated at the date of grantusing the Black Scholes Valuation Method. The following table gives theassumptions made in determining fair value of these options-

 
| **Grant Date** | ** ** | **Dividend  Yield  %** | ** ** | **Expected  Volatility  %** | ** ** | **Risk-free  Interest rate  %** | ** ** | **Expected Life  (years)** | ** ** | **Exercise Price  $** | ** ** | **Share Price  at Grant Date  $** | ** ** |
|---------------------|------------|------------------------|------------|-----------------------------|------------|--------------------------------------|------------|---------------------------------|------------|----------------------------|------------|--------------------------------------------------|------------|
| March, 2008         |       | 0.0                    |       | 55.00                       |       | 6.5                                  |       | 5                               |       | 1.22                       |       | 0.80                                             |       |

 

When calculating the expected life of the options it is assumed theoptions will not be exercised until the expiry date.

 

The expected volatility rates used reflect the assumption thathistorical volatility is indicative of future trends and may not necessarily bethe actual outcome.

 

During the year ended June 30, 2008 a total of $3,364,695 wasrecognised in the Income Statement as share based expenditure (2007: $436,477)

 

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ESOP options granted as equity compensation benefits to key managementpersonnel during the financial year are disclosed below.

 

The options were issued free of charge. Each option entitles the holder to subscribe for one fully paid ordinaryshare in the entity at exercise prices set out in the table below.

 

The options may only be exercised after the first exercise date andbefore the expiry date as set out in the table below:

** **
| ** **                   | ** ** | ** **         | ** ** | ** **          | ** ** | **Terms & Conditions for Each Grant** | ** ** |
|------------------------------|------------|--------------------|------------|---------------------|------------|--------------------------------------------------------------------|------------|
| ** **                   | ** ** | **Vested  Number** | ** ** | **Granted  Number** | ** ** | **Grant date**                                                | ** ** | **Fair Value  per option  at grant  date ($)** | ** ** | **Exercise  Price  per  share($)** | ** ** | **First Exercise  Date** | ** ** | **Expiry Date** | ** ** |
| **2007/2008**                |       |               |       |                |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Non-executive  Directors** |       |               |       |                |       |                                                               |       |   |   |   |   |   |   |   |   |
| B Heading                    |       | 100,000            |       | 250,000             |       | March 27                                                      |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| E Schnee                     |       | 100,000            |       | 250,000             |       | March 27                                                      |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| D Janney                     |       | 100,000            |       | 250,000             |       | March 27                                                      |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| Dr. G Brooke            |       | 100.000            |       | 250,000             |       | March 27                                                      |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| Dr. G Morstyn           |       | 100,000            |       | 250,000             |       | March 27                                                      |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| D Santel                     |       | 100,000            |       | 250,000             |       | March 27                                                      |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| Dr. J Cherrington       |       | 100,000            |       | 250,000             |       | March 27                                                      |       | 0.36 |   | 1.16 |   | 27/3/2008 |   | 26/3/2013 |   |
| **Executive  Directors**     |       |               |       |                |       |                                                               |       |   |   |   |   |   |   |   |   |
| Dr. G Collier           |       | —             |       | 600,000             |       | November 28                                                   |       | 0.45 |   | 1.22 |   | 27/11/2008 |   | 27/11/2012 |   |
|                         |       |               |       | 600,000             |       | March 27                                                      |       | 0.35 |   | 1.22 |   | 26/3/2009 |   | 26/3/2013 |   |
| Dr. D Brown             |       | 250,000            |       | 250,000             |       | November 28                                                   |       | 0.70 |   | 0.41 |   | 28/11/2007 |   | 27/11/2012 |   |
|                         |       |               |       | 1,500,000           |       | March 27                                                      |       | 0.37 |   | 1.11 |   | 26/3/2009 |   | 26/3/2013 |   |
| **Key Management**           |       |               |       |                |       |                                                               |       |   |   |   |   |   |   |   |   |
| Dr.J. Campbell               |       | 300,000            |       | 300,000             |       | November 27                                                   |       | 0.74 |   | 0.45 |   | 27/11/2007 |   | 26/11/2012 |   |
|                         |       |               |       | 1,200,000           |       | December 1                                                    |       | 0.51 |   | 1.11 |   | 1/12/2008 |   | 30/11/2012 |   |
| E. Merrigan                  |       | 100,000            |       | 100,000             |       | November 27                                                   |       | 0.73 |   | 0.47 |   | 27/11/2007 |   | 26/11/2012 |   |
|                         |       |               |       | 1,500,000           |       | December 1                                                    |       | 0.51 |   | 1.11 |   | 1/12/2008 |   | 30/11/2012 |   |
| Dr. A. Craig            |       | —             |       | 2,262,500           |       | November 27                                                   |       | 0.61 |   | 0.95 |   | 30/6/2009 |   | 26/11/2012 |   |
| T. Herbert                   |       | 150,000            |       | 150,000             |       | November 27                                                   |       | 0.75 |   | 0.41 |   | 27/11/2007 |   | 26/11/2012 |   |
|                         |       |               |       | 400,000             |       | December 1                                                    |       | 0.51 |   | 1.11 |   | 1/12/2008 |   | 30/11/2012 |   |
| E. Humphriss                 |       | 90,000             |       | 90,000              |       | November 27                                                   |       | 0.66 |   | 0.63 |   | 27/11/2007 |   | 26/11/2012 |   |
|                         |       |               |       | 500,000             |       | December 1                                                    |       | 0.51 |   | 1.11 |   | 1/12/2008 |   | 30/11/2012 |   |
| L. Staiger                   |       | —             |       | 500,000             |       | June 6                                                        |       | 0.53 |   | 0.79 |   | 1/12/2008 |   | 30/11/2012 |   |
| T. Trapp                     |       | 100,000            |       | 500,000             |       | June 6                                                        |       | 0.49 |   | 0.91 |   | 1/12/2008 |   | 30/11/2012 |   |
| P. Lynch                     |       | —             |       | 400,000             |       | June 6                                                        |       | 0.46 |   | 1.04 |   | 1/12/2008 |   | 30/11/2012 |   |

 

Under IFRS these fair values are recognizedas expenses in the financial statements when the options were granted after 7 November 2002and vested after 1 July 2005.

 

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## ** **

**ITEM 7.                  MAJORSHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

## ** **

### **A**.                                    Major shareholders

### ** **

As at November 30, 2008 the Company had knowledge of the followingownership interest (direct and beneficial) of 5% or greater in its ordinaryshares:

 
| **Shareholder**                   | ** ** | **Number of shares held** | ** ** | **% of issued shares** | ** ** |
|-----------------------------------|------------|------------------------------------------|------------|---------------------------------------|------------|
| Berne No 132 Nominees Pty Ltd     |       | 41,067,906                               |       | 17.1                                  | %          |
| Stragen International N.V.        |       | 37,235,343                               |       | 15.5                                  | %          |
| Merck Santé                  |       | 20,569,550                               |       | 8.6                                   | %          |
| GBS Venture Partners Ltd          |       | 18,453,883                               |       | 7.7                                   | %          |
| Queensland Investment Corporation |       | 14,283,153                               |       | 6.0                                   | %          |
| Dr. Dennis M. Brown          |       | 13,876,552                               |       | 5.8                                   | %          |

 

Berne No 132Nominees Pty Ltd, which became a shareholder during fiscal 2007, held37,009,671 (19.8%) at October 30, 2007 shares on behalf of Alta Partners,a US based biotech investment manager.

 

MerckSanté held 18,793,750 (10.1%) and 18,793,750 shares (12.4%) at August 31,2006

 

GBS VenturePartners Ltd is an Australian based biotech venture capital company whichbecame a shareholder during fiscal 2007 held 16,629,765 shares (8.9%) at October 30,2007.

 

QueenslandInvestment Corporation is wholly owned by the Government of the State ofQueensland in the Commonwealth of Australia. Queensland Investment Corporationheld 15,158,424 shares (8.1%) at October 30, 2007 and 15,158,424 shares(10.0%) at August 31, 2006.

 

Following themerger with Chemgenex Therapeutics Inc. in 2004 Dennis Brown held 13,876,552(7.4%) at October 30, 2007 and 14,398,297 shares (9.5%) at August 31,2006.

 

KineticInvestment Partners Limited is an Australian based biotech investment managerwhich became a shareholder in fiscal 2007 held 9,459,209 shares (5.1%) at October 30,2007 and ceased to be a major shareholder in fiscal 2008.

 

At November 30,2008 calculation of major shareholders, the issued share capital of the Companywas 239,714,338 ordinary shares.  Themajor shareholders do not have different voting rights.

 

At November 30,2008, the directors of the Company controlled ordinary shares representingapproximately 54.8% of the Company’s outstanding share capital, as follows:

 
| **Directors**               | ** ** | **Number of shares held** | ** ** |
|-----------------------------|------------|------------------------------------------|------------|
|                        |       |                                     |       |
| Brett  Heading              |       | 110,000                                  |       |
| Dr. Gregory  Collier   |       | —                                   |       |
| Elmar Schnee                |       | 20,609,550                               |       |
| Dr. Dennis  Brown      |       | 13,876,552                               |       |
| Dr.Geoff  Brooke            |       | 18,453,883                               |       |
| Dan Janney                  |       | 41,067,906                               |       |
| Dr. George  Morstyn    |       | —                                   |       |
| Don Santel                  |       | —                                   |       |
| Dr. Julie  Cherrington |       | —                                   |       |
| Jean-Luc  Tetard            |       | 37,235,343                               |       |
| **Total**                   |       | 131,532,234                              |       |

 
| **Key Executives** | ** ** | **Number of shares held** | ** ** |
|-------------------------|------------|------------------------------------------|------------|
|                    |       |                                     |       |
| Dr. James Campbell |       | 5,500                                    |       |
| Tina Herbert            |       | 760,027                                  |       |
| Eric Merrigan           |       | 55,000                                   |       |
| **Total**               |       | 820,527                                  |       |

 

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As far as is known to the Company and subject to the disclosureprovided under Item 8B.  “Financialinformation — Significant Changes” the Company is not directly or indirectlyowned or controlled by another corporation or by any government, and there areno arrangements the operation of which may result in a change of its control.

 

### **B.**                                    Related party transactions

### ** **

Legal serviceswere provided by McCullough Robertson lawyers, a legal firm of which Mr. BrettHeading is a partner. The value of legal services provided by McCulloughRobertson lawyers was $173,111 during the year ended June 30, 2008. Duringthe three months from July to September 2008, the value of legalservices provided by McCullough Robertson was $46,928.

 

Mr. Brett Heading is a director of twocompanies that are the joint holders of 5% of the shares of Global MarketsCapital Group LLC (“GMCG”) that provided no advisory and consulting services tothe company during the year ended June 30, 2008 but provided services tothe value of $200,483 (including share-based compensation of $165,924) duringthe year ended June 30, 2007. Mr Heading has no beneficial interest inthese shareholders.

 

As anindividual investor, Mr. Brett Heading holds 110,000 shares in theCompany.

 

Mr. ElmarSchnee is a director of Merck Santé which holds 20,569,550 shares and 4,439,308options exercisable at A$1.25 expiring March 12, 2010 in the Company. Asan individual investor Mr. Schnee holds 40,000 shares in the Company.Merck Santé is party to research and development and commercializationagreements with the Company’s previously 100% owned subsidiary Autogen ResearchPty Ltd.  Under existing agreements MerckSanté was not due to provide, and has not provided research and developmentfunding to ChemGenex Pharmaceuticals Limited or any of its subsidiaries sincefiscal 2007.

 

Dr. Dennis M. Brown is anexecutive director of the Company. As an individual investor Dr. Dennis M.Brown holds 13,876,552 shares.

 

### **C**.                                    Interests of experts and counsel

### ** **

Not applicable.

 

**ITEM 8.                  FINANCIALINFORMATION**

## ** **

### **A**.                                    Consolidated statements and otherfinancial information

### ** **

Reference is made to page F-1. Financial Statements for a list of all financial statements, includingthe notes thereto, and exhibits.

 

*Dividends*

 

The Company does not currently pay dividends.  The payment of future dividends will bedependent upon future earnings, the financial condition of the Company andother factors.  In addition, the Companyexpects to retain a substantial portion of future earnings, if only to financethe growth and development of the business. Accordingly, the Company does not expect to pay dividends in the nearfuture.

 

*Legal matters*

 

The Company is not engaged in any legal orarbitration proceedings.

 

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### **B**.                                    Significant changes

### ** **

On July 23, 2008, followingshareholder approval at an Extraordinary General Meeting held on July 22,2008, the Company issued 37,235,343 ordinary fully paid shares to StragenInternational N.V. The shares were issued as a condition to an IntellectualProperty Assignment Deed under which the Company obtained full commercialcontrol of omacetaxine mepesuccinate (formerly known as Ceflatonin) in Europe.

 

On August 5, 2008 Mr Jean-LucTétard, President of Stragen Pharma SA, became a director of the Company.

 

On September 17, 2008 theCompany announced the placement of 15,216,153 ordinary fully paid shares at 85cents each, raising a total of $12,933,730.These funds will be applied to thecontinued clinical trial program for omacetaxine.

 

On October 13, 2008 theCompany announced that 150,568 shares had been issued under a Share PlacementProgramme to existing shareholders on the same terms as the issue on September 17,2008. These issues brought the total fully paid ordinary shares issued byCompany to 239,714,338.

 

**ITEM 9.                  THEOFFER AND LISTING**

## ** **

### **A**.                                    Offer and listing details

### ** **

**Trading market for ordinary shares and ADRs**

 

The Company’s ordinary shares were listed on the ASX on July 10,1986. The ASX is the principal trading market for the ordinary shares.  The following table sets forth, for theperiods indicated, the highest and lowest market quotations for the ordinaryshares reported on the Daily Official List of the ASX.

 

**Annual high and low market price of ordinary shares and average daily trading volume on ASX for last five full fiscal years**

 
| ** ** | ** ** | ** **                               | ** ** | **High (A$)** | ** ** | **Low (A$)** | ** ** | **Ave. daily trading volume** | ** ** |
|------------|------------|------------------------------------------|------------|--------------------|------------|-------------------|------------|----------------------------------------------|------------|
|       |       |                                     |       |               |       |              |       |                                         |       |
| 2008       |       | July 1,  2007 to June 30, 2008 |       | 1.20               |       | 0.72              |       | 101,666                                      |       |
| 2007       |       | July 1,  2006 to June 30,2007  |       | 1.15               |       | 0.36              |       | 308,041                                      |       |
| 2006       |       | July 1,  2005 to June 30, 2006 |       | 0.72               |       | 0.37              |       | 71,880                                       |       |
| 2005       |       | July 1,  2004 to June 30, 2005 |       | 0.80               |       | 0.43              |       | 95,048                                       |       |
| 2004       |       | July 1,  2003 to June 30, 2004 |       | 0.84               |       | 0.25              |       | 247,578                                      |       |

** **

**Quarterly high and low market price of ordinary shares and average daily trading volume for last two full fiscal years and**

**beyond**

 
| ** **  | ** ** | ** **             | ** ** | **High** | ** ** | **Low**  | ** ** | **Ave. daily trading volume** | ** ** |
|-------------|------------|------------------------|------------|----------|------------|----------|------------|----------------------------------------------|------------|
| ** **  | ** ** | ** **             | ** ** | **(A$)** | ** ** | **(A$)** | ** ** | ** **                                   | ** ** |
| Fiscal 2009 |       | September quarter |       | 1.20     |       | 0.71     |       | 72,233                                       |       |
| Fiscal 2008 |       | June quarter      |       | 1.14     |       | 0.81     |       | 107,414                                      |       |
|        |       | March quarter     |       | 1.05     |       | 0.71     |       | 87,582                                       |       |
|        |       | December quarter  |       | 1.20     |       | 0.95     |       | 102,408                                      |       |
|        |       | September quarter |       | 1.13     |       | 0.72     |       | 109,260                                      |       |
| Fiscal 2007 |       | June quarter      |       | 1.15     |       | 0.78     |       | 171,743                                      |       |
|        |       | March quarter     |       | 0.85     |       | 0.57     |       | 765,478                                      |       |
|        |       | December quarter  |       | 0.66     |       | 0.45     |       | 183,772                                      |       |
|        |       | September quarter |       | 0.55     |       | 0.36     |       | 121,669                                      |       |

 

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**Monthly high and low market price of ordinary shares and average dailytrading volume for last six months**

 
| ** **          | ** ** | **High** | ** ** | **Low**  | ** ** | **Ave. daily trading volume** | ** ** |
|---------------------|------------|----------|------------|----------|------------|----------------------------------------------|------------|
| ** **          | ** ** | **(A$)** | ** ** | **(A$)** | ** ** | ** **                                   | ** ** |
| November 2008  |       | 0.60     |       | 0.41     |       | 135,529                                      |       |
| October 2008   |       | 0.77     |       | 0.45     |       | 53,757                                       |       |
| September 2008 |       | 0.99     |       | 0.71     |       | 44,486                                       |       |
| August 2008    |       | 1.05     |       | 0.95     |       | 80,824                                       |       |
| July 2008      |       | 1.20     |       | 0.93     |       | 89,824                                       |       |
| June 2008      |       | 1.14     |       | 0.90     |       | 205,730                                      |       |

 

As at December 12, 2008 the ordinary shares closed at AUD0.455.

 

At December 12, 2008 the Company had 239,714,338 ordinary sharesissued and outstanding. The shares are without par value. See Item 10B Memorandum and articles of incorporation for adetailed description of the rights attaching to the shares. Also see Item 12A. “AmericanDepositary Shares” for a description of the rights attaching to the ADR.

 

As of November 30, 2008 approximately 10.1 million of the Company’sordinary shares (CXS), 4.2% of the total ordinary shares issued andoutstanding, were held by 83 U.S. residents (based solely on their addresses).

 

As of November 30, 2008 approximately 956,000 of the Company’slisted AUD1.25 options (CXSO), 4.3% of the total listed AUD1.25 options issuedand outstanding, were held by 16 U.S. residents (based solely on theiraddresses).

 

As of November 30, 2008 none of the Company’s listed AUD0.75options (CXSOA) were held by U.S. residents (based solely on their addresses).

 

On December 10, 2002 the Company established a Level 1 ADRprogram, in which the ordinary shares trade in the form of ADSs, which areevidenced by American Depositary Receipts or ADRs, issued by The Bank of NewYork, as Depositary, and registered on Form F-6 pursuant to the U.S.Securities Act of 1933, as amended.

 

The Company’s Level 1 ADR program was upgraded to a Level 2 program on June 28,2005, in connection with the Company’s listing on the NASDAQ Capital Market.One American Depositary Share (“ADS”) represents fifteen ordinary shares.

 

As of December 12, 2008, there were 47,102 ADRs outstanding.

 

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**Annual high and low market price ADR’s and average daily trading volumeon NASDAQ for full fiscal years since listing**

 
| ** ** | ** ** | ** **                              | ** ** | **High (US$)** | ** ** | **Low (US$)** | ** ** | **Ave. daily trading volume** | ** ** |
|------------|------------|-----------------------------------------|------------|---------------------|------------|--------------------|------------|----------------------------------------------|------------|
|       |       |                                    |       |                |       |               |       |                                         |       |
| 2008       |       | July 1, 2007 to June 30, 2008 |       | 25.75               |       | 8.58               |       | 1017                                         |       |
| 2007       |       | July 1, 2006 to June 30, 2007 |       | 14.50               |       | 3.85               |       | 527                                          |       |
| 2006       |       | July 1, 2005 to June 30, 2006 |       | 8.55                |       | 4.12               |       | 1,588                                        |       |

** **

**Quarterly high and low market price of ADRsand average daily trading volume since NASDAQ listing**

 
| ** **  | ** ** | ** **             | ** ** | **High (US$)** | ** ** | **Low (US$)** | ** ** | **Ave.  daily trading volume** | ** ** |
|-------------|------------|------------------------|------------|----------------|------------|---------------|------------|--------------------------------|------------|
| Fiscal 2009 |       | September quarter |       | 24.00          |       | 13.00         |       | 603                            |       |
|        |       | June quarter      |       | 25.75          |       | 11.03         |       | 1,956                          |       |
|        |       | March quarter     |       | 15.03          |       | 10.25         |       | 718                            |       |
|        |       | December quarter  |       | 16.99          |       | 12.45         |       | 606                            |       |
|        |       | September quarter |       | 15.14          |       | 8.58          |       | 786                            |       |
| Fiscal 2007 |       | June quarter      |       | 14.50          |       | 9.20          |       | 913                            |       |
|        |       | March quarter     |       | 9.80           |       | 7.00          |       | 587                            |       |
|        |       | December quarter  |       | 7.90           |       | 5.10          |       | 408                            |       |
|        |       | September quarter |       | 5.61           |       | 3.85          |       | 202                            |       |
| Fiscal 2006 |       | June quarter      |       | 8.25           |       | 4.12          |       | 497                            |       |
|        |       | March quarter     |       | 7.57           |       | 5.15          |       | 1,243                          |       |
|        |       | December quarter  |       | 8.48           |       | 5.49          |       | 3,749                          |       |
|        |       | September quarter |       | 8.55           |       | 6.00          |       | 863                            |       |

 

**Monthly high and low market price ADRs andaverage daily trading volume for the last six months**

 
| ** **          | ** ** | **High (US$)** | ** ** | **Low (US$)** | ** ** | **Ave.  daily trading volume** | ** ** |
|---------------------|------------|----------------|------------|---------------|------------|--------------------------------|------------|
| November 2008  |       | 16.95          |       | 14.20         |       | 147                            |       |
| October 2008   |       | 19.50          |       | 12.50         |       | 191                            |       |
| September 2008 |       | 21.45          |       | 13.00         |       | 500                            |       |
| August 2008    |       | 22.14          |       | 13.73         |       | 476                            |       |
| July 2008      |       | 24.00          |       | 19.00         |       | 823                            |       |
| June 2008      |       | 25.75          |       | 14.50         |       | 4,781                          |       |

 

As at December 12, 2008 ADRs on the NASDAQ Capital Market closedat US$15.88

 

### **B.**                                    Plan of distribution

### ** **

Not applicable.

 

### **C.**                                    Markets

### ** **

The Company’s ordinary shares were listed on the ASX on July 10,1986. The ASX is the principal trading market for the ordinary shares.

 

The Company’s ADRs were listed on the NASDAQ Capital Market on June 28,2005. Each ADR evidences 15 ordinary shares.

 

### **D.**                                    Selling shareholders

### ** **

Not applicable.

 

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### **E.**                                      Dilution

### ** **

Not applicable.

 

### **F.**                                      Expenses of the issue

### ** **

Not applicable.

 

## **ITEM10.**                                              ADDITIONAL INFORMATION

## ** **

### **A.**                                                            Share capital

### ** **

At November 31, 2008 the Company had thefollowing issued securities:

 

239,714,338 ordinary fully paid shares,

 

22,153,637 listed options expiring on March 12,2010 and exercisable at $1.18,

 

10,950,166 listed options expiring on February 8,2012 and exercisable at $0.68, and

 

21,341,896 unlisted ESOP options with variousexercise prices, expiry dates and vesting conditions.

 

Details of listed securities are included asNote 18 in the attached financial statements.

 

Details of unlisted ESOP options are includedas Note 15 in the attached financial statements.

 

### **B.**                                    Memorandum and articlesof incorporation

### ** **

Incorporated by reference to the Company’s Registration Statement on Form 20-F(file no. 0-51373) filed with the Commission on June 23, 2005.

 

### **C.**                                    Material contracts

### ** **

Other than those relating to the ordinary course of business nocontracts have been entered into by the Company within two years immediatelypreceding the date of this document.

 

The Company’s principal commercial collaborations are described underItem 4.B. “Business overview – commercial and research and developmentcollaborations.”

 

### **D.**                                    Exchange controls andother limitations affecting security holders

### ** **

Exchange controls

 

Under existing Australian legislation, the Reserve Bank of Australiadoes not inhibit the import and export of funds, and, generally, no permissionis required to be given to the Company for the movement of funds in and out ofAustralia. However, from time to time, Australian foreign exchange controls areimplemented against prescribed countries, entities and persons. Certaintransactions relating to Iraq, the National Union for the Total Independence ofAngola (UNITA), certain persons associated with the former government of the FederalRepublic of Yugoslavia, and ministers and senior officials of the Government ofZimbabwe are currently prohibited, without the specific prior approval, of theReserve Bank of Australia. Restrictions also apply to transactions, accountsand assets relating to the Taliban, Osama bin Laden, the Al-Qaida organizationand other persons and entities identified as terrorists or sponsors ofterrorism.

 

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Accordingly, at the present time, remittances of any dividends,interest or other payment by the Company to non-resident holders of the Company’ssecurities in the U.S. are not, subject to the above, restricted by exchangecontrols or other limitations.

 

Takeovers Act

 

There are no limitations, either under the laws of Australia or underthe Constitution of ChemGenex Pharmaceuticals Limited, to the right ofnon-residents to hold or vote the Company’s ordinary shares other than theCommonwealth Foreign Acquisitions and Takeovers Act 1975 (the “Takeovers Act”).  The Takeovers Act may affect the right ofnon-Australian residents, including U.S. residents, to hold ordinary shares butdoes not affect the right to vote, or any other rights associated with anyordinary shares held in compliance with its provisions. Acquisitions of sharesin Australian companies by foreign interests are subject to review and approvalby the Treasurer of the Commonwealth of Australia under the Takeovers Act. TheTakeovers Act applies to any acquisition of outstanding shares of an Australiancompany that exceeds, or results in a foreign person or persons controlling thevoting power of more than a certain percentage of those shares. The thresholdsare 15% where the shares are acquired by a foreign person, or group ofassociated foreign persons, or 40% in aggregate in the case of foreign personswho are not associated. Any proposed acquisition that would result in anindividual foreign person (with associates) holding more than 15% must benotified to the Treasurer in advance of the acquisition. At November 31,2008, approximately 15.9% of the Company’s fully paid outstanding ordinaryshares were held by shareholders with addresses outside Australia. In additionto the Takeovers Act, there are statutory limitations in Australia on foreignownership of certain businesses, such as banks and airlines, not relevant tothe Company. However, there are no other statutory or regulatory provisions ofAustralian law or ASX requirements that restrict foreign ownership or controlof the Company.

 

Corporations Act 2001

 

As applied to the Company, the Corporations Act 2001 (the “CorporationsAct 2001”) prohibits any legal person (including a corporation) from acquiringa relevant interest in ordinary shares if after the acquisition that person orany other person’s voting power in the Company increases from 20% or below tomore than 20%, or from a starting point that is above 20% and below 90%.

 

This prohibition is subject to a number of specific exceptions set outin section 611 of the Corporations Act 2001 which must be strictly compliedwith to be applicable.

 

In general terms, a person is considered to have a “relevant interest”in a share in the Company if that person is the holder of that share, has thepower to exercise, or control the exercise of, a right to vote attached to thatshare, or has the power to dispose of, or to control the exercise of a power todispose of that share.

 

It does not matter how remote the relevant interest is or how itarises. The concepts of “power” and “control” are given wide and extendedmeanings in this context in order to deem certain persons to hold a relevantinterest. For example each person who has voting power above 20% in a companywhich in turn holds shares in the Company is deemed to have a relevant interestin those shares. Certain situations (set out in section 609 of the CorporationsAct 2001) which would otherwise constitute the holding of a relevant interestare excluded from the definition.

 

A person’s voting power in the Company is that percentage of the totalvotes attached to ordinary shares in which that person and its associates (asdefined in the Corporations Act 2001) holds a relevant interest.

 

### **E.**                                      Taxation

### ** **

This summary is based on the tax laws of the United States (includingthe Internal Revenue Code of 1986, as amended (the “Code”), its legislativehistory, existing and proposed U.S. Treasury Regulations promulgatedthereunder, published rulings and administrative pronouncements of the InternalRevenue Service (the “IRS”) and judicial decisions) and on the Australian taxlaw and practice, all as in effect on the date hereof. In addition, thissummary is based on the income tax convention between the U.S. and Australia(the “Treaty”). The foregoing laws and legal authorities as well as the Treatyare subject to change (or changes in interpretation), possibly with retroactiveeffect and to differing interpretations. Finally, this summary is based in partupon the representations of 

 

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the Company’s ADR Depositary and the assumption that each obligation inthe Deposit Agreement and any related agreement will be performed in accordancewith its terms.

 

The discussion does not address any aspects of U.S. taxation other thanfederal income taxation or any aspects of Australian taxation other thanfederal income taxation, inheritance taxation, stamp duty and goods andservices tax. This discussion does not address all aspects of U.S. orAustralian federal tax considerations that may be important to particularinvestors in light of their individual investment circumstances or investorssubject to special tax regimes, like broker-dealers, banks or other financialinstitutions, insurance companies, tax-exempt organizations, regulatedinvestment companies, real estate investment trusts or real estate mortgageinvestment conduits, certain former U.S. citizens or residents, persons whoactually or constructively own ten percent or more of the Company’s ADRs orordinary shares, persons who hold ADRs or ordinary shares as part of astraddle, hedge, conversion or constructive sale transaction or otherintegrated transaction for tax purposes, persons who have electedmark-to-market accounting, persons that have a functional currency other thanthe U.S. dollar, persons liable for alternative minimum tax, partnerships andother pass-through entities, or persons who acquired their ADRs or ordinaryshares through the exercise of options or similar derivative securities orotherwise as compensation. This discussion applies only to shares held ascapital assets. Prospective investors are urged to consult their tax advisersregarding the U.S. and Australian federal, state and local tax consequences andany other tax consequences of owning and disposing of ADRs and ordinary shares.

 

***Australian Tax Consequences***

 

In this section the Company discusses Australian tax considerationsthat apply to non-Australian tax residents who are residents of the U.S. withrespect to the ownership and disposal by the absolute beneficial owners ofADRs. This summary does not discuss any foreign or state tax considerations, otherthan stamp duty.

 

**Nature of ADRs for Australian Taxation Purposes**

 

ADRs held by a U.S. Holder will be treated for Australian taxationpurposes as held under a “bare trust” for that holder. Consequently, theunderlying ordinary shares will be regarded as owned by the ADR holder forAustralian income tax and capital gains tax purposes. Dividends paid on theunderlying ordinary shares will also be treated as dividends paid to the ADRholder, as the person beneficially entitled to those dividends. Therefore, inthe following analysis the Company discusses the tax consequences tonon-Australian resident holders of ordinary shares which, for Australiantaxation purposes, will be the same as to U.S. Holders of ADRs.

 

**Taxation of Dividends**

 

Australia operates a dividend imputation system under which dividendsmay be declared to be “franked” to the extent of tax paid on company profits.Fully franked dividends are not subject to dividend withholding tax. Dividendspayable by the Company to non-Australian resident stockholders will be subjectto dividend withholding tax, to the extent the dividends are unfranked.Dividend withholding tax will be imposed at 30%, unless a stockholder is aresident of a country with which Australia has a double taxation agreement. Underthe provisions of the Treaty, the Australian tax withheld on unfrankeddividends paid by the Company to which a resident of the U.S. is beneficiallyentitled is generally limited to 15% if the U.S. resident holds less than 10%of the voting rights of the Company, unless the shares are effectivelyconnected to a permanent establishment or fixed base in Australia through whichthe stockholder carries on business or provides independent personal services,respectively. Where the U.S. resident holds 10% or more of the voting rights ofthe Company, the withholding tax rate is reduced to 5%.

 

**Tax on Sales or other Dispositions of Shares - Capital Gains Tax**

 

Non-Australian resident stockholders will not be subject to Australiancapital gains tax on the gain made on a sale or other disposal of our shares,unless they, together with associates, hold 10% or more of our issued capitalat any time during the five years before the disposal of the shares. If anon-Australian resident stockholder did own a 10% or more interest, thatstockholder would be subject to Australian capital gains tax to the same extentas Australian resident stockholders. The Australian Taxation Office maintainsthe view that the Double Taxation Convention between the U.S. and Australiadoes not limit Australian capital gains tax. Australian capital gains taxapplies to net capital gains at a taxpayer’s marginal tax rate but for certainstockholders a discount of the capital gain may apply if the shares have beenheld for 12 months or more. For individuals, this discount is 50%.  Net capital gains are calculated afterreduction for capital losses, which may only be offset against capital gains.

 

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**Tax on Sales or other Dispositions of Shares - Stockholders HoldingShares on Revenue Account**

 

Some non-Australian resident stockholders may hold shares on revenuerather than on capital account, for example, share traders. These stockholdersmay have the gains made on the sale or other disposal of the shares included intheir assessable income under the ordinary income provisions of the income taxlaw, if the gains are sourced in Australia. Non-Australian resident stockholdersassessable under these ordinary income provisions in respect of gains made onshares held on revenue account would be assessed for those gains at theAustralian tax rates for non-Australian residents, which start at a marginalrate of 29%. Some relief from the Australian income tax may be available tonon-Australian resident stockholders under the Double Taxation Conventionbetween the U.S. and Australia, for example, because the stockholder does nothave a permanent establishment in Australia.

 

To the extent an amount would be included in a non-Australian residentstockholder’s assessable income under both the capital gains tax provisions andthe ordinary income provisions, the capital gain amount would generally bereduced, so that the stockholder would not be subject to double tax on any partof the income gain or capital gain.

 

**Dual Residency**

 

If a stockholder were a resident of both Australia and the U.S. underthose countries’ domestic taxation laws, that stockholder may be subject to taxas an Australian resident. If, however, the stockholder is determined to be aU.S. resident for the purposes of the Double Taxation Convention between theU.S. and Australia, the Australian tax would be subject to limitation by theDouble Taxation Convention. Stockholders should obtain specialist taxationadvice in these circumstances.

 

**Stamp Duty**

 

Any transfer of shares through trading on the ASX, whether byAustralian residents or foreign residents, are not subject to stamp duty withinAustralia.

 

**Australian Death Duty**

 

Australia does not have estate or death duties. No capital gains taxliability is realized upon the inheritance of a deceased person’s shares. Thedisposal of inherited shares by beneficiaries, may, however, give rise to acapital gains tax liability.

 

**Goods and Services Tax**

 

The issue or transfer of shares will not incur Australian goods andservices tax and does not require a stockholder to register for Australiangoods and services tax purposes.

 

***U.S****.****Federal Income Taxation***

 

The following discussion summarizesthe principal U.S. federal income tax considerations relating to the purchase,ownership and disposition of ADRs and ordinary shares. This summary does notdescribe any state, local or non-U.S. tax law considerations, or any aspect ofU.S. federal tax other than income taxation; investors are urged to consulttheir own tax advisers regarding such matters.

 

As used below, a “U.S. Holder” is abeneficial owner of an ADR or ordinary share that is, for U.S. federal incometax purposes, (i) a citizen or resident alien individual of the UnitedStates, (ii) a corporation (or an entity treated as a corporation)organized under the law of the United States, any State thereof or the Districtof Columbia, (iii) an estate, the income of which is subject to U.S.federal income tax without regard to its source or (iv) a trust if (1) acourt within the United States is able to exercise primary supervision over theadministration of the trust, and one or more U.S. persons have the authority tocontrol all substantial decisions of the trust, or (2) the trust has avalid election in effect under applicable U.S. Treasury Regulations to betreated as a U.S. person. For purposes of this discussion, a “non-U.S. Holder”is a beneficial owner of an ADR or ordinary share that is (i) anonresident alien individual, (ii) a corporation (or an entity treated asa corporation) created or organized in or under the law of a country other thanthe United States or a political subdivision thereof or (iii) an estate ortrust that is not a U.S. Holder. If a partnership (including for this purposeany entity treated as a partnership for U.S. federal tax purposes) is abeneficial owner of an ADR or ordinary share, the U.S. federal tax treatment ofthe partner in the partnership generally will depend on the status of thepartner and the activities of the partnership. A holder of an ADR or ordinaryshare that is a partnership and partners in that partnership should consulttheir own tax advisers regarding the U.S. federal income tax consequences ofholding and disposing of ADRs or ordinary shares.

 

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**Natureof ADRs for U.S. Federal Income Tax Purposes**

 

Ingeneral, for U.S. federal income tax purposes, a holder of an ADR will betreated as the owner of the underlying ordinary shares. Accordingly, except asspecifically noted below, the tax consequences discussed below with respect toADRs will be the same for ordinary shares in the Company, and exchanges ofordinary shares for ADRs, and ADRs for ordinary shares, generally will not besubject to U.S. federal income tax.

 

**Taxation ofDividends**

 

*U.S. Holders*. Ingeneral, subject to the passive foreign investment company rules discussedbelow, a distribution on an ADR will constitute a dividend for U.S. federalincome tax purposes to the extent that it is made from the Company’s current oraccumulated earnings and profits as determined under U.S. federal income taxprinciples. If a distribution exceeds the Company’s current and accumulatedearnings and profits, it will be treated as a non-taxable reduction of basis tothe extent of the U.S. Holder’s tax basis in the ADR on which it is paid, andto the extent it exceeds that basis it will be treated as a capital gain. Forpurposes of this discussion, the term “dividend” means a distribution thatconstitutes a dividend for U.S. federal income tax purposes.

 

The gross amount of any dividend onan ADR (which will include the amount of any Australian taxes withheld) will besubject to U.S. federal income tax as foreign source dividend income. Theamount of a dividend paid in Australian dollars will be its value in U.S.dollars based on the prevailing spot market exchange rate in effect on the daythat the U.S. Holder receives the dividend or, in the case of a dividendreceived in respect of an ADR, on the date the Depositary receives it, whetheror not the dividend is converted into U.S. dollars. A U.S. Holder will have atax basis in any distributed Australian dollars equal to its U.S. dollar amounton the date of receipt, and any gain or loss realized on a conversion or otherdisposition of the Australian dollars generally will be treated as U.S. sourceordinary income or loss. If dividends paid in Australian dollars are convertedinto U.S. dollars on the date they are received by a U.S. holder or theDepositary or its agent, as the case may be, the U.S. holder generally shouldnot be required to recognize foreign currency gain or loss in respect of thedividend income.

 

Subject to certain exceptions forshort-term and hedged positions, a dividend a noncorporate U.S. Holder receiveson an ADR before January 1, 2011 will be subject to a maximum tax rate of15% if the dividend is a “qualified dividend.” A dividend will be a qualified dividend if (a) the dividend is paidon an ordinary share and the ordinary shares are readily tradable on anestablished securities market in the United States and (b) the dividend ispaid on an ADR or an ordinary share and the Company iseligible for benefits of a comprehensive income tax treaty with the United Statesthat the Secretary of the Treasury determines is satisfactory for purposes ofthese rules and that includes an exchange of information program, and (ii) theCompany was not, in the year prior to the year the dividend was paid, and isnot, in the year the dividend is paid, a PFIC. The ADRs will be listed on theNASDAQ Capital Market, which should constitute an established securities marketin the United States. In any event, the Treaty satisfies the requirements ofclause (i)(b), and, although the matter is not free from doubt, the Company should be aresident of Australia entitled to the benefits of the Treaty. Based on theCompany’s audited financial statements and relevant market and shareholderdata, the Companybelieves it was not a PFIC for U.S. federal income tax purposes for its June 30, 2007 and June 30. 2008taxable years, nor does it anticipate being classified as a PFIC for its June 30,2009 taxable year. However,because the determination of whether the Company is a PFIC is based upon thecomposition of the income and assets from time to time, there can be noassurances that the Company will not become a PFIC for any future taxable year.In addition, as described in the section below entitled “Passive ForeignInvestment Company Rules,” if the Company were a PFIC in a year while a U.S.Holder held an ADR or ordinary share, and if the U.S. Holder has not made a qualifiedelecting fund election effective for the first year the U.S. Holder held theADR or ordinary share, the ADR or ordinary share remains an interest in a PFICfor all future years or until such an election is made. The IRS takes theposition that that rule will apply for purposes of determining whether an ADRis an interest in a PFIC in the year a dividend is paid or in the prior year,even if the Company does not satisfy the tests to be a PFIC in either of thoseyears. Even if the Company has not been a PFIC in any prior year and is notcurrently a PFIC, because the composition of the Company’s income and assetswill vary over time, there can be no assurance that the Company will not beconsidered a PFIC for any taxable year. Special limitations on foreigntax credits apply to dividends subject to the reduced rate of tax. U.S. Holdersof ADRs and ordinary shares should consult their own tax advisers regarding theavailability of the reduced dividend tax rate in the light of their ownparticular circumstances.

 

Any Australian withholding tax willbe treated as a foreign income tax eligible for credit against a U.S. Holder’sU.S. federal income tax liability, subject to generally applicable limitationsunder U.S. federal income tax law. For purposes of computing those limitationsseparately for specific categories of income, a dividend generally will 

 

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constitute foreign source “passiveincome” or, in the case of certain holders, “financial services income” forpurposes of taxable years beginning before January 1, 2007.  For taxable years beginning after December 31,2006, “passive income” generally will be treated as “passive category income,”and “financial services income” generally will be treated as “general categoryincome.”  A U.S. Holder will be denied aforeign tax credit with respect to Australian income tax withheld fromdividends received on an ADR to the extent the U.S. Holder has not held the ADRfor at least 16 days of the 30-day period beginning on the date which is 15days before the ex-dividend date or to the extent the U.S. Holder is under anobligation to make related payments with respect to substantially similar orrelated property. Any days during which a U.S. Holder has substantiallydiminished its risk of loss on the ADR are not counted toward meeting the16-day holding period required by the statute. The rules relating to thedetermination of the foreign tax credit are complex, and U.S. Holders shouldconsult with their own tax adviser to determine whether and to what extent theywill be entitled to foreign tax credits as well as with respect to thedetermination of the foreign tax credit limitation (including changes in the rules fortaxable years beginning after December 31, 2006).  Alternatively, any Australian withholding taxmay be taken as a deduction against taxable income, provided that the U.S.Holder takes a deduction and not a credit for all foreign income taxes paid oraccrued in the same taxable year. A dividend will not be eligible for thecorporate dividends received deduction.

 

*Non-U.S. Holders*. Adividend paid to a non-U.S. Holder of an ADR will not be subject to U.S. federal income taxunless the dividend is effectively connected with the conduct of trade orbusiness by the non-U.S. Holder within the United States (and is attributable to apermanent establishment or fixed base the non-U.S. Holder maintains in the United States ifan applicable income tax treaty so requires as a condition for the non-U.S.Holder to be subject to U.S. taxation on a net income basis on income from theADR).  A non-U.S. Holder generally willbe subject to tax on an effectively connected dividend in the same manner as aU.S. Holder. A corporate non-U.S. Holder may also be subject under certaincircumstances to an additional “branch profits tax,” the rate of which may bereduced pursuant to an applicable income tax treaty.

 

**Taxation ofCapital Gains**

 

*U.S. Holders*. Subjectto the passive foreign investment company rules discussed below, on a saleor other taxable disposition of an ADR, a U.S. Holder will recognize capitalgain or loss in an amount equal to the difference between the U.S. Holder’sadjusted basis in the ADR and the amount realized on the sale or otherdisposition, each determined in U.S. dollars. Any gain a U.S. Holder recognizesgenerally will be U.S. source income for U.S. foreign tax credit purposes, and,subject to certain exceptions, any loss generally will be a U.S. source loss. IfAustralian tax is withheld on a sale or other disposition of an ADR, the amountrealized will include the gross amount of the proceeds of that sale ordisposition before deduction of the Australian tax. The generally applicablelimitations under U.S. federal income tax law on crediting foreign income taxesmay preclude a U.S. Holder from obtaining a foreign tax credit for anyAustralian tax withheld on a sale of an ADR.

 

In general, any adjusted netcapital gain of an individual in a taxable year beginning before January 1,2011 is subject to a maximum tax rate of 15%. In subsequent years, the maximum tax rate on the net capital gain of anindividual will be 20%.  Thedeductibility of capital losses is subject to limitations.

 

*Non-U.S. Holders.* Anon-U.S. Holder will not be subject to U.S. federal income tax on gainrecognized on a sale or other disposition of an ADR unless (i) the gain iseffectively connected with the conduct of trade or business by the non-U.S.Holder within the United States (and is attributable to apermanent establishment or fixed base that the non-U.S. Holder maintains in theUnited States if an applicable income tax treaty so requires as acondition for the non-U.S. Holder to be subject to U.S. taxation on a netincome basis on income from the ADR), or (ii) in the case of a non-U.S.Holder who is an individual, the holder is present in the UnitedStates for 183 or more days in the taxable year of the sale orother disposition and certain other conditions apply. Any effectively connectedgain of a corporate non-U.S. Holder may also be subject under certaincircumstances to an additional “branch profits tax,” the rate of which may bereduced pursuant to an applicable income tax treaty.

 

**Passive ForeignInvestment Company Rules**

 

A special set of U.S. federalincome tax rules applies to a foreign corporation that is a PFIC for U.S.federal income tax purposes. As noted above, based on the Company’s auditedfinancial statements and relevant market and shareholder data, the Companybelieves it was not a PFIC for U.S. federal income tax purposes for its June 30,2007 and June 30, 2009 taxable years, nor does it anticipate being classified as a PFIC for its June 30,2009 taxable year. However, given that the determination of PFIC statusinvolves the application of complex tax rules, no assurances can be providedthat we will not be considered a PFIC for the current (or any past or future)taxable year.

 

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In general, a foreign corporationis a PFIC if at least 75% of its gross income for the taxable year is passiveincome or if at least 50% of its assets for the taxable year produce passiveincome or are held for the production of passive income.  In general, passive income for this purposemeans, with certain designated exceptions, dividends, interest, rents,royalties (other than certain rents and royalties derived in the active conductof trade or business), annuities, net gains from dispositions of certainassets, net foreign currency gains, income equivalent to interest, income fromnotional principal contracts and payments in lieu of dividends.  The determination of whether a foreigncorporation is a PFIC is a factual determination made annually and is thereforesubject to change.  Subject to exceptionspursuant to certain elections that generally require the payment of tax, oncestock in a foreign corporation is stock in a PFIC in the hands of a particularshareholder that is a United States person, it remains stock ina PFIC in the hands of that shareholder.

 

If the Company is treated as aPFIC, contrary to the tax consequences described in “U.S. Federal Income TaxConsiderations—Taxation of Dividends” and “U.S. Federal Income TaxConsiderations—Taxation of Capital Gains” above, a U.S. Holder that does notmake an election described in the succeeding two paragraphs would be subject tospecial rules with respect to (i) any gain realized on a sale orother disposition of an ADR (for purposes of these rules, a disposition of anADR includes many transactions on which gain or loss is not realized undergeneral U.S. federal income tax rules) and (ii) any “excess distribution” by the Company to the U.S.Holder (generally, any distribution during a taxable year in whichdistributions to the U.S. Holder on the ADR exceed 125% of the average annualtaxable distributions (whether actual or constructive and whether or not out ofearnings and profits) received by the U.S. Holder on the ADR during the precedingthree taxable years or, if shorter, the U.S. Holder’s holding period for theADR).  Under those rules, (i) thegain or excess distribution would be allocated ratably over the U.S. Holder’sholding period for the ADR, (ii) the amount allocated to the taxable yearin which the gain or excess distribution is realized would be taxable asordinary income in its entirety and not as capital gain, would be ineligiblefor the reduced qualified dividend rates, and could not be offset by anydeductions or losses, and (iii) the amount allocated to each prior year,with certain exceptions, would be subject to tax at the highest tax rate ineffect for that year, and the interest charge generally applicable tounderpayments of tax would be imposed in respect of the tax attributable toeach of those years.  A U.S. Holder whoowns an ADR during any year the Company is****a PFIC mayhave to file IRS Form 8621.

 

The special PFIC rules describedabove will not apply to a U.S. Holder if the U.S. Holder makes a timelyelection, which remains in effect, to treat the Company as a “qualifiedelecting fund” (“QEF”) in the first taxable year in which the U.S. Holder ownsan ADR and the Company is a PFIC and if the Company complies with certainreporting requirements.  Instead, ashareholder of a QEF generally is currently taxable on a pro rata share of theCompany’s ordinary earnings and net capital gain as ordinary income andlong-term capital gain, respectively. Neither that ordinary income nor any actual dividend from the Companywould qualify for the 15% maximum tax rate on dividends described above if theCompany is a PFIC in the taxable year the ordinary income is realized or thedividend is paid or in the preceding taxable year.  The Company has****notyet determined whether, if it is a PFIC, it would make the computationsnecessary to supply U.S. Holders with the information needed to report incomeand gain pursuant to a QEF election.  Itis, therefore, possible that U.S. Holders would not be able to make or retainthat election in any year the Company is a PFIC.  Although a QEF election generally cannot berevoked, if a U.S. Holder made a timely QEF election for the first taxable yearit owned an ADR and the Company is a PFIC (or is treated as having done sopursuant to any of certain elections), the QEF election will not apply duringany later taxable year in which the Company does not satisfy the tests to be aPFIC.  If a QEF election is not made inthat first taxable year, an election in a later year generally will require thepayment of tax and interest.

 

In lieu of a QEF election, a U.S.Holder of stock in a PFIC that is considered marketable stock could elect tomark the stock to market annually, recognizing as ordinary income or loss eachyear an amount equal to the difference as of the close of the taxable yearbetween the fair market value of the stock and the U.S. Holder’s adjusted basisin the stock.  Losses would be allowedonly to the extent of net mark-to-market gain previously included in income bythe U.S. Holder under the election for prior taxable years.  A U.S. Holder’s adjusted basis in the ADRswill be adjusted to reflect the amounts included or deducted with respect tothe mark-to-market election.  If themark-to-market election were made, the rules set forth in the secondpreceding paragraph would not apply for periods covered by the election.  A mark-to-market election will not applyduring any later taxable year in which the Company does not satisfy the teststo be a PFIC.  In general, the ADRs willbe marketable stock if the ADRs are traded, other than in *de minimis*quantities, on at least 15 days during each calendar quarter on a nationalsecurities exchange that is registered with the SEC or on a designated nationalmarket system or on any exchange or market that the Treasury Departmentdetermines to have rules sufficient to ensure that the market priceaccurately represents the fair market 

 

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value of the stock. NASDAQ (whichshould include the NASDAQ Capital Market) is a qualified exchange within themeaning of the applicable Treasury regulations. The ADRs will be listed on theNASDAQ Capital Market. Thus, the ADRs should be considered “marketable stock”for this purpose.

 

**InformationReporting and Backup Withholding**

 

Dividends paid on, and proceedsfrom the sale or other disposition of, an ADR to a U.S. Holder generally may besubject to information reporting requirements and may be subject to backupwithholding (currently at the rate of 28%) unless the U.S. Holder provides anaccurate taxpayer identification number or otherwise demonstrates that they areexempt.  The amount of any backupwithholding collected from a payment to a U.S. Holder will be allowed as acredit against the U.S. Holder’s U.S. federal income tax liability and mayentitle the U.S. Holder to a refund, provided that certain required informationis submitted to the IRS.  A non-U.S.Holder generally will be exempt from these information reporting requirementsand backup withholding tax but may be required to comply with certain certificationand identification procedures in order to establish its eligibility forexemption.

 

**The discussion above is not intended to constitute a complete analysisof all tax considerations applicable to an investment in ADRs or ordinaryshares.  Holders and potential holdersshould consult their tax adviser(s) concerning the tax consequencesrelevant to them in their particular situation.**

 

### **F.             Dividendsand paying agents**

### ** **

Not applicable

 

### **G.            Statementby experts**

### ** **

Not applicable

 

### **H.            Documentson display**

### ** **

This Annual Report on Form 20-F and any related documents may beinspected by investors at the Company’s headquarters at Level 4, 199 MooraboolStreet, Geelong,, Victoria, Australia or at the public reference room of theSEC located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,Washington DC 20549, at prescribed rates. The Company is subject to the information requirements of the U.S.  Securities Exchange Act of 1934, as amended,and, in accordance therewith, is required to file reports, including annualreports on Form 20-F, and other information with the U.S. Securities andExchange Commission in electronic form. More information concerning the public reference room of the SEC can beobtained by calling the SEC at 1-800-SEC-0330. The SEC filings of the Company are available to the public fromcommercial document retrieval services and at the website maintained by the SECat www.sec.gov.  The Company alsomaintains a website at www.chemgenex.com. Information on the Company’s website and websites linked to it do notconstitute part of this Annual Report.

 

### **I.              Subsidiaryinformation**

### ** **

Not applicable

 

## **ITEM11.               QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

## ** **

TheCompany has exposure to changes in foreign currency exchange rates and interestrates. The Company does not utilize derivative financial instruments or otherfinancial instruments subject to market risk.

 

****Foreigncurrency exchange rates****

 

Theprincipal currency of the Company is the Australian dollar. Cash to fundworking capital requirements is managed centrally in Australia and held inAustralian dollars.

 

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The following table shows the sensitivity of the Company’s2007/2008 earnings as a result of an appreciation or depreciation in the valueof the June 30, 2008 exchange rate of the Australian dollar against the USdollar (for commitments for expenditure existing at June 30, 2008).

 
| **** **** | **** **** | ****A$ Depreciation**** | ** **     | ** **   | ** **     | ****A$ Appreciation**** | ** ** |
|----------------|----------------|------------------------------|----------------|--------------|----------------|------------------------------|------------|
| **** **** | **** **** | ****-15%****                 | **** **** | ****-10%**** | **** **** | ****-5%****                  | ** ** | **0%** | **** **** | ****5%**** | **** **** | ****10%**** | **** **** | ****15%**** | **** **** |
| US $           |           | (1,106,247                   | )              | (636,929     | )              | (368,749                     | )          | — |   | 368,749 |   | 636,929 |   | 1,106,247 |   |

 

The following table shows the sensitivity of the Company’s2006/2007 earnings as a result of an appreciation or depreciation in the valueof the June 30, 2007 exchange rate of the Australian dollar against the USdollar (for commitments for expenditure existing at June 30, 2007).

 
| **** **** | **** **** | ****A$ Depreciation**** | ** **     | ** **   | ** **     | ****A$ Appreciation**** | ** ** |
|----------------|----------------|------------------------------|----------------|--------------|----------------|------------------------------|------------|
| **** **** | **** **** | ****-15%****                 | **** **** | ****-10%**** | **** **** | ****-5%****                  | ** ** | **0%** | **** **** | ****5%**** | **** **** | ****10%**** | **** **** | ****15%**** | **** **** |
| US $           |           | (528,314                     | )              | (334,599     | )              | (193,715                     | )          | — |   | 193,715 |   | 334,599 |   | 528,314 |   |

 

Details of the Company’s approach to financial risk management is setout in Note 19 of the attached financial statements.

 

****Interestrates****

 

Cash, held in call and short-term deposit accounts at the NationalAustralia Bank Limited and Greater Bay Bank are subject to variable interestrates. The Company does not consider its exposure to interest rates to besignificant.

 

## **ITEM12.               DESCRIPTIONOF SECURITIES OTHER THAN EQUITY SECURITIES**

## ** **

### **A             DebtSecurities**

### ** **

Not applicable.

 

### **B             Warrantsand Rights**

### ** **

Not applicable.

 

### **C             OtherSecurities**

### ** **

Not applicable.

 

### **D             AmericanDepositary Shares**

### ** **

Not applicable.

 

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# **PART II**

# ** **

## **ITEM13.               DEFAULTS,DIVIDEND ARREARAGES AND DELINQUENCIES**

## ** **

None.

 

## **ITEM14.               MATERIALMODIFICATIONS TO THE RIGHT OF SECURITY HOLDERS AND USE OF PROCEEDS**

## ** **

None.

 

## **ITEM15.               CONTROLSAND PROCEDURES**

## ** **

### **A.            Disclosure Controls and Procedures**

### ** **

As of 30 June 2008 (the “Evaluation Date”), our management,including our Chief Executive Officer and Chief Financial Officer, carried outan evaluation of the effectiveness of our disclosure controls and procedures,as defined in Rules 13(a)-15(e) and 15(d)-15(e) under theExchange Act. Based on that evaluation, we concluded that, as of the EvaluationDate, our disclosure controls and procedures were sufficient to providereasonable assurance that information required to be disclosed by us in thereports that we file or submit under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the applicable rules andforms, and that it is accumulated and communicated to our management, includingour Chief Executive Officer and Chief Financial Officer, as appropriate, toallow timely decisions regarding required disclosure.

 

### **B.            Management’s Annual Report onInternal Control over Financial Reporting**

### ** **

As required by section 404 of the Sarbanes-Oxley Act of 2002, ourmanagement is responsible for establishing and maintaining adequate internalcontrol over financial reporting, as defined in Rule 13a-15(f) underthe Exchange Act. Our system of internal control over financial reporting wasdesigned to provide reasonable assurance to our management and Audit Committeeof the reliability of our financial reporting and the preparation of publishedfinancial statements in accordance with generally accepted accountingprinciples.

 

Our Board of Directors conducted an evaluation of the effectiveness ofour internal control over financial reporting as of 30 June 2008 based onthe framework in Internal Control—Integrated Framework, which is issued by theCommittee of Sponsoring Organizations of the Treadway Commission (“COSO”).Internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and dispositions of theassets of the company; (2) provide reasonable assurance that transactionsare recorded as necessary to permit the preparation of financial statements inaccordance with generally accepted accounting principles and that receipts andexpenditures of the company are being made only in accordance with authorizationsof our Board of Directors; and (3) provide reasonable assurance regardingprevention or timely detection of unauthorized acquisition, use or dispositionof the company’s assets that could have a material effect on the financialstatements.

 

Based on this criteria, our management concluded that, as of 30 June 2008,our internal control over financial reporting was effective.

 

All internal control systems, no matter how well designed, haveinherent limitations, including the possibility of human error and thecircumvention or overriding of the controls and procedures which may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions.

 

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### **C.            Attestation Report of the RegisteredPublic Accounting Firm**

### ** **

**Reportof Independent Registered Public Accounting Firm**

** **

**TheBoard of Directors and Shareholders of ChemGenex Pharmaceuticals Limited**

** **

We have auditedChemGenex Pharmaceuticals Limited ‘s internal control over financial reportingas of June 30, 2008, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission (the COSO criteria).ChemGenex Pharmaceutical Limited’s management is responsible for maintainingeffective internal control over financial reporting, and for its assessment ofthe effectiveness of internal control over financial reporting included in theaccompanying Management’s Annual Report on Internal Control Over FinancialReporting. Our responsibility is to express an opinion on the company’sinternal control over financial reporting based on our audit.

 

We conducted our auditin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform the auditto obtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessedrisk, and performing such other procedures as we considered necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinion.

 

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

Inour opinion, ChemGenex Pharmaceutical Limited maintained, in all materialrespects, effective internal control over financial reporting as of June 30,2008, based on****the COSO criteria**.**

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheets of ChemGenex Pharmaceuticals Limited as of June 30,2008 and 2007 and the related consolidated statements of income, shareholders’equity and cash flows for each of the three years in the period ended June 30,2008 of ChemGenex Pharmaceuticals Limited and our report dated December 23,2008 expressed an unqualified opinionthereon.

 
| /s/ Ernst & Young |   |
|----------------------------|--------|

Ernst & Young

 

Melbourne,Australia

December 23,2008

 

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### **D.            Changes in Internal Control overFinancial Reporting**

### ** **

There were no significant changes in our internal controls or in otherfactors that could significantly affect these controls and proceduressubsequent to the date our chief executive officer and our chief financialofficer completed their evaluation, nor were there any significant deficienciesor material weaknesses in our internal controls and procedures requiringcorrective actions, other than those described above.

 

There were no changes in our internal control over financial reportingduring the period covered by this annual report that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

## **ITEM16A.            AUDIT COMMITTEE FINANCIALEXPERT**

## ** **

The Board of Directors of the Company has determined that DonaldSantel, an independent member of its Board of Directors and a member of itsAudit Committee, is an audit committee financial expert within the meaning ofthe Sarbanes-Oxley and related regulations.

 

## **ITEM16B.            CODE OF ETHICS**

## ** **

We have adopted a Code of Ethics that applies to all of the Company’semployees, including our principal executive officer, principal financialofficer, principal accounting officer or controller. The Code can be downloadedat our website (www.chemgenex.com). Additionally, any person, upon request, canask for a hard copy or electronic file of such Code. If we make any substantiveamendment to the Code of Ethics or grant any waivers, including any implicitwaiver, from a provision of the Code of Ethics, we will disclose the nature ofsuch amendment or waiver on our website. During the year ended June 30,2008, no such amendment was made or waiver granted

 

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## **ITEM16C.            PRINCIPAL ACCOUNTANT FEESAND SERVICES**

## ** **

For purposes of this Form 20-F Annual Report and other SECfilings, the Company’s independent registered public accounting firm is Ernst &Young.  For statutory reporting purposesand filings with the ASX and ASIC in Australia, the Company’s auditor is Ernst &Young.

 

The followingtable sets forth the fees billed to us by our statutory auditor, Ernst &Young, for the years ended June 30, 2008, 2007, and 2006, respectively:

 
| **Ernst & Young** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Audit fees                      |       | 358,500  |       | 269,435  |       | 212,325  |       |
| Tax fees                        |       | 116,593  |       | —   |       | —   |       |
| All other fees                  |       | —   |       | —   |       | —   |       |
| Total                           |       | 475,093  |       | 269,435  |       | 212,325  |       |

 

Ernst & Young received or are due to receive the followingamounts for the provision of non-audit services-

 
| ** **                                           | ** ** | **$**   | ** ** |
|------------------------------------------------------|------------|---------|------------|
| Taxation advice relating Demerger  Class ruling |       | 106,593 |       |
| International taxation advice                        |       | 10,000  |       |
|                                                 |       | 116,593 |       |

 

***Audit Committee Pre-Approval Policies and Procedures***

 

The Company’sBoard of Directors has established pre-approval policies and procedures for theengagement of its independent registered public accounting firms for all auditand non-audit services.

 

The AuditCommittee reviews the scope of all the services to be provided, before theircommencement, in order to ensure that there are no independence issues and theservices are not prohibited services as defined by Sarbanes-Oxley Act of 2002.

 

## **ITEM16D.            EXEMPTIONS FROM THELISTING STANDARDS FOR AUDIT COMMITTEES**

## ** **

Not applicable.

 

## **ITEM16E.            PURCHASES OF EQUITYSECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS**

## ** **

Not applicable.

 

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# **PART III**

# ** **

## **ITEM17.               FINANCIALSTATEMENTS**

## ** **

Refer to page F-1 for an index of all Financial Statements.

 

## **ITEM18.               FINANCIALSTATEMENTS**

## ** **

The Company has chosen to respond to Item 17 in lieu of responding tothis Item.

 

## **ITEM19.               EXHIBITS**

## ** **

The following documents are filed as exhibits to this Annual Report on Form 20-F:

 

1.                                     Constitutionof the Registrant #.

 

2.                                     DepositAgreement, dated as of December 6, 2002, by and among Autogen Limited, TheBank of New York, as Depositary, and the Owners and Holders of AmericanDepositary Receipts (such agreement is incorporated herein by reference to theRegistration Statement on Form F-6 relating to the ADSs (File No. 333-101016)filed with the Commission on November 1, 2002)

 

3.               Material Contracts:

 

Intellectual Property Assignment Deed between ChemGenex PharmaceuticalsLimited and Stragen Group Companies dated May 29, 2008.

 

3.1   Service Contracts ofDirectors

 

(a)                                  EmploymentAgreement of  Dr. Gregory R. Collierdated July 1, 2007.

 

(b)                                 EmploymentAgreement of Dr. Dennis M. Brown dated November 30, 2007.

 

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3.2                                OtherContracts

 
| (a)    |   | Sponsored Clinical Study Agreement dated April 14, 2003 between  The University of Texas M.D. Anderson Cancer Center and ChemGenex  Therapeutics, Inc., as amended by Amendment No. 1 dated  November 18, 2004.* # |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                   |
| (b)    |   | Research, Licence and Commercialisation Agreement dated  April 21, 2005 between ChemGenex Pharmaceuticals Limited and Deakin  University. #                                                                                       |
|   |   |                                                                                                                                                                                                                                   |
| (c)    |   | HHT Development and Commercialisation Agreement dated June 27,  2005 between ChemGenex Pharmaceuticals Limited, Stragen Investment B.V. and  Stragen Pharma S.A.*+                                                                |
|   |   |                                                                                                                                                                                                                                   |
| (d)    |   | HHT Supply and Distribution Agreement dated June 27, 2005  between ChemGenex Pharmaceuticals Limited and Stragen Investment B.V.*+                                                                                                |
|   |   |                                                                                                                                                                                                                                   |
| 12.01  |   | Certification by the Company’s Chief Executive Officer required by  Item 15.                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                   |
| 12.02  |   | Certification by the Company’s Chief Financial Officer required by  Item 15.                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                   |
| 13.01  |   | Certification pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                   |
| 13.02  |   | Certification pursuant to 18 U.S.C. Section 1350.                                                                                                                                                                                 |

 

----

# Incorporated by reference to the Company’s Registration Statement on Form 20-F(file no. 0-51373) filed with the Commission on June 23, 2005

 

+ Incorporated by reference to the Company’s Annual Report on Form 20-F(file no. 0-51373) filed with the Commission on December 19, 2005.

 

* Certain provisions of this exhibit have been omitted and filedseparately with the Commission pursuant to an application for confidentialtreatment under Rule 24b-2 promulgated under the Securities Exchange Actof 1934, as amended.

 

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**SIGNATURES**

 

The registrant hereby certifies that it meets all of the requirementsfor filing on Form 20-F and that it has duly caused and authorized theundersigned to sign this Annual Report on its behalf.

 

 

**CHEMGENEX PHARMACEUTICALS LIMITED**

 
|   | /s/ Greg Collier                              |   |
|--------|-----------------------------------------------|--------|
| By:    | Greg Collier                                  |   |
| Name:  | Greg Collier                                  |   |
| Title: | Chief Executive Officer and Managing Director |   |
| Date:  | December 30, 2008                        |   |

 

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CHEMGENEX PHARMACEUTICALS LIMITED— IFRSFINANCIAL STATEMENTS

 

### **Contents**

 
| **Report  of Independent Registered Public Accounting Firm**                                           | **F-2**    |
|--------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                             | ** ** |
| **Consolidated Income  Statements for the Years Ended June, 2008, 2007 and 2006**                      | **F-3**    |
| ** **                                                                                             | ** ** |
| **Consolidated Balance  Sheets as of June 30, 2008 and 2007**                                     | **F-4**    |
| ** **                                                                                             | ** ** |
| **Consolidated Cash  Flow Statements for the Years Ended June30, 2008, 2007 and 2006**                 | **F-5**    |
| ** **                                                                                             | ** ** |
| **Consolidated Statement of Changes in Equity for the  Years Ended June 30, 2008, 2007 and 2006** | **F-6**    |
| ** **                                                                                             | ** ** |
| **Notes to the Consolidated Financial Statements**                                                     | **F-7**    |

 

F-1

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED— IFRSFINANCIAL STATEMENTS

 

### **Income Statement**

 

**Report of Independent Registered Public Accounting Firm**

 

The Board of Directors and Shareholders of ChemGenex PharmaceuticalsLimited

 

We haveaudited the accompanying consolidated balance sheets of ChemGenex PharmaceuticalsLimited and its controlled entities (the Company) as of June 30, 2008 and2007, and the related consolidated income statements, shareholders’ equity andcash flows for each of the three years in the period ended June 30,2008.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements.  An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In ouropinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of ChemGenexPharmaceuticals Limited and its controlled entities at June 30, 2008 and2007 and the consolidated results of their operations and their cash flows foreach of the three years in the period ended June 30, 2008 in conformitywith International Financial Reporting Standards as issued by the InternationalAccounting Standards Board.

 

We also haveaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), ChemGenex Pharmaceuticals Limited’sinternal control over financial reporting as of June 30, 2008, based oncriteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our reportdated December 23, 2008expressed an unqualified opinionthereon.

 

Theaccompanying consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern. As more fully described in Note2, the Company has incurred recurring operating losses and negative cash flowsfrom operating activities.  To fund theexpected levels of operating expenditures, the Company will require additionalsources of capital.  While the Companyhas previously been successful in raising additional capital, there can be noassurance that it will be able to raise sufficient capital to continue its operations.  These conditions raise substantial doubtabout the Company’s ability to continue as a going concern.  Management’s plans in regard to these mattersalso are discussed in Note 2.  The 2008consolidated financial statements do not include any adjustments toreflect the possible future effects on the recoverability and classification ofassets or the amounts and classification of liabilities that may result fromthe outcome of this uncertainty.

 

 
| /s/ Ernst &  Young |   |
|-----------------------------|--------|
| Ernst &  Young     |
|                        |
| Melbourne,  Australia       |
| December 23,  2008     |

 

F-2

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED— IFRSFINANCIAL STATEMENTS

 

**IncomeStatement**

 
| **FOR THE YEAR ENDED JUNE 30**      | ** ** | **Notes**  | ** ** | **2008**        | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|--------------------------------------------------------------|------------|------------|------------|-----------------|------------|-------------|------------|-------------|------------|
| ** **                                                   | ** ** | ** ** | ** ** | **A$**          | ** ** | **A$**      | ** ** | **A$**      | ** ** |
| **Continuing Operations**                                    |       |       |       |            |       |        |       |        |       |
| ** **                                                   |       |       |       |            |       |        |       |        |       |
| **Revenue**                                                  |       |       |       |            |       |        |       |        |       |
|                                                         |       |       | ** ** | ** **      |       |        |       |        |       |
| Finance  income                                              |       | 5(b)       |       | **1,055,093**   | ** ** | 862,096     |       | 241,634     |       |
| ** **                                                   |       |       |       | **1,055,093**   | ** ** | 862,096     |       | 241,634     |       |
| Research  expenditure                                        |       | 5(d)       |       | **(9,233,641**  | **)**      | (4,320,602  | )          | (3,325,103  | )          |
| **Gross loss**                                               | ** ** | ** ** |       | **(8,178,548**  | **)**      | (3,458,506  | )          | (3,083,469  | )          |
|                                                         |       |       |       |            | ** ** |        |       |        |       |
| Other  income                                                |       | 5(a)       |       | **1,648,681**   | ** ** | 815,637     |       | —      |       |
| Administration  costs                                        | ** ** | ** ** |       | **(1,824,775**  | **)**      | (1,645,590  | )          | (892,857    | )          |
| Employee  benefits expense                                   |       | 5(c)       |       | **(7,298,615**  | **)**      | (2,517,915  | )          | (2,710,341  | )          |
| Patent  expense                                              | ** ** | ** ** |       | **(406,783**    | **)**      | (310,189    | )          | (232,433    | )          |
| Legal  expense                                               | ** ** | ** ** |       | **(210,971**    | **)**      | (66,434     | )          | (114,416    | )          |
| Depreciation                                                 |       | 12         |       | **(113,773**    | **)**      | (271,344    | )          | (272,198    | )          |
| Travel  expense                                              | ** ** | ** ** |       | **(445,703**    | **)**      | (101,409    | )          | (152,751    | )          |
| Accounting  and audit expense                                | ** ** | ** ** |       | **(568,228**    | **)**      | (298,526    | )          | (380,259    | )          |
| **Loss from continuing operations before tax**               | ** ** | ** ** |       | **(17,398,715** | **)**      | (7,854,276  | )          | (7,838,724  | )          |
| Income  tax (expense)/benefit                                |       | 6          |       | **34,542**      | ** ** | (321,504    | )          | —      |       |
| **Loss from continuing operations after tax**                | ** ** | ** ** |       | **(17,364,173** | **)**      | (8,175,780  | )          | (7,838,724  | )          |
| **Discontinued Operations**                                  |       |       |       |            | ** ** |        |       |        |       |
| Profit/(loss)  from discontinued operations after income tax |       | 4(b)       |       | **10,944,247**  | ** ** | (3,525,139  | )          | (2,530,995  | )          |
| **Loss attributable to members of the parent**               | ** ** | ** ** |       | **(6,419,926**  | **)**      | (11,700,919 | )          | (10,369,719 | )          |
| ** **                                                   |       |       |       |            | ** ** |        |       |        |       |
| **Continuing Operations**                                    |       |       |       |            | ** ** |        |       |        |       |
| Basic  loss per share (cents per share)                      |       | 7          |       | **(9.30**       | **)**      | (5.04       | )          | (6.66       | )          |
| Diluted  loss per share (cents per share)                    |       | 7          |       | **(9.30**       | **)**      | (5.04       | )          | (6.66       | )          |
| ** **                                                   |       |       |       |            | ** ** |        |       |        |       |
| **Discontinued Operations**                                  |       |       |       |            | ** ** |        |       |        |       |
| Basic  loss per share (cents per share)                      |       | 7          |       | **5.86**        | ** ** | (2.17       | )          | (2.15       | )          |
| Diluted  loss per share (cents per share)                    |       | 7          |       | **4.55**        | ** ** | (2.17       | )          | (2.15       | )          |
| ** **                                                   |       |       |       |            | ** ** |        |       |        |       |
| **Net Loss attributable to members of the Parent**           |       |       |       |            | ** ** |        |       |        |       |
| Basic  loss per share (cents per share)                      |       | 7          |       | **(3.44**       | **)**      | (7.21       | )          | (8.81       | )          |
| Diluted  loss per share (cents per share)                    |       | 7          |       | **(3.44**       | **)**      | (7.21       | )          | (8.81       | )          |

 

F-3

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED— IFRSFINANCIAL STATEMENTS

 

**BalanceSheet**

 
| **AS AT JUNE 30**                     | ** ** | **Notes**  | ** ** | **2008**        | ** ** | **2007**    | ** ** |
|------------------------------------------------------|------------|------------|------------|-----------------|------------|-------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **A$**          | ** ** | **A$**      | ** ** |
| **CURRENT ASSETS**                                   |       |       | ** ** | ** **      |       |        |       |
| Cash  and cash equivalents                           |       | 9          | ** ** | **10,081,629**  | ** ** | 25,366,562  |       |
| Trade  and other receivables                         |       | 10         | ** ** | **—**      | ** ** | 18,000      |       |
| Prepayments                                          |       |       | ** ** | **575,936**     | ** ** | 363,251     |       |
| **TOTAL CURRENT ASSETS**                             |       |       | ** ** | **10,657,565**  | ** ** | 25,747,813  |       |
| **NON-CURRENT ASSETS**                               |       |       | ** ** | ** **      | ** ** |        |       |
| Investment  in controlled entities                   |       | 11         | ** ** | **—**      | ** ** | —      |       |
| Plant  and equipment                                 |       | 12         | ** ** | **355,462**     | ** ** | 81,546      |       |
| Intangible  assets and goodwill                      |       | 13         | ** ** | **16,931,750**  | ** ** | 16,931,750  |       |
| **TOTAL NON-CURRENT ASSETS**                         |       |       | ** ** | **17,287,212**  | ** ** | 17,013,296  |       |
| **TOTAL ASSETS**                                     |       |       | ** ** | **27,944,777**  | ** ** | 42,761,109  |       |
|                                                 |       |       | ** ** | ** **      | ** ** |        |       |
| **CURRENT LIABILITIES**                              |       |       | ** ** | ** **      | ** ** |        |       |
| Trade  and other payables                            |       | 16         | ** ** | **3,061,974**   | ** ** | 2,445,238   |       |
| Deferred  revenue                                    |       |       | ** ** | **—**      | ** ** | 165,688     |       |
| Employee  entitlements                               |       | 17         | ** ** | **302,510**     | ** ** | 231,284     |       |
| Provision  for income tax                            |       |       | ** ** | —          | ** ** | 16,079      |       |
| **TOTAL CURRENT LIABILITIES**                        |       |       | ** ** | **3,364,484**   | ** ** | 2,858,289   |       |
| **NON-CURRENT LIABILITIES**                          |       |       | ** ** | ** **      | ** ** |        |       |
| Employee  entitlements                               |       | 17         | ** ** | **70,927**      | ** ** | 33,222      |       |
| **TOTAL NON-CURRENT LIABILITIES**                    |       |       | ** ** | **70,927**      | ** ** | 33,222      |       |
| **TOTAL LIABILITIES**                                |       |       | ** ** | **3,435,411**   | ** ** | 2,891,511   |       |
|                                                 |       |       | ** ** | ** **      | ** ** |        |       |
| **NET ASSETS**                                       |       |       | ** ** | **24,509,366**  | ** ** | 39,869,598  |       |
| **EQUITY**                                           |       |       | ** ** | ** **      | ** ** |        |       |
| Equity  attributable to equity holders of the parent |       |       | ** ** | ** **      | ** ** |        |       |
| Issued  capital                                      |       | 18         | ** ** | **108,999,144** | ** ** | 120,773,060 |       |
| Retained  losses                                     |       |       | ** ** | **(99,143,847** | **)**      | (92,723,921 | )          |
| Other  reserves                                      |       | 18         | ** ** | **14,654,069**  | ** ** | 11,820,459  |       |
| **TOTAL EQUITY**                                     |       |       | ** ** | **24,509,366**  | ** ** | 39,869,598  |       |

 

F-4

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Table of Contents

 

CHEMGENEXPHARMACEUTICALS LIMITED— IFRS FINANCIAL STATEMENTS

 

**CashFlow Statement**

 
| **FOR THE YEAR ENDED JUNE 30** | ** ** | **Notes**  | ** ** | **2008**        | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------|------------|-------------|------------|-------------|------------|
| ** **                                              | ** ** | ** ** | ** ** | **A$**          | ** ** | **A$**      | ** ** | **A$**      | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES**                |       |       |       |            |       |        |       |        |       |
|                                                    | ** ** | ** ** |       | ** **      |       |        |       |        |       |
| Government  grants received                             | ** ** | ** ** |       | **1,545,326**   | ** ** | 655,809     |       | —      |       |
| Service  agreement income received                      | ** ** | ** ** |       | **66,000**      | ** ** | —      |       | —      |       |
| VAT  refund received                                    |       | 5(a)       |       | **64**          | ** ** | 1,911       |       | —      |       |
| Revenue  from discontinued operation                    |       | 4(b)       |       | **195,688**     | ** ** | 610,401     |       | 2,055,388   |       |
| Payments  to suppliers and employees                    | ** ** | ** ** |       | **(17,806,859** | **)**      | (12,422,412 | )          | (10,541,006 | )          |
|                                                    |       |       |       |            | ** ** |        |       |        |       |
| NET  CASH FLOWS (USED IN) OPERATING ACTIVITIES          |       | 9          |       | **(15,999,781** | **)**      | (11,154,291 | )          | (8,485,618  | )          |
|                                                    |       |       |       |            | ** ** |        |       |        |       |
| **CASH FLOWS FROM INVESTING ACTIVITIES**                |       |       |       |            | ** ** |        |       |        |       |
|                                                    |       |       |       | ** **      | ** ** |        |       |        |       |
| Interest  received                                      |       | 5(b)       |       | **1,055,093**   | ** ** | 862,096     |       | 241,634     |       |
| Cash  provided for demerger of Autogen Research Pty Ltd |       | 4          |       | **(150,000**    | **)**      | —      |       | —      |       |
| Purchase  of plant and equipment                        |       | 12         |       | **(387,689**    | **)**      | (24,070     | )          | (13,996     | )          |
| NET  CASH FLOWS FROM INVESTING ACTIVITIES               | ** ** | ** ** |       | **517,404**     | ** ** | 838,026     |       | 227,638     |       |
|                                                    |       |       |       |            | ** ** |        |       |        |       |
| **CASH FLOWS FROM FINANCING ACTIVITIES**                |       |       |       |            | ** ** |        |       |        |       |
|                                                    |       |       |       | ** **      | ** ** |        |       |        |       |
| Proceeds  from issues of shares                         |       | 18         |       | **726,084**     | ** ** | 21,260,131  |       | 15,723,021  |       |
| Transaction  cost of issue of shares                    |       | 18         |       | **—**      | ** ** | (379,686    | )          | (423,297    | )          |
| NET  CASH FLOWS FROM FINANCING ACTIVITIES               | ** ** | ** ** |       | **726,084**     | ** ** | 20,880,445  |       | 15,299,724  |       |
|                                                    |       |       |       |            | ** ** |        |       |        |       |
| Net  increase/(decrease) in cash and cash equivalents   | ** ** | ** ** |       | **(14,756,293** | **)**      | 10,564,180  |       | 7,041,744   |       |
| Net  foreign exchange difference                        | ** ** | ** ** |       | **(528,640**    | **)**      | (751,314    | )          | —      |       |
| Cash  and cash equivalents at beginning of period       | ** ** | ** ** |       | **25,366,562**  | ** ** | 15,553,696  |       | 8,511,952   |       |
| **CLOSING CASH CARRIED FORWARD**                        |       | 9          |       | **10,081,629**  | ** ** | 25,366,562  |       | 15,553,696  |       |

 

F-5

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Statement of Changes in Equity**

 
| ** **                               | ** ** | ** **      | ** ** | **Reserves**   | ** ** | ** **                | ** ** | ** **    | ** ** | ** **      | ** ** | ** **     | ** ** |
|------------------------------------------|------------|-----------------|------------|----------------|------------|---------------------------|------------|---------------|------------|-----------------|------------|----------------|------------|
| ** **                               | ** ** | **Issued**      | ** ** | **Option**     | ** ** | **Foreign Currency** | ** ** | **Equity**    | ** ** | **Retained**    | ** ** | **Total**      | ** ** |
| **FROM JULY 1, 2005 TO  JUNE 30, 2008**  | ** ** | **Capital**     | ** ** | **Premium**    | ** ** | **Translation**           | ** ** | **Options**   | ** ** | **Losses**      | ** ** | **Equity**     | ** ** |
| ** **                               | ** ** | **$**           | ** ** | **$**          | ** ** | **$**                     | ** ** | **$**         | ** ** | **$**           | ** ** | **$**          | ** ** |
| **At June 30,2005**                 | ** ** | **84,592,891**  | ** ** | **10,866,878** |       | —                    | ** ** | **428,962**   | ** ** | **(70,653,283** | **)**      | **25,235,448** | ** ** |
| Loss  for year to June 30, 2006     | ** ** | ** **      | ** ** | ** **     |       |                      | ** ** | ** **    |       | (10,369,719     | )          | (10,369,719    | **)**      |
| Total  income and expense for period     | ** ** | ** **      | ** ** | ** **     | ** ** | ** **                | ** ** | ** **    |       | (10,369,719     | )          | (10,369,719    | **)**      |
| Issue  of share capital                  |       | 15,723,021      |       |           |       |                      |       |          |       |            |       | 15,723,021     |       |
| less  cost of issue                      |       | (423,297        | )          |           |       |                      |       |          |       |            |       | (423,297       | )          |
| Share-based  payments                    |       |            |       |           |       |                      |       | 839,456       |       |            |       | 839,456        |       |
| **At June 30, 2006**                | ** ** | **99,892,615**  | ** ** | **10,866,878** | ** ** | **—**                | ** ** | **1,268,418** | ** ** | **(81,023,002** | **)**      | **31,004,909** | ** ** |
| Foreign  Exchange Translation            |       |            |       |           |       | (751,314                  | )          |          |       |            |       | (751,314       | )          |
| Loss  for year ended June 30, 2007  |       |            |       |           |       |                      |       |          |       | (11,700,919     | )          | (11,700,919    | )          |
| Total  income and expense for the period |       |            |       |           |       | (751,314                  | )          |          |       | (11,700,919     | )          | (12,452,233    | )          |
| Issue  of share capital                  | (i)        | 21,260,131      |       |           |       |                      |       |          |       |            |       | 21,260,131     |       |
| less  cost of issue                      |       | (379,686        | )          |           |       |                      |       |          |       |            |       | (379,686       | )          |
| Share-based  payments                    | 15         |            |       |           |       |                      |       | 436,477       |       |            |       | 436,477        |       |
| **At June 30, 2007**                | ** ** | **120,773,060** | ** ** | **10,866,878** | ** ** | **(751,314**              | **)**      | **1,704,895** | ** ** | **(92,723,921** | **)**      | **39,869,598** | ** ** |
| Foreign  Exchange Translation            |       |            |       |           |       | (528,640                  | )          |          |       |            |       | (528,640       | )          |
| Loss  for year ended June 30, 2008  |       |            |       |           |       |                      |       |          |       | (6,419,926      | )          | (6,419,926     | )          |
| Total  income and expense for period     |       |            |       |           |       | (528,640                  | )          |          |       | (6,419,926      | )          | (6,948,566     | )          |
| Issue  of share capital                  | (i)        | 726,084         |       | (2,445         | )          |                      |       |          |       |            |       | 723,639        |       |
| Share-based  payments                    |       |            |       |           |       |                      |       | 3,364,695     |       |            |       | 3,364,695      |       |
| In  specie capital reduction             | (i)        | (12,500,000     | )          |           |       |                      |       |          |       |            |       | (12,500,000    | )          |
| **At June 30,2008**                 | ** ** | **108,999,144** | ** ** | **10,864,433** | ** ** | **(1,279,954**            | **)**      | **5,069,590** | ** ** | **(99,143,847** | **)**      | **24,509,366** | ** ** |

 

----

(i)**           **Refer Note 18 for details of issues of sharecapital during the years ended June 30, 2008, 2007 and 2006.

 

F - 6

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notesto the Financial Statements**

** **

**1. CORPORATE INFORMATION**

 

The financialreport of ChemGenex Pharmaceuticals Limited (“ChemGenex” or “Company” or “Group”)for the year ended June 30, 2008 was authorised for issue in accordancewith a resolution of the directors on August 26, 2008.

 

ChemGenex is acompany limited by shares incorporated in Australia whose shares are publiclytraded on the Australian Stock Exchange (“ASX”) and are traded as Level 2American Depository Receipts (“ADRs”) on the NASDAQ Stock Market.

 

The nature ofthe operations and principal activities of ChemGenex are described in note 3.

 

**2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

**(a)****                                 Basis of accounting**

 

The financialreport is a general-purpose financial report, which has been prepared inaccordance with the requirements of the Corporations Act 2001, AustralianAccounting Standards and International Financial Reporting Standards (“IFRS”)as issued by the International Accounting Standards Board. The financial reporthas also been prepared on a historical cost basis.

 

The financialreport is presented in Australian dollars.

 

**(b)****                                 Inherent uncertainty regarding going concern**

 

Theconsolidated financial statements have been prepared on the basis of goingconcern which contemplates continuity of normal business activities and therealisation of assets and settlement of liabilities in the ordinary course ofbusiness.  Basedon anticipated cash flow requirements of the Company’s existing research anddevelopment activities, the directors consider that the Company will havesufficient funds to support existing operations to mid 2009.

 

In common withbiotechnology and drug development companies the Company’s operations aresubject to considerable risks and significant uncertainty due primarily to thenature of the development and commercialisation undertaken. To allow theCompany to execute its near term and longer term plans, it will be necessary toraise additional capital in the future.

 

Sincecommencing biotechnology activities in June 1996 the Company hasexperienced recurring net losses and negative cash flows from operations. At June 30,2008, the Company had accumulated losses of $99,942,834 and recorded a net lossof $6,419,926 and negative cash flows from operations of $15,999,781 for theyear ended June 30, 2008. These factors cast uncertainty on the Company’sability to continue as a “going concern” for a further 12 months as defined incurrent accounting standards.

 

Based onanticipated cash flow requirements of the Company’s existing research anddevelopment activities, the Directors consider that the Company will securesufficient funds to support operations beyond 2008 and will manage theavailability of resources over an extended period of time.

 

The Directorsare investigating the opportune time to raise capital and/or enter intolicensing/commercialisation arrangements to ensure the Company continues as agoing concern. Having regard to the current market conditions and the Company’sdevelopment programs, the Directors have established a Board sub-committee toassess strategic alternatives including possible partnership, mergers, acquisitionsand capital raising alternatives.

 

The Companyhas a strong history of capital raisings however the Directors cannot becertain of the Company’s ability of success in the above initiatives, as theseactivities are dependent on future events.  From July 1, 1996 it hasraised approximately $80.9 million (including $44.4 million since July 1,2005) from the issue of equity securities. In addition, during this time, theCompany has received approximately $26.4 million from its pharmaceuticalpartners pursuant to collaboration and licensing agreements.

 

The Directorsplan to continue the Company’s and the consolidated entity’s operations on thebasis of the matters referred to above, and believe that future fund raisingactivities and the value of the Group’s existing net assets will generatesufficient funds for the Group to operate in its normal manner.  In theevent that such arrangements are not entered into, there is uncertainty whetherthe Group will continue as a going concern and, therefore, whether the Groupwill realise its assets and extinguish its liabilities in the normal course ofbusiness and at the amounts stated in the financial report.

 

No adjustmentshave been made to the financial statements relating to the recoverability andclassification of the asset carrying amounts or classification of liabilitiesthat might be necessary should the Company not continue as a going concern.

 

F-7

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONT)**

 

**(c)****                                 Statement of compliance**

 

The financialreport complies with Australian Accounting Standards and InternationalFinancial Reporting Standards (“IFRS”) as issued by the InternationalAccounting Standards Board.

 

CertainInternational Financial Reporting Standards have recently been issued oramended but are not yet effective and have not been adopted by the Group forthe annual reporting period ended 30 June 2008. The directors’ haveassessed the impact of these new or amended standards (to the extent relevantto the group) and interpretations as follows:

 
| **Reference**                                                | ** ** | **Title**                                                                                                       | ** ** | **Summary**                                                                                                                                                                                                                                                                                                                                                                                           | ** ** | **Application date  of standard***                                                                 | ** ** | **Impact on Group financial  report**                                                                                                                                                                                                                                                                                                                           | ** ** | **Application  date for  Group*** |
|--------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|
| IFRS 8                                                       |       | Operating Segments and consequential  amendments to other Australian Accounting Standards                       |       | New standard replacing IAS14 *Segment Reporting*,  which adopts a management reporting approach to segment reporting.                                                                                                                                                                                                                                                                                 |       | January 1, 2009                                                                               |       | IFRS 8 is a disclosure standard so will have  no direct impact on the amounts included in the Group’s financial statements,  although it may indirectly impact the level at which goodwill is tested for  impairment. In addition, the amendments may have an impact on the Group’s  segment disclosures.                                             |       | July 1, 2009                 |
|                                                         |       |                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                                                  |       |                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                            |       |                              |
| IAS 1 (Revised)                                              |       | Presentation of Financial Statements and consequential amendments to  other Australian Accounting Standards     |       | Introduces a statement of comprehensive income.Other  revisions include impacts on the presentation of items in the statement of  changes in equity, new presentation requirements for restatements or  reclassifications of items in the financial statements, changes in the  presentation requirements for dividends and changes to the titles of the  financial statements.                       |       | January 1, 2009                                                                               |       | These amendments are only expected to affect  the presentation of the Group’s financial report and will not have a direct  impact on the measurement and recognition of amounts disclosed in the  financial report. The Group has not determined at this stage whether to  present a single statement of comprehensive income or two separate  statements. |       | July 1, 2009                 |
|                                                         |       |                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                                                  |       |                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                            |       |                              |
| IFRS 2                                                       |       | Amendments to Australian Accounting Standard – Share-based Payments:  Vesting Conditions and Cancellations |       | The amendments clarify the definition of ‘vesting conditions’,  introducing the term ‘non-vesting conditions’ for conditions other than  vesting conditions as specifically defined and prescribe the accounting  treatment of an award that is effectively cancelled because a non-vesting  condition is not satisfied.                                                          |       | January 1, 2009                                                                               |       | The Group has share-based payment arrangements that may be affected by  these amendments. However, the Group has not yet determined the extent of the  impact, if any.                                                                                                                                                                                          |       | July 1, 2009                 |
|                                                         |       |                                                                                                            |       |                                                                                                                                                                                                                                                                                                                                                                                                  |       |                                                                                               |       |                                                                                                                                                                                                                                                                                                                                                            |       |                              |
| Amendments to International Financial Reporting Standards*** |       | Improvements to IFRSs                                                                                           |       | The improvements project is an annual project that provides a  mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB  has separated the amendments into two parts: Part 1 deals with changes  the IASB identified resulting in accounting changes; Part II deals with  either terminology or editorial amendments that the IASB believes will have  minimal impact. |       | January 1, 2009 except for amendments to IFRS 5, which are  effective from July 1, 2009. |       | The Group has not yet determined the extent of the impact of the  amendments, if any.                                                                                                                                                                                                                                                                           |       | July 1, 2009                 |

 

----

*designates the beginning of the applicable annual reporting periodunless otherwise stated

 

Adoption ofnew accounting standard

 

The Group hasadopted IFRS 7 *Financial Instruments: Disclosures*andall consequential amendments which became applicable on January 1, 2007.The adoption of this standard has only affected the disclosure in thesefinancial statements. There has been no affect on profit and loss or thefinancial position of the entity.

 

F-8

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONT)**

 

**(d)****                                 Basis of consolidation**

 

Theconsolidated financial statements comprise the financial statements ofChemGenex Pharmaceuticals Limited (“the Parent”) and its subsidiaries (“theGroup”).

 

The financialstatements of subsidiaries are prepared for the same reporting period as theparent company, using consistent accounting policies. Adjustments are made tobring into line any dissimilar accounting policies that may exist.

 

Allintercompany balances and transactions, including unrealised profits arisingfrom intra-group transactions, have been eliminated in full.  Unrealised losses are eliminated unless costscannot be recovered.

 

Subsidiariesare consolidated from the date on which control is transferred to the Group andcease to be consolidated from the date on which control is transferred from theGroup.The investments in controlled entities are carried at cost in the parentcompany.

 

Theacquisition of subsidiaries is accounted for using the purchase method ofaccounting.  The purchase method ofaccounting involves allocating the cost of a business combination to the fairvalue of the assets acquired and the liabilities and contingent liabilitiesassumed at the date of acquisition.

 

**(e)****                                 Significant accounting estimates and assumptions**

 

The carryingamount of certain assets and liabilities are often determined based onestimates and assumptions of future events. The key estimates and assumptionsthat have a significant risk of causing a material adjustment to the carryingamounts of certain assets and liabilities within the next annual reportingperiod are:

 

*Impairment of goodwill andintangibles with indefinite useful lives*

 

The Groupdetermines whether goodwill and intangibles with indefinite useful lives areimpaired at least on an annual basis. This requires an estimate of therecoverable amount of the cash—generating units to which the goodwill andintangibles with indefinite lives are allocated. The assumptions used in thisestimation of recoverable amount and the carrying amount of goodwill andintangibles with indefinite useful lives are discussed in note 14.

 

*Share-based paymenttransactions*

 

The Groupmeasures the cost of share-based payments at fair value at the grant date usingthe Black-Scholes formula, taking into account the terms and conditions uponwhich the instruments were granted, as discussed in note 15. Where the vestingdate is dependent upon the achievement of a future price for listed ordinaryshares a Monte Carlo Model has been used to estimate that future vesting date.

 

**(f)****                                   Foreign currencies**

 

Both the functionaland presentation currency of ChemGenex Pharmaceuticals Limited and itsAustralian subsidiary Autogen Research Pty Ltd is Australian dollars (A$).

 

Transactionsin foreign currencies are initially recorded in the functional currency at therate of exchange ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies are retranslated at the rate ofexchange ruling at the balance sheet date.

 

Alldifferences in the consolidated financial report are taken to the incomestatement.

 

The functionalcurrency of the overseas subsidiary ChemGenex Pharmaceuticals Inc. is UnitedStates dollars (US$).

 

As at thereporting date the assets and liabilities of the overseas subsidiary aretranslated into the presentation currency of the Parent at the rate of exchangeruling at the balance sheet date and the income statement is translated at theweighted average exchange rates for the period. The exchange differencesarising on translation are taken directly to a separate component of equity.

 

On disposal ofa foreign entity, the deferred cumulative amount recognised in equity relatingto that particular foreign operation is recognised in the income statement.

 

**(g)****                                Cash and cash equivalents**

 

Cash andshort-term deposits in the balance sheet comprise cash at bank and in hand andshort-term deposits with an original maturity of three months or less. For thepurposes of the Cash Flow Statement, cash includes cash and cash equivalents asdefined above.

 

F-9

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONT)**

 

**(h)****                                Trade and other receivables**

 

Tradereceivables, which generally have 30 day terms, are recognised initially atfair value and subsequently measured at amortised cost using the effectiveinterest method, less an allowance for impairment.

 

Collectibility of tradereceivables is reviewed on an ongoing basis. An impairment provision isrecognised when there is objective evidence that the Group will not be able tocollect the receivable. The amount of the impairment loss is the receivablecarrying amount compared to the present value of estimated future cash flows,discounted at the original effective interest rate.

 

**(i)****                                   Plant and equipment**

 

*Cost and valuation*

 

Plant andequipment are carried at cost less accumulated depreciation and any impairmentin value.

 

*Depreciation*

 

Depreciationis provided on a straight-line basis on all plant and equipment.

 

Majordepreciation periods are:

 

Plant andequipment:

 
| ·  research equipment |   | 5-7 years  |
|----------------------------|--------|------------|
|                       |   |       |
| ·  office equipment   |   | 3-13 years |

 

*Impairment*

 

The carryingvalues of plant and equipment are reviewed for impairment when events orchanges in circumstances indicate the carrying value may not be recoverable.

 

If any suchindication exists and where the carrying value exceeds the estimatedrecoverable amount the assets are written down to their recoverable amount. Therecoverable amount of plant and equipment is the greater of the fair value lesscosts to sell and value in use.

 

**(j)****                                   Research costs**

 

Research costsare expensed as incurred.

 

**(k)****                               Goodwill**

 

Goodwill onacquisition is initially measured at cost, being the excess of the cost of thebusiness combination over the acquirer’s interest in the fair value ofidentifiable assets, liabilities and contingent liabilities acquired. Followinginitial recognition, goodwill is measured at cost less any accumulatedimpairment losses. The basis for calculating possible impairment of goodwill isset out in note 14.

 

Goodwill hasnot been amortised since the implementation of IFRS on July 1, 2004.Goodwill is reviewed for impairment annually or more frequently if events orchanges in circumstances indicate that the carrying value may be impaired.

 

At theacquisition date, any goodwill acquired is allocated to each of thecash-generating units expected to benefit from the combination’s synergies.Impairment is determined by assessing the recoverable amount of thecash-generating unit to which the goodwill relates.

 

Where therecoverable amount of the cash-generating unit is less than the carryingamount, an impairment loss is recognised.

 

Where goodwillforms part of a cash-generating unit and part of the operation within that unitis disposed of, the goodwill associated with the operation disposed of isincluded in the carrying amount of the operation when determining the gain orloss on disposal of the operation.

 

Goodwilldisposed of in this circumstance is measured on the basis of the relativevalues of the operation disposed of and the portion of the cash-generating unitretained.

 

F-10

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONT)**

 

**(l)****                                   Impairment of assets**

 

At eachreporting date, the Group assesses whether there is any indication that anasset may be impaired. Where an indicator of impairment exists, the Group makesa formal estimate of the recoverable amount. Where the carrying amount of an assetexceeds its recoverable amount the asset is considered impaired and is writtendown to its recoverable amount.

 

An asset’srecoverable amount is the higher of its fair value less costs to sell and itsvalue in use and is determined for an individual asset, unless the asset doesnot generate cash inflows that are largely independent of those from otherassets or group of assets and the asset’s value in use cannot be estimated tobe close to its fair value.  In suchcases the asset is tested for impairment as part of the cash generating unit towhich it belongs.  When the carryingamount of an asset or cash-generating unit exceeds its recoverable amount, theasset or cash-generating unit is considered impaired and is written down to itsrecoverable amount.

 

In assessingvalue in use, the estimated future cash flows are discounted to their presentvalue using a pre-tax discount rate that reflects current market assessments ofthe time value of money and the risks specific to the asset.

 

** (m)****                         Employeebenefits**

 

Provision ismade for employee benefits accumulated as a result of employees renderingservices up to the reporting date.  Thesebenefits include wages and salaries, annual leave and long service leave.

 

Liabilitiesarising in respect of wages and salaries, annual leave and other employeeentitlements expected to be settled within twelve months of the reporting dateare measured based on remuneration rates which are expected to be paid when theliability is settled. All other employee entitlement liabilities are measuredat the present value of the estimated future cash outflow to be made in respectof services provided by employees up to the reporting date. In determining thepresent value of the future cash outflows, the interest rates attaching to governmentguaranteed securities which have terms to maturity approximating the terms ofthe related liability are used.

 

Expenses fornon-accumulating sick leave are recognised when the leave is taken and aremeasured at the rates paid or payable.

 

** (n)****                            Pensionand post-employment benefits**

 

The Groupmakes contributions to external superannuation funds in accordance withexisting employment contracts and to meet its obligations under Australiantaxation law.

 

The Group hasno liabilities or commitments for post employment benefits for any employee asat June 30, 2008.

 

** (o)****                             Share-basedpayment transactions**

 

The Group mayprovide benefits to employees (including directors), consultants and suppliersof the Group in the form of share-based payment transactions, whereby employeesrender services in exchange for shares or rights to purchase shares (‘equitysettled transactions’). These benefits may be provided under the Employee ShareOption Plan (‘ESOP’) or by issues approved at General Meetings of Shareholders.

 

The cost ofequity-settled transactions provided to employees is measured by reference tothe fair value at the date at which they are granted.  The cost of equity-settled transactionsprovided to suppliers is measured by reference to the date the goods or servicesare received. The fair value is determined using the Black Scholes optionpricing model. Where the vesting date is dependent upon the achievement of afuture price for listed ordinary shares a Monte Carlo Model has been used toestimate that future vesting date and the fair value of the share based paymentaward.

 

In valuingequity-settled transactions, no account is taken of any performance conditions.

 

The cost ofequity-settled transactions is recognised, together with a correspondingincrease in equity, over the period in which the performance conditions arefulfilled, ending on the date on which the recipients become entitled to theaward (‘vesting date’).

 

The cumulativeexpense recognised for equity-settled transactions with non-market conditionsat each reporting date until vesting date reflects:

 

(i)            the extent to which the vesting period has expired, and

 

(ii)         the number of awards that, in the opinion of the directors of the Group,will ultimately vest.

 

This opinionis formed based on the best available information at balance date.

 

The cost ofequity settled transactions is recognised, together with a correspondingincrease in equity, over the period in which the performance and/or serviceconditions are fulfilled (the vesting period), ending on the date on which therelevant employees become fully entitled to the award (the vesting date).  No adjustment is made should the vestingconditions not be met.

 

F-11

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONT)**

 

**(p)****                                Leases**

 

Leases wherethe lessor retains substantially all of the risks and benefits of ownership ofthe assets are classified as operating leases. Operating lease payments arerecognised as an expense in the income statement on a straight-line basis overthe lease term.

 

**(q)****                                Trade and payables**

 

Liabilitiesfor trade creditors and other amounts are carried at cost which is fair valueof the consideration to be paid in the future for goods and services, whetheror not billed to the Group.

 

**(r)****                                 Issued Capital**

 

Issued andpaid up capital is recognised at the fair value of the consideration receivedby the Group and is classified as equity.

 

Anytransaction costs arising on the issue of ordinary shares are recogniseddirectly in equity as a reduction of the share proceeds received.

 

**(s)****                                 Loss per share**

 

Basic loss pershare is determined by dividing the loss after income tax by the weightedaverage number of ordinary shares, outstanding during the period.

 

Thecomputation of diluted loss per share is similar to basic loss per share,except that it assumes the potentially dilutive securities, such as shareoptions, were converted to shares as of the beginning of the period. For allperiods presented, diluted loss per share is equivalent to basic loss per shareas the potentially dilutive securities are excluded from the computation ofdiluted loss per share because the effect is anti-dilutive.

 

**(t)****                                  Revenue recognition**

 

*a)Research revenue*

 

Revenue underresearch collaboration agreements is recognised as earned on a straight-linebasis over the life of the respective agreement as this reflects the level ofeffort required over the performance period. These agreements are performed ona “best efforts” basis with no guarantees of either technical or commercialsuccess. Project funding received in advance of the period in which theassociated research efforts are performed is included in deferred revenue.

 

*b)Interest*

 

Interestincome is recognised as interest accrues using the effective interest method,which is the rate that exactly discounts estimated future cash receipts throughthe expected life of the financial asset to the net carrying amount of thefinancial asset.

 

*c)Patent reimbursement*

 

Patentreimbursement comprises amounts received in accordance with partnershipagreements for patent costs incurred by the Group in conjunction with specifiedresearch projects. The amounts are recognised in ‘other income’ and isrecognised when the reimbursable expense is incurred and approved in accordancewith the agreement.

 

*d)Government grants*

 

Revenue fromgovernment grants is recognised when received and all attaching conditions havebeen complied with.

 

When the grantrelates to an expense item, it is recognised as income over the periodsnecessary to match the grant on a systematic basis to the costs that it isintended to compensate.

 

**(u)****                               Income taxes**

 

Deferredincome tax assets and liabilities are measured at the tax rates that areexpected to apply to the year when the asset is realised or the liability issettled, based on tax rates that have been enacted or substantively enacted atthe balance sheet date.

 

Current taxassets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authorities basedon the current period’s taxable income. The tax rates and tax laws used tocompute the amount are those that are enacted or substantively enacted by thebalance date.

 

F-12

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES (CONT)**

 

Deferredincome tax assets have not been recognised as it is not considered probablethat taxable profit will be available against which deductible temporarydifferences, and the carry-forward of unused tax assets and unused tax lossescan be utilised.

 

**(v)****                                 Other taxes**

 

Revenues, expenses and assets are recognised net of the amount of GSTexcept:

 

·                  where the GST incurred on apurchase of goods and services is not recoverable from the taxation authority,in which case the GST is recognised as part of the cost of acquisition of theasset or as part of the expense item as applicable; and

 

·                  receivables and payables arestated with the amount of GST included.

 

The net amountof GST recoverable from, or payable to, the taxation authority is included aspart of receivables or payables in the consolidated Balance Sheet.

 

Cash flows areincluded in the consolidated Cash Flow Statement on a gross basis and the GSTcomponent of cash flows arising from investing and financing activities, whichis recoverable from, or payable to, the taxation authority are classified asoperating cash flows.

 

Commitmentsand contingencies are disclosed net of the amount of GST recoverable from, orpayable to, the taxation authority.

 

**(w)****                              Reclassifications**

 

Certainreclassifications have been made in the financial statements to ensure thatprior year comparatives conform to the current year representations.

 

The 2006 and2007 income statement comparatives have been amended to reflect thediscontinued operations.

 

### **3. SEGMENT INFORMATION**

### ** **

The economicentity performs biotechnology research, originally in Australia in the field ofmetabolic syndrome; following the acquisition of ChemGenex Therapeutics Inc. inJune 2004 oncology research in the United States of America was added tothe group’s operations.

 

Since thedemerger of metabolic syndrome operations in December 2007 (as approved byshareholders at the Annual General Meeting in November 2007) the economicentity’s operations are centered solely on oncology research, at its offices inMenlo Park California, with corporate administration provided from its HeadOffice in Geelong, Australia.

 

As theeconomic entity now operates only in oncology, segmental reporting is no longerconsidered appropriate.

 

### **4. DISCONTINUED OPERATIONS**

### ** **

**(a) Details ofoperations disposed**

 

On October 29,2007 ChemGenex Pharmaceuticals Limited announced its intention, subject toshareholder approval, to dispose of its metabolic disease assets and thesubsidiary Autogen Research Pty Ltd via an In Specie Distribution toshareholders.

 

Shareholdersapproved the demerger at the Annual General Meeting held on November 28,2007 and the subsequent disposal was completed on December 13, 2007.

 

The demergerwas undertaken to allow ChemGenex Pharmaceuticals Limited to direct itsresources to oncology research, in particular the development of its leadagent, omacetaxine mepesuccinate (formerly Ceflatonin).

 

F-13

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

### **4. DISCONTINUED OPERATIONS (CONT)**

### ** **

**(b) Financialperformance of operations**

 

The results of the discontinued operations for the period until disposalare presented below:

 
| ** **                                                |       | **2008**       | ** ** | **2007**   | ** ** | **2006**   |   |
|-----------------------------------------------------------|------------|----------------|------------|------------|------------|------------|--------|
| ** **                                                |       | **$**          | ** ** | **$**      | ** ** | **$**      |   |
| **Revenue**                                               |       |           |       |       |       |       |   |
| Research  revenue                                         | ** ** | **195,688**    |       | 536,111    |       | 1,906,520  |   |
| Demerger  gain                                            | ** ** | **12,350,000** |       | —     |       | —     |   |
| Government  grants                                        | ** ** | **—**     |       | 74,290     |       | 148,868    |   |
| ** **                                                |       | **12,545,688** |       | 610,401    |       | 2,055,388  |   |
| **Expenses**                                              | ** ** | **(1,601,441** | **)**      | (4,135,540 | )          | (4,586,383 | )      |
|                                                      |       |           |       |       |       |       |   |
| **Profit/(Loss) before tax from discontinued operations** | ** ** | **10,944,247** |       | (3,525,139 | )          | (2,530,995 | )      |
| Income  tax expense                                       |       | —         |       | —     |       | —     |   |
| **Profit/(Loss) from discontinued operations**            | ** ** | **10,944,247** |       | (3,525,139 | )          | (2,530,995 | )      |

 

The demergergain arises from the excess of the benefit received for assets transferred(fair value) over the carrying value of those assets in the financialstatements of ChemGenex Pharmaceuticals Limited. The assets transferredprimarily related to intangible assets associated with the metabolic syndromeresearch programme which had been carried at $nil value.

 

**(c) Assets andliabilities**

 

All assets and liabilities associated with the discontinued operationswere disposed of before June 30, 2008.

 

Details of the disposal of the metabolic syndrome assets and liabilitiesare as follows:

 
| Assets                                                |       |           |       |
|-------------------------------------------------------|------------|----------------|------------|
| Cash  and cash equivalents                            |       | 150,000        |       |
| Liabilities                                           |       | —         |       |
| **Net assets attributable to discontinued operation** | ** ** | **150,000**    | ** ** |
|                                                  |       |           |       |
| Net  cash flows                                       |       |           |       |
| Operating  activities                                 |       | (1,601,441     | )          |
| **Net cash out flows of discontinued operations**     | ** ** | **(1,601,441** | **)**      |
|                                                  |       |           |       |
| **Consideration received**                            |       |           |       |
| Capital  reduction via in specie distribution         |       | 12,500,000     |       |
| Less  net assets disposed of                          |       | (150,000       | )          |
| Gain  on disposal                                     |       | 12,350,000     |       |
| Income  tax expense                                   |       | —         |       |
| **Gain on disposal after income tax**                 | ** ** | **12,350,000** | ** ** |
| ** **                                            | ** ** | ** **     | ** ** |
| **Net cash flow on disposal**                         | ** ** | ** **     | ** ** |
| Cash  and cash equivalents in consideration received  |       | —         |       |
| Less  cash and cash equivalents disposed of           |       | (150,000       | )          |
| **Reflected in consolidated cash flow statement**     | ** ** | **(150,000**   | **)**      |

 

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**5. REVENUES AND EXPENSES**

 
| **JUNE 30**                                              | ** ** | **Notes**  | ** ** | **2008**       | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|---------------------------------------------------------------|------------|------------|------------|----------------|------------|------------|------------|------------|------------|
|                                                          |       |       |       | **$**          |       | **$**      |       | **$**      |       |
| (a) Other  Income                                        |       |       |       |           |       |       |       |       |       |
| Export  market development grant                              | ** ** | ** ** | ** ** | **78,186**     |       | —     |       | —     |       |
| P3  Grant                                                     | ** ** | ** ** | ** ** | **1,329,309**  |       | 655,809    |       | —     |       |
| Service  agreement income                                     | ** ** | ** ** | ** ** | **60,000**     |       | —     |       | —     |       |
| Exchange  rate benefit                                        | ** ** | ** ** | ** ** | **181,122**    |       | 157,917    |       | —     |       |
| Value  added tax refund                                       | ** ** | ** ** | ** ** | **64**         |       | 1,911      |       | —     |       |
| ** **                                                    |       |       |       | **1,648,681**  |       | 815,637    |       | —     |       |
|                                                          |       |       |       |           | ** ** |       |       |       |       |
| (b) Finance  income                                      |       |       |       |           | ** ** |       |       |       |       |
| Bank  interest received                                       | ** ** | ** ** | ** ** | **1,055,093**  | ** ** | 862,096    |       | 241,634    |       |
|                                                          |       |       |       |           | ** ** |       |       |       |       |
| (c) Employee  benefits expense                           |       |       |       |           | ** ** |       |       |       |       |
| Wages  and salaries                                           | ** ** | ** ** | ** ** | **(2,922,174** | **)**      | (1,837,968 | )          | (1,927,841 | )          |
| Worker’s  compensation costs                             | ** ** | ** ** | ** ** | **(12,888**    | **)**      | (13,005    | )          | (7,240     | )          |
| Expense  of share-based payments                              | ** ** | ** ** | ** ** | **(3,364,695** | **)**      | (270,553   | )          | (467,895   | )          |
| Superannuation  costs                                         | ** ** | ** ** | ** ** | **(152,219**   | **)**      | (93,805    | )          | (76,755    | )          |
| Wages  on-costs                                               | ** ** | ** ** | ** ** | **(846,639**   | **)**      | (302,584   | )          | (230,610   | )          |
| ** **                                                    |       |       |       | **(7,298,615** | **)**      | (2,517,915 | )          | (2,710,341 | )          |
|                                                          |       |       |       |           | ** ** |       |       |       |       |
| (d) Research  costs                                      |       |       |       |           | ** ** |       |       |       |       |
| Oncology                                                      | ** ** | ** ** | ** ** | **(9,233,641** | **)**      | (4,320,602 | )          | (3,325,103 | )          |
|                                                          |       |       |       |           | ** ** |       |       |       |       |
| (e) Operating  lease costs – minimum lease payments | ** ** | ** ** | ** ** | **(204,558**   | **)**      | (80,282    | )          | (89,698    | )          |

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**6. INCOME TAX**

 

*A reconciliation of income tax expenseapplicable to accounting profit before income tax and income tax expense forthe years ended June 2008 and 2007 is as follows:*

 
| **JUNE 30**                                                     | ** ** | **Notes**  | ** ** | **2008**       | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|----------------------------------------------------------------------|------------|------------|------------|----------------|------------|-------------|------------|-------------|------------|
|                                                                 |       |       |       | **$**          |       | **$**       |       | **$**       |       |
| Accounting  loss before income tax                                   | ** ** | ** ** | ** ** | **(6,454,468** | **)**      | (11,379,415 | )          | (10,369,719 | )          |
|                                                                 |       |       |       |           | ** ** |        |       |        |       |
| Tax  at statutory rates (30% Australia, 34% USA)                     | ** ** | ** ** | ** ** | **(1,936,340** | **)**      | (3,465,018  | )          | (3,265,930  | )          |
| Research  and development allowance                                  | ** ** | ** ** | ** ** | **(117,061**   | **)**      | (283,829    | )          | (321,077    | )          |
| Internal  IP transfer eliminated on consolidation but taxable in USA |       |       |       | —         | ** ** | —      |       | 4,580,358   |       |
| Demerger  rollover relief provided by ATO ruling                     | ** ** | ** ** | ** ** | **(3,705,000** | **)**      | —      |       | —      |       |
| Non-deductible  items-                                               |       |       |       |           |       |        |       |        |       |
| Equity  based benefits                                               | ** ** | ** ** | ** ** | **1,009,409**  |       | 130,943     |       | 251,837     |       |
| Entertainment  expenses                                              | ** ** | ** ** | ** ** | **7,281**      |       | 8,979       |       | —      |       |
| Increase  in employee entitlements                                   | ** ** | ** ** | ** ** | **108,563**    |       | 34,233      |       | —      |       |
| Other  differences                                                   | ** ** | ** ** | ** ** | **45,780**     |       | (29,381     | )          | —      |       |
| Adjustments  in respect of current income tax of previous years      | ** ** | ** ** | ** ** | **(13,211**    | **)**      | 341,691     |       | —      |       |
| ** **                                                           |       |       |       | **(4,600,579** | **)**      | (3,262,382  | )          | 1,245,188   |       |
| Future  income tax benefits not recognised/(recognised)              | ** ** | ** ** | ** ** | **4,566,037**  |       | 3,583,886   |       | (1,245,188  | )          |
| Income  tax expense/(gain) reported in income statement              | ** ** | ** ** | ** ** | **(34,542**    | **)**      | 321,504     |       | —      |       |

 

*Deferred income taxbenefits*

 

Futureincome tax benefit arising from tax losses of the parent and a controlledentity not recognised at reporting date as realisation of the benefit is notregarded as probable.

 
| Revenue  losses           | ** ** | **22,028,058** |   | 17,462,021 |   | 13,878,135 |   |
|---------------------------|------------|----------------|--------|------------|--------|------------|--------|
| Capital  Gains Tax losses | ** ** | **436,439**    |   | 436,439    |   | 436,439    |   |
| ** **                |       | **22,464,497** |   | 17,898,460 |   | 14,314,574 |   |

 

This deferredincome tax benefit will only be obtained if:

 

(a)                                 future assessable income is derived of a nature and of an amountsufficient to enable the benefit to be realised;

(b)                                the conditions for deductibility imposed by tax legislation continueto be complied with; and

(c)                                 no changes in tax legislation adversely affect the consolidatedentity in realising the benefit.

 

*Deferred income tax liabilities*

 

At June 30, 2008 there is no recognised or unrecognised deferred incometax liabilities included (2007: $nil, 2006: $nil).

 

*Deferred income tax assets*

 

At June 30, 2008 there are unrecognised deferred income tax assetsof $209,094 (2007: $145,931, 2006: $nil).

 

**Tax consolidation**

 

ChemGenexPharmaceuticals Limited and its then 100% owned Australian resident subsidiaryformed a tax consolidated group with effect from July 1, 2003. ChemGenexPharmaceuticals Limited was the head entity of the tax consolidated group.Members of the group have entered into a tax funding arrangement which providedfor the allocation of any carried forward tax losses available at the time ofthe demerger to be allocated to the head entity. No amounts have beenrecognised in the financial statements in respect of this agreement on thebasis that the possibility of default is remote.

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

### **7. LOSS PER SHARE**

### ** **

Basicloss per share is determined by dividing the loss after income tax by theweighted average number of ordinary shares outstanding during the period.

 

Thecomputation of diluted loss per share is similar to basic loss per share,except that it assumes the potentially dilutive securities, such as shareoptions, were converted to shares as of the beginning of the period. For allperiods presented, diluted loss per share is equivalent to basic loss per shareas the potentially dilutive securities are excluded from the computation ofdiluted loss per share because the effect is anti-dilutive.

 

The followingreflects the income and share data used in the earnings per share computations:

 
| ** **                                      | ** ** | **2008**       | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|-------------------------------------------------|------------|----------------|------------|-------------|------------|-------------|------------|
| ** **                                      | ** ** | **$**          | ** ** | **$**       | ** ** | **$**       | ** ** |
| Net  loss attributable to ordinary shareholders | ** ** | **(6,419,926** | **)**      | (11,700,919 | )          | (10,369,719 | )          |

 
| ** **                                                                          | ** ** | **Number of shares  2008** | ** ** | **Number of shares  2007** | ** ** | **Number of shares  2006** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|--------------------------------------|------------|
| Weighted  average number of ordinary shares used in calculating earnings per share: | ** ** | **186,802,718**                      |       | 162,281,115                          |       | 117,647,158                          |       |

 

Since thereporting date, and before the completion of these financial statements, thefollowing additional ordinary fully paid shares have been issued- 37,235,343-following shareholder approval at an Extraordinary General Meeting on July 22,2008, 15,216,153- issued on September 17, 2008 and ratified byshareholders at Annual general Meeting on November 26, 2008, and 150,568-issued under Shareholder Placement Plan on October 13, 2008.

 

There are53,524,803 share options outstanding at 30 June 2008 that couldpotentially dilute basic earnings per share in the future, however were notincluded in the calculation of diluted earnings per share because they areanti-dilutive.

 

### **8. DIVIDENDS PAID AND PROPOSED**

### ** **

Therewere no dividends paid or proposed during the year ended June 30, 2008 andthere have been no dividends paid or proposed since reporting date and beforethe completion of these financial statements.

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**9. CASH AND CASH EQUIVALENTS**

 
| ** **                                                                                      | ** ** | ** ** | ** ** | **2008**        | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|-------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------|------------|-------------|------------|-------------|------------|
| ** **                                                                                      | ** ** | ** ** | ** ** | **$**           | ** ** | **$**       | ** ** | **$**       | ** ** |
| ** **                                                                                      | ** ** | ** ** | ** ** | ** **      | ** ** | ** **  | ** ** | ** **  | ** ** |
| Cash  at bank and at hand                                                                       | ** ** | ** ** | ** ** | **10,081,629**  |       | 25,366,562  |       | 15,553,696  |       |
| Cash  at bank earns interest at floating rates based on daily bank deposits                     |       |       |       |            |       |        |       |        |       |
|                                                                                            |       |       |       |            |       |        |       |        |       |
| **Reconciliation of the net profit (loss) after tax to the net cash  flows used in operations** |       |       |       |            |       |        |       |        |       |
| Net  loss                                                                                       | ** ** | ** ** | ** ** | **(6,419,926**  | **)**      | (11,700,919 | )          | (10,369,719 | )          |
| *Adjustments for*                                                                               |       |       |       |            |       |        |       |        |       |
| Net  demerger adjustment                                                                        | ** ** | ** ** | ** ** | **(12,350,000** | **)**      | —      |       | —      |       |
| Depreciation  of non-current assets                                                             | ** ** | ** ** | ** ** | **113,773**     | ** ** | 271,344     |       | 272,198     |       |
| Interest  received                                                                              |       | 5          |       | **(1,055,093**  | **)**      | (862,096    | )          | (241,634    | )          |
| Share  options expensed                                                                         |       | 5          |       | **3,364,695**   | ** ** | 436,477     |       | 839,456     |       |
| *Changes in assets and liabilities*                                                             |       |       |       | ** **      | ** ** |        |       |        |       |
| (Increase)/decrease  in trade and other receivables                                             | ** ** | ** ** | ** ** | **18,000**      | ** ** | 61,011      |       | 302,516     |       |
| (Increase)/decrease  in prepayments                                                             | ** ** | ** ** | ** ** | **(212,685**    | **)**      | (291,277    | )          | 91,399      |       |
| Increase/(decrease)  in trade and other payables                                                | ** ** | ** ** | ** ** | **616,736**     | ** ** | 823,373     |       | 866,873     |       |
| Increase/(decrease)  in provisions                                                              | ** ** | ** ** | ** ** | **92,852**      | ** ** | 127,480     |       | 33,754      |       |
| Increase/(decrease)  in deferred income                                                         | ** ** | ** ** | ** ** | **(165,688**    | **)**      | (19,684     | )          | (280,461    | )          |
| Increase/(decrease)  in option premium reserve                                                  | ** ** | ** ** | ** ** | **(2,445**      | **)**      | —      |       | —      |       |
| Net  cash flow used in operating activities                                                     | ** ** | ** ** | ** ** | **(15,999,781** | **)**      | (11,154,291 | )          | (8,485,618  | )          |

 
| **JUNE 30**                    | ** ** | **Notes**  | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                          | ** ** | ** ** | ** ** | **$**      | ** ** | **$**      | ** ** |
| **10. TRADE RECEIVABLES (CURRENT)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                | ** ** | ** ** | ** ** | ** ** | ** ** |       |       |
| Trade  debtors                      | ** ** | ** ** | ** ** | **—** | ** ** | 18,000     |       |
| Other  debtors                      |       |       |       | —     | ** ** | —     |       |
|                                |       |       |       | —     | ** ** | 18,000     |       |

 

**Terms and conditions**

 

(i)                                  Trade debtors are non-interest bearing and generally on 30 dayterms.

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

**11. CONSOLIDATED SUBSIDIARIES**

### ** **

| ** **                      | ** ** | **Country of** | ** ** | **Percentage of equity interest held by the  consolidated entity** | ** ** |
|---------------------------------|------------|---------------------|------------|-------------------------------------------------------------------------------------------------------|------------|
| **Name**                        | ** ** | **incorporation**   | ** ** | **2008**                                                                                              | ** ** | **2007** | ** ** |
| ** **                      | ** ** | ** **          | ** ** | **%**                                                                                                 | ** ** | **%** | ** ** |
| Autogen  Research Pty Ltd       |       | Australia           | ** ** | **—**                                                                                            |       | 100 |   |
| ChemGenex  Pharmaceuticals Inc. |       | USA                 | ** ** | **100**                                                                                               |       | 100 |   |

 

**12. PLANT AND EQUIPMENT**

 
| ** **                                                                                                      | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                      | ** ** | **$**      | ** ** | **$**      | ** ** |
| **Carrying amount**                                                                                             |       |       |       |       |       |
| Office  equipment                                                                                               |       |       |       |       |       |
| At  cost                                                                                                        |       | 504,092    |       | 116,403    |       |
| Accumulated  depreciation                                                                                       |       | (148,630   | )          | (75,665    | )          |
|                                                                                                            |       | 355,462    |       | 40,738     |       |
|                                                                                                            |       |       |       |       |       |
| Research  equipment                                                                                             |       |       |       |       |       |
| At  cost                                                                                                        |       | 1,604,036  |       | 1,604,036  |       |
| Accumulated  depreciation                                                                                       |       | (1,604,036 | )          | (1,563,228 | )          |
|                                                                                                            |       | —     |       | 40,808     |       |
| Total  plant and equipment                                                                                      |       | 355,462    |       | 81,546     |       |
|                                                                                                            |       |       |       |       |       |
| Total  plant and equipment                                                                                      |       |       |       |       |       |
| At  cost                                                                                                        |       | 2,108,128  |       | 1,720,439  |       |
| Accumulated  depreciation                                                                                       |       | (1,752,666 | )          | (1,638,893 | )          |
| Total  net carrying amount                                                                                      |       | 355,462    |       | 81,546     |       |
| ** **                                                                                                      |       |       |       |       |       |
| **Reconciliations**                                                                                             |       |       |       |       |       |
| Reconciliations  of the carrying amounts of plant and equipment at the beginning and end of  the financial year |       |       |       |       |       |
| Office  equipment                                                                                               |       |       |       |       |       |
| Carrying  amount at beginning                                                                                   |       | 40,738     |       | 35,988     |       |
| Additions  at cost                                                                                              |       | 387,689    |       | 24,070     |       |
| Depreciation  expense                                                                                           |       | (72,965    | )          | (19,320    | )          |
| Carrying  amount at end of year                                                                                 |       | 355,462    |       | 40,738     |       |
|                                                                                                            |       |       |       |       |       |
| Research  equipment                                                                                             |       |       |       |       |       |
| Carrying  amount at beginning                                                                                   |       | 40,808     |       | 292,832    |       |
| Additions at cost                                                                                               |       | —     |       | —     |       |
| Depreciation  expense                                                                                           |       | (40,808    | )          | (252,024   | )          |
| Carrying  amount at the end of year                                                                             |       | —     |       | 40,808     |       |

 

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Table of Contents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

**13. GOODWILL**

 
| ** **                                                                             | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|----------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                             | ** ** | **$**      | ** ** | **$**      | ** ** |
| **Carrying amount**                                                                    |       |       |       |       |       |
| As  cost                                                                               |       | 16,962,561 |       | 16,962,561 |       |
| Accumulated  amortisation                                                              |       | (30,811    | )          | (30,811    | )          |
| Net carrying amount                                                                    |       | 16,931,750 |       | 16,931,750 |       |
| ** **                                                                             |       |       |       |       |       |
| **Reconciliation**                                                                     |       |       |       |       |       |
| Reconciliations  of the carrying amount at the beginning and end of the financial year |       |       |       |       |       |
| Carrying  amount at beginning                                                          |       | 16,931,750 |       | 16,931,750 |       |
| Additions  at cost                                                                     |       | —     |       | —     |       |
| Amortisation  expense                                                                  |       | —     |       | —     |       |
| Carrying  amount at end of year                                                        |       | 16,931,750 |       | 16,931,750 |       |

 

Intangibleassets and goodwill are based on the intellectual property previously held byChemGenex Therapeutics Inc. This intellectual property relates to chemicalcompounds which have not yet received regulatory approval, and therefore afinite life for any products associated with these compounds cannot bedetermined.

 

As at June 30,2008 and 2007 these assets were tested for impairment (see note 14 below).

 

No impairmentloss was charged for the year ended June 30, 2008 or 2007.

 

### **14. IMPAIRMENT TESTING OF GOODWILL**

### ** **

The goodwillacquired through a business combination of $16.932M relates to one individualcash generating unit, being anti-cancer compounds.

 

Therecoverable amount of the anti-cancer compounds have been determined based on avalue in use calculation using cash flow projections based on financialbudgets, information from scientific journals on the existing incidence of thedisease, projections of patients that would be eligible for the proposedtreatment and the expected growth figures.

 

The valuationhas been based on a cash flow projection covering the remaining term for eachrelevant patent application, which can exceed 5 years yet does not exceed 20years. No residual values have been included.

 

Independentvaluers (Acuity Technology Management Pty Ltd) were engaged to carry out thisvaluation and chose to use the discounted cash flow method. They, inco-operation with ChemGenex’s senior management, prepared long term cash flowprojections.

 

The Company iscurrently investing significant funds in research and development, as productsmove through each phase of required clinical development to achieve regulatoryapproval in regulated markets. Product development can take several years. Dueto the product development timeline, significant sales are forecasted to beearned once products reach certain stages of regulatory approval. Therefore itis appropriate to recognise the potential sales, and expected strong growth insales, beyond a five year projection. The cash flow model has incorporatedprojected cash flows from between 5 to 20 years based on the patent life inlieu of using a terminal value to better reflect the nature of the cash flowsto be received over the product life cycle. The application of extended cashflow projections beyond five years is consistent with IAS 36.33(b).

 

Thecalculation of value in use for the anti-cancer compounds is most sensitive tothe following assumptions-

 

·                  Availability of patients

 

·                  Discount rate

 

·                  Raw material costs

 

·                  Indirect costs

 

The availabilityof patients is dependent upon the incidence of the disease (estimateddetermined from scientific journals) from projections of the likely use of theproducts (based on the current status of alternative treatments).

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

### **14. IMPAIRMENT TESTING OF GOODWILL (CONT)**

 

Due to theuncertainty associated with cash flow projections for products that have notyet received regulatory approval an implied pre-tax discount rate ofapproximately 25% has been applied.

 

Raw materialscosts used in the projection are based on the latest manufacturing agreementwith Stragen which provides exclusive access to omacetaxine at an agreed pricefor the remainder of the valuation period.

 

Indirect costshave been based on industry standards for companies with pharmaceuticalproducts in the market as cost structures in the company’s current developmentstage are not deemed to be appropriate.

 

The goodwillrelates to the acquisition of ChemGenex Pharmaceuticals Inc in 2004.  The de-merger of Autogen Research Pty Ltd hasnot impacted the goodwill balance.  Theresults of the assessment of the goodwill has not resulted in an impairmentloss for the year ended 30 June 2008.

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

### **15. SHARE BASED PAYMENT PLANS**

### ** **

**Employee Share Option Scheme**

 

An EmployeeShare Option Plan (ESOP) has been established where ChemGenex PharmaceuticalsLimited may, at the discretion of management, grant options over the ordinaryshares of ChemGenex Pharmaceuticals Limited to directors, executives andcertain contractors who provide consulting services to the Group.

 

The options,issued for nil consideration, are granted in accordance with performanceguidelines established by the directors of ChemGenex Pharmaceuticals Limited,who retain the final discretion on the issue of the options.  The options cannot be transferred and willnot be quoted on the ASX.  Currently 9directors, 17 employees and 20 scientific consultants hold options issued underthe ESOP.

 

On November 27,2007, 3,077,500 options with fair values ranging from $0.56 to $0.75 weregranted over ordinary shares with exercise prices ranging from $0.41 to $0.95.These options all vested by June 30, 2008 and are exercisable until November 26,2012.

 

On November 28,2007, 850,000 options with fair values ranging from $0.45 to $0.70 were grantedover ordinary shares with exercise prices ranging from $0.41 to $1.22. Theseoptions will vest between November 28, 2007 and November 27, 2011 andare exercisable until November 27, 2012.

 

On December 1,2007, 4,660,000 options with a fair value of $0.51 were granted over ordinaryshares with an exercise price of $1.11. These options will vest over four yearsto November 30, 2011 and are exercisable until November 30, 2012.

 

On March 27,2008, 3,850,000 options with fair values ranging from $0.35 to $0.37 weregranted over ordinary shares with exercise prices ranging from $1.11 to $1.22.These options will vest between March 27, 2008 and March 26, 2012 andare exercisable until March 26, 2013.

 

On June 6,2008, 1,679,000 options with fair values ranging from $0.46 to $0.53 weregranted over ordinary shares with exercise prices ranging from $0.79 to $1.04.These options will vest between June 6, 2008 and November 30, 2011,and are exercisable until November 30, 2012.

 

(During theyear ended June 30, 2007, 400,000 options with a fair value of $0.42 weregranted over ordinary shares with an exercise price of $0.85, these optionsvested upon issue and are exercisable until May 7, 2010; a further 600,000options with a fair value of $0.55 were granted over ordinary shares with anexercise price of $0.50, these options vested upon issue and are exercisableuntil June 6, 2012).

 

The fair valueof the options issued under ESOP are estimated at the date of grant using theBlack Scholes Valuation Method. Where the vesting date is dependent upon theachievement of a future price for listed ordinary shares a Monte Carlo Modelhas been used to estimate the fair value of the options granted and theexpected future vesting date. During the year ended June 30, 20081,200,000 ESOP options were issued where the vesting date is dependent upon theachievement of a future price for listed ordinary shares. 600,000 of theseoptions will vest when the price for listed ordinary shares reaches $1.25,while the remaining 600,000 shares will vest when the price for listed ordinaryshares reaches $1.75.

 

The followingtable gives the assumptions made in determining fair value of options grantedduring the year ending June 30, 2008 and 2007.

 
| ** **                        | ** ** | **2008**          | ** ** | **2007**           | ** ** | **2006**           | ** ** |
|-----------------------------------|------------|-------------------|------------|--------------------|------------|--------------------|------------|
| Dividend  yield (%)               | ** ** | **0.00**          | ** ** | **0.00**           | ** ** | **0.00**           | ** ** |
| Expected  volatility (%)          | ** ** | **55.00**         | ** ** | **70.00**          | ** ** | **70.00**          | ** ** |
| Risk-free  interest rate (%)      | ** ** | **6.50**          | ** ** | **5.25**           | ** ** | **5.40**           | ** ** |
| Expected  life of options (years) | ** ** | **5**             | ** ** | **3-5**            | ** ** | **4.1-4.5**        | ** ** |
| Option  exercise price ($)        | ** ** | **0.41 to  1.22** | ** ** | **0.85  and 0.50** | ** ** | **0.43  and 0.65** | ** ** |
| Share  price at grant date ($)    | ** ** | **0.80 to  1.00** | ** ** | **0.85  and 0.95** | ** ** | **0.54  and 0.64** | ** ** |

 

Whencalculating the expected life of the options it is assumed the options will notbe exercised until the expiry date.

 

The expectedvolatility rates used reflect the assumption that historical volatility isindicative of future trends and may not necessarily be the actual outcome.

 

Other than theassumptions outlined above no other features of the options granted wereincorporated into the measurement of fair value.

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

### **15. SHARE BASED PAYMENT PLANS (CONT)**

### ** **

During theyear ended June 30, 2008, 910,000 options were exercised over ordinaryshares. The market price for the company’s ordinary fully paid shares at thedate these options were exercised was 78 cents (600,000 options) and 53 cents(310,000 options). [2007: 520,000 options were exercised. The market price forthe company’s ordinary fully paid shares at the date these options wereexercised was 81 cents (20,000 options), 75 cents (100,000 options) and 60cents (300,000 options)]

 

The followingtable illustrates the number and weighted average exercise prices (WAEP) ofshare options issued under the ESOP:

 
| ** **                    | ** ** | **2008**       | ** ** | **2007** | ** ** | **2006**   | ** ** |
|-------------------------------|------------|----------------|------------|----------|------------|------------|------------|
| ** **                    | ** ** | **Number**     | ** ** | **WAEP** | ** ** | **Number** | ** ** | **WAEP** | ** ** | **Number** | ** ** | **WAEP** | ** ** |
| Balance  at beginning of year | ** ** | **7,359,500**  | ** ** | **$**    | **0.54**   |       | 6,879,500  |   | $ | 0.54 |   | 5,375,000 |   | $ | 0.50 |   |
| -   granted    | ** ** | **14,116,500** | ** ** | **$**    | **1.00**   |       | 1,000,000  |   | $ | 0.64 |   | 1,544,500 |   | $ | 0.68 |   |
| -   forfeited  | ** ** | **(145,000**   | **)**      | **$**    | **1.02**   |       | —     |   | — |   | (40,000 | ) | $ | 0.52 |   |
| -   exercised  | ** ** | **(910,000**   | **)**      | **$**    | **0.50**   |       | (520,000   | ) | $ | 0.37 |   | — |   | — |   |
| Balance  at end of year       | ** ** | **20,421,000** | ** ** | **$**    | **0.88**   |       | 7,359,500  |   | $ | 0.54 |   | 6,879,500 |   | $ | 0.54 |   |
| Exercisable  at end of year   | ** ** | **7,779,500**  | ** ** | **$**    | **0.52**   |       | 5,544,500  |   | $ | 0.53 |   | 5,264,500 |   | $ | 0.54 |   |

 

Thecontractual life for the various ESOP share options outstanding at June 30,2008 is between 1 year 9 months and 4 years 9 months (2007: between 2 years 9months and 4 years 11 months, 2006: 3 years and 9 months for all options).

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

### **15. SHARE BASED PAYMENT PLANS (CONT)**

 

Share options issued under ESOP and outstanding at the end of the yearhave the following exercise prices:

 
| **Expiry date**   | ** ** | **Exercise price $** | ** ** | **Outstanding 2008** | ** ** | **Outstanding 2007** | ** ** | **Outstanding 2006** | ** ** |
|------------------------|------------|--------------------------------|------------|---------------------------|------------|---------------------------|------------|---------------------------|------------|
| March 24, 2010    |       | 1.08                           | #          | 300,000                   |       | 400,000                   |       | 400,000                   |       |
| March 24, 2010    |       | 0.83                           | #          | 190,000                   |       | 215,000                   |       | 215,000                   |       |
| March 24, 2010    |       | 0.57                           | #          | 269,500                   |       | 269,500                   |       | 269,500                   |       |
| March 24, 2010    |       | 0.30                           |       | —                    |       | —                    |       | 300,000                   |       |
| March 24, 2010    |       | 0.50                           |       | —                    |       | 300,000                   |       | 300,000                   |       |
| March 24, 2010    |       | 0.49                           | #          | 350,000                   |       | 350,000                   |       | 350,000                   |       |
| March 24, 2010    |       | 0.43                           | #          | 3,520,000                 |       | 3,550,000                 |       | 3,770,00                  |       |
| March 24, 2010    |       | 0.36                           | #          | 275,000                   |       | 275,000                   |       | 275,000                   |       |
| May 7, 2010       |       | 0.78                           | #          | 400,000                   |       | 400,000                   |       | —                    |       |
| June 27,2010      |       | 0.68                           | #          | 1,000,000                 |       | 1,000,000                 |       | 1,000,000                 |       |
| June 6, 2012      |       | 0.50                           |       | —                    |       | 600,000                   |       | —                    |       |
| November 26, 2012 |       | 0.95                           |       | 2,262,500                 |       | —                    |       | —                    |       |
| November 26, 2012 |       | 0.80                           |       | 25,000                    |       | —                    |       | —                    |       |
| November 26, 2012 |       | 0.63                           |       | 90,000                    |       | —                    |       | —                    |       |
| November 26, 2012 |       | 0.47                           |       | 100,000                   |       | —                    |       | —                    |       |
| November 26, 2012 |       | 0.45                           |       | 300,000                   |       | —                    |       | —                    |       |
| November 26, 2012 |       | 0.41                           |       | 300,000                   |       | —                    |       | —                    |       |
| November 27, 2012 |       | 1.22                           |       | 600,000                   |       | —                    |       | —                    |       |
| November 27, 2012 |       | 0.41                           |       | 250,000                   |       | —                    |       | —                    |       |
| November 30, 2012 |       | 1.11                           |       | 4,660,000                 |       | —                    |       | —                    |       |
| November 30, 2012 |       | 1.04                           |       | 600,000                   |       | —                    |       | —                    |       |
| November 30, 2012 |       | 0.92                           |       | 15,000                    |       | —                    |       | —                    |       |
| November 30, 2012 |       | 0.91                           |       | 500,000                   |       | —                    |       | —                    |       |
| November 30, 2012 |       | 0.82                           |       | 64,000                    |       | —                    |       | —                    |       |
| November 30, 2012 |       | 0.79                           |       | 500,000                   |       | —                    |       | —                    |       |
| March 26, 2013    |       | 1.22                           |       | 2,100,000                 |       | —                    |       | —                    |       |
| March 26, 2013    |       | 1.16                           |       | 250,000                   |       | —                    |       | —                    |       |
| March 26, 2013    |       | 1.11                           |       | 1,500,000                 |       | —                    |       | —                    |       |

 

Note: Exerciseprices marked # have been reduced by 7 cents reflecting the demerger capitalreduction approved by shareholders at the AGM on November 28, 2007. This reductiondoes not give rise to an alteration in fair value of the award as at themodification date and therefore no incremental expense in relation to theseawards is to be recognised.

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

### **15. SHARE BASED PAYMENT PLANS  (CONT)**

 

**Options issued to directors**

 

The followingtable summarises information about options issued to Dr Greg Collier

 
| **Number of options** | ** ** | **Grant date**     | ** ** | **Last Vesting date** | ** ** | **Expiry date**    | ** ** | **Exercise price** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                      | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **              | ** ** | **$**                   | ** ** |
| 100,000                         |       | March 24,2000      |       | March 24,  2003            |       | March 24,  2010    |       | 1.08                    | #          |
| 100,000                         |       | March 8,  2001     |       | March 8,  2004             |       | March, 2010             |       | 0.83                    | #          |
| 300,000                         |       | November 28,  2002 |       | November 28,  2002         |       | March 24,  2010    |       | 0.50                    |       |
| 300,000                         |       | November 21,  2003 |       | November 21,  2003         |       | December 26,  2006 |       | 0.30                    |       |
| 1,000,000                       |       | June 21,  2004     |       | June 21,  2004             |       | March 24,  2010    |       | 0.50                    |       |
| 1,000,000                       |       | June 21,  2004     |       | June 21,  2006             |       | March 24,  2010    |       | 0.50                    |       |
| 500,000                         |       | June 21,  2004     |       | June 21,  2007             |       | March 24,  2010    |       | 0.50                    |       |
| 500,000                         |       | June 21,  2004     |       | June 21,  2008             |       | March 24,  2010    |       | 0.50                    |       |
| 600,000                         |       | November 28,  2007 |       | November 27,  2011         |       | November 27,  2012 |       | 1.22                    |       |
| 600,000                         |       | March 27,  2008    |       | March 26,  2012            |       | March 26,  2013    |       | 1.22                    |       |

 

Followingshareholder approval 1,200,000 options were issued to Dr G Collier in2007/2008. 600,000 on November 28, 2007 and 600,000 on March 27,2008. No options were issued to Dr Collier during the year ended June 30,2007 or 2006.

 

No optionspreviously issued to Dr Collier were exercised during the year ended June 30,2008. (2007: 400,000, the market price for the company’s ordinary fully paidshare at the date these options were issued was 58 cents for 300,000 and 80cents for 100,000). (2006: Nil)

 

The followingshare options issued to Dr Greg Collier remain outstanding at the end of theyear -

 
| **Number of options** | ** ** | **Grant date**     | ** ** | **Last Vesting date** | ** ** | **Expiry date**    | ** ** | **Exercise price** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                      | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **              | ** ** | **$**                   | ** ** |
| 100,000                         |       | March 24,2000      |       | March 24,  2003            |       | March 24,  2010    |       | 1.08                    | #          |
| 100,000                         |       | March 8,  2001     |       | March 8,  2004             |       | March, 2010             |       | 0.83                    | #          |
| 300,000                         |       | November 28,  2002 |       | November 28,  2002         |       | March 24,  2010    |       | 0.43                    | #          |
| 900,000                         |       | June 21,  2004     |       | June 21,  2004             |       | March 24,  2010    |       | 0.43                    | #          |
| 1,000,000                       |       | June 21,  2004     |       | June 21,  2006             |       | March 24,  2010    |       | 0.43                    | #          |
| 500,000                         |       | June 21,  2004     |       | June 21,  2007             |       | March 24,  2010    |       | 0.43                    | #          |
| 500,000                         |       | June 21,  2004     |       | June 21,  2008             |       | March 24,  2010    |       | 0.43                    | #          |
| 600,000                         |       | November 28,  2007 |       | November 27,2011           |       | November 27,  2012 |       | 1.22                    |       |
| 600,000                         |       | March 27,  2008    |       | March 26,  2012            |       | March 26,  2013    |       | 1.22                    |       |

 

The fair value of the options issued to Dr Collier are estimated at thedate of grant using the Black Scholes Valuation Method. The following tablegives the assumptions made in determining fair value of these options-

 
| **Grant Date** | ** ** | **Dividend  Yield** | ** ** | **Expected  Volatility** | ** ** | **Risk-free  Interest rate** | ** ** | **Expected Life** | ** ** | **Exercise Price** | ** ** | **Share Price at  Grant Date** | ** ** |
|---------------------|------------|---------------------|------------|--------------------------|------------|-----------------------------------|------------|------------------------|------------|-------------------------|------------|-----------------------------------------------|------------|
| ** **          | ** ** | **%**               | ** ** | **%**                    | ** ** | **%**                             | ** ** | **(years)**            | ** ** | **$**                   | ** ** | **$**                                         | ** ** |
| March,  2000        | ** ** | **0.0**             | ** ** | **75.00**                | ** ** | **6.06**                          | ** ** | **10.00**              | ** ** | **1.15**                | ** ** | **1.75**                                      | ** ** |
| March,  2001        | ** ** | **0.0**             | ** ** | **75.00**                | ** ** | **6.06**                          | ** ** | **9.00**               | ** ** | **0.90**                | ** ** | **1.28**                                      | ** ** |
| November,  2002     | ** ** | **0.0**             | ** ** | **85.00**                | ** ** | **5.52**                          | ** ** | **7.33**               | ** ** | **0.50**                | ** ** | **0.26**                                      | ** ** |
| November,  2003     | ** ** | **0.0**             | ** ** | **65.00**                | ** ** | **5.77**                          | ** ** | **3.0**                | ** ** | **0.30**                | ** ** | **0.53**                                      | ** ** |
| June,  2004         | ** ** | **0.0**             | ** ** | **65.00**                | ** ** | **5.77**                          | ** ** | **5.75**               | ** ** | **0.50**                | ** ** | **0.54**                                      | ** ** |
| November,  2007     | ** ** | **0.0**             | ** ** | **55.00**                | ** ** | **6.5**                           | ** ** | **5**                  | ** ** | **1.22**                | ** ** | **0.94**                                      | ** ** |
| March,  2008        | ** ** | **0.0**             | ** ** | **55.00**                | ** ** | **6.5**                           | ** ** | **5**                  | ** ** | **1.22**                | ** ** | **0.80**                                      | ** ** |

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

### **15. SHARE BASED PAYMENT PLANS (CONT)**

 

Whencalculating the expected life of the options it is assumed the options will notbe exercised until the expiry date.

 

The expectedvolatility rates used reflect the assumption that historical volatility isindicative of future trends and may not necessarily be the actual outcome.

 

The followingtable summarises information about options issued to Dr Dennis Brown

 
| **Number of options** | ** ** | **Grant date**     | ** ** | **Last Vesting date** | ** ** | **Expiry date**    | ** ** | **Exercise price** | ** ** |
|---------------------------------|------------|-------------------------|------------|---------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                      | ** ** | ** **              | ** ** | ** **                      | ** ** | ** **              | ** ** | **$**                   | ** ** |
| 250,000                         |       | November 28,  2007 |       | November 28,  2007         |       | November 27,  2012 |       | 0.41                    |       |
| 1,500,000                       |       | March 27,  2008    |       | March 26,  2012            |       | March 26,  2013    |       | 1.11                    |       |

 

Followingshareholder approval 1,750,000 options were issued to Dr Brown in 2007/2008.250,000 on November 28, 2007 and 1,500,000 on March 27, 2008. Nooptions were issued to Dr Brown previously.

 

No optionsissued to Dr Brown have been exercised.

 

The fair valueof the options issued to Dr Brown are estimated at the date of grant using theBlack Scholes Valuation Method. The following table gives the assumptions madein determining fair value of these options-

 
| **Grant Date** | ** ** | **Dividend  Yield** | ** ** | **Expected  Volatility** | ** ** | **Risk-free  Interest  rate** | ** ** | **Expected  Life** | ** ** | **Exercise  Price** | ** ** | **Share Price at Grant  Date ** | ** ** |
|---------------------|------------|---------------------|------------|--------------------------|------------|-------------------------------|------------|--------------------|------------|---------------------|------------|-----------------------------------------------------|------------|
| ** **          | ** ** | **%**               | ** ** | **%**                    | ** ** | **%**                         | ** ** | **(years)**        | ** ** | **$**               | ** ** | **$**                                               | ** ** |
| November,  2007     | ** ** | **0.0**             | ** ** | **55.00**                | ** ** | **6.5**                       | ** ** | **5**              | ** ** | **0.41**            | ** ** | **0.94**                                            | ** ** |
| March,  2008        | ** ** | **0.0**             | ** ** | **55.00**                | ** ** | **6.5**                       | ** ** | **5**              | ** ** | **1.11**            | ** ** | **0.80**                                            | ** ** |

 

Whencalculating the expected life of the options it is assumed the options will notbe exercised until the expiry date.

 

The expectedvolatility rates used reflect the assumption that historical volatility isindicative of future trends and may not necessarily be the actual outcome.

 

The followingtable summarises information about options issued to Dr Julie Cherrington

 
| **Number of options** | ** ** | **Grant date**  | ** ** | **Last Vesting date** | ** ** | **Expiry date** | ** ** | **Exercise price** | ** ** |
|---------------------------------|------------|----------------------|------------|---------------------------------|------------|----------------------|------------|-------------------------|------------|
| ** **                      | ** ** | ** **           | ** ** | ** **                      | ** ** | ** **           | ** ** | **$**                   | ** ** |
| 250,000                         |       | March 27,  2008 |       | March 26,  2011            |       | March 26,  2013 |       | 1.16                    |       |

 

Followingshareholder approval 250,000 options were issued to Dr Cherrington on March 27,2008. No options were issued to Dr Cherrington previously.

 

No optionsissued to Dr Cherrington have been exercised.

 

The fair valueof the options issued to Dr Cherrington are estimated at the date of grantusing the Black Scholes Valuation Method. The following table gives theassumptions made in determining fair value of these options-

 
| **Grant Date** | ** ** | **Dividend  Yield** | ** ** | **Expected  Volatility** | ** ** | **Risk-free  Interest  rate ** | ** ** | **Expected  Life** | ** ** | **Exercise  Price** | ** ** | **Share Price at Grant  Date** | ** ** |
|---------------------|------------|---------------------|------------|--------------------------|------------|-------------------------------------|------------|--------------------|------------|---------------------|------------|-----------------------------------------------|------------|
| ** **          | ** ** | **%**               | ** ** | **%**                    | ** ** | **%**                               | ** ** | **(years)**        | ** ** | **$**               | ** ** | **$**                                         | ** ** |
| March,  2008        | ** ** | **0.0**             | ** ** | **55.00**                | ** ** | **6.5**                             | ** ** | **5**              | ** ** | **1.16**            | ** ** | **0.80**                                      | ** ** |

 

Whencalculating the expected life of the options it is assumed the options will notbe exercised until the expiry date.

 

The expectedvolatility rates used reflect the assumption that historical volatility isindicative of future trends and may not necessarily be the actual outcome.

 

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CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

### **15. SHARE BASED PAYMENT PLANS  (CONT)**

### ** **

The followingtable summarises information about options issued to each of Mr Brett Heading,Mr Elmar Schnee, Mr Dan Janney, Dr Geoff Brook, Dr George Morstyn and Mr DonSantel

 
| **Number of options** | ** ** | **Grant date**  | ** ** | **Last Vesting date** | ** ** | **Expiry date** | ** ** | **Exercise price** | ** ** |
|---------------------------------|------------|----------------------|------------|---------------------------------|------------|----------------------|------------|-------------------------|------------|
|                            |       |                 |       |                            |       |                 |       | **$**                   |       |
| 250,000                         |       | March 27,  2008 |       | March 26,  2010            |       | March 26,  2013 |       | 1.22                    |       |

 

Followingshareholder approval 250,000 options each were issued to Mr Heading, Mr Schnee,Mr Janney, Dr Brook, Dr Morstyn and Mr Santel on March 27, 2008. Nooptions were issued to Mr Heading, Mr Schnee, Mr Janney, Dr Brook, Dr Morstynor Mr Santel previously.

 

None of theseoptions have been exercised.

 

The fair valueof the options issued are estimated at the date of grant using the BlackScholes Valuation Method. The following table gives the assumptions made indetermining fair value of these options-

 
| **Grant Date** | ** ** | **Dividend  Yield** | ** ** | **Expected  Volatility** | ** ** | **Risk-free  Interest  rate** | ** ** | **Expected  Life** | ** ** | **Exercise  Price ** | ** ** | **Share Price at Grant  Date** | ** ** |
|---------------------|------------|---------------------|------------|--------------------------|------------|-------------------------------|------------|--------------------|------------|---------------------------|------------|-----------------------------------------------|------------|
|                | ** ** | **%**               | ** ** | **%**                    | ** ** | **%**                         | ** ** | **(years)**        | ** ** | **$**                     | ** ** | **$**                                         | ** ** |
| March,  2008        | ** ** | **0.0**             | ** ** | **55.00**                | ** ** | **6.5**                       | ** ** | **5**              | ** ** | **1.22**                  | ** ** | **0.80**                                      | ** ** |

 

Whencalculating the expected life of the options it is assumed the options will notbe exercised until the expiry date.

 

The expectedvolatility rates used reflect the assumption that historical volatility isindicative of future trends and may not necessarily be the actual outcome.

 

During theyear ended June 30, 2008 a total of $3,364,695 was recognised in theIncome Statement as share based expenditure (2007: $436,477. 2006: $839,456.)

 

**16. TRADE AND OTHERPAYABLES**

 
| **JUNE 30**              | ** ** | **Notes**  | ** ** | **2008**      | ** ** | **2007**  | ** ** |
|-------------------------------|------------|------------|------------|---------------|------------|-----------|------------|
|                          | ** ** | ** ** | ** ** | **$**         |       | **$**     |       |
| Trade  creditors and accruals | ** ** | ** ** | ** ** | **3,061,974** |       | 2,445,238 |       |
| ** **                    |       | ** ** | ** ** | **3,061,974** |       | 2,445,238 |       |

 

Trade payablesare non-interest bearing and are normally settled on 30 day terms.

 

As at June 30,2008 the amount owing to related parties and included in Trade and otherpayables was $Nil (2007: $4,494).

 

Refer to Note24 for Related Party Disclosures.

 

**17. EMPLOYEE ENTITLEMENTS**

 
| *Current*                         |       |        |   |    |   |
|-----------------------------------|------------|-------------|--------|---------|--------|
| Provision  for annual leave       | ** ** | **302,510** |   | 231,284 |   |
| *Non - Current*                   |       |        |   |    |   |
| Provision  for long service leave | ** ** | **70,927**  |   | 33,222  |   |
| ** **                        |       | **373,437** |   | 264,506 |   |

 

 

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**18. ISSUED CAPITAL AND RESERVES**

 
| ** **             | ** ** | **Number of  shares** | ** ** | **Number of  shares** | ** ** | **Number of  shares** | ** ** | **$**           | ** ** | **$**       | ** ** | **$**      | ** ** |
|------------------------|------------|----------------------------|------------|----------------------------|------------|----------------------------|------------|-----------------|------------|-------------|------------|------------|------------|
| ** **             | ** ** | **2008**                   | ** ** | **2007**                   | ** ** | **2006**                   | ** ** | **2008**        | ** ** | **2007**    | ** ** | **2006**   | ** ** |
| **Ordinary shares**    |       |                       |       |                       |       |                       |       |            |       |        |       |       |       |
| Issued  and fully paid | ** ** | **187,112,274**            |       | 185,847,331                |       | 151,362,786                | ** ** | **108,999,144** |       | 120,773,060 |       | 99,892,615 |       |

 
| **Movements in shares on issue**             |       |            |   |        |   |        |   |        |       |            |   |       |   |
|----------------------------------------------|------------|-----------------|--------|-------------|--------|-------------|--------|-------------|------------|-----------------|--------|------------|--------|
| Beginning  of the financial year             | ** ** | **185,847,331** |   | 151,362,786 |   | 114,979,616 |   | 120,773,060 | ** ** | **99,892,615**  |   | 84,592,891 |   |
| Issued  during the year                      |       |            |   |        |   |        |   |        |       |            |   |       |   |
| -Shares  issued for cash                     | ** ** | **1,264,943**   |   | 34,484,545  |   | 36,565,170  |   | 726,084     | ** ** | **21,260,131**  |   | 15,723,021 |   |
| -less  cost of share issues                  | ** ** | **—**      |   | **—**  |   | **—**  |   | **—**  | ** ** | **(379,686**    | **)**  | (423,297   | )      |
| Capital  reduction by in specie distribution | ** ** | **—**      |   | **—**  |   | **—**  |   | (12,500,000 | )          | **—**      |   | **—** |   |
| End of  the financial year                   | ** ** | **187,112,274** |   | 185,847,331 |   | 151,362,786 |   | 108,999,144 | ** ** | **120,773,060** |   | 99,892,615 |   |

 

In May 2006Chemgenex Pharmaceuticals Limited announced a programme of share issues toprovide working capital and to continue the company’s ongoing researchactivities-

 

·                  On May 18, 2006 16,700,000 ordinary shares were issued at 43cents each raising $7,181,000.  Thisissue was ratified by an Extraordinary General Meeting of shareholders held on June 16,2006.

 

·                  On June 1, 2006 1,665,170 ordinary shares were issued at 43cents raising $716,021 under a Share Placement Programme offered to allshareholders.

 

·                  On June 16, 2006 18,200,000 ordinary shares were issued at 43cents per share raising $7,826,000 following approval by an ExtraordinaryGeneral Meeting of shareholders held on June 16, 2006.

 

On December 21,2006 the company issued 300,000 ordinary shares at an issue price of $0.30 eachraising $90,000 upon the exercise of 300,000 options issued after approved atthe Annual General Meeting of Shareholders held on November 21, 2003.

 

In February 2007ChemGenex Pharmaceuticals Limited announced a programme of share issues toprovide working capital and to continue the company’s ongoing researchactivities-

 

·                  On February 8, 2007 17,056,377 ordinary shares were issued at62 cents each raising $10,574,954.  Inaccordance with ASX Listing Rules this issue was ratified at the 2007Annual General Meeting of shareholders.

 

·                  On April 3, 2007 16,891,916 ordinary shares were issued at 62cents raising $10,472,988 under a 1:10 Rights Issue offered to all eligibleshareholders by prospectus dated February 26, 2007.

 

On February 8,2007 (200,000) and April 24, 2007 (20,000) a total of 220,000 ordinaryshares at an issue price of $0.50 each raising $110,000 upon the exercise of220,000 previously issued unlisted options.

 

On April 24,2007 (1,778), May 17, 2007 (6,290) and June 27, 2007 (6,138) a totalof 16,252 ordinary shares at an issue price of 75 cents each raising $12,189upon the exercise of CXSOA listed options issued as part of the 1:10 RightsIssue prospectus.

 

On July 17,2007 (300,000) September 24, 2007 (600,000) and December 3, 2007(10,000) a total of 910,000 ordinary shares at an issue price of $0.50 each raising$455,000 upon the exercise of 910,000 previously issued unlisted options.

 

On July 17,2007 (4,233), September 7, 2007 (3,341) November 8, 2007 (1,031) December 3,2007 ( 80,686) and December 5, 2007 (260,586) a total of 349,877 ordinaryshares at an issue price of 75 cents each raising $262,408 upon the exercise ofCXSOA listed options. On March 27, 2008 177 ordinary shares at an issueprice of 68 cents each raising $120 upon the exercise of CXSOA listed optionsfollowing the reduction in exercise price for these options approved at the November 27,2007 AGM.

 

On December 3,2007 (4,734) and December 5, 2007 (126) a total of 4,860 ordinary sharesat an issue price of $1.25 each raising $6,075 upon the exercise of CXSO listedoptions. On March 27, 2008 29 ordinary shares at an issue price of $1.18cents each raising $24 upon the exercise of CXSO listed options following thereduction in exercise price for these options approved at the November 27,2007 AGM. The issue of these shares resulted in the transfer of $2,445 from theOption Premium Reserve to Issued Capital.

 

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### **Table of Contents**

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRS FINANCIALSTATEMENTS

 

**Notes to the Financial Statements**

 

### **18. ISSUED CAPITAL AND RESERVES (CONT)**

### ** **

On December 13,2007 the company reduced the value of Issued Capital by $12,500,000 followingapproval of an In Specie Distribution to shareholders approved at the AGM on November 28,2007.

 

Ordinaryshares have the right to receive dividends as declared and, in the event ofwinding up the company, to participate in the proceeds from the sale of allsurplus assets in proportion to the number of and amounts paid up on sharesheld.

 

Ordinaryshares entitle their holders to one vote per share, either in person or byproxy, at a meeting of the company.

 

**Share Options**

 

*(i)Listed options*

 

At June 30,2008 there were 22,153,637 (2007: 22,158,526) unissued ordinary shares forwhich options were outstanding exercisable at $1.18 per share (2007: $1.25)expiring March 12, 2010. These options are listed under code CXSO on theASX. The exercise price for these options was reduced by 7 cents as part of theIn Specie Distribution approved at the AGM on November 28, 2007.

 

At June 30,2008 there were 10,950,166 (2007: 11,300,220) unissued ordinary shares forwhich options were outstanding exercisable at $0.68 per (2007: $0.75) shareexpiring February 8, 2012. These options are listed under code CXSOA onthe ASX. The exercise price for these options was reduced by 7 cents as part ofthe In Specie Distribution approved at the AGM on November 28, 2007.

 

* (ii)Unlisted Options*

 

Directors,employees and consultants of the company and its controlled entities areeligible to receive options under the Employee Share Option Plan (“ESOP”).

 

Any ESOPoptions to be issued to directors of the company must be approved byshareholders at a General Meeting.

 

During thefinancial year shareholders approved the issue of 850,000 ESOP options todirectors was approved at the AGM on November 28, 2007 and the issue of3,850,000 ESOP options to directors was approved at the EGM on March 26,2008.

 

Previousissues of ESOP options to directors have been approved by resolutions passed byshareholders on November 28, 2002 (300,000 options) November 21, 2003(300,000 options) and June 21, 2004 (3,000,000 options).

 

During thefinancial year a total of 14,116,500 ESOP options were issued over ordinaryshares to directors, employees and consultants as set out in Note 15 (2007:1,000,000).

 

During thefinancial year 910,000 options previously issued under ESOP were exercised(2007: 120,000).

 

During thefinancial year 145,000 options previously under ESOP lapsed or were cancelled(2007: Nil).

 

At the end ofthe year there were 20,421,000 (2007:7,359,500) unissued ordinary shares inrespect of which ESOP options were outstanding.

 

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**18. ISSUED CAPITAL ANDRESERVES (CONT)**

 
| **JUNE 30**                                                                                                                                                                                                                                                                                                                                                           | ** ** | **2008**       | ** ** | **2007**   | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------|------------|------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                 |       | **$**          |       | **$**      |       |
| **Other reserves**                                                                                                                                                                                                                                                                                                                                                         |       |           |       |       |       |
|                                                                                                                                                                                                                                                                                                                                                                       | ** ** | ** **     |       |       |       |
| Option  premium                                                                                                                                                                                                                                                                                                                                                            | ** ** | **10,864,433** |       | 10,866,878 |       |
| Equity  benefits reserve                                                                                                                                                                                                                                                                                                                                                   | ** ** | **5,069,590**  |       | 1,704,895  |       |
| Foreign  exchange translation reserve                                                                                                                                                                                                                                                                                                                                      | ** ** | **(1,279,954** | )          | (751,314   | )          |
| ** **                                                                                                                                                                                                                                                                                                                                                                 |       | **14,654,069** |       | 11,820,459 |       |
| **Option premium reserve**                                                                                                                                                                                                                                                                                                                                                 |       |           |       |       |       |
| * *                                                                                                                                                                                                                                                                                                                                                                   |       |           |       |       |       |
| *Nature and purpose of reserve*                                                                                                                                                                                                                                                                                                                                            |       |           |       |       |       |
| Amounts  contributed for the future right to acquire shares at a pre-determined price.  The reserve can be used to pay dividends or issue bonus shares.                                                                                                                                                                                                                    |       |           |       |       |       |
| * *                                                                                                                                                                                                                                                                                                                                                                   | ** ** | ** **     |       |       |       |
| *Movements in reserve*                                                                                                                                                                                                                                                                                                                                                     | ** ** | **(2,445**     | )          | —     |       |
| Balance  at end of year                                                                                                                                                                                                                                                                                                                                                    | ** ** | **10,864,433** |       | 10,866,878 |       |
| **Equity benefits reserve**                                                                                                                                                                                                                                                                                                                                                |       |           |       |       |       |
| * *                                                                                                                                                                                                                                                                                                                                                                   |       |           |       |       |       |
| *Nature and purpose of reserve*                                                                                                                                                                                                                                                                                                                                            |       |           |       |       |       |
|                                                                                                                                                                                                                                                                                                                                                                       |       |           |       |       |       |
| The  equity benefits reserve is used to record the value of equity based benefits  provided as remuneration under the ESOP (see note 15) or to pay for services  provided by third parties in lieu of cash.                                                                                                                                                                |       |           |       |       |       |
| * *                                                                                                                                                                                                                                                                                                                                                                   | ** ** | ** **     |       |       |       |
| *Movements in reserve*                                                                                                                                                                                                                                                                                                                                                     | ** ** | **3,364,695**  |       | 436,477    |       |
| Balance  at end of year                                                                                                                                                                                                                                                                                                                                                    | ** ** | **5,069,590**  |       | 1,704,895  |       |
| **Foreign exchange translation reserve**                                                                                                                                                                                                                                                                                                                                   | ** ** | ** **     | ** ** | ** ** | ** ** |
| * *                                                                                                                                                                                                                                                                                                                                                                   | ** ** | ** **     | ** ** | ** ** | ** ** |
| *Nature and purpose of reserve*                                                                                                                                                                                                                                                                                                                                            | ** ** | ** **     | ** ** | ** ** | ** ** |
|                                                                                                                                                                                                                                                                                                                                                                       | ** ** | ** **     | ** ** | ** ** | ** ** |
| The  foreign exchange translation reserve is used to record exchange differences  arising when the assets and liabilities of the overseas subsidiary are  translated into the presentation currency of the Parent at the rate of  exchange ruling at the balance sheet date and the income statement is  translated at the weighted average exchange rates for the period. | ** ** | ** **     | ** ** | ** ** | ** ** |
| * *                                                                                                                                                                                                                                                                                                                                                                   | ** ** | ** **     |       |       |       |
| *Movements in reserve*                                                                                                                                                                                                                                                                                                                                                     | ** ** | **(528,640**   | )          | (751,314   | )          |
| Balance  at end of year                                                                                                                                                                                                                                                                                                                                                    | ** ** | **(1,279,954** | )          | (751,314   | )          |

 

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

### **19. FINANCIAL RISKMANAGEMENT OBJECTIVES AND POLICIES**

### ** **

The Group’sprincipal financial instruments comprise receivables, payables, cash and bankdeposits and cash equivalents.

 

The Groupmanages its exposure to key financial risks, including interest rate andcurrency risk in accordance with the Group’s financial risk management policy.The objective of the policy is to support the delivery of the group’s financialtargets whilst protecting future financial security.

 

The main risksarising from the Group’s financial instruments are interest rate risk, foreigncurrency risk, credit risk and liquidity risk. The Group uses different methodsto measure and manage different types of risks to which it is exposed. Theseinclude monitoring levels of exposure to interest rate and foreign exchangerisk and assessments of market forecasts for interest rate and foreignexchange. Aging analyses and monitoring of specific credit allowances areundertaken to manage credit risk, liquidity risk is monitored through thedevelopment of future rolling cash flow forecasts.

 

Primaryresponsibility for identification and control of financial risks rests with theChief Financial Officer under the authority of the Chief Executive Officer andthe Board. The Board considers proposals for managing each of the risksidentified below, including the setting of limits for hedging cover of foreigncurrency and interest rate risk, credit allowances and future cash flowforecast projections.

 

Risk Exposuresand Responses

 

### **(a) Interest raterisk**

### ** **

The Group’sexposure to market interest rates relates primarily to the Group’s cashholdings.

 

The level ofcash is disclosed in note 9.

 

**Atbalance date the Group had the following financial assets exposed to variableinterest rate risk that are not designated in cash flow hedges**

 
| ** **                 | ** ** | **2008**       | ** ** | **2007**       | ** ** |
|----------------------------|------------|----------------|------------|----------------|------------|
| ** **                 | ** ** | **$**          | ** ** | **$**          | ** ** |
| **Financial Assets**       | ** ** | ** **     | ** ** | ** **     | ** ** |
| Cash  and cash equivalents | ** ** | **10,081,629** |       | 25,366,562     |       |
|                       |       |           |       |           |       |
| **Financial Liabilities**  |       | **—**     |       | **—**     |       |
| **Net Exposure**           | ** ** | **10,081,629** | ** ** | **25,366,562** | ** ** |

 

The Groupconstantly analyses its interest rate exposure. Within this analysisconsideration is given to a mix of fixed and variable interest arrangements.

 

The followingsensitivity analysis is based on the interest rate risk exposure at the balancesheet date.

 

**AtJune 30, 2008, if interest rates had moved, as illustrated in the tablebelow, with all other variables held constant, post tax profit and equity wouldhave been affected as follows:**

 
| **Judgements of reasonably** | ** ** | **Post Tax Profit  Higher/(Lower)** | ** ** | **Equity  Higher/(Lower)** | ** ** |
|----------------------------------------|------------|-----------------------------------------------|------------|----------------------------|------------|
| **possible movements**            | ** ** | **2008**                                      | ** ** | **2007**                   | ** ** | **2006** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Consolidated**                       | ** ** | ** **                                    | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| +1%  (100 basis points)                | ** ** | **175,849**                                   |       | 143,682                    | ** ** | **40,272** | ** ** | **175,849** |   | 143,682 |   | 40,272 |   |
| -.5%  (50 basis points)                | ** ** | **(87,924**                                   | **)**      | (71,841                    | )          | **(20,136** | **)** | **(87,924** | **)** | (71,841 | ) | (20,136 | ) |

 

The movementsin profit and equity are due to higher/lower interest income from variable ratecash balances.

 

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### **Table of Contents**

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

### **19. FINANCIAL RISKMANAGEMENT OBJECTIVES AND POLICIES (CONT)**

### ** **

### **(b) Foreigncurrency risk**

### ** **

As a result ofsignificant operations in the United States of America the Group’s balancesheet can be affected by movements in the US$/AUD exchange rate.

 

Approximately66% of the Group’s expenditure is denominated in US$, while the Group’sfunctional currency is AUD.

 

It is theGroup’s policy to monitor currency exposures, and to take forward cover, whenappropriate, to minimise exposure.

 

There were noforward currency contracts in place as at June 30, 2008. (2007: Nil)

 

**Atbalance date the Group had the following exposure to US$ currency not protectedby hedging cover**.

 
| ** **                | ** ** | **2008**     | ** ** | **2007**     | ** ** |
|---------------------------|------------|--------------|------------|--------------|------------|
| ** **                |       | **$**        | ** ** | **$**        |       |
| **Financial Liabilities** |       |         |       |         |       |
| Trade  and other payables | ** ** | **(328,523** | )          | (372,143     | )          |
| **Net Exposure**          | ** ** | **(328,523** | **)**      | **(372,143** | **)**      |

 

The Groupconstantly analyses its foreign currency exposure. The following sensitivityanalysis is based on the foreign currency exposure at the balance sheet date.

 

**AtJune 30, 2008, if the Australian Dollar had moved, as illustrated in thetable below, with all other variables held constant, post tax profit and equitywould have been affected as follows:**

 
| ** **       | ** ** | **Post Tax Profit  Higher/(Lower)** | ** ** | **Equity  Higher/(Lower)** | ** ** |
|------------------|------------|-----------------------------------------------|------------|----------------------------|------------|
| ** **       | ** ** | **2008**                                      | ** ** | **2007**                   | ** ** | **2006** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **       | ** ** | **$**                                         | ** ** | **$**                      | ** ** | **$** | ** ** | **$** | ** ** | **$** | ** ** | **$** | ** ** |
| **Consolidated** | ** ** | ** **                                    | ** ** | ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| AUD/US$+10%      | ** ** | **636,929**                                   |       | 334,599                    | ** ** | **632,993** | ** ** | **89,997** |   | 52,013 |   | 96,344 |   |
| AUD/US$-5%       | ** ** | **(368,749**                                  | **)**      | (193,715                   | )          | **(366,469** | **)** | **(53,365** | **)** | (30,113 | ) | (154,467 | ) |

 

The movementsin profit and equity in 2008 are more sensitive due to reduction in US$ cashbalances on hand and the increase in US$ payables.

 

Managementbelieve the balance date risk exposures are representative of the risk exposureinherent in the financial instruments.

 

### **(c) Credit risk**

### ** **

As at June 30,2008 the Group had no Trade and other receivables (2007: $18,000).

 

The Group’scash assets are held in various bank accounts.

 

The Group’sexposure to credit risk is minimal.

 

### **(d) Liquidity risk**

### ** **

The Group’sobjective is to maintain continuity of funding. As noted in Note 2(b) theGroup is currently investigating alternative capital raising opportunities.

 

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### **Table of Contents**

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

### **19. FINANCIAL RISKMANAGEMENT OBJECTIVES AND POLICIES (CONT)**

### ** **

### **Maturity analysis offinancial assets and liabilities based on management’s expectation.**

### ** **

The riskimplied from the values shown in the table below, reflects a balanced view ofavailable cash and outflows recognised at June 30, 2008. These assets areconsidered in the Group’s overall liquidity risk.

 
| **Year ended June 30,** | ** ** | **<6**     | ** ** | **6-12**   | ** ** | **1-5**   | ** ** | **>5** | ** ** | ** **    | ** ** |
|----------------------------------------|------------|---------------|------------|------------|------------|-----------|------------|-----------|------------|---------------|------------|
| **2008**                               | ** ** | **months**    | ** ** | **months** | ** ** | **Years** | ** ** | **years** | ** ** | **Total**     | ** ** |
| ** **                             |       | **$**         | ** ** | **$**      | ** ** | **$**     | ** ** | **$**     | ** ** | **$**         |       |
| **Consolidated**                       |       |          |       |       |       |      |       |      |       |          |       |
| **Financial Assets**                   |       |          |       |       |       |      |       |      |       |          |       |
| Cash &  cash equivalents      |       | 10,081,629    |       | —     |       | —    |       | —    |       | 10,081,629    |       |
|                                   |       |          |       |       |       |      |       |      |       |          |       |
| **Financial Liabilities**              |       |          |       |       |       |      |       |      |       |          |       |
| Trade &  other payables       |       | (3,061,974    | )          | —     |       | —    |       | —    |       | (3,061,974    | )          |
| **Net Maturity**                       | ** ** | **7,019,655** | ** ** | —     | ** ** | —    | ** ** | —    | ** ** | **7,019,655** | ** ** |

### ** **

### **Net fair values**

### ** **

Recognisedfinancial Instruments

 

Cash and cashequivalents: The carrying amount approximates fair value.

 

Tradereceivables: The carrying amount approximates fair value.

 

Tradepayables: The carrying amount approximates fair value.

 

### **20. CONTINGENTLIABILITIES**

### ** **

The Group hasnil contingent liabilities as at June 30, 2008 and 2007, and nilcontingent liabilities have arisen during the period to the date of this report.

 

The Group hadcommercialisation and licensing agreements with research partners that may havecreated an obligation to pay royalties, upon successful commercialisation ofdiscovery targets, in the future. The possible value of these contingentliabilities had never been quantified as no sales had been made. The relevantcommercialisation and licensing agreements were transferred to VervaPharmaceuticals Limited as part of the demerger in December 2007 and anysuch contingent liabilities no longer apply to the Group.

 

### **21. MATTERS SUBSEQUENTTO THE END OF THE FINANCIAL YEAR**

### ** **

On July 23,2008, following shareholder approval at an Extraordinary General Meeting heldon July 22, 2008, the Company issued 37,235,343 ordinary fully paid sharesto Stragen International N.V. The shares were issued as a condition to anIntellectual Property Assignment Deed under which the Company obtained fullcommercial control of omacetaxine mepesuccinate (formerly known as Ceflatonin)in Europe.

 

On August 5,2008 Mr Jean-Luc Tétard, President of Stragen Pharma SA, became a director ofthe Company.

 

On September 17,2008 the Company announced the placement of 15,216,153 ordinary fully paidshares at 85 cents each, raising a total of $12,933,730.These funds will beapplied to the continued clinical trial program for omacetaxine.

 

On October 13,2008 the Company announced that 150,568 shares had been issued under a SharePlacement Programme to existing shareholders on the same terms as the issue on September 17,2008. These issues brought the total fully paid ordinary shares issued byCompany to 239,714,338.

 

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**22. COMMITMENTS**

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | ** ** | ** ** | **CONSOLIDATED** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|
| **JUNE 30**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **Notes**  | ** ** | **2008**         | ** ** | **2007** | ** ** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |       |       | **$**            | ** ** | **$** |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |       |       |             |       |   |   |
| **(a)  Research expenditure commitments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |       |       |             |       |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |       |       |       |             |       |   |   |
| Estimated  research expenditure contracted for at reporting date, but not provided for,  payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |       |       |       |             |       |   |   |
| —not  later than one year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | ** ** | ** ** | ** ** | **3,542,428**    |       | 5,097,818 |   |
| —later  than one year and not later than five years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | ** ** | ** ** | **3,101,867**    |       | 1,130,354 |   |
| A  former Controlled Entity, Autogen Research Pty Ltd had agreed to provide  certain monies for research projects covering areas of diabetes, obesity,  autoimmune disorders and depression and anxiety with the object of long term  commercialisation. Research agreements were undertaken with Deakin  University, Southwest Foundation and The International Diabetes Institute.

 

Following  the demerger of the metabolic syndrome research operations in  December 2007 these commitments no longer remain with the Group.

 

A  Controlled Entity, ChemGenex Pharmaceuticals Inc. has appointed Premier  Research, Medpace and Xerimis to undertake research activities associated  with the Omacetaxine Stage 2/3 Clinical Trials for CML patients. Patients  recruited for Clinical Trials are guaranteed a level of treatment beyond the  trial period. Commitments for later than one year and less than five years  are based estimates of patient numbers and future treatments required. | ** ** | ** ** | ** ** | **—**       |       | (1,341,900 | ) |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | ** ** | ** ** | **6,644,295**    |       | 4,886,272 |   |
| **(b) Property lease commitments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |       | ** ** | ** ** | ** **       |       |   |   |
| ChemGenex  Pharmaceuticals, Inc. leases office and research space in Menlo Park,  California, under two different lease agreement which terminate on  October 31, 2010, and December 31, 2009.

 

ChemGenex  Pharmaceuticals Limited leases office space in Geelong, Victoria under a  lease agreement that expires on December 31, 2012.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       |       |       |             |       |   |   |
| - not  later than one year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | ** ** | ** ** | ** ** | **168,719**      |       | 29,903 |   |
| -  later than one year and not later than 5 years                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | ** ** | ** ** | ** ** | **271,296**      |       | — |   |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |       | ** ** | ** ** | **440,015**      |       | 29,903 |   |

 

F-34

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES**

 

### **(a) Detailsof Directors and Key Management personnel**

 
| *(i) Non- Executive Directors* |
|-------------------------------------|

 
| J.B.L.  Heading          | Chairman  (non-executive)                                   |
|--------------------------|-------------------------------------------------------------|
| E.J. Schnee              | Director  (non-executive)                                   |
| Dr. G.E.D.  Brooke  | Director  (non-executive)                                   |
| D.S. Janney              | Director  (non-executive)                                   |
| Dr. G  Morstyn      | Director  (non-executive)                                   |
| D. Santel                | Director  (non-executive) (Appointed December 6, 2007) |
| Dr. J.  Cherrington | Director  (non-executive) (Appointed January 7, 2008)  |

 
| *(ii) Executive directors* |
|---------------------------------|

 
| Dr. G.R.  Collier | Director and  Chief Executive Officer |
|------------------------|---------------------------------------|
| Dr. D.M.  Brown   | Director  (executive) and President   |

 
| *(iii) Key Management* |
|-----------------------------|

 
| Dr. J.  Campbell | Vice  President of Operations                  |
|-----------------------|------------------------------------------------|
| E. Merrigan           | Chief  Financial Officer and Company Secretary |
| Dr. A.  Craig    | ****Chief  Medical Officer****                 |
| T. Herbert            | ****Senior  Director of Finance****            |
| E. Humphriss          | Senior  Director of Clinical Affairs           |
| L. Staiger            | Vice  President of Regulatory Affairs          |
| T. Trapp              | Senior  Director of Manufacturing              |
| P. Lynch              | Associate  Director of Medical Affairs         |

 

**(b) Remunerationpolicy**

 

The Board ofDirectors is responsible for determining and reviewing compensation arrangementsfor the directors, the chief executive officer and the executive team. On June 8,2006 the Board established a Remuneration Committee to review all compensationarrangements, under the direction of the Board, and to make recommendation tothe Board on these matters.

 

Theremuneration committee met three times during the year ended June 30, 2008(seven times in 2006/2007).

 

In accordancewith best practice corporate governance, the structure of non-executivedirector and senior manager remuneration is separate and distinct.

 

***Non-executivedirector remuneration***

 

**Objective**

 

The Board seeks to setaggregate remuneration at a level which provides the company with the abilityto attract and retain directors of the highest calibre, whilst incurring a costwhich is acceptable to shareholders.

 

**Structure**

 

TheConstitution and the ASX Listing Rules specify that the aggregateremuneration of non-executive directors shall be determined from time to timeby a general meeting.  An amount notexceeding the amount determined is then divided between the directors asagreed.

 

The amount ofaggregate remuneration sought to be approved by shareholders and the manner inwhich it is apportioned amongst directors is reviewed annually.  The board considers the fees paid to non-executivedirectors of comparable companies when undertaking the annual review process.

 

Eachnon-executive director receives a fee for being a director of the company.

 

F-35

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Table ofContents

 

CHEMGENEX PHARMACEUTICALS LIMITED—IFRSFINANCIAL STATEMENTS

 

**Notes to the Financial Statements**

 

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES (CONT)**

 

***Remunerationof Key Management personnel***

 

**Objective**

 

The companyaims to reward executives with a level and mix of remuneration commensuratewith their position and responsibilities within the company and so as to:-

 

·                  reward executives for company performance against target;

·                  align the interests of executives with those of shareholders;

·                  link reward with the strategic goals and performance of the company;and

·                  ensure total remuneration is competitive by market standards.

 

**Structure**

 

The Board ofDirectors of ChemGenex Pharmaceuticals Limited, through the RemunerationCommittee, is responsible for determining and reviewing compensationarrangements for the directors, the chief executive officer and the executiveteam.  In accordance with best practicecorporate governance, the structure of non-executive director and seniormanager remuneration is separate and distinct. The Board seeks to set aggregateremuneration at a level which provides the company with the ability to attractand retain directors of the highest calibre, whilst incurring a cost which isacceptable to shareholders.

 

The Boardassesses the appropriateness of the nature and amount of emoluments of seniormanagement (the Chief Executive Officer and executives who report to the ChiefExecutive Officer) on a periodic basis by reference to relevant employmentmarket conditions with the overall objective of ensuring maximum stakeholderbenefit from the retention of a high quality executive team.  Senior management are given the opportunityto receive their base emolument in a variety of forms including cash and fringebenefits such as motor vehicles and expense payment plans.  It is intended that the manner of paymentchosen will be optimal for the recipient without creating undue cost for thecompany.

 

To assist inachieving these objectives, the Board links the nature and amount of executivedirectors’ and officers’ emoluments to the company’s financial and operationalperformance.  All senior executives havethe opportunity to qualify for participation in the Employee Option Plan whichcurrently provides incentives where specified criteria are met includingcriteria relating to profitability, cash flow, share price growth andenvironmental performance.  These optionswill vest according to length of service to the Company, with 50% of optionsgranted based on the performance conditions applicable to each employee.Details regarding the issue of share options under this plan are provided innote 15 to the financial statements.

 

The Company’scurrent remuneration policies provide some degree of linkage between anExecutive’s performance-based remuneration and the overall financialperformance of the Company. However, given the stage of development of theCompany, the remuneration is aimed at retaining key individuals to ensure thesuccess of product development, which will in turn impact the future overallprofitability of the Company and shareholder wealth.

 

Contracts forsenior executives, excluding the Chief Executive Officer, provide for bonusesof  between 10% and 40% of base salary tobe payable each year, subject to achievement of agreed performance objectives.A total of $303,255 has been accrued in the 2008 Financial Statements forpotential bonus payments for contracts which do not expire this financial year.

 

Cash bonusesincluded in the Compensation for Key Management Personnel relate to “Sign On”bonuses paid to executives upon starting employment with the Group. Thesepayments were not related to performance objectives.

 

F-36

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Table ofContents

 

CHEMGENEXPHARMACEUTICALS LIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES (CONT)**

** **

**(c) Compensation forKey Management personnel**

 
| ** **                    | ** ** | **Salary & Fees** | ** ** | **Cash Bonus** | ** ** | **Non-Monetary  Benefits** | ** ** | **Superannuation** | ** ** | **Options**    | ** ** | ** **    | ** ** |
|-------------------------------|------------|---------------------------------|------------|---------------------|------------|----------------------------|------------|--------------------|------------|----------------|------------|---------------|------------|
| *** ***                  | ** ** | **$**                           | ** ** | **$**               | ** ** | **$**                      | ** ** | **$**              | ** ** | **$**          | ** ** | **$**         | ** ** |
| ***Non-executive directors*** | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **J.B.L. Heading**            |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **70,850**                      | ** ** | **—**          | ** ** | **—**                 | ** ** | **—**         | ** ** | **46,200**     | ** ** | **117,050**   | ** ** |
| 2007                          |       | 70,849                          |       | —              |       | —                     |       | —             |       | —         |       | 70,849        |       |
| **E.J. Schnee**               | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **2008**                      | ** ** | **54,500**                      | ** ** | **—**          | ** ** | **—**                 | ** ** | **—**         | ** ** | **46,200**     | ** ** | **100,700**   | ** ** |
| 2007                          |       | 54,500                          |       | —              |       | —                     |       | —             |       | —         |       | 54,500        |       |
| **P. Burns**                  | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **2008**                      | ** ** | **22,708**                      | ** ** | **—**          | ** ** | **—**                 | ** ** | **—**         | ** ** | **—**     | ** ** | **22,708**    | ** ** |
| 2007                          |       | 54,500                          |       | —              |       |                       |       |               |       |           |       | 54,500        |       |
| **Dr. G.E.D. Brooke**    |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **54,500**                      | ** ** | **—**          | ** ** | **—**                 | ** ** | **—**         | ** ** | **46,200**     | ** ** | **100,700**   | ** ** |
| 2007                          |       | 22,708                          |       | —              |       | —                     |       | —             |       | —         |       | 22,708        |       |
| **D.S. Janney**               |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **54,500**                      | ** ** | **—**          | ** ** | **—**                 | ** ** | **—**         | ** ** | **46,200**     | ** ** | **100,700**   | ** ** |
| 2007                          |       | 22,708                          |       | —              |       | —                     |       | —             |       | —         |       | 22,708        |       |
| **Dr. G Morstyn**        |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **50,000**                      | ** ** | **—**          | ** ** | **—**                 | ** ** | **4,500**          | ** ** | **46,200**     | ** ** | **100,700**   | ** ** |
| 2007                          |       | 4,167                           |       | —              |       | —                     |       | 375                |       | —         |       | 4,542         |       |
| **D. Santel**                 | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **2008**                      | ** ** | **38,150**                      | ** ** | **—**          | ** ** | **—**                 | ** ** | **—**         | ** ** | **46,200**     | ** ** | **84,350**    | ** ** |
| 2007                          |       | —                          |       | —              |       | —                     |       | —             |       | —         |       | —        |       |
| **Dr. J. Cherrington**   | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **2008**                      | ** ** | **27,250**                      | ** ** | **—**          | ** ** | **—**                 | ** ** | **—**         | ** ** | **47,520**     | ** ** | **74,770**    | ** ** |
| 2007                          |       | —                          |       | —              |       | —                     |       | —             |       | —         |       | —        |       |
| ***Executive directors***     |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **Dr. G. R. Collier**    | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **2008**                      | ** ** | **355,008**                     | ** ** | **—**          | ** ** | **34,815**                 | ** ** | **54,000**         | ** ** | **162,205**    | ** ** | **606,028**   | ** ** |
| 2007                          |       | 383,764                         |       | —              |       | 20,203                     |       | 28,355             |       | 101,016        |       | 533,338       |       |
| **Dr. D.M. Brown**       | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **2008**                      | ** ** | **306,085**                     | ** ** | **—**          | ** ** | **33,489**                 | ** ** | **—**         | ** ** | **273,710**    | ** ** | **613,284**   | ** ** |
| 2007                          |       | 317,864                         |       | —              |       | 39,831                     |       | —             |       | —         |       | 357,695       |       |
| ***Key Management***          | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **Dr. J. Campbell**      |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **202,899**                     | ** ** | **—**          | ** ** | **—**                 | ** ** | **40,532**         | ** ** | **407,940**    | ** ** | **651,371**   | ** ** |
| 2007                          |       | 179,663                         |       | —              |       | —                     |       | 16,170             |       | —         |       | 195,833       |       |
| **E. Merrigan**               | ** ** | ** **                      | ** ** | ** **          | ** ** | ** **                 | ** ** | ** **         | ** ** | ** **     | ** ** | ** **    | ** ** |
| **2008**                      | ** ** | **105,000**                     | ** ** | **—**          | ** ** | **—**                 | ** ** | **45,833**         | ** ** | **305,420**    | ** ** | **456,253**   | ** ** |
| 2007                          |       | 108,750                         |       | —              |       | —                     |       | 32,700             |       | —         |       | 141,450       |       |
| **Dr. A. Craig**         |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **274,084**                     | ** ** | **83,477**          | ** ** | **18,144**                 | ** ** | **—**         | ** ** | **1,194,5800** | ** ** | **1,570,285** | ** ** |
| 2007                          |       | —                          |       | —              |       | —                     |       | —             |       | —         |       | —        |       |
| **T. Herbert**                |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **211,348**                     | ** ** | **—**          | ** ** | **14,447**                 | ** ** | **—**         | ** ** | **174,480**    | ** ** | **400,275**   | ** ** |
| 2007                          |       | 209,790                         |       | —              |       | 16,058                     |       | —             |       | —         |       | 225,848       |       |
| **E. Humphriss**              |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **230,952**                     | ** ** | **—**          | ** ** | **17,860**                 | ** ** | **—**         | ** ** | **136,870**    | ** ** | **385,682**   | ** ** |
| 2007                          |       | 101,399                         |       | —              |       | 12,202                     |       | —             |       | —         |       | 113,601       |       |
| **L. Staiger**                |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **73,459**                      | ** ** | **—**          | ** ** | **5,908**                  | ** ** | **—**         | ** ** | **14,920**     | ** ** | **94,287**    | ** ** |
| 2007                          |       | —                          |       | —              |       | —                     |       | —             |       | —         |       | —        |       |
| **T.Trapp**                   |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **88,654**                      | ** ** | **11,130**          | ** ** | **10,211**                 | ** ** | **—**         | ** ** | **60,030**     | ** ** | **170,025**   | ** ** |
| 2007                          |       | —                          |       | —              |       | —                     |       | —             |       | —         |       | —        |       |
| **P. Lynch**                  |       |                            |       |                |       |                       |       |               |       |           |       |          |       |
| **2008**                      | ** ** | **73,011**                      | ** ** | **—**          | ** ** | **12,387**                 | ** ** | **—**         | ** ** | **10,360**     | ** ** | **95,758**    | ** ** |
| 2007                          |       | —                          |       | —              |       | —                     |       | —             |       | —         |       | —        |       |
| **Total 2008**                | ** ** | **2,292,958**                   | ** ** | **94,607**          | ** ** | **147,261**                | ** ** | **144,865**        | ** ** | **3,065,235**  | ** ** | **5,744,926** | ** ** |
| Total  2007                   |       | 1,530,662                       |       | —              |       | 88,294                     |       | 77,600             |       | 101,016        |       | 1,797,572     |       |

 

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Table ofContents

 

CHEMGENEX PHARMACEUTICALSLIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES (CONT)**

### ** **

### **(d) ESOPoptions granted as equity compensation**

### ** **

ESOP optionsgranted as equity compensation benefits to key management personnel during thefinancial year are disclosed below.

 

The optionswere issued free of charge.  Each optionentitles the holder to subscribe for one fully paid ordinary share in theentity at exercise prices set out in the table below.

 

The optionsmay only be exercised after the first exercise date and before the expiry dateas set out in the table below:

** **
| ** **                  | ** ** | ** **         | ** ** | ** **          | ** ** | **Terms & Conditions for Each Grant** | ** ** |
|-----------------------------|------------|--------------------|------------|---------------------|------------|--------------------------------------------------------------------|------------|
| ** **                  | ** ** | **Vested  Number** | ** ** | **Granted  Number** | ** ** | **Grant date**                                                | ** ** | **Fair Value  per option at  grant date** | ** ** | **Exercise  Price per  share** | ** ** | **First Exercise  Date** | ** ** | **Expiry Date** | ** ** |
| ** **                  |       |               |       |                |       |                                                               |       | **($)** |   | **($)** |   |   |   |   |   |
| **2007/2008**               |       |               |       |                |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Non-executive Directors** |       |               |       |                |       |                                                               |       |   |   |   |   |   |   |   |   |
| B. Heading                  |       | 100,000            |       | 250,000             |       | March 27, 2008                                                |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| E. Schnee                   |       | 100,000            |       | 250,000             |       | March 27, 2008                                                |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| D. Janney                   |       | 100,000            |       | 250,000             |       | March 27, 2008                                                |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| Dr. G. Brooke          |       | 100.000            |       | 250,000             |       | March 27, 2008                                                |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| Dr. G. Morstyn         |       | 100,000            |       | 250,000             |       | March 27, 2008                                                |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| D. Santel                   |       | 100,000            |       | 250,000             |       | March 27, 2008                                                |       | 0.35 |   | 1.22 |   | 27/3/2008 |   | 26/3/2013 |   |
| Dr. J. Cherrington     |       | 100,000            |       | 250,000             |       | March 27, 2008                                                |       | 0.36 |   | 1.16 |   | 27/3/2008 |   | 26/3/2013 |   |
| **Executive Directors**     |       |               |       |                |       |                                                               |       |   |   |   |   |   |   |   |   |
| Dr. G. Collier         |       | —             |       | 600,000             |       | November 28, 2007                                             |       | 0.45 |   | 1.22 |   | 27/11/2008 |   | 27/11/2012 |   |
|                        |       |               |       | 600,000             |       | March 27, 2008                                                |       | 0.35 |   | 1.22 |   | 26/3/2009 |   | 26/3/2013 |   |
| Dr. D. Brown           |       | 250,000            |       | 250,000             |       | November 28, 2007                                             |       | 0.70 |   | 0.41 |   | 28/11/2007 |   | 27/11/2012 |   |
|                        |       |               |       | 1,500,000           |       | March 27, 2008                                                |       | 0.37 |   | 1.11 |   | 26/3/2009 |   | 26/3/2013 |   |
| **Key Management**          |       |               |       |                |       |                                                               |       |   |   |   |   |   |   |   |   |
| Dr. J. Campbell        |       | 300,000            |       | 300,000             |       | November 27, 2007                                             |       | 0.74 |   | 0.45 |   | 27/11/2007 |   | 26/11/2012 |   |
|                        |       |               |       | 1,200,000           |       | December 1, 2007                                              |       | 0.51 |   | 1.11 |   | 1/12/2008 |   | 30/11/2012 |   |
| E. Merrigan                 |       | 100,000            |       | 100,000             |       | November 27, 2007                                             |       | 0.73 |   | 0.47 |   | 27/11/2007 |   | 26/11/2012 |   |
|                        |       |               |       | 1,500,000           |       | December 1, 2007                                              |       | 0.51 |   | 1.11 |   | 1/12/2008 |   | 30/11/2012 |   |
| Dr. A Craig            |       | —             |       | 2,262,500           |       | November 27, 2007                                             |       | 0.61 |   | 0.95 |   | 30/6/2009 |   | 26/11/2012 |   |
| T. Herbert                  |       | 150,000            |       | 150,000             |       | November 27, 2007                                             |       | 0.75 |   | 0.41 |   | 27/11/2007 |   | 26/11/2012 |   |
|                        |       |               |       | 400,000             |       | December 1, 2007                                              |       | 0.51 |   | 1.11 |   | 1/12/2008 |   | 30/11/2012 |   |
| E. Humphriss                |       | 90,000             |       | 90,000              |       | November 27, 2007                                             |       | 0.66 |   | 0.63 |   | 27/11/2007 |   | 26/11/2012 |   |
|                        |       |               |       | 500,000             |       | December 1, 2007                                              |       | 0.51 |   | 1.11 |   | 1/12/2008 |   | 30/11/2012 |   |
| L. Staiger                  |       | —             |       | 500,000             |       | June 6, 2008                                                  |       | 0.53 |   | 0.79 |   | 1/12/2008 |   | 30/11/2012 |   |
| T. Trapp                    |       | 100,000            |       | 500,000             |       | June 6, 2008                                                  |       | 0.49 |   | 0.91 |   | 1/12/2008 |   | 30/11/2012 |   |
| P. Lynch                    |       | —             |       | 400,000             |       | June 6, 2008                                                  |       | 0.46 |   | 1.04 |   | 1/12/2008 |   | 30/11/2012 |   |

 

**2006/2007**

 

**Non-executive Directors, Executive Directors andKey Management : Nil**

 

F-38

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### **Table of Contents**

 

CHEMGENEXPHARMACEUTICALS LIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

### ** **

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES (CONT)**

### ** **

### **(e)  Options granted during the year**

 
| ** **                   | ** ** | **Value of options  granted during the year** | ** ** | **Value of options  exercised during the  year** | ** ** | **Value of options lapsed  during the year** | ** ** | **Remuneration  consisting of  options for the year** | ** ** |
|------------------------------|------------|------------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **$**                                                                  | ** ** | **$**                                                                | ** ** | **$**                                                                 | ** ** | **%**                                                                     | ** ** |
| **Non- executive Directors** | ** ** | ** **                                                             | ** ** | ** **                                                           | ** ** | ** **                                                            | ** ** | ** **                                                                | ** ** |
| J.B.L.  Heading              |       | 87,500                                                                 |       | —                                                               |       | —                                                                |       | 39.5                                                                      |       |
| E.J.  Schnee                 |       | 87,500                                                                 |       | —                                                               |       | —                                                                |       | 45.9                                                                      |       |
| P.  Burns                    |       | —                                                                 |       | —                                                               |       | —                                                                |       | —                                                                    |       |
| Dr. G.E.D.  Brooke      |       | 87,500                                                                 |       | —                                                               |       | —                                                                |       | 45.9                                                                      |       |
| D.S.  Janney                 |       | 87,500                                                                 |       | —                                                               |       | —                                                                |       | 45.9                                                                      |       |
| Dr. G.  Morstyn         |       | 87,500                                                                 |       | —                                                               |       | —                                                                |       | 45.9                                                                      |       |
| D.  Santel                   |       | 87,500                                                                 |       | —                                                               |       | —                                                                |       | 54.8                                                                      |       |
| Dr. J.  Cherrington     |       | 90,000                                                                 |       | —                                                               |       | —                                                                |       | 63.6                                                                      |       |
| **Executive Directors**      | ** ** | ** **                                                             | ** ** | ** **                                                           | ** ** | ** **                                                            | ** ** | ** **                                                                | ** ** |
| Dr. G.R.  Collier       |       | 480,000                                                                |       | —                                                               |       | —                                                                |       | 26.8                                                                      |       |
| Dr. D.M.  Brown         |       | 730,000                                                                |       | —                                                               |       | —                                                                |       | 44.6                                                                      |       |
| **Executives**               | ** ** | ** **                                                             | ** ** | ** **                                                           | ** ** | ** **                                                            | ** ** | ** **                                                                | ** ** |
| Dr. J.  Campbell        |       | 834,000                                                                |       | —                                                               |       | —                                                                |       | 62.6                                                                      |       |
| E.  Merrigan                 |       | 838,000                                                                |       | —                                                               |       | —                                                                |       | 66.9                                                                      |       |
| Dr. A.  Craig           |       | 1,357,000                                                              |       | —                                                               |       | —                                                                |       | 76.1                                                                      |       |
| T. Herbert                   |       | 316,500                                                                |       | —                                                               |       | —                                                                |       | 43.6                                                                      |       |
| E.  Humphriss                |       | 314,400                                                                |       | —                                                               |       | —                                                                |       | 35.5                                                                      |       |
| L.  Staiger                  |       | 265,000                                                                |       | —                                                               |       | —                                                                |       | 15.8                                                                      |       |
| T.  Trapp                    |       | 245,000                                                                |       | —                                                               |       | —                                                                |       | 35.3                                                                      |       |
| P.  Lynch                    |       | 184,000                                                                |       | —                                                               |       | —                                                                |       | 10.8                                                                      |       |
| **Total**                    |       | 6,178,900                                                              |       | —                                                               |       | —                                                                | ** ** | **—**                                                                | ** ** |

 

For details onthe valuation of the options, including models and assumptions used, pleaserefer to note 15.

 

There were noalterations to the terms and conditions of options granted as remunerationsince their grant date.

 

There were noforfeitures during the period.

 

There were noshares issued on the exercise of compensation options during the period.

### ** **

### **(f) Sharesissued on exercise of remuneration options**

### ** **

No shares wereissued to Non-executive Directors, Executive Directors or Key Management on theexercise of options in 2008.

 

400,000 shareswere issued to either Greg Collier or related parties of Greg Collier on theexercise of remuneration options in 2007.

### ** **

### **(g) Employment contracts**

### ** **

The CEO, DrGreg Collier, is employed under contract. The current employment contract commenced on July 1, 2007 andterminates on June 30, 2012, at which time the company may choose tocommence negotiation to enter into a new employment contract with DrCollier.  Under the terms of the presentcontract:-

 

·                  Dr Colliermay resign from his position and thus terminate this contract by giving 6months written notice.

 

·                  The companymay terminate this employment agreement by providing 6 months written notice orprovide payment in lieu of the notice period.

 

·                  The companymay terminate the contract at any time without notice if serious misconduct hasoccurred.  Where termination with causeoccurs the CEO is only entitled to remuneration up to the date of termination.

 

All otherexecutives are employed under contracts which have a term of 12 months andprovide for termination, by either party, with notice periods between 2 and 4months. These contracts provide for bonuses of between 10% to 40% of the basesalary to be payable each year, subject to achievement of agreed performanceobjectives. The performance objectives for each executive are approved as partof the contract renewal process each year and bonus payments are subject toapproval by the Board, Remuneration Committee or Chief Executive Officer as isappropriate for each contract.

 

F-39

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Table ofContents

 

CHEMGENEXPHARMACEUTICALS LIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES (CONT)**

### ** **

### **(h) Optionholdings**

 
| ** **                    | ** ** | **Balance at  beginning**             | ** ** | ** **                        | ** ** | ** **             | ** ** | ** **                 | ** ** | **Balance at  end of**    | ** ** | **Vested at June 30, 2008** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|-----------------------------------|------------|------------------------|------------|----------------------------|------------|-------------------------------------|------------|-------------------------------------------------|------------|
| **June 30, 2008**   | ** ** | **of period  July 1, 2007** | ** ** | **Granted as  Remuneration** | ** ** | **Options  Exercised** | ** ** | **Net Change  Other** | ** ** | **period  June 30, 2008** | ** ** | **Total**                                       | ** ** | **Not  exercisable** | ** ** | **Exercisable** | ** ** |
| ** **                    | ** ** | ** **                                 | ** ** | **#**                             | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **                          | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    |       |                                       |       |                              |       |                   |       |                       |       |                                |       |                                            |       |   |   |   |   |
| **Non-  executive Directors** |       |                                       |       |                              |       |                   |       |                       |       |                                |       |                                            |       |   |   |   |   |
| J.B.L.  Heading               |       | 3,333                                      |       | 250,000                           |       | —                 |       | —                     |       | 253,333                             |       | 103,333                                         |       | — |   | 103,333 |   |
| E.J.  Schnee                  |       | 4,439,308                                  |       | 250,000                           |       | —                 |       | —                     |       | 4,689,308                           |       | 4,539,308                                       |       | — |   | 4,539,308 |   |
| Dr. G.E.D.  Brooke       |       | 2,736,065                                  |       | 250,000                           |       | —                 |       | —                     |       | 2,986,065                           |       | 2,836,065                                       |       | — |   | 2,836,065 |   |
| D.S.  Janney                  |       | 6,088,053                                  |       | 250,000                           |       | —                 |       | —                     |       | 6,338,053                           |       | 6,188,053                                       |       | — |   | 6,188,053 |   |
| Dr. G.  Morstyn          |       | —                                     |       | 250,000                           |       | —                 |       | —                     |       | 250,000                             |       | 100,000                                         |       | — |   | 100,000 |   |
| D.  Santel                    |       | —                                     |       | 250,000                           |       | —                 |       | —                     |       | 250,000                             |       | 100,000                                         |       | — |   | 100,000 |   |
| Dr. J.  Cherrington      |       | —                                     |       | 250,000                           |       | —                 |       | —                     |       | 250,000                             |       | 100,000                                         |       | — |   | 100,000 |   |
| **Executive  Directors**      |       |                                       |       |                              |       |                   |       |                       |       |                                |       |                                            |       |   |   |   |   |
| Dr. G.R.  Collier        |       | 3,400,000                                  |       | 1,200,000                         |       | —                 |       | —                     |       | 4,600,000                           |       | 2,900,000                                       |       | 200,000 |   | 2,700,000 |   |
| Dr. D.M.  Brown          |       | —                                     |       | 1,750,000                         |       | —                 |       | —                     |       | 1,750,000                           |       | 250,000                                         |       | — |   | 250,000 |   |
| **Executives**                |       |                                       |       |                              |       |                   |       |                       |       |                                |       |                                            |       |   |   |   |   |
| Dr. J.  Campbell         |       | 385,167                                    |       | 1,500,000                         |       | —                 |       | —                     |       | 1,885,167                           |       | 685,167                                         |       | — |   | 685,167 |   |
| E.  Merrigan                  |       | 101,667                                    |       | 1,600,000                         |       | —                 |       | —                     |       | 1,701,667                           |       | 201,667                                         |       | — |   | 201,667 |   |
| Dr. A.  Craig            |       | —                                     |       | 2,262,500                         |       | —                 |       | —                     |       | 2,262,500                           |       | —                                          |       | — |   | — |   |
| T.  Herbert                   |       | —                                     |       | 550,000                           |       | —                 |       | —                     |       | 550,000                             |       | 150,000                                         |       | — |   | 150,000 |   |
| E.  Humphriss                 |       | —                                     |       | 590,000                           |       | —                 |       | —                     |       | 590,000                             |       | 90,000                                          |       | — |   | 90,000 |   |
| L.  Staiger                   |       | —                                     |       | 500,000                           |       | —                 |       | —                     |       | 500,000                             |       | —                                          |       | — |   | — |   |
| T.  Trapp                     |       | —                                     |       | 500,000                           |       | —                 |       | —                     |       | 500,000                             |       | 100,000                                         |       | — |   | 100,000 |   |
| P.  Lynch                     |       | —                                     |       | 400,000                           |       | —                 |       | —                     |       | 400,000                             |       | —                                          |       | — |   | — |   |
| **Total**                     | ** ** | **17,153,593**                             | ** ** | **12,602,500**                    | ** ** | **—**             | ** ** | **—**                 | ** ** | **29,756,093**                      | ** ** | **18,343,593**                                  | ** ** | **200,000** | ** ** | **18,143,593** | ** ** |

 

----

*# Includes forfeits and offers under the ESOP to June 30, 2008*

 

F-40

----

Table ofContents

 

CHEMGENEXPHARMACEUTICALS LIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES (CONT)**

### ** **

### **(h) Optionholdings (con’t)**

 
| ** **                    | ** ** | **Balance at  beginning**             | ** ** | ** **                        | ** ** | ** **             | ** ** | ** **                 | ** ** | **Balance at  end of**    | ** ** | **Vested at June 30, 2007** | ** ** |
|-------------------------------|------------|--------------------------------------------|------------|-----------------------------------|------------|------------------------|------------|----------------------------|------------|-------------------------------------|------------|-------------------------------------------------|------------|
| **June 30, 2007**   | ** ** | **of period  July 1, 2006** | ** ** | **Granted as  Remuneration** | ** ** | **Options  Exercised** | ** ** | **Net Change  Other** | ** ** | **period  June 30, 2007** | ** ** | **Total**                                       | ** ** | **Not  exercisable** | ** ** | **Exercisable** | ** ** |
| ** **                    | ** ** | ** **                                 | ** ** | **#**                             | ** ** | ** **             | ** ** | ** **                 | ** ** | ** **                          | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                    |       |                                       |       |                              |       |                   |       |                       |       |                                |       |                                            |       |   |   |   |   |
| **Non-  executive Directors** |       |                                       |       |                              |       |                   |       |                       |       |                                |       |                                            |       |   |   |   |   |
| J.B.L.  Heading               |       | —                                     |       | —                            |       | —                 |       | 3,333                      |       | 3,333                               |       | 3,333                                           |       | — |   | 3,333 |   |
| E.J.  Schnee                  |       | 4,439,308                                  |       | —                            |       | —                 |       | —                     |       | 4,439,308                           |       | 4,439,308                                       |       | — |   | 4,439,308 |   |
| Dr. G.E.D.  Brooke       |       | —                                     |       | —                            |       | —                 |       | 2,736,065                  |       | 2,736,065                           |       | 2,736,065                                       |       | — |   | 2,736,065 |   |
| D.S.  Janney                  |       | —                                     |       | —                            |       | —                 |       | 6,088,053                  |       | 6,088,053                           |       | 6,088,053                                       |       | — |   | 6,088,053 |   |
| Dr. G.  Morstyn          |       | —                                     |       | —                            |       | —                 |       | —                     |       | —                              |       | —                                          |       | — |   | — |   |
| D.  Santel                    |       | —                                     |       | —                            |       | —                 |       | —                     |       | —                              |       | —                                          |       | — |   | — |   |
| Dr. J.  Cherrington      |       | —                                     |       | —                            |       | —                 |       | —                     |       | —                              |       | —                                          |       | — |   | — |   |
| **Executive****Directors**    |       |                                       |       |                              |       |                   |       |                       |       |                                |       |                                            |       |   |   |   |   |
| Dr. G.R.  Collier        |       | 3,800,000                                  |       | —                            |       | (400,000               | )          |                       |       | 3,400,000                           |       | 2,400,000                                       |       | 200,000 |   | 2,200,000 |   |
| Dr. D.M.  Brown          |       | —                                     |       | —                            |       | —                 |       | —                     |       | —                              |       | —                                          |       | — |   | — |   |
| **Executives**                |       |                                       |       |                              |       |                   |       |                       |       |                                |       |                                            |       |   |   |   |   |
| Dr. J.  Campbell         |       | 385,000                                    |       | —                            |       | —                 |       | 167                        |       | 385,167                             |       | 385,167                                         |       | — |   | 385,167 |   |
| E.  Merrigan                  |       | 100,000                                    |       | —                            |       | —                 |       | 1,667                      |       | 101,667                             |       | 101,667                                         |       | — |   | 101,667 |   |
| Dr. A.  Craig            |       | —                                     |       | —                            |       | —                 |       |                       |       | —                              |       | —                                          |       | — |   | — |   |
| T.  Herbert                   |       | —                                     |       | —                            |       | —                 |       |                       |       | —                              |       | —                                          |       | — |   | — |   |
| E.  Humphriss                 |       | —                                     |       | —                            |       | —                 |       | —                     |       | —                              |       | —                                          |       | — |   | — |   |
| L.  Staiger                   |       | —                                     |       | —                            |       | —                 |       | —                     |       | —                              |       | —                                          |       | — |   | — |   |
| T.  Trapp                     |       | —                                     |       | —                            |       | —                 |       | —                     |       | —                              |       | —                                          |       | — |   | — |   |
| P.  Lynch                     |       | —                                     |       | —                            |       | —                 |       | —                     |       | —                              |       | —                                          |       | — |   | — |   |
| **Total**                     | ** ** | **8,724,308**                              | ** ** | **—**                        | ** ** | **(400,000**           | **)**      | **8,829,285**              | ** ** | **17,153,593**                      | ** ** | **16,153,593**                                  | ** ** | **200,000** | ** ** | **15,953,593** | ** ** |

 

----

# Includes forfeits and offers to employees under the ESOP to June 30, 2007

 

Net ChangeOther includes-

 

Listed optionsissued as part of the April 2007 Rights Issue to all eligible shareholdersincluding B. Heading, Dr. J. Campbell and E. Merrigan.

 

D.S. Janneyand Dr. G.E.D. Brooke became directors on February 8, 2007 and theoptions held by entities in which they hold directorships are added to thetotal for the year ended June 30, 2007.

 

F-41

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Table ofContents

 

CHEMGENEXPHARMACEUTICALS LIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES (CONT)**

* *

**(i)  Shareholdings**

* *
| **June 30,  2008**      | ** ** | **Balance****July 1, 2007  Ord** | ** ** | **Granted as****Remuneration  Ord.** | ** ** | **On Exercise****of Options  Ord** | ** ** | **Net Change****Other  Ord** | ** ** | **Balance****June 30, 2008  Ord** | ** ** |
|------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|------------------------------|------------|----------------------------------------|------------|
| ** **                   | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** **                         | ** ** | ** **                   | ** ** | ** **                             | ** ** |
| **Non- executive Directors** |       |                                  |       |                                 |       |                               |       |                         |       |                                   |       |
| J.B.L.  Heading              |       | 110,000                               |       | —                               |       | —                             |       | —                       |       | 110,000                                |       |
| E.J.  Schnee                 |       | 18,833,750                            |       | —                               |       | —                             |       | —                       |       | 18,833,750                             |       |
| Dr. G.E.D.  Brooke      |       | 16,629,765                            |       | —                               |       | —                             |       | —                       |       | 16,629,765                             |       |
| D.S.  Janney                 |       | 37,009,671                            |       | —                               |       | —                             |       | —                       |       | 37,009,671                             |       |
| Dr. G.  Morstyn         |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| D.  Santel                   |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| Dr. J.  Cherrington     |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| **Executive Directors**      |       |                                  |       | —                               |       | —                             |       | —                       |       |                                   |       |
| Dr. G.R.  Collier       |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| Dr. D.M.  Brown         |       | 13,876,552                            |       | —                               |       | —                             |       | —                       |       | 13,876,552                             |       |
| **Executives**               |       |                                  |       | —                               |       | —                             |       | —                       |       |                                   |       |
| Dr. J.  Campbell        |       | 5,500                                 |       | —                               |       | —                             |       | —                       |       | 5,500                                  |       |
| E.  Merrigan                 |       | 55,000                                |       |                                 |       |                               |       |                         |       | 55,000                                 |       |
| Dr. A.  Craig           |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| T.  Herbert                  |       | 760,027                               |       | —                               |       | —                             |       | —                       |       | 760,027                                |       |
| E.  Humphriss                |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| L.  Staiger                  |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| T.  Trapp                    |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| P.  Lynch                    |       | —                                |       | —                               |       | —                             |       | —                       |       | —                                 |       |
| **Total**                    |       | 87,280,265                            |       | —                               |       | —                             |       | —                       |       | 87,280,265                             |       |

 
| **June 30,  2007**      | ** ** | **Balance  July 1, 2006  Ord** | ** ** | **Granted as  Remuneration  Ord.** | ** ** | **On Exercise  of Options  Ord** | ** ** | **Net Change  Other  Ord** | ** ** | **Balance  June 30, 07  Ord** | ** ** |
|------------------------------|------------|-------------------------------------|------------|------------------------------------|------------|----------------------------------|------------|----------------------------|------------|------------------------------------|------------|
| ** **                   | ** ** | ** **                          | ** ** | ** **                         | ** ** | ** **                       | ** ** | ** **                 | ** ** | ** **                         | ** ** |
| **Non- executive Directors** |       |                                |       |                               |       |                             |       |                       |       |                               |       |
| J.B.L.  Heading              |       | 100,000                             |       | —                             |       | —                           |       | 10,000                     |       | 110,000                            |       |
| E.J.  Schnee                 |       | 18,833,750                          |       | —                             |       | —                           |       | —                     |       | 18,833,750                         |       |
| Dr. G.E.D.  Brooke      |       | —                              |       | —                             |       | —                           |       | 16,629,765                 |       | 16,629,765                         |       |
| D.S.  Janney                 |       | —                              |       | —                             |       | —                           |       | 37,009,671                 |       | 37,009,671                         |       |
| Dr. G.  Morstyn         |       | —                              |       | —                             |       | —                           |       | —                     |       | —                             |       |
| D.  Santel                   |       | —                              |       | —                             |       | —                           |       | —                     |       | —                             |       |
| Dr. J.  Cherrington     |       | —                              |       | —                             |       | —                           |       | —                     |       | —                             |       |
| **Executive Directors**      | ** ** | ** **                          | ** ** | ** **                         | ** ** | ** **                       | ** ** | ** **                 | ** ** | ** **                         | ** ** |
| Dr. G.R.  Collier       |       | —                              |       | —                             |       | 400,000                          |       | (400,000                   | )          | —                             |       |
| Dr. D.M.  Brown         |       | 14,398,297                          |       | —                             |       | —                           |       | (521,745                   | )          | 13,876,552                         |       |
| **Executives**               |       |                                |       |                               |       |                             |       |                       |       |                               |       |
| Dr. J.  Campbell        |       | 5,000                               |       | —                             |       | —                           |       | 500                        |       | 5,500                              |       |
| E.  Merrigan                 |       | 50,000                              |       | —                             |       | —                           |       | 5,000                      |       | 55,000                             |       |
| Dr. A.  Craig           |       | —                              |       | —                             |       | —                           |       | —                     |       | —                             |       |
| T.  Herbert                  |       | 760,027                             |       | —                             |       | —                           |       | —                     |       | 760,027                            |       |
| E.  Humphriss                |       | —                              |       | —                             |       | —                           |       | —                     |       | —                             |       |
| L.  Staiger                  |       | —                              |       | —                             |       | —                           |       | —                     |       | —                             |       |
| T.  Trapp                    |       | —                              |       | —                             |       | —                           |       | —                     |       | —                             |       |
| P.  Lynch                    |       | —                              |       | —                             |       | —                           |       | —                     |       | —                             |       |
| **Total**                    | ** ** | **34,147,074**                      |       | —                             | ** ** | **400,000**                      | ** ** | **52,733,191**             | ** ** | **87,280,265**                     | ** ** |

 

F-42

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Table ofContents

 

CHEMGENEXPHARMACEUTICALS LIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**23. DIRECTOR AND KEYMANAGEMENT PERSONNEL DISCLOSURES (CONT)**

* *

*Net Change Other includes-*

 

Listed optionsissued as part of the April 2007 Rights Issue to all eligible shareholdersincluding B. Heading, Dr. J. Campbell and E. Merrigan.

 

D.S. Janneyand Dr. G.E.D. Brooke became directors on February 8, 2007 and theshares held by entities in which they hold directorships are added to the totalfor the year ended June 30, 2007.

 

All equitytransactions with directors and executives other than those arising from theexercise of remuneration options have been entered into under terms andconditions no more favourable than those the entity would have adopted ifdealing at arm’s length.

 

### **(j) Loans to directors and executives**

### ** **

Optionsgranted under the ESOP in 2000 and 2001 contained an issue price which thecompany, in accordance with the terms of the ESOP, funded via an interest free “offbalance sheet” loan to the option holder. The loan is repayable upon the saleof shares obtained through exercise of the options.

 

Dr. GregCollier (who was not a director at the time of the grants) received 100,000options under the ESOP in financial years 2000 and 2001 and, as a result, wasgiven a loan to fund the issue price of these options. Subsequent to the dateof these option grants the terms and conditions of the “off balance sheet”loans have not been changed, no repayments have been made and the balance of$96,820 is outstanding at June 30, 2008. Interest not charged for the yearended June 30, 2008 of $3,834 has been included in the Remuneration Reportas a non-monetary benefit. (2007: $3,834)

 

Neither theloans nor equity items relating to these options are included in the company’sfinancial statements as share price hurdle rates associated with these optionshave not been achieved.

 

There are noother loans to specified directors and specified executives and there have beenno other loans made to or repaid by specified directors and specifiedexecutives during the years ended June 30, 2008 and 2007.

 

### **(k) Compensation by Category to KeyManagement Personnel**

 
| **JUNE 30**                       | ** ** | **2008**      | ** ** | **2007**      | ** ** | **2006**  | ** ** |
|-----------------------------------|------------|---------------|------------|---------------|------------|-----------|------------|
| ** **                        | ** ** | **$**         | ** ** | **$**         | ** ** | **$**     | ** ** |
| Short  term employee benefits     | ** ** | **2,534,826** |       | 1,618,956     |       | 1,381,433 |       |
| Post  Employment (Superannuation) | ** ** | **144,865**   |       | 77,600        |       | 53,223    |       |
| Other  long-term benefits         |       | —        |       | —        |       | —    |       |
| Retirement  benefits              |       | —        |       | —        |       | —    |       |
| Share-based  Payment              | ** ** | **3,065,235** |       | 101,016       |       | 369,706   |       |
|                              | ** ** | **5,744,926** | ** ** | **1,797,572** |       | 1,804,362 |       |

 

### **24.          RELATED PARTYDISCLOSURES**

** **

**Ultimate parent**

 

ChemGenexPharmaceuticals Limited is the ultimate Australian parent company.

 
| * *                                                               | ** ** | **2008**       | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------------------------------------------------|------------|----------------|------------|------------|------------|------------|------------|
| *Transactions by parent with subsidiary companies:*                    | ** ** | ** **     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Young  Australia for:                                                  | ** ** | ** **     |       |       |       |       |       |
| Purchase  of Intellectual Property from ChemGenex Pharmaceuticals Inc. | ** ** | **—**     |       | —     |       | 13,471,642 |       |
| Amount  paid to ChemGenex Pharmaceuticals Inc. for research activities | ** ** | **8,859,500**  |       | 5,566,298  |       | 4,541,697  |       |
| Amount  advanced to Autogen Research Pty Ltd for research activities   | ** ** | **1,341,929**  |       | 3,544,823  |       | 2,811,456  |       |
|                                                                   |       |           |       |       |       |       |       |
| Amount  owing to ChemGenex Pharmaceuticals Inc. as at June 30     | ** ** | **(6,677,700** | **)**      | (3,308,449 | )          | (6,962,919 | )          |
| Amount  owing by Autogen Research Pty Ltd as at June 30           | ** ** | **—**     |       | 24,302,043 |       | 20,757,220 |       |

 

F-43

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Table of Contents

 

CHEMGENEXPHARMACEUTICALS LIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**24.          RELATED PARTY DISCLOSURES (CONT)**

 

### ***Revenues***

### ** **

Mr E. J.Schnee, a director of ChemGenex Pharmaceuticals Limited is also a director ofMerck Santé which holds 18,793,750 shares and 4,439,308 options in the company.Merck Santé is party to research and commercialisation agreements with thecompany’s previously 100% owned subsidiary Autogen Research Pty Limited.  Under these agreements Merck Santé providedresearch revenue of $Nil to Autogen Research Pty Ltd. (while it was asubsidiary of ChemGenex Pharmaceuticals Limited) during the year ended June 30,2008. (2007: $331,377)

 

### ***Expenses***

### ** **

During theyear ended June 30, 2008 legal services to the value of $173,111 (2007:$93,282) were provided by McCullough Robertson solicitors, a legal firm ofwhich Mr J.B.L. Heading, a director of ChemGenex Pharmaceuticals Limited, is apartner.

 

Mr J.B.L.Heading is also a director of two companies that are the joint holders of 5% ofthe shares of Global Markets Capital Group LLC that provided no advisory andconsulting services to the company during the year ended June 30, 2008 butprovided services to the value of $200,483 (including share-based compensationof $165,924) during the year ended June 30, 2007. Mr Heading has nobeneficial interest in these shareholders.

 

Mr K.J. Dart aformer director of ChemGenex Pharmaceuticals Limited, was also a director andshareholder of Charter Pacific Corporation Limited.  Charter Pacific Corporation Limited is asignificant shareholder of Global Markets Capital Group LLC that provided noadvisory and consulting services to the company during the year ended June 30,2008 but provided services to the value of $200,483 (including share-basedcompensation of $165,924) during the year ended June 30, 2007.

 

### ***Assets***

 

### **As at June 30, 2008 and 2007 no related parties hadfunds owing to ChemGenex Pharmaceuticals Limited as Trade receivables.**

 

### ***Liabilities***

 

Included inTrade and other payables as at June 30, 2008 was an amount of $ Nil owingto McCullough Robertson on normal commercial terms.

 

Included inTrade and other payables as at June 30, 2007 was an amount of $ 4,494owing to McCullough Robertson on normal commercial terms.

 

### ***Deferred revenue***

### ** **

Included inDeferred revenue as at June 30, 2007 was an amount of $165,688 which hadbeen received from Merck Santé for which services contracted had not beenprovided at that time. These services have since been provided in the yearending June 30, 2008.

 

**Amounts recognised at the reporting date as related party transactions:**

 
| **Assets and Liabilities** | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|----------------------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | **$**      | ** ** | **$**      | ** ** |
| ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Assets**                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade  receivables         | ** ** | **—** |       | —     |       |
|                       |       |       |       |       |       |
| **Total Assets**           | ** ** | **—** |       | —     |       |
| **Liabilities**            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade  and other payables  | ** ** | **—** |       | 4,494      |       |
|                       |       |       |       |       |       |
| **Deferred revenue**       | ** ** | **—** |       | 165,688    |       |
| ** **                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total Liabilities**      | ** ** | **—** |       | 170,182    |       |

 
| **Revenues and Expenses**                  | ** ** | **2008**         | ** ** | **2007**      | ** ** | **2006**     | ** ** |
|--------------------------------------------|------------|------------------|------------|---------------|------------|--------------|------------|
| ** **                                 | ** ** | **$**            | ** ** | **$**         | ** ** | ** **   | ** ** |
| ** **                                 | ** ** | ** **       | ** ** | ** **    | ** ** | ** **   | ** ** |
| **Revenues**                               | ** ** | ** **       | ** ** | ** **    | ** ** | ** **   | ** ** |
| ** **                                 | ** ** | ** **       | ** ** | ** **    | ** ** | ** **   | ** ** |
| Research  Revenue                          | ** ** | **165,688**      |       | 331,377       |       | 1,666,273    |       |
|                                       | ** ** | ** **       |       |          |       |         |       |
| **Total Revenues**                         | ** ** | **165,688**      |       | 331,377       |       | 1,666,273    |       |
| **Expenses**                               | ** ** | ** **       |       |          |       |         |       |
| Legal  services provided                   | ** ** | **173,111**      |       | 93,282        |       | 52,337       |       |
| ** **                                 | ** ** | ** **       |       |          |       |         |       |
| Advisory  and consulting services provided | ** ** | ** —** |       |  200,483 |       |  53,751 |       |
|                                       | ** ** | ** **       |       |          |       |         |       |
| **Total Expenses**                         | ** ** | **173,111**      |       | 293,765       |       | 106,088      |       |

 

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Table ofContents

 

CHEMGENEXPHARMACEUTICALS LIMITED—IFRS FINANCIAL STATEMENTS

 

**Notes to the FinancialStatements**

 

**25. AUDITORS’ REMUNERATION**

 
| **JUNE 30, 2008**                                                                                                | ** ** | **Notes**  | ** ** | **2008**    | ** ** | **2007**   | ** ** | **2006**   | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|------------|------------|------------|------------|
| ** **                                                                                                       | ** ** | ** ** | ** ** | **$**       | ** ** | **$**      | ** ** | **$**      | ** ** |
| ** **                                                                                                       | ** ** | ** ** | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Amounts  received or due and receivable by Ernst & Young Australia for:                                 |       |       |       |        |       |       |       |       |       |
| Young  Australia for:                                                                                            |       |       |       |        |       |       |       |       |       |
| —an  audit or review of the financial report of the entity and any other entity in  the consolidated entity | ** ** | ** ** | ** ** | **358,500** |       | 269,435    |       | 212,325    |       |
| —other  services in relation to the entity and any other entity in the consolidated  entity:                | ** ** | ** ** | ** ** | **116,593** |       | —     |       | —     |       |
| tax  advice                                                                                                      | ** ** | ** ** | ** ** | **475,093** |       | 269,435    |       | 212,325    |       |

 

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