UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 Mark One)
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    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
 OR
 þ
    
    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
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    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                    to
 OR
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    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
 Commission file number 000-51505
 Pharmaxis Ltd
   Australia
 Unit 2, 10 Rodborough Road, Frenchs Forest, NSW 2086, Australia
  Title of each class
    
    Name of each exchange on which registeredOrdinary Shares in the form of American DepositaryShares, evidenced by American Depositary Receipts
    
    Nasdaq Global Market
       o þ
  o þ
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  o þ o
  o þ o
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Form 20-F Cross-Reference Index (for the purpose of filing with the United States Securities and
Exchange Commission)
 20-F Item Number and Description
    
    Statutory Annual Report ReferencePart IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    Not ApplicableItem 2.
    
    Offer Statistics and Expected Timetable
    
    Not ApplicableItem 3.
    
    Key InformationA. Selected Financial Data
    
    Section 2.1 and section 4.2.10B. Capitalization and Indebtedness
    
    Not ApplicableC. Reasons for the Offer and Use of Proceeds
    
    Not ApplicableD. Risk Factors
    
    Section 2.4Item 4.
    
    Information on PharmaxisA. History and Development of Pharmaxis
    
    Section 1.2.1, 2.2.5 and 4.4B. Business Overview
    
    Section 1.2.2C. Organizational Structure
    
    Section 1.2.3D. Property, Plant and Equipment
    
    Section 1.2.4Item 4A.
    
    Unresolved staff comments
    
    NoneItem 5.
    
    Operating and Financial Review and ProspectsA. Operating Results
    
    Sections 2.2.1 to 2.2.4 inclusiveB. Liquidity and Capital Resources
    
    Sections 2.2.4 to 2.2.8 inclusiveC. Research and Development, Patents, Licenses etc.
    
    See section 2.2.1 Operating Results  Research and DevelopmentD. Trend Information
    
    See section 2.2.1 and 2.2.5E. Off-Balance Sheet Arrangements
    
    Section 2.2.9F. Tabular disclosure of contractual obligations
    
    Section 2.2.10G. Safe Harbor
    
    See section 1.1 Important InformationItem 6.
    
    Directors, Senior Management and EmployeesA. Directors and Senior Management
    
    Sections 1.4.1 and sections 1.6.1  1.6.4B. Compensation
    
    Section 1.5 and section 1.6.4C. Board Practices
    
    Sections 1.3.2, 1.4.1 and sections 1.6.1  1.6.4 andSection 4.2.1  Constitution,
Board of Directors, and section 1.5.1 and section 1.5.3D. Employees
    
    Section 1.6.2E. Share Ownership
    
    Sections 1.5.4, 1.5.5 and 4.1.2Item 7.
    
    Major Shareholders and Related Party TransactionsA. Major Shareholders
    
    Section 4.1.2 and section 4.2.3B. Related Party Transactions
    
    Section 4.1.4C. Interests of Experts and Counsel
    
    Not ApplicableItem 8.
    
    Financial informationA.
Consolidated Statements and Other Financial Information
    
    Section 1.4.8 and section 3 and
section 1.2.2 (xiii)B. Significant Changes
    
    Section 3Item 9.
    
    The Offer and ListingA. Offer and Listing Details
    
    Section 4.1.3B. Plan of Distribution
    
    Not ApplicableC. Markets
    
    Section 4.1.3D. Selling Shareholders
    
    Not ApplicableE. Dilution
    
    Not ApplicableF. Expenses of the Issue
    
    Not ApplicableItem 10.
    
    Additional informationA. Share Capital
    
    Not ApplicableB. Constitution
    
    Sections 4.2.1 to 4.2.4 inclusive and section 4.4C. Material Contracts
    
    Section 4.2.5D. Exchange Controls
    
    Section 4.2.6E. Taxation
    
    Section 4.2.7F. Dividends and Paying Agents
    
    Not ApplicableG. Statements by Experts
    
    Not ApplicableH. Documents on Display
    
    Section 4.2.8I. Subsidiary Information
    
    Not ApplicableItem 11.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    Section 2.2.6Item 12.
    
    Description of Securities Other than Equity Securities
    
    Not Applicable




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20-F Item Number and Description
    
    Statutory Annual Report ReferencePart IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    Not ApplicableItem 14.
    
    Material Modifications to the Rights of Security Holders and
Use of Proceeds
    
    Not ApplicableItem 15T.
    
    Controls and Procedures(a) Disclosure Controls and Procedures
    
    Section 2.3.1(b) Managements Annual Report on Internal Control
Over Financial Reporting
    
    Section 2.3.2(c)
Changes in Internal Control Over Financial Reporting
    
    Section 2.3.3Item 16A.
    
    Audit Committee Financial Expert
    
    Section 2.3.4Item 16B.
    
    Code of Ethics
    
    Section 2.3.5Item 16C.
    
    Principal Accountant Fees and Services
    
    Section 2.3.6Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees
    
    Not ApplicableItem 16E.
    
    Purchases of Equity Securities by the Issuer and
Affiliated Purchasers
    
    Not ApplicablePart IIIItem 17.
    
    Financial Statements
    
    Not ApplicableItem 18.
    
    Financial Statements
    
    Section 3Item 19.
    
    Exhibits
    
    Exhibits




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New Therapies for  Respiratory Diseases
 2008 Statutory Annual Report




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1.1 Important Information
    
    
    41.2 Information on Pharmaxis
    
    
    41.2.1
    
    History and Development of Pharmaxis
    
    
    41.2.2
    
    Business Overview
    
    
    5i.
    
    Introduction
    
    
    5ii.
    
    Lung Disease Overview
    
    
    6iii.
    
    Bronchitol Development
    
    
    10iv.
    
    Aridol
    
    
    14v.
    
    Drug Development
    
    
    16vi.
    
    Our Strategy
    
    
    17vii.
    
    Sales and Marketing
    
    
    18viii.
    
    Manufacturing
    
    
    18ix.
    
    Competition
    
    
    18x.
    
    Intellectual Property
    
    
    19xi.
    
    Government Regulation and Product Approval
    
    
    24xii.
    
    Employees
    
    
    27xiii.
    
    Legal Proceedings
    
    
    27xiv.
    
    Research Grant Funding
    
    
    271.2.3
    
    Organisational Structure
    
    
    281.2.4
    
    Property, Plant and Equipment
    
    
    281.3 Corporate Governance
    
    
    281.3.1
    
    Introduction
    
    
    281.3.2
    
    ASX Disclosures
    
    
    281.3.3
    
    Corporate Governance Requirements Arising
from Our U.S. Listing  the Sarbanes-Oxley Act
of 2002, SEC Rules and the Nasdaq Global Market
Marketplace Rules
    
    
    341.4 Directors Report
    
    
    351.4.1
    
    Information on Directors
    
    
    351.4.2
    
    Meetings of Directors
    
    
    361.4.3
    
    Indemnification and Insurance of Directors
    
    
    361.4.4
    
    Company Secretary
    
    
    371.4.5
    
    Principal Activities
    
    
    371.4.6
    
    Review and Results of Operations
    
    
    371.4.7
    
    Remuneration Report
    
    
    371.4.8
    
    Dividends
    
    
    371.4.9
    
    Significant Changes in the State of Affairs
    
    
    371.4.10
    
    Matters Subsequent to the End of the Financial Year
    
    
    381.4.11
    
    Likely Developments and Expected Results of
Operations
    
    
    381.4.12
    
    Environmental Regulation
    
    
    381.4.13
    
    Rounding
    
    
    381.4.14
    
    Non Audit Services
    
    
    381.4.15
    
    Auditors Independence Declaration
    
    
    391.4.16
    
    Auditor
    
    
    391.4.17
    
    Resolution of the Board
    
    
    391.5 Remuneration Report
    
    
    401.5.1
    
    Principles Used to Determine the Nature and
Amount of Remuneration Paid to Directors
and Senior Executive Officers
    
    
    401.5.2
    
    Details of Remuneration Paid to Directors and
Senior Executive Officers
    
    
    421.5.3
    
    Service Agreements with Senior Executive Officers
    
    
    451.5.4
    
    Share-Based Compensation Paid to Directors
and Senior Executive Officers
    
    
    461.5.5
    
    Additional Information on Compensation Paid to
Directors and Senior Executive Officers
    
    
    531.5.6
    
    Pharmaxis Ltd Employee Option Plan
    
    
    551.6 Senior Management, Employees and Scientific
Advisory Board
    
    
    571.6.1
    
    Executive Director and Senior Executive Officers
    
    
    571.6.2
    
    Employees
    
    
    591.6.3
    
    Scientific Advisory Board
    
    
    601.6.4
    
    Retirement Benefits
    
    
    60
  2.1 Four Year Summary Financial Information
    
    
    622.2 Operating and Financial Review and Prospects
    
    
    642.2.1
    
    Operating Results
    
    
    642.2.2
    
    Critical Accounting Policies and Estimates
    
    
    662.2.3
    
    Review of 2008 Operations
    
    
    662.2.4
    
    Results of Operations
    
    
    672.2.5
    
    Liquidity and Capital Resources
    
    
    702.2.6
    
    Qualitative and Quantitative Disclosures about
Market Risk
    
    
    712.2.7
    
    Income Taxes
    
    
    712.2.8
    
    Recently Issued Accounting Announcements
    
    
    712.2.9
    
    Off-Balance Sheet Arrangements
    
    
    712.2.10
    
    Contractual Obligations and Commitments
    
    
    722.3 Controls and Procedures
    
    
    722.3.1
    
    Disclosure Controls and Procedures Required
as a Result of Our U.S. Listing
    
    
    722.3.2
    
    Managements Annual Report on Internal Control
over Financial Reporting
    
    
    732.3.3
    
    Changes in Internal Controls over Financial Reporting
    
    
    732.3.4
    
    Audit Committee Financial Expert
    
    
    732.3.5
    
    Code of Ethics
    
    
    732.3.6
    
    Principal Accountant Fees and Services
    
    
    732.4 Risk Factors
    
    
    74




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3.1
    
    Annual Financial Report
    
    
    96Income Statements
    
    
    97Balance Sheets
    
    
    98Statements of Changes in Equity
    
    
    99Cash Flow Statements
    
    
    100Notes to the Financial Statements
    
    
    101Note 1
    
    Summary of significant accounting policies
    
    
    101Note 2
    
    Revenue
    
    
    108Note 3
    
    Other income
    
    
    108Note 4
    
    Expenses
    
    
    109Note 5
    
    Income tax expense
    
    
    110Note 6
    
    Current assets  Cash and cash equivalents
    
    
    111Note 7
    
    Current assets  Trade and other receivables
    
    
    111Note 8
    
    Current assets  Inventories
    
    
    112Note 9
    
    Non-current assets  Receivables
    
    
    112Note 10
    
    Non-current assets  Other financial assets
    
    
    113Note 11
    
    Non-current assets  Plant and equipment
    
    
    113Note 12
    
    Non-current assets  Intangible assets
    
    
    114Note 13
    
    Current liabilities  Trade and other payables
    
    
    115Note 14
    
    Current liabilities  Other liabilities
    
    
    115Note 15
    
    Non-current liabilities  Provisions
    
    
    115Note 16
    
    Contributed equity
    
    
    115Note 17
    
    Reserves and accumulated losses
    
    
    117Note 18
    
    Key management personnel disclosures
    
    
    118Note 19
    
    Remuneration of auditors
    
    
    121Note 20
    
    Contingent liabilities
    
    
    122Note 21
    
    Commitments
    
    
    122Note 22
    
    Related party transactions
    
    
    123Note 23
    
    Subsidiaries
    
    
    124Note 24
    
    Events occurring after the balance sheet date
    
    
    124Note 25
    
    Financial reporting by segments
    
    
    124Note 26
    
    Reconciliation of loss after income tax to net cash
outflows from operating activities
    
    
    124Note 27
    
    Earnings per share
    
    
    125Note 28
    
    Financial risk management
    
    
    125Note 29
    
    Share-based payments
    
    
    1283.2
    
    Directors Declaration
    
    
    1333.3
    
    Independent Auditors Report
    
    
    1343.4
    
    Adoption of IFRS for Inclusion in U.S. Filings (Form 20-F)
    
    
    1363.4.1
    
    Exemptions from Retrospective Application of IFRS
    
    
    1363.4.2
    
    Significant Differences between IFRS and U.S. GAAP
    
    
    1363.4.3
    
    Tabular Reconciliation of U.S. GAAP to IFRS
    
    
    136
  4.1 Shareholder Information and Related Party Transactions
    
    
    1384.1.1
    
    
    ASX Shareholder Disclosures
    
    
    1394.1.2
    
    
    U.S. Shareholder Disclosures
    
    
    1394.1.3
    
    
    Price History
    
    
    1424.1.4
    
    
    Related Party Transactions
    
    
    1434.2 Additional Information
    
    
    1444.2.1
    
    
    Constitution
    
    
    1444.2.2
    
    
    Limitations on Rights to Own Shares and ADSs
    
    
    1484.2.3
    
    
    Change of Control
    
    
    1494.2.4
    
    
    Disclosure of Interests
    
    
    1514.2.5
    
    
    Material Contracts
    
    
    1514.2.6
    
    
    Exchange Controls
    
    
    1544.2.7
    
    
    Taxation Summary Applicable to U.S. Holders
    
    
    1544.2.8
    
    
    Documents on Display
    
    
    1584.2.9
    
    
    Enforceability of Civil Liabilities by U.S. Shareholders
    
    
    1584.2.10
    
    
    Exchange Rate Information
    
    
    1594.3 Glossary
    
    
    1604.4 Corporate Directory
    
    
    164




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Section
 PharmaxisStatutory Annual Report 3




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1.1
 Important Information
 Forward Looking Statements
    Currency of Presentation
    1.2
 Information on Pharmaxis
 1.2.1
    
    History and Development of PharmaxisPharmaxis Ltd is a public company limited by shares which is domiciled in Australia and
operates under, and is subject to, Australian law. Our Australian Company Number is 082
811 630 and our Australian Business Number is 75 082 811 630.We were incorporated under Australian law on 29 May, 1998 under the name Praxis
Pharmaceuticals Australia Pty Ltd. On 6 June, 2002, we changed our name to Pharmaxis Pty
Ltd. On 5 September, 2003, we changed our name to Pharmaxis Ltd to reflect the change
of company type from a proprietary company limited by shares to a public company limited
by shares undertaken at that time. Our ordinary shares are quoted on the Australian
Securities Exchange (ASX) and our American Depositary Shares (ADS) are quoted on the
Nasdaq Global Market. Each ADS represents 15 ordinary shares.In November 2003 we completed an initial public offering in Australia of 50 million of our
ordinary shares and received A$22.9 million after payment of underwriting fees and
offering expenses. In November 2005 we completed a public offering in the U.S. of 1.3
million ADSs and a simultaneous placement in Australia of 19.9 million ordinary shares and
received A$79.4 million after payment of underwriting fees and offering expenses. We have
completed other share (and ADS) issues which are described in Section 2.2.5  Liquidity
and Capital Resources.
 Pharmaxis




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Our principal place of business is Unit 2, 10 Rodborough Road, Frenchs Forest, NSW 2086,
Australia, and our primary telephone number is +61 2 9454 7200.1.2.2
    
    Business Overview
 (i)
    
    IntroductionWe are a specialty pharmaceutical company focused on the development of new products for
the diagnosis and treatment of chronic respiratory and immune disorders.BronchitolWe are developing Bronchitol, our proprietary inhaled dry powder mannitol formulation, for
the treatment of cystic fibrosis, or CF; for the treatment of chronic obstructive
pulmonary disease, or COPD, an umbrella term for diseases such as bronchiectasis and
chronic bronchitis; and for the treatment of other acute and chronic pulmonary conditions.Bronchitol for Cystic fibrosis
 
    
    In August 2008 we completed enrolment for a Phase III clinical trial of
Bronchitol in patients with CF in Europe and Australia being conducted according to a
clinical trial protocol agreed with the European Medicines Agency, or EMEA. The
efficacy component of the clinical trial is scheduled to report in the first half of
2009.
    
    In 2005 we completed a Phase II clinical trial of Bronchitol in patients
with CF and demonstrated a statistically significant improvement in lung function
relative to placebo over a two week treatment period.
    
    In April 2008 we reported initial results from a Phase II clinical trial of
Bronchitol in children with CF and demonstrated an improvement in lung function over
a three month treatment period.
    
    In August 2008 we commenced a further Phase III clinical trial of
Bronchitol for the treatment of CF to be conducted according to a clinical trial
protocol agreed with the U.S. Food and Drug Administration, or the FDA, under its
Special Protocol Assessment (SPA) procedure.
    
    In August 2008 we reported a Phase II dose ranging clinical trial of
Bronchitol in patients with CF which demonstrated a dose dependent improvement in
lung function.
    
    The FDA has granted Orphan Drug designation to Bronchitol for the treatment
of bronchiectasis and for CF patients at risk of developing bronchiectasis. The EMEA
has granted Orphan Drug designation to Bronchitol for the treatment of CF.
 Bronchitol for Bronchiectasis
 
    
    In 2007 we reported a Phase III clinical trial of Bronchitol for
bronchiectasis conducted in Europe and Australia. The study demonstrated a
significant improvement in quality of life after 13 weeks of treatment with
Bronchitol as assessed by the St George Respiratory Questionnaire, a significant
improvement in quality of life compared to placebo and a significant change in mucus clearance on
patients receiving Bronchitol versus those patients receiving placebo.
    
    In August 2008, we reported the results from an open label 12 month safety
trial in subjects with bronchiectasis. This trial was an extension of the trial
described above. The trial demonstrated that Bronchitol was safe and well tolerated
when administered twice per day for 12 months without any serious adverse events
attributed to treatment. Based on this study we are preparing to apply for marketing
approval of Bronchitol for the treatment of bronchiectasis in Australia during the
third quarter of 2008.
    
    In June 2008 we reached agreement with the FDA on the clinical trial design
for a Phase III registration clinical trial of Bronchitol for the treatment of
bronchiectasis, having previously agreed on the clinical trial design with the EMEA.
    
    In 2004 we completed a Phase II clinical trial of Bronchitol in
bronchiectasis patients and demonstrated a clinically meaningful increase in
patients quality of life relative to placebo following two weeks of treatment.
 Bronchitol for Other Pulmonary Indications
 
    
    Bronchitol has potential application to other pulmonary conditions such as
chronic bronchitis and patients within hospital intensive care units.
 Pharmaxis




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1.2.2
    
    Business Overview (Continued)
 AridolWe have developed Aridol, as a novel tool for the detection of airway
hyperresponsiveness and to assist in the diagnosis and management of asthma and
chronic obstructive pulmonary disease, or COPD. The Aridol test mimics the
bronchoconstriction that can occur in inflamed airways from time to time in people
with asthma. Airway hyperresponsiveness is one of the hallmarks of untreated or poorly
controlled asthma. Aridol may also be used to determine the minimum effective doses of
inhaled corticosteroid required for optimum control of asthma.
 
    
    We received marketing approval in Australia in March 2006 and
commenced commercial supply of Aridol in Australia in June 2006.
    
    In June 2007 we successfully completed the E.U. mutual recognition
procedure which permitted marketing approvals of Aridol by Germany, France, the
United Kingdom, Italy, the Netherlands, Belgium, Denmark, Greece, Finland,
Ireland, Norway, Sweden and Portugal. Individual country marketing certificates
were issued from June 2007 to June 2008 at which time Italy, Spain, France and
Belgium were still being processed.
    
    We received marketing approval in Korea in January 2008.
    
    In August 2006 we completed a pivotal U.S. Phase III clinical trial
to determine the selectivity and specificity of Aridol as a test for the
detection of airway hyperresponsiveness in patients diagnosed with exercise
induced asthma. Based on this study and an earlier Phase III clinical trial that
was the basis of marketing approval in Australia and Europe, we have met with the
FDA, and are preparing to apply for marketing approval of Aridol in the U.S.
    
    In 2007 we reported the commencement of an independent investigator
led asthma management study being conducted by the U.S. Asthma Clinical Research Network.
    
    We have previously reported independent investigator clinical
trials assessing the role of Aridol in determining those patients with COPD who
will respond to treatment with inhaled corticosteroids.
 Preclinical PipelineOur preclinical pipeline is focused on novel treatments for inflammatory and immune
disorders, including asthma and other pulmonary conditions. During the next twelve
months PXS25 is scheduled to commence Phase I clinical trials and PXS4159 is scheduled
to complete preclinical studies. PXS25 is an inhibitor of the mannose 6 phosphate
receptor and PXS4159 is an inhibitor of semicarbazide sensitive amine oxidase/vascular
adhesion protein-1.(ii)
    
    Lung Disease OverviewOur lead product and product candidates are for the diagnosis or treatment of chronic
respiratory diseases, including asthma, cystic fibrosis and COPD, including
bronchiectasis and chronic bronchitis and other chronic and acute pulmonary
conditions. Several of these diseases share similar biology and pathology, such as the
airway inflammation in both asthma and chronic bronchitis, as well as difficulty with
normal clearance of lung mucus in patients with cystic fibrosis and bronchiectasis.Lung CongestionThe inside lining of the airways is covered by millions of fine hair-like structures
called cilia, which are in turn covered by a surface liquid and a thin layer of mucus,
secreted by the lungs to defend against germs, dust particles and other extraneous
matter. The cilia move continuously and propel the mucus up towards the throat. This
constant process, which is unnoticeable in healthy people, cleans the airways, permits
clean air to pass freely through the lungs and removes bacteria, thereby limiting
infectious episodes.Patients with COPD or with CF are generally affected by a breakdown in natural
mechanisms of creating, hydrating, and clearing this mucus. These patients face the
ongoing challenge of clearing excessive and thickened secretions from their congested
lungs, usually by constant coughing. A key therapeutic goal for clinicians treating
these patients is to assist the natural process of keeping the mucus hydrated and
clearing it from the lungs.
 Pharmaxis




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Cystic FibrosisCF is an inherited, progressive and fatal disease that affects epithelial surfaces including the
airways, pancreas, sweat ducts, reproductive system and intestinal tract. The lungs of CF
patients produce copious amounts of thick, tenacious secretions which are not cleared
effectively by the lungs. Such changes are known to be present from birth and inevitably result
in airway obstruction and bacterial infection. This generally leads to progressive lung
deterioration, and eventually respiratory failure, the primary cause of death in adult CF
patients.According to the U.S. Cystic Fibrosis Foundation, there are about 30,000 diagnosed CF patients
in the U.S. and 70,000 worldwide. While this patient population is relatively small, the problem
of sputum clearance is common to all sufferers and is a chronic lifelong problem. According to
the literature, annual direct healthcare cost associated with the disease in the United States
amount to over U.S.$0.5 billion.There is no cure for CF. Maintaining a reasonable quality of life for these patients is a
significant challenge. Problems include breathing difficulties, respiratory infections, poor
sleep, general discomfort, lifestyle limitations and gradual deterioration of lung function
over time. Although the life expectancy of CF sufferers has increased dramatically over the
past few decades due to better management of the disease, according to the U.S. Cystic
Fibrosis Foundation, the predicted median age of survival in 2006 was 37 years of age.Physicians seek to improve lung function and reduce the number and severity of secondary lung
infections by hydrating and breaking down the excessive, sticky mucus secretions, allowing it
to be cleared from the lungs. Management of CF includes exercise, daily physiotherapy,
postural drainage and chest percussion and can take several hours of at-home treatment every
day. Medications to treat CF are limited, and few are very effective or convenient. Nebulised
medications, delivered by aerosol or a facemask, are used to make the mucus less thick and
sticky and open up the airways. Antibiotics may also be required to treat secondary
infections, and are also often used to prevent infection.Dornase alfa, marketed by Genentech in the U.S., is the most widely used therapeutic for
chronic use in CF to aid sputum clearance. According to Genetech, U.S. sales of dornase alfa
were approximately U.S.$266 million in 2007. We estimate that dornase alfa has a market
penetration in developed countries and the seven major pharmaceutical markets of the U.S.,
Germany, France, United Kingdom, Italy, Spain and Japan of about 30%. Although dornase alfa
demonstrates lung function improvement in CF patients, similar benefit was not shown in other
respiratory conditions, including bronchiectasis. Further, in previous clinical trials,
dornase alfa provided no increase in sputum clearance. Dornase alfa is unstable and is
delivered by a nebulizer. Solutions have to be prepared by the patient before administration,
the treatment periods are long and all equipment has to be sterilized after use.Chronic Obstructive Pulmonary DiseaseChronic Obstructive Pulmonary Disease, or COPD, encompasses a number of serious conditions
affecting the lungs, including emphysema, chronic bronchitis and bronchiectasis and other
chronic and acute pulmonary conditions. According to the World Health Organization, or WHO,
80 million people suffer from moderate to severe COPD and 3 million died due to it in 2005.
The WHO predicts that by 2030, it will be the third largest cause of mortality worldwide.Since COPD is not diagnosed until it becomes clinically apparent, prevalence and
mortality data greatly underestimate the socioeconomic burden of COPD.According to Datamonitor, there are 16 million people diagnosed with COPD in the U.S., and more
than 30 million people are affected with COPD in the seven major pharmaceutical markets. In
2005 there were more than 10 million physician office visits and two million hospitalizations
per year. The disease was estimated to cost the U.S. healthcare system U.S.$30 billion in 2000.
According to a report by Datamonitor, worldwide sales in 2004 of the top seven respiratory
therapeutics indicated for COPD were U.S.$4.8 billion.
 Pharmaxis




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1.2.2
    
    Business Overview (Continued)
 Management of COPD generally involves bronchodilators and steroids. However, only an
estimated 20%-25% of patients respond positively to steroids and it is currently not
practical to determine in advance which patients will respond to steroids. We believe
that only half of moderate and severe COPD patients achieve an adequate treatment
outcome. Therefore, as with asthma, we believe there is room to improve both the
diagnosis and management of COPD.BronchiectasisIn this condition the bronchial tubes become enlarged and distended, and the cilia do
not function normally. Many patients with cystic fibrosis and asthma may also have
bronchiectasis. For other patients, bronchiectasis is a result of infections such as
pneumonia, or the chronic inhalation of noxious substances although in over half the
case, the underlying cause is never identified. The condition results in poor clearing
of mucus and predisposes the lung to more infections. The body repairs damaged lung
tissue by forming tough, fibrous material, which leads to reduced lung function, lower
lung efficiency, changes of the organization of blood vessels and increased blood flow
through the lungs. These changes impair normal lung function and can ultimately lead
to heart failure. Recurrent lung infections commonly reduce patients quality of life
and progressive respiratory insufficiency is the most common cause of death from this
disease. Based on research carried out for us by Datamonitor and Frost & Sullivan, we
estimate that there are about 600,000 people worldwide seeking treatment for
bronchiectasis. A report in Clinical Pulmonary Medicine published in 2005 (Volume 12,
Number 4, page 205) indicates that over 110,000 people in the U.S. may be receiving
treatment for bronchiectasis, resulting in an annual additional medical-care
expenditure of $630 million.Bronchiectasis treatment is aimed at controlling infections, increasing secretions,
reducing airway obstructions and minimizing complications. Daily drainage to remove
bronchial secretions is a routine part of treatment. Physicians often prescribe
medications similar to those for chronic bronchitis, including inhaled bronchodilators
to dilate the airways. Although antibiotics can be used to some effect to clear
infections, no currently approved products effectively clear excess mucus secretions
and improve the quality of life of these patients. Furthermore, because of the serious
damage to lung tissue present in these patients, medications generally do not provide
substantial improvement in lung function.Chronic BronchitisPatients with chronic bronchitis experience persistent airway inflammation and airflow
obstruction, with symptoms including a chronic mucus-producing cough and shortness of
breath. Due to the difficulties they have in clearing mucus from their lungs,
sufferers are prone to periodic bacterial infections where their cough worsens, mucus
production increases and breathing becomes more difficult. These episodes damage and
scar the bronchial lining and contribute to continued chronic inflammation and
immune-mediated cell damage as the body struggles to fight the infections. This cycle
of infection and internal scarring causes a progressive decline in lung function,
reducing quality of life and ultimately causing death.Many of the deaths associated with chronic bronchitis are included in the COPD figure
that now accounts for over 100,000 deaths a year in the U.S. The disease is
predominately caused by inhaling some form of lung irritant repeatedly for many years,
usually cigarette smoke. Chronic bronchitis is slow to develop and is often not
diagnosed until the sufferer is in their 40s or 50s.Management of chronic bronchitis includes various general supportive measures such as
giving up smoking, limiting exposure to dust and chemicals, avoiding sudden temperature changes, undertaking chest physiotherapy and deep-breathing
exercises, and increasing fluid intake to keep the bronchial secretions thin. While
there are a number of medications that dilate the airway and reduce airway
inflammation, for chronic bronchitis sufferers, there are few therapeutic products
available to effectively clear excess mucus secretions. This presents a major medical
challenge, as ineffective mucus clearance is a major cause of infection and
progression of the disease.Treatments for chronic bronchitis include anti-cholinergic agents, steroids,
antibiotics and oxygen. Anticholinergic agents, also known as antimuscarinics, are
bronchodilators used for the relief of acute symptoms in both asthma
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and COPD, but tend to be more effective in COPD. Inhaled corticosteroids are less likely
to cause systemic side effects than oral corticosteroids, and have been shown to be effective in
asthmatics. However, the role of these agents in the management of COPD remains unclear. According
to a recent scientific report (Chest, 2004, 126, 1815) there are no indications that early
treatment with inhaled corticosteroids modifies a rapid decline in lung function or respiratory
symptoms and quality of life.AsthmaAsthma is a chronic inflammatory disease of the lungs where the airways narrow in response to a
variety of stimuli. Published estimates indicate that this disease affects over 20 million
people in the U.S. and approximately 51 million people in the seven major pharmaceutical markets
of the U.S., Germany, France, United Kingdom, Italy, Spain and Japan. Based on published
studies, we estimate that each year in the U.S., 4.7 out of every 1,000 people under the age of
16 are newly diagnosed with asthma and two out of every 1,000 people aged 16 to 44 are newly
diagnosed with the disease.Many patients with asthma are not currently diagnosed with the disease. Sufferers and even
physicians often attribute common asthma symptoms, such as cough and breathlessness, to
smoking, lack of fitness or old age. Moreover, according to a recent publication, 34% of
individuals diagnosed as asthmatic by their primary care physician do not have the disease.
Even when accurately diagnosed, many patients do not receive the most appropriate therapy
according to published guidelines. Physicians can underestimate the severity of the disease,
and prescribe only bronchodilators, whereas the addition of an inhaled corticosteroid is the
recommended course of action according to the Global Initiative for Asthma, or GINA,
guidelines. We estimate that only about 30% of asthma patients in the U.S. receive inhaled
corticosteroids despite evidence that uncontrolled asthma is common. Poorly controlled asthma
can lead to irreversible damage to the airways. Therefore, the goal of treatment is to provide
sufficient anti-inflammatory medication to control inflammation and airway remodeling. However,
using high doses of medication can lead to unwanted side effects. Hence, selecting the right
dose for individual patients remains a clinical problem.To diagnose asthma and to evaluate patient response to treatment, pulmonary specialists may,
for example, introduce an aerosolized substance directly into the lungs, and subsequently test
lung function. The tests fall into two categories. The first category, known as direct
challenge tests, use either histamine or methacholine to directly cause airway narrowing.
These substances act on receptors on bronchial smooth muscle to cause contraction. The second
category, known as indirect challenge tests, involve stimuli such as exercise, rapid
breathing of dry air, or inhalation of salt solutions or adenosine monophosphate. This more
closely mimics an asthmatic process, and can cause the release of chemicals from inflammatory
cells within the lungs, resulting in airway contraction and narrowing.The only FDA-approved direct test is Provocholine®(methacholine), marketed by
Methapharm Inc. We believe that the disadvantage of direct tests are that the airway narrowing
caused by histamine or methacholine is not dependent on the presence of inflammatory cells.
Moreover, a positive response is not specific for identifying asthma and can occur in healthy
people with no symptoms, smokers, and those with other diseases of the lung. Despite these
limitations, we believe that over 200,000 direct tests are performed each year in the U.S.,
based on information reported by Solucient LLC in 2003. However, this represents only a small
fraction of the potential market.We believe that the indirect tests have a much lower false positive rate for asthma and
increased sensitivity. However, each of them suffers from limitations. For example, tests
involving exercise and rapid breathing of dry air require a lengthy period of time to complete
and they require complicated equipment. Furthermore, these tests are limited to identifying
exercise induced asthma and are not useful for determining the severity of airway inflammation.
Hypertonic saline, which is delivered by a nebuliser during administration of the test, is
uncomfortable for the patient, determination of the administered dose is difficult and this
procedure is unsuitable for managing anti-inflammatory drug treatment. Adenosine monophosphate
is unstable, also delivered by a nebuliser and its use is restricted to specialist research
laboratories.
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1.2.2
    
    Business Overview (Continued)
 (iii)
    
    Bronchitol DevelopmentWe are developing Bronchitol, our proprietary inhaled mannitol formulation, for the
treatment of chronic respiratory diseases, including cystic fibrosis and COPD,
including bronchiectasis and chronic bronchitis and other chronic and acute pulmonary
conditions. Mannitol is accepted as a food additive in the U.S. and is included in the
FDA Inactive Excipients Guide for drug products. We manufacture mannitol into a dry
respirable powder and incorporate it into a capsule. The compound is delivered to a
patients lungs via a pocket-sized inhaler.In a 12 week Phase III clinical trial involving 362 bronchiectasis patients sponsored
by us, Bronchitol demonstrated a significant improvement in quality of life and a
highly significant improvement in mucus clearance relative to placebo. In a 12 month
extension to this study, Bronchitol was proven to be safe with no serious adverse
events attributed to treatment. In a Phase II clinical trial sponsored by us and
involving 60 patients with bronchiectasis, Bronchitol provided a
statistically-significant increase in patients quality of life relative to placebo
and a highly statistically significant reduction in the symptoms of the disease
following two weeks treatment.In a 2 week Phase II trial involving 39 cystic fibrosis patients sponsored by us,
Bronchitol provided a statistically significant reduction in airway obstruction and a
statistically significant improvement in lung function measurement of 7% as determined
by the change in Forced Expiratory Volume in 1 second, known as
FEV1.In a small second Phase II trial in children with cystic fibrosis supported by us,
Bronchitol improved lung function by 7% as determined by FEV1 measurement following a
3 month treatment period.In a Phase II trial sponsored by us and comparing four different doses of Bronchitol
in 49 cystic fibrosis patients a clear dose related effect in improving lung function
was recorded with the top dose of 400 mg improving lung function by a statistically
significant 139mls or 8.6%.We have an exclusive, worldwide license from Sydney South West Area Health Service to
certain key intellectual property and patents relating to the use and formulation of
Bronchitol.Mechanism and Early DataBronchitol increases mucociliary clearance in asthmatic and healthy subjects. We have
shown that a single inhalation of Bronchitol increases the clearance of mucus both
acutely and over a 24 hour period in patients with bronchiectasis, and acutely in
patients with cystic fibrosis.In an investigator-sponsored 19 patient, single-dose Phase II clinical trial of
Bronchitol in patients diagnosed with bronchiectasis, an increase in whole lung mucus
clearance was observed over a 75 minute period beginning at the onset of intervention
and this increase was statistically significant (p<0.005). There was an almost
doubling of mucus clearance after Bronchitol treatment and most of this was in the
central and intermediate regions of the lung. Over a 24 hour period after Bronchitol
intervention the increase in mucus clearance was approximately 30% over control and
this was statistically significant (p<0.0001).Bronchitol for CFIn August 2005, we announced results from a Company sponsored Phase II clinical trial
involving 39 patients with cystic fibrosis. The placebo-controlled trial was conducted
at eight sites in Australia and New Zealand. Patients were treated for two weeks with
either Bronchitol or placebo. After a two week washout period where patients received
neither drug nor placebo, patients who previously received Bronchitol were treated
with placebo, and vice versa. This crossover trial design allows each patient to act
as their own control. The primary endpoint was change in Forced Expiratory Volume in 1
second, known as FEV1. This is a quantitative measure of the volume of air a patient
can exhale in one second, and is the most frequently used measure of the degree of
airway obstruction. The secondary endpoints included quality of life, sputum
microbiology, the physical properties of the sputum, safety and additional lung
function measurements. At the end of the treatment period, patients receiving
Bronchitol had significantly better lung function compared to placebo as measured by
FEV1 and for the maximum mid-expiratory flow, or MMEF, another measure of airway
function. Approximately half the subjects were using dornase alfa during the trial.
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In this trial, Bronchitol had a positive impact on lung function. Patients who received
Bronchitol had a 7% improvement in FEV1 as compared to placebo (p=0.008). An improvement of 7%
in this indication is considered to be clinically relevant. MMEF increased by 15% while on
Bronchitol treatment and this increase was significant compared to control (p<0.01). The
MMEF reflects function in small airways and is an early abnormality in cystic fibrosis.
Respiratory symptoms determined from a Likert scale self-assessment after Bronchitol treatment
were significantly improved as compared to placebo (p<0.02).In August 2005, the FDA granted Orphan Drug designation to Bronchitol for the treatment of
cystic fibrosis. In November 2005, the European Medicines Agency, or EMEA, granted Orphan Drug
designation to Bronchitol for the treatment of cystic fibrosis. In November 2006,
Bronchitol was awarded Fast Track designation by the FDA for cystic fibrosis, making
Bronchitol eligible to apply for accelerated approval.In April 2008, we reported the results of a Company supported investigator-led Phase II
clinical trial comparing the effect on lung function of Bronchitol as compared to dornase alfa
in children. Both Bronchitol and dornase alfa improved lung function by 7% although the patient
numbers were too small to draw a statistically definitive conclusion.In August 2008 we also reported results from a Company sponsored Phase II dose-ranging clinical
trial to determine optimal dosing. The trial was an open, randomized comparison of 400mg, 240mg,
120mg and 40 mg of Bronchitol involving 48 patients with cystic fibrosis conducted at 12 centres
across Canada and Argentina. Bronchitol was administered twice a day for 14 days. The primary
end point was a dose dependent change in FEV1and Forced Vital Capacity, known as
FVC. The secondary endpoints included other spirometry and quality of life measures. The trial
demonstrated a dose dependent improvement in lung function as measured by FVC and
FEV1.
 Change in FEV1
    
    Change in FVC400 mg treatment group
    
    
    8.6
    %*
    
    
    7.9
    %*240 mg treatment group
    
    
    4.6
    %
    
    
    3.9
    %120 mg treatment group
    
    
    1.9
    %
    
    
    1.5
    %40 mg treatment group
    
    
    (1.6
    %)
    
    
    (0.6
    %)
 
 *
    
    p=0.;0005 relative to 40 mg dose Secondary measures showed a positive effect for 400 mg Bronchitol on MMEF and the respiratory
domain of the cystic fibrosis quality of life questionnaire. Additionally, no serious adverse
events emerged during treatment periods and the adverse event profile was similar across all
doses.In August 2008 we completed enrolment in a pivotal Phase III clinical trial in the E.U. and
Australia, to provide the basis for applications for marketing authorization in the E.U. and
other countries outside of the U.S.. The protocol for the clinical trial was designed with
scientific advice from the EMEA. The clinical trial is being conducted in 325 subjects with
cystic fibrosis over a 6 month treatment period. The primary endpoint was change in Forced
Expiratory Volume in 1 second, known as FEV1. Additional endpoints of the trial included a
reduction in exacerbation frequency and other lung function measurements. The data from this
trial will not be available until the first half of 2009.We have agreed a clinical trial protocol with the U.S. FDA under its Special Protocol Assessment
procedure for a Phase III trial with Bronchitol in cystic fibrosis. This trial will be the second
of two required by the FDA before a New Drug Application (NDA) can be submitted for Bronchitol to
treat cystic fibrosis. The clinical trial will be conducted in 250 subjects with cystic fibrosis
over a 6 month treatment period and will study a similar patient population to the first Phase
III trial. The primary endpoint is to be change in Forced Expiratory Volume in 1 second, known as
FEV1. Additional endpoints of the trial included a reduction in exacerbation frequency, quality
of life and other lung function measurements. The trial is due to commence recruitment during the
third quarter of 2008 and data from this trial will not be available until 2010.We believe that the addressable annual market for Bronchitol in CF is the 70,000 diagnosed
CF patients in the major pharmaceutical markets.
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1.2.2
    
    Business Overview (Continued)
 Bronchitol for BronchiectasisIn 2004 we completed a proof of concept Phase II clinical trial of Bronchitol in 60
bronchiectasis subjects. We began this comparator-controlled, crossover design trial
at a single centre in Sydney and later expanded it to include four centres in
Australia and New Zealand. This trial was designed to explore the safety and efficacy
of Bronchitol in bronchiectasis patients. Patients received 400 mg of Bronchitol or
comparator, twice a day for 14 days. In this trial, the comparator was a mannitol
formulation with a larger (non-respirable) particle size, which we anticipated to be
most similar in patient experience to active Bronchitol, yet was intended not to enter
the lungs to any significant degree. Endpoints of the study were to evaluate the
effect of Bronchitol treatment on patient qualify of life using a self-assessment
known as the Likert scale, the St. Georges Hospital Respiratory Questionnaire, or
SGRQ, which is another self assessed measure of quality of life, sleep quality as
measured by the self assessed Epworth scale, exercise tolerance as measured by the 6
minute walk test, lung function as measured by two tests known as spirometry and flow
oscillometry, sputum microbiology, the physical properties of sputum, the volume of
sputum production over 24 hours and the safety profile of Bronchitol. The SGRQ
includes changes in three components, symptom, activity and impact, as well as an
overall score. Improvement in quality of life measures is indicated by a reduction in
score.Versus baseline, treatment with Bronchitol led to a significant reduction in the
Likert scale score of 6.1 (p=0.03). Versus baseline and comparator, there was a
statistically significant improvement in the Epworth sleep score (p<0.02 versus
comparator). For patients receiving Bronchitol, 38% went from an unclear chest to a
clear chest as compared to 17% on comparator (p<0.05). There were no statistically
significant changes on lung function as measured by standard spirometry. Flow
oscillometry showed a significant effect of Bronchitol compared to comparator
(p<0.05). Flow oscillometry is considered to reflect changes in small airways.However, the effect of Bronchitol was most pronounced in the 75% of patients who
entered the study with an unclear chest, which indicates the most serious problems
with normal clearance of lung mucus. There was a mean decrease of 10.2 in Likert scale
score during Bronchitol treatment, compared to a mean decrease of 3.6 for placebo
(p<0.005 versus placebo). Treatment with Bronchitol led to a significant
improvement in the impact component of the SGRQ compared to comparator in those
patients with an unclear chest. The improvement was clinically significant at 6.9
points. There was also a trend for an effect on the total score versus comparator but
this did not reach significance (p=0.15). Compared to baseline, the overall score
showed a strong trend with a clinically significant reduction of 5.6 (p=0.055).In August 2007 we completed a Phase III clinical trial of Bronchitol in 362
bronchiectasis subjects. This comparator-controlled double blinded trial was conducted
over 22 sites in the United Kingdom, Australia and New Zealand. The trial was designed
to evaluate the safety of Bronchitol and its impact on quality of life and mucus
clearance. In this trial, the comparator was a mannitol formulation with non
respirable particle size, which we anticipated to be most similar in patient
experience to active Bronchitol, yet was intended not to enter the lungs to any
significant degree. Primary efficacy endpoints of the study were to evaluate the
effect of Bronchitol treatment on patient qualify of life using a self-assessed
questionnaire, known as the St. Georges Hospital Respiratory Questionnaire, or SGRQ,
which is a patient reported outcome tool for measuring health-related quality of life,
and 24 hour mucus clearance. The SGRQ includes changes in three components, symptom,
activity and impact, as well as an overall score. Improvement in quality of life
measures is indicated by a reduction in score. Additional endpoints included
exercise tolerance, antibiotic use, exacerbation rate, cough frequency and lung
function as determined by spirometry readings.Subjects were administered drug or comparator over a twelve week period and the
randomization was 2:1 in favor of the treatment arm. Following conclusion of the
formal efficacy component, a proportion of the trial subjects were recruited to an
open label extension of the trial for a total treatment period of twelve months.
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Treatment with Bronchitol led to an overall improvement in quality of life versus baseline
(p<0.001) and an overall improvement in quality of life versus the comparator (p<0.05).
The change in quality of life was clinically significant at 4.1 units at the mid-point of the
study and 3.9 units at the end of the study. Additionally, there was a difference in sputum
volume between the two groups of subjects, with the Bronchitol treated group producing 30% more
mucus over the 24 hour collection periods and this difference was statistically significant
(p<0.001).In addition to the primary efficacy analysis, clinical trial subjects that had been assigned
to the drug treatment arm used less antibiotics over the first six week period than their
counterparts on the comparator arm and this difference was significant (p<0.05).There were no serious adverse events attributable to treatment and there was no
statistical difference in the number or nature of adverse events in the two treatment
groups.No therapies to enhance mucus clearance in bronchiectasis patients have been approved in over
20 years in the U.S. In June 2008, we reached agreement with the FDA under its Special
Protocol Assessment procedure and with the EMEA on the protocol for a Phase III trial with
Bronchitol in bronchiectasis to provide the basis for application for marketing authorization
in the U.S. and the E.U.In February 2005, the FDA granted Orphan Drug designation to Bronchitol for the treatment of
bronchiectasis. We are currently supplying Bronchitol in Australia on an individual, named
patient basis under a TGA-administered compassionate use program known as the Special Access
Scheme. This program allows patients access to unapproved drugs where there are limited
treatment options. In June 2008 we announced the extension of this named patient basis program
to qualifying patients in other parts of the world.We believe that an effective daily treatment for the estimated 600,000 people worldwide affected
by bronchiectasis represents a significant market opportunity.Bronchitol for Other Pulmonary IndicationsMost asthmatics with mucus hypersecretion have difficulty in clearing their secretions such
that mucus plugs and airway obstruction are commonly present and this can present clinical
challenges. A recent study (Respirology, 2007, 12, 683) indicates that Bronchitol may be
beneficial in enhancing clearance of mucus in asthmatics. The expected long term effect would
be a reduction in mucus plug formation and an improvement in lung function in asthmatics with
mucociliary dysfunction.Pilot data in patients with chronic bronchitis have shown that Bronchitol may also be beneficial
in improving mucociliary and cough clearance in these patients. We indirectly supported a
small, investigator-sponsored Phase II clinical trial to determine the effects of Bronchitol on
mucus clearance over a two hour period, and the effects on rate of clearance of a radiolabelled
tracer over a 24 hour period. The trial was not powered nor suitably controlled for statistical
analysis, but provided encouraging data.We plan to conduct additional Phase II clinical trials in patients with chronic bronchitis. The
objective of these trials will be to determine if Bronchitol assists in clearing mucus after an
exacerbation requiring hospitalization and whether Bronchitol has the ability to lengthen the
time to and, reduce the frequency of, subsequent exacerbations requiring hospitalisation.We also plan to conduct additional clinical trials to determine the effects of Bronchitol
on mucus clearance in patients admitted to hospital intensive care units.
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1.2.2
    
    Business Overview (Continued)
 (iv)
    
    AridolWe have initially developed Aridol as a more accurate and precise proprietary tool for
physicians to use in the diagnosis and management of asthma and COPD. Physicians do
not currently have rapid, accurate, safe and inexpensive tests to evaluate the
presence or severity of these diseases. Aridol is a proprietary dry powder formulation
of mannitol, delivered to the lungs through an inhaler. Mannitol is an osmotic agent
which causes the release of certain mediators from inflammatory cells, which in turn
cause a bronchoconstriction. This process mimics the changes that often occur in the
airways of people with asthma. Asthma patients who are not receiving adequate doses of
anti-inflammatory medicine, such as an inhaled corticosteroid, experience airway
narrowing and a drop in lung capacity when given the Aridol test. In contrast, healthy
people or well-controlled asthma patients do not experience this narrowing and
reduction in lung capacity. In 2004 we completed a 646 subject,12 centre, Phase III
clinical trial of Aridol. Based on the Phase III data, we have received marketing
approval in Australia. In June 2007 we successfully completed the E.U. mutual
recognition procedure which permitted marketing approvals of Aridol by Germany,
France, the United Kingdom, Italy, the Netherlands, Belgium, Denmark, Greece, Spain,
Finland, Ireland, Norway, Sweden and Portugal. Individual country marketing
certificates were issued from June 2007 to June 2008 at which time Italy, France,
Spain and Belgium were still being processed.We received marketing approval in Korea in January 2008. In October 2006 we completed
a 500 participant, 30 centre, Phase III clinical trial designed to allow approval in
the U.S. Based on this study and the earlier Phase III clinical trial that was the
basis of marketing approval in Australia and Europe, we intend to file a New Drug
Application (NDA) with the FDA in the third quarter of 2008.Aridol is the subject of 48 peer-reviewed publications in international journals. We
believe that Aridol is superior to direct tests such as methacholine because Aridol is
an indirect challenge test that relies on mediators released by inflammatory cells to
cause a bronchoconstriction, thereby making Aridol a more accurate predictor of airway
inflammation. We believe that Aridols high degree of sensitivity and specificity for
airway inflammation, combined with its ease of use, will make it possible for
physicians to:
 
    
    diagnose asthma more accurately and objectively, and measure disease
severity, with a high correlation to in-depth patient assessment by a pulmonary
specialist physician;
    
    monitor the effectiveness of treatment, with a negative Aridol
test indicating good control of asthma and a positive test indicating active airway
inflammation and the need for more or different medication;
    
    determine the minimum required dose of steroids to achieve adequate disease control in a given patient, and
predict the risk of exacerbation when reducing the steroid dose.
 We have an exclusive, worldwide license from Sydney South West Area Health Service to
certain key intellectual property and patents relating to the use and formulation of
Aridol.Aridol for AsthmaIn our Phase II and Phase III clinical trials, patients used a dry powder inhaler to
take progressively higher doses of Aridol (from 5 mg to 635 mg, nine steps in all).
After each inhalation the patients lung capacity is determined by a spirometer, an
instrument to measure airflow and lung capacity. The Aridol test is stopped when a
patient has a 15% fall in lung capacity, indicating the presence of active airway
inflammation. Only those patients with active airway inflammation will experience a
drop in lung capacity. On average, the procedure takes 17 minutes for a positive test
and 26 minutes for a negative test. The only equipment required is a standard
spirometer to record lung capacity.A large number of investigator-sponsored, open-label Phase I and Phase II clinical
trials have been conducted with Aridol. The results show that use of Aridol can
identify subjects with asthma who are also responsive to inhaled salt solutions,
inhaling dry air and exercise. Aridol also identifies both adults and children with
currently active asthma who are responsive to methacholine, as well as others who are
not responsive to methacholine. The Aridol test demonstrates good repeatability in
both adults and children, and responses are rapidly reversible using a standard dose
of bronchodilator. Furthermore, Aridol can provide an assessment of the effectiveness
of inhaled steroids in controlling the disease. Finally, Aridol response correlates
with the symptoms and signs of exercise induced asthma, indicating that a negative
response to Aridol may be a useful end point signifying adequate asthma control.
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In 2004 we completed a 12 centre, 646 subject, Phase III clinical trial of Aridol to identify
airway hyperresponsiveness in asthmatic patients, and to support filing for marketing authorization
in Australia and the European Union. Airway hyperresponsiveness is a hallmark of untreated or
poorly controlled asthma, and over time can lead to long-term changes in the lungs. This trial
included asthmatic patients who were currently treating their disease, patients with symptoms
suggestive of asthma but without a clinical diagnosis, and healthy volunteers, including both
children and adults. The goals of this trial were to:
 
    
    compare Aridol to hypertonic saline in
identifying airway hyper-responsiveness in asthmatic subjects and non-asthmatic subjects;
    
    compare Aridol to standard clinical assessment in diagnosing asthma;
    
    compare asthma severity as determined by our Aridol test to the Severity of Asthma (Asthma Management Handbook 2002);
    
    evaluate the advantages of Aridol versus hypertonic saline with respect to simplicity, safety and patient and health care convenience; and
    
    further evaluate the safety profile of Aridol.
 The primary endpoint was a comparison of the sensitivity and specificity of Aridol to that
for an unapproved test, hypertonic saline, which is widely used in Australia. A secondary endpoint
was a comparison of the sensitivity and specificity of Aridol to that of physician diagnosis.
Sensitivity is a measure of the percentage of people correctly identified as having airway
hyperresponsiveness by the test. Specificity is a measure of the percentage of people correctly
identified as lacking airway hyperresponsiveness.In this trial, sensitivity of Aridol against hypertonic saline was 81%, and specificity was
87%. This means that 81% of patients identified as having airway hyper-responsiveness by the
hypertonic saline test were also identified as positive by the Aridol test and 87% of patients
classified as lacking airway hyper-responsiveness were also identified as negative by Aridol.
Conversely, the sensitivity of hypertonic saline against Aridol was 88%, and specificity was
79%. These numbers indicate good agreement between the two tests (p<0.01).In comparison to physician diagnosis, Aridol had a sensitivity of 58%, and specificity was 94%.
Significantly, of the 42% of patients identified as asthmatic by physician diagnosis, but
lacking airway hyper-responsiveness as determined by Aridol, 85% were using inhaled
corticosteroids at the time of the clinical trial. When the subjects who were Aridol negative
and were using inhaled corticosteroids were removed from the analysis versus physician
diagnosis, sensitivity was 89% and specificity was 95%. The increase in sensitivity underscores
the utility of Aridol in managing patients on inhaled corticosteroid medication.As a result of this trial, we have received marketing approval in Australia, Korea, Germany, the
United Kingdom, the Netherlands, Denmark, Greece, Finland, Ireland, Norway, Portugal and Sweden.
We have filed for the issue of marketing authorizations in France, Italy, Spain and Belgium
subsequent to our successful completion of the E.U. mutual recognition procedure. We have also
filed for marketing approval in Switzerland and several smaller Asian markets.We have established a sales force based in Australia and have completed our first two years of
sales of Aridol in Australia. We have appointed independent marketing partners in Scandinavia,
Switzerland, Italy, Greece, Spain, Portugal, the Netherlands and Korea and established an
office in the United Kingdom to manage these partners and to manage European sales and
marketing in the UK, Ireland and France. We have appointed an independent marketing partner in
Korea and established an office in China to manage Asian sales and marketing partners. We
intend to establish additional marketing partnerships in select E.U. and Asian territories and
other jurisdictions for this product. We are supporting a number of investigator-sponsored
trials to provide the basis for a rapid uptake of Aridol in the marketplace.In the U.S., unlike Australia and Europe, a product, methacholine, is approved by the FDA to
identify airway hyper-responsiveness in asthmatic patients. Based on discussions with the
FDA, we undertook a 500 subject Phase III clinical trial comparing Aridol with methacholine
and exercise challenge in patients with suspected asthma. The primary endpoint was to
compare the sensitivity and specificity of Aridol to identify exercise-induced
bronchoconstriction. We completed this trial in October 2006. In this group with
predominantly very mild symptoms, Aridol was able to identify patients with exercise induced
bronchoconstriction in 58% of cases
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1.2.2
    
    Business Overview (Continued)
 (sensitivity). In comparison methacholine, an approved lung function test in the U.S.,
identified 54% of cases. The difference between the two tests was not statistically
significant. Aridol also had similar specificity to methacholine, (66% versus 70%
respectively) in subjects without exercise induced bronchoconstriction. In addition
Aridol was proven to have an acceptable safety profile and to cause less
bronchoconstriction than methacholine (p<0.05). Based on this study and the earlier
Phase III clinical trial that was the basis of marketing approval in Australia and
Europe, we intend to file a New Drug Application (NDA) with the FDA. We have
established an office in the U.S.A. to manage sales and marketing of Aridol in North
America.Our initial target market for Aridol are the lung function testing laboratories and
specialist physicians that manage those asthamatic patients that have poor control of
their disease. Because current use of objective lung function testing is low, we plan
to focus initial Aridol marketing efforts on physician education regarding asthma
diagnosis and disease control. We believe physicians who commonly diagnose asthma
based only on patient history of asthma symptoms leads to sub-optimal control of this
disease, falling far short of the goals of current clinical guidelines. We are also
planning development and marketing efforts in new areas where challenge testing could
be useful given the availability of an accurate, valid and easy to use test like
Aridol. These include monitoring asthma therapy and assessing asthma prevalence in the
community.Aridol for COPDWe are also exploring the use of Aridol in the management of COPD. Treatment of COPD
is difficult but approximately 20%-25% of patients with COPD can have a positive
clinical outcome with the administration of inhaled steroids. A long standing problem
is that there is no effective test to identify those people that will respond
clinically to inhaled steroids. A publication by Jörg Leuppi and colleagues has shown
that in an investigator-sponsored, Phase II clinical trial, those patients with COPD
that have a positive response to an Aridol challenge test are likely to benefit from
inhaled corticosteroids treatment. In this trial, all patients had a positive response
to inhaled histamine (a lung challenge test) whereas only 23% had a response to
inhaled Aridol. After three months treatment with steroids, only those patients who
recorded a positive Aridol challenge test had an improvement in their lung capacity.
The difference in response to treatment between the two groups was highly
statistically significant (p=0.001). In March 2007 we reported the results of a Phase
II clinical trial to determine if Aridol is a practical test to guide treatment of
inhaled corticosteroids in COPD patients in the primary care setting. In subjects with
a positive Aridol challenge test, treatment with inhaled corticosteroids led to a
statistically significant improvement in airway hyper-responsiveness as judged by a
subsequent Aridol challenge test.(v)
    
    Drug DevelopmentWe currently conduct a number of different research programs including PXS25 and
PXS4159.PXS25PXS25 is an inhibitor of the cation-independent mannose-6-phosphate/insulin-like
growth factor-II receptor (CI-M6P/IGF2R). According to the type of ligand,
CIM6PR/IGF2R may modulate a large panel of biological pathways, such as cell
migration, wound healing, angiogenesis and cell growth inhibition,PXS25 has been developed as a selective and stable antagonist of CIM6PR/IGF2R and has
been studied in a variety of models of human disease. Our preclinical studies indicate
that PXS25 is able to inhibit inflammatory cell ingress to selected organs including
the lungs and may be useful in addressing clinical conditions such as COPD or fibrotic
disorders of the lung.In our animal studies, PXS25 demonstrated significant activity when administered by
injection. However, the oral bioavailability of PXS25 is low in several species of
animals. Therefore, we have developed PXS64, an orally available prodrug of
PXS25 which is metabolized to active PXS25 once absorbed by the body.The preclinical safety assessment of PXS25 as an intravenous formulation have been
completed and initial Phase I clinical trials to determine the safety and
pharmacokinetic properties of PXS25 are in preparation.Additional preclinical research studies are in progress to determine the most
appropriate clinical indication for PXS25 and the most appropriate route of delivery.
Additional preclinical safety studies will be required if PXS25 is delivered to the
lungs to treat fibrotic disorders of the lung and additional preclinical safety
studies will be required if PXS25 is to be delivered orally via its prodrug PXS64.
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PSX4159PXS4159 is a potent and selective inhibitor of semicarbazide sensitive amine oxidase
(SSAO) which is also known as vascular adhesion protein-1 (VAP1). SSAO/VAP-1 plays a key
role in inflammation.The soluble products form SSAO/VAP-1 are highly reactive and include hydrogen peroxide and
reactive aldehyde. The concentration of SSAO/VAP-1 circulating in the blood is increased in
several inflammatory diseases, including congestive heart failure, inflammatory liver disease,
and diabetes. The soluble products which form when SSAO/VAP-1 reacts with substrates are highly
reactive and include hydrogen peroxide and reactive aldehyde.SSAO/VAP-1 plays a role in the transmigration of leukocytes out of the blood stream into sites
of inflammation. It has been reported in the scientific and patent literature that inhibition
of the amine oxidase enzymatic activity of SSAO/VAP-1 in animal models of inflammatory diseases
leads to amelioration of disease symptoms. Rheumatoid arthritis, lung inflammation, multiple
sclerosis, liver inflammation and ocular inflammation disease models have been studied in this
manner.In a series of preclinical studies, PXS4159 has been shown to effectively inhibit the oxidas
activity of SSAO/VAP-1 when administered to animals and to suppress inflammation in an animal
model of lung disease, is effectively absorbed following oral administration and is well
tolerated. On this basis, we have selected PXS4159 as our preferred development candidate and
have commenced the scale up manufacture and pre-clinical safety studies necessary to evaluate
the compound in humans.(vi)
    
    Our StrategyOur objective is to build a specialty pharmaceutical company focused on respiratory and
inflammatory/autoimmune indications. Key aspects of our strategy include:
 
    
    Focus on attractive product opportunities in our core therapeutic areas.We are
developing products that address severe, chronic and acute respiratory and inflammatory
diseases where there are limitations to current treatment and the patient population is
treated by a relatively concentrated physician audience.
    
    Successfully complete the clinical development of Bronchitol in two initial
indications.In the use of Bronchitol for cystic fibrosis we have recently successfully
completed our Phase II clinical trial program, completed recruitment of our first Phase
III clinical trial (in Europe and Australia) and initiated our second Phase III clinical
trial (in the U.S.). In the use of Bronchitol for bronchiectasis we have successfully
completed our first Phase III clinical trial, have agreed the protocol for a second Phase
III clinical trial with the FDA and EMEA, and we are preparing to file a marketing
application with the Australian TGA.
    
    Increase manufacturing capacity.We have a TGA approved manufacturing plant sufficient
for the current commercial requirements of Aridol. A purpose built manufacturing, research
and office facility is currently being constructed for us which we will equip with
manufacturing capacity sufficient for our launch of Bronchitol into global markets.
    
    Complete the international approval and commercial launch of Aridol.We have received
marketing authorization of Aridol in Europe, Australia and Korea. Based on our pre-IND
meeting with the FDA, the completed U.S. clinical trial of Aridol and the earlier Phase
III clinical trial that was the basis of marketing approval in Korea, Australia and
Europe, we intend to file a New Drug Application (NDA) with the FDA. The commercial
launch of Aridol continues throughout Europe and Asia as country specific marketing and
pricing approvals are obtained.
    
    Develop sales and marketing capabilities in select markets.We intend to retain
commercial rights to our products in indications and territories where we believe we can
effectively market them with a small specialized sales force. For all other indications and
territories, we intend to pursue strategic collaborations.
    
    Continue to expand and progress our R&D pipeline.We have a number of current research
and development programs and will continue to build and strengthen our product pipeline and
commercial capabilities, and we may acquire complementary technology and drug development
candidates from research institutes, universities and private and public companies. These
acquisitions may take the form of collaborations, licensing arrangements or outright
purchase of intellectual property, research groups or corporate entities.
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1.2.2
    
    Business Overview (Continued)
 (vii)
    
    Sales and MarketingWe have a sales and marketing group in Australia and have appointed marketing and
distribution partners for certain European and Asian territories with respect to the
marketing and sale of Aridol. We have established offices in the United Kingdom, the
U.S. and China to manage local marketing and distribution partners and/or undertake
direct marketing to pulmonary specialists and third parties. In order to commercialize
any of our other respiratory product candidates, we must further develop these
capabilities internally or through collaborations with third parties. We intend to
retain commercial rights to market our products to pulmonary specialists in the U.S.
and Europe and may enter into sales, marketing and distribution agreements for other
parts of the world. Because the U.S. and European pulmonary specialist market is
relatively concentrated, we believe we can effectively target it with a small
specialized sales force. We may pursue strategic collaborations to commercialize our
products in other territories and on a worldwide basis for indications treated by
large physician populations, such as asthma or chronic bronchitis.(viii)
    
    ManufacturingWe manufacture both Aridol and Bronchitol in our production facility located in
Sydney, Australia, under conditions of current Good Manufacturing Practice, known as
cGMP. Our manufacturing facility consists of a warehouse, adjoining office space, a
cGMP laboratory for quality control and quality assurance, and clean rooms. Final
packing of both Aridol and Bronchitol in foil packs is performed by a third party. The
inhaler used in conjunction with both Aridol and Bronchitol is manufactured by a third
party in Italy and is supplied to us on a non-exclusive basis through a standard
supply agreement.We believe that our manufacturing facility has ample operating capacity to produce
adequate Aridol and Bronchitol to undertake the full clinical trial program through
submission of an NDA in the U.S. for those product candidates and to support the
commercial demand of Aridol two years after international launch. We have entered into
an agreement concerning the lease of a purpose built manufacturing, warehousing and
office facility. Construction of the new facility is underway and is expected to
complete in the first quarter of 2009. We have entered an agreement for the
construction of a spray dryer, being the key piece of production equipment to be
housed in the new facility and are continuing to enter into agreements for other
pieces of equipment which will be required to increase capacity.Our cGMP facilities have been inspected and licensed by the Therapeutic Goods
Administration. Our facilities and those of any third-party manufacturers will be
subject to periodic inspections confirming compliance with applicable law of
jurisdictions in which we have approved product. Our new facility must be cGMP
certified before we can manufacture our drugs for commercial sale. Failure to comply
with these requirements could result in the shutdown of our existing facilities or the
assessment of fines or other penalties or an inability to supply product from our new
facility.Mannitol is the key raw material required for the manufacture of both Aridol and
Bronchitol. cGMP grade mannitol is available from a number of suppliers. Inhalers are
also available from a number of suppliers.We have outsourced the manufacturing of cGMP grade PXS25 for preclinical and clinical
trials as our manufacturing facilities are not suitable for the production of PXS25.
Our contract manufacturers have the capacity to produce adequate PXS25 for clinical
trials.We have outsourced the manufacturing of cGMP grade PXS4159 for preclinical trials as
our manufacturing facilities are not suitable for the production of PXS4159. Our
contract manufacturers have the capacity to produce adequate PXS4159 for clinical
trials.(ix)
    
    CompetitionWe operate in highly competitive segments of the biotechnology and pharmaceutical
markets. We face competition from many different sources, including commercial
pharmaceutical and biotechnology enterprises, academic institutions, government
agencies, and private and public research institutions. Many of our competitors have
significantly greater financial, product development, manufacturing and marketing
resources than do we. Large pharmaceutical companies have extensive experience in
clinical testing and obtaining regulatory approval for drugs. These companies also
have significantly greater research capabilities than do we. In addition, many
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universities and private and public research institutes are active in respiratory and
autoimmune disease research, some in direct competition with us. We also compete with these
organizations to recruit scientists and clinical development personnel. Smaller or early-stage
companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies.We are aware of many of our competitors in each of the markets we target. These products
include approved and marketed products as well as products in development. We expect Aridol, to
compete with direct bronchial provocation tests such as methacholine (Provocholine®)
and histamine. We expect Bronchitol for CF to compete with or to be used in conjunction with
Pulmozyme and other mucolytic agents and bronchodilators. Although it has little market penetration, Mucomyst®, marketed by AstraZeneca, is used by some
physicians to treat bronchiectasis, other forms of COPD and CF. Numerous other potential
competing therapeutic products are in clinical treatment and preclinical development, including
new antibiotic preparations and new agents to restore salt balance. In each of our development
programs addressing indications for which there are therapies available, we intend to complete
clinical trials designed to evaluate the potential advantages of our drug candidates as
compared to, or in conjunction with, the current standard of care. Key differentiating elements
affecting the success of all of our drug candidates are likely to be their efficacy,
convenience and side-effect profile compared to commonly used therapies.(x)
    
    Intellectual PropertyWe patent the technology, inventions and improvements that we consider important to the
development of our business. As of 31 July 2008, we owned or had exclusive rights to 20 issued
U.S. and foreign patents and 14 pending U.S. and foreign patent applications. Of these, 11
issued patents and three pending applications relate to Aridol and Bronchitol. The last of these
issued patents are due to expire in 2021. One pending application relates to PXS25 and PXS64 and
has now entered the national phase and one provisional application relates to PXS4159. The
remaining patents and applications relate to other aspects of our technology or other drug
discovery programs that have not yet entered a full development program. If available to us, we
intend to seek patent term extension for our eligible patents, including under the Hatch-Waxman
Act, which provides up to five years of patent extension.We have the exclusive worldwide rights from Sydney South West Area Health Service for certain
key intellectual property and patents relating to the use of respirable dry powders for the
assessment of bronchial hyper-responsiveness, a condition consistent with active asthma, for
monitoring steroid use in asthma patients, and enhancing mucus clearance in diseases such as
cystic fibrosis, bronchiectasis and chronic bronchitis. These exclusive rights, which form the
basis for patent protection of both Aridol and Bronchitol, derive from one issued U.S. and eight
issued foreign patents. The U.S. and most of the foreign patents covering Aridol and Bronchitol
are due to expire in 2015. The latest expiring in any territory is 2021. The U.S. and European
patents may be eligible for extension by up to an additional five years, however, we cannot
guarantee that any such extension would be granted.We also have an exclusive worldwide license from ANU Enterprises Pty Ltd. (formerly Anutech Pty
Ltd.) to develop and commercialize intellectual property relating to the treatment of
inflammatory or immune-mediated conditions in patients by administering a phosphosugar. These
exclusive rights derive from two issued U.S. and four issued foreign patents covering the E.U.
member states and Australia, as well as other major territories. The last of these patents are
due to expire in 2017. The U.S. patents may be eligible for extension by up to an additional
five years however we cannot guarantee that any such extension would be granted.Our ability to build and maintain our proprietary position for our technology and drug
candidates will depend on our success in obtaining effective claims and enforcing those claims
once granted. The patent positions of biopharmaceutical companies like ours are generally
uncertain and involve complex legal and factual questions for which important legal principles
remain unresolved. Some countries in which we may sell our product candidates or license our
intellectual property may fail to protect our intellectual property rights to the same extent
as the protection that may be afforded in the U.S. or Australia. Some legal principles remain
unresolved and there has not been a consistent policy regarding the breadth or interpretation
of claims allowed in patents in the United States, the European Union, Australia or elsewhere.
In addition, the specific content of patents and patent applications that are necessary to
support and interpret patent claims is highly uncertain due to the complex
 Pharmaxis




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1.2.2
    
    Business Overview (Continued)


nature of the relevant legal, scientific and factual issues. Changes in either patent laws
or in interpretations of patent laws in the U.S, the E.U. or elsewhere may diminish the
value of our intellectual property or narrow the scope of our patent protection.We may not be able to develop patentable products or be able to obtain patents from
pending patent applications. Even if patents are issued, those patents can be challenged
by our competitors who can argue such patents are invalid. Patents also will not protect
our products if competitors devise ways of making these product candidates without legally
infringing our patents. The U.S. Federal Food, Drug and Cosmetic Act and FDA regulations
and policies and equivalents in other jurisdictions provide incentives to manufacturers to
challenge patent validity or create modified, non-infringing versions of a drug in order
to facilitate the approval of abbreviated new drug applications for generic substitutes.In addition, patent applications filed before 29 November 2000 in the U.S. are maintained
in secrecy until patents issue. Later filed U.S. applications and patent applications in
most foreign countries generally are not published until at least 18 months after they are
filed. Scientific and patent publication often occurs long after the date of the
scientific discoveries disclosed in those publications. Accordingly, we cannot be certain
that we were the first to invent the subject matter covered by any patent application or
that we were the first to file a patent application for any inventions.The status of the Companys patent portfolio is summarized in the following table:


USA
    
    
    Europe
    
    
    Australia
    
    
    ROWPatent Family 1  Aridol and Bronchitol
    
    
    G
    
    
    
    P

    
    
    
    G
    
    
    

    P/G

    1Patent Family 2  Phosphosugar based anti-inflammatoryand/or immunosuppressive drugs
    
    
    G
    
    
    
    G
    
    
    
    G
    
    
    
    GPatent Family 3  Novel phosphosugars and
phosphosugar-containing compounds having anti-inflammatory
activity
    
    
    G
    
    
    
    n/a
    
    
    
    G
    
    
    
    n/aPatent Family 4  Novel compounds and methods
    
    
    G
    
    
    
    P

    
    
    
    P

    
    
    
    G/PPatent Family 5  Novel pyrans and methods (PXS25)
    
    NP
    

    
    NP
    

    
    NP
    
    
    NPPatent Family 7  Novel inhibitors of TNF (PXS2076)
    
    ProvPatent Family 8  Novel inhibitors of SSAO/VAP-1 (PXS4159)
    
    Prov







Details of patents and patent applications licensed to, or owned by Pharmaxis Ltd are
set out below:Patent Family 1  The Use of Inhaled MannitolThe invention covered by this family of patents and patent applications generally
relates to the use of mannitol and other substances in the form of a dispersible dry
powder capable of inducing sputum and promoting airway clearance in conditions where
clearance of excess mucus would be advantageous. Included is a test of airway function
and susceptibility to asthma based on inhaling an effective amount of mannitol or
other substance.


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Country
    
    Patent/Application No.
    
    Status
    
    ExpiresAustralia
    
    
    
    682756
    
    Granted  5 Feb 1998
    
    23 Feb 2015Canada
    
    
    
    2183471
    
    Granted
    
    23 Feb 2015Europe (EPO)
    
    
    
    95910331.8
    
    Under examination
    
    23 Feb 2015Japan
    
    
    
    3979660
    
    Granted
    
    23-Feb-20152006-317693
    
    Under examination2009-317692
    
    Under examinationMalaysia
    
    
    
    PI9603590
    
    Granted
    
    23 Feb 2015New Zealand
    
    
    
    281522
    
    Granted
    
    23 Feb 2015P.R. China
    
    
    
    95191808.7
    
    Granted
    
    25 Feb 2015Republic of Korea
    
    
    
    96-704666
    
    Granted
    
    23 Feb 2015Singapore
    
    
    
    34525
    
    Granted
    
    19 Dec 2015The Philippines
    
    
    
    I-54034
    
    Granted
    
    17 Mar 2024USA
    
    
    
    5,817,028
    
    Granted
    
    06 Oct 2015Vietnam
    
    
    
    SC0131/96
    
    Granted
    
    23 Feb 2015
 This series of patents and patent applications are held in the name of Sydney South West Area
Health Service and stem from an initial Australian provisional patent application PM4114 filed
25 February 1994. Subsequently, complete applications were filed via a PCT application
(PCT/AU/95/00086) filed on 23 Feb 1995.
 Patent Family 2  Phosphosugar-Based Anti-Inflammatory and/or Immunosuppressive Drugs
 The invention covered by this family of patents and patent applications generally relates to a
method for treating inflammatory or immune-mediated conditions in patients by administering a
phosphosugar (mainly mannose-6-phosphate and fructose-6-phosphate) as well as oligo- and
poly-saccharides that contain such phosphosugars. These agents act as antagonists at mannose
phosphate receptors by competitive inhibition of the binding of the natural ligand for these
receptors. This treatment targets delayed hypersensitivity types of immune reactions and
their attendant inflammatory processes, and the patent is directed specifically to the
treatment of arthritis, inflammatory diseases of the central nervous system, and the rejection
of organ transplants.
 Country
    
    Patent/Application No.
    
    Status
    
    ExpiresAustralia
    
    
    
    627500
    
    Granted  21 Dec 1992
    
    18 Aug 2009Europe
    
    
    
    
    
    Granted  30 June 1996
    
    17/18 Aug 2009Japan
    
    
    
    509079/89
    
    Granted  03 Dec 1999
    
    18 Aug 2009USA
    
    
    
    5,506,210
    
    Issued  09 Apr 1996
    
    09 Apr 2013
 This family of patents is owned by The Australian National University (ANU) and claims
priority to Australian Provisional application P19942/88 filed on 19 August 1988.
Subsequently, complete applications were based on a PCT application (PCT/AU89/00350) filed
on 18 August 1989.
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##### 



1.2.2
    
    Business Overview (Continued)
 Patent Family 3  Novel Phosphosugars and Phosphosugar-Containing Compounds Having
Anti-Inflammatory ActivityThese patents are for substituted D-mannoside-6-phosphate compounds that have
anti-inflammatory activity and their use in treating inflammatory diseases, particularly
cell-mediated inflammatory diseases. The patent discloses use of these compounds to
suppress experimental auto-immune encephalomyelitis in the rat (a model of multiple
sclerosis) and two different types of delayed-type hypersensitivity responses in mice.
Issued claims in the U.S. patent cover some of these novel phosphosugar compositions and
methods of treating cell-mediated inflammation in a human or non-human mammalian patient
by administering these compositions.
 Country
    
    
    
    Patent/Application No.
    
    
    
    Status
    
    
    
    ExpiresAustralia
    
    
    
    728393
    
    Granted 26 Apr 2001
    
    17 Oct 2017USA
    
    
    

    6,294,521
    
    Issued 25 Sep 2001
    
    18 Oct 2017
 The above family of patents are held in the name of the ANU and stem from a priority Australian
provisional patent application (PO 3098/96) filed on 18 October 1996.
 Patent Family 4  Novel Compounds and Methods
 This family of patent applications relates generally to novel phosphotetrahydropyran
(mannose-6-phosphate derivatives) compounds and their use in treating diseases that are
dependent upon T lymphocyte migration. These compounds were shown to inhibit (a) T lymphocyte
migration across rat brain endothelial cell layers in vitro; (b) lymphocyte migration into
lymphatic and extralymphatic tissues in vivo; and (c) delayed hypersensitivity-type immune
responses and development of T cell-mediated autoimmune disease in vivo in animal models. In
particular, the present invention relates to the use of the above compounds in the treatment of
T lymphocyte mediated inflammatory diseases in animals and man, such as rheumatoid arthritis,
multiple sclerosis, etc.
 Country
    
    Patent/Application No.
    
    Status
    
    ExpiresAustralia
    
    
    
    2001270356
    
    Granted
    
    11 Jul 2021Canada
    
    
    
    2415214
    
    Pending
    
    11 Jul 2021Europe
    
    
    
    01949109.1
    
    Pending
    
    11 Jul 2021New Zealand
    
    
    

    523565
    
    Granted
    
    11 Jul 2021Japan
    
    
    

    2002-509335
    
    Lodged
    
    11 Jul 2021USA
    
    
    
    6878690
    
    Granted
    
    11 Jul 2021
 These applications stem from Australian Provisional Patent Application No. PQ8723/00 filed
on 11 July 2000. Complete applications were based on a PCT application (PCT/AU01/00831)
filed on 11 July 2001.
 Patent Family 5  Novel Phosphotetrahydropyrans and Methods
 The present invention relates generally to novel phosphotetrahydropyran compounds, primarily
derivatives of mannose-6-phosphate, and their use in treating diseases or disorders that are
mediated at least in part by T lymphocyte emigration from blood to tissues. These compounds
are said to be improved inhibitors as compared to the compounds in Patent Family 4.
Pharmaceutical compositions containing these compounds are used in methods to treat T
lymphocyte mediated inflammatory and autoimmune diseases in animals and man, including
rheumatoid arthritis, multiple sclerosis, acute disseminated encephalomyelitis,
psoriasis, Crohns disease, T cell-mediated dermatitis, stromal keratitis, uveitis,
thyroiditis, sialitis or type I diabetes.
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Country
    
    Application No.
    
    Status
    
    ExpiresUSA
    
    
    
    60/761,754
    
    Under examination
    
    20 years from filing dateCanada
    
    
    
    2525328
    
    Request examination by 20 May, 2009
    
    20 years from filing dateNew Zealand
    
    
    
    544085
    
    Under examination
    
    20 years from filing dateAustralia
    
    
    
    2004240938
    
    Request examination by 20 May, 2009
    
    20 years from filing dateEurope
    
    
    
    04752819.5
    
    Under examination
    
    20 years from filing dateSingapore
    
    
    

    200507071-9
    
    Under examination
    
    20 years from filing date
 These applications stem from U.S. Provisional Patent Application No. 60/471,716 filed on 20 May
2003. Complete applications were based on a PCT application (PCT/US2004/015876) filed on 19 May
2004.
 Patent Family 7  Novel Anti-inflammatory Agents and Uses Thereof
 This patent relates to a series of compounds and pharmaceutical compositions comprising novel
inhibitors of tumor necrosis factor (TNF). The compounds are useful for the treatment of treat
inflammatory conditions, immune disorders and cell proliferative disorders, as well as in pain
management, either alone or in combination with known agents for these conditions.
 Country
    
    Application No.
    
    Status
    
    ExpiresUSA
    
    Serial No. 60/761,754
    
    Provisional Application
    
    20 years from filing date
 The U.S. provisional application was filed in the name of Pharmaxis Pty Limited on 28
January 2008 and the non-provisional and/or the international application must be filed by
no later than 28 January 2009 in order to claim priority from this provisional application.
 Patent Family 8  Novel Inhibitors of SSAO/VAP-1This patent relates to a series of compounds and pharmaceutical compositions comprising
novel inhibitors of SSAO/VAP-1. The compounds are useful for the treatment of inflammatory
conditions, immune disorders and cell proliferative disorders, either alone or in
combination with known agents for these conditions.
 Country
    
    Application No.
    
    Status
    
    ExpiresUSA
    
    Serial No. 60/689,634
    
    Provisional Application
    
    20 years from filing date
 The U.S. provisional application was filed in the name of Pharmaxis Ltd on 21 November 2007
and the non-provisional and/or the international application must be filed by no later than
21 November 2008 in order to claim priority from this provisional application.
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##### 



1.2.2
    
    Business Overview (Continued)
 (xi)
    
    Government Regulation and Product Approval
   Preclinical Studies
  Clinical Trials
  Clinical Trial Phases
  
    
    Phase I clinical trials.After receiving approval from the relevant
local regulatory authority phase I human clinical trials can begin. These trials
evaluate a drugs safety profile, and the range of safe dosages that can be
administered to healthy volunteers and/or patients, including the maximum
tolerated dose that can be given to a trial subject with the target disease or
condition. Phase I trials also determine how a drug is absorbed, distributed,
metabolized and excreted by the body, and duration of its action.
    
    Phase II clinical trials.Phase II clinical trials typically are
designed to evaluate the potential effectiveness of the drug in patients and to
further ascertain the safety of the drug at the dosage given in a larger patient
population.
    
    Phase III clinical trials.In phase III clinical trials, the drug
is usually tested in a controlled, randomized trial comparing the investigational
new drug to an approved form of therapy in an expanded and well defined patient
population and at multiple clinical sites. The goal of these trials is to obtain
definitive statistical evidence of safety and effectiveness of the
investigational new drug regime as compared to an approved standard therapy in
defined patient populations with a given disease and stage of illness.
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New Drug Application/Marketing Authorisation Application
   Other Regulatory Requirements
    Regulation in the U.S.
 Preclinical Studies
  Pharmaxis




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##### 



1.2.2
    
    Business Overview (Continued)
 New Drug Application
      Regulation in the E.U.
  Pharmaxis




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##### 



Regulation in Australia
     (xii)
    
    Employees
  (xiii)
    
    Legal Proceedings
  (xiv)
    
    Research Grant Funding
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##### 



1.2.3
    
    Organisational Structure
  (i)
    
    Pharmaxis Pharmaceuticals Limited, incorporated under the laws of England and Wales.(ii)
    
    Pharmaxis, Inc., incorporated under the laws of the State of Delaware, U.S.
 1.2.4
    
    Property, Plant and Equipment
    1.3
    
    Corporate Governance1.3.1
    
    Introduction
    1.3.2
    
    ASX Disclosures
  Principle 1: Lay Solid Foundations for Management and Oversight
 Companies should establish and disclose the respective roles and responsibilities of board
and management.
 Recommendation 1.1
 Companies should establish the functions reserved to the board and those delegated to
senior executives and disclose those functions.
  Pharmaxis




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##### 



Recommendation 1.2 & 1.3
 Companies should disclose the process for evaluating the performance of senior executives
and provide the information required in the guide to Principle 1.
   
    
    approves individual milestone objectives for the
CEO and Senior Executive Officers for the coming financial year, the milestones being based on our
business plan approved by the Board;
    
    evaluates the performance of the CEO compared to milestone
objectives set at the beginning of the year and approves the payment of any bonus and/or the grant
and vesting of any options related to the CEOs performance;
    
    in relation to Senior Executive
Officers, reviews recommendations, considers and approves the payment of any bonus and/or the grant
and vesting of any options based on performance of milestone objectives for the current financial
year.
 Principle 2: Structure the Board to Add Value
 Companies should have a board of an effective composition, size and commitment to adequately
discharge its responsibilities and duties.
 Recommendation 2.1
 A majority of the board should be independent directors.
      Recommendation 2.2
 The chair should be an independent director.
  Recommendation 2.3
 The roles of the chair and the chief executive officer should not be exercised by the same
individual.
  Pharmaxis




---



##### 



1.3.2
    
    ASX Disclosures (continued)
 Recommendation 2.4
 The board should establish a nomination committee.
  
    
    monitor the ongoing development of the Board consistent with our growth
and development;
    
    make recommendations for the appointment and removal of Directors to
the Board;
    
    assist the Board evaluate the performance and contribution of individual
directors, the Board and Board Committees; and
    
    assist the Board in establishing
remuneration policies and practices that enable us to attract, retain and motivate
executives and Directors who will pursue our long-term growth and success.
   Recommendation 2.5
 Companies should disclose the process for evaluating the performance of the board, its
committees and individual directors.
    
    
    review our current corporate governance practices and identify any requirements that
required to be changed;
    
    review the respective roles of the Board and management;
    
    review the mix of experience and skills required by the Board;
    
    assess the performance of the Board as a whole over the previous 12 months;
    
    assess the effectiveness of Board processes; and
    
    examine ways of assisting the Board in performing its duties more
effectively and efficiently.
   
    
    review recommendations and comments arising from the
survey and implement changes considered appropriate; and
    
    review their committee charter
annually, and recommend changes to the Board.
  Pharmaxis




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##### 



Principle 3: Promote Ethical and Responsible Decision-making
 Companies should actively promote ethical and responsible decision-making.
 Recommendation 3.1
 Companies should establish a code of conduct and disclose the code or a summary of the code as to:
 
    
    the practices necessary to maintain confidence in the companys integrity
    
    the practices necessary to take into account their legal obligations and the reasonable
expectations of their stakeholders
    
    the responsibility and accountability of individuals for reporting and investigating reporting
and investigating reports of unethical practices.
  Recommendation 3.2
 Companies should establish a policy concerning trading company securities by directors,
senior executives and employees, and disclose the policy or a summary of that policy.
  Principle 4: Safeguard Integrity in Financial Reporting
 Companies should have a structure to independently verify and safeguard the integrity of their
financial reporting.
 Recommendation 4.1
 The board should establish an audit committee.
  Recommendation 4.2
 The audit committee should be structured
so that it:
 
    
    consists only of non-executive directors;
    
    consists of a majority of independent directors;
    
    is chaired by an independent chair, who is not chair of the board; and
    
    has at least three members.
  
    
    the integrity of the financial reporting process and all other financial
information published by the us;
    
    the integrity of the our financial reporting system, including
the management of risk and systems of internal control;
    
    our internal and external audit process,
including appointing the external auditor and overseeing the independence of the external auditor;
and
    
    our process for monitoring compliance with laws and regulations and our own Code of Conduct.
   Pharmaxis




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##### 



1.3.2
    
    ASX Disclosures (continued)
 Recommendation 4.3
 The audit committee should have a formal charter.
  Principle 5: Make Timely and Balanced Disclosure
 Companies should promote timely and balanced disclosure of all material matters concerning
the company.
 Recommendation 5.1
 Companies should establish written policies designed to ensure compliance with ASX Listing
Rule disclosure requirements and to ensure accountability at a senior executive level for
that compliance and disclose those policies or a summary of those policies.
    
    
    Chief Executive Officer;
    
    Chief Financial Officer/Company Secretary;
    
    Chairman of the Board;
    
    Medical Director; and
    
    Commercial Director.
 Principle 6: Respect the Rights of Shareholders
 Companies should respect the rights of shareholders and facilitate the effective exercise
of those rights.
 Recommendation 6.1
 Companies should design a communications policy for promoting effective communication with
shareholders and encouraging their participation at general meetings and disclose their
policy or a summary of that policy.
  Principle 7: Recognise and Manage Risk
 Companies should establish a sound system of risk oversight and management and internal
control.
 Recommendation 7.1
 Companies should establish policies for the oversight and management of material business
risks and disclose a summary of those policies.
  Pharmaxis




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##### 



Recommendation 7.2
 The board should require management to design and implement the risk management and internal
control system to manage the companys material business risks and report to it on whether those
risks are being managed effectively. The board should disclose that management has reported to
it as to the effectiveness of the companys management of its material business risks.
  Recommendation 7.3
 The board should disclose whether it has received assurance from the chief executive officer and
the chief financial officer that the declaration provided in accordance with section 295A of the
Corporations Act is founded on a sound system of risk management and internal control and that
the system is operating effectively in all material respects in relation to financial reporting
risks.
  Principle 8: Remunerate Fairly and Responsibly
 Companies should ensure that the level and composition of remuneration is sufficient and
reasonable and that its relationship to performance is clear.
 Recommendation 8.1
 The board should establish a remuneration committee.
   Recommendation 8.2
 Companies should clearly distinguish the structure of non-executive directors remuneration
from that of executive directors and senior executives.
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##### 



1.3.3
    
    Corporate Governance Requirements Arising from Our U.S. Listing  the Sarbanes-Oxley Act
of 2002, SEC Rules and the Nasdaq Global Market Marketplace Rules.
  
    
    Nasdaq requirement under Rule 4350(f) that a quorum consist of holders of
33 1/3% of the outstanding ordinary shares  The ASX Listing Rules do not have an
express requirement that each issuer listed on ASX have a quorum of any particular
number of the outstanding ordinary shares, but instead allow a listed issuer to
establish its own quorum requirements. Our quorum is currently five persons who are
entitled to vote. We believe this quorum requirement is consistent with the
requirements of the ASX and is appropriate and typical of generally accepted business
practices in Australia.
    
    The Nasdaq requirements under Rules 4350(c)(1) and (2) relating to director
independence, including the requirements that a majority of the board of directors
must be comprised of independent directors and that independent directors must have
regularly scheduled meetings at which only independent directors are present The
Nasdaq and ASX definitions of what constitute an independent director are not
identical and the requirements relating to the roles and obligations of independent
directors are not identical. The ASX, unlike Nasdaq, permits an issuer to establish
its own materiality threshold for determining whether a transaction between a
director and an issuer affects the directors status as independent and it does not
require that a majority of the issuers board of directors be independent, as long as
the issuer publicly discloses this fact. In addition, the ASX does not require that
the independent directors have regularly scheduled meeting at which only independent
directors are present. We believe that our Board composition is consistent with the
requirements of the ASX and that it is appropriate and typical of generally accepted
business practices in Australia.
    
    The Nasdaq requirements under Rule 4350(d) (other than Rule
4350(d)(2)(A)(ii), which we will comply with) relating to the composition of the
audit committee and the audit committee charter  The Nasdaq and ASX audit committee
requirements are not identical. Moreover, differences in the requirements of Nasdaq
and ASX also arise because of the differences in the definitions of who constitutes
an independent director, as discussed above. Issuers listed in the top 300 of the S&P
ASX All Ordinaries, such as us, are required to establish an audit committee
consisting only of non-executive directors, a majority of independent directors, an
independent chairman, and at least three members, and adopt a formal audit committee
charter which sets out the roles and responsibilities, composition, structure and
membership requirements of the audit committee. We have an audit committee and audit
committee charter that are consistent with the requirements of the ASX Listing Rules
and which we believe are appropriate and typical of generally accepted business
practices in Australia. We also comply and will continue to comply with Nasdaq Rule
4350(d)(3) relating to audit committees responsibilities and authority required by SEC
Rule 10A-3(b)(2)-(5).
    
    The Nasdaq requirements under Rules 4350(c)(3) and (4) that compensation of
an issuers officers must be determined, or recommended to the Board for
determination, either by a majority of the independent directors, or a compensation
committee comprised solely of independent directors, and that director nominees must
either be selected, or recommended for the Boards selection, either by a majority of
the independent directors, or a nominations committee comprised solely of independent
directors. The Nasdaq compensation committee requirements are not identical to the
Australian Securities Exchange remuneration and nomination committee requirements.
Issuers listed on the ASX are recommended under applicable listing standards to
establish a remuneration committee consisting of a majority of independent directors
and an independent chairperson, or publicly disclose that it has not done so. We have
a Remuneration and Nomination Committee that is consistent with the requirements of
the ASX and which we believe is appropriate and typical of generally accepted
business practices in Australia.
 Pharmaxis




---



##### 



1.4
    
    Directors Report
  1.4.1
    
    Information on Directors
  Alan D. Robertson, Ph.D. (age 52),
 Denis M. Hanley (age 61)
 Peter C. Farrell, Ph.D. (age 66)
 Malcolm J. McComas (age 53)
 Pharmaxis




---



##### 



1.4.1
    
    Information on Directors (continued)
 John Villiger, Ph.D. (age 54)
 William L. Delaat (age 57)
 Charles Kiefel
  1.4.2
    
    Meetings of Directors
  Meetings of CommitteesBoard
    
    
    
    
    
    
    
    
    
    Remuneration &Meetings
    
    Audit
    
    NominationA
    
    B
    
    A
    
    B
    
    A
    
    BDM Hanley
    
    
    9
    
    
    
    9
    
    
    
    3
    
    
    
    3
    
    
    
    4
    
    
    
    4AD Robertson
    
    
    9
    
    
    
    9CPH Kiefel
    
    
    6
    
    
    
    6
    
    
    
    2
    
    
    
    1MJ McComas
    
    
    9
    
    
    
    7
    
    
    
    3
    
    
    
    2PC Farrell
    
    
    9
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    3J Villiger
    
    
    9
    
    
    
    9
    
    
    
    1
    
    
    
    1
    
    
    
    4
    
    
    
    4WL Delaat
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 
 A = Number of meetings held during the time the director held office or was a member of
the committee during the yearB = Number of meetings attended 1.4.3
    
    Indemnification and Insurance of Directors
 Corporations Act 2001
 Pharmaxis




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##### 



1.4.4
    
    Company Secretary
 Mr. David M McGarvey, CA,
 1.4.5
    
    Principal Activities
  1.4.6
    
    Review and Results of Operations
  1.4.7
    
    Remuneration Report
  1.4.8
    
    Dividends
   1.4.9
    
    Significant Changes in the State of Affairs
  Pharmaxis




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##### 



1.4.10
    
    Matters Subsequent to the End of the Financial Year
  (a)
    
    the Groups operations in future financial years, or(b)
    
    the results of those operations in future financial years, or(c)
    
    the Groups state of affairs in future financial years.
 1.4.11
    
    Likely Developments and Expected Results of Operations
   1.4.12
    
    Environmental Regulation
 Clean Air Act 1961, Clean Waters Act 1970, Pollution Control Act
1970, Noise Control Act 1975 and Waste Minimisation & Management Act 1995.
  1.4.13
    
    Rounding
  1.4.14
    
    Non Audit Services
   Corporations Act 2001 Corporations Act 2001
 
    
    All non-audit services have been reviewed by the Audit Committee to ensure
they do not impact the integrity and objectivity of the auditor
    
    None of the services undermine the general principles relating to auditor
independence as set out in Professional Statement APES110, including reviewing or
auditing the auditors own work, acting in a management or decision making capacity
for the Company, acting as advocate for the Company or jointly sharing economic risk
and rewards.
 Pharmaxis




---



##### 



1.4.15
    
    Auditors Independence Declaration
 Corporations Act 2001
 Auditors Independence Declaration
  (a)
    
    no contraventions of the auditor independence requirements of the Corporations Act 2001
in relation to the audit; and(b)
    
    no contraventions of any applicable code of professional conduct in relation to the
audit.
  /s/ Mark DowMark DowPartner
PricewaterhouseCoopers Sydney12 August 2008 1.4.16
    
    Auditor
 Corporations
Act 2001
 1.4.17
    
    Resolution of the Board
  /s/ Alan D RobertsonAlan D RobertsonDirector 
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##### 



1.5         Remuneration Report
 Remuneration Report
  1.5.1.
    
    Principles used to determine the nature and amount of remuneration paid to Directors and
Senior Executive Officers1.5.2.
    
    Details of remuneration paid to Directors and Senior Executive Officers1.5.3.
    
    Service agreements with Senior Executive Officers1.5.4.
    
    Share based compensation paid to Directors and Senior Executive Officers1.5.5.
    
    Additional information on compensation paid to Directors and Senior Executive Officers1.5.6.
    
    Employee option plan.
  1.5.1
    
    Principles Used to Determine the Nature and Amount of Remuneration Paid to Directors and
Senior Executive OfficersAs a company building a specialty pharmaceutical business, we require a board and senior
management team that have both the technical capability and relevant experience to execute
the Groups business plan. The Directors consider options a key tool in attracting the
required talented individuals to the Board and management team while staying within the
fiscal constraints of a growing group.Director and Senior Executive Officer remuneration includes a mix of short and long-term
components. Remuneration of Executive Directors and Senior Executive Officers include a
meaningful proportion that varies with individual performance. Variable cash incentives
and the vesting of options are subject to performance assessment by the Remuneration and
Nomination Committee. Performance targets in the main relate to objectives and milestones
assigned to individual executives from the Groups annual business plan. At this stage of
the Groups development, shareholder wealth is enhanced by the achievement of milestones
in the development of the Groups products, within a framework of prudent financial
management. The Groups earnings have therefore not been a significant component of
enhancing shareholder wealth during 2008 and therefore do not form a measure of executive
performance. Individual performance targets are agreed by the Remuneration and Nomination
Committee and the full Board each year. Annual performance of senior executives is
reviewed by the Remuneration and Nomination Committee each year.As Non-Executive Directors assess individual and Group performance, their remuneration
does not have a variable performance related component.Non-Executive DirectorsFees and payments to Non-Executive Directors reflect the demands that are made on, and the
responsibilities of, the Directors. Non-Executive Directors fees and payments are
reviewed annually by the Remuneration and Nomination Committee of the Board. When last
adjusted in 2006, the Group engaged an external consultant to assist in the determination
of independent Non-Executive Directors fees appropriate to the Groups stage of
development. There are two components to the fees of independent Non-Executive Directors:
 
    
    a base fee, currently $110,000 for the chairman and $60,000 for other Non-Executive
Directors;
    
    an flat annual fee for Non-Executive Directors serving on committees,
currently $5,000 as a committee member and $10,000 as a committee chairman;
    
    Non-Executive Directors are allowed to package their remuneration to
include superannuation and options in the Group, the latter being determined as the
number of options granted during the year valued at award date using the same
methodology as used to determine the amounts expensed in the financial statements.
Options are
 Pharmaxis




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##### 



granted under our Employee Option Plan. As the options are granted in substitution for
current year cash compensation they vest at the latter of award or shareholder approval. Options
issued to Non-Executive Directors prior to August 2006 vest over a four year period.
 Independent Directors are issued options on becoming a Director of the Company, subject to
shareholder approval, and vest over four years.Non-Executive Directors fees (including statutory superannuation) are determined within an
aggregate directors fee pool limit, which is periodically recommended for approval by
shareholders. The pool currently stands at a maximum of $600,000 per annum in total.Retirement Allowances for DirectorsTermination payments apply only to Executive Directors, as discussed below.Executive Directors and Senior Executive Officers:There are four components to the remuneration of Executive Directors and Senior Executive Officers:
 
    
    a base salary paid in cash or packaged at the executives discretion within Australian Fringe
Benefits Tax, or FBT, guidelines as a total cost package;
    
    superannuation of 9 percent of base salary;
    
    a variable cash incentive component payable annually dependent upon achievement of
performance targets set and approved by the Remuneration and Nomination Committee. Individual
performance targets are set by reference to the components of the Groups annual business plan for
which the individual executive is responsible; and
    
    options under our Employee Option Plan. Options typically vest over a four-year time frame. For options granted after 1 January 2003, the
number of an individual executives options vesting is subject to achievement of the performance
targets set and approved by the Remuneration and Nomination Committee which may approve the vesting
of all or only a portion of the relevant options. Founder options were granted in 2003 to the
founding scientists  WB Cowden and B Charlton. These options vested at 30 June 2003. Sign-on
options were granted to DM McGarvey in 2003, JF Crapper and GJ Phillips in 2004 and IA McDonald in
2005. Sign-on options vest completely on the first anniversary of the executive commencing
employment with us.
 Base pay for the Chief Executive Officer and Senior Executive Officers is reviewed annually to
ensure the executives pay is commensurate with the responsibilities and contribution of the
executive. An executives pay is also reviewed on promotion.Termination paymentsTermination payments apply only to Executive Directors and Senior Executive Officers. The
employment contracts for each of the Executive Directors and Senior Executive Officers can be
terminated immediately by us for serious misconduct and with three months notice without cause.
Unless otherwise required by law, no additional payments apply on termination.Pharmaxis Ltd Employee Option PlanInformation on the Pharmaxis Ltd Employee Option Plan is set out in Note 29 to the Annual
Financial Report included in Section 3 of this Statutory Annual Report and Section 1.5.6 of this
Statutory Annual Report.
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##### 



1.5.2
    
    Details of Remuneration Paid to Directors and Senior Executive OfficersDetails of the remuneration of the Directors and the Senior Executive Officers (key
management personnel as defined in AASB 124 Related Party Disclosures) of Pharmaxis Ltd and
the Group are set out in the following tables.The Senior Executive Officers and the Chief Executive Officer of the Group and the entity
are:
 Name
    
    Position
    
    EmployerAlan Duncan Robertson
    
    Chief Executive Officer
    
    Pharmaxis LtdBrett Charlton
    
    Medical Director
    
    Pharmaxis LtdJohn Francis Crapper
    
    Chief Operations Officer
    
    Pharmaxis LtdIan Alexander McDonald
    
    Chief Technical Officer
    
    Pharmaxis LtdDavid Morris McGarvey
    
    Chief Financial Officer and Company Secretary
    
    Pharmaxis LtdGary Jonathan Phillips
    
    Commercial Director
    
    Pharmaxis Ltd
 Included in the above are the five highest remunerated Group and entity executives.The payment of cash bonuses are dependent on the satisfaction of performance conditions as
discussed in Section 1.5.1 of this Statutory Annual Report, and the options are not
granted unless approved by the Remuneration and Nomination Committee. All other elements
of remuneration are not directly related to performance.
 Pharmaxis




---



##### 



Post-
    
    
    Long-
    
    
    Share-employment
    
    
    term
    
    
    based2008
    
    Short-term benefits
    
    
    benefits
    
    
    benefits
    
    
    paymentCash
    
    
    Cash
    
    
    Non-
    
    
    
    
    
    
    Longsalary or
    
    
    bonus/
    
    
    monetary
    
    
    Super-
    
    
    service
    
    
    OptionsDirectors fees
    
    
    incentive
    
    
    benefits
    
    
    annuation
    
    
    leave
    
    
    value1
    
    
    TotalName
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Non-Executive DirectorsDM Hanley Chairman
    
    
    106,558
    
    
    
    
    
    
    
    
    
    
    
    9,590
    
    
    
    
    
    
    
    10,082
    
    
    
    126,230WL Delaat3
    
    
    1,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,250CPH Kiefel2
    
    
    19,878
    
    
    
    
    
    
    
    
    
    
    
    1,789
    
    
    
    
    
    
    
    5,041
    
    
    
    26,708MJ McComas
    
    
    65,574
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,041
    
    
    
    70,615PC Farrell
    
    
    60,251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,164
    
    
    
    148,415J Villiger
    
    
    67,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212,790
    
    
    
    280,707Sub-total Non-
Executive Directors
    
    
    321,428
    
    
    
    
    
    
    
    
    
    
    
    11,379
    
    
    
    
    
    
    
    321,118
    
    
    
    653,925Executive DirectorAD Robertson
    
    
    353,476
    
    
    
    90,750
    
    
    
    
    
    
    
    31,813
    
    
    
    17,247
    
    
    
    340,187
    
    
    
    833,473Senior Executive OfficersB Charlton
    
    
    263,681
    
    
    
    37,500
    
    
    
    
    
    
    
    23,731
    
    
    
    13,163
    
    
    
    275,470
    
    
    
    613,545JF Crapper
    
    
    247,538
    
    
    
    37,500
    
    
    
    
    
    
    
    22,278
    
    
    
    10,712
    
    
    
    265,368
    
    
    
    583,396IA McDonald
    
    
    202,000
    
    
    
    45,000
    
    
    
    
    
    
    
    18,180
    
    
    
    5,929
    
    
    
    263,863
    
    
    
    534,972DM McGarvey
    
    
    277,944
    
    
    
    45,000
    
    
    
    
    
    
    
    25,015
    
    
    
    12,948
    
    
    
    265,368
    
    
    
    626,275GJ Phillips
    
    
    269,063
    
    
    
    45,000
    
    
    
    
    
    
    
    24,216
    
    
    
    10,447
    
    
    
    266,281
    
    
    
    615,007Totals
    
    
    1,935,130
    
    
    
    300,750
    
    
    
    
    
    
    
    156,613
    
    
    
    70,445
    
    
    
    1,997,655
    
    
    
    4,460,593
 
 1
    
    The fair value of options granted was estimated on the date of each grant using the
Black-Scholes option pricing model and recognised as option expense and remuneration over the
vesting period.2
    
    Mr Kiefel retired as a Director on 19 December 2007.3
    
    Mr Delaat was appointed as a Director on 23 June 2008. Pharmaxis




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##### 



1.5.2
    
    Details of Remuneration Paid to Directors and Senior Executive Officers (continued)
 Post-
    
    
    Long-
    
    
    Share-employment
    
    
    term
    
    
    based2007
    
    Short-term benefits
    
    
    benefits
    
    
    benefits
    
    
    paymentCash
    
    
    Cash
    
    
    Non-
    
    
    
    
    
    
    Longsalary or
    
    
    bonus/
    
    
    monetary
    
    
    Super-
    
    
    service
    
    
    OptionsDirectors fees
    
    
    incentive
    
    
    benefits
    
    
    annuation
    
    
    leave
    
    
    value1
    
    
    TotalName
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Non-Executive DirectorsDM Hanley Chairman
    
    
    66,644
    
    
    
    
    
    
    
    
    
    
    
    5,998
    
    
    
    
    
    
    
    71,575
    
    
    
    144,217CPH Kiefel
    
    
    6,987
    
    
    
    
    
    
    
    
    
    
    
    629
    
    
    
    
    
    
    
    75,944
    
    
    
    83,560MJ McComas
    
    
    42,985
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,893
    
    
    
    80,878PC Farrell
    
    
    40,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,141
    
    
    
    197,829BH Smith2
    
    
    10,174
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,174J Villiger
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000Sub-total Non-
Executive Directors
    
    
    202,478
    
    
    
    
    
    
    
    
    
    
    
    6,627
    
    
    
    
    
    
    
    342,553
    
    
    
    551,658Executive DirectorsAD Robertson
    
    
    329,025
    
    
    
    93,500
    
    
    
    
    
    
    
    29,612
    
    
    
    8,205
    
    
    
    161,843
    
    
    
    622,185Senior Executive OfficersB Charlton
    
    
    251,125
    
    
    
    40,000
    
    
    
    
    
    
    
    22,601
    
    
    
    6,264
    
    
    
    119,240
    
    
    
    439,230JF Crapper
    
    
    235,750
    
    
    
    40,000
    
    
    
    
    
    
    
    21,218
    
    
    
    4,554
    
    
    
    105,568
    
    
    
    407,090IA McDonald
    
    
    184,756
    
    
    
    20,000
    
    
    
    
    
    
    
    16,628
    
    
    
    1,359
    
    
    
    97,181
    
    
    
    319,924DM McGarvey
    
    
    261,375
    
    
    
    40,000
    
    
    
    
    
    
    
    23,524
    
    
    
    5,516
    
    
    
    100,525
    
    
    
    430,940GJ Phillips
    
    
    260,775
    
    
    
    40,000
    
    
    
    
    
    
    
    23,470
    
    
    
    4,413
    
    
    
    106,072
    
    
    
    434,730Totals
    
    
    1,725,284
    
    
    
    273,500
    
    
    
    
    
    
    
    143,680
    
    
    
    30,311
    
    
    
    1,032,982
    
    
    
    3,205,757
 
 1
    
    The fair value of options granted was estimated on the date of each grant using the
Black-Scholes option pricing model and recognised as option expense and remuneration over
the vesting period.2
    
    Ms Smith retired as a Director in October 2006. Pharmaxis




---



##### 



Remuneration subject to risk
  1.5.3
    
    Service Agreements with Senior Executive Officers
     Annual Base
    
    
    SuperannuationSalary Effective
    
    
    Contributions at 9%1 January 20082
    
    
    of Base Salary3Senior Executive Officer
    
    Contract Expiry Date1
    
    
    $
    
    
    $Alan D. Robertson, Ph.D.Chief Executive Officer and Managing Director
    
    30 June 2011
    
    
    A$353,903
    
    
    
    A$31,851Brett Charlton, Ph.D.Medical Director
    
    30 June 2011
    
    
    A$270,113
    
    
    
    A$24,310John F. CrapperChief Operations Officer
    
    30 June 2011
    
    
    A$253,575
    
    
    
    A$22,822Ian A, McDonald, Ph.D.Chief Scientific Officer
    
    30 June 2010
    
    
    A$204,000
    
    
    
    A$18,360David M. McGarvey, C.A., C.P.A.Chief Financial Officer and Company Secretary
    
    30 June 2011
    
    
    A$281,138
    
    
    
    A$25,302Gary J. PhillipsHead of Commercial Development
    
    30 June 2011
    
    
    A$275,625
    
    
    
    A$24,806
 1
    
    Subject to earlier termination by us, the terms of a Senior Executive Officers employment
will last until the date stated, unless the term of the employment agreement is either
extended or the Senior Executive Officer enters into a new employment agreement with us;2
    
    Annual base salaries may be subject to increase upon review annually by our Remuneration and
Nomination Committee; and3
    
    We make superannuation fund contributions equal to 9% of the annual base salary per year for
the benefit of the Senior Executive Officer.
 Pharmaxis




---



##### 



1.5.4
    
    Share Based Compensation Paid to Directors and Senior Executive Officers
 Options Granted to Directors and Senior Executive Officers under the Employee Option Plan
   Value
    
    Number
    
    NumberExpiry
    
    Exercise
    
    per option
    
    of options
    
    of option
    
    DateGrant date
    
    date
    
    price
    
    at grant date
    
    granted
    
    grantees
    
    exercisable12 May 2005
    
    11 May 2015
    
    $
    1.147
    
    
    $
    0.6228
    
    
    
    150,000
    
    
    
    1
    
    
    25% at each of 30
June 2006, 2007, 2008
and 2009, subject to
Remuneration and
Nomination Committee
annual approval.5 August 2005
    
    4 August 2015
    
    $
    1.7900
    
    
    $
    1.2152
    
    
    
    425,000
    
    
    
    5
    
    
    25% at each of 30
June 2006, 2007, 2008
and 2009, subject to
Remuneration and
Nomination Committee
annual approval.5 August 2005
    
    4 August 2015
    
    $
    1.7900
    
    
    $
    1.6780
    
    
    
    335,000
    
    
    
    5
    
    
    25% at each of 30
June 2006, 2007, 2008
and 2009, 255,000 of
which are subject to
Remuneration and
Nomination Committee
annual approval.15 August 2006
    
    14 August 2016
    
    $
    1.9170
    
    
    $
    1.3277
    
    
    
    505,000
    
    
    
    5
    
    
    25% at each of 30 June
2007, 2008, 2009 and
2010, 255,000 of which
are subject to
Remuneration and
Nomination Committee
annual approval.26 October 2006
    
    14 August 2016
    
    $
    1.9170
    
    
    $
    1.3167
    
    
    
    278,957
    
    
    
    5
    
    
    25% at each of 30
June 2007, 2008, 2009
and 2010, 255,000 of
which are subject to
Remuneration and
Nomination Committee
annual approval.
 Pharmaxis




---



##### 



Value
    
    Number
    
    NumberExpiry
    
    Exercise
    
    per option
    
    of options
    
    of option
    
    DateGrant date
    
    date
    
    price
    
    at grant date
    
    granted
    
    grantees
    
    exercisable10 August 2007
    
    9 August 2017
    
    $
    3.3890
    
    
    $
    1.6678
    
    
    
    1,400,000
    
    
    
    6
    
    
    25% at each of 30
June 2008, 2009,
2010 and 2011,
subject to
Remuneration and
Nomination
Committee annual
approval.5 November 2007
    
    9 August 2017
    
    $
    3.3890
    
    
    $
    1.6932
    
    
    
    150,000
    
    
    
    1
    
    
    25% at each of 30
June 2008, 2009,
2010 and 2011,
subject to
Remuneration and
Nomination
Committee annual
approval.5 November 2007
    
    14 November 2016
    
    $
    3.2258
    
    
    $
    1.6117
    
    
    
    200,000
    
    
    
    1
    
    
    25% at each of 30
June 2007, 2008,
2009 and 2010,
255,000 of which
are subject to
Remuneration and
Nomination
Committee annual
approval.
 No option holder has any right under the options to participate in any other share issue of the
Company or of any other entity.
 Our Corporate Governance Framework prohibits Directors and Senior Executive Officers from trading
in Pharmaxis derivatives, without the written consent of the Pharmaxis Board.
 Option Grants in 2008 to Directors and Senior Executive Officers
  Pharmaxis




---



##### 



1.5.4
    
    Share Based Compensation Paid to Directors and Senior Executive Officers (continued)
 Number of options vestedOptions granted during the year
    
    
    during the year2008
    
    
    2007
    
    
    2008
    
    
    2007Expiration
    
    
    ExerciseName
    
    Date
    
    
    Price
    
    
    Number
    
    
    NumberDirectors of Pharmaxis LtdDM Hanley Chairman
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000
    
    
    
    10,000
    
    
    
    50,000AD RobertsonChief Executive Officer
    
    9 Aug 2017
    
    $
    3.3890
    
    
    
    300,000
    
    
    
    150,000
    
    
    
    150,000
    
    
    
    75,000CPH Kiefel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,957
    
    
    
    5,000
    
    
    
    103,957MJ McComas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,000
    
    
    
    5,000
    
    
    
    75,000PC Farrell
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220,000
    
    
    
    50,000
    
    
    
    70,000J Villiger
    
    14 Nov 2016
    
    $
    3.2258
    
    
    
    200,000
    
    
    
    
    
    
    
    50,000
    
    
    
    WL Delaat1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BH Smith2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Senior Executive OfficersJF Crapper
    
    9 Aug 2017
    
    $
    3.3890
    
    
    
    250,000
    
    
    
    100,000
    
    
    
    112,500
    
    
    
    170,000IA McDonald
    
    9 Aug 2017
    
    $
    3.3890
    
    
    
    250,000
    
    
    
    100,000
    
    
    
    130,000
    
    
    
    67,500B Charlton
    
    9 Aug 2017
    
    $
    3.3890
    
    
    
    250,000
    
    
    
    105,000
    
    
    
    115,000
    
    
    
    52,500DM McGarvey
    
    9 Aug 2017
    
    $
    3.3890
    
    
    
    250,000
    
    
    
    100,000
    
    
    
    112,500
    
    
    
    50,000GJ Phillips
    
    9 Aug 2017
    
    $
    3.3890
    
    
    
    250,000
    
    
    
    100,000
    
    
    
    113,750
    
    
    
    113,750
 
 1
    
    On 24 June 2008 the Board announced that it had resolved to grant 200,000 options to Mr
Will Delaat under the Employee Option Plan subsequent to his appointment to the Board. The
option grant is subject to shareholder approval which will be sought at the 2008 Annual
General Meeting.2
    
    Ms BH Smith retired as a Director in October 2006.The assessed fair value at grant date of options granted to the individuals is allocated
equally over the period from grant date to vesting date, and the amount is included in the
remuneration tables above. Fair values at grant date are determined using a Black Scholes
option pricing model that takes into account the exercise price, the term of the option, the
share price at grant date and expected price volatility of the underlying share, and the risk
free interest rate for the term of the option.
 Pharmaxis




---



##### 



The model inputs for options granted to Directors and Senior Executive Officers during the year
ended 30 June 2008 included:
 (a)
    
    options are granted for no consideration, 25% vesting at each of 30 June 2008, 2009, 2010 and
2011, subject to Remuneration and Nomination Committee annual approval(b)
    
    exercise price: $3.389 and $3.2258(c)
    
    grant date: 10 August 2007 and 5 November 2007(d)
    
    expiry date: 9 August 2017 and 14 November 2016(e)
    
    share price at grant date: $3.389 (10 August 2007) and $4.20 (5
November 2007)(f)
    
    expected price volatility of the Companys shares:
40.81%(g)
    
    risk free interest rate: 6.14% (10 August 2007) and 6.55% (5
November 2007)
 The model inputs for options granted to Directors and Senior Executive Officers during the year
ended 30 June 2007 included:
 (a)
    
    options are granted for no consideration, 25% vesting at each of 30 June 2007, 2008, 2009 and
2010, subject to Remuneration and Nomination Committee annual approval(b)
    
    exercise price: $1.917(c)
    
    grant date: 15 August 2006 and 26 October 2007(d)
    
    expiry date: 14 August 2016(e)
    
    share price at grant date: $1.917 (15 August 2006) and $3.00 (26
October 2006)(f)
    
    expected price volatility of the Companys shares:
50.00%(g)
    
    risk free interest rate: 5.93% (15 August 2006) and 5.73%
(26 October 2006)
 Shares Provided on Exercise of Remuneration OptionsDetails of ordinary shares in the Company provided as a result of the exercise of remuneration
options to each Director of Pharmaxis Ltd and Senior Executive Officers of the Group are set out
below.
 Number of ordinary shares issued onexercise of options during the yearName
    
    Date of exercise of options
    
    2008
    
    2007Directors of Pharmaxis LtdCPH Kiefel
    
    20 December 2007
    
    
    58,957
    
    
    
    19 June 2007
    
    
    
    
    
    
    150,00029 June 2007
    
    
    
    
    
    
    50,000Senior Executive Officers of the GroupJF Crapper
    
    23 April 2007
    
    
    
    
    
    
    300,000B Charlton
    
    9 November 2007
    
    
    400,000
    
    
    
    7 December 2006
    
    
    
    
    
    
    110,000
  Pharmaxis




---



##### 



1.5.4
    
    Share Based Compensation Paid to Directors and Senior Executive Officers (continued)
 Exercise date
    
    Amount paid per share7 December 2006
    
    $
    0.312523 April 2007
    
    $
    0.312519 June 2007
    
    $
    0.312529 June 2007
    
    $
    0.31259 November 2007
    
    $
    0.312520 December 2007
    
    $
    1.790020 December 2007
    
    $
    1.9170
 No amounts are unpaid on any shares issued on the exercise of options.Options Granted to Directors and Senior Executive Officers under the Employee Option Plan
since 30 June 2008On 12 August 2008 the Board of Directors resolved to grant under the Pharmaxis Employee Option Plan
750,000 options to Senior Executive Officers, 200,000 options to the Executive Director and 729,500
options to other employees. The options have an exercise price of $1.8170 and expire 11 August
2018. The grant of options to the Executive Director requires shareholder approval and such
approval will be sought at the 2008 Annual General Meeting.Details of Option ValuesThe numbers of options to purchase our ordinary shares held at 12 August 2008 by each Director of
Pharmaxis and each of the Senior Executive Officers are listed below. When exercisable, each
option is convertible into one ordinary share of Pharmaxis. Options are issued at a zero purchase
price.
 Number of
    
    
    Exercise
    
    
    ExpirationName
    
    Securities
    
    
    Price A$
    
    
    Date
    
    VestingDirectorsAD Robertson2Chief Executive Officer
    
    
    1,120,000
    
    
    
    0.1250
    
    
    30 November 2009
    
    280,000 at each of 30 June
2000, 2001, 2002 and 2003960,000
    
    
    
    0.3125
    
    
    30 June 2012
    
    240,000 at each of 30 June
2003, 2004, 2005 and 2006150,000
    
    
    
    1.790
    
    
    4 August 2015
    
    37,500 at each of 30 June 2006,
2007, 2008 and 20091150,000
    
    
    
    1.917
    
    
    14 August 2016
    
    37,500 at each of 30 June 2007,
2008, 2009 and 20101300,000
    
    
    
    3.389
    
    
    9 August 2017
    
    75,000 at each of 30 June 2008,
2009, 2010 and 20111DM Hanley
    
    
    640,000
    
    
    
    0.3125
    
    
    30 August 2011
    
    640,000 at 30 August 2002Chairman
    
    
    400,000
    
    
    
    0.3125
    
    
    30 June 2012
    
    100,000 at each of 30 June
2003, 2004, 2005 and 200640,000
    
    
    
    1.790
    
    
    4 August 2015
    
    10,000 at each of 30 June 2006,
2007, 2008 and 200940,000
    
    
    
    1.917
    
    
    14 August 2016
    
    40,000 at 26 October 2006PC Farrell
    
    
    200,000
    
    
    
    2.068
    
    
    15 March 2016
    
    50,000 at each of 30 June 2007,
2008, 2009 and 201020,000
    
    
    
    1.917
    
    
    14 August 2016
    
    20,000 at 26 October 2006
 Pharmaxis




---



##### 



Number of
    
    
    Exercise
    
    
    ExpirationName
    
    Securities
    
    
    Price A$
    
    
    Date
    
    VestingDirectorsJ Villiger
    
    
    200,000
    
    
    
    3.226
    
    
    14 November 2016
    
    50,000 at each of 30 June 2007,
2008, 2009, 2010MJ McComas
    
    
    200,000
    
    
    
    0.3125
    
    
    3 July 2013
    
    50,000 at each of 30 June 2004,
2005, 2006 and 200720,000
    
    
    
    1.790
    
    
    4 August 2015
    
    5,000 at each of 30 June 2006,
2007, 2008 and 200920,000
    
    
    
    1.917
    
    
    14 August 2016
    
    20,000 at 26 October 2006WL Delaat3
    
    
    
    
    
    
    
    
    
    
    
    Senior Executive OfficersB Charlton
    
    
    80,000
    
    
    
    0.3125
    
    
    30 June 2012
    
    480,000 at 30 June 2003370,000
    
    
    
    0.3125
    
    
    30 June 2012
    
    120,000 at each of 30 June
2003, 2004, 2005 and 2006105,000
    
    
    
    1.790
    
    
    4 August 2015
    
    26,250 at each of 30 June 2006,
2007, 2008 and 20091105,000
    
    
    
    1.917
    
    
    14 August 2016
    
    26,250 at each of 30 June 2007,
2008, 2009 and 20101250,000
    
    
    
    3.389
    
    
    9 August 2017
    
    62,500 at each of 30 June 2008,
2009, 2010 and 20111150,000
    
    
    
    1.817
    
    
    11 August 2008
    
    37,500 at each of 30 June 2009,
2010, 2011 and 20121JF Crapper
    
    
    180,000
    
    
    
    0.3125
    
    
    30 June 2013
    
    480,000 at 1 July 2004180,000
    
    
    
    0.3125
    
    
    30 June 2013
    
    120,000 at each of 30 June
2004, 2005, 2006 and 20071100,000
    
    
    
    1.7900
    
    
    4 August 2015
    
    25,000 at each of 30 June 2006,
2007, 2008 and 20091100,000
    
    
    
    1.917
    
    
    14 August 2016
    
    25,000 at each of 30 June 2007,
2008, 2009 and 20101250,000
    
    
    
    3.389
    
    
    9 August 2017
    
    62,500 at each of 30 June 2008,
2009, 2010 and 20111150,000
    
    
    
    1.817
    
    
    11 August 2008
    
    37,500 at each of 30 June 2009,
2010, 2011 and 20121
 Pharmaxis




---



##### 



1.5.4
    
    Share Based Compensation Paid to Directors and Senior Executive Officers (continued)
 Number of
    
    
    Exercise
    
    
    ExpirationName
    
    Securities
    
    
    Price A$
    
    
    Date
    
    VestingSenior Executive OfficersIA McDonald
    
    
    50,000
    
    
    
    1.1470
    
    
    11 May 2015
    
    50,000 at 3 April 2006150,000
    
    
    
    1.1470
    
    
    11 May 2015
    
    37,500 at each of 30 June 2006,
2007, 2008 and 2009120,000
    
    
    
    1.7900
    
    
    4 August 2015
    
    5,000 at each of 30 June 2006,
2007, 2008 and 20091100,000
    
    
    
    1.917
    
    
    14 August 2016
    
    25,000 at each of 30 June 2007,
2008, 2009 and 20101250,000
    
    
    
    3.389
    
    
    9 August 2017
    
    62500 at each of 30 June 2008,
2009, 2010 and 20111150,000
    
    
    
    1.817
    
    
    11 August 2008
    
    37,500 at each of 30 June 2009,
2010, 2011 and 20121DM McGarvey
    
    
    480,000
    
    
    
    0.3125
    
    
    30 June 2012
    
    120,000 at each of 30 June
2003, 2004, 2005 and 20061480,000
    
    
    
    0.3125
    
    
    30 November 2012
    
    480,000 at 1 December 2003100,000
    
    
    
    1.7900
    
    
    4 August 2015
    
    25,000 at each of 30 June 2006,
2007, 2008 and 20091100,000
    
    
    
    1.917
    
    
    14 August 2016
    
    25,000 at each of 30 June 2007,
2008, 2009 and 20101250,000
    
    
    
    3.389
    
    
    9 August 2017
    
    62,500 at each of 30 June 2008,
2009, 2010 and 20111150,000
    
    
    
    1.817
    
    
    11 August 2008
    
    37,500 at each of 30 June 2009,
2010, 2011 and 20121GJ Phillips
    
    
    250,000
    
    
    
    0.3760
    
    
    30 November 2013
    
    62,500 at each of 30 June 2004,
2005, 2006 and 20071250,000
    
    
    
    0.3760
    
    
    30 November 2013
    
    250,000 at 1 December 2004105,000
    
    
    
    1.7900
    
    
    4 August 2015
    
    26,250 at each of 30 June 2006,
2007, 2008 and 20091100,000
    
    
    
    1.917
    
    
    14 August 2016
    
    25,000 at each of 30 June 2007,
2008, 2009 and 20101250,000
    
    
    
    3.389
    
    
    9 August 2017
    
    62,500 at each of 30 June 2008,
2009, 2010 and 20111150,000
    
    
    
    1.817
    
    
    11 August 2008
    
    37,500 at each of 30 June 2009,
2010, 2011 and 20121
 1
    
    Vesting is subject to approval of the Remuneration and Nomination Committee.2
    
    On 12 August 2008 the Board resolved to issue 200,000 options to Dr Alan Robertson
under the Employee Option Plan. The option grant is subject to shareholder approval which
will be sought at the 2008 Annual General Meeting.3
    
    On 23 June 2008 the Board resolved to issue 200,000 options to Mr. WL Delaat on his
appointment to the Board under the Employee Option Plan subsequent to his appointment to
the Board. The option grant is subject to shareholder approval which will be sought at the
2008 Annual General Meeting.
 Pharmaxis




---



##### 



1.5.5
    
    Additional Information on Compensation Paid to Directors and Senior Executive OfficersDetails of Director and Senior Executive Officer Remuneration: Cash Bonuses and OptionsFor each cash bonus and grant of options included in the tables above, the percentage of the
available bonus or grant that was paid, or that vested, in the financial year, and the
percentage that was forfeited because the person did not meet the service and performance
criteria is set out below. No part of the bonuses is payable in future years. The options
vest over four years, provided the vesting conditions are met. No options will vest if the
conditions are not satisfied, hence the minimum value of the option yet to vest is nil. The
maximum value of the options yet to vest has been determined as the portion of the grant date
fair value that has not been expensed as at 30 June 2008.
 Cash bonus
    
    
    OptionsMinimum
    
    
    MaximumFinancial
    
    
    total value
    
    
    total valueyears in
    
    
    of grant
    
    
    of grantPaid
    
    
    Forfeited
    
    
    Year
    
    
    Vested
    
    
    Forfeited
    
    
    which options
    
    
    yet to vest
    
    
    yet to vestName
    
    %
    
    
    %
    
    
    granted
    
    
    %
    
    
    %
    
    
    may vest
    
    
    $
    
    
    $DM Hanley
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    
    25
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    4,298AD Robertson
    
    
    82.5
    
    
    
    17.5
    
    
    
    2008
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2011
    
    
    
    
    
    
    
    263,0642007
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2010
    
    
    
    
    
    
    
    45,2672006
    
    
    
    25
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    16,118CPH Kiefel
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    MJ McComas
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    
    25
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    2,149PC Farrell
    
    
    
    
    
    
    
    
    
    
    2007
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2010
    
    
    
    
    
    
    
    65,109J Villiger
    
    
    
    
    
    
    
    
    
    
    2008
    
    
    
    25
    
    
    
    
    
    
    
    2009-2010
    
    
    
    
    
    
    
    109,550W L Delaat
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    JF Crapper
    
    
    75
    
    
    
    25
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    2009 to 2012
    
    
    
    
    
    
    
    272,5502008
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2011
    
    
    
    
    
    
    
    207,6472007
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2010
    
    
    
    
    
    
    
    28,6622006
    
    
    
    25
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    7,782IA McDonald
    
    
    90
    
    
    
    10
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    2009 to 2012
    
    
    
    
    
    
    
    272,5502008
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2011
    
    
    
    
    
    
    
    207,6472007
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2010
    
    
    
    
    
    
    
    28,6622006
    
    
    
    25
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    7,202B Charlton
    
    
    75
    
    
    
    25
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    2009 to 2012
    
    
    
    
    
    
    
    272,5502008
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2011
    
    
    
    
    
    
    
    207,6472007
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2010
    
    
    
    
    
    
    
    30,0962006
    
    
    
    25
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    11,282DM McGarvey
    
    
    90
    
    
    
    10
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    2009 to 2012
    
    
    
    
    
    
    
    272,5502008
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2011
    
    
    
    
    
    
    
    207,6472007
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2010
    
    
    
    
    
    
    
    28,6622006
    
    
    
    25
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    7,782GJ Phillips
    
    
    90
    
    
    
    10
    
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    2009 to 2012
    
    
    
    
    
    
    
    272,5502008
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2011
    
    
    
    
    
    
    
    207,6472007
    
    
    
    25
    
    
    
    
    
    
    
    2009 to 2010
    
    
    
    
    
    
    
    28,6622006
    
    
    
    25
    
    
    
    
    
    
    
    2009
    
    
    
    
    
    
    
    8,171
 Pharmaxis




---



##### 



1.5.5
    
    Additional Information on Compensation Paid to Directors and Senior Executive Officers
(continued)As detailed above, options typically vest over a four-year time frame and for options granted
after 1 January 2003, the number of an individual executives options vesting is subject to
achievement of the performance targets set and approved by the Remuneration and Nomination
Committee. The Remuneration and Nomination Committee has determined that performance targets
set by the Committee in relation to options vesting at 30 June 2008 have been achieved by all
executives.Share Based Compensation Paid to Directors and Senior Executive Officers: OptionsFurther details relating to options granted to Directors and Senior Executive Officers are
set out below.
 A
    
    
    B
    
    
    C
    
    
    DRemuneration
    
    
    Value at
    
    
    Value at
    
    
    Value atconsisting
    
    
    grant date
    
    
    exercise date
    
    
    lapse dateName
    
    of options
    
    
    $
    
    
    $
    
    
    $DM Hanley
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AD Robertson
    
    
    51
    %
    
    
    504,150
    
    
    
    
    
    
    
    CPH Kiefel
    
    
    
    
    
    
    
    
    
    
    131,152
    
    
    
    23,300MJ McComas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    PC Farrell
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WL Delaat
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    J Villiger
    
    
    83
    %
    
    
    322,340
    
    
    
    
    
    
    
    JF Crapper
    
    
    57
    %
    
    
    416,950
    
    
    
    
    
    
    
    IA McDonald
    
    
    61
    %
    
    
    416,950
    
    
    
    
    
    
    
    B Charlton
    
    
    55
    %
    
    
    416,950
    
    
    
    1,631,000
    
    
    
    DM McGarvey
    
    
    54
    %
    
    
    416,950
    
    
    
    
    
    
    
    GJ Phillips
    
    
    54
    %
    
    
    416,950
    
    
    
    
    
    
    
    
 A =
    
    The percentage of the value of remuneration consisting of options, based on the value at
grant date set out in column B.B =
    
    The value at grant date calculated in accordance with AASB 2 Share based Payment of options
granted during the year as part of remuneration.C =
    
    The difference between the market price of shares and the exercise price of options at
exercise date that were granted as part of remuneration and were exercised during the year.D =
    
    The value at lapse date of options that were granted as part of remuneration and that lapsed
during the year because a vesting condition was not satisfied. The value is determined at the
time of lapsing, but assuming the condition was satisfied.
 Loans to Directors and executives
  Pharmaxis




---



##### 



1.5.6
    
    Pharmaxis Ltd Employee Option PlanOur Employee Option Plan was adopted in 1999 and amended in June 2003. Any person considered
to be an employee of us, by our Board of Directors including Executive Directors and
Non-Executive Directors are eligible to participate in the our Employee Option Plan, but do
so at the invitation of our Board of Directors. Under the Employee
Option Plan, the Board of Directors may issue options to purchase our ordinary shares on such
terms, including the issue price, the exercise price and the vesting conditions, as it
determines. The maximum number of options available to be issued under our Employee Option
Plan at any given time is 15% of our total issued shares and other securities convertible
into shares at such time, or such number as is consistent with any Listing Rules or laws or
regulations that apply to us.Any vesting conditions determined by our Board of Directors must be satisfied before the
employee options vest and become exercisable. Options are generally granted for no
consideration. Options granted to executives and employees vest in equal tranches over a
four-year period. For options granted after January 1, 2003, the annual vesting is subject to
approval by the Remuneration and Nomination Committee of our Board of Directors. The
Remuneration and Nomination Committee gives its approval for vesting based on the achievement
of individual employees personal annual objectives. Independent Non-Executive Directors are
granted options on joining the Board and commencing in the 2006 financial year, are allowed
to package their remuneration to include options. Options are granted under our Employee
Option Plan. Options granted to Non-Executive Directors upon joining the Board and options
granted before June 2006 vest over a period of approximately four years. Other options
granted to Non-Executive Directors vest in the year of grant. If a takeover offer is made for
us, all options which have not yet vested, vest.When exercisable, each option issued under our Employee Option Plan entitles the holder to
subscribe for one fully paid ordinary share. Each ordinary share issued on exercise of an
option will rank equally with all other ordinary shares then issued.The exercise price of the employee options is set by our Board of Directors. Before we listed
on the Australian Securities Exchange in November 2003, our Board of Directors set the
exercise price based on its assessment of the market value of the underlying shares at the
time of grant. From listing on the Australian Securities Exchange, the exercise price is set
by our Board of Directors as the average closing price of our ordinary shares on the
Australian Securities Exchange during the five business days prior to the grant of the
options. From September 1, 2006 the exercise price is set by our Board of Directors as the
average of the volume weighted average price of our shares on the Australian Securities
Exchange on the five business days prior to the grant of the options.The employee options lapse on such date as determined by the Board of Directors at the time
of grant. If an option holder ceases to be regarded as an employee by our Board of Directors,
all of his or her options which have not yet vested lapse and all options which have already
vested lapse, if not exercised, within 30 days of such determination. If an employee is
terminated for cause, dishonesty or fraud, his or her options lapse immediately on ceasing to
be an employee. If an employee dies, all options which have not vested lapse and all options
which have vested, lapse on the date 12 months after the death of the employee (to the extent
that they are not exercised by the estate of the former employee).The employee options which have not been exercised do not confer a right to notices of
general meetings (except as may be required by law) or a right to attend, speak or vote at
general meetings.A holder of employee options may only participate in new issues of securities with respect to
options which have been exercised and ordinary shares issued prior to the record date.In the event of a consolidation, subdivision or similar reconstruction of our issued share
capital, the number of shares to which a holder of options is entitled on exercise of an
option will be adjusted in the same proportion as our issued share capital is consolidated,
subdivided or reconstructed (as applicable) and an appropriate adjustment will be made to the
exercise price with the effect that the total amount payable on an exercise of all options by
each holder will not change.If any pro-rata offer is made by us to at least all holders of shares, the exercise price of
the relevant employee options will be reduced according to a formula set out in the Employee
Option Plan and consistent with the Listing Rules of the Australian Securities Exchange.
 Pharmaxis




---



##### 



1.5.6
    
    Pharmaxis Ltd Employee Option Plan (continued)If we make a bonus issue of ordinary shares to our shareholders, the number of ordinary
shares over which the employee options are exercisable may be increased by the number of
shares the relevant option holder would have received if the option had been exercised prior
to the record date of the bonus issue.If we make a return of capital to our shareholders generally, the exercise price of the
employee options will be proportionately reduced by the amount of the return of capital.Except by transmission on death or with the prior written consent of our Board of Directors,
employee options may not be transferred, encumbered, assigned or otherwise disposed of by the
relevant employee. Shares issued upon exercise of options are freely transferable and we seek
quotation of any such shares on the Australian Securities Exchange.Our Employee Option Plan may be amended with any necessary approvals under the Corporations
Act 2001and the Listing Rules of the Australian Securities Exchange. The Corporations Act
2001and the Listing Rules of the Australian Securities Exchange prevail over the Employee
Option Plan to the extent of any inconsistency. Our Employee Option Plan is administered by
the Board of Directors and the Remuneration and Nomination Committee.Summaries of options granted under our Employee Option Plan during 2007 and 2008 are provided
in Note 29 to the Annual Financial Report included in Section 3 of this Statutory Annual
Report.Shares Under OptionTotal unissued ordinary shares in us under option at the date of this report are as follows:
 Issue price
    
    
    Number underDate options granted
    
    Expiry date
    
    
    of shares
    
    
    optionTotal unissued ordinary shares under option at
30 June 2008  refer Note 29 to the Annual
Financial Report
included in Section 3 of this Statutory Annual Report
    
    
    
    
    
    
    
    
    
    
    11,536,250Options granted during the period from 1 July 2008
to 12 August 2008:12 August 2008
    
    11 August 2018
    
    
    $
    1.8170
    
    
    
    1,479,500Options exercised(shares issued) during the period
from 1 July 2008 to 12 August 2008:25 April 2004
    
    24 April 2014
    
    
    $
    0.5080
    
    
    
    (22,500
    )Options lapsed during the period from 1 July 2008
to 12 August 2008:5 August 2005
    
    4 August 2015
    
    
    $
    0.7900
    
    
    
    (7,500
    )15 August 2006
    
    14 August 2016
    
    
    $
    1.9170
    
    
    
    (3,000
    )10 August 2007
    
    9 August 2017
    
    
    $
    3.3890
    
    
    
    (2,000
    )23 June 2008
    
    22 June 2018
    
    
    $
    1.5990
    
    
    
    (10,000
    )12,970,750
 No option holder has any right under the options to participate in any other share issue of the
Company or any other entity.
 Pharmaxis




---



##### 



Shares issued on the exercise of options
  Issue price
    
    
    Number ofDate options granted
    
    of shares
    
    
    shares issued12 May 2003
    
    $
    0.3215
    
    
    
    632,0005 August 2005
    
    $
    1.7900
    
    
    
    24,3762 February 2005
    
    $
    0.8340
    
    
    
    5,00012 May 2005
    
    $
    1.1470
    
    
    
    15,00013 February 2006
    
    $
    2.1940
    
    
    
    10,0001 June 2006
    
    $
    2.0340
    
    
    
    2,25015 August 2006
    
    $
    1.9170
    
    
    
    7,12526 October 2006
    
    $
    1.9170
    
    
    
    48,95720 September 2006
    
    $
    1.8918
    
    
    
    1,250745,958
 1.6
    
    Senior Management, Employees and Scientific Advisory Board1.6.1
    
    Executive Director and Senior Executive Officers
  Name
    
    Age
    
    PositionAlan D. Robertson, Ph.D.
    
    
    52
    
    
    Chief Executive Officer and Managing DirectorBrett Charlton, Ph.D.
    
    
    52
    
    
    Medical DirectorJohn F. Crapper
    
    
    56
    
    
    Chief Operations OfficerIan A. McDonald, Ph.D.
    
    
    61
    
    
    Chief Scientific OfficerDavid M. McGarvey.
    
    
    52
    
    
    Chief Financial Officer and Company SecretaryGary J. Phillips
    
    
    47
    
    
    Head of Commercial Development
  Executive Director and Senior Executive Officers
 Alan D. Robertson, Ph.D.,
 Brett Charlton, Ph.D.
 Pharmaxis




---



##### 



1.6.1
    
    Executive Director and Senior Executive Officers (continued)
 John F. Crapper
 Ian A. McDonald, Ph.D.
 David M. McGarvey, C.A., C.P.A.
 Gary J. Phillips
 Pharmaxis




---



##### 



1.6.2
    
    Employees
  As at 30 June
    
    2008
    
    
    2007
    
    
    2006Research and development
    
    
    35
    
    
    
    27
    
    
    
    29Manufacturing
    
    
    35
    
    
    
    26
    
    
    
    20Commercial
    
    
    11
    
    
    
    9
    
    
    
    10Administration
    
    
    5
    
    
    
    6
    
    
    
    686
    
    
    
    68
    
    
    
    65
     Pharmaxis




---



##### 



1.6.3
    
    Scientific Advisory Board
  Sandra Anderson, B.Sc., Ph.D., D.Sc., FANZSRS,
 Norbert Berend, M.B., B.S., M.D., FRACP
 Malcolm Fisher, A.O., M.B., Ch.B., M.D.
 Richard J.I. Morgan, C.Biol., MIBiol. DRCPath
 1.6.4
    
    Retirement Benefits
   Pharmaxis




---



##### 



Section
 Pharmaxis Statutory Annual Report 61




---



##### 



2.1
 Four Year Summary Financial Information
 Selected Financial Data
   2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2008Year Ended 30 June
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    U.S.$1In thousands except per share and
footnote dataIncome Statement Data:Revenue from continuing operationsRevenue from sale of goods
    
    
    527
    
    
    
    205
    
    
    
    8
    
    
    
    
    
    
    
    504Cost of sales
    
    
    (129
    )
    
    
    (49
    )
    
    
    (2
    )
    
    
    
    
    
    
    (123
    )Gross profit
    
    
    398
    
    
    
    156
    
    
    
    6
    
    
    
    
    
    
    
    381Other revenue  interest income
    
    
    7,402
    
    
    
    5,278
    
    
    
    4,282
    
    
    
    1,702
    
    
    
    7,078Other income
    
    
    1,576
    
    
    
    2,152
    
    
    
    1,299
    
    
    
    1,219
    
    
    
    1,507Other expenses from ordinary activities:Research and development
    
    
    (19,996
    )
    
    
    (23,840
    )
    
    
    (16,978
    )
    
    
    (9,269
    )
    
    
    (19,120
    )Commercial expenses
    
    
    (4,557
    )
    
    
    (3,240
    )
    
    
    (1,946
    )
    
    
    (963
    )
    
    
    (4,357
    )Administration expenses
    
    
    (5,231
    )
    
    
    (4,666
    )
    
    
    (4,391
    )
    
    
    (3,134
    )
    
    
    (5,001
    )Loss before income tax
    
    
    (20,408
    )
    
    
    (24,160
    )
    
    
    (17,728
    )
    
    
    (10,445
    )
    
    
    (19,512
    )Income tax expense
    
    
    (32
    )
    
    
    (19
    )
    
    
    (5
    )
    
    
    
    
    
    
    (31
    )Loss for the year
    
    
    (20,440
    )
    
    
    (24,179
    )
    
    
    (17,733
    )
    
    
    (10,445
    )
    
    
    (19,543
    )Cents
    
    Cents
    
    Cents
    
    Cents
    
    CentsBasic and diluted loss per share
    
    
    (10.8
    )
    
    
    (13.6
    )
    
    
    (11.1
    )
    
    
    (8.4
    )
    
    
    (10.3
    )Weighted average number of ordinary
shares used in calculating basic and
diluted net loss per share2
    
    
    189,335
    
    
    
    177,285
    
    
    
    160,349
    
    
    
    123,933
    
    
    
    189,340
 Pharmaxis




---



##### 



1
    
    The amounts have been translated into U.S. dollars from Australian dollars based upon the
noon buying rates in New York City as determined by the Federal Reserve Bank of New York on 30
June 2008, which was A$1.00 to U.S.$0.9562. These translations are merely for the convenience
of the reader and should not be construed as representations that the Australian dollar
amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at
the rate indicated.2
    
    The increase in ordinary shares in 2006 is primarily attributable to a U.S. public offering
and a concurrent Australian share placement in which a total of 39,400,000 new ordinary shares
were issued. In addition, 2,733,500 shares were issued in 2006 upon the exercising of stock
options by management or employees under the Companys employee option plan. The increase in
2007 is primarily the full year effect of shares issued in 2006. In addition, 1,045,625 shares
were issued in 2007 upon the exercising of stock options by management or employees under the
Companys Employee Option Plan. The increase in 2008 is primarily attributable to an
Australian share placement and share purchase plan in which a total of 15,819,587 ordinary
shares were issued.
 2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2008As at 30 June 2008
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    U.S.$1In thousandsBalance Sheet Data:Cash and cash equivalents
    
    
    111,842
    
    
    
    76,182
    
    
    
    97,840
    
    
    
    33,390
    
    
    
    106,943Total assets
    
    
    125,049
    
    
    
    82,648
    
    
    
    104,267
    
    
    
    37,937
    
    
    
    119,572Net assets
    
    
    119,121
    
    
    
    76,559
    
    
    
    98,888
    
    
    
    35,467
    
    
    
    113,904Contributed equity/capital stock
    
    
    194,680
    
    
    
    135,108
    
    
    
    134,745
    
    
    
    54,716
    
    
    
    186,153
 1
    
    The amounts have been translated into U.S. dollars from Australian dollars based upon the
noon buying rates in New York City as determined by the Federal Reserve Bank of New York on 30
June 2008, which was A$1.00 to U.S.$0.9562. These translations are merely for the convenience
of the reader and should not be construed as representations that the Australian dollar
amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at
the rate indicated.
 2008
    
    
    2007
    
    
    2006
    
    
    2005As at 30 June 2008
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$In thousandsOrdinary shares outstanding
    
    
    194,515
    
    
    
    177,949
    
    
    
    176,904
    
    
    
    134,770
  Pharmaxis




---



##### 



2.2
    
    Operating and Financial Review and Prospects
  2.2.1
    
    Operating Results
 Overview
        Research and Development
  Pharmaxis




---



##### 



1.
    
    Our drug discovery unit based in Sydney. This unit is focused on immune disorders and
respiratory drug discovery and in 2007 assumed the work previously carried out at the John
Curtin School of Medical Research within the Australian National University.2.
    
    Our preclinical development group which is managing the outsourced safety/toxicology
studies of the Aridol and Bronchitol products and the preclinical development of lead
compounds in the immune disorder area.4.
    
    Our clinical trials group, which designs and monitors our clinical trials.5.
    
    Our Australian Therapeutic Goods Administration, or TGA, registered manufacturing facility is
primarily focused on producing material for clinical trials and developing enhanced
manufacturing processes. It is therefore classified as a research and development expenditure.
  
    
    The cost to complete our Phase II dose-ranging study of Bronchitol for cystic fibrosis is
currently estimated to be approximately A$0.1 million. We completed dosing of subjects in
this trial during the second quarter of 2008 and reported the topline results during the
third quarter of 2008.
    
    The cost to complete our first Phase III trial of Bronchitol for cystic fibrosis is
currently estimated to be approximately A$5 million. This trial is being conducted in Europe
and Australia. We completed recruitment for this trial in the third quarter of calendar 2008
and expect to complete dosing of subjects in the first half of 2009. This clinical trial is
the first of two planned for this indication.
    
    The cost to complete our second Phase III trial of Bronchitol for cystic fibrosis is
currently estimated to be approximately A$10 million. This trial is being conducted in North
America, Latin America and Europe. We commenced recruitment for this trial in the third
quarter of calendar 2008 and expect to complete recruitment in the second quarter of 2009.
    
    The cost to complete our first Phase III trial of Bronchitol for bronchiectasis is currently
estimated to be approximately A$0.4 million. This trial was conducted in Europe and Australia.
We completed dosing of subjects in the second quarter of 2008 and completed analysis of the
trial data in the third quarter of 2008. This clinical trial is the first of two planned for
this indication.
    
    The cost to complete our second Phase III trial of Bronchitol for bronchiectasis is
currently estimated to be approximately A$10 million. This trial is planned to be
conducted in the U.S. and Europe. We expect to commence recruitment for this trial
during the second half of 2008.
  Pharmaxis




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2.2.1
    
    Operating Results (continued)
 Administration
  Commercial
  2.2.2
    
    Critical Accounting Policies and Estimates
  2.2.3
    
    Review of 2008 Operations
 Bronchitol
   
    
    Our Phase III clinical trial of Bronchitol in CF being conducted in Europe
and Australia reached its final recruitment target of 325 subjects. We expect all
subjects to complete the efficacy arm of the trial and data to be available during
the first half of 2009
    
    We concluded the Special Protocol Assessment process with the U.S. FDA in
relation to a Phase III clinical trial with Bronchitol in adults and children with
cystic fibrosis. This trial is to be conducted in North America, Latin America and
Europe
    
    A three month clinical trial of Bronchitol in children with cystic fibrosis
returned positive results
    
    Our Phase II CF dosing study completed
    
    We released positive headline clinical data on a 362 subject, 22 site
international Phase III clinical trial of Bronchitol in bronchiectasis and
subsequently the closure of the long term safety study extension arm of the study
    
    We reached agreement with the Australian TGA for us to file a marketing
application for Bronchitol for bronchiectasis
    
    We concluded the Special Protocol Assessment process with the U.S. FDA, in
relation to a twelve month Phase III clinical trial with Bronchitol in subjects with
bronchiectasis. This trial protocol was also reviewed by the European Medicines
Authority (EMEA). This trial is to be conducted in the U.S. and Europe
    
    The Chinese FDA accepted for review our Bronchitol clinical trial application
    
    We established a global compassionate use program for Bronchitol
 Pharmaxis




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Aridol
   
    
    We commenced a major Aridol U.S. asthma management study in collaboration with
the U.S. Asthma Clinical Research Network.
    
    Marketing authorizations for Aridol were issued by Germany, the United Kingdom,
the Netherlands, Denmark, Greece, Finland, Ireland, Norway and Portugal.
    
    We received marketing approval for Aridol in Korea, our first Asian approval.
 Other milestones
 
    
    Construction commenced on a new 7,000 square metre manufacturing and research
facility at Frenchs Forest, NSW, Australia which is scheduled for completion in the
first half of 2009.
    
    The preclinical studies with PXS25 were completed and it was shown to have an
appropriate safety window to allow administration to human volunteers.
    
    PXS4159 was identified as a preclinical development candidate and entered formal
preclinical development studies
    
    We opened a U.S. office in Exton, PA to strengthen our expanding U.S. clinical
and regulatory program, and prepare for the commercialization of both Aridol and
Bronchitol in the U.S.
    
    Senior Australian pharmaceutical executive Mr. Will Delaat joined our Board of
Directors.
    
    We completed an Australian share placement and share purchase plan in which we
issued 15.8 million shares and raised A$59.2 million net of issue expenses.
 2.2.4
    
    Results of Operations
 Comparison of financial years ended 30 June 2008 and 30 June 2007
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2.2.4
    
    Results of Operations (continued)
 1.
    
    Our drug discovery group is based in leased laboratories in Sydney and
also, until its closure during 2007, was based at the John Curtin School of Medical
Research within the Australian National University. Our drug discovery group
accounted for approximately 11 percent of our total research and development
expenditure in the current year and increased by approximately 45 percent or A$0.7
million compared to 2007. This group is focused on immune disorders and respiratory
drug discovery. The increased level of expenditure reflects increased staffing during
both 2008 and 2007 and increased levels of research activity associated with our
SSAO/VAP-1 program.2.
    
    Our preclinical development group accounted for approximately 3 percent of
our total research and development expenditure in the current year and decreased by
approximately 73 percent or A$1.7 million compared to 2007. In 2007, approximately 90
percent of expenditure related to the outsourced Aridol and Bronchitol long term
safety/toxicology studies. These were substantially completed in 2007. In 2008, the
predominant expenditure was in relation to preclinical development of lead compounds
in the immune disorder area (PXS25 and its pro-drug PXS64).3.
    
    Our clinical group located at our Frenchs Forest facility accounted for
approximately 56 percent of our total research and development expenditure in 2008
and decreased by approximately 19 percent or A$2.6 million compared to 2007. The
clinical group designs and monitors the clinical trials run by us. The majority of
the expenditures of this group are directed at hospitals and other services related
to the conduct and analysis of clinical trials. This significant decrease in
expenditure reflects the number and size of clinical trials in the active dosing
stage during 2008.4.
    
    Our TGA registered manufacturing facility at Frenchs Forest is
predominantly focused on producing material for clinical trials and developing
enhanced manufacturing products and processes. Manufacturing expenses for the current
year have therefore mainly been classified as a research and development expenditure.
Costs associated with the Aridol product sold are classified as cost of sales.
Manufacturing accounted for approximately 30 percent of our total research and
development expenditure in 2008 and decreased by approximately 3 percent or A$0.2
million compared to 2007.
 Commercial expenses.
 Administration expenses.
 Income tax expense.
 Loss.
 Basic and diluted net loss per share.
 Comparison of financial years ended 30 June 2007 and 30 June 2006
  Pharmaxis




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##### 



Other revenue  interest.
 Other income.
 Research and development expenses.
  1.
    
    Our drug discovery group is based in leased laboratories in Sydney and also, until its
closure during 2007, the John Curtin School of Medical Research within the Australian National
University. Our drug discovery group accounted for approximately 7 percent of our total
research and development expenditure in the current year and increased by approximately 44
percent or A$0.5 million compared to 2006. This group is focused on immune disorders and
respiratory drug discovery. This area of research accounted for approximately 7 percent of the
increase in overall research and development expenditure during 2007.2.
    
    Our preclinical development group accounted for approximately 10 percent of our total
research and development expenditure in the current financial year and increased by
approximately 4 percent or A$0.1 million compared to 2006. This group is managing the
outsourced safety/toxicology studies of the Aridol and Bronchitol products and the preclinical
development of lead compounds in the immune disorder area (PXS25 and its pro-drug PXS64).
Approximately 90 percent of expenditure in 2007 related to the Aridol and Bronchitol studies.
This area of research accounted for approximately 1 percent of the increase in overall
research and development expenditure during 2007.3.
    
    Our clinical group located at our Frenchs Forest facility accounted for approximately 57
percent of our total research and development expenditure in 2007 and increased by
approximately 34 percent or A$3.5 million compared to 2006. The clinical group designs and
monitors the clinical trials run by us. The majority of the expenditures of this group are
directed at hospitals and other services related to the conduct and analysis of clinical
trials. This significant increase in expenditure reflects the number and size of clinical
trials ongoing during 2007. This area of research accounted for approximately 51 percent of
the increase in overall research and development expenditure during 2007.4.
    
    Our TGA registered manufacturing facility at Frenchs Forest is predominantly focused on
producing material for clinical trials and developing enhanced manufacturing processes.
Manufacturing expenses for the current year have therefore mainly been classified as a
research and development expenditure. Manufacturing accounted for approximately 26 percent of
our total research and development expenditure in 2007 and increased by approximately 83
percent or A$2.8 million compared to 2006, reflecting manufacturing performance/yield
innovation and product stability studies required to support registration applications. This
area of expenditure accounted for approximately 41 percent of the increase in overall research
and development expenditure during 2007.
 Commercial expenses.
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##### 



2.2.4
    
    Results of Operations (continued)
 Administration expenses.
 Income tax expense.
 Loss.
 Basic and diluted net loss per share.
 2.2.5
    
    Liquidity and Capital Resources
      Pharmaxis




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
    
    the costs of expanding sales, marketing and distribution capabilities;
    
    the scope, results and timing of preclinical studies and clinical trials;
    
    the costs and timing of regulatory approvals; and
    
    the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual
property rights.
  
    
    clinical development of Bronchitol in patients with cystic fibrosis;
    
    clinical development of Bronchitol in patients with bronchiectasis and other acute and chronic pulmonary conditions;
    
    expansion of our manufacturing capabilities;
    
    continued commercial launch of Aridol for the management of asthma in the E.U. and the U.S.; and
    
    pre-clinical development of our product pipeline.
 2.2.6
    
    Quantitative and Qualitative Disclosures about Market Risk
  2.2.7
    
    Income Taxes
   2.2.8
    
    Recently Issued Accounting Announcements
  2.2.9
    
    Off-Balance Sheet Arrangements
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2.2.10
    
    Contractual Obligations and CommitmentsThe following table summarizes financial data for our contractual obligations and other
commercial commitments, including interest obligations, as of 30 June 2008 (in thousands):
 Less than
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 year
    
    
    1  3 years
    
    
    3  5 years
    
    
    5 yearsPayments due by Period
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Contractual ObligationsLong-Term Debt Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital (Finance) Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    1,108
    
    
    
    380
    
    
    
    728
    
    
    
    
    
    
    
    Purchase Obligations
    
    
    9,314
    
    
    
    9,314
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    10,422
    
    
    
    9,694
    
    
    
    728
    
    
    
    
    
    
    
    
 In addition, we have entered into an agreement concerning the lease of a custom designed
manufacturing, warehousing, research and office facility of approximately 75,000 square
feet. The facility is being constructed to our specifications. Once the building is
completed to specification according to the terms of the agreement, the lease commences.
It will have a term of 15 years, with two options to renew of a further five years each
and the option to break the lease at ten years but with financial penalties attached. The
initial minimum annual rental under the agreement is $1.46 million per annum, increasing
each year for the term of the agreement by 3.25%. This minimum rental may increase as the
result of variations to the building specifications required by us during its
construction, or decrease as a result of the incentive owing to us under the agreement.
The incentive may be used for building variations, building fit-out or rent reduction.Purchase obligations in the above table relate to building fit-out and plant and equipment
to be installed in the new custom designed facility.The contractual summary above reflects only payment obligations that are fixed and
determinable. We have additional contractual payment obligations that are contingent on
future events. Our operating lease obligations primarily relate to the lease for our
headquarters in Frenchs Forest. We also have agreements with clinical sites, and contract
research organizations, for the conduct of our clinical trials and other research
activities.2.3
    
    Controls and Procedures Required as a Result of Our U.S. Listing2.3.1
    
    Disclosure Controls and ProceduresUnder the supervision and with the participation of the Companys management, including
the Chief Executive Officer and Chief Financial Officer, the Company conducted an
evaluation of the effectiveness of its disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Control Act of
1934, as amended (the Exchange Act)), as of 30 June 2008. Based on this evaluation, the
Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures were effective as of such date. The Companys
disclosure controls and procedures are designed to ensure that information required to be
disclosed by us in the reports we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms and
that such information is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
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2.3.2
    
    Managements Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended.A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the companys assets that could have a material effect on the
financial statements.Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies may deteriorate.Under the supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in
Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on our evaluation, our management concluded that our
internal control over financial reporting was effective as of 30 June 2008.2.3.3
    
    Changes in Internal Controls over Financial ReportingThere were no changes in our internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) that occurred during the year ended 30 June 2008 that have
materially affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.2.3.4
    
    Audit Committee Financial ExpertOur Board of Directors adopted its Audit Committee charter on 4 December 2003 and reviews the
charter annually. The last amendments to the charter were made on 9 August 2007. Our Board
has determined that we do not have a financial expert serving on our Audit Committee as
defined by Item 16A(b) of Form 20-F.We believe that the combined knowledge, skills and experience of the members of our Audit
Committee enables them, as a group, to act effectively in the fulfillment of their tasks and
responsibilities, including those under the Sarbanes-Oxley Act of 2002, without appointing a
member who would qualify as an Audit Committee financial expert.2.3.5
    
    Code of EthicsWe have adopted a Code of Conduct that applies to the Chief Executive Officer and all senior
financial officers, or persons performing similar functions, of the Company. The Code of
Conduct is also posted on the Companys website at www.pharmaxis.com.au. Changes to the Code
of Conduct will be posted on the Companys website within five
business days of the change being effective.2.3.6
    
    Principal Accountant Fees and ServicesThe Audit Committee of our Board of Directors chooses and engages our independent auditors to
audit our financial statements. Our Board of Directors has adopted a policy requiring
management to obtain the Audit Committees approval before engaging our independent auditors
to provide any other audit or permitted non-audit services to us. This policy, which is
designed to assure that such engagements do not impair the independence of our auditors,
requires the Audit Committee to pre-approve audit and non-audit services that may be
performed by our auditors.Refer to Note 19 to the Annual Financial Report in Section 3 of this Statutory Annual Report
and Section 1.4.14 of this Statutory Annual Report for details of fees billed to the Company
for financial years ended 30 June 2008 and 30 June 2007 by PricewaterhouseCoopers, the
Companys principal accounting firm.
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2.4
    
    Risk FactorsOur regulatory filings in the U.S. require an extensive discussion of risk. The following
risks relate specifically to the Companys business and should be considered carefully.
Our business, financial condition and results of operations could be materially and
adversely affected by any of the following risks. As a result, the trading price of our
ordinary shares and our American Depositary Shares, or ADSs, could decline and the holders
could lose part or all of their investment.Risks Related to Our BusinessWe are at an early stage of our development as a specialty pharmaceutical company. Our
first product, Aridol, has commenced generating initial revenue. We may not be successful
in deriving meaningful revenues from Aridol. We do not currently have, and we may never
have, any other authorized products other than Aridol that generate revenues. Unless we
are able to generate sufficient product revenue, we will continue to incur losses from
operations and may not achieve or maintain profitability.We are at an early stage of our development as a specialist integrated pharmaceutical
company. We were incorporated in May 1998 and we have a limited operating history on which
to evaluate our business and prospects. To date, we do not have, and we may never have,
any products that generate significant revenues. We have generated a small amount of
revenue from the sale of Aridol to date. To date, we have funded our operations and
capital expenditures with proceeds from the sale of our securities, government grants and
interest on investments.We have incurred losses in each year since our inception and expect to continue to incur
substantial losses. We incurred losses of approximately A$17.7 million, A$24.2 million and
A$20.4 million in the financial years ended 30 June 2006, 2007 and 2008, respectively. Our
accumulated losses from inception to 30 June 2008 are A$83.0 million. These losses, among
other things, have had, and will continue to have, an adverse effect on our shareholders
equity and working capital. Unless we are able to generate sufficient product revenue, we
will continue to incur losses from operations and may not achieve or maintain
profitability.We expect our expenses to increase significantly in the short term in connection with:
 
    
    the regulatory marketing authorization process to approve the sale of Aridol in the U.S.
and other jurisdictions. Aridol was the first of our product candidates to complete Phase
III trials in any jurisdiction and the first of our product candidates for which we have
sought marketing authorization. We have to date received marketing authorization in
Australia, a number of European countries and Korea. The work involved in seeking
regulatory marketing authorization for Aridol in other jurisdictions, including the U.S.,
is extensive, time consuming and expensive;
    
    the development of our Aridol sales and
marketing capability. Our existing sales and marketing capability is currently limited to
a sales team for Australia and the U.K., distributors in Europe, a European and United
States office to oversee regional activities and a distributor in Korea. Our sales and
marketing capability must be increased further to enable the sales and marketing of Aridol
in U.S. and to expand sales in Europe and Asia;
    
    the continuation of simultaneous Phase
III clinical trials of Bronchitol for different chronic respiratory disorders.
These clinical trials are carried out in a number of jurisdictions and with respect
to a number of indications and are expensive;
    
    the commencement of new clinical trials
and the continuation of existing clinical trials to more advanced phases and/ or
additional sites. The more advanced clinical trials typically require more clinical trial
participants, clinical trial sites and research investigators than earlier stage clinical
trials and are consequently more expensive;
    
    the commencement of Phase I clinical trials
of PXS25, which will represent a significant new expense for us;
    
    the commencement of new
preclinical testing programs and the continuation of existing clinical testing programs
with respect to a number of potential product candidates including PXS4159;
    
    the
establishment and continuation of a number of early stage research and development
projects being undertaken by or on behalf of the Company; and
    
    the fitting out of our
purpose built manufacturing, warehousing and office facility which includes the
acquisition of significant manufacturing plant and equipment.
 We also expect to incur increased general and administrative expenses in support of our
increased operations as well as the ongoing costs to operate as a company listed on the
Australian Securities Exchange and on the Nasdaq Global Market.
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Over the longer term, the costs referred to above will fluctuate, primarily dependant on
regulatory marketing authorizations being sought, the extent of our sales and marketing
operations, the number, type and size of clinical trials being undertaken by us at any one time,
the preclinical development and research projects being undertaken and the timing and nature of
the costs we will incur in fitting out our new purpose built manufacturing, warehousing and office
facility. Costs will also increase if we are able to progress any further clinical trial
candidates from preclinical testing to clinical trials or if we are able to complete clinical
trials of any product candidates and seek regulatory marketing authorizations.We may not become profitable if Bronchitol is unsuccessful in ongoing clinical trials or we are
unable to obtain regulatory authorizations for Aridol and Bronchitol in key jurisdictions. Even
though we have received regulatory authorization for Aridol in a number of jurisdictions,
profitability will depend on our ability to obtain marketing authorizations for Aridol in other key
jurisdictions and to likewise obtain marketing authorizations for Bronchitol in key jurisdictions.
Even if we obtain these market authorizations, we cannot assure that we will be able to generate
revenues from the sale of our products or the licensing of our
technology.We cannot be certain that our clinical development of Bronchitol or any of our other product
candidates in preclinical testing or clinical development will be successful, that Aridol will
receive regulatory authorizations in key markets such as the U.S, or that Bronchitol or any of our
other product candidates will receive the regulatory authorizations required to commercialize them,
or that any of our research and development programs will yield additional product candidates
suitable for investigation through clinical trials.We will undertake simultaneous clinical trials of Bronchitol for the treatment of cystic fibrosis
and bronchiectasis. We have completed a Phase III study of Bronchitol for the treatment of people
with bronchiectasis in Europe and Australia which met its two primary efficacy endpoints, being
quality of life and mucus clearance. However, additional clinical trials are required to enable us
to seek marketing authorization in Europe and the U.S. If Bronchitol is unsuccessful in these and
other ongoing clinical trials, or we are unable to obtain marketing authorization of our products
and product candidates in all key jurisdictions, we may not be profitable. Clinical trials of
Bronchitol will continue for several years, but may take significantly longer to complete. There is
a risk that these clinical trials of Bronchitol may not be successful or may not be successful with
respect to a particular indication or that marketing authorization may not be granted in the
future. If we are not able to successfully complete clinical trials of Bronchitol, and if we are
unable to obtain marketing authorization of Bronchitol, we may not be profitable. If we are unable
to obtain marketing authorization of Aridol in the U.S. and other key jurisdictions, we may not be
profitable.If we are unable to obtain marketing authorization of our products and product candidates in all
key jurisdictions, we may not be profitable. We have completed the Phase III clinical trials of
Aridol necessary for U.S. registration of Aridol. However, we cannot be certain that marketing
authorizations will be granted in the U.S. There is a risk that these Phase III clinical trials in
the U.S. may not be sufficient and that marketing authorization may not be granted in the U.S.The process to develop, obtain regulatory authorizations for, and commercialize potential product
candidates is long, complex and costly. Even if we receive regulatory authorizations for any
product candidates, profitability will depend on our ability to generate revenues from the sale of
our products or the licensing of our technology that will offset the significant and continuing
expenditures required for us to advance our research, protect and extend our intellectual property
rights and develop, manufacture, license, market, distribute and sell our technology and products
successfully. Our ability to generate revenue depends on a number of factors, including our ability
to:
 
    
    successfully conduct and complete clinical trials for Bronchitol and our other product
candidates;
    
    develop and obtain all necessary regulatory marketing authorization, as well as
approvals concerning pricing and reimbursement, which may be necessary in some E.U. member states
and other jurisdictions, for Aridol and Bronchitol in our target markets where we do not currently
have regulatory marketing authorization and, in the future, to develop and obtain regulatory
marketing authorization for our other product candidates;
    
    manufacture or obtain commercial
quantities of Aridol and Bronchitol or our other product candidates at acceptable cost levels; and
    
    successfully market and sell Aridol, Bronchitol and our other product candidates. In
circumstances where we have licensed our technology to third parties, our ability to generate
revenue will depend on the success of the licensee of the technology to successfully market and
sell the licensed technology.
 Pharmaxis




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2.4
    
    Risk Factors (continued)Although we have a pipeline of potential product candidates, our business is currently
substantially dependent on our ability to complete development, obtain regulatory approval
for, and successfully commercialize Aridol and Bronchitol in a timely manner. If we are
unable to successfully commercialize Aridol and/or Bronchitol or are unable to
successfully commercialise them with respect to particular indications, we may not be able
to earn sufficient revenues to continue our business. If we fail to become and remain
profitable, or if we are unable to fund our continuing losses, there would be a material
adverse effect on our business and the holders of our ordinary shares and ADSs could lose
all or part of their investment.Unsuccessful or delayed marketing authorization or approvals concerning pricing and
reimbursement could increase our future development costs or impair our future revenue.
Authorizations that may be given may not cover all the indications for which we seek
approval or may contain significant limitations.To receive regulatory authorization for the commercial sale of any product or product
candidate, we must complete preclinical development and extensive clinical trials to
demonstrate safety and efficacy in humans and then apply to relevant regulatory
authorities. This process of attempting to gain regulatory approval is expensive and can
take many years, and failure can occur at any stage of the testing or approval process. We
have received regulatory marketing authorization for Aridol in certain target markets
including Australia, a number of European countries and Korea. Our failure to adequately
demonstrate the safety and efficacy of Aridol in our other key markets and/or our failure
to adequately demonstrate the safety and efficacy of Bronchitol for the treatment of
various chronic respiratory disorders and/or any of our other product candidates or
otherwise fail to satisfy regulatory requirements will prevent regulatory approval and
commercialization of such product candidates. Our inability to successfully and
effectively complete clinical trials for our product candidates, in particular clinical
trials of Bronchitol, will severely harm our business and we may not be profitable.Significant delays in clinical development could materially increase our product
development costs, delay our receipt of revenue or allow our competitors to bring product
candidates to market before we do, impairing our ability to effectively commercialize
Aridol and Bronchitol or our other product candidates.In addition, any authorization we may obtain may not cover all of the clinical indications
for which we seek approval. Also, an authorization might contain significant limitations
in the form of narrow indications, warnings, precautions or contraindications with respect
to conditions of use.Our inability to obtain satisfactory pricing and reimbursement approvals for Aridol,
Bronchitol or other product candidates in certain jurisdictions may impair our ability to
effectively commercialize Aridol and Bronchitol or our other product candidates in those
jurisdictions.We will continue to need significant amounts of additional capital that may not be
available to us on favorable terms or at all or which may be
dilutive.To date, we have funded our operations and capital expenditures with proceeds from the
sale of our securities, government grants and interest on investments.In order to achieve our goal of being a fully integrated pharmaceutical company and to
conduct the lengthy and expensive research, preclinical studies, clinical trials, regulatory approval process, manufacture, sales and marketing necessary to complete the
full development of our product candidates, we may require substantial additional funds in
addition to the funds received in connection with a share placement in 2007.To meet these financing requirements, we may raise funds through the sale of our
securities, debt financings, and through other means, including collaborations and license
agreements. Raising additional funds by issuing equity or convertible debt securities may
cause our shareholders to experience significant additional dilution in their ownership
interests. Raising additional funds through debt financing, if available, may involve
covenants that restrict our business activities. Additional funding may not be available
to us on favorable terms, or at all. If we are unable to obtain additional funds, we may
be forced to delay, reduce the scope or eliminate one or more of our clinical trials or
research and development programs or future commercialization efforts. To the extent that
we raise additional funds through collaborations and licensing arrangements, we may have
to relinquish valuable rights and control over our technologies, research programs or
product candidates, or grant licenses on terms that may not be favorable to us.
 Pharmaxis




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##### 



If we fail to obtain additional financing, we may be unable to fund our operations and
commercialize our product candidates.We expect that our cash expenditure will increase for the next several years, and that we will
spend substantial amounts to complete the clinical development and commercialization of Aridol,
Bronchitol, PXS25, PXS4159 and our other product candidates, and to license or acquire other
product candidates. We believe that our existing cash and cash equivalents will be sufficient to
meet our projected operating requirements for at least 12 months.Our future funding requirements will depend on many factors, including the:
 
    
    scope, results, rate of progress, timing and costs of preclinical studies and clinical trials and
other development activities;
    
    costs and timing of seeking and obtaining regulatory
authorizations;
    
    costs of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights;
    
    costs of developing our sales and marketing capabilities and
establishing distribution capabilities;
    
    costs of expanding our manufacturing capabilities to
satisfy demand for our products;
    
    costs of additional management and scientific, manufacturing and
sales and marketing personnel. We will be required to increase the number of our personnel over
time;
    
    terms, timing and cash requirements of any future acquisitions, collaborative arrangements,
licensing of product candidates or investing in businesses, product candidates and technologies;
    
    costs of securing coverage, payment and reimbursement of our product candidates which receive
regulatory approval; and
    
    effects of competing clinical, technological and market developments.
 If we are not able to secure additional funding when needed, we may have to delay, reduce the
scope of, or eliminate one or more of our clinical trials or research and development programs or
future commercialization efforts.We may be required to repay previously received grant revenue in certain circumstances which
would have an adverse effect on our cash position.We have received substantial grant funding under a grant agreement with the Commonwealth of
Australia. In certain circumstances where we fail to use our best endeavors to commercialize the
project within a reasonable time of completion of the project or upon termination of a grant due to
our breach of agreement or our insolvency, the Commonwealth of Australia may require us to repay
some, or all, of the grant. If required to repay the grant amounts, we may be required to
reallocate funds needed to continue the commercialization of our products and such repayment may
have a material adverse effect on our cash position and us.Currency fluctuations may expose us to increased costs and
revenue decreases.Our business may in the future be affected by fluctuations in foreign exchange rates. Currency
fluctuations could, therefore, cause our costs to increase or revenues to decline. The majority of
our expenses will continue to be denominated in Australian dollars although we will also be
expending significant amounts of cash in other denominations, including the U.S. dollar, British
pound, Swedish kroner, Danish kroner and the European euro. The exchange rates of the Australian
dollar to the U.S. dollar, the British pound, the Swedish kroner and the European euro have
fluctuated in recent years. In circumstances where the Australian dollar devalues against any or
all of the U.S. dollar, the British pound, the Swedish kroner or the European euro, this may have
an adverse effect on our costs incurred in either the U.S. or Europe (as applicable) but may have a
positive effect on any revenues which we source from the U.S. or Europe (as applicable). The same
principles apply in respect of our costs and revenues in other jurisdictions. In addition, we have
offices in the United Kingdom and the United States and conduct clinical trials in many different
countries and we have manufacturing of some of our product candidates undertaken outside of
Australia, which exposes us to potential cost increases resulting from fluctuations in exchange
rates. We do not currently have any plans to hedge the effect of currency fluctuations
on our overseas expenditures. We manage our currency risks by settling foreign currency payables
immediately upon recognition of a foreign currency liability and/or by holding foreign currency
cash funds to match net foreign currency payables.
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2.4
    
    Risk Factors (continued)Risks Related to Research and Development of Our ProductsClinical trials are expensive, time consuming, subject to delay and their outcome is
uncertain and may not be completed at all.To receive regulatory authorization for the commercial sale of any product or product
candidate, we must complete preclinical development and extensive clinical trials to
demonstrate safety and efficacy in humans. Preclinical development and clinical trials are
subject to extensive regulation by the regulatory authorities including the U.S. Food and
Drug Administration, or FDA, the European Medicines Agency, or EMEA in Europe and other
regulatory authorities elsewhere. In addition, clinical trials must be conducted with
product candidates produced under applicable current Good Manufacturing Practices.
Clinical trials are expensive and complex, can take many years, are often subject to delay
and have uncertain outcomes. The FDA has accepted an Investigational New Drug Application,
or IND, for inhaled dry powdered mannitol. We have completed the Phase III clinical trials
of Aridol that we believe are necessary for U.S. marketing authorization of Aridol and are
targeting filing our application in the second half of 2008. Our Phase III study of
Bronchitol in Europe and Australia for the treatment of people with bronchiectasis met its
two primary efficacy endpoints, being quality of life and mucus clearance. We have reached
agreement with the FDA and the EMEA in relation to a protocol for a longer Phase III trial
in subjects with bronchiectasis. We have recently closed recruitment in our Phase III
clinical trial in Europe and Australia for the treatment of people with cystic fibrosis
and have reached agreement with the FDA in relation to a protocol for a second U.S. Phase
III trial for subjects with cystic fibrosis. Clinical trials of our product candidates,
Bronchitol, PXS25 and PXS4159, will continue for several years, but may take significantly
longer to complete.There are numerous factors that could affect the timing of the commencement, continuation
and completion of clinical trials which may delay the clinical trials or prevent us from
completing these trials successfully, including but not limited to:
 
    
    delays in securing
clinical investigators or trial sites for our clinical trials, scheduling conflicts with
participating clinicians and clinical institutions, and delays in obtaining institutional
review board, or IRB, and other regulatory approvals to commence a clinical trial. There
are a limited number of clinical investigators and clinical trials sites worldwide able to
conduct the clinical trials required by us. Clinical investigators and trial sites may
have demands from a number of companies competing to use their resources;
    
    slower than
anticipated recruitment and enrollment of patients who meet the trial eligibility criteria
or the loss of patients during the course of the clinical trials;
    
    the requirement to
repeat or undertake large clinical trials. Our Phase II and Phase III clinical trials
involve a large number of patients and are typically carried out in different
jurisdictions and may also need to be repeated if required by regulatory authorities;
    
    negative or inconclusive results from clinical trials, or deficiencies in the conduct of
the clinical trials may require us to repeat clinical trials;
    
    unforeseen safety issues
or unforeseen adverse side effects or fatalities or other adverse events arising during a
clinical trial due to medical problems that may or may not be related to clinical trial
treatments;
    
    the product candidate may not be competitive with current therapies;
    
    quality or stability of the product candidate may fall below acceptable standards;
    
    shortages of available product supply. We may be required to simultaneously provide
product to patients in a range of jurisdictions which may have different packaging
requirements and there may be shortages or delays in manufacturing and supplying the
product in those jurisdictions;
    
    uncertain dosing issues; and
    
    inability to monitor
patients adequately during or after treatment or problems with investigator or patient
compliance with the trial protocols.
 Due to the foregoing and other factors, the regulatory approval of Aridol in the U.S. or
in other key markets where we do not currently have marketing approval of Aridol, as well
as the regulatory approval of Bronchitol, PXS25, PXS4159 and any of our other future
product candidates, could take a significantly longer time to gain regulatory
authorizations than we expect or these products may never gain approval or may only gain
approval in some but not all jurisdictions,
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or may only gain approval in some but not all indications for which we seek marketing
authorization, any of which could reduce or eliminate our revenue by delaying or terminating the
potential commercialization of our products or product candidates. If we suffer any significant
delays, setbacks or negative results in, or termination of, our clinical trials, we may be unable
to continue the development of our products or product candidates or generate revenue and our
business may be materially adversely affected.Ongoing and future clinical trials of our product candidates may not show sufficient safety or
efficacy to obtain requisite regulatory authorizations.Ongoing and future clinical trials of our product candidates may not show sufficient safety or
efficacy to obtain regulatory approval for marketing. Phase I and Phase II clinical trials are not
primarily designed to test the efficacy of a product candidate but rather to test safety, to study
pharmacokinetics and pharmacodynamics and to understand the product candidates side effects at
various doses and administered according to varying schedules. Furthermore, success in preclinical
and early clinical trials does not ensure that later large-scale trials will be successful nor
does it predict final results. Acceptable results in early trials may not be repeated in later
trials. There is a risk that the final results of Phase III clinical trials may not show
sufficient safety or efficacy to obtain regulatory marketing authorization in the U.S. or other
key jurisdictions despite the completion of Phase III trials in other jurisdictions and the
granting of marketing authorization in other jurisdictions. Likewise, clinical trials of product
candidates may not show sufficient safety or efficacy to obtain regulatory approval for marketing.We may conduct lengthy and expensive clinical trials of our product candidates, only to learn
that the product candidate is not an effective treatment. A number of companies in the
biotechnology and pharmaceutical industries have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. In addition, clinical results
are frequently susceptible to varying interpretations that may require trials to be redone or
delay, limit or prevent regulatory authorizations.Negative or inconclusive results or adverse medical events during a clinical trial could cause the
clinical trial to be delayed, redone or terminated. In addition, failure to construct appropriate
clinical trial protocols or other factors could require a clinical trial to be redone or
terminated. The length of time necessary to complete clinical trials and to submit an application
for marketing authorization for a final decision by applicable regulatory authorities may also vary
significantly based on the type, complexity and novelty of the product candidate involved, as well
as other factors.Due to our reliance on contract research organizations, hospitals and investigators to conduct
clinical trials, we are unable to directly control the timing, conduct and expense of our clinical
trials. We also use third parties to provide research and development services and do not have
direct control of the timing, conduct and expense of certain of our research programs.We rely on third parties such as contract research organizations, hospitals and research
investigators to provide services in connection with our clinical trials. Our clinical trials are
conducted by a number of third parties at a number of sites in a range of jurisdictions.We believe that the agreements that we enter into with these third parties are customary for
agreements relating to the provision of clinical trial services. The agreements set out the
parameters and protocols for the relevant clinical trials, set out the amount payable by us, as
well as setting out the rights and obligations of the third parties and us.To date, we have been able to manage the use of these third parties in order to effectively carry
out our clinical trials. If these third parties do not successfully carry out their contractual
duties or regulatory obligations or meet expected deadlines, if the third parties need to be
replaced or if the quality or accuracy of the data they obtain is compromised due to the failure
to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical
trials may be extended, delayed, suspended or terminated, and we may not be able to obtain
regulatory authorization for or successfully commercialize our products. Although there are a
range of suitable institutions and investigators that would be able to conduct the clinical trials
on our behalf, there is no guarantee that we will be able to enter into any such arrangement on
acceptable terms, if at all.
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2.4
    
    Risk Factors (continued)Risks Related to the Manufacture of Our ProductsThe failure to secure an adequate supply of the inhalers to be used in the administration
of Aridol and Bronchitol could compromise the commercialization of
Aridol and Bronchitol.Both Aridol and Bronchitol are administered through a dry powder inhaler. If we are not
able to enter into a supply agreement, or if there are delays in the supply of the
necessary quantity or quality of inhalers, we would be subject to costly delays which may
compromise the commercialization of Aridol and/or Bronchitol.Delays in the supply of the necessary quantity or quality of mannitol could compromise the
commercialization of our products.Any delays in the supply of the necessary quantity or quality of mannitol for the
manufacture of Aridol and Bronchitol could compromise the commercialization of our
products.We currently have limited manufacturing capacity and outsource some manufacturing for the
clinical development and commercial production of our products, all of which puts us at
risk of lengthy and costly delays of bringing our products to
market.We currently operate manufacturing facilities in Sydney, Australia. Our manufacturing
facilities are licensed by the Australian Therapeutic Goods Administration, or TGA, to
manufacture Good Manufacturing Practice grade material for commercial sale. We have
outsourced the manufacturing of Good Manufacturing Practice grade PXS25 and
PXS4159 for preclinical trials and clinical trials as our current manufacturing facilities
are not suitable for the production of PXS25 or PXS4159.We have entered into an agreement concerning the lease of a purpose built manufacturing,
warehousing and office facility. Construction of the new facility is underway and is
expected to complete in the first half of 2009. We will be subject to significant
undetermined risks associated with the building of these new facilities, including delays
in construction and disputes in connection with the construction, which may delay or
severely compromise the commercialization of our products and our results and operations
may be harmed. There is also a risk of delays to our research and clinical trial
activities if we needed to change our existing outsourced manufacturers of PXS25 and
PXS4159. Our new facility will need to be licensed by the TGA and, if we commence sales of
product into the U.S. by the FDA.We may fail to achieve and maintain required production yields or manufacturing standards
which could result in patient injury or death, product recalls or withdrawals, product
shortages, delays or failures in product testing or delivery or other problems that could
seriously harm our business. In addition, we are subject to ongoing inspections and
regulation of regulatory authorities, including by the TGA and the FDA.In circumstances where we seek to outsource the manufacture of certain products, there is
no guarantee that we will be able to enter into any such arrangement on acceptable terms,
if at all, and as a result we are at risk of lengthy and costly delays of bringing our
products to market.In circumstances where we seek to outsource the manufacture of certain product candidates,
such as PXS25 or PXS4159, there is no guarantee that we will be able to enter into any
such arrangement on acceptable terms, if at all. We may be required to enter into
long-term manufacturing agreements that contain exclusivity provisions and/or substantial
termination penalties. To date, the agreements for the manufacture of preclinical
quantities of PXS25 do not contain any such exclusivity provisions or termination
penalties. In addition, contract manufacturers may have a limited number of facilities in
which our products can be produced and any interruption of the operation of those
facilities could result in the cancellation of shipments and loss of product, resulting in
delays and additional costs.We, and our contract manufacturers, are required to produce our clinical product and
commercial product under FDA and E.U. current Good Manufacturing Practices in order to
meet acceptable standards. If such standards change, our ability and the ability of
contract manufacturers to produce our products when we require may be affected.
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We will outsource the manufacturing of Good Manufacturing Practice grade PXS25 and PXS4159 for
Phase I clinical trials as our manufacturing facilities are not currently suitable for the
production of PXS25 or PXS4159. Our existing manufacturers of PXS25 and PXS4159 and any future
contract manufacturers for PXS25 and PXS4159 or any of our other product candidates which we seek
to contract manufacture may not perform as agreed or may not remain in the contract manufacturing
business for the time required to successfully produce, store and distribute our products. We, or
our contract manufacturers, may also fail to achieve and maintain required production yields or
manufacturing standards which could result in patient injury or death, product recalls or
withdrawals, product shortages, delays or failures in product testing or
delivery or other problems that could seriously harm our business. In addition, we are, and our
contract manufacturers are, subject to ongoing inspections and regulation of regulatory
authorities, including by the TGA and the FDA.The ability to find an acceptable manufacturer or to change manufacturers may be difficult for a
number of reasons, including that the number of potential manufacturers is limited and we may not
be able to negotiate agreements with manufacturers on commercially reasonable terms, the complex
nature of the manufacturing process of certain of our product candidates, such as PXS25 and
PXS4159, which may require a significant learning curve for the manufacturer, and the FDA must
approve any replacement manufacturer prior to manufacturing, which requires new testing and
compliance inspections.If we were required and able to change manufacturers, the FDA would also require that we
demonstrate structural and functional comparability between the same product manufactured by
different organizations and may require comparability studies.Risks Related to Marketing, Distribution and SalesIf we are unable to expand our sales and marketing force
our business may be harmed.We currently have a limited number of sales and marketing staff and limited distribution
capabilities including a sales force located in Australia, distributors in Europe, a European and
United States office to oversee regional activities and a distributor in Korea. Our goal is to
build an integrated pharmaceutical business undertaking research and development, clinical trials,
sales and marketing for certain of our product candidates. We are proposing to develop our sales
and marketing capability for products which address highly concentrated markets served by
specialist physicians. We intend to contract or partner with third parties in respect of sales and
marketing of products where the markets are larger, more diverse or less accessible. For our early
stage products or any new products, we may form other strategic alliances with third parties,
which have established distribution systems and sales forces, in order to commercialize our
products. We market Aridol directly in Australia, the U.K. and Ireland, through distributors in
the remainder of Europe and, assuming receipt of all necessary regulatory authorizations of Aridol
for commercial sale, we intend to use a combination of direct marketing to pulmonary specialists
and third parties in the U.S.We will need to incur significant additional expenses and commit significant additional management
resources to expand our existing sales and marketing force. Although we have already begun to
develop our sales and marketing capability, we may not be able to successfully expand these
capabilities despite additional expenditures. Even if we are successful in expanding our existing
sales and marketing force, it may not be as effective as a third-party sales and marketing force.
In circumstances where we elect to rely on third parties, we may receive less revenue than if we
sold such products directly. In addition, we may have little or no control over the sales efforts
of those third parties and they may not perform as agreed. In the event we are unable to sell
sufficient quantities of Aridol, Bronchitol and other product candidates, either directly or
through third parties, our business may be significantly harmed and we may be forced to delay,
reduce the scope of, or eliminate one or more of our clinical trials or research and development
programs or future commercialization efforts.Our failure to implement and manage the distribution network for our products could result in the
delay of supply of our products.We have recently established systems and processes necessary for distributing products to customers
in Australia and to marketing/distribution partners in Europe. Failure to effectively implement and
manage our expanding distribution arrangements could negatively impact the distribution of our
products. Delays in supplying product arising from the failure to effectively manage our
distribution process may harm the results of our operations.
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2.4
    
    Risk Factors (continued)To the extent we are able to enter into collaborative arrangements or strategic alliances,
we will be exposed to risks related to those collaborations and
alliances.Although our goal is to be a fully integrated pharmaceutical company, an important element
of our strategy for developing, manufacturing and commercializing our product candidates
is entering into partnerships and strategic alliances with other pharmaceutical companies
or other industry participants to advance our programs and enable us to maintain our
financial and operational capacity. We may not be able to negotiate alliances on
acceptable terms, if at all. Although we do not believe any of the marketing or
distribution agreements we have are currently material, such arrangements may become
material in the future to the extent any of them represents a significant source of our
revenue. Although we are not currently party to any collaborative arrangement or strategic
alliance that is material to our business, in the future we may rely on collaborative
arrangements or strategic alliances to complete the development and commercialization of
some of our product candidates. These arrangements may result in us receiving less revenue
than if we sold such products directly, may place the development, sales and marketing of
our products outside our control, may require us to relinquish important rights or may
otherwise be on terms unfavorable to us.Collaborative arrangements or strategic alliances will subject us to a number of risks,
including the risk that:
 
    
    we may not be able to control the amount and timing of
resources that our strategic partner/collaborators may devote to the product candidates;
    
    our strategic partner/collaborators may experience financial difficulties;
    
    we may be
required to relinquish important rights such as marketing and distribution rights;
    
    business combinations or significant changes in a collaborators business strategy may
also adversely affect a collaborators willingness or ability to complete its obligations
under any arrangement;
    
    a collaborator could independently move forward with a competing
product developed either independently or in collaboration with others, including our
competitors; and
    
    collaborative arrangements are often terminated or allowed to expire,
which would delay the development and may increase the cost of developing our product
candidates.
 We face costs associated with importing our products into
markets outside of Australia.As much of our product is likely to be manufactured in Australia, we may face difficulties
in importing our products into other jurisdictions as a result of, among other things,
import licensing and approval requirements, import inspections, incomplete or inaccurate
import documentation or defective packaging. There will be increased costs associated with
importing/exporting our product.Risks Relating to CompetitionIf our competitors are able to develop and market products that are preferred over Aridol,
Bronchitol or our other product candidates our commercial opportunity may be significantly
reduced or eliminated.We face competition from established pharmaceutical and biotechnology companies, as well
as from academic institutions, government agencies and private and public research
institutions. We are seeking to develop and market products that will compete with other
products and drugs that currently exist or are being developed or may be developed in the
future. For Aridol, various products and treatments are currently marketed for monitoring
lung hyper-responsiveness and the identification and assessment of asthma, including
methacholine (Provocholine®) by Methapharm, Inc. as a direct bronchiol provocation agent.
We believe Aridol is the only airway hyper-responsive test developed using dry powder
inhalation technology. This test may not be
well accepted in the market place or the medical community. Similarly, for Bronchitol,
various products and treatments are currently marketed, including inhaled antibiotics,
mucolytic agents and bronchodilators. Bronchitol may not work well in conjunction with
existing marketed therapies. In addition, a number of companies are developing new
approaches for the treatment of cystic fibrosis, including new antibiotic preparations by
Gilead Sciences, Inc. and Novartis AG. and new agents to restore salt balance from Inspire
Pharmaceuticals, Inc. and Gilead Sciences, Inc. In addition, many companies are interested
in gene therapy. New antibiotic preparations are being tested in patients with
bronchiectasis. For patients with chronic bronchitis, new anti-inflammatory agents and new
bronchodilating agents are under development.
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Our commercial opportunity will be reduced or eliminated if our competitors develop and
commercialize products that are safer, more effective, have fewer side effects, are more
convenient, are less expensive, or that reach the market sooner than our products. Scientific,
clinical or technical developments by our competitors may render Aridol and/or Bronchitol or our
other product candidates obsolete or noncompetitive. Further, public announcements regarding the
development of any such competing products could adversely affect the market price of our ordinary
shares or ADSs. We anticipate that we will face increased competition in the future as new
companies enter the markets and as scientific developments progress. If our products obtain
regulatory authorizations, but do not compete effectively in the marketplace, our business will
suffer.Many of our competitors currently have significantly greater financial resources and expertise in
conducting clinical trials, obtaining regulatory authorizations, undertaking and managing
manufacturing and sales and marketing of products than we do. Early-stage companies may also
prove to be significant competitors, particularly through collaborative arrangements they may
have with large and established companies. In addition, these third parties compete with us in
recruiting and retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in acquiring therapies and
therapy licenses complementary to our programs.We expect that our ability to compete effectively will depend upon our ability to:
 
    
    successfully complete clinical trials and obtain all requisite regulatory authorizations in a
cost-effective and timely manner;
    
    attract and retain key personnel;
    
    demonstrate the competitive
advantages of our product candidates;
    
    build an adequate manufacturing, sales and marketing
infrastructure to ensure that our infrastructure is adequate for the commercialization of our
products;
    
    secure the support of key clinicians and physicians. The success of our products is
dependent on the acceptance of our products by key clinicians and physicians and we face the risk
that our products may not be well received or that a product will be released by a competitor which
is preferred by key clinicians and physicians; and
    
    identify and obtain other product candidates
on commercially reasonable terms which will provide us with a pipeline of potential product
candidates which may reduce the risk if any of our existing product candidates or are adversely
affected.
 Future sales of our products may suffer if they are not accepted in the marketplace by
physicians, patients and the medical community.There is a risk that Aridol, Bronchitol or our other product candidates may not gain market
acceptance among physicians, patients and the medical community. The degree of market acceptance
of Aridol and Bronchitol or our other product candidates will depend on a number of factors. For
example, Aridol must prove to be convenient and effective as a test for airway
hyper-responsiveness which assists with the identification and severity of asthma. Likewise,
Bronchitol must improve the quality of life for people with chronic obstructive lung diseases
such as bronchiectasis, cystic fibrosis and chronic bronchitis. The prevalence and severity of
any side effects to Aridol or Bronchitol could negatively affect market acceptance of both
Aridol and Bronchitol. Failure to achieve market acceptance of Aridol and Bronchitol would
significantly harm our business.The degree of market acceptance of any of our approved products will depend on a variety of
factors, including:
 
    
    timing of market introduction and the number and clinical profile of
competitive products. There are currently a range of existing alternative products to each of our
products and we are aware that new products are being developed;
    
    our ability to provide
acceptable evidence of safety and efficacy and our ability to secure the support of key clinicians
and physicians for our products;
    
    relative convenience and ease of administration. In the case of
Aridol and Bronchitol, there is a risk that using dry powder inhalation technology may not be well
accepted in the market place;
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2.4
    
    Risk Factors (continued)
 
    
    cost-effectiveness compared to existing and new treatments;
    
    availability of coverage, reimbursement and adequate payment from health maintenance
organizations and other third-parties;
    
    prevalence and severity of adverse side effects;
and
    
    other advantages over other treatment methods.
 If we are unable to obtain acceptable prices or adequate reimbursement from third-parties
for Aridol and Bronchitol, or any other product candidates that we may seek to
commercialize, our revenues and prospects for profitability will
suffer.The commercial success of our product candidates is substantially dependent on whether
third-party coverage and reimbursement is available from government bodies such as
Medicare and Medicaid, private health insurers, including managed care organizations, and
other third-parties.Many patients will not be capable of paying for our products themselves and will rely on
third-parties to pay for their medical needs. The U.S. Centers for Medicare and Medicaid
Services, health maintenance organizations and other third-parties in the U.S., the E.U.,
Australia and other jurisdictions are increasingly attempting to contain healthcare costs
by limiting both coverage and the level of reimbursement of new products and, as a result,
they may not cover or provide adequate payment for our products. Our products may not be
considered cost-effective and reimbursement may not be available to consumers or may not
be sufficient to allow our products to be marketed on a competitive basis.Large private managed care organizations, group purchasing organizations and similar
organizations are exerting increasing influence on decisions regarding the use of, and
reimbursement levels for, particular treatments. Such third-parties, including Medicare,
are challenging the prices charged for medical products and services, and many
third-parties limit or delay reimbursement for newly approved health care products. In
particular, third-parties may limit the reimbursed indications. Cost-control initiatives
could decrease the price we establish for products, which could result in product revenues
lower than anticipated. If the prices for our product candidates decrease or if
governmental and other third-parties do not provide adequate coverage and reimbursement
levels, our prospects for revenue and for profitability will suffer.If there are fewer individuals in our target markets than we estimate, we may not generate
sufficient revenues to continue development of our other product candidates or to continue
operations.It is difficult to determine the portion of the patient population that might use Aridol
and/or Bronchitol, or our other product candidates. Our estimate of the patient population
of our target markets is based on published studies as well as internal analyses and
studies we have commissioned. If the results of these studies or our analysis do not
accurately reflect the number of patients in our target markets, our assessment of the
market may be wrong, making it difficult or impossible for us to meet our revenue goals.Our orphan drug exclusivity for Bronchitol may not provide us with a competitive
advantage.The FDA has granted Orphan Drug designation to Bronchitol for the treatment of both
bronchiectasis and CF for patients at risk of developing bronchiectasis. Orphan drug
designation for Bronchitol for the treatment of both bronchiectasis and cystic fibrosis
for patients at risk of developing bronchiectasis is an important element of our
competitive strategy. Any company that obtains the first FDA approval for a designated
orphan drug for a rare disease generally receives marketing exclusivity for use of that
drug for the designated condition for a period of seven years from approval. However, the
FDA may permit other companies to market a form of mannitol, the active ingredient in
Bronchitol, not covered by our patent, to treat bronchiectasis and cystic fibrosis for
patients at risk of developing bronchiectasis if any such product demonstrates clinical
superiority, or if we are unable to provide sufficient drug supply to meet medical needs.
More than one product may also be approved by the FDA for the same orphan indication or
disease as long as the products are different drugs. Any of these FDA actions could create
a more competitive market for us. Additionally, our orphan drug exclusivity for Bronchitol
does not apply to other drugs to treat bronchiectasis or cystic fibrosis for patients at
risk of developing bronchiectasis that do not contain mannitol, or to drugs containing
mannitol that seek approval for uses other than bronchiectasis or cystic fibrosis for
patients at risk of developing bronchiectasis.
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The European Medicines Agency has likewise granted Orphan Drug designation for Bronchitol in the
treatment of cystic fibrosis. European orphan drug designation provides comparable benefits to
those granted in the U.S. but likewise, there are risks and limitations associated with orphan drug
designation in Europe. Our orphan drug exclusivity may thus not ultimately provide us a true
competitive advantage, and our business could suffer as a result.Risks Relating to Regulatory IssuesOur products are subject to extensive regulation, which can be costly and time-consuming, and
we may not obtain authorizations for the commercialization of some or
all of our products.The clinical development, manufacturing, sales and marketing of our products are subject to
extensive regulation by regulatory authorities in the U.S., the E.U., Australia and elsewhere.
These regulations vary in important, meaningful ways from country to country.We are not permitted to market a potential drug in the U.S. until we receive approval of a New Drug
Application, or NDA, from the FDA. We have not yet received an NDA approval from the FDA for any of
our products. Obtaining an NDA approval is expensive and is a complex, lengthy and uncertain
process. The FDA approval process for a new drug involves completion of preclinical studies and the
submission of the results of these studies to the FDA, together with
proposed clinical protocols, manufacturing information, analytical data and other information in an
investigational new drug application or IND, which must become effective before human clinical
trials may begin. Clinical development typically involves three phases of study: Phase I, II and
III. The most significant costs associated with clinical development are the Phase III clinical
trials as they tend to be the longest and largest studies conducted during the drug development
process. After completion of clinical trials, an NDA may be submitted to the FDA. In responding to
an NDA, the FDA may refuse to file the application, or if accepted for filing, the FDA may grant
marketing approval, request additional information or deny the application if it determines that
the application does not provide an adequate basis for approval. In addition, failure to comply
with FDA and other applicable foreign and U.S. regulatory requirements may subject us to
administrative or judicially imposed sanctions.The FDA has accepted an IND for Aridol and for Bronchitol. We have completed two Phase III clinical
trials of Aridol to support a U.S. registration of Aridol. Clinical trials of our other product
candidates, including Bronchitol and PXS25/64, will continue for several years, but may take
significantly longer to complete. We have completed a Phase II and a Phase III clinical trial of
Bronchitol for the treatment of bronchiectasis outside of the U.S. and are preparing for an
additional Phase III clinical trial of Bronchitol for bronchiectasis in the U.S. We have also
completed a Phase II clinical trial of Bronchitol for the treatment of cystic fibrosis, have an
additional Phase II dose ranging clinical trial and a Phase III clinical trial in progress outside
of the U.S., and are preparing for an additional Phase III clinical trial of Bronchitol for cystic
fibrosis in the U.S. Our other product candidates, including PXS25/64 are currently in varying
stages of the research or preclinical phase of development.Despite the substantial time and expense invested in preparation and submission of an NDA or
equivalents in other jurisdictions, regulatory approval is never guaranteed. The FDA and other
regulatory authorities in the U.S., the E.U., Australia and elsewhere, exercise substantial
discretion in the drug approval process. The number, size and design of preclinical studies and
clinical trials that will be required will vary depending on the product, the disease or condition
for which the product is intended to be used and the regulations and guidance documents applicable
to any particular product. The FDA or other regulators can delay, limit or deny approval of a
product for many reasons, including, but not limited to, the fact that regulators may not approve
our, or our third-party, manufacturing processes or facilities or that new laws may be enacted or
regulators may change their approval policies or adopt new regulations requiring new or different
evidence of safety and efficacy for the intended use of a product.Even if our product candidates receive regulatory authorization, we may still face development
and regulatory difficulties that may delay or impair future sales of our products and we would be
subject to ongoing regulatory obligations and restrictions, which may result in significant
expense and limit our ability to commercialize our product
candidates.Following regulatory authorization to sell our products, relevant regulatory authorities may,
nevertheless, impose significant restrictions on the indicated uses, manufacturing, labeling,
packaging, storage, advertising, promotion and record keeping or impose ongoing requirements for
post-approval studies and adverse event reporting. In addition,
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2.4
    
    Risk Factors (continued)regulatory agencies subject a marketed product, its manufacturer and the manufacturers
facilities to continual review and periodic inspections. Potentially costly follow-up or
post-marketing clinical studies may be required as a condition of approval to further
substantiate safety or efficacy, or to investigate specific issues of interest to the
regulatory authority. Previously unknown problems with the product candidate,
including adverse events of unanticipated severity or frequency, may result in
restrictions on the marketing of the product, and could include withdrawal of the product
from the market. If we discover previously unknown problems with a product or our
manufacturing facilities or the manufacturing facilities of a contract manufacturer, a
regulatory agency may impose restrictions on that product, on us or on our third-party
contract manufacturers, including requiring us to withdraw the product from the market.If we fail to comply with applicable regulatory requirements, a
regulatory agency may:
 
    
    issue warning letters;
    
    impose civil or
criminal penalties;
    
    suspend our regulatory authorization;
    
    suspend
any of our ongoing clinical trials;
    
    refuse to approve pending applications or supplements to approved applications filed by
us;
    
    impose restrictions on our operations, including closing our contract manufacturers
facilities or terminating licenses to manufacture Good Manufacturing Practice grade
material; or
    
    seize or detain products or require a product recall.
 Any of the foregoing could seriously harm the commercialization of our products and our
results and operations may be seriously harmed.In addition, the law or regulatory policies governing pharmaceuticals may change. New
statutory requirements may be enacted or additional regulations may be enacted that could
prevent or delay regulatory approval of our products. We cannot predict the likelihood,
nature or extent of adverse government regulation that may arise from future legislation
or administrative action. If we are not able to maintain regulatory compliance, we might
not be permitted to market our products and our business could suffer.Risks Relating to Product Liability ClaimsIf product liability lawsuits are successfully brought against us, we will incur
substantial liabilities and damage to our reputation and may be required to limit
commercialization of Aridol and Bronchitol or other product
candidates.We face product liability exposure related to the testing of our product candidates in
human clinical trials, with respect to commercial sale of Aridol and with respect to the
supply of product on a named patient or other compassionate basis. Our potential exposure
to product liability claims is likely to increase significantly as we increase commercial
sales of Aridol and future products.Regardless of merit or eventual outcome, liability claims may
result in:
 
    
    decreased demand for our products and product
candidates;
    
    injury to our reputation;
    
    withdrawal of
clinical trial participants;
    
    costs of related litigation;
    
    substantial monetary awards to patients and others;
    
    loss of
revenues; and
    
    the inability to commercialize our products
and product candidates.
 With respect to our clinical trials, we enter into indemnity agreements in favor of the
hospitals, institutions, authorities, clinicians and investigators who are involved in the
clinical trials on our behalf. The majority of the indemnities are in a substantially
similar form and where possible are based on industry standard indemnities in the
countries in which we undertake clinical trials. Certain of the agreements have been
negotiated on a case by case basis and vary from the standard. The standard indemnities
typically provide that we will indemnify in respect of all claims and proceedings
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made by any of the patients or non-patient volunteers participating in the relevant
clinical trials for personal injury arising from the administration of the product under
investigation or any clinical intervention or procedure required as a result of the administration
of the product. We maintain liability insurance that covers our clinical trials in countries where
we conduct clinical trials.Our liability insurance cover also covers the commercial sale of Aridol and will expand insurance
coverage in the future for any product candidates which are granted regulatory marketing
authorization. Having regard to the good safety profile of Aridol and Bronchitol, the varied use of
mannitol in humans, the number of clinical trials undertaken to date without a material claim being
made against us, we consider that our liability insurance is reasonable for our current activities.
However, insurance coverage is increasingly expensive. We may not be able to maintain insurance
coverage at a reasonable cost and we may not be able to obtain insurance coverage that we consider
reasonable or that will be adequate to satisfy any liability that may arise and the claim for
damages could be substantial. If we are not able to obtain adequate coverage at a reasonable cost,
the commercialization of our products may be delayed or severely compromised.If there is a claim made against us or some other problem that is attributable to our products or
product candidates, our ordinary share and ADS prices may be negatively affected. Even if we were
ultimately successful in product liability litigation, the litigation would consume substantial
amounts of our financial and managerial resources and may create adverse publicity, all of which
would impair our ability to generate sales of the product the subject of the litigation as well as
our other potential products.Risks Relating to Intellectual Property and License ArrangementsAridol and Bronchitol are based in part on intellectual property rights we license from others,
and any termination of those licenses could seriously harm our business as the loss of any rights
to market key products would seriously harm our operating results.We have an exclusive worldwide license from Sydney South West Area Health Service to develop and
commercialize certain intellectual property relating to the use of mannitol, the component part of
both Aridol and Bronchitol, to induce sputum and promote airway clearance and also in the use as a
test of airway function and susceptibility to asthma. This license agreement imposes payment and
other material obligations on us. If our agreement with Sydney South West Area Health Service were
terminated, then we would have no further rights to develop and commercialize Aridol and Bronchitol
which would seriously harm our business.Third parties may own or control patents or patent applications that we may be required to license
to commercialize our product candidates, that we may infringe, or that could result in litigation
that would be costly and time consuming.Our ability to commercialize Aridol and Bronchitol and our other product candidates depends upon
our ability to develop, manufacture, market and sell these products without infringing the
proprietary rights of third parties. A number of pharmaceutical and biotechnology companies,
universities and research institutions have or may be granted patents that cover technologies
similar to the technologies owned by or licensed to us. We may choose to seek, or be required to
seek, licenses under third-party patents, which would likely require the payment of license fees or
royalties or both. A license may not be available to us on commercially reasonable terms, or at
all. We may also be unaware of existing patents or other proprietary rights of third parties that
may be infringed by Aridol and Bronchitol or our other product candidates. As patent applications
can take many years to issue, there may be other currently pending applications which may later
result in issued patents that are infringed by Aridol and Bronchitol or our other product
candidates.There has been substantial litigation and other proceedings regarding patent and other
intellectual property rights in the pharmaceutical and biotechnology industries. Defending
ourselves against third-party claims, including litigation in particular, would be costly and time
consuming and would divert managements attention from our business, which could lead to delays in
our development or commercialization efforts. If third parties are successful in their
claims, we might have to pay substantial damages or take other actions that are adverse to our
business.As a result of intellectual property infringement claims, or to avoid potential claims, we might
be:
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2.4
    
    Risk Factors (continued)
 
    
    prohibited from selling or licensing any product candidate that we may develop unless
the patent holder licenses the patent to us, which it is not required to do;
    
    required to
expend considerable amounts of money in defending the claim;
    
    required to pay substantial
royalties or grant a cross license to our patents to another patent holder;
    
    required to
pay substantial monetary damages; or
    
    required to redesign the formulation of a product
so it does not infringe, which may not be possible or could require substantial funds and
time.
 We may also be forced to bring an infringement action if we believe that a third party is
infringing our protected intellectual property. Any such litigation will be costly, time
consuming and divert managements attention, and the outcome of any such litigation may
not be favorable to us.Our intellectual property rights may not preclude competitors from developing competing
products and our business may suffer.If we are not able to protect our proprietary technology, trade secrets and know-how, our
competitors may use our intellectual property to develop competing products. Our patents,
including our licensed patents relating to the use and manufacture of Aridol and
Bronchitol, may not be sufficient to prevent others from competing with us or using
similar technologies. Most of our patents covering Aridol and Bronchitol expire in 2015.
Therefore, we will not be able to depend on these patents past these relevant dates to
exclude competitors from developing generic versions of Aridol and Bronchitol. Our issued
patents and those that we may issue in the future, or those licensed to us, may be
challenged, invalidated or circumvented, which could limit our ability to stop competitors
from marketing related products or the term of patent protection that we may have for our
product candidates. The occurrence of any of the foregoing events could harm our
competitive position and seriously harm our business.Our trade secrets relating to our product candidates and the manufacture of our product
candidates may become known or independently discovered or competitors may develop
alternatives. We disclose confidential information and trade secrets from time to time
provided that the recipient executes a non-disclosure agreement or otherwise owes us
obligations of confidentiality. Confidentiality agreements may be breached and we may have
no effective remedy for such a breach. Enforcing a claim that a third party illegally
obtained and is using our trade secrets is expensive and time consuming, and the outcome
is unpredictable. Failure to obtain or maintain confidential information and trade secret
protection could adversely affect our competitive business position.If we fail to enforce adequately or defend our intellectual property rights our business
may be harmed.Our commercial success depends, to a large extent, on obtaining and maintaining patent and
trade secret protection for our products, the methods used to manufacture those products
and the methods for treating patients using those products. A key tool in protecting our
products and our technologies from unauthorized use by third parties is
the extent that valid and enforceable patents or trade secrets cover them. Our ability to
obtain patents is uncertain and there is a risk that we may not be able to secure and
maintain patents which we require to defend our intellectual property position. Patents
provide only limited protections and may not adequately protect our rights or permit us to
gain or keep any competitive advantage.Some countries in which we may sell our product candidates or license our intellectual
property may fail to protect our intellectual property rights to the same extent as the
protection that may be afforded in the U.S. or Australia. Some legal principles remain
unresolved and there has not been a consistent policy regarding the breadth or
interpretation of claims allowed in patents in the U.S., the E.U., Australia or elsewhere.
In addition, the specific content of patents and patent applications that are necessary to
support and interpret patent claims is highly uncertain due to the complex nature of the
relevant legal, scientific and factual issues. Changes in either patent laws or in
interpretations of patent laws in the U.S., the E.U. or elsewhere may diminish the value
of our intellectual property or narrow the scope of our patent protection.Even if patents are issued, those patents can be challenged by our competitors who can
argue such patents are invalid. Patents also will not protect our products if competitors
devise ways of making these product candidates
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without legally infringing our patents. The U.S. Federal Food, Drug and Cosmetic Act and
FDA regulations and policies and equivalents in other jurisdictions provide incentives to
manufacturers to challenge patent validity or create modified, non-infringing versions of a drug in
order to facilitate the approval of abbreviated new drug applications for generic substitutes.Proprietary trade secrets and unpatented know-how are also very important to our business. We rely
on trade secrets to protect our technology, especially where we do not believe that patent
protection is appropriate or obtainable. However, trade secrets are difficult to protect. Our
employees, consultants, contractors, outside scientific collaborators and other advisors may
unintentionally or willfully disclose our confidential information to competitors, and
confidentiality agreements may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. Enforcing a claim that a third party illegally obtained and
is using our trade secrets is expensive and time consuming, and the outcome is unpredictable.
Failure to obtain or maintain trade secret protection could adversely affect our competitive
business position. To date, we are not aware of any unintentional or willful disclosure of any of
our material confidential information or any unauthorized use of our confidential information and
we have not been required to seek remedy for any such unauthorized disclosure or use.Risks Relating to ResourcesIf we fail to attract and keep senior management and key scientific personnel, we may be unable to
successfully develop and commercialize our product candidates.Our success depends on our continued ability to attract, retain and motivate highly qualified
management, clinical and scientific personnel, manufacturing personnel, sales and marketing
personnel and on our ability to develop and maintain important relationships with clinicians,
scientists and leading academic and health institutions.The loss of services of one or more of our members of key management could delay or compromise the
successful completion of our clinical trials or the commercialization of Aridol and Bronchitol and
our other product candidates. We enter into employment agreements with each of our employees,
including each member of our key management. Each of our employees agree to a specific period of
notice that they or we must give in order to terminate their employment. Employees can terminate
their employment by giving between one to three months notice (as set out in the relevant
employees employment agreement).In the near term we will need to continue to attract and retain manufacturing personnel and sales
and marketing personnel and effectively integrate them into our organization to coincide with the
expected growth of commercial sales of Aridol in Australia, Europe and in other jurisdictions. If
we fail to attract or effectively integrate new personnel and consultants into our organization
and create effective working relationships among them and other members of management, the future
development and commercialization of Aridol and our other product candidates may suffer, harming
future regulatory authorizations, sales of our products and our results of operations.There is significant competition from other companies and research and academic institutions for
qualified personnel in the areas of our activities. If we fail to identify, attract, retain and
motivate these highly skilled personnel, we may be unable to continue our development and
commercialization activities.The addition of new employees and the loss of key employees, particularly in key positions, can
be disruptive and may also cause the future development and commercialization of our product
candidates to suffer, harming future regulatory authorizations, sales of our products and our
results of operations.We do not currently carry key person insurance on the lives of members of senior management. We
consider that at this stage of our development it is reasonable not to carry any key person
insurance.We will need to significantly increase the size of our organization, and we may experience
difficulties in managing growth.In order to continue our clinical trials and commercialize our product candidates, manufacture
commercial quantities of our products and market and sell products, we will need to increase our
operations, including expanding our employee base. Our future financial performance and our
ability to commercialize our products and to compete effectively will depend, in part, on our
ability to manage any future growth effectively.
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2.4
    
    Risk Factors (continued)To that end, we must be able to:
 
    
    manage our preclinical studies and clinical trials
effectively;
    
    undertake and manage the manufacturing of
product effectively;
    
    undertake and manage sales and
marketing effectively;
    
    integrate current and additional management, administrative, financial and sales and
marketing personnel;
    
    develop our administrative, accounting and management information
systems and controls; and
    
    hire and train additional qualified personnel.
 The acquisition or licensing of other products or product candidates may put a strain on
our operations and will likely require us to seek additional
financing.One of our strategies is to develop and license or acquire complementary products or
product candidates. We have no present agreement regarding any new material product
licensing or acquisitions. However, if we do undertake any such product licensing or
acquisitions, the process of undertaking the licensing or acquisitions and integrating a
licensed or acquired product or product candidate into our business may put a strain on
our operations, including diversion of personnel and financial resources and diversion of
managements attention. In addition, any acquisition would give rise to potentially
significant additional operating costs which would likely require us to seek
additional financing. Future acquisitions could result in additional issuances of equity
securities that would dilute the ownership of existing shareholders and holders of our
ADSs. Future acquisitions could also result in us incurring debt, contingent liabilities
or the amortization of expenses related to other intangible assets, any of which could
adversely affect our operating results.Risks Relating to TakeoversOur constitution may discourage attempts by shareholders to make a proportional takeover
for us and could restrict the ability for shareholders to obtain a premium from such a
transaction.Our constitution contain a proportional takeover provision which provides that if a person
makes a proportional takeover offer for less than all of the share capital in us,
shareholders are entitled to vote to determine whether the proportional takeover offer may
proceed. A person may wish to make a proportional takeover offer for a number of reasons,
including, if they wish to increase their control of us and/or influence the composition
of the Board of Directors. Arguably, the proportional takeover provisions in our
constitution make it more difficult to achieve a proportional takeover and therefore may
discourage proportional takeover offers and make it more difficult for a person to gain
proportional control of us and could restrict the ability for shareholders to obtain a
premium from such a transaction. The proportional takeover provisions in our constitution
terminate and must be renewed every three years. At our annual general meeting of
shareholders held on 26 October 2006, our shareholders approved the extension of the
proportional takeover provision for a further three years.Australian takeovers laws may discourage takeover offers being made for us or may
discourage the acquisition of large numbers of our shares.We are incorporated in Australia and are subject to the takeovers laws of Australia. Among
other things, we are subject to the Corporations Act 2001(Commonwealth of Australia), or
Corporations Act. Subject to a range of exceptions, the Corporations Act prohibits the
acquisition of a direct or indirect interest in our issued voting shares (including
through the acquisition of ADSs) if the acquisition of that interest will lead to a
persons or someone elses voting power in us increasing from 20% or below to more than
20%, or increasing from a starting point that is above 20% and below 90%. Exceptions to
the general prohibition include circumstances where the person makes a formal takeover bid
for us, if the person obtains shareholder approval for the acquisition or if the person
acquires less than an additional 3% of the voting power of us in any rolling six month
period. Australian takeovers laws may discourage takeover offers being made for us or may
discourage the acquisition of large numbers of our shares. This may have the ancillary
effect of entrenching our Board of Directors and may deprive or limit strategic
opportunities of our shareholders and ADS holders to sell their shares and may restrict
the ability of our shareholders and ADS holders to obtain a premium from such
transactions.
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Risks Related to our ADSs or Ordinary SharesThe price of our ordinary shares is highly volatile and
could decline significantly.The market price of our ordinary shares historically has been, and we expect will continue to be,
subject to significant fluctuations over short periods of time. These fluctuations may be due to
factors specific to us, to changes in analysts recommendations and earnings estimates, to
arbitrage between our Australian quoted shares and our ADSs, to changes in exchange rates, or
to factors affecting the biopharmaceutical industry or the securities markets in general. For
example, from the initial quotation of our ordinary shares on the Australian Securities Exchange on
10 November 2003 until 15 August 2008, the closing price per share of our ordinary shares ranged
from a low of A$0.34 on 27 November 2003 to a high of A$4.53 on 1 November 2007 and was A$1.86 on
15 August 2008. We may experience a material decline in the market price of our shares, regardless
of our operating performance. Therefore, a holder of our ordinary shares or ADSs may not be able to
sell those ordinary shares or ADSs at or above the price paid by such holder for such shares or
ADSs. Price declines in our ordinary shares or ADSs could result from a variety of factors,
including many outside our control.These factors include:
 
    
    adverse or inconclusive results or delays in our clinical trial programs;
    
    unforeseen safety issues or adverse side effects resulting from the clinical trials or the
commercial use of any of our products;
    
    regulatory actions in respect of any of our products or
the products of any of our competitors;
    
    failure or delay of any of our products obtaining
regulatory authorizations in our key markets or limitations on the indications or other conditions
on any regulatory authorizations given;
    
    failure to obtain satisfactory pricing and reimbursement
approvals for Aridol, Bronchitol or other product candidates in key jurisdictions;
    
    failure of any
of our products, such as Aridol, of any of our product candidates, such as Bronchitol (if
approved), to achieve commercial success;
    
    announcements of the introduction of new products by us
or our competitors;
    
    market conditions, including market conditions in the pharmaceutical and
biotechnology sectors;
    
    increases in our costs or decreases in our revenues due to unfavorable
movements in foreign currency exchange rates;
    
    developments or litigation concerning patents,
licenses and other intellectual property rights;
    
    litigation or public concern about the safety of
our potential products;
    
    changes in recommendations or earnings estimates by securities analysts;
    
    actual and anticipated fluctuations in our quarterly operating results;
    
    deviations in our
operating results from the estimates of securities analysts;
    
    rumors relating to us or our
competitors;
    
    additions or departures of key personnel;
    
    changes in third-party reimbursement
policies; and
    
    developments concerning current or future strategic alliances or acquisitions.
 Class action litigation has been brought in the past against companies which have experienced
volatility in the market price of their securities. We may become involved in this type of
litigation in the future. Litigation of this type is often extremely expensive and diverts
managements attention and Companys resources.In addition, since the initial listing of our ADSs on Nasdaq Global Market trading volume in our
ADSs has been limited and a significant portion of the ownership of our ADSs is concentrated with a
small number of holders. The limited trading volume may adversely affect the prices at which the
ADSs may be bought or sold. There can be no assurance that a more active trading market in our ADSs
will develop in the U.S.
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2.4
    
    Risk Factors (continued)Rights as a holder of ordinary shares are governed by Australian law and our Constitution.
Holders of our ordinary shares or ADSs may have difficulty in effecting service of process
in the U.S. or enforcing judgments obtained in the U.S.We are a public company incorporated under the laws of Australia. Therefore, the rights of
holders of our ordinary shares are governed by Australian law and our Constitution. These rights differ from the typical rights of shareholders in U.S. corporations. The
rights of holders of ADSs are affected by Australian law and our Constitution but are
governed by U.S. law. Circumstances that under U.S. law may entitle a shareholder in a
U.S. company to claim damages may also give rise to a cause of action under Australian law
entitling a shareholder in an Australian company to claim damages. However, this will not
always be the case.Holders of our ordinary shares or ADSs may have difficulties enforcing, in actions brought
in courts in jurisdictions located outside the U.S., liabilities under U.S. securities
laws. In particular, if such a holder sought to bring proceedings in Australia based on
U.S. securities laws, the Australian court might consider:
 
    
    that it did not have
jurisdiction; and/or
    
    that it was not an appropriate forum for such proceedings; and/or
    
    that, applying Australian conflict of laws rule, U.S. law (including U.S. securities laws)
did not apply to the relationship between holders of our ordinary shares or ADSs and us or
our Directors and officers; and/or
    
    that the U.S. securities laws were of a public or
penal nature and should not be enforced by the Australian court.
 All but one of our Directors and executive officers are residents of countries other than
the U.S. Furthermore, all or a substantial portion of their assets and our assets are
located outside the U.S. As a result, it may be very difficult or may not be possible for
a holder of our ordinary shares or ADSs to:
 
    
    effect service of process within the U.S.
upon any of our Directors and executive officers or on us;
    
    enforce in U.S. courts
judgments obtained against any of our Directors and executive officers or us in the U.S.
courts in any action, including actions under the civil liability provisions of U.S.
securities laws;
    
    enforce in U.S. courts judgments obtained against any of our Directors
and senior management or us in courts of jurisdictions outside the United States in any
action, including actions under the civil liability provisions of U.S. securities laws; or
    
    bring an original action in an Australian court to enforce liabilities against any of
our Directors and executive officers or us based upon U.S. securities laws.
 Holders of our ordinary shares and ADSs may also have difficulties enforcing in courts
outside the U.S. judgments obtained in the U.S. courts against any of our Directors and
executive officers or us, including actions under the civil liability provisions of the
U.S. securities laws.Shares or ADSs eligible for public sale could adversely affect the price of our ordinary
shares.The market price for our shares or ADSs could decline as a result of sales by our existing
shareholders or management of ordinary shares or the perceptions that these sales could
occur. These sales may also make it difficult for us to sell equity securities in the
future at a time and at a price when we deem appropriate.Currency fluctuations may adversely affect the price of our ADSs relative to the price of
our ordinary shares.The price of our ordinary shares is quoted in Australian dollars and the price of our ADSs
is quoted in U.S. dollars. Movements in the Australian dollar/U.S. dollar exchange rate
may adversely affect the U.S. dollar price of our ADSs and the U.S. dollar equivalent of
the price of our ordinary shares. The exchange rates between the Australian dollar and the
U.S. dollar have fluctuated. If the value of the Australian dollar appreciates against the
U.S. dollar, this may positively affect the U.S. dollar price of our ADSs and the U.S.
dollar equivalent of the price of our ordinary shares, even if the price of our ordinary
shares in Australian dollars decreases or remains unchanged. However, if the Australian
dollar weakens against the U.S. dollar, the U.S. dollar price of the ADSs could decline,
even if the price of our ordinary shares in Australian dollars increases or remains
unchanged. If dividends are payable, we will likely calculate and pay any cash dividends
in Australian dollars and, as a result, exchange rate movements will affect the U.S.
dollar amount of any dividends holders of our ADSs will receive from the depositary.
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We may become a passive foreign investment company, or a PFIC, for U.S. federal income tax
purposes, which could result in negative tax consequences to the holders of our ordinary
shares or ADSs.Based on an analysis of our assets and gross income, we believe that we may be a PFIC for our
current tax year, that we have been a PFIC for our tax years ended 30 June 2008, 30 June 2006, 30
June 2005 and 30 June 2004 but that we have not been a PFIC for our tax year ended June 30 2007. We
have not conducted a PFIC analysis for any tax year prior to our tax year ended June 30, 2004. The
determination of whether we are, or at any time in the past have been, a PFIC is made annually on a
taxable year basis and depends on factors such as the composition of our income and the value of
our assets. If we are classified as a PFIC in any taxable year that a U.S. Holder (as defined in
the section entitled Taxation) owns our ordinary shares or ADSs, we generally will continue to be
treated as a PFIC for that U.S. Holder in all succeeding years. Such U.S. Holder would be subject
to additional taxes on any excess distributions received from us and any gain realized from the
sale or other disposition of our ordinary shares or ADSs. We urge U.S. investors to consult their
own tax advisors about the application of the PFIC rules and certain elections that may help to
minimize adverse U.S. federal income tax consequences in their particular circumstances. For a
further discussion of the U.S. federal income tax consequences of investing in a PFIC, see the
discussion under the Section 4.2.7 of this Statutory Annual Report.We have never paid a dividend and we do not intend to pay dividends in the foreseeable future
which means that holders of shares and ADSs may not receive any return on their investment from
dividends.To date, we have not declared or paid any cash dividends on our ordinary shares and currently
intend to retain any future earnings for funding growth. We do not anticipate paying any dividends
in the foreseeable future. Dividends may only be paid out of our profits. Payment of cash
dividends, if any, in the future will be at the discretion of our Board of Directors or, if our
Directors do not exercise their power to issue dividends, our shareholders in a general meeting
may. Our holders of shares and ADSs may not receive any return on their investment from dividends.Our ADR holders are not shareholders and do not have
shareholder rights.The Bank of New York, as depositary, executes and delivers our American Depositary Receipts, or
ADRs, on our behalf. Each ADR is a certificate evidencing a specific number of American Depositary
Shares, also referred to as ADSs. Our ADR holders will not be treated as shareholders and do not
have the rights of shareholders. The depositary will be the holder of the shares underlying our
ADRs. Holders of our ADRs will have ADR holder rights. A deposit agreement among us, the depositary
and our ADR holders, and the beneficial owners of ADRs, sets out ADR holder rights as well as the
rights and obligations of the depositary. New York law governs the deposit agreement and the ADRs.Our ADR holders do not have the same voting rights as our shareholders. Shareholders are entitled
to our notices of general meetings and to attend and vote at our general meetings of shareholders.
At a general meeting, every shareholder present (in person or by proxy, attorney or representative)
and entitled to vote has one vote on a show of hands. Every shareholder present (in person or by
proxy, attorney or representative) and entitled to vote has one vote per fully paid ordinary share
on a poll. This is subject to any other rights or restrictions which may be attached to any shares.
Our ADR holders may instruct the depositary to vote the ordinary shares underlying their ADRs, but
only if we ask the depositary to ask for their instructions. If we do not ask the depositary to ask
for the instructions, our ADR holders are not entitled to receive our notices of general meeting or
instruct the depositary how to vote. Our ADR holders will not be entitled to attend and vote at a
general meeting unless they withdraw the ordinary shares. However, our ADR holders may not know
about the meeting enough in advance to withdraw the
shares. If we ask for our ADR holders instructions, the depositary will notify our ADR holders of
the upcoming vote and arrange to deliver our voting materials and form of notice to them. The
depositary will try, as far as practical, subject to Australian law and the provisions of the
depositary agreement, to vote the shares as our ADR holders instruct. The depositary will not vote
or attempt to exercise the right to vote other than in accordance with the instructions of the ADR
holders. We cannot assure our ADR holders that they will receive the voting materials in time to
ensure that they can instruct the depositary to vote their shares. In addition, there may be other
circumstances in which our ADR holders may not be able to exercise voting rights.
 Pharmaxis




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##### 



2.4
    
    Risk Factors (continued)Our ADR holders do not have the same rights to receive dividends or other distributions as
our shareholders. Dividends and other distributions payable to our shareholders with
respect to our ordinary shares generally will be payable directly to them. Any dividends
or distributions payable with respect to ordinary shares will be paid to the depositary,
which has agreed to pay to our ADR holders the cash dividends or other distributions it or
the custodian receives on shares or other deposited securities, after deducting its fees
and expenses. Our ADR holders will receive these distributions in proportion to the number
of shares their ADSs represent. In addition, there may be certain circumstances in which
the depositary may not pay to our ADR holders amounts distributed by us as a dividend or
distribution.There are circumstances where it may be unlawful or impractical to make distributions to
the holders of our ADRs.The deposit agreement with the depositary allows the depositary to distribute the foreign
currency only to those ADR holders to whom it is possible to do so. If a distribution is
payable by us in Australian dollars, the depositary will hold the foreign currency it
cannot convert for the account of the ADR holders who have not been paid. It will not
invest the foreign currency and it will not be liable for any interest. If the exchange
rates fluctuate during a time when the depositary cannot convert the foreign currency, our
ADR holders may lose some of the value of the distribution.The depositary is not responsible if it decides that it is unlawful or impractical to make
a distribution available to any ADR holders. This means that our ADR holders may not
receive the distributions we make on our shares or any value for them if it is illegal or
impractical for us or the depositary to make them available to them.We are exposed to risks relating to evaluations of controls required by the Sarbanes-Oxley
Act.Changing laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act) and related
regulations implemented by the SEC, have substantially increased legal and financial
compliance costs. We expect that our ongoing compliance with applicable laws and
regulations, including the Sarbanes-Oxley Act, will involve potentially increasing, costs.
In particular, we must annually evaluate our internal controls systems to allow management
to report on, and our independent auditors to attest to, our internal controls. We must
perform the system and process evaluation and testing (and any necessary remediation)
required to comply with the management certification and
auditor attestation requirements of Sarbanes-Oxley Act. If we are not able to comply with
the requirements of the Sarbanes-Oxley Act in a timely manner or adequately, we may be
subject to sanctions or investigation by regulatory authorities, including the SEC. Any
action of this type could adversely affect our financial results, investors confidence in
us and our ability to access capital markets, and could cause our share price and the
price of our ADSs to decline.
 Pharmaxis




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##### 



Section
 Pharmaxis Statutory Annual Report 95




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##### 



3.1
    
    Annual Financial Report
   
    Pharmaxis




---



##### 



Income Statements
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007Notes
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Revenue from continuing operationsRevenue from sale of goods
    
    
    2
    
    
    
    527
    
    
    
    205
    
    
    
    8
    
    
    
    531
    
    
    
    205Cost of sales
    
    
    
    
    
    
    (129
    )
    
    
    (49
    )
    
    
    (2
    )
    
    
    (130
    )
    
    
    (49
    )Gross profit
    
    
    
    
    
    
    398
    
    
    
    156
    
    
    
    6
    
    
    
    401
    
    
    
    156Other revenue
    
    
    2
    
    
    
    7,402
    
    
    
    5,278
    
    
    
    4,282
    
    
    
    7,398
    
    
    
    5,278Other income
    
    
    3
    
    
    
    1,576
    
    
    
    2,152
    
    
    
    1,299
    
    
    
    1,576
    
    
    
    2,152Other expenses from ordinary activities
    
    
    4Research & development expenses
    
    
    
    
    
    
    (19,996
    )
    
    
    (23,840
    )
    
    
    (16,978
    )
    
    
    (20,056
    )
    
    
    (23,865
    )Commercial expenses
    
    
    
    
    
    
    (4,557
    )
    
    
    (3,240
    )
    
    
    (1,946
    )
    
    
    (4,644
    )
    
    
    (3,303
    )Administration expenses
    
    
    
    
    
    
    (5,231
    )
    
    
    (4,666
    )
    
    
    (4,391
    )
    
    
    (5,231
    )
    
    
    (4,672
    )Loss before income tax
    
    
    
    
    
    
    (20,408
    )
    
    
    (24,160
    )
    
    
    (17,728
    )
    
    
    (20,556
    )
    
    
    (24,254
    )Income tax expense
    
    
    5
    
    
    
    (32
    )
    
    
    (19
    )
    
    
    (5
    )
    
    
    
    
    
    
    Loss for the year
    
    
    
    
    
    
    (20,440
    )
    
    
    (24,179
    )
    
    
    (17,733
    )
    
    
    (20,556
    )
    
    
    (24,254
    )Earnings per share:
    
    
    
    
    
    Cents
    
    
    Cents
    
    
    Cents
    
    
    Cents
    
    
    CentsBasic earnings / (loss) per share
    
    
    27
    
    
    
    (10.8
    )
    
    
    (13.6
    )
    
    
    (11.1
    )
    
    
    (10.9
    )
    
    
    (13.7
    )Diluted earnings / (loss) per share
    
    
    27
    
    
    
    (10.8
    )
    
    
    (13.6
    )
    
    
    (11.1
    )
    
    
    (10.9
    )
    
    
    (13.7
    )
 The above income statements should be read in conjunction with the accompanying notes.
 Pharmaxis




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##### 



Balance Sheets
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007Notes
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000ASSETSCurrent assetsCash and cash equivalents
    
    
    6
    
    
    
    111,842
    
    
    
    76,182
    
    
    
    111,650
    
    
    
    76,095Trade and other receivables
    
    
    7
    
    
    
    6,651
    
    
    
    1,026
    
    
    
    6,617
    
    
    
    1,020Inventories
    
    
    8
    
    
    
    96
    
    
    
    79
    
    
    
    94
    
    
    
    79Total current assets
    
    
    
    
    
    
    118,589
    
    
    
    77,287
    
    
    
    118,361
    
    
    
    77,194Non current assetsReceivables
    
    
    9
    
    
    
    1,526
    
    
    
    601
    
    
    
    1,521
    
    
    
    594Other financial assets
    
    
    10
    
    
    
    39
    
    
    
    
    
    
    
    39
    
    
    
    Plant and equipment
    
    
    11
    
    
    
    3,668
    
    
    
    3,521
    
    
    
    3,611
    
    
    
    3,504Intangible assets
    
    
    12
    
    
    
    1,227
    
    
    
    1,239
    
    
    
    1,227
    
    
    
    1,239Total non current assets
    
    
    
    
    
    
    6,460
    
    
    
    5,361
    
    
    
    6,398
    
    
    
    5,337Total assets
    
    
    
    
    
    
    125,049
    
    
    
    82,648
    
    
    
    124,759
    
    
    
    82,531LIABILITIESCurrent liabilitiesTrade and other payables
    
    
    13
    
    
    
    5,709
    
    
    
    5,944
    
    
    
    5,656
    
    
    
    5,945Other liabilities
    
    
    14
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Current tax liabilities
    
    
    
    
    
    
    31
    
    
    
    24
    
    
    
    
    
    
    
    Total current liabilities
    
    
    
    
    
    
    5,740
    
    
    
    5,974
    
    
    
    5,656
    
    
    
    5,951Non current liabilitiesProvisions
    
    
    15
    
    
    
    188
    
    
    
    115
    
    
    
    188
    
    
    
    115Total non current liabilities
    
    
    
    
    
    
    188
    
    
    
    115
    
    
    
    188
    
    
    
    115Total liabilities
    
    
    
    
    
    
    5,928
    
    
    
    6,089
    
    
    
    5,844
    
    
    
    6,066Net assets
    
    
    
    
    
    
    119,121
    
    
    
    76,559
    
    
    
    118,915
    
    
    
    76,465EQUITYContributed equity
    
    
    16
    
    
    
    194,680
    
    
    
    135,108
    
    
    
    194,680
    
    
    
    135,108Reserves
    
    
    17
    (a)
    
    
    7,439
    
    
    
    4,009
    
    
    
    7,443
    
    
    
    4,009Accumulated losses
    
    
    17
    (b)
    
    
    (82,998
    )
    
    
    (62,558
    )
    
    
    (83,208
    )
    
    
    (62,652
    )Total equity
    
    
    
    
    
    
    119,121
    
    
    
    76,559
    
    
    
    118,915
    
    
    
    76,465
 The above balance sheets should be read in conjunction with the accompanying notes.
 Pharmaxis




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##### 



Statements of Changes in Equity
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007Notes
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Total equity at the beginning of the
financial year
    
    
    
    
    
    
    76,559
    
    
    
    98,888
    
    
    
    35,467
    
    
    
    76,465
    
    
    
    98,868Exchange differences on translation of
foreign operations
    
    
    17
    (a)
    
    
    (4
    )
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    Net income recognised directly in equity
    
    
    
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    Loss for the year
    
    
    
    
    
    
    (20,440
    )
    
    
    (24,179
    )
    
    
    (17,733
    )
    
    
    (20,556
    )
    
    
    (24,254
    )Total recognised income and expense for
the year
    
    
    
    
    
    
    (20,444
    )
    
    
    (24,180
    )
    
    
    (17,732
    )
    
    
    (20,556
    )
    
    
    (24,254
    )Contributions of equity, net of
transaction costs
    
    
    16
    (a)
    
    
    59,572
    
    
    
    363
    
    
    
    80,029
    
    
    
    59,572
    
    
    
    363Employee share options
    
    
    17
    (a)
    
    
    3,434
    
    
    
    1,488
    
    
    
    1,124
    
    
    
    3,434
    
    
    
    1,488Total equity at the end of the
financial year
    
    
    
    
    
    
    119,121
    
    
    
    76,559
    
    
    
    98,888
    
    
    
    118,915
    
    
    
    76,465
 The above statements of changes in equity should be read in conjunction with the accompanying
notes.
 Pharmaxis




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##### 



Cash Flow Statements
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007Notes
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Cash flows from operating activitiesReceipts from customers (inclusive of
goods and services tax)
    
    
    
    
    
    
    601
    
    
    
    191
    
    
    
    1
    
    
    
    617
    
    
    
    191Payments to suppliers and employees
(inclusive of goods and services tax)
    
    
    
    
    
    
    (28,299
    )
    
    
    (28,458
    )
    
    
    (18,960
    )
    
    
    (28,511
    )
    
    
    (28,559
    )(27,698
    )
    
    
    (28,267
    )
    
    
    (18,959
    )
    
    
    (27,894
    )
    
    
    (28,368
    )Research grant receipts from government
    
    
    
    
    
    
    1,542
    
    
    
    2,292
    
    
    
    902
    
    
    
    1,542
    
    
    
    2,292Interest received
    
    
    
    
    
    
    7,348
    
    
    
    5,278
    
    
    
    4,282
    
    
    
    7,344
    
    
    
    5,278Income tax paid
    
    
    
    
    
    
    (42
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash outflow from operating activities
    
    
    26
    
    
    
    (18,850
    )
    
    
    (20,697
    )
    
    
    (13,775
    )
    
    
    (19,008
    )
    
    
    (20,798
    )Cash flows from investing activitiesPayments for plant and equipment
    
    
    
    
    
    
    (1,012
    )
    
    
    (1,182
    )
    
    
    (1,572
    )
    
    
    (962
    )
    
    
    (1,133
    )Instalment payments to acquire
plant and equipment
    
    
    
    
    
    
    (2,396
    )
    
    
    
    
    
    
    
    
    
    
    (2,396
    )
    
    
    Payment of security deposits to acquire
plant and equipment
    
    
    
    
    
    
    (1,498
    )
    
    
    
    
    
    
    
    
    
    
    (1,498
    )
    
    
    Proceeds from disposal of plant and equipment
    
    
    
    
    
    
    1
    
    
    
    52
    
    
    
    
    
    
    
    1
    
    
    
    33Payments for intangible assets
    
    
    
    
    
    
    (154
    )
    
    
    (192
    )
    
    
    (232
    )
    
    
    (154
    )
    
    
    (192
    )Net cash outflow from investing activities
    
    
    
    
    
    
    (5,059
    )
    
    
    (1,322
    )
    
    
    (1,804
    )
    
    
    (5,009
    )
    
    
    (1,292
    )Cash flows from financing activitiesProceeds from issues of shares
    
    
    
    
    
    
    62,093
    
    
    
    363
    
    
    
    87,080
    
    
    
    62,093
    
    
    
    363Share issue transaction costs
    
    
    
    
    
    
    (2,521
    )
    
    
    
    
    
    
    (7,051
    )
    
    
    (2,521
    )
    
    
    Net cash inflow from financing activities
    
    
    
    
    
    
    59,572
    
    
    
    363
    
    
    
    80,029
    
    
    
    59,572
    
    
    
    363Net increase / (decrease) in cash and
cash equivalents
    
    
    
    
    
    
    35,663
    
    
    
    (21,656
    )
    
    
    64,450
    
    
    
    35,555
    
    
    
    (21,727
    )Cash and cash equivalents at the beginning
of the financial year
    
    
    
    
    
    
    76,182
    
    
    
    97,840
    
    
    
    33,390
    
    
    
    76,095
    
    
    
    97,822Effects of exchange rate changes on cash
and cash equivalents
    
    
    
    
    
    
    (3
    )
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents at the end
of the financial year
    
    
    6
    
    
    
    111,842
    
    
    
    76,182
    
    
    
    97,840
    
    
    
    111,650
    
    
    
    76,095
 The above cash flow statements should be read in conjunction with the accompanying notes.
 Pharmaxis




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##### 



Notes to the Financial Statements
 1.
 Summary of significant accounting policies
  (a)
 Basis of preparation
 Corporations Act 2001.
 Compliance with IFRSs
  Historical cost convention
  Critical accounting estimates
  Comparatives
  (b)
 Principles of consolidation
      (c)
 Segment reporting
  Pharmaxis




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##### 



1.
 Summary of significant accounting policies (continued)
 (d)
 Foreign currency translation
 (i)
    
    Functional and presentation currencyItems included in the financial statements of each of the Groups entities are measured using
the currency of the primary economic environment in which the entity operates (the
functional currency). The consolidated financial statements are presented in Australian
dollars, which is Pharmaxis Ltds functional and presentation currency.(ii)
    
    Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange
rates prevailing at the dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the translation at year end
exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the income statement, except when deferred in equity as qualifying cash flow
hedges and qualifying net investment hedges.(iii)
    
    Group companiesThe results and financial position of all the Group entities that have a functional currency
different from the presentation currency are translated into the presentation currency as
follows:
 
    
    assets and liabilities for each balance sheet presented are translated at the closing rate
at the date of that balance sheet;
    
    income and expenses for each income statement are translated at average exchange rates
(unless this is not a reasonable approximation of the cumulative effect of the rates
prevailing on the transaction dates, in which case income and expenses are translated at the
dates of the transactions); and
    
    all resulting exchange differences are recognised as a separate component of equity.
   (e)
 Revenue recognition
  (i)
    
    Sale of goodsSales revenue is measured at the fair value of the consideration received or receivable.
Revenue from the sale of goods is recorded when goods have been dispatched and risk and
rewards passed to the customer.(ii)
    
    Interest incomeInterest income is recognised on a time proportion basis using the effective interest method,
see note 1(j).
 (f)
 Government grants
    Pharmaxis




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##### 



(g)
 Income tax
       (h)
 Leases
  (i)
 Impairment of assets
  (j)
 Cash and cash equivalents
   Pharmaxis




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##### 



1.
 Summary of significant accounting policies (continued)
 (k)
 Trade receivables
    (l)
 Inventories
  (m)
 Plant and equipment
    Plant and equipment
    
    5  10 yearsComputer equipment
    
    4 yearsLeasehold improvements
    
    1.5 years
    Pharmaxis




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##### 



(n)
 Intangible assets
 (i)
    
    PatentsPatents have a finite useful life and are carried at cost less accumulated amortisation and
impairment losses. Amortisation is calculated using the straight line method to allocate the
cost of the patents over their estimated useful lives, which vary from 12 to 20 years.(ii)
    
    TrademarksTrademarks have a finite useful life and are carried at cost less accumulated amortisation and
impairment losses. Amortisation is calculated using the straight line method to allocate the
cost of the trademarks over their estimated useful lives, which are assessed as 20 years.(iii)
    
    Research and developmentResearch expenditure is recognised as an expense as incurred. Costs incurred on development
projects (relating to the design and testing of new or improved products) are recognised as
intangible assets when it is probable that the project will be a success considering its
commercial and technical feasibility and its costs can be measured reliably. Other development
expenditures that do not meet these criteria are recognised as an expense as incurred.(iv)
    
    SoftwareSoftware licenses are carried at cost less accumulated amortisation and impairment losses.
Amortisation is calculated using the straight line method to allocate the cost of the software
over their estimated useful lives, which vary from 3 to 5 years.
 (o)
 Trade and other payables
  (p)
 Employee benefits
 (i)
    
    Wages and salaries and annual leaveLiabilities for wages and salaries, including non monetary benefits and annual leave expected
to be settled within 12 months of the reporting date are recognised in other payables in
respect of employees services up to the reporting date and are measured at the amounts
expected to be paid when the liabilities are settled.(ii)
    
    Long service leaveThe liability for long service leave is recognised in the provision for employee benefits and
measured as the present value of expected future payments to be made in respect of services
provided by employees up to the reporting date. Consideration is given to expected future wage
and salary levels, experience of employee departures and periods of service. Expected future
payments are discounted using market yields at the reporting date on national government bonds
with terms to maturity and currency that match, as closely as possible, the estimated future
cash outflows.(iii)
    
    Retirement benefit obligationsContributions to defined contribution funds are recognised as an expense as they become payable.(iv)
    
    Share based paymentsShare-based compensation benefits are provided to employees via the Pharmaxis Employee Option
Plan. Information relating to these schemes is set out in note 29. The fair value of options
granted under the option plan is recognised as an employee benefit expense with a corresponding
increase in equity. The fair value is measured at grant date and recognised over the period
during which the employees become unconditionally entitled to the options.The fair value at grant date is determined using a Black-Scholes option pricing model that takes
into account the exercise price, the term of the option, the share price at grant date and
expected price volatility of the underling share, the expected dividend yield and the risk-free
interest rate for the term of the option.
 Pharmaxis




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##### 



1.
 Summary of significant accounting policies (continued)
  (v)
    
    Bonus plansThe Group recognises a liability and an expense for bonuses where contractually obliged or
where there is a past practice that has created a constructive obligation.(vi)
    
    Termination benefitsTermination benefits are payable when employment is terminated before the normal retirement
date, or when an employee accepts voluntary redundancy in exchange for these benefits. The
Group recognises termination benefits when it is demonstrably committed to either terminating
the employment of current employees according to a detailed formal plan without possibility
of withdrawal or providing termination benefits as a result of an offer made to encourage
voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are
discounted to present value.
 (q)
 Contributed equity
   (r)
 Earnings per share
 (i)
    
    Basic earnings per shareBasic earnings per share is calculated by dividing net result after income tax attributable
to equity holders of the company, excluding any costs of servicing equity other than ordinary
shares, by the weighted average number of ordinary shares outstanding during the financial
year.(ii)
    
    Diluted earnings per shareDiluted earnings per share adjusts the figures used in the determination of basic earnings
per share to take into account the after income tax effect of interest and other financing
costs associated with dilutive potential ordinary shares and the weighted average number of
shares assumed to have been issued for no consideration in relation to dilutive potential
ordinary shares. At present, the potential ordinary shares are anti-dilutive, and have
therefore not been included in the dilutive earnings per share calculations.
 (s)
 Goods and Services Tax (GST)
    (t)
 Rounding of amounts
  Pharmaxis




---



##### 



(u)
 New accounting standards and interpretations
  (i)
    
    AASB 8 Operating Segments and AASB 2007-3 Amendments to Australian Accounting Standards arising
from AASB 8AASB 8 and AASB 2007-3 are effective for annual reporting periods commencing on or after 1
January 2009. AASB 8 will result in a significant change in the approach to segment reporting,
as it requires adoption of a management approach to reporting on the financial performance.
The information being reported will be based on what the key decision-makers use internally for
evaluating segment performance and deciding how to allocate resources to operating segments.The Group has not yet decided when to adopt AASB 8. Application of AASB 8 may result in
different segments, segment results and different types of information being reported in the
segment note of the financial report. However, it is not expected to affect any of the amounts
recognised in the financial statements.(ii)
    
    Revised AASB 101 Presentation of Financial Statements and AASB 2007-8 Amendments to Australian
Accounting Standards arising from AASB 101A revised AASB 101 was issued in September 2007 and is applicable for annual reporting periods
beginning on or after 1 January 2009. It requires the presentation of a statement of
comprehensive income and makes changes to the statement of changes in equity, but will not
affect any of the amounts recognised in the financial statements. If an entity has made a prior
period adjustment or has reclassified items in the financial statements, it will need to
disclose a third balance sheet (statement of financial position), this one being as at the
beginning of the comparative period. The Group intends to apply the revised standard from 1 July
2009.(iii)
    
    AASB 2008-1 Amendments to Australian Accounting Standard  Share-based Payments: Vesting
Conditions and CancellationsAASB 2008-1 was issued in February 2008 and will become applicable for annual reporting periods
beginning on or after 1 January 2009. The revised standard clarifies that vesting conditions are
service conditions and performance conditions only and that other features of a share-based
payment are not vesting conditions. It also specifies that all cancellations, whether by the
entity or by other parties, should receive the same accounting treatment. The Group will apply
the revised standard from 1 July 2009, but it is not expected to affect the accounting for the
Groups share-based payments.(iv)
    
    Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled
Entity or AssociateIn May 2008, the IASB made amendments to IFRS 1 First-time Adoption of International Financial
Reporting Standards and IAS 27 Consolidated and Separate Financial Statements. The new rules
will apply to financial reporting periods commencing on or after 1 January 2009. Amendments to
the corresponding Australian Accounting Standards are expected to be issued shortly. The Group
will apply the revised rules from 1 July 2008. After that date, all dividends received from
investments in subsidiaries, jointly controlled entities or associates will be recognised as
revenue, even if they are paid out of pre-acquisition profits, but the investments may need to
be tested for impairment as a result of the dividend payment. Furthermore, when a new
intermediate parent entity is created in internal reorganisations it will measure its investment
in subsidiaries at the carrying amounts of the net assets of the subsidiary rather than the
subsidiarys fair value.(v)
    
    Improvements to IFRSsIn May 2008, the IASB issued a number of improvements to existing International Financial
Reporting Standards. The amendments will generally apply to financial reporting periods
commencing on or after 1 January 2009, except for some changes to IFRS 5 Non-current Assets Held
for Sale and Discontinued Operations regarding the sale of the controlling interest in a
subsidiary which will apply from 1 July 2009. We expect the AASB to make the same changes to
Australian Accounting Standards shortly. The Group does not expect that any adjustments will be
necessary as the result of applying the revised rules.
 Pharmaxis




---



##### 



2.
 Revenue
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Sales revenueSale of goods
    
    
    527
    
    
    
    205
    
    
    
    8
    
    
    
    531
    
    
    
    205Other revenueInterest
    
    
    7,402
    
    
    
    5,278
    
    
    
    4,282
    
    
    
    7,398
    
    
    
    5,278
 3.
 Other income
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Government grants
    
    
    1,358
    
    
    
    2,152
    
    
    
    1,299
    
    
    
    1,358
    
    
    
    2,152Other
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    218
    
    
    
    1,576
    
    
    
    2,152
    
    
    
    1,299
    
    
    
    1,576
    
    
    
    2,152
  (i)
    
    R&D START program grants of $5,584 (2007: $47,862, 2006: $444,313).(ii)
    
    Australian Governments Pharmaceuticals Partnerships Program (P3) grants of $1,263,018
(2007: $1,954,592, 2006: $848,476).(iii)
    
    Export Market Development grants of $89,533 (2007: $150,000, 2006: $6,135 NSW DSRD).
  Pharmaxis




---



##### 



4.
 Expenses
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Loss before income tax includes
the following specific expenses:Depreciation (note 11)Plant and equipment
    
    
    610
    
    
    
    631
    
    
    
    592
    
    
    
    608
    
    
    
    629Computer equipment
    
    
    149
    
    
    
    109
    
    
    
    77
    
    
    
    141
    
    
    
    108Leasehold improvements
    
    
    99
    
    
    
    51
    
    
    
    26
    
    
    
    99
    
    
    
    51Total depreciation
    
    
    858
    
    
    
    791
    
    
    
    695
    
    
    
    848
    
    
    
    788Impairment of plant & equipment
    
    
    
    
    
    
    
    
    
    
    109
    
    
    
    
    
    
    
    Amortisation (note 12)Patents
    
    
    95
    
    
    
    92
    
    
    
    91
    
    
    
    95
    
    
    
    92Trademarks
    
    
    3
    
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    3Software
    
    
    68
    
    
    
    53
    
    
    
    6
    
    
    
    68
    
    
    
    53Total amortisation
    
    
    166
    
    
    
    148
    
    
    
    97
    
    
    
    166
    
    
    
    148Impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    Net loss on disposal of plant and equipment
    
    
    6
    
    
    
    24
    
    
    
    40
    
    
    
    6
    
    
    
    14Rental expense relating to operating leases
    
    
    638
    
    
    
    459
    
    
    
    371
    
    
    
    537
    
    
    
    426Net foreign exchange losses
    
    
    96
    
    
    
    47
    
    
    
    5
    
    
    
    98
    
    
    
    49Employee benefits expenseDefined contribution superannuation
    
    
    594
    
    
    
    454
    
    
    
    337
    
    
    
    534
    
    
    
    423Other employee benefits expenses
    
    
    12,592
    
    
    
    9,007
    
    
    
    5,498
    
    
    
    11,304
    
    
    
    8,400
 Pharmaxis




---



##### 



5.
 Income tax expense
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000(a)      Numerical reconciliation of income tax
expense to prima facie tax payableLoss before income tax expense
    
    
    (20,408
    )
    
    
    (24,160
    )
    
    
    (17,728
    )
    
    
    (20,556
    )
    
    
    (24,254
    )Tax at the Australian tax rate of 30%
(2007 30%)
    
    
    (6,122
    )
    
    
    (7,248
    )
    
    
    (5,320
    )
    
    
    (6,167
    )
    
    
    (7,276
    )Tax effect of amounts which are not deductible
(taxable) in calculating taxable income:Share-based payments
    
    
    1,030
    
    
    
    446
    
    
    
    337
    
    
    
    1,030
    
    
    
    446Government research tax incentives
    
    
    (988
    )
    
    
    (1,900
    )
    
    
    (1,556
    )
    
    
    (988
    )
    
    
    (1,900
    )Sundry items
    
    
    6
    
    
    
    8
    
    
    
    (9
    )
    
    
    6
    
    
    
    8(6,074
    )
    
    
    (8,694
    )
    
    
    (6,548
    )
    
    
    (6,119
    )
    
    
    (8,722
    )Over/(under) provision in prior years
    
    
    18
    
    
    
    (251
    )
    
    
    (370
    )
    
    
    18
    
    
    
    (251
    )Difference in overseas tax rates
    
    
    (15
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    (6,071
    )
    
    
    (8,954
    )
    
    
    (6,918
    )
    
    
    (6,101
    )
    
    
    (8,973
    )Deferred tax benefits not recognised
    
    
    6,103
    
    
    
    8,973
    
    
    
    6,923
    
    
    
    6,101
    
    
    
    8,973Income tax expense
    
    
    32
    
    
    
    19
    
    
    
    5
    
    
    
    
    
    
    
    This represents current income tax expense.(b)      Deferred tax balancesDeferred tax asset comprises temporary
differences attributable to the following:Interest and Grant receivables
    
    
    (363
    )
    
    
    (231
    )
    
    
    
    
    
    
    (363
    )
    
    
    (231
    )Employee benefits
    
    
    303
    
    
    
    156
    
    
    
    105
    
    
    
    260
    
    
    
    150Share capital raising costs
    
    
    1,580
    
    
    
    1,637
    
    
    
    2,313
    
    
    
    1,580
    
    
    
    1,637Other
    
    
    17
    
    
    
    2
    
    
    
    16
    
    
    
    17
    
    
    
    21,537
    
    
    
    1,564
    
    
    
    2,434
    
    
    
    1,494
    
    
    
    1,558Deferred tax assets attributable to temporary
differences which are not recognised
    
    
    (1,537
    )
    
    
    (1,564
    )
    
    
    (2,434
    )
    
    
    (1,494
    )
    
    
    (1,558
    )
    
    
    
    
    
    
    
    
    
    
    
    (c)      Tax lossesUnused tax losses for which no deferred
tax asset has been recognised
    
    
    102,290
    
    
    
    79,219
    
    
    
    47,880
    
    
    
    102,290
    
    
    
    79,219Potential tax benefit @ 30%
    
    
    30,687
    
    
    
    23,766
    
    
    
    14,364
    
    
    
    30,687
    
    
    
    23,766
  Pharmaxis




---



##### 



6.
 Current assets  Cash and cash equivalents
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Cash at bank and in hand
    
    
    569
    
    
    
    693
    
    
    
    377
    
    
    
    606Deposits at call
    
    
    1,533
    
    
    
    1,994
    
    
    
    1,533
    
    
    
    1,994Bank accepted commercial bills
    
    
    109,740
    
    
    
    73,495
    
    
    
    109,740
    
    
    
    73,495111,842
    
    
    
    76,182
    
    
    
    111,650
    
    
    
    76,095
 (a)
 Interest rate risk exposure
  7.
 Current assets  Trade and other receivables
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Trade receivables
    
    
    222
    
    
    
    34
    
    
    
    210
    
    
    
    34Provision for impairment of receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222
    
    
    
    34
    
    
    
    210
    
    
    
    34Government research grants receivable
    
    
    350
    
    
    
    407
    
    
    
    350
    
    
    
    407Prepayments (note (b))
    
    
    4,241
    
    
    
    386
    
    
    
    4,241
    
    
    
    386Other receivables (note (c))
    
    
    1,544
    
    
    
    
    
    
    
    1,544
    
    
    
    Interest receivable
    
    
    54
    
    
    
    
    
    
    
    54
    
    
    
    Tax related receivables
    
    
    240
    
    
    
    199
    
    
    
    218
    
    
    
    1936,651
    
    
    
    1,026
    
    
    
    6,617
    
    
    
    1,020
 (a)
 Past due but not impaired
  Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Up to 1 month
    
    
    24
    
    
    
    10
    
    
    
    24
    
    
    
    101 to 2 months
    
    
    97
    
    
    
    
    
    
    
    97
    
    
    
    Over 2 months
    
    
    23
    
    
    
    8
    
    
    
    22
    
    
    
    8144
    
    
    
    18
    
    
    
    143
    
    
    
    18
  Pharmaxis




---



##### 



7.
 Current assets  Trade and other receivables (continued)
 (b)
 Prepayments
  (c)
 Other receivables
  (d)
 Foreign exchange and interest rate risk
  (e)
 Fair value and credit risk
  8.
 Current assets  Inventories
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Raw materials at cost
    
    
    48
    
    
    
    61
    
    
    
    48
    
    
    
    61Work-in-progress at cost
    
    
    10
    
    
    
    15
    
    
    
    10
    
    
    
    15Finished goods at cost
    
    
    38
    
    
    
    3
    
    
    
    36
    
    
    
    396
    
    
    
    79
    
    
    
    94
    
    
    
    79
 9.
 Non-current assets  Receivables
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Other receivables (note (a))
    
    
    1,377
    
    
    
    385
    
    
    
    1,372
    
    
    
    378Prepayments
    
    
    149
    
    
    
    216
    
    
    
    149
    
    
    
    2161,526
    
    
    
    601
    
    
    
    1,521
    
    
    
    594
 (a)
 Other receivables
  (b)
 Fair value
  (c)
 Risk exposure
  Pharmaxis




---



##### 



10.
 Non-current assets  Other financial assets
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Shares in subsidiaries (note 23)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    39
    
    
    
    
    
    
    
    39
    
    
    
    39
    
    
    
    
    
    
    
    39
    
    
    
    
  11.
 Non-current assets  Plant and equipment
 Plant and
    
    
    Computer
    
    
    Leaseholdequipment
    
    
    equipment
    
    
    improvements
    
    
    TotalConsolidated
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000At 1 July 2006Cost
    
    
    4,532
    
    
    
    435
    
    
    
    162
    
    
    
    5,129Accumulated depreciation and impairment
    
    
    (1,683
    )
    
    
    (106
    )
    
    
    (135
    )
    
    
    (1,924
    )Net book amount
    
    
    2,849
    
    
    
    329
    
    
    
    27
    
    
    
    3,205Year ended 30 June 2007Opening net book amount
    
    
    2,849
    
    
    
    329
    
    
    
    27
    
    
    
    3,205Additions
    
    
    808
    
    
    
    182
    
    
    
    192
    
    
    
    1,182Disposals
    
    
    (74
    )
    
    
    (1
    )
    
    
    
    
    
    
    (75
    )Depreciation charge
    
    
    (631
    )
    
    
    (109
    )
    
    
    (51
    )
    
    
    (791
    )Closing net book amount
    
    
    2,952
    
    
    
    401
    
    
    
    168
    
    
    
    3,521At 30 June 2007Cost
    
    
    5,223
    
    
    
    614
    
    
    
    354
    
    
    
    6,191Accumulated depreciation and impairment
    
    
    (2,271
    )
    
    
    (213
    )
    
    
    (186
    )
    
    
    (2,670
    )Net book amount
    
    
    2,952
    
    
    
    401
    
    
    
    168
    
    
    
    3,521Year ended 30 June 2008Opening net book amount
    
    
    2,952
    
    
    
    401
    
    
    
    168
    
    
    
    3,521Additions
    
    
    172
    
    
    
    170
    
    
    
    670
    
    
    
    1,012Disposals
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Depreciation charge
    
    
    (610
    )
    
    
    (149
    )
    
    
    (99
    )
    
    
    (858
    )Closing net book amount
    
    
    2,514
    
    
    
    415
    
    
    
    739
    
    
    
    3,668At 30 June 2008Cost
    
    
    5,395
    
    
    
    768
    
    
    
    1,024
    
    
    
    7,187Accumulated depreciation and impairment
    
    
    (2,881
    )
    
    
    (353
    )
    
    
    (285
    )
    
    
    (3,519
    )Net book amount
    
    
    2,514
    
    
    
    415
    
    
    
    739
    
    
    
    3,668
 Pharmaxis




---



##### 



11.
 Non-current assets  Plant and equipment (continued)
 (a)
 Assets in the course of construction
  Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Leasehold improvements
    
    
    632
    
    
    
    
    
    
    
    632
    
    
    
    
 12.
 Non-current assets  Intangible assets
 Patents
    
    
    Trademarks
    
    
    Software
    
    
    TotalConsolidated and parent
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000At 1 July 2006Cost
    
    
    1,574
    
    
    
    59
    
    
    
    144
    
    
    
    1,777Accumulated amortisation and impairment
    
    
    (576
    )
    
    
    
    
    
    
    (6
    )
    
    
    (582
    )Net book amount
    
    
    998
    
    
    
    59
    
    
    
    138
    
    
    
    1,195Year ended 30 June 2007Opening net book amount
    
    
    998
    
    
    
    59
    
    
    
    138
    
    
    
    1,195Additions
    
    
    34
    
    
    
    6
    
    
    
    152
    
    
    
    192Amortisation charge
    
    
    (92
    )
    
    
    (3
    )
    
    
    (53
    )
    
    
    (148
    )Closing net book amount
    
    
    940
    
    
    
    62
    
    
    
    237
    
    
    
    1,239At 30 June 2007Cost
    
    
    1,608
    
    
    
    65
    
    
    
    296
    
    
    
    1,969Accumulated amortisation and impairment
    
    
    (668
    )
    
    
    (3
    )
    
    
    (59
    )
    
    
    (730
    )Net book amount
    
    
    940
    
    
    
    62
    
    
    
    237
    
    
    
    1,239Year ended 30 June 2008Opening net book amount
    
    
    940
    
    
    
    62
    
    
    
    237
    
    
    
    1,239Additions
    
    
    16
    
    
    
    35
    
    
    
    103
    
    
    
    154Amortisation charge
    
    
    (95
    )
    
    
    (3
    )
    
    
    (68
    )
    
    
    (166
    )Closing net book amount
    
    
    861
    
    
    
    94
    
    
    
    272
    
    
    
    1,227At 30 June 2008Cost
    
    
    1,624
    
    
    
    100
    
    
    
    399
    
    
    
    2,123Accumulated amortisation and impairment
    
    
    (763
    )
    
    
    (6
    )
    
    
    (127
    )
    
    
    (896
    )Net book amount
    
    
    861
    
    
    
    94
    
    
    
    272
    
    
    
    1,227
 Pharmaxis




---



##### 



13.
 Current liabilities  Trade and other payables
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Trade payables
    
    
    516
    
    
    
    2,654
    
    
    
    488
    
    
    
    2,625Other payables (note (a))
    
    
    5,193
    
    
    
    3,290
    
    
    
    4,918
    
    
    
    3,113Trade payables to subsidiaries
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    2075,709
    
    
    
    5,944
    
    
    
    5,656
    
    
    
    5,945
 (a)
 Other payables
  (b)
 Risk exposure
  14.
 Current liabilities  Other liabilities
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007Deferred government research grants
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6
 15.
 Non-current liabilities  Provisions
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Employee benefits long service leave
    
    
    188
    
    
    
    115
    
    
    
    188
    
    
    
    115
 16.
 Contributed equity
 Parent Entity
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007Notes
    
    Shares
    
    
    Shares
    
    
    $000
    
    
    $000(a)       Share capitalOrdinary shares
    
    
    (b),
    (c)Fully paid
    
    
    
    
    
    
    194,514,762
    
    
    
    177,949,217
    
    
    
    194,680
    
    
    
    135,108
 Pharmaxis




---



##### 



16.
 Contributed equity (continued)
 Movements in ordinary share capital:
 NumberDate
    
    
    Details
    
    of shares
    
    
    Issue price
    
    
    $0001 July 2006
    
    Opening balance
    
    
    176,903,592
    
    
    
    
    
    
    
    134,74519 July 2006
    
    Exercise of employee options
    
    
    56,000
    
    
    $
    0.3125
    
    
    
    1819 July 2006
    
    Exercise of employee options
    
    
    1,500
    
    
    $
    1.7900
    
    
    
    34 September 2006
    
    Exercise of employee options
    
    
    10,000
    
    
    $
    0.3125
    
    
    
    319 October 2006
    
    Exercise of employee options
    
    
    60,000
    
    
    $
    0.1250
    
    
    
    719 October 2006
    
    Exercise of employee options
    
    
    160,000
    
    
    $
    0.3125
    
    
    
    5019 October 2006
    
    Exercise of employee options
    
    
    25,000
    
    
    $
    1.7900
    
    
    
    456 November 2006
    
    Exercise of employee options
    
    
    10,000
    
    
    $
    0.3125
    
    
    
    327 November 2006
    
    Exercise of employee options
    
    
    2,500
    
    
    $
    1.1470
    
    
    
    327 November 2006
    
    Exercise of employee options
    
    
    10,000
    
    
    $
    0.3125
    
    
    
    327 November 2006
    
    Exercise of employee options
    
    
    1,500
    
    
    $
    1.7900
    
    
    
    37 December 2006
    
    Exercise of employee options
    
    
    1,875
    
    
    $
    1.7900
    
    
    
    37 December 2006
    
    Exercise of employee options
    
    
    110,000
    
    
    $
    0.3125
    
    
    
    347 December 2006
    
    Exercise of employee options
    
    
    2,500
    
    
    $
    0.8340
    
    
    
    27 December 2006
    
    Exercise of employee options
    
    
    1,250
    
    
    $
    1.7900
    
    
    
    216 January 2007
    
    Exercise of employee options
    
    
    3,000
    
    
    $
    1.7900
    
    
    
    523 January 2007
    
    Exercise of employee options
    
    
    1,500
    
    
    $
    1.7900
    
    
    
    326 February 2007
    
    Exercise of employee options
    
    
    5,000
    
    
    $
    0.8340
    
    
    
    418 April 2007
    
    Exercise of employee options
    
    
    12,000
    
    
    $
    0.3125
    
    
    
    423 April 2007
    
    Exercise of employee options
    
    
    300,000
    
    
    $
    0.3125
    
    
    
    945 June 2007
    
    Exercise of employee options
    
    
    12,000
    
    
    $
    0.3125
    
    
    
    419 June 2007
    
    Exercise of employee options
    
    
    150,000
    
    
    $
    0.3125
    
    
    
    4721 June 2007
    
    Exercise of employee options
    
    
    60,000
    
    
    $
    0.1250
    
    
    
    729 June 2007
    
    Exercise of employee options
    
    
    50,000
    
    
    $
    0.3125
    
    
    
    161 July 2007
    
    Opening balance
    
    
    177,949,217
    
    
    
    
    
    
    
    135,10819 July 2007
    
    Exercise of employee options
    
    
    72,000
    
    
    $
    0.3125
    
    
    
    2219 July 2007
    
    Exercise of employee options
    
    
    5,000
    
    
    $
    1.7900
    
    
    
    919 July 2007
    
    Exercise of employee options
    
    
    2,500
    
    
    $
    1.9170
    
    
    
    528 September 2007
    
    Exercise of employee options
    
    
    3,750
    
    
    $
    1.7900
    
    
    
    716 October 2007
    
    Share Placement
    
    
    12,820,513
    
    
    $
    3.9000
    
    
    
    50,0001 November 2007
    
    Exercise of employee options
    
    
    10,000
    
    
    $
    2.1940
    
    
    
    221 November 2007
    
    Exercise of employee options
    
    
    2,500
    
    
    $
    1.9170
    
    
    
    59 November 2007
    
    Exercise of employee options
    
    
    400,000
    
    
    $
    0.3125
    
    
    
    1259 November 2007
    
    Exercise of employee options
    
    
    160,000
    
    
    $
    0.3125
    
    
    
    5016 November 2007
    
    Share Purchase Plan
    
    
    2,999,074
    
    
    $
    3.9000
    
    
    
    11,69520 November 2007
    
    Exercise of employee options
    
    
    1,876
    
    
    $
    1.7900
    
    
    
    320 November 2007
    
    Exercise of employee options
    
    
    875
    
    
    $
    1.9170
    
    
    
    220 November 2007
    
    Exercise of employee options
    
    
    2,250
    
    
    $
    2.0340
    
    
    
    420 December 2007
    
    Exercise of employee options
    
    
    10,000
    
    
    $
    1.7900
    
    
    
    1820 December 2007
    
    Exercise of employee options
    
    
    48,957
    
    
    $
    1.9170
    
    
    
    94
 Pharmaxis




---



##### 



Movements in ordinary share capital:
 NumberDate
    
    
    Details
    
    of shares
    
    
    Issue price
    
    
    $0008 February 2008
    
    Exercise of employee options
    
    
    15,000
    
    
    $
    1.1470
    
    
    
    178 February 2008
    
    Exercise of employee options
    
    
    3,750
    
    
    $
    1.7900
    
    
    
    78 February 2008
    
    Exercise of employee options
    
    
    1,250
    
    
    $
    1.9170
    
    
    
    229 February 2008
    
    Exercise of employee options
    
    
    1,250
    
    
    $
    1.8918
    
    
    
    24 March 2008
    
    Exercise of employee options
    
    
    5,000
    
    
    $
    0.8340
    
    
    
    4Less: Transaction costs on share issues
    
    
    
    
    
    
    
    
    
    
    (2,521
    )194,514,762
    
    
    
    
    
    
    
    194,680
 (b)
 Ordinary shares
   (c)
 Options
  (d)
 Capital risk management
   17.
 Reserves and accumulated losses
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000(a)       ReservesShare based payments reserve
    
    
    7,443
    
    
    
    4,009
    
    
    
    7,443
    
    
    
    4,009Foreign currency translation reserve
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    7,439
    
    
    
    4,009
    
    
    
    7,443
    
    
    
    4,009Share based payments reserveBalance 1 July
    
    
    4,009
    
    
    
    2,521
    
    
    
    4,009
    
    
    
    2,521Option expense
    
    
    3,434
    
    
    
    1,488
    
    
    
    3,434
    
    
    
    1,488Balance 30 June
    
    
    7,443
    
    
    
    4,009
    
    
    
    7,443
    
    
    
    4,009Foreign currency translation reserveBalance 1 July
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Currency translation differences arising during the year
    
    
    (4
    )
    
    
    (1
    )
    
    
    
    
    
    
    Balance 30 June
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
 Pharmaxis




---



##### 



17.
 Reserves and accumulated losses (continued)
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000(b)      Accumulated lossesMovements in accumulated losses were as follows:Balance 1 July
    
    
    (62,558
    )
    
    
    (38,379
    )
    
    
    (62,652
    )
    
    
    (38,398
    )Net loss for the year
    
    
    (20,440
    )
    
    
    (24,179
    )
    
    
    (20,556
    )
    
    
    (24,254
    )Balance 30 June
    
    
    (82,998
    )
    
    
    (62,558
    )
    
    
    (83,208
    )
    
    
    (62,652
    )
 (c)
 Nature and purpose of reserves
 (i)
    
    Share based payments reserveThe share based payments reserve is used to recognise the fair value of options granted.(ii)
    
    Foreign currency translation reserveExchange differences arising on translation of the foreign controlled entities are taken to the
foreign currency translation reserve, as described in note 1(d).
 18.
 Key management personnel disclosures
 (a)
 Key management personnel compensation
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$
    
    
    $
    
    
    $
    
    
    $Short term employee benefits
    
    
    2,235,880
    
    
    
    1,998,784
    
    
    
    2,235,880
    
    
    
    1,998,784Post-employment benefits
    
    
    156,613
    
    
    
    143,680
    
    
    
    156,613
    
    
    
    143,680Long-term benefits
    
    
    70,445
    
    
    
    30,311
    
    
    
    70,445
    
    
    
    30,311Share based payments
    
    
    1,997,655
    
    
    
    1,032,982
    
    
    
    1,997,655
    
    
    
    1,032,9824,460,593
    
    
    
    3,205,757
    
    
    
    4,460,593
    
    
    
    3,205,757
 Corporations Regulations
 (b)
 Equity instrument disclosures relating to key management personnel
 (i)
    
    Options provided as remuneration and shares issued on exercise of such optionsDetails of options provided as remuneration and shares issued on the exercise of such
options, together with terms and conditions of the options, can be found in the remuneration
report section of the Directors Report.(ii)
    
    Option holdingsThe number of options over ordinary shares in the company held during the financial year by
each director of Pharmaxis Ltd and other key management personnel of the Group, including
their personally related parties, are set out below.
 Pharmaxis




---



##### 



2008
    
    
    
    
    
    Granted
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Vested andBalance at
    
    
    during the
    
    
    Exercised
    
    
    changes
    
    
    Balance at
    
    
    exercisablethe start of
    
    
    year as
    
    
    during the
    
    
    during
    
    
    the end of
    
    
    at the endName
    
    the year
    
    
    compensation
    
    
    year
    
    
    the year
    
    
    the year
    
    
    of the yearDirectors of Pharmaxis LtdDM Hanley
    
    
    1,120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,120,000
    
    
    
    1,110,000AD Robertson
    
    
    2,380,000
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    2,680,000
    
    
    
    2,342,500CPH Kiefel (i)
    
    
    68,957
    
    
    
    
    
    
    
    (58,957
    )
    
    
    (10,000
    )
    
    
    
    
    
    
    MJ McComas
    
    
    240,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    240,000
    
    
    
    235,000PC Farrell
    
    
    220,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220,000
    
    
    
    120,000J Villiger
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    100,000Other key management personnel of the GroupJF Crapper
    
    
    560,000
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    810,000
    
    
    
    547,500IA McDonald
    
    
    320,000
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    570,000
    
    
    
    290,000B Charlton
    
    
    1,060,000
    
    
    
    250,000
    
    
    
    (400,000
    )
    
    
    
    
    
    
    910,000
    
    
    
    643,750DM McGarvey
    
    
    1,160,000
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    1,410,000
    
    
    
    1,147,500GJ Phillips
    
    
    705,000
    
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    955,000
    
    
    
    691,250
 
 (i)
    
    CPH Kiefel resigned as a Director on 19th December 2007. 2007
    
    
    
    
    
    Granted
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Vested andBalance at
    
    
    during the
    
    
    Exercised
    
    
    changes
    
    
    Balance at
    
    
    exercisablethe start of
    
    
    year as
    
    
    during the
    
    
    during
    
    
    the end of
    
    
    at the endName
    
    the year
    
    
    compensation
    
    
    year
    
    
    the year
    
    
    the year
    
    
    of the yearDirectors of Pharmaxis LtdDM Hanley
    
    
    1,080,000
    
    
    
    40,000
    
    
    
    
    
    
    
    
    
    
    
    1,120,000
    
    
    
    1,100,000AD Robertson
    
    
    2,230,000
    
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    2,380,000
    
    
    
    2,192,500CPH Kiefel
    
    
    220,000
    
    
    
    48,957
    
    
    
    (200,000
    )
    
    
    
    
    
    
    68,957
    
    
    
    58,957MJ McComas
    
    
    220,000
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    240,000
    
    
    
    230,000PC Farrell
    
    
    
    
    
    
    220,000
    
    
    
    
    
    
    
    
    
    
    
    220,000
    
    
    
    70,000J Villiger
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other key management personnel of the GroupJF Crapper
    
    
    760,000
    
    
    
    100,000
    
    
    
    (300,000
    )
    
    
    
    
    
    
    560,000
    
    
    
    435,000IA McDonald
    
    
    220,000
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    320,000
    
    
    
    160,000B Charlton
    
    
    1,065,000
    
    
    
    105,000
    
    
    
    (110,000
    )
    
    
    
    
    
    
    1,060,000
    
    
    
    928,750DM McGarvey
    
    
    1,060,000
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    1,160,000
    
    
    
    1,035,000GJ Phillips
    
    
    605,000
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    705,000
    
    
    
    577,500
 (iii)
    
    Share holdingsThe numbers of shares in the company held during the financial year by each director of
Pharmaxis Ltd and other key management personnel of the Group, including their close family
members, are set out below. (Close members of the family of an individual are those family
members who may be expected to influence, or be influenced by, that individual in their dealings
with the entity).
 Pharmaxis




---



##### 



18.

    Key management personnel disclosures (continued)
 2008
    
    
    
    
    
    Received duringBalance at the
    
    
    the year on the
    
    
    Other changes
    
    
    Balance at theName
    
    start of the year
    
    
    exercise of options
    
    
    during the year
    
    
    end of the yearDirectors
of Pharmaxis LtdOrdinary sharesDM Hanley
    
    
    784,661
    
    
    
    
    
    
    
    5,126
    
    
    
    789,787AD Robertson
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000CPH Kiefel
    
    
    200,000
    
    
    
    58,957
    
    
    
    (258,957
    )
    
    
    MJ McComas
    
    
    139,999
    
    
    
    
    
    
    
    
    
    
    
    139,999P Farrell
    
    
    101,645
    
    
    
    
    
    
    
    
    
    
    
    101,645J Villiger
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other key management personnel of the GroupOrdinary sharesJF Crapper
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    2,000IA McDonald
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    B Charlton
    
    
    20,000
    
    
    
    400,000
    
    
    
    
    
    
    
    420,000DM McGarvey
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    45,000GJ Phillips
    
    
    6,664
    
    
    
    
    
    
    
    
    
    
    
    6,664
 2007
    
    
    
    
    
    Received duringBalance at the
    
    
    the year on the
    
    
    Other changes
    
    
    Balance at theName
    
    start of the year
    
    
    exercise of options
    
    
    during the year
    
    
    end of the yearDirectors
of Pharmaxis LtdOrdinary sharesDM Hanley
    
    
    774,661
    
    
    
    
    
    
    
    10,000
    
    
    
    784,661AD Robertson
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,000CPH Kiefel
    
    
    200,000
    
    
    
    200,000
    
    
    
    (200,000
    )
    
    
    200,000MJ McComas
    
    
    139,999
    
    
    
    
    
    
    
    
    
    
    
    139,999P Farrell
    
    
    101,645
    
    
    
    
    
    
    
    
    
    
    
    101,645J Villiger
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other key management personnel of the GroupOrdinary sharesJF Crapper
    
    
    2,000
    
    
    
    300,000
    
    
    
    (300,000
    )
    
    
    2,000IA McDonald
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    B Charlton
    
    
    660,000
    
    
    
    110,000
    
    
    
    (750,000
    )
    
    
    20,000DM McGarvey
    
    
    45,000
    
    
    
    
    
    
    
    
    
    
    
    45,000GJ Phillips
    
    
    6,664
    
    
    
    
    
    
    
    
    
    
    
    6,664
 (c)
    
    Other transactions with key management personnelThere were no other transactions with key management personnel during the year ended 30 June
2008.
 Pharmaxis




---



##### 



19.

    Remuneration of auditors
  Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$
    
    
    $
    
    
    $
    
    
    $(a)      Audit servicesPricewaterhouseCoopers Australian firm
Audit and review of financial reports
    
    
    313,420
    
    
    
    262,765
    
    
    
    313,420
    
    
    
    262,765Non-PricewaterhouseCoopers audit firm for the audit
of the financial report of Pharmaxis Pharmaceuticals Limited
    
    
    16,841
    
    
    
    20,104
    
    
    
    
    
    
    
    Total remuneration for audit services
    
    
    330,261
    
    
    
    282,869
    
    
    
    313,420
    
    
    
    262,765(b)      Audit-related servicesPricewaterhouseCoopers Australian firm
Review of the December 2006 US GAAP interim
financial
statements including December 2005 comparatives for
the filing of the shelf F-3 document
    
    
    
    
    
    
    22,175
    
    
    
    
    
    
    
    22,175Sarbanes Oxley readiness and related reviews
    
    
    
    
    
    
    61,592
    
    
    
    
    
    
    
    61,592Related practices of PricewaterhouseCoopers Australian firm
Review of Shelf F-3 document
    
    
    
    
    
    
    61,542
    
    
    
    
    
    
    
    61,542Total remuneration for audit-related services
    
    
    
    
    
    
    145,309
    
    
    
    
    
    
    
    145,309(c)      Other servicesReview of government research grant claims
    
    
    5,800
    
    
    
    6,500
    
    
    
    5,800
    
    
    
    6,500IT Infrastructure review
    
    
    15,372
    
    
    
    
    
    
    
    15,372
    
    
    
    Total remuneration for other services
    
    
    21,172
    
    
    
    6,500
    
    
    
    21,172
    
    
    
    6,500(d)      Tax servicesPricewaterhouseCoopers Australian firm
International tax consulting and tax advice
    
    
    11,780
    
    
    
    9,986
    
    
    
    11,780
    
    
    
    9,986Tax compliance services
    
    
    12,000
    
    
    
    12,000
    
    
    
    12,000
    
    
    
    12,000Total remuneration for tax services
    
    
    23,780
    
    
    
    21,986
    
    
    
    23,780
    
    
    
    21,986
 Pharmaxis




---



##### 



20.
 Contingent liabilities
  Government grants
  (a)
    
    the company fails to use its best endeavours to commercialise the relevant grant project within
a reasonable time of completion of the project; or(b)
    
    upon termination of a grant due to breach of agreement or insolvency.
   (a)
    
    the Government determines that expenditure claimed on research projects do not meet the P3
guidelines; or(b)
    
    upon termination of the grant due to breach of agreement, change in control of the company or
insolvency.
 Guarantees
    21.
 Commitments
 (a)
 Capital Commitments
  Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Building Fit-outPayable: Within one year
    
    
    7,188
    
    
    
    
    
    
    
    7,188
    
    
    
    Plant and equipmentPayable: Within one year
    
    
    2,126
    
    
    
    85
    
    
    
    2,126
    
    
    
    85(b)      Lease CommitmentsCommitments in relation to leases contracted
for at the reporting date but not recognised as
liabilities, payable:Within one year
    
    
    464
    
    
    
    401
    
    
    
    444
    
    
    
    401Later than one year but not later than five years
    
    
    728
    
    
    
    1,071
    
    
    
    728
    
    
    
    1,0711,192
    
    
    
    1,472
    
    
    
    1,172
    
    
    
    1,472
 Pharmaxis




---



##### 



(i)
    
    Operating leasesThe Group leases various offices under non-cancellable operating leases expiring within one to
five years. The leases have varying terms, escalation clauses and renewal rights. On renewal,
the terms of the leases are renegotiated.(ii)
    
    Other commitmentsThe company has in place a number of contracts with consultants and contract research
organisations in relation to its research and development activities. The terms of these
contracts are for relatively short periods of time and allow for the contracts to be terminated
with relatively short notice periods. The actual committed expenditure arising under these
contracts is therefore not material.(iii)
    
    New FacilityThe company has entered into an agreement concerning the lease of a custom designed
manufacturing, warehousing, research and office facility of approximately 75,000 square feet.
The facility is being constructed to our specifications. Once the building is completed to
specification according to the terms of the agreement, the lease commences. It will have a term
of 15 years, with two options to renew of a further five years each and the option to break the
lease at ten years but with financial penalties attached. The initial minimum annual rental
under the agreement is $1.46 million, increasing each year for the term of the agreement by
3.25%. This minimum rental may increase as the result of variations to the building
specifications required by us during its construction, or decrease as a result of the incentive
owing to us under the agreement. The incentive may be used for building variations, building
fitout or rent reduction.
 22.
 Related party transactions
 (a)
 Parent entities
  (b)
 Subsidiaries
  (c)
 Key management personnel
  (d)
 Transactions with related parties
  Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$
    
    
    $
    
    
    $
    
    
    $Marketing, clinical and administration services
expenditure paid to subsidiaries
    
    
    
    
    
    
    
    
    
    
    2,592,796
    
    
    
    1,157,829(e)      Outstanding balances arising from transactionsThe following balances are outstanding at the reporting
date in relation to transactions with related parties:Current payablesSubsidiaries
    
    
    
    
    
    
    
    
    
    
    250,006
    
    
    
    206,622
 (f)
 Terms and conditions
   Pharmaxis




---



##### 



23.
 Subsidiaries
  Equity holding2008
    
    2007Name of entity
    
    Country of incorporation
    
    Class of shares
    
    %
    
    %Pharmaxis Pharmaceuticals Limited
    
    United Kingdom
    
    Ordinary
    
    
    100
    
    
    
    100Pharmaxis, Inc.
    
    United States
    
    Ordinary
    
    
    100
    
    
    
  24.
 Events occurring after the balance sheet date
  (a)
    
    the companys operations in future financial years; or(b)
    
    the results
of those operations in future financial years; or(c)
    
    the companys state of affairs in future
financial years.
 25.
 Financial reporting by segments
   26.
 Reconciliation of loss after income tax to net cash outflows from operating activities
 Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Loss for the year
    
    
    (20,440
    )
    
    
    (24,179
    )
    
    
    (17,733
    )
    
    
    (20,556
    )
    
    
    (24,254
    )Depreciation and impairment of plant & equipment
    
    
    858
    
    
    
    791
    
    
    
    804
    
    
    
    848
    
    
    
    788Amortisation and impairment of intangibles
    
    
    166
    
    
    
    148
    
    
    
    143
    
    
    
    166
    
    
    
    148Non cash employee benefits expense share
based payments
    
    
    3,434
    
    
    
    1,488
    
    
    
    1,124
    
    
    
    3,434
    
    
    
    1,488Net loss on disposal of non current assets
    
    
    6
    
    
    
    24
    
    
    
    40
    
    
    
    6
    
    
    
    14Change in operating assets and liabilitiesIncrease in trade receivables
    
    
    (188
    )
    
    
    (27
    )
    
    
    (7
    )
    
    
    (176
    )
    
    
    (27
    )(Increase) / decrease in inventories
    
    
    (17
    )
    
    
    21
    
    
    
    (100
    )
    
    
    (15
    )
    
    
    21(Increase) / decrease in other operating assets
    
    
    (2,508
    )
    
    
    327
    
    
    
    (956
    )
    
    
    (2,493
    )
    
    
    334(Decrease) / increase in trade payables
    
    
    (2,138
    )
    
    
    1,841
    
    
    
    56
    
    
    
    (2,137
    )
    
    
    1,812Increase / (decrease) in other operating liabilities
    
    
    1,904
    
    
    
    (1,183
    )
    
    
    2,817
    
    
    
    1,842
    
    
    
    (1,174
    )Increase in other provisions
    
    
    73
    
    
    
    52
    
    
    
    37
    
    
    
    73
    
    
    
    52Net cash outflow from operating activities
    
    
    (18,850
    )
    
    
    (20,697
    )
    
    
    (13,775
    )
    
    
    (19,008
    )
    
    
    (20,798
    )
 Pharmaxis




---



##### 



27.
 Earnings per share
 Consolidated2008
    
    
    2007Cents
    
    
    Cents(a)      Basic earnings per shareLoss attributable to the ordinary equity holders of the company
    
    
    (10.8
    )
    
    
    (13.6
    )(b)      Diluted earnings per shareLoss attributable to the ordinary equity holders of the company
    
    
    (10.8
    )
    
    
    (13.6
    )(c)      Weighted average number of shares used as the denominatorWeighted average number of ordinary shares used as the denominator
in calculating basic and diluted earnings / (loss) per share
    
    
    189,335,187
    
    
    
    177,285,390
 (d)
 Information concerning the classification of option securities
  28.
 Financial risk management
     Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Financial assetsCash and cash equivalents
    
    
    111,842
    
    
    
    76,182
    
    
    
    111,650
    
    
    
    76,095Trade and other receivables
    
    
    6,651
    
    
    
    1,026
    
    
    
    6,617
    
    
    
    1,020Receivables
    
    
    1,526
    
    
    
    601
    
    
    
    1,521
    
    
    
    594Other financial assets
    
    
    39
    
    
    
    
    
    
    
    39
    
    
    
    120,058
    
    
    
    77,809
    
    
    
    119,827
    
    
    
    77,709Financial liabilitiesTrade and other payables
    
    
    5,709
    
    
    
    5,944
    
    
    
    5,656
    
    
    
    5,945Other liabilities
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    65,709
    
    
    
    5,950
    
    
    
    5,656
    
    
    
    5,951
 Pharmaxis




---



##### 



28.
 Financial risk management (continued)
 (a)
 Market risk
 (i)
 Foreign exchange risk
    30 June 2008
    
    
    30 June 2007USD
    
    
    GBP
    
    
    EUR
    
    
    USD
    
    
    GBP
    
    
    EUR$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Cash and cash equivalents
    
    
    9
    
    
    
    9
    
    
    
    83
    
    
    
    71
    
    
    
    157
    
    
    
    16Trade receivables
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    13
    
    
    
    
    
    
    
    Prepayments
    
    
    
    
    
    
    
    
    
    
    1,498
    
    
    
    
    
    
    
    
    
    
    
    Other receivables
    
    
    104
    
    
    
    83
    
    
    
    1,498
    
    
    
    
    
    
    
    95
    
    
    
    Trade payables
    
    
    98
    
    
    
    30
    
    
    
    25
    
    
    
    599
    
    
    
    632
    
    
    
    154Other payables
    
    
    288
    
    
    
    736
    
    
    
    1,591
    
    
    
    501
    
    
    
    254
    
    
    
    134
  30 June 2008
    
    
    30 June 2007USD
    
    
    GBP
    
    
    EUR
    
    
    USD
    
    
    GBP
    
    
    EUR$000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000
    
    
    $000Cash and cash equivalents
    
    
    9
    
    
    
    9
    
    
    
    83
    
    
    
    71
    
    
    
    157
    
    
    
    16Trade receivables
    
    
    
    
    
    
    
    
    
    
    103
    
    
    
    13
    
    
    
    
    
    
    
    Prepayments
    
    
    
    
    
    
    
    
    
    
    1,498
    
    
    
    
    
    
    
    
    
    
    
    Other receivables
    
    
    104
    
    
    
    83
    
    
    
    1,498
    
    
    
    
    
    
    
    95
    
    
    
    Trade payables
    
    
    98
    
    
    
    30
    
    
    
    25
    
    
    
    599
    
    
    
    632
    
    
    
    154Other payables
    
    
    288
    
    
    
    736
    
    
    
    1,591
    
    
    
    501
    
    
    
    254
    
    
    
    134Trade payables to subsidiaries
    
    
    10
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    207
    
    
    
    
 Group sensitivity
  (ii)
 Cash flow and fair value interest rate risk
  Pharmaxis




---



##### 



30 June 2008
    
    
    30 June 2007Weighted average
    
    
    Balance
    
    
    Weighted average
    
    
    Balanceinterest rate %
    
    
    $000
    
    
    interest rate %
    
    
    $000Cash and cash equivalents
    
    
    6.0
    %
    
    
    2,102
    
    
    
    5.1
    %
    
    
    2,687Bank accepted commercial bills
    
    
    7.7
    %
    
    
    109,740
    
    
    
    6.3
    %
    
    
    73,495Other receivables
    
    
    5.3
    %
    
    
    2,921
    
    
    
    5.0
    %
    
    
    385
 Group sensitivity
  (b)
 Credit risk
     Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Cash and cash equivalentsA1+
    
    
    111,842
    
    
    
    76,182
    
    
    
    111,650
    
    
    
    76,095Other receivablesAA+
    
    
    290
    
    
    
    279
    
    
    
    290
    
    
    
    279AA
    
    
    2,623
    
    
    
    95
    
    
    
    2,623
    
    
    
    95Not rated
    
    
    8
    
    
    
    11
    
    
    
    3
    
    
    
    42,921
    
    
    
    385
    
    
    
    2,916
    
    
    
    378
  Pharmaxis




---



##### 



28.
 Financial risk management (continued)
 (c)
 Liquidity risk
  Maturities
of financial liabilities
  (d)
 Fair value estimation
   29.
 Share-based payments
 (a)
 Employee Option Plan
    Pharmaxis




---



##### 



Year ended 2008
    
    
    Year ended 2007Fair value of
    
    
    
    
    
    
    
    
    
    
    Fair value ofshares at
    
    
    
    
    
    
    
    
    
    
    shares atExercise date
    
    issue date
    
    
    Number
    
    
    Exercise date
    
    issue date
    
    
    Number19 July 2007
    
    $
    3.55
    
    
    
    72,000
    
    
    19 July 2006
    
    $
    1.75
    
    
    
    56,00019 July 2007
    
    $
    3.55
    
    
    
    5,000
    
    
    19 July 2006
    
    $
    1.75
    
    
    
    1,50019 July 2007
    
    $
    3.55
    
    
    
    2,500
    
    
    4 September 2006
    
    $
    2.04
    
    
    
    10,00028 September 2007
    
    $
    4.05
    
    
    
    3,750
    
    
    19 October 2006
    
    $
    2.70
    
    
    
    60,0001 November 2007
    
    $
    4.44
    
    
    
    10,000
    
    
    19 October 2006
    
    $
    2.70
    
    
    
    160,0001 November 2007
    
    $
    4.44
    
    
    
    2,500
    
    
    19 October 2006
    
    $
    2.70
    
    
    
    25,0009 November 2007
    
    $
    4.39
    
    
    
    400,000
    
    
    6 November 2006
    
    $
    2.91
    
    
    
    10,0009 November 2007
    
    $
    4.39
    
    
    
    160,000
    
    
    27 November 2006
    
    $
    3.32
    
    
    
    2,50020 November 2007
    
    $
    4.28
    
    
    
    1,876
    
    
    27 November 2006
    
    $
    3.32
    
    
    
    10,00020 November 2007
    
    $
    4.28
    
    
    
    875
    
    
    27 November 2006
    
    $
    3.32
    
    
    
    1,50020 November 2007
    
    $
    4.28
    
    
    
    2,250
    
    
    7 December 2006
    
    $
    3.08
    
    
    
    1,87520 December 2007
    
    $
    4.12
    
    
    
    10,000
    
    
    7 December 2006
    
    $
    3.08
    
    
    
    110,00020 December 2007
    
    $
    4.12
    
    
    
    48,957
    
    
    7 December 2006
    
    $
    3.08
    
    
    
    2,5008 February 2008
    
    $
    3.20
    
    
    
    15,000
    
    
    7 December 2006
    
    $
    3.08
    
    
    
    1,2508 February 2008
    
    $
    3.20
    
    
    
    3,750
    
    
    16 January 2007
    
    $
    2.99
    
    
    
    3,0008 February 2008
    
    $
    3.20
    
    
    
    1,250
    
    
    23 January 2007
    
    $
    3.00
    
    
    
    1,50029 February 2008
    
    $
    2.60
    
    
    
    1,250
    
    
    26 February 2007
    
    $
    3.32
    
    
    
    5,0004 March 2008
    
    $
    2.47
    
    
    
    5,000
    
    
    18 April 2007
    
    $
    3.60
    
    
    
    12,00023 April 2007
    
    $
    3.46
    
    
    
    300,0005 June 2007
    
    $
    3.45
    
    
    
    12,00019 June 2007
    
    $
    3.30
    
    
    
    150,00021 June 2007
    
    $
    3.26
    
    
    
    60,00029 June 2007
    
    $
    3.30
    
    
    
    50,000745,958
    
    
    
    
    
    
    
    
    
    
    
    1,045,625
   Pharmaxis




---



##### 



29.
 Share-based payments (continued)
 Balance at
    
    
    Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    Balance
    
    
    Vested atstart of
    
    
    during the
    
    
    during
    
    
    during
    
    
    at end of
    
    
    end ofExercise
    
    
    the year
    
    
    year
    
    
    the year
    
    
    the year
    
    
    the year
    
    
    the yearGrant date
    
    Expiry date
    
    
    price
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    NumberConsolidated and Parent Entity 20081 Dec 1999
    
    30 Nov 2009
    
    $
    0.1250
    
    
    
    1,120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,120,000
    
    
    
    1,120,0001 Sept 2001
    
    30 August 2011
    
    $
    0.3125
    
    
    
    640,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    640,000
    
    
    
    640,0002 Dec 2001
    
    30 Nov 2011
    
    $
    0.1250
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    100,00012 May 2003
    
    30 June 2012
    
    $
    0.3125
    
    
    
    3,122,000
    
    
    
    
    
    
    
    632,000
    
    
    
    
    
    
    
    2,490,000
    
    
    
    2,490,00012 May 2003
    
    30 Nov 2012
    
    $
    0.3125
    
    
    
    480,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    480,000
    
    
    
    480,00012 May 2003
    
    30 April 2013
    
    $
    0.3125
    
    
    
    16,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,000
    
    
    
    16,0001 July 2003
    
    30 June 2013
    
    $
    0.3125
    
    
    
    360,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360,000
    
    
    
    360,0004 July 2003
    
    3 July 2013
    
    $
    0.3125
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    200,0009 Dec 2003
    
    30 Nov 2013
    
    $
    0.3760
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    500,00025 April 2004
    
    24 April 2014
    
    $
    0.5080
    
    
    
    22,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,500
    
    
    
    22,5004 June 2004
    
    3 June 2014
    
    $
    0.4260
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    15,0002 Feb 2005
    
    1 Feb 2015
    
    $
    0.8340
    
    
    
    240,000
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    235,000
    
    
    
    190,00012 May 2005
    
    11 May 2015
    
    $
    1.1470
    
    
    
    320,000
    
    
    
    
    
    
    
    15,000
    
    
    
    15,000
    
    
    
    290,000
    
    
    
    230,0005 Aug 2005
    
    4 August 2015
    
    $
    1.7900
    
    
    
    800,000
    
    
    
    
    
    
    
    24,376
    
    
    
    20,624
    
    
    
    755,000
    
    
    
    566,25017 Oct 2005
    
    16 Oct 2015
    
    $
    2.7720
    
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,000
    
    
    
    52,50013 Feb 2006
    
    12 Feb 2016
    
    $
    2.1940
    
    
    
    270,000
    
    
    
    
    
    
    
    10,000
    
    
    
    15,000
    
    
    
    245,000
    
    
    
    122,5001 June 2006
    
    31 May 2016
    
    $
    2.0340
    
    
    
    96,500
    
    
    
    
    
    
    
    2,250
    
    
    
    6,750
    
    
    
    87,500
    
    
    
    43,75015 Aug 2006
    
    14 Aug 2016
    
    $
    1.9170
    
    
    
    627,250
    
    
    
    
    
    
    
    7,125
    
    
    
    15,875
    
    
    
    604,250
    
    
    
    302,12526 Oct 2006
    
    14 Aug 2016
    
    $
    1.9170
    
    
    
    278,957
    
    
    
    
    
    
    
    48,957
    
    
    
    
    
    
    
    230,000
    
    
    
    155,00020 Sept 2006
    
    19 Sept 2016
    
    $
    1.8918
    
    
    
    47,500
    
    
    
    
    
    
    
    1,250
    
    
    
    3,750
    
    
    
    42,500
    
    
    
    21,25026 Oct 2006
    
    15 Mar 2016
    
    $
    2.0680
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    100,00014 Dec 2006
    
    13 Dec 2016
    
    $
    3.0710
    
    
    
    72,500
    
    
    
    
    
    
    
    
    
    
    
    27,500
    
    
    
    45,000
    
    
    
    22,50018 Jun 2007
    
    17 Jun 2017
    
    $
    3.3155
    
    
    
    237,500
    
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    192,500
    
    
    
    48,12510 Aug 2007
    
    9 Aug 2017
    
    $
    3.3890
    
    
    
    
    
    
    
    1,736,000
    
    
    
    
    
    
    
    119,000
    
    
    
    1,617,000
    
    
    
    404,2505 Nov 2007
    
    9 Aug 2017
    
    $
    3.3890
    
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    37,5005 Nov 2007
    
    14 Nov 2016
    
    $
    3.2258
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    100,0006 Nov 2007
    
    5 Nov 2017
    
    $
    4.2900
    
    
    
    
    
    
    
    527,000
    
    
    
    
    
    
    
    10,000
    
    
    
    517,000
    
    
    
    73,00014 Dec 2007
    
    13 Dec 2017
    
    $
    4.1373
    
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    2,000
    
    
    
    4,000
    
    
    
    1,0008 Feb 2008
    
    7 Feb 2018
    
    $
    3.2666
    
    
    
    
    
    
    
    18,500
    
    
    
    
    
    
    
    
    
    
    
    18,500
    
    
    
    11 Apr 2008
    
    10 Apr 2018
    
    $
    2.1135
    
    
    
    
    
    
    
    16,000
    
    
    
    
    
    
    
    
    
    
    
    16,000
    
    
    
    23 June 2008
    
    22 June 2018
    
    $
    1.5990
    
    
    
    
    
    
    
    73,500
    
    
    
    
    
    
    
    
    
    
    
    73,500
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    9,835,707
    
    
    
    2,727,000
    
    
    
    745,958
    
    
    
    280,499
    
    
    
    11,536,250
    
    
    
    8,413,250Weighted average exercise price
    
    $
    0.823
    
    
    $
    3.496
    
    
    $
    0.535
    
    
    $
    2.946
    
    
    $
    1.422
    
    
    $
    0.843
 Pharmaxis




---



##### 



Balance at
    
    
    Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    Balance at
    
    
    Vested atstart of
    
    
    during
    
    
    during
    
    
    during
    
    
    end of
    
    
    end ofExercise
    
    
    the year
    
    
    the year
    
    
    the year
    
    
    the year
    
    
    the year
    
    
    the yearGrant date
    
    Expiry date
    
    
    
    price
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    Number
    
    
    NumberConsolidated and Parent Entity 20071 Dec 1999
    
    30 Nov 2009
    
    $
    0.1250
    
    
    
    1,120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,120,000
    
    
    
    1,120,0001 July 2000
    
    30 June 2010
    
    $
    0.1250
    
    
    
    60,000
    
    
    
    
    
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    1 Sept 2001
    
    30 August 2011
    
    $
    0.3125
    
    
    
    640,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    640,000
    
    
    
    640,0002 Dec 2001
    
    30 Nov 2011
    
    $
    0.1250
    
    
    
    160,000
    
    
    
    
    
    
    
    60,000
    
    
    
    
    
    
    
    100,000
    
    
    
    100,00012 May 2003
    
    30 June 2012
    
    $
    0.3125
    
    
    
    3,502,000
    
    
    
    
    
    
    
    380,000
    
    
    
    
    
    
    
    3,122,000
    
    
    
    3,122,00012 May 2003
    
    30 Nov 2012
    
    $
    0.3125
    
    
    
    480,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    480,000
    
    
    
    480,00012 May 2003
    
    30 April 2013
    
    $
    0.3125
    
    
    
    216,000
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    16,000
    
    
    
    16,0001 July 2003
    
    30 June 2013
    
    $
    0.3125
    
    
    
    660,000
    
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    360,000
    
    
    
    360,0004 July 2003
    
    3 July 2013
    
    $
    0.3125
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    200,0009 Dec 2003
    
    30 Nov 2013
    
    $
    0.3760
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    500,00025 April 2004
    
    24 April 2014
    
    $
    0.5080
    
    
    
    22,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,500
    
    
    
    15,0004 June 2004
    
    3 June 2014
    
    $
    0.4260
    
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    11,2502 Feb 2005
    
    1 Feb 2015
    
    $
    0.8340
    
    
    
    255,000
    
    
    
    
    
    
    
    7,500
    
    
    
    7,500
    
    
    
    240,000
    
    
    
    147,50012 May 2005
    
    11 May 2015
    
    $
    1.1470
    
    
    
    330,000
    
    
    
    
    
    
    
    2,500
    
    
    
    7,500
    
    
    
    320,000
    
    
    
    185,0005 Aug 2005
    
    4 August 2015
    
    $
    1.7900
    
    
    
    954,500
    
    
    
    
    
    
    
    35,625
    
    
    
    118,875
    
    
    
    800,000
    
    
    
    400,00017 Oct 2005
    
    16 Oct 2015
    
    $
    2.7720
    
    
    
    155,000
    
    
    
    
    
    
    
    
    
    
    
    85,000
    
    
    
    70,000
    
    
    
    35,00013 Feb 2006
    
    12 Feb 2016
    
    $
    2.1940
    
    
    
    310,000
    
    
    
    
    
    
    
    
    
    
    
    40,000
    
    
    
    270,000
    
    
    
    67,5001 June 2006
    
    31 May 2016
    
    $
    2.0340
    
    
    
    111,500
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    96,500
    
    
    
    24,12515 Aug 2006
    
    14 Aug 2016
    
    $
    1.9170
    
    
    
    
    
    
    
    649,500
    
    
    
    
    
    
    
    22,250
    
    
    
    627,250
    
    
    
    156,81326 Oct 2006
    
    14 Aug 2016
    
    $
    1.9170
    
    
    
    
    
    
    
    278,957
    
    
    
    
    
    
    
    
    
    
    
    278,957
    
    
    
    166,45720 Sept 2006
    
    19 Sept 2016
    
    $
    1.8918
    
    
    
    
    
    
    
    72,500
    
    
    
    
    
    
    
    25,000
    
    
    
    47,500
    
    
    
    11,87526 Oct 2006
    
    15 Mar 2016
    
    $
    2.0680
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    50,00014 Dec 2006
    
    13 Dec 2016
    
    $
    3.0710
    
    
    
    
    
    
    
    80,000
    
    
    
    
    
    
    
    7,500
    
    
    
    72,500
    
    
    
    18,12518 Jun 2007
    
    17 Jun 2017
    
    $
    3.3155
    
    
    
    
    
    
    
    237,500
    
    
    
    
    
    
    
    
    
    
    
    237,500
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    9,691,500
    
    
    
    1,518,457
    
    
    
    1,045,625
    
    
    
    328,625
    
    
    
    9,835,707
    
    
    
    7,826,645Weighted average exercise price
    
    $
    0.597
    
    
    $
    2.215
    
    
    $
    0.347
    
    
    $
    2.113
    
    
    $
    0.823
    
    
    $
    0.512
   Fair value of options granted
  Pharmaxis




---



##### 



29.
 Share-based payments (continued)
  Time to
    
    
    
    
    
    
    AnnualNo. of options
    
    
    Exercise
    
    
    Share
    
    
    expiration
    
    
    Volatility
    
    
    interest rate
    
    
    OptionGrant date
    
    granted
    
    
    Price
    
    
    Price
    
    
    (days)
    
    
    (%)
    
    
    (%)
    
    
    valueConsolidated and Parent Entity 200810 Aug 2007
    
    
    1,736,000
    
    
    $
    3.3890
    
    
    $
    3.3890
    
    
    
    2,190
    
    
    
    40.81
    
    
    
    6.14
    
    
    $
    1.66785 Nov 2007
    
    
    150,000
    
    
    $
    3.3890
    
    
    $
    3.3890
    
    
    
    2,190
    
    
    
    40.81
    
    
    
    6.14
    
    
    $
    1.69325 Nov 2007
    
    
    200,000
    
    
    $
    3.2258
    
    
    $
    3.2258
    
    
    
    2,190
    
    
    
    40.81
    
    
    
    6.14
    
    
    $
    1.61176 Nov 2007
    
    
    527,000
    
    
    $
    4.2900
    
    
    $
    4.2900
    
    
    
    2,190
    
    
    
    40.81
    
    
    
    6.55
    
    
    $
    2.143414 Dec 2007
    
    
    6,000
    
    
    $
    4.1373
    
    
    $
    4.1373
    
    
    
    2,190
    
    
    
    40.81
    
    
    
    6.55
    
    
    $
    2.06718 Feb 2008
    
    
    18,500
    
    
    $
    3.2666
    
    
    $
    3.2666
    
    
    
    2,190
    
    
    
    40.81
    
    
    
    6.38
    
    
    $
    1.640411 Apr 2008
    
    
    16,000
    
    
    $
    2.1135
    
    
    $
    2.1135
    
    
    
    2,190
    
    
    
    40.81
    
    
    
    6.15
    
    
    $
    1.052323 June 2008
    
    
    73,500
    
    
    $
    1.5990
    
    
    $
    1.5990
    
    
    
    2,190
    
    
    
    50.00
    
    
    
    6.70
    
    
    $
    0.90452,727,000Consolidated and Parent Entity 200715 Aug 2006
    
    
    649,500
    
    
    $
    1.9170
    
    
    $
    1.90
    
    
    
    3,650
    
    
    
    50.00
    
    
    
    5.93
    %
    
    $
    1.327720 Sept 2006
    
    
    72,500
    
    
    $
    1.8918
    
    
    $
    1.85
    
    
    
    3,650
    
    
    
    50.00
    
    
    
    5.62
    %
    
    $
    1.299326 Oct 2006
    
    
    278,957
    
    
    $
    1.9170
    
    
    $
    3.00
    
    
    
    3,650
    
    
    
    50.00
    
    
    
    5.73
    %
    
    $
    1.316726 Oct 2006
    
    
    200,000
    
    
    $
    2.0680
    
    
    $
    3.00
    
    
    
    3,650
    
    
    
    50.00
    
    
    
    5.73
    %
    
    $
    1.420414 Dec 2006
    
    
    80,000
    
    
    $
    3.0710
    
    
    $
    3.10
    
    
    
    3,650
    
    
    
    50.00
    
    
    
    5.73
    %
    
    $
    2.109318 June 2007
    
    
    237,500
    
    
    $
    3.3155
    
    
    $
    3.30
    
    
    
    3,650
    
    
    
    50.00
    
    
    
    6.27
    %
    
    $
    2.31071,518,457
   (b)
 Expenses arising from share based payment transactions
  Consolidated
    
    
    Parent Entity2008
    
    
    2007
    
    
    2008
    
    
    2007$000
    
    
    $000
    
    
    $000
    
    
    $000Options issued under employee option plan
    
    
    3,434
    
    
    
    1,488
    
    
    
    3,434
    
    
    
    1,488
 Pharmaxis




---



##### 



3.2
 Directors Declaration
  (a)
    
    the financial statements and notes set out on pages 96 to 132 are in accordance with the
Corporations Act 2001, including:
 (i)
    
    complying with Accounting Standards, the Corporations Regulations 2001and other mandatory
professional reporting requirements; and(ii)
    
    giving a true and fair view of the companys and consolidated entitys financial position
as at 30 June 2008 and of its performance for the financial year ended on that date; and
 (b)
    
    there are reasonable grounds to believe that the company will be able to pay its debts as and
when they become due and payable.
 Corporations Act 2001
  
 Alan D Robertson
 
 Pharmaxis




---



##### 



3.3
 Independent Auditors Report
 Report of Independent Registered Public Accounting Firm
     Pharmaxis




---



##### 



Pharmaxis




---



##### 



3.4
 Adoption of IFRS for Inclusion in U.S. Filings (Form 20-F)
    3.4.1
    
    Exemptions from Retrospective Application of IFRSWe did not utilise any exemptions in retrospectively adopting IFRS.3.4.2
    
    Significant Differences between IFRS and U.S. GAAPPresentation differenceUnder IFRS grants received relating to costs are included in the income statement as a
component of Other Income. Grants relating to the purchase of plant and equipment are
included in non current liabilities as deferred income and are credited to the income
statement on a straight line basis over the expected lives of the related assets. Under U.S.
GAAP grants related to costs are recognized in the income statement against the related
expenses. Grants related to the purchase of plant and equipment are recognized against the
acquisition costs of the related plant and equipment as and when related assets are
purchased.There are no other differences between our consolidated financial statements prepared in
accordance with IFRS and U.S. GAAP.3.4.3
    
    Tabular Reconciliation of U.S. GAAP to IFRS
 Year Ended 30 June
    
    2007
    
    
    2006Net loss under U.S. GAAP
    
    
    (24,179
    )
    
    
    (17,733
    )Loss for the year under IFRS
    
    
    (24,179
    )
    
    
    (17,733
    )
 As at 30 June
    
    2007
    
    
    2006Shareholders EquityShareholders equity under U.S. GAAP
    
    
    76,559
    
    
    
    98,888Total equity under IFRS
    
    
    76,559
    
    
    
    98,888
 Pharmaxis




---



##### 



Section
 Pharmaxis Statutory Annual Report 137




---



##### 



4.1
    
    Shareholder Information and Related Party Transactions4.1.1
    
    ASX Shareholder Disclosures
  A.
    
    Distribution of equity securitiesAnalysis of numbers of equity security holders by size of holding:
 Class of equity security Ordinary shares
    
    Shares
    
    
    Options1  1000
    
    
    964
    
    
    
    31,001  5,000
    
    
    2,200
    
    
    
    185,001  10,000
    
    
    1,059
    
    
    
    2010,001  100,000
    
    
    1,461
    
    
    
    35100,001 and over
    
    
    116
    
    
    
    195,800
    
    
    
    95
 There were 269 holders of less than a marketable parcel of ordinary shares.B.
    
    Equity security holdersTwenty largest quoted equity security holdersThe names of the twenty largest holders of quoted equity securities are listed below:
 Ordinary SharesNumber
    
    
    PercentageHeld
    
    
    of issued sharesNational Nominees Limited
    
    
    30,740,214
    
    
    
    15.8ANZ Nominees Limited
    
    
    25,275,348
    
    
    
    13.0HSBC Custody Nominees (Australia) Limited
    
    
    13,356,401
    
    
    
    6.9J P Morgan Nominees Australia Limited
    
    
    12,192,211
    
    
    
    6.3Citicorp Nominees Pty Limited
    
    
    10,649,257
    
    
    
    5.5Australian Executor Trustees NSW Ltd
    
    
    7,499,257
    
    
    
    3.9KFT Investments Pty Ltd
    
    
    3,045,596
    
    
    
    1.6The Australian National University
    
    
    2,810,000
    
    
    
    1.4CM Capital Investments Pty Ltd
    
    
    2,491,042
    
    
    
    1.3Cogent Nominees Pty Limited
    
    
    2,406,681
    
    
    
    1.2Credit Suisse Pty Limited
    
    
    2,126,000
    
    
    
    1.0UBS Nominees Pty Ltd
    
    
    1,441,519
    
    
    
    0.7Warnford Nominees Pty Limited
    
    
    1,203,000
    
    
    
    0.6Citicorp Nominees Pty Ltd
    
    
    1,142,466
    
    
    
    0.6Fleet Nominees Pty Limited
    
    
    1,083,352
    
    
    
    0.6MLEQ Nominees Pty Limited
    
    
    976,791
    
    
    
    0.5HSBC Custody Nominees (Australia) Limited-GSCO ECSA
    
    
    970,000
    
    
    
    0.5Mr Andrew Reid
    
    
    856,162
    
    
    
    0.4CIBC Australia VC Fund LLC
    
    
    751,678
    
    
    
    0.4HSBC Custody Nominees (Australia) Limited  A/C 2
    
    
    750,413
    
    
    
    0.4
 Unquoted equity securities
 Number
    
    
    Number ofHeld
    
    
    HoldersOptions issued under the Pharmaxis Ltd Employee Option Plan
    
    
    12,970,750
    
    
    
    89
 Pharmaxis




---



##### 



C.
    
    Substantial holdersSubstantial holders in the Company are set out below:
 Number
    
    
    PercentageOrbis Global Equity Fund Limited
    
    
    36,761,762
    
    
    
    18.9
    %Fortis Investment Partners Pty Ltd
    
    
    17,061,801
    
    
    
    8.8
    %Acorn Capital Limited
    
    
    12,071,292
    
    
    
    6.2
    %
 D.
    
    Voting rightsThe voting rights attaching to each class of equity securities are set out below:
 (a)
    
    Ordinary sharesOn a show of hands every member present at a meeting in person or by proxy shall have
one vote and upon a poll each share shall have one vote.(b)
    
    OptionsNo voting rights.
 4.1.2
    
    U.S. Shareholder DisclosuresBeneficial OwnershipThe following table presents certain information regarding the beneficial ownership of our
ordinary shares as of 15 August 2008 by the following persons:
 
    
    each person known by us to be the beneficial owner of more than 5% of our ordinary shares;
    
    our Senior Executive
Officers;
    
    our Directors; and
    
    our Senior Executive Officers and Directors as a group.
    Pharmaxis




---



##### 



4.1.2
    
    U.S. Shareholder Disclosures (Continued)
 BeneficialOwnershipShares
    
    
    Options
    
    
    Percentage ofBeneficially
    
    
    Exercisable
    
    
    SharesIndividual/Group
    
    Owned1
    
    
    within 60 Days
    
    
    Outstanding5% ShareholdersOrbis Global Equity Fund Limited2
    
    
    36,761,983
    
    
    
    
    
    
    
    18.9
    %Fortis Investment Partners Pty Ltd3
    
    
    17,061,801
    
    
    
    
    
    
    
    8.8
    %Acorn Capital Limited8
    
    
    12,071,292
    
    
    
    
    
    
    
    6.2
    %Senior Executive Officers and DirectorsAlan D. Robertson4
    
    
    2,442,500
    
    
    
    2,342,500
    
    
    
    1.3
    %Brett Charlton
    
    
    1,025,860
    
    
    
    643,750
    
    
    
    *John F. Crapper
    
    
    549,000
    
    
    
    547,000
    
    
    
    *Ian A. McDonald
    
    
    290,000
    
    
    
    290,000
    
    
    
    *David M. McGarvey5
    
    
    1,192,500
    
    
    
    1,147,500
    
    
    
    *Gary J. Phillips
    
    
    697,914
    
    
    
    691,250
    
    
    
    *Denis M. Hanley6
    
    
    1,899,787
    
    
    
    1,110,000
    
    
    
    1.0
    %William L. Delaat
    
    
    
    
    
    
    
    
    
    
    Peter C. Farrell
    
    
    221,645
    
    
    
    120,000
    
    
    
    *Malcolm J. McComas7
    
    
    374,999
    
    
    
    235,000
    
    
    
    *John Villiger
    
    
    100,000
    
    
    
    100,000
    
    
    
    *All Senior Executive Officers and Directors
as a group (11 persons)
    
    
    8,832,095
    
    
    
    7,227,000
    
    
    
    4.5
    %
  *
    
    Represents beneficial ownership of less than one percent of our outstanding ordinary shares.1
    
    Includes ordinary shares issuable pursuant to options exercisable within 60 days of 15
August 2008. The figures represent the amounts last notified to Pharmaxis unless otherwise
stated. The relevant shareholders may have acquired or disposed of share since the last
notification that are not reflected. However, any such transaction that resulted in a change
of one percent or greater would require the notification of such to Pharmaxis.2
    
    Consists of 20,261,983 ordinary shares and 1.1 million ADSs held by Orbis Global Equity
Fund Limited and or companies associated with Orbis Global Equity Fund Limited.3
    
    All of these shares are held of record by nominee and trustee companies on behalf of Fortis
Investment Partners Pty Ltd. Fortis Investment Partners Pty Ltd has sole voting and
dispositive power over these shares.4
    
    Includes 100,000 ordinary shares held by Dr. Robertsons spouse.5
    
    Includes 5,000 ordinary shares held by McGarvey Investments Pty Ltd., of which Mr.
McGarveys spouse is the sole director and shareholder. Mr. McGarvey disclaims beneficial
ownership over the shares held by McGarvey Investments Pty Ltd.6
    
    Includes 203,895 ordinary shares held partially by a trust and partially by a
superannuation fund of which Mr. Hanley is a beneficiary. Also includes 17,946
ordinary shares held by Mr. Hanleys spouse.7
    
    Includes (i) 100,000 ordinary shares held by Movilli Pty Ltd, and (ii) 26,666 ordinary
shares held by Bunyula Super Pty Ltd. Mr. McComas has shared voting and dispositive power
over the shares held by these two entities. Also includes 13,333 ordinary shares held by Mr.
McComas spouse.8
    
    All of these shares are held of record by nominee and trustee companies on behalf of Acorn
Capital Limited, in its capacity as discretionary investment manager to certain superannuation
funds, pooled superannuation trusts, managed investment schemes and investment management
agreements. Acorn Capital Limited has sole voting and dispositive power over these shares. Pharmaxis




---



##### 



Significant Changes to Percentage Ownership of Principal Shareholders
  % of Shares
    
    
    Change in % of Shares5% Shareholder
    
    Date
    
    Beneficially Owned
    
    
    Beneficially OwnedFortis Investment Partners Pty Ltd
    
    9 November 20071
    
    
    8.2
    
    
    
    8.22 April 200813
    
    
    8.8
    
    
    
    0.6Orbis Global Equity Fund Australia
    
    11 November 20053
    
    
    11.3
    
    
    
    11.331 October 20064
    
    
    12.3
    
    
    
    1.020 November 20065
    
    
    14.1
    
    
    
    1.89 November 200714
    
    
    14.7
    
    
    
    0.627 May 200815
    
    
    18.9
    
    
    
    4.2Acorn Capital Limited
    
    10 November 20032
    
    
    3.0
    
    
    
    3.027 February 20046
    
    
    5.2
    
    
    
    2.224 June 20047
    
    
    6.2
    
    
    
    1.013 September 20048
    
    
    7.2
    
    
    
    1.011 November 20059
    
    
    5.6
    
    
    
    (1.6
    )31 October 200610
    
    
    5.5
    
    
    
    (0.1
    )26 February 200711
    
    
    5.0
    
    
    
    (0.5
    )31 October 200612
    
    
    5.4
    
    
    
    0.414 April 200816
    
    
    6.2
    
    
    
    0.8
  1
    
    After giving effect to the purchase of 15,656,831 shares in private transactions and an
Australian private placement in October 20072
    
    After giving effect to shares purchased by the listed entity as part of the initial public
offering of our ordinary shares on the Australian Securities Exchange in November 2003.3
    
    After giving effect to shares issued by the listed entity as part of the US public offering
of our ADS and Australian private placement of our ordinary shares in November 2005.4
    
    After giving effect to the purchase of 2,094,341 ordinary shares in private transactions
from 1 January 2006 to 3 November 2006.5
    
    After giving effect to the purchase of 3,067,973 ordinary shares in private transactions on
29 November 2006.6
    
    After giving effect to (i) 3,200,000 ordinary shares purchased by Acorn Capital Limited as
part of the initial public offering of our ordinary shares on the Australian Stock Exchange
in November 2003 and (ii) 2,377,359 ordinary shares purchased in private transactions from
September 24, 2003 to February 27, 2004.7
    
    After giving effect to the purchase of 1,109,441 ordinary shares in private
transactions from 1 March 2004 to 24 June 2004.8
    
    After giving effect to the purchase of 1,130,559 shares in private transactions
from 28 June 2004 to 13 September 2004.9
    
    After giving effect to the issue of shares by the Company in November 2005 in its US public
offering and Australian private placement, and after giving effect to the purchase of
1,933,573 ordinary shares on 1 October 200410
    
    After giving effect to the issue of shares by the Company in the period 12
November 2005 to 31 October 2006 subsequent to the exercise of options granted under the
Pharmaxis Employee Option Plan.11
    
    After giving effect to the sale of 892,173 ordinary shares in private transactions
from January 2006 to February 2007.12
    
    After giving effect to the purchase of 1,411,737 shares in private transactions from
February 2007 to November 2007 and an Australian private placement in October 2007.13
    
    After giving effect to the purchase of 1,404,970 shares in private transactions from
November 2007 to April 2008.14
    
    After giving effect to the purchase of 3,169,470 shares in private transactions
from February 2007 to November 2007 and an Australian private placement in October 2007.15
    
    After giving effect to the purchase of 8,664,503 shares in private transactions from
November 2007 to May 2008.16
    
    After giving effect to the purchase of 1,800,796 shares in private transactions from
October 2007 to April 2008.
 Pharmaxis




---



##### 



4.1.2
    
    U.S. Shareholder Disclosures (Continued)We are not aware of any other significant changes in percentage ownership with respect to our
principal shareholders resulting from their respective purchases or sales of our ordinary
shares.Our major shareholders do not have different voting rights.As of 15 August 2008, half a percent of our ordinary shares were held in the United States by
eight holders of record, and 99% of our ordinary shares were held in Australia by 5,682
holders of record.As of 15 August 2008 1,248,029 ADSs, representing 18,720,435 ordinary shares, were
outstanding in the United States, and were held by four holders of record.4.1.3
    
    Price HistoryMarketsOur ordinary shares are traded on the Australian Securities Exchange and our American
Depository Shares are traded on the Nasdaq Global Market.Ordinary SharesThe following tables present, for the periods indicated, the high and low market prices for
our ordinary shares reported on the Australian Securities Exchange since November 10, 2003,
the date on which our ordinary shares were initially quoted. Prior to the initial quotation
of our ordinary shares on the Australian Securities Exchange on November 10, 2003, our
ordinary shares were not regularly traded in any organized market and were not liquid.
 High
    
    
    LowA$
    
    
    A$Financial Year 2004
    
    From 10 November 2003 to 30 June 2004
    
    
    0.570
    
    
    
    0.340Financial Year 2005
    
    Full Year
    
    
    1.850
    
    
    
    0.485Financial Year 2006
    
    Full YearFinancial Year 2007
    
    First Quarter
    
    
    2.440
    
    
    
    1.680Second Quarter
    
    
    3.450
    
    
    
    2.210Third Quarter
    
    
    3.660
    
    
    
    2.920Fourth Quarter
    
    
    3.630
    
    
    
    3.120Full Year
    
    
    3.660
    
    
    
    1.680Financial Year 2008
    
    First Quarter
    
    
    4.300
    
    
    
    3.050Second Quarter
    
    
    4.530
    
    
    
    3.780Third Quarter
    
    
    4.220
    
    
    
    2.040Fourth Quarter
    
    
    2.770
    
    
    
    1.400Full Year
    
    
    4.530
    
    
    
    1.400Financial Year 2009 (through 15 August 2008)
    
    
    2.090
    
    
    
    1.310Most Recent Six Months
    
    February 2008
    
    
    3.390
    
    
    
    2.500March 2008
    
    
    2.530
    
    
    
    2.040April 2008
    
    
    2.770
    
    
    
    1.540May 2008
    
    
    1.880
    
    
    
    1.400June 2008
    
    
    1.740
    
    
    
    1.470July 2008
    
    
    1.730
    
    
    
    1.310
 Pharmaxis




---



##### 



American Depositary Shares (ADS)The following tables present, for the periods indicated, the high and low market prices for our
ADSs as reported on the Nasdaq Global Market since August 29, 2005, the date on which our ADSs were
initially quoted. Prior to the initial quotation of our ADSs on the Nasdaq Global Market on August
29, 2005, our ADSs were not regularly traded in any organized market and were not liquid.
 High
    
    
    LowA$
    
    
    A$Financial Year 2006
    
    Full Year
    
    
    35.980
    
    
    
    19.440Financial Year 2007
    
    First Quarter (from 29 August 2005)
    
    
    25.800
    
    
    
    19.440Second Quarter
    
    
    43.250
    
    
    
    24.180Third Quarter
    
    
    42.500
    
    
    
    35.000Fourth Quarter
    
    
    46.400
    
    
    
    36.000Full Year
    
    
    46.400
    
    
    
    19.440Financial Year 2008
    
    First Quarter
    
    
    54.700
    
    
    
    35.510Second Quarter
    
    
    62.500
    
    
    
    50.000Third Quarter
    
    
    58.500
    
    
    
    30.000Fourth Quarter
    
    
    33.750
    
    
    
    13.120Full Year
    
    
    62.500
    
    
    
    13.120Financial Year 2009 (to 15 August 2008)
    
    
    25.22
    
    
    
    10.000Most Recent Six Months
    
    February 2008
    
    
    46.500
    
    
    
    37.000March 2008
    
    
    37.050
    
    
    
    30.000April 2008
    
    
    33.750
    
    
    
    13.120May 2008
    
    
    26.500
    
    
    
    21.040June 2008
    
    
    23.830
    
    
    
    18.410July 2008
    
    
    23.050
    
    
    
    10.000
 4.1.4
    
    Related Party TransactionsTransactionsThere are no related party transactions except as follows:Stock Options Granted to Executive Officers and DirectorsSee Section 1.5 of this Statutory Annual Report.Employment AgreementsWe have entered into employment agreements with our Senior Executive Officers. For more
information regarding these agreements, see Section 1.5.3 of this Statutory Annual Report.Director IndemnificationWe have on various dates entered into Deeds of Access to Documents and Indemnity with certain
Senior Executive Officers and each of our Directors. See Section 1.4.3 of this Statutory
Annual Report.
 Pharmaxis




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##### 



4.2
    
    Additional Information4.2.1
    
    ConstitutionOur primary constituent document is a Constitution. Our Constitution does not provide for
or prescribe any specific objects or purposes of the Company. Our Constitution is subject
to the terms of the Listing Rules of the Australian Securities Exchange and the
Corporations Act 2001. Our Constitution may be amended or repealed and replaced by special
resolution of shareholders, which is a resolution passed by at least 75% of the votes cast
by shareholders entitled to vote on the resolution.Board of DirectorsOur Board of Directors currently consists of six directors, including five non-executive
directors, of which one is non-executive chairman. Under our Constitution, the number of
Directors will not, unless otherwise determined by an ordinary resolution of Pharmaxis, be
less than three nor more than nine. A Director need not be a shareholder of Pharmaxis.
Only a person over the age of 18 may be appointed as a Director.Our Directors are subject to periodic retirement and re-election by shareholders in
accordance with our Constitution and the Listing Rules of the Australian Securities
Exchange. At each annual general meeting, one-third of our Directors who are subject to
retirement by rotation or, if their number is not a multiple of three, the nearest to
one-third but not exceeding one-third, retire from office. Any Director appointed by the
Directors since the last annual general meeting or for whom it would be their third annual
general meeting must also retire from office. Any retiring Director is eligible for
reappointment. Generally, the effect of the retirement by rotation provisions is that the
Directors retire and are subject to re-election at staggered intervals.The Directors may appoint one of themselves as a managing director, for any period and on
any terms as the Directors decide. Dr. Alan Robertson is currently our managing director.
The retirement by rotation provisions do not apply to the managing director.A person ceases to be a Director if the Corporations Act 2001so provides, if the Director
resigns by notice to Pharmaxis, if the shareholders in a general meeting remove the
Director, if the Director is absent without the consent of the Board of Directors from all
Directors meetings during any six-month period, if the Director becomes mentally
incapable and the Directors estate or property has had a personal representative or
trustee appointed to administer it, or if the Director is an executive and he or she
ceases to be an executive of Pharmaxis.A Director may appoint an alternate for a specified period with the consent of the
Directors. If the appointer of the alternate is not present, the alternate may attend the
Directors meeting, count in the quorum, speak, and vote in the place of the appointer and
exercise any other powers (except the power to appoint an alternate) that the appointer
may exercise. We may pay an alternate any remuneration the Directors decide, in reduction
of the appointers remuneration. We do not currently have any alternate Directors.The Directors may meet, adjourn and otherwise regulate their meetings as they decide. Any
Director may call a Directors meeting. The quorum for a Directors meeting is two
Directors, unless the Board of Directors decides otherwise. If a person appointed as an
alternate Director is already a Director, he or she must be counted as a Director and
separately as an alternate for quorum purposes. If there are not enough Directors in
office to form a quorum, the remaining Directors may only act to increase the number of
Directors, to call a general meeting of shareholders or in an emergency.Subject to the Corporations Act 2001, each Director has one vote. If a Director is also an
alternate, the Director has one vote as a Director and one vote as an alternate. If a
person is an alternate for more than one Director, the person has one vote for each
appointment. A resolution of the Directors is passed by a majority of votes cast. Subject
to the Listing Rules of the Australian Securities Exchange, the chairman has a deciding
vote.Our Board of Directors has all our powers to manage our business except for any powers
that the Corporations Act 2001, the Listing Rules of Australian Securities Exchange or our
Constitution requires Pharmaxis to exercise in a general meeting. The Directors may
execute documents on behalf of Pharmaxis, execute negotiable instruments, delegate any of
their powers to a committee of Directors or to one Director and may appoint any person to
be our attorney and agent.
 Pharmaxis




---



##### 



Corporations Act 2001 Corporations Act 2001
 Corporations
Act 2001
   Corporations Act 2001
 Shareholders Meetings
  Corporations Act
2001
   Pharmaxis




---



##### 



4.2.1
    
    Constitution (continued)The necessary quorum for a meeting of shareholders is five shareholders entitled to vote.
We believe this quorum requirement is consistent with common practice for many Australian
public companies.Unless applicable law or our Constitution requires a special resolution, a resolution of
shareholders is passed if more than 50% of the votes cast by shareholders entitled to vote
are cast in favor of the resolution. A special resolution is passed if the notice of
meeting sets out the intention to propose the special resolution and states the resolution
and it is passed by at least 75% of the votes cast by shareholders entitled to vote on the
resolution. A special resolution usually involves more important questions affecting us as
a whole or the rights of some or all of our shareholders. Special resolutions are required
in a variety of circumstances under our Constitution and the Corporations Act 2001,
including without limitation:
 
    
    to change our name;
    
    to amend or repeal and replace our
Constitution;
    
    to approve the terms of issue of preference shares;
    
    to approve the
variation of class rights of any class of shareholders;
    
    to convert one class of shares
into another class of shares;
    
    to approve certain buy backs of shares;
    
    to approve a
selective capital reduction of our shares;
    
    to approve us financially assisting a person
to acquire shares in us;
    
    to remove and replace our auditor;
    
    to approve the transfer of
our place of registration to registration under a law of another state or territory of
Australia;
    
    to change our company type;
    
    with the leave of an authorized Australian
court, to approve our voluntary winding up;
    
    to confer on a liquidator of us either a
general authority or a particular authority in respect of compensation arrangements of the
liquidator; and
    
    to approve an arrangement entered into between a company about to be, or
in the course of being, wound up.
 Shareholder Voting Rights
    Pharmaxis




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##### 



Issue of Shares and Changes in Capital
 Corporations Act 2001
 Corporations Act 2001
 
    
    consolidate or divide our
share capital into a larger or smaller number by resolution passed by shareholders at a general
meeting;
    
    may reduce our share capital by special resolution passed by at least 75% of the votes
cast by shareholders entitled to vote on the resolution provided that the reduction is fair and
reasonable to our shareholders as a whole, and does not materially prejudice our ability to pay
creditors;
    
    undertake an equal access buyback of our ordinary shares by ordinary resolution of
shareholders (although if we have bought back less than 10% of our shares over the period of the
previous 12 months, shareholder approval may not be required); and
    
    undertake a selective buyback
of certain shareholders shares by special resolution passed by at least 75% of the votes cast by
shareholders entitled to vote on the resolution, with no votes being cast in favor of the
resolution by any person whose shares are proposed to be bought back or by their associates.
  Dividends
   Liquidation Rights
   Pharmaxis




---



##### 



4.2.1
    
    Constitution (continued)Calls, Lien and Forfeiture in Respect of Partly Paid SharesSubject to any special rights or restrictions attached to shares, the Board of Directors
may make calls on the holder of a share for any unpaid portion of the issue price of that
share at any time. The Directors may make a call payable by installments. If the amount
called is not paid by the requisite time, the shareholder must pay us interest on the
amount unpaid from the date the call becomes payable until and including the date of
payment and our costs arising from the non-payment. Joint holders of a share and their
respective personal representatives are all jointly and severally liable to pay all calls
on the share. The Board of Directors may recover an amount presently payable as a result
of a call by suing the shareholder for the debt, by enforcing the lien on the share or by
declaring forfeit the share. The forfeiture of a share extinguishes the former
shareholders interest in the share. We have a first ranking lien on each share registered
to a shareholder, dividends payable on a shares, proceeds on the sale of a share for an
unpaid call or installment that is due but unpaid on the share, any amounts we are
required by law to pay in respect of the shares of that shareholder, and in respect of any
interest and costs presently payable to Pharmaxis by the shareholder. We may sell a share
to enforce a lien in certain circumstances. We do not currently have any partly paid
shares outstanding.4.2.2
    
    Limitations on Rights to Own Shares and ADSsThe Foreign Acquisitions and Takeovers Act 1975 regulates acquisitions of shares by
non-Australian persons giving rise to substantial interests or controlling interests in an
Australian companies. Some of the relevant terms of the Foreign Acquisitions and Takeovers
Act 1975 are summarized below.In general terms, the Foreign Acquisitions and Takeovers Act 1975 prohibits a foreign
interest from acquiring shares or entering into an agreement to acquire shares or
interests in shares if, after the acquisition or agreement, such foreign interest would
hold a substantial interest or controlling interest in an Australian corporation, without
first applying for approval by the Treasurer of the Australian Government and such
approval being granted or 40 days having elapsed after such application was made.For foreign investors other than U.S. investors, the notification obligation arises in
relation to proposals to acquire a substantial interest or controlling interest in an
Australian business, the value of whose assets exceeds A$100 million or whose business is
valued at over A$100 million. As of June 30, 2008, our business had a market valuation of
greater than A$100 million. In the case of U.S. investors, other than the U.S. government
and other than when the investment proposal relates to investments in prescribed sensitive
sectors, the requirement to notify the Australian Government of a proposal to acquire a
substantial interest or a controlling interest in an Australian business arises when the
value of the assets of the relevant Australian business exceeds A$913 million or the value
of the Australian business exceeds A$913 million. A U.S. investor is defined as a national
or permanent resident of the U.S., a U.S. enterprise, or a branch of an entity located in
the U.S. and carrying on business activities in the U.S. As of June 30, 2008, we had
assets and a market value less than A$913 million and were not regarded as a business in a
sensitive sector.A foreign interest is defined, in summary, as:
 
    
    a natural person not ordinarily resident in Australia;
    
    a company in which a natural person not ordinarily resident in Australia or a foreign
company holds a substantial interest;
    
    a company in which two or more persons, each of
whom is either a natural person not ordinarily resident in Australia or a foreign company,
hold an aggregate substantial interest;
    
    the trustee of a trust estate in which a natural
person not ordinarily resident in Australia or a foreign company holds a substantial
interest; or
    
    the trustee of a trust estate in which two or more persons, each
of whom is either a natural person not ordinarily resident in Australia or a foreign
company, hold an aggregate substantial interest.
 Pharmaxis




---



##### 




    
    the person, alone or together with any associate or associates of the person, is in a
position to control not less than 15% of the voting power in the company or holds legal or
equitable interests in not less than 15% of the issued shares in the company; or
    
    two or
more persons are taken to hold an aggregate substantial interest in a company if they,
together with any associate or associates of any of them, are in a position to control not
less than 40% of the voting power in the company or hold legal or equitable interests in not
less than 40% of the issued shares in the company.
      4.2.3
    
    Change of ControlCorporations Act 2001Takeovers of listed Australian public companies, such as us, are regulated amongst other
things by the Corporations Act 2001which prohibits the acquisition of a relevant interest in
issued voting shares in a listed company if the acquisition will lead to the persons or
someone elses voting power in the company increasing from 20% or below to more than 20% or
increasing from a starting point that is above 20% and below 90%, subject to a range of
exceptions.A relevant interest is defined very broadly to capture most forms of interest in shares and
would include interests in our ADSs. Generally, and without limitation, a person will have a
relevant interest in securities if they:
 
    
    are the holder of the securities;
    
    have power to
exercise, or control the exercise of, a right to vote attached to the securities; or
    
    have
power to dispose of, or control the exercise of a power to dispose of, the securities
(including any indirect or direct power or control).
  Pharmaxis




---



##### 



4.2.3
    
    Change of Control (contd)
  
    
    has entered or enters into an agreement with another person with
respect to the securities;
    
    has given or gives another person an enforceable right, or has been or is given an
enforceable right by another person, in relation to the securities; or
    
    has granted or
grants an option to, or has been or is granted an option by, another person with respect
to the securities, and the other person would have a relevant interest in the securities
if the agreement were performed, the right enforced or the option exercised, the other
person is taken to already have a relevant interest in the securities.
  
    
    when the acquisition results from the acceptance of an offer
under a formal takeover bid;
    
    when the acquisition is conducted on market by or on behalf
of the bidder under a takeover bid and the acquisition occurs during the bid period;
    
    when shareholders of the company approve the takeover by resolution passed at general
meeting;
    
    an acquisition by a person if, throughout the 6 months before the acquisition,
that person, or any other person, has had voting power in the company of at least 19% and
as a result of the acquisition, none of the relevant persons would have voting power in
the company more than 3 percentage points higher than they had 6 months before the
acquisition;
    
    as a result of a pro-rata rights issue;
    
    as a result of dividend
reinvestment schemes;
    
    as a result of underwriting arrangements;
    
    through operation of
law;
    
    an acquisition which arises through the acquisition of a relevant interest in
another listed company;
    
    arising from an auction of forfeited shares; or
    
    arising
through a compromise, arrangement, liquidation or buyback.
 Corporations Act 2001
 Proportional Takeover
  Pharmaxis




---



##### 



4.2.4
    
    Disclosure of InterestsThe Corporations Act 2001 requires that a person must give notice to us in the prescribed form
within two business days (or in some cases by the next business day) if:
 
    
    the person begins
to have, or ceases to have, a substantial holding in us. A substantial holding will arise if
a person and their associates have a relevant interest in 5% or more of the votes in us or
the person has made a takeover bid for the voting shares in us;
    
    if the person has a
substantial holding in us and there is a movement of 1% in their holding; or
    
    if the person
makes a takeover bid for us.
  
    
    corporate entities owned
or controlled by the person;
    
    corporate entities that control the person;
    
    corporate
entities that are controlled by an entity which controls the person;
    
    persons with whom the
person has or proposes to enter into agreements with which relate to the composition of our
Board; and
    
    persons with whom the person is acting or is proposing to act in concert.
  4.2.5
    
    Material ContractsFollowing is a summary of our material contracts, other than contracts entered into in the
ordinary course of business, to which we are a party, for the two years immediately preceding
the filing of this document.License Agreement with the Sydney South West Area Health ServiceOn October 10, 2001, we entered into a license agreement with Sydney South West Area Health
Service. Pursuant to the license agreement, Sydney South West Area Health Service grants us
an exclusive, worldwide license, which is able to be sublicensed, to exploit certain key
intellectual property and patents relating to the use of respirable dry powders for the
assessment of bronchial hyper-responsiveness, a condition consistent with active asthma, for
monitoring steroid use in asthma patients, and for the management of diseases such as cystic
fibrosis, bronchiectasis and chronic bronchitis.There is no fixed expiry date for the license agreement. The term of the license in each
relevant country is for the longer of 10 years from the first commercial sale of products
which exploits the Sydney South West Area Health Service intellectual property in that
country or until the expiry of the last registered patent in that country. The license may be
terminated earlier by either party if there is a breach of the agreement by a party and that
party fails to remedy the breach within 30 days after receiving notice to do so, or if any
party becomes insolvent or if we determine in our commercial judgment that it is not prudent
to continue the license. If we decide not to obtain product approval in any country, we will
not unreasonably refuse to convert the license into a non-exclusive license for that country.We must bear the cost of maintaining the relevant registered Sydney South West Area Health
Service intellectual property and must use our reasonable commercial endeavors to exploit and
undertake research and development of the intellectual property.
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4.2.5
    
    Material Contracts (continued)We may at our own cost prosecute applications for any new patentable inventions arising in
the course of exploiting the Sydney South West Area Health Service intellectual property,
in our name. If we do not seek patent protection for the new patentable invention in any
country, Sydney South West Area Health Service may at its own cost file patent
applications.For the term of the license, we are liable to pay the royalties described below to Sydney
South West Area Health Service on the net sales of products and services which exploit the
Sydney South West Area Health Service intellectual property.In respect of the upper and lower airway function test application of the intellectual
property:
 
    
    no royalties until aggregate net sales of products and services from all countries of
A$500,000 have been achieved;
    
    a royalty of 4% of the gross margin if the net sales of
the products or services by us achieve a gross margin of 20% or less;
    
    a royalty of 8% of
the gross margin if the net sales of the products or services by us achieve a gross margin
between 20% and 40%;
    
    a royalty of 10% of the gross margin if the net sales of the
products or services by us achieve a gross margin greater than 40%; and
    
    20% of any royalty received from any sub-licensee.
  
    
    no royalties are payable until sales representing a gross margin of A$1 million have
been achieved then, when the gross margin achieved by the product sales is between A$1
million and A$25 million a royalty equal to 3% of the gross margin will apply, when it is
between A$25 million and A$75 million a royalty equal to 2.5% of the gross margin will
apply and when it is greater than A$75 million a royalty equal to 2% of the gross margin
will apply; and
    
    20% of any royalty received from a sub-licensee.
    AusIndustry P3 Pharmaceuticals Partnerships Program Funding Deed
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Research and Development Start Program Grant Agreement
   Put and Call Option Deed
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4.2.6
    
    Exchange ControlsFor a description of any governmental laws, decrees, regulations or other legislation of
Australia which may affect (1) the import or export of capital, including the availability
of cash and cash equivalents for use by us, or (2) the remittance of dividends, interest
or other payments to nonresident holders of our securities, see Section 4.2.1 of this
Statutory Annual report.4.2.7
    
    Taxation Summary Applicable to U.S. HoldersThe following is a summary of certain material Australian income tax and U.S. federal
income tax considerations related to the ownership and disposition of our ordinary shares
or ADSs that may be relevant to you if you are a U.S. Holder (as defined below). This
summary is based on the Australian and U.S. tax laws currently in effect. The term U.S.
Holder means a beneficial owner of our ordinary shares or ADSs that is, for U.S. federal
income tax purposes, a citizen or individual resident of the United States, a domestic
corporation, an estate whose income is subject to U.S. federal income tax regardless of
its source, or a trust if a U.S. court can exercise primary supervision over the
administration of the trust and one or more U.S. persons are authorized to control all
substantial decisions of the trust, or a trust that has a valid election in effect under
applicable U.S. Treasury regulations to be treated as a U.S. person.U.S. Holders of our ordinary shares or ADSs should consult their own tax advisors
regarding the application of the Australian and U.S. federal income tax laws to their
particular situations as well as any tax considerations under other tax laws (such as
estate and give tax laws), or the laws of any province, state or local jurisdiction.If an entity is treated as a partnership, the tax treatment of a partner will generally
depend on the status of the partner and upon the activity of the partnership. If you are a
partner of a partnership that will hold our ordinary shares or ADSs, we suggest you
consult your own tax advisor.Australian TaxationThe following summary of the Australian taxation implications is based on the provisions
of the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the
International Tax Agreements Act 1953, or IntTAA with the United States Convention as
amended by the United States Protocol, or USDTA, public taxation rulings and available
case law current as at the date of this Statutory Annual Report, or collectively referred
to in this section as Australian Taxation Laws. The Australian Taxation Laws and their
interpretation are subject to change at any time.General Principle of Taxation in AustraliaThis summary discusses only two items of income that may arise from an investment in our
ordinary shares or ADSs, namely:
 
    
    gains realized from the sale of our ordinary shares or
ADSs; and
    
    dividends that may be paid by us with respect to those shares and ADSs. Please
note that we have not paid any dividends to date and do not expect to pay any in the near
to medium term.
 Gains on Sale of Shares or ADSs by U.S. Holders
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Dividends Paid to U.S. Holders
        U.S. Taxation for U.S Holders
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4.2.7
    
    Taxation Summary Applicable to U.S. Holders (continued)Ownership of Ordinary Shares and ADSs by U.S. HoldersThe gross amount of any distribution received by a U.S. Holder with respect to our
ordinary shares or ADSs generally will be included in the U.S. Holders gross income as a
dividend to the extent attributable to our current and accumulated earnings and profits
(as determined under U.S. federal income tax principles). To the extent a distribution
received by a U.S. Holder is not a dividend because it exceeds the U.S. Holders pro rata
share of our current and accumulated earnings and profits, it will be treated first as a
tax-free return of capital and reduce (but no below zero) the adjusted tax basis of the
U.S. Holders shares. To the extent the distribution exceeds the adjusted tax basis of the
U.S. Holders shares, the remainder will be taxed as capital gain (the taxation of capital
gain is discussed under the heading Sale of Ordinary Shares and ADSs below).For taxable years beginning after December 31, 2002 and before January 1, 2009, dividends
received by non-corporate U.S. holders from a qualified foreign corporation are taxed at
the same preferential rates that apply to net long-term capital gains. A foreign
corporation is a qualified foreign corporation if it is eligible for the benefits of a
comprehensive income tax treaty with the United States (the income tax treaty between
Australia and the United States is such a treaty) or its shares or ADSs with respect to
which such dividend is paid are readily tradable on an established securities market in
the United States (such as the Nasdaq National Market on which our ADSs are traded).
Notwithstanding satisfaction of one or both of these conditions, a foreign corporation is
not a qualified foreign corporation if it is a passive foreign investment company (PFIC)
for the taxable year of the corporation in which the dividend is paid or the preceding
taxable year. A foreign corporation will also not be a qualified foreign corporation with
respect to a particular holder (subject to certain limited exceptions) if it was a PFIC
for any taxable year in that holders holding period. Dividends received from a foreign
corporation that is not a qualified foreign corporation will be taxed at ordinary income
tax rates. As discussed in more detail below, under the section entitled
TaxationPassive Foreign Investment Companies, there is a risk that we will continue to
be a PFIC in the future.If a distribution is paid in Australian dollars, the U.S. dollar value of such
distribution on the date of receipt is used to determine the amount of the distribution
received by a U.S. Holder (and the amount of Australian tax withheld, if any). A U.S.
Holder who continues to hold such Australian dollars after the date on which they are
received, may recognize gain or loss upon their disposition due to exchange rate
fluctuations. Generally such gains and losses will be ordinary income or loss from U.S.
sources.U.S. Holders may deduct Australian tax withheld from distributions they receive from us
for the purpose of computing their U.S. federal taxable income or alternatively elect to
claim a foreign tax credit against their U.S. federal income tax liability for such taxes.
The foreign tax credit is subject to a number of limitations and the rules governing its
determination are very complex. Prospective U.S. Holders should consult their own tax
advisors to determine whether and to what extent they would be entitled to claim a foreign
tax credit.Corporate U.S. Holders generally will not be allowed a dividends received deduction with
respect to dividends they receive from us.Sale of Ordinary Shares and ADSs by U.S. HoldersSubject to the PFIC rules discussed below, a U.S. Holder that sells or otherwise disposes
of ordinary shares or ADSs will recognize capital gain or loss equal to the difference
between the U.S. dollar value of the amount realized and its adjusted tax basis in those
ordinary shares or ADSs. This gain or loss generally will be capital gain or loss from
U.S. sources, and will be long-term capital gain or loss if the U.S. Holder
held its shares for more than 12 months. Generally, the net long-term capital gain of a
non-corporate U.S. Holder recognized before January 1, 2009 is subject to tax at a top
marginal rate of 15%. Capital gain that is not long-term capital gain is taxed at ordinary
income tax rates.
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Passive Foreign Investment Companies
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4.2.7
    
    Taxation Summary Applicable to U.S. Holders (continued)U.S. Information Reporting and Backup WithholdingUnited States information reporting and backup withholding requirements may apply with
respect to distributions to U.S. Holders, or the payment of proceeds from the sale of
shares, unless the U.S. Holder: (a) is an exempt recipient (including a corporation); (b)
complies with certain requirements, including applicable certification requirements; or
(c) is described in certain other categories of persons. The backup withholding tax rate
is currently 28%. Any amounts withheld from a payment to a U.S. Holder under the backup
withholding rules may be credited against any U.S. federal income tax liability of the
U.S. Holder and may entitle the U.S. Holder to a refund.4.2.8
    
    Documents on DisplayWe file annual reports and other information with the Australian Securities Exchange and
certain information with the Australian Securities and Investments Commission. Information
filed with the Australian Securities Exchange is available from www.asx.com.au or from our
website www.pharmaxis.com.au. Information filed with the Australian Securities and
Investments Commission is available through www.asic.gov.au.We also file annual reports and other information with the U.S. Securities and Exchange
Commission. We will file annual reports on Form 20-F and submit other information under
cover of Form 6-K. As we are considered a foreign private issuer by the U.S. Securities
Exchange Commission, we are exempt from the proxy requirements of Section 14 of the
Exchange Act and our officers, Directors and principal shareholders will be exempt from
the insider short-swing disclosure and profit recovery rules of Section 16 of the Exchange
Act. Annual reports and other information we file with the U.S. Securities Exchange
Commission may be inspected at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its regional offices located at 233 Broadway, New York, New York 10279 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof
may be obtained from such offices upon payment of the prescribed fees. You may call the
U.S. Securities Exchange Commission from the U.S. by dialing 1-800-SEC-0330 for further
information on the operation of the public reference rooms and you can request copies of
the documents upon payment of a duplicating fee, by writing to the U.S. Securities
Exchange Commission. In addition, the U.S. Securities Exchange Commission maintains a web
site that contains reports and other information regarding registrants (including us) that
file electronically with the Commission which can be accessed at www.sec.gov.4.2.9
    
    Enforceability of Civil Liabilities by U.S. ShareholdersWe are a public company incorporated and domiciled under the laws of Australia. A majority
of our Directors and executive officers are residents of countries other than the United
States. Furthermore, all or a substantial portion of their assets and our assets are
located outside the United States. As a result, it may not be possible for our U.S.
shareholders to:
 
    
    effect service of process within the United States upon any of our
Directors and executive officers or on us; or
    
    enforce in U.S. courts judgments obtained
against any of our Directors and executive officers or us in the U.S. courts in any
action, including actions under the civil liability provisions of U.S. securities laws;
    
    enforce in U.S. courts judgments obtained against any of our Directors and senior
management or us in courts of jurisdictions outside the United States in any action,
including actions under the civil liability provisions of U.S. securities laws; or
    
    to
bring an original action in an Australian court to enforce liabilities against any of our
Directors and executive officers or us based upon U.S. securities laws.
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4.2.10
    
    Exchange Rate InformationThe following table presents exchange rates of the Australian dollar into the U.S. dollars
for the periods indicated. Annual averages are calculated using the average of month-end
rates of the relevant year. Monthly averages are calculated using the average of the daily
rates during the relevant period.
 Average
    
    
    High
    
    
    LowPeriod
    
    U.S.$
    
    
    U.S.$
    
    
    U.S.$Five most recent financial years2004
    
    
    0.7155
    
    
    
    0.7979
    
    
    
    0.63902005
    
    
    0.7568
    
    
    
    0.7974
    
    
    
    0.68802006
    
    
    0.7472
    
    
    
    0.7781
    
    
    
    0.70562007
    
    
    0.7925
    
    
    
    0.8491
    
    
    
    0.74072008
    
    
    0.8969
    
    
    
    0.9610
    
    
    
    0.7860Six most recent monthsFebruary 2008
    
    
    0.9133
    
    
    
    0.9370
    
    
    
    0.9035March 2008
    
    
    0.9221
    
    
    
    0.9132
    
    
    
    0.9409April 2008
    
    
    0.9309
    
    
    
    0.9419
    
    
    
    0.9067May 2008
    
    
    0.9492
    
    
    
    0.9551
    
    
    
    0.9338June 2008
    
    
    0.9511
    
    
    
    0.9610
    
    
    
    0.9342July 2008
    
    
    0.9620
    
    
    
    0.9797
    
    
    
    0.9415On 15 August the exchange rate was $0.8676
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4.3     Glossary
 ADEC
    
    Australian Drug Evaluation CommitteeADR
    
    American Depositary Receipts (ADRs) are commonly used to facilitate the holding and
trading of foreign securities by US residents which would otherwise be prohibited by US
securities laws.agonist
    
    A molecule capable of combining with a biochemical receptor on a cell and initiating the
same response as occurs naturallyairway responsiveness
    
    The degree to which airways react to a stimulus. Usually used to describe the degree of
airway constriction that will be caused by exposure to a stimulianalgesic
    
    Relieving pain; a pain-relieving drugantagonist
    
    A chemical that acts within the body to reduce the physiological activity of another
chemical substance i.e. opposing the action of a drug or a substance occurring
naturally in the body by combining with and blocking its receptorAridol
    
    Aridolis a patented, dry powder formulation of mannitol delivered to the lungs
through
an inhaler. Aridolis applied as a bronchial provocation test to accurately
diagnose the
presence and severity of bronchial hyperresponsiveness or over-sensitivity, which is
characteristic of asthma.asthma
    
    Refer to disease information earlier in this sectionASX
    
    Australian Securities Exchangeautoimmune
    
    Having the property whereby immune cells respond to tissues in ones own body, that
is, the body no longer recognises all cells as being its own, and rejects somebeta interferon
    
    A protein released by some cells in response to a viral infection. The protein can be
synthesised and used in the treatment of multiple sclerosis.blinding/blindness
    
    The term blind refers to a lack of knowledge of the identity of the trial treatment.
Blinding avoids bias in trial execution and in interpretation of results and is achieved by
disguising the identity of trial medications (e.g. a placebo should look, taste and behave
identically to the active drug). In a single blind trial the patient is unaware, but the
physician is informed of the allotment. In a double blind trial, both patient and
physician are unaware.breakdown products
    
    Products that result from the disintegration or decomposition of a substance in the bodybronchial hyper-responsiveness 
or over-sensitivity
    
    When a persons bronchial tubes (tubes that lead to the left and right lung) are abnormally
responsive or sensitive to triggers and react by narrowing and becoming inflamedbronchial provocation test
    
    A lung test that provokes a temporary narrowing of the bronchial tubes in the lungsbronchiectasis
    
    Refer to disease information earlier in this sectionBronchitol
    
    Bronchitolis a patented, dry powder formulation of mannitol delivered to the lungs
through an inhaler. Bronchitolis designed for the treatment of diseases such as
COPD
and cystic fibrosis.bronchodilator
    
    A substance that acts to dilate or expand the bronchial airway passages, making it
easier for patients to breathecarcinogenicity
    
    Potential to cause cancercentral nervous system
    
    System of nerves of the brain and spinal cordchemoattractant
    
    A chemical agent that induces movement of cells in the direction of its highest concentrationchest percussion
    
    Form of physiotherapy/massage that involves tapping the patients chest and back with
light, rapid blows to help them expel mucus from their lungschronic
    
    A disease or condition of long duration or frequent recurrence; in some instances, it may
slowly become more serious over timechronic bronchitis
    
    Refer to disease information earlier in this sectionchronic obstructive 
pulmonary disease
    
    Refer to disease information earlier in this sectioncilia
    
    Millions of fine hair-like structures that cover the inside lining of our airways and move
continuously to propel secretions up to the throat (also refer to mucociliary clearance)
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ciliated cell
    
    An epithelial cell which has cilia on its external surface. Found in the lungs and
other
airway passages such as bronchi and nose.clinical trial
    
    Refer to explanation/diagram later in this sectionCooperative Research Centre
    
    The CRCAA (formerly the Cooperative Research Centre for Asthma) is an Australian for
Asthma and Airways (CRCAA) research cooperative that was expanded in 2006 to include
all airways diseases. It focuses on three core areas of airways research: diagnosis
and
monitoring, new treatments, and assessing the consequences of air quality.COPD
    
    Chronic obstructive pulmonary disease. Refer to disease information earlier in this
sectioncorticosteroids
    
    Any of the steroid hormones produced by the adrenal cortex or their synthetic
equivalents. Corticosteroids are used clinically for hormonal replacement therapy, for
suppression of glands such as the anterior pituitary, as anti-cancer and
anti-allergic and
anti-inflammatory agents, and to suppress the immune response. They may be injected,
taken as pills, inhaled via a puffer or rubbed on to the skin.cystic fibrosis (CF)
    
    Refer to disease information earlier in this sectiondirect challenge test
    
    The process of directly stimulating receptors in the lung walls and inducing a
constriction or narrowing of the airways by administering a substance to the airways
that acts directly on the airway wall and testing the response by spirometry. Examples
include methacholine and histamine.dose response curve
    
    A dose response curve illustrates the relation between the amount of a drug or other
chemical administered to a person or an animal and the degree of response it produces.dosing phase
    
    Refer to explanation/diagram later in this sectionendothelial
    
    An endothelial cell layer refers to the layer of cells that lines the blood vessels
and airwaysepithelial mast cells
    
    Mast cells are a variety of leukocytes or white blood cells containing granules that
store
a variety of inflammatory chemicals including histamine and serotonin. Mast cells play
a central role in inflammatory and immediate allergic reactions. The release of
mediators
from the cell is known as degranulation and may be induced by the presence of
a specific antigen (allergen). Epithelial mast cells are those found in the epithelium
(the membranous tissue composed of one or more layers of cells separated by very
little
intercellular substance and forming the covering of most internal and external
surfaces
of the body and its organs. Skin and the lung linings are two examples of epithelium.)eucapnic hyperpnoea
    
    Eucapnic (adjective) is defined as a normal healthy level of carbon dioxide (C02).
Hyperpnoea is abnormally fast breathing.European Medicines Agency
(EMEA)
    
    The EMEA is an agency that coordinates the evaluation and supervision of medicinal
products throughout the European Union.exercise challenge test
    
    A test in which patients undertake a physical activity, such as exercise, running or
bike
riding, and the bodys response to the activity is measured. It can be used to
determine
if a patient is asthmatic by measuring the degree of bronchial constriction that is
induced during a period of exercise.exocrine glands
    
    Glands that produced mucus, saliva, sweat and tearsFDA
    
    United States of Americas Food and Drug Administrationflare or flare-up
    
    A period of worsening symptomsGMP
    
    Good Manufacturing Practice  set of principles and procedures which, when followed
by manufacturers of therapeutic goods, helps ensure that the products manufactured
will have the required quality goblet cell A mucus-secreting epithelial cell that is
distended with secretion, so called because of its histological shape.head-to-head trial
    
    A clinical trial in which a test compound is evaluated against another compoundhypertonic saline
    
    A solution with a higher salt concentration than in normal cells of the body and the
blood. A salt solution containing more than 0.9% salt is hypertonic.indirect challenge test
    
    The process of indirectly inducing a constriction or narrowing of the airways by
causing
cells in the airways to release molecules that subsequently act on the airway, and
testing
the response by spirometry. Mannitol mimics an allergen challenge or asthma attack.
The attack can be controlled by administering increasing doses and the response at
each dose is measured. Other examples include exercise and hypertonic saline.
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4.3     Glossary (Continued)
 International Committee onHarmonisation (ICH)
    
    An international body that provides test guidelines that cover the manufacture of drug substances, the manufacture of the dosage form, and the safety testing that must be
conducted before evaluation in humans can proceedin vitro
    
    In an artificial environment, outside the living body e.g. in a test tubein vivo
    
    In the living body of a plant or animal, or in real lifeleukocytes
    
    Immune cells; white blood cellsligand
    
    A molecule that binds to cell receptorslung function
    
    Ability of a person to move air in and out of their lungs. A measure often used is
termed
FEV1, which is the volume of air that can be forcibly expelled from the lungs in one
secondlymphocyte
    
    A type of white blood cell found in the bodys lymph, a clear fluid that flows
through the body and has an important function in defending the body against diseasemannitol
    
    Mannitol is a naturally occurring sugar alcohol used variously as a food additive, a therapeutic product, and a sweetener.marketing authorisation
    
    The legal authority granted to an individual or company to sell a productmeta-analysis
    
    Pooling and examining data from a number of studiesmethacholine inhalation test
    
    A test used in the diagnosis of asthma. Methacholine is inhaled as a vapour and causes bronchial constriction in asthmatic patients.mucociliary clearance
    
    A constant, natural process where the cilia lining the lungs move continuously and
propel the overlying blanket of salt, water and mucus up to the throat, where
secretions
are swallowed or expelled as sputum. This helps keep the airways clean, allows the
passage of clean, warm air through the lungs, and removes any foreign bodies from the
airways, preventing infection.mucosal hydration
    
    The natural process of keeping mucus hydrated to prevent it becoming thick and sticky
i.e. maintaining the correct balance of water mucus Thin, slippery substance secreted
by the lungs (and other organs in the body) to defend against germs, dust particles
and other foreign bodiesmulti-centre study
    
    Study conducted simultaneously in a number of clinics, hospitals, etcmultiple sclerosis (MS)
    
    Refer to disease information earlier in this sectionmyelin
    
    The protective protein sheath that insulates the nerve cells and helps speed the
conduction of nerve signals to the brain and spinal cordNASDAQ
    
    National Association of Securities Dealers Automated Quotation system (US)nebulised medication
    
    Medication delivered to the lungs of patients in fine spray by aerosol or face maskoral medication
    
    Medication taken by mouth e.g. tablets, liquidsorphan drug
    
    A product intended for the diagnosis, prevention and treatment of a rare disease
(orphan
disease) or condition where current therapy would be improved or no therapy exists.osmotic balance
    
    Osmosis is the passage of water from a region of high water concentration through a
semi-permeable membrane, such as a cell, lung or intestinal wall, to a region of low
water concentration. Osmotic balance is when there is no tendency for water to flow
across the membrane.P3
    
    Pharmaceuticals Partnerships Program (Australian Federal government grant program)pathogen
    
    Disease-causing microorganismPBS
    
    Pharmaceutical Benefits Scheme (Australian government program that reduces the cost
of some drugs to patients)PCT
    
    Patent Cooperation TreatyPEP mask
    
    A mask worn over the nose and mouth, which pumps air into the lungs (positive
expiratory pressure)pharmaco-economic evaluation
    
    Evaluation of the potential of a new pharmaceutical product to produce cost savings to
a national economypharmacokinetic profile
    
    How a drug interacts in the body in terms of its absorption, distribution, metabolism,
and excretion
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phase III registration study
    
    Refer to explanation/diagram later in this sectionphase II clinical trial
    
    Refer to explanation/diagram later in this sectionpilot clinical study
    
    Refer to explanation/diagram later in this sectionplacebo
    
    An inert or innocuous substance used especially in controlled experiments to test and
compare the efficacy of another, active, substancepostural drainage
    
    A method of draining the lungs in which the patient is placed in an inverted position
so that fluids are drawn by gravitypre-clinical
    
    Prior to being administered to volunteers or patientsprimary cilia dysplasia
    
    Dysplasia means a cell is abnormally shaped or abnormally functioning. Ciliary
dysplasia
is a genetic disease where the cilia do not function properly.pro-drug
    
    An inactive precursor of a drug, converted into its active form in the body by normal
metabolic processes.protease
    
    An enzyme that breaks the internal bonds of a proteinpsoriasis
    
    A chronic skin disease characterised by red patches covered with white scalespulmonary function
    
    Refer to lung function, abovepulmonary system
    
    Lungspyran
    
    A sugar derivativePXS64
    
    A compound being developed by Pharmaxis to target the underlying disease processes
of multiple sclerosisPXS74
    
    A compound being investigated by Pharmaxis for its effects on asthmaR&D
    
    Research and developmentrelapse
    
    A recurrence of symptoms of a disease after a period of improvement or remissionremission
    
    Period when the symptoms of the patients disease are not presentrespiratory failure
    
    A clinical term used to define the inability of the lungs to functionrespiratory insufficiency
    
    A clinical term used to define a failure to adequately provide sufficient oxygen to the
body, or remove excess carbon dioxiderheology
    
    The study of the flow of materials that behave in an interesting or unusual mannerrheumatoid arthritis
    
    Refer to disease information earlier in this sectionsafety profile
    
    Evidence gathered that indicates a substance is safe to be administered to peoplesecondary lung infections
    
    Infection coming after, or as a result of, an initial or primary infectionselective inhibitor
    
    A substance that is used to stop a specific biochemical reactionspirometer; spirometry test
    
    A device used to measure the amount of air a patient can expel from their lungs in
one secondsputum microbiology
    
    A measure of lung infectionsstatistical significance
    
    A mathematical test that indicates that groups being compared are differentsteroid
    
    Numerous natural or synthetic compounds that contain a 17-carbon 4-ring system
and can modify reactions in the bodysubmucosal glands
    
    The glands situated in the connective tissue beneath the mucous membrane.synthesis, synthetic compound
    
    A substance that is made by a series of chemical or biochemical reactionsT-cells
    
    Immune cells that attach themselves to other cellstherapeutic
    
    Medicinal, curativeTGA
    
    Australias Therapeutic Goods Administrationtoxicology study
    
    Investigation into the adverse effects of a substance in an animal or humanTumour Necrosis Factor (TNF)
    
    A small molecular-weight protein produced primarily by immune cells. It is a key
protein
responsible for initiating inflammationviscosity
    
    A physical property of fluids that determines the internal resistance to shear forces
(the resistance a material has to change in form)
 Pharmaxis




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4.4 Corporate Directory
 Directors
    
    BankersDenis Hanley  Chairman
    
    HSBC Bank Australia LtdAlan Robertson  Chief Executive Officer
    
    Westpac Banking CorporationWilliam DelaatPeter Farrell
    
    Securities Exchange ListingsMalcolm McComas
    
    Pharmaxis shares are listed on theJohn Villiger
    
    Australian Securities Exchange (Code: PXS)Pharmaxis American Depositary Receipts (ADRs)Company Secretary and Chief Financial Officer
    
    are listed on the National Association of SecuritiesDavid McGarvey
    
    Dealers Automated Quotation system (NASDAQ)Global Market (Code: PXSL)General CounselCameron Billingsley
    
    Share RegistryComputershare Investor Services Pty LtdCorporate Affairs
    
    Level 3, 60 Carrington StreetVirginia Nicholls
    
    Sydney NSW 2000AustraliaRegistered Office
    
    Telephone: +61 3 9415 4000Unit 2, 10 Rodborough Road
    
    (within Australia: 1300 855 080)Frenchs Forest NSW 2086
    
    Fax: +61 3 9473 2500Australia
    
    www.computershare.comTelephone: +61 2 9454 7200Fax: +61 2 9451 3622
    
    American Depositary ReceiptsEmail: info@pharmaxis.com.au
    
    Registrar and Transfer Agent:BNY Mellon Shareowner ServicesWeb Site
    
    480 Washington Blvd., 27th floorwww.pharmaxis.com.au
    
    Jersey City, NJ 07310United States of AmericaLegal Advisors
    
    Telephone within the U.S.: (201) 680-4000PFM Legal Pty Ltd
    
    Telephone outside the U.S.: +1 201 680 6825Level 12, 117 York StreetSydney NSW 2000
    
    U.S. Agent for Service of NoticeAustralia
    
    Pharmaxis, Inc.403 Gordon DriveVenable LLP
    
    Exton, PA 19341575 7th Street, NW
    
    United States of AmericaWashington, DC 20004
    
    Phone: +1 610 363 5120United States of America
    
    Fax: +1 610 363 5936Auditor
    
    Incorporation InformationPricewaterhouseCoopers
    
    Incorporated in AustraliaDarling Park Tower 2
    
    Australian Company Number 082 811 630201 Sussex Street
    
    Australian Business Number 75 082 811 630Sydney NSW 2000Australia
 Pharmaxis




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Signatures
  Date: September 15, 2008
    Pharmaxis LtdBy:
    /s/ David M. McGarveyDavid M. McGarveyChief Financial Officer




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ITEM 19. EXHIBITS
 The following exhibits are filed as part of this report.
 EXHIBIT NO.
    
    DESCRIPTION1.1
    
    Constitution as amended by shareholders on November 5, 2007***2.1
    
    Form of American Depositary Receipt (included in Exhibit 2.2)*2.2
    
    Form of Depositary Agreement (Incorporated by reference to the Registration Statement on Form F-6
(File No. 333-120026) filed by the Company with the Commission on October 28, 2004)4.1
    
    Form of Deed of Access to Documents and Indemnity entered into with Company Directors and
Company Secretary*4.2
    
    Form of Employment Agreement entered into with Company Officers4.3
    
    Lease dated August 22, 2006 between Trust Company of Australia Ltd and the Company**4.4
    
    Agreement dated October 14, 1999 between ANU Enterprises Pty Ltd (formerly Anutech Pty Ltd) and
the Company (formerly Praxis Pharmaceuticals Australia Pty Ltd), as amended*4.5
    
    Patent License Agreement dated October 10, 2001 between the Company (formerly Praxis
Pharmaceuticals Australia Pty Ltd) and Sydney South West Area Health Service (formerly Central Sydney Area
Health Service)*4.6
    
    Service Agreement dated December 9, 2002 between ANU Enterprises Pty Ltd (formerly Anutech Pty
Ltd) and the Company, as amended*4.7
    
    R&D Start Grant Program Grant Agreement dated June 17, 2003 between the Commonwealth of Australia
(acting through the Industry Research and Development Board) and the Company*4.8
    
    Pharmaceuticals Partnerships Program P3 Funding Agreement dated August 12, 2004 between the
Commonwealth of Australia (represented by the Department of Industry, Tourism and Resources) and the Company*4.9
    
    Put and Call Option to Lease between GE Real Estate Investments Australia Pty Limited, Goodman
Property Services (Aust) Pty Limited and the Company***4.10
    
    Pharmaxis Ltd Employee Option Plan*11.
    
    Code of Conduct***12.
    
    Certification required by Rule 13a-14(a)13.
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 *
    
    Incorporated by reference to our Registration Statement on Form F-1 (File No. 000-51505)**
    
    Incorporated by reference to our Annual Report on Form 20-F for the year ended June 30, 2006
(File No. 000-51505)***
    
    Incorporated by reference to our Annual Report on Form 20-F for the year ended June 30, 2007 (File No. 000-51505)