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Annual Report 2008
Highlights
• Lialda™successfullylaunchedinCanadaon29January2008
• HighlypositiveresultsfromtheLMWHeparinMMX®phaseIIbtrialfor
UlcerativeColitisannouncedon21April2008
• CosmoawardedUSpatentforuseofitsMMX®technologyon4August2008
• CompletionofthefirstphaseIclinicaltrialofCB-03-01forthetreatmentof
skindisorderson2September2008
• RifamycinSVMMX®licensingagreementforEUsignedwithDr.FalkPharma
on24November2008
• StrategiccollaborationwithSantarusforUSrightstoBudesonideMMX®
andRifamycinSVMMX®signedon15December2008
Pipeline development 2007–2008
Product Drug type Preclinical Phase I Phase II Phase III MA Launch
Lialda™/ Mezavant ®
MildtomoderateUlcerativeColitis
5-ASA
Budesonide MMX®
MildtomoderateUlcerativeColitis
Corticosteroid
Rifamycin SV MMX®
Travellers’Diarrhoea
Antibiotic
LMW Heparin MMX®
MildtomoderateUlcerativeColitis
Biologic
Zacol NMX®
IntestinalDisorders(nutraceutical)
Dietarysupplement
Rifamycin SV MMX®
CDAD
Antibiotic
CB-03-01 (NCE)
Acne,malepatternbaldnessandHirsutism
Steroidester,
androgenantagonist
CB-01-12
IBD
Anti-TNFα
CB-01-09
IBD
Immunosuppressant
CB-01-13
ColorectalCancerprevention
CB-01-14
Crohn’sDisease
CB-01-16
Opioid-inducedconstipation
Cox-2inhibitor
Antibiotic
Opioidantagonist
2007 2008
PKStudy/POCSteadyStatePKSensitivityStudy
Cosmo at a glance
CosmoPharmaceuticalsS.p.A.isaspecialtypharmaceuticalcompany
headquarteredinLainate,Milan,Italy,andislistedontheSIXSwissExchange
(SIX:COPN).
Cosmo’sobjectiveistobecomeagloballeaderinthemarketofoptimized
therapiesforselectedGastrointestinalDisorders.TheCompany’sclinicaldevelop-
mentpipelinespecificallyaddressesinnovativetreatmentsforInflammatory
BowelDiseases(IBD),suchasUlcerativeColitisandCrohn’sDisease,aswellasfor
ColonInfections.Inaddition,theCompanyisdevelopinganewchemicalentity
forthetreatmentofAcne,AlopeciaandHirsutism.
Cosmo’sproprietarymultimatrixtechnology,MMX®,isanexcellentbasefor
developingnew,patentable,yetlow-riskproducts,manufacturedattheCompany’s
ownGMP-approvedplant.CurrentlyCosmohastwoproductsonthemarket,five
inclinicaltrialsandafurtherfiveinpreclinicaldevelopment.
Key figures
EUR1,000 2008 2007
Income statements
Revenues 34,173 21,900
Costofsales (13,203) (13,162)
R&Dcosts (4,287) (4,772)
SG&Acosts (5,546) (4,730)
Operatingresult 11,184 (248)
Profitbeforetaxes 11,613 153
Profitfortheperiod 9,401 116
Balance sheet
Non-currentassets 24,072 13,562
Cashandcashequivalents 22,166 25,505
Othercurrentassets 11,527 8,161
Liabilities 14,529 12,081
Shareholders’equity 43,236 35,147
Equityratio(in%) 75% 74%
Shares
Weightedaveragenumberofshares 13,871,249 13,348,507
Earningspershare(inEUR) 0.678 0.009
CosmoPharmaceuticalsAnnualReport2008 3
TheMMX®technologyallowsthedeliveryofactivepharmaceuticalingredientsintothelumenofthecolonthroughtabletsinadelayedandcontrolledmechanismwiththeeffectthattheactivepharma-ceuticalingredientscanbeappliedtothefulllengthofthecolon.
CosmoPharmaceuticalsAnnualReport2008 5
Cosmo in 2008 6
Letter to Shareholders 9
Business performance against strategic objectives 14
Company information
InflammatoryBowelDisease 15
Keyvaluedrivers 19
Businessstrategy 21
ScientificAdvisoryBoard 32
Operatingprinciplesandactivities 34
Corporate governance
Groupstructureandshareholders 41
Capitalstructure 43
BoardofDirectors 45
ExecutiveManagement 52
Compensation,shareholdingsandloans 57
Shareholders’rights 61
IndependentAuditors 63
Changeofcontrolanddefencesmeasures 63
Informationpolicy 63
Episode 1: Agent MMX® strikes back 65
Financial review 75
Consolidated financial statements
Consolidatedfinancialstatementsasof31December2008 81
Explanatorynotestotheconsolidatedfinancialstatements
asof31December2008 86
Auditors’report 134
Selectedfinancialinformation 136
Informationforinvestors 138
Glossary 140
Contactsandaddresses
Tableofcontents
6 CosmoPharmaceuticalsAnnualReport2008–Cosmoin2008
2008 key facts and figures
• Totalrevenueincreasedby56%toEUR34.2million
• RevenuefromownproductsincreasedfromEUR7.3milliontoEUR21million,
contributing62%oftotalrevenue
• Manufacturingofgenericproductsandspecialtydrugsrevenuedecreasedby
8.7%toEUR12.4million
• NetprofitofEUR9.4millionafterasmallnetprofitofEUR0.1millionin2007
• CashandcashequivalentsdecreasedslightlytoEUR22.2million
Revenue breakdown
Revenue split by own products and third-party products
Cosmoin2008
2007 2008
2007
2008
Ownproducts
Third-partyproducts
Manufacturing of
generic products
and specialty drugs
Total revenue EUR 21.9 million Total revenue EUR 34.2 million
EUR
Manufacturing of
MMX® products
Related services Licence fees and
milestones
Royalties
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
62%
38%
33%
67%
Employees by function
131personsemployed(6newjobs;+5%)
Share price
Cosmoin2008–CosmoPharmaceuticalsAnnualReport2008 7
Research&Development
Production&Logistics
Administration&Finance
CosmoPharmaceuticals
SPIBiopharma
SPIS&MCAP
2008 CHF
27.0
22.5
24.7
20.0
18.0
13.5
15.7
11.2
03
.01
.20
08
14
.02
.20
08
31
.03
.20
08
14
.05
.20
08
25
.06
.20
08
07
.08
.20
08
18
.09
.20
08
30
.10
.20
08
11
.12
.20
08
30
.12
.20
08
13%18%
69%
TabletsmanufacturedwithMMX®technologyarecoatedwithpH-resistantacryliccopolymerswhichdelaythereleaseoftheactiveingredientuntilthetabletreachestheindicatedintestinallocationwheretheprogrammeddissolutionbegins.
LettertoShareholders–CosmoPharmaceuticalsAnnualReport2008 9
In2008,weweresuccessfulinachievingallofthemainobjectiveswesetourselves
atthebeginningoftheyear.Thecataclysmiceventsinthefinancialmarketsdid
notaffectouroperationsorthedevelopmentofclinicalprogrammesnegatively.
Lialda™/Mezavant®increaseditsmarketpenetrationbyslightlymorethanexpect-
ationsandtheserevenues,togetherwiththesteadyrevenuesfromourcontract
manufacturing,allowedustocontinuetoadvanceourclinicalprogrammeswithout
diminishingourfinancialresources.Theclinicaldevelopmentofourmainproducts
andprojectscontinuedasplanned.Importantly,afterdiscussionswiththeregula-
toryagenciesintheEUandintheUSA,weinitiatedphaseIIIclinicaltrialsinEurope
andNorthAmericaforBudesonideMMX®andarealsoundertakingthefinalprepar-
ationsaheadoftheupcomingphaseIIIclinicaltrialsforRifamycinSVMMX®in
theEUandUSA.Thesetwoproductsrepresentournextgenerationofproductsand
arescheduledformarketentryinlate2011.Additionally,wesuccessfullyconcluded
twokeyclinicaltrialsforLMWHeparinMMX®andforCB-03-01,thusstrengthening
theregenerationofourdevelopmentpipeline.
Towardstheendoftheyear,wemadesignificantstepsinenteringtheimportant
USmarket.Followingextensiveinvestigationandanalysis,weenteredintoan
exclusivelicensingandequityparticipationagreementforBudesonideMMX®and
RifamycinSVMMX®intheUSAwithSantarus(NASDAQ:SNTS).Santarushasa
strongfocusandcommitmenttotheGastrointestinalDisorders(GI)fieldandis
wellalignedwithCosmotoadvancethedevelopmentofboththeseproductsand
tobringthemtomarket.Shortlybeforethis,wesignedanagreementtooutli-
censeRifamycinSVMMX®intheEUtoDr.FalkPharma,oneofEurope’sleading
GIspecialists.ThuswehavecontinuedonourpathtowardspositioningCosmo
asoneofthepremiercompaniesintheInflammatoryBowelDiseases(IBD)arena.
Our US distribution strategy
OurManagementTeamhasbeenkeenlyawarethatitcouldcreatesubstantial
valueforshareholdersifwewereabletosuccessfullybuildupourownmarketing
anddistributioncompanyintheUSA.Consequentlywecarriedoutextensive
analysesontherequirementsofsuchanorganization,thefinancialimplications
ofsettingthisupandtherisksofdoingsounsuccessfully.Thisrisk-rewardprofile
wasthencontrastedwiththeopportunitycoststhatwewouldincurbyentering
intoalicensingagreement.ThroughouttheyearanumberofUScompanies
showedaninterestinlicensingeitherBudesonideMMX®,RifamycinSVMMX®or
both,fortheUSmarket.Themanagementteam,supportedbytheBoard,carefully
DearShareholder
Wehavecontinuedonourpath
towardspositioningCosmo
asoneofthepremiercompanies
intheInflammatoryBowel
Diseases(IBD)arena.
10 CosmoPharmaceuticalsAnnualReport2008–LettertoShareholders
assessedtheoptions.Itwasevidentsupportwasneededinrunningtheclinical
trialsintheUSAthathadjustbegunorwereabouttobelaunched.Furthermore,
wefeltthat,giventhestateofthefinancialmarkets,itwouldbeprudenttohave
partiesthatsharethedevelopmentcostsofourprojectswithus.
Inconclusion,wedecidedtopursuetheoutlicensingofournexttwoproducts,
BudesonideMMX®andRifamycinSVMMX®,whicharebothreformulationsof
well-knownexistingchemicalentities.Thesetwoproductsareintheirmostexpen-
siveclinicaltrialphase.Theyhavehigherprobabilitiesofgainingregulatory
approvalthannewchemicalentitiesbuttheyalsohavelowermarketpotentials.
Thus,theirstrategicvalueislowerthanthestrategicvalueofLMWHeparinMMX®
andCB-03-01.Wealsowantedtoaddastrategicdimensiontothelicensingagree-
mentsoweselectedSantarus,acompanythathasahighlevelofexpertiseandan
establishedGIsalesforce.ForSantarus,withaneedtobuilditsproductportfolio,
developingBudesonideMMX®andRifamycinSVMMX®successfullywillbecrucial
andsothefullcommitmentofbothcompaniesgivesusthegreatestconfidencein
thiscollaboration.Santarusalsopresentedanimportantopportunityforustofur-
thershareinthepotentialupsideofsuccessfuldevelopmentofourproductsby
undertakinganimportantequityparticipation.
Ourtwodevelopment-stageproductsofhighestpotentialintermsofrevenue,
LMWHeparinMMX®andCB-03-01,areun-partnered,leavingusmaximumflexibil-
ityforfuturecommercializationoptions.TheManagementTeam,supportedbythe
Board,feelsthatbyenteringintothetransactionwithSantaruswehaveselecteda
rationalstrategicoptionforCosmothatbalancestheoptimizationofvalueagainst
implementationrisks,especiallyinthecurrentuncertainfinancialenvironment.
Promising clinical results on new products
In2008,wemademajorprogressinthedevelopmentofourtwomainnewproducts:
LMWHeparinMMX®andCB-03-01.Bothsuccessfullymettheclinicalendpoints
wedeterminedattheoutsetofthetrials.LMWHeparinMMX®isabiologicdrug
thathasnothadanymeasurableadversesideeffectsinthetrialswehavecon-
ductedsofar.InclinicaltrialswetestedLMWHeparinMMX®againstmesalamine,
thecurrentindustrystandard,andthestatisticalreportsreleasedinAugust2008
demonstratedresultsthatwerefarbetterthanwehadanticipated.Theresults
broadenedthepossibilitiesofthedevelopmentofLMWHeparinMMX®asastand-
alonedrugorasanadjuvantformildtomoderateIBDandalsopotentiallyfor
thetreatmentofmoderatetosevereIBD.Wearenowcarefullyreviewingwhat
nextstepsshouldbetakenandthedecisionwillbemadeduringthecourseof2009.
WiththeSantarustransaction
wehaveselectedarational
strategicoptionforCosmothat
balancestheoptimizationof
valueagainstimplementation
risks,especiallyinthecurrent
uncertainfinancialenvironment.
LettertoShareholders–CosmoPharmaceuticalsAnnualReport2008 11
InSeptember2008,weannouncedthesuccessfulcompletionofthefirstPKstudy
ofthephaseIclinicaltrialinmenforCB-03-01,anewchemicalentity.CB-03-01
isananti-androgenwhichisindicatedforthetopicaltreatmentofskindisorders
includingAcne,androgen-inducedbaldnessinmenandHirsutism(facialandbody
hairgrowthinwomen).Theresultsshowedthatthedrugwaswelltoleratedboth
locallyandsystemicallyandwasdevoidofmeasurableadversesideeffectsinall
dosestested.InDecember2008,weproceededwithaproofofconceptphaseIItrial
totesttheefficacyofthedruginmenwithAcne.Weplantoreporttheresultsof
thesetrialsduringthecourseof2009.Thisisthefirstofourproductsthatdoesnot
makeuseoftheMMX®technology.
Launching our first phase III clinical trials
In2007weenteredintoalicensingagreementwithFerringforBudesonideMMX®
intheEU,LatinAmericaandAsia.FerringassistedusinthedesignofthephaseIII
clinicaltrialsintheEUandinthenegotiationswithvariousEuropeanregulatory
agencies.Inordertominimizecosts,itwasourobjectivetorunaconcurrentphase
IIIclinicaltrialintheUSAinsuchamannerthatthedatafromtheUStrialswould
beacceptablefortheEUregulatorsandviceversa.TheFDA,however,suggested
thatwetreatthefirst150patientsthatenterremissionaftereightweeksof
treatmentwithBudesonideMMX®forupto12furthermonths(oruntilthenext
attackoccurs)atareduceddose.Theclinicaltrialswereconsequentlyredesigned
andpatienttreatmentshavestartedbothinEuropeandNorthAmerica.Clinical
trialsintheUSAwillberunbySantarusandCosmo,andinEuropebyFerringand
Cosmo.
ThedesignofthephaseIIIclinicaltrialofRifamycinSVMMX®beganimmedi-
atelyaftertheagreementswithDr.FalkPharmaandSantarusweresigned.
AswithBudesonideMMX®,itisourobjectivetoruncloselyrelatedtrialswith
thedatageneratedintheUSAalsoqualifyingfortheEUapprovalandviceversa.
Dr.FalkPharmawillpayfortheEUtrials,SantarusfortheUStrialsbuteachwill
benefitfromthedatageneratedbytheotherparty.Recruitmentofpatientsfor
bothtrialsislikelytostartinthesecondquarterof2009.
Stable revenue base takes the substantial risk out of our development
Wehavelonghadacontractdrugmanufacturingrevenuebasethathasbeen
generatingrevenuesofapproximatelyEUR12millionperannum.Thisrevenue
basehasbeenincreasinglysupplementedbytherevenuegeneratedthrough
themanufacturingofLialda™/Mezavant®.In2008,wedelivered84.2million
In2008,wemademajor
progressinthedevelopmentof
ourtwomainnewproducts:
LMWHeparinMMX®and
CB-03-01.Bothsuccessfullymet
theclinicalendpointswe
determinedattheoutsetofthe
trials.
12 CosmoPharmaceuticalsAnnualReport2008–LettertoShareholders
Lialda™tablets(+162%)and6millionMezavant®tablets(+154%)forShireand
royaltiesincreasedby206.6%toEUR3.5million.Thusweachievedstableongoing
revenuesinexcessofEUR23millionin2008.Theserevenuescoveredallofour
operatingexpenses(includingtheR&Dexpenses)ofEUR23millionin2008andthus
substantiallycontributetowardssecuringourpositionasasuccessfuldrugdevel-
opmentcompany.
ByenteringintothenewagreementswithSantarusandDr.FalkPharmawe
notonlyassuredourselvesofpartnersthathaveadditionalexpertiseinhelpingus
tosuccessfullydevelopourproductsbutalsofinanceaconsiderablepartofthe
developmentcosts.ThiswillallowustodrivethedevelopmentofCosmoforward
withoutunduefinancingrisk.
Key priorities and strategies for 2009
In2009wewillbefocusingontheexecutionofthephaseIIIclinicaltrialsfor
BudesonideMMX®andRifamycinSVMMX®.Webelievethatwearestrongly
positionedtoexecutetheseclinicaltrialsinatimelyandcost-efficientmanner.
Weremainfocussedondeterminingthebeststrategyforthedevelopment
ofLMWHeparinMMX®bymid-2009andwillassesshowbesttoexecutethis
strategyintermsofpotentialpartnering.
ItisakeyprioritytodevelopCB-03-01,ouranti-androgenproject,tothepoint
wherewecanfirmlyrecognizethepotentialofthedruganddesignthenext
clinicaltrialsaccordingly.Weexpecttohavedataontheproofofconcepttrial
beforeyearend2009.
WiththeBudesonideMMX®,RifamycinSVMMX®,LMWHeparinMMX®and
CB-03-01projectsunderwaywewilllooktowardsthedevelopmentofnewpreclin-
icalMMX®projects.
Nomajorinvestmentsareplannedinmanufacturingequipment.Fromaper-
sonnelperspective,however,wewillneedtogearupourmanufacturingbaseto
prepareforaneventualsecondshiftforthemanufacturingofLialda™/Mezavant®
byhiringuptofournewpersons.Wewillalsostrengthenourproductdevelopment
organizationtofacilitatetheexpandingMMX®developmentprojectsbyhiringan
additionalthreepersons.
Outlook
Wedonotanticipatethattheeconomicdownturnwillhaveamajoreffectonus.
Contractmanufacturingrevenueshouldremainstableandweexpectrevenues
fromLialda™/Mezavant®tocontinueincreasing.NowthatSantaruswillbebearing
Byenteringintothenew
agreementswithSantarusand
Dr.FalkPharmawenotonly
assuredourselvesofpartners
thathaveadditionalexpertise
inhelpingustosuccessfully
developourproductsbutalso
financeaconsiderablepartof
thedevelopmentcosts.
thecostoftheclinicaltrialsintheUSA,wenolongerhaveanaturalhedgeagainsta
devaluationoftheUSdollarandshallconsequentlyimplementahedgingstrategy.
Wearegratefultoourshareholders,whohavemaintainedtheirconfidencein
ourCompanyandManagement,andtoouremployees,whostrivetohelpusdeliver
onourpromises.Astheresultsin2008demonstrate,weremainontherighttrack.
Wehavethedrivetosucceedandtomake2009anotherexcellentyearforCosmo.
Lainate,20March2009
MauroS.Ajani RolfStahel
ChiefExecutiveOfficer ChairmanoftheBoard
LettertoShareholders–CosmoPharmaceuticalsAnnualReport2008 13
WiththeBudesonideMMX®,
RifamycinSVMMX®,LMW
HeparinMMX®andCB-03-01
projectsunderwaywewilllook
towardsthedevelopmentof
newpreclinicalMMX®projects.
14 CosmoPharmaceuticalsAnnualReport2008–Businessperformanceagainststrategicobjectives
Businessperformanceagainststrategicobjectives
Strategic priority Metrics Performance Comments
Progress clinical
pipeline
Startoftrial
Endoftrial
Availabilityof
datareport
BudesonideMMX®
trialenddelayedfrom
targetQ4/09toQ1/10
StartofRifamycin
SVMMX®phaseIII
expectedinQ3/09
(previouslyQ4/08)
Additionalrequire-
mentsofFDAregarding
extensionstudy
Delayinlicensing
agreementinEurope.
Delayinstartoftrial
becauseofrequired
climaticwindow
Move preclinical
projects to the
clinic
Numberofnew
projectsinphaseI
OnephaseIstartedfor
CB-03-01
Twoprojectspending
approvalofpotential
partner
Improve utilization
of manufacturing
capacity
Increaseinmanu-
facturingrevenueby
capitalinvestments
Totalrevenuein-
creasedfromEUR21.9
milliontoEUR34.2
millionwhilecapital
investmentswere
madeforEUR1.4
millionin2008
Strongincreasefrom
Lialda™manufactur-
ingandlow,primarily
maintenance,invest-
mentsinplant
Optimize
US strategy
Riskreturnprofileof
variousalternatives
Licensingandequity
participationdealwith
Santarus
Reductionoffinancial
riskandreduction
ofimplementationrisk
atslightlyreduced
returns
Best partner
European
distribution
Topthreepartnerfor
RifamycinSVMMX®
inEU
Licensingdealwith
Dr.FalkPharma
Best-in-classpartner
InflammatoryBowelDisease–CosmoPharmaceuticalsAnnualReport2008 15
InflammatoryBowelDisease(IBD)isachronicinflammatoryconditionthat
affectsthegastrointestinaltractcausinganumberofdistressingsymptomssuch
asbleeding,diarrhoeaandabdominalpain.Thediseasehastwoforms,Crohn’s
DiseaseandUlcerativeColitis,andbothcansignificantlyimpactthequalityof
lifeofanindividual.ThegoaloftreatmentofIBDistoinduceandmaintainremis-
sionofsymptomsandmucosalinflammationinordertoprovideanimproved
qualityoflife.Thereareanumberoftreatmentoptionsavailablethatrangefrom
non-pharmacologicaltreatments,suchasdietary,topharmacologicaltreatments
andsurgery.Noprecisecauseofthediseasehasbeenfoundbutscientistsand
gastroenterologistscommonlybelievethatIBDresultsfromacombinationofgenetic
andenvironmentalfactors.
Persons affected
Approximately0.24%oftheUSpopulationsufferfromUlcerativeColitisand0.2%
haveCrohn’sDisease,withthespreadofIBDplateauingintheUSA.InEurope
prevalenceisabouthalfashighasintheUSA,butgrowthisstillincreasing.Aside
fromJapan,therestoftheworldiscurrentlyconsideredtobestatisticallyinsignifi-
cantinwhatpertainstodiseaseprevalenceanddiseaseincidenceandmarketsize.
Cosmobelievesthatthisviewoftheemergingmarketsisseriouslyflawed.Univer-
sally,gastroentrologistshavebeenraisingtheawarenessofIBDsincetheystrongly
believethatenvironmentalfactorsplayanincreasinglyimportantroleinIBD.Thus,
asthe“Westernwayoflife”spreadsaroundtheworlditisexpectedthattheglobal
populationofpeoplewithUlcerativeColitisandCrohn’sDiseasewillsteadily
increase.Researchhasshown(Datamonitor:StakeholderInsight.Inflammatory
BowelDisease.Page73–75.12/2007;BMJJournals:IncidenceandPrevalenceof
UCinPunjab,NorthIndia.Authors:DrAStood,VMidha,NSood,ASBhatiaandG
Avasthi–Gut2003;52:1587–15990.)thatovertimeitisentirelypossiblethatthe
developingeconomieswillhaveheavilyincreasingpatientpopulationswhowill
needtobeadequatelytreated.
Characterization of disease
UlcerativeColitisischaracterizedbyadiffusemucosalinflammationwhichis
limitedtothecolon.Thediseasecanaffectvariouspartsofthecolonandmost
patientsareaffectedinseveralregionsofthecolon.92%ofpatientshavethe
diseaseintherectum,predominatelytreatedwithuncomfortableenemasor
suppositories.
InflammatoryBowelDisease
IBDhastwoforms,Crohn’s
DiseaseandUlcerativeColitis,
andbothcansignificantly
impactthequalityoflifeofan
individual.Thegoaloftreatment
ofIBDistoinduceandmaintain
remissionofsymptomsand
mucosalinflammationinorder
toprovideanimprovedquality
oflife.
16 CosmoPharmaceuticalsAnnualReport2008–InflammatoryBowelDisease
Crohn’sDiseaseisapatchy,transmuralinflammationthatcanaffectanypart
ofthegastrointestinaltractfromthemouthtotheanus.Itisthusmuchmore
disparatelydistributedthanUlcerativeColitis.
ThesymptomsofCrohn’sDiseaseandUlcerativeColitisvaryfrompatientto
patientdependingonthelevelofdiseaseseverityandmaychangeovertime
becauseofthechronic,relapsingnatureofthediseases;mostpatientsexperience
periodsofdiseaseactivityandremission.AsIBDisachronicdisease,mostpatients
arerequiredtotakemedicationoverthecourseofalifetimemakingconsistent
compliancewithdrugregimensanimportantfactor.
Intermsofseverity,gastroenterologiststendtosplitthepatientpopulation
intothreedifferentcategories;mild,moderateandsevere,andprescribemedica-
tionaccordingly.Itiscommonlybelievedthat45–55%ofpatientshaveamildform
ofthedisease,30–35%amoderateformandtheremaining10–15%sufferasevere
formofthedisease.
Disease treatment
Giventhechronicnatureofthediseaseandthedesiretominimizesideeffects,the
classictreatmentstrategyhasbeenforthegastroenterologisttostarttreatment
usingthemildestformofmedication.Ifapharmaceuticalproductthenprovesto
beineffective,astepuptoamoreeffectivebutusuallymoretoxicproductismade.
Morerecentlytherehasbeenamovebysomegastroenterologiststowardsadopt-
ingatop-downapproachmeaningthattheuseofaggressivetherapiessuchas
anti-TNFαtherapiesisstartedearlyon.This,however,makesthetherapyconsider-
ablymoreexpensiveperpatientandcouldexposethepatienttohigher,unnecessary
adversesideeffects.
Cosmobelievesthatthereisgrowingconsensusinthemedicalcommunity
thatinfectionsplayanimportantroleinIBD.Whiletherearecurrentlynoepidemi-
ologicalstudiesonthis,theCompanybelievesthatmorethan30%ofallIBD
patientscouldbebettertreatediftheyreceivedanti-infectivesconcurrentlywith
theirIBDmedication.GiventhatIBDisachronicdisease,itisaconsiderable
challengeforthepharmaceuticalindustrytodevelopanti-infectivesthatcanbe
appliedfrequentlywithoutincurringproblemsassociatedwithresistance.
Approximately0.24%oftheUS
populationsufferfromUlcerative
Colitisand0.2%haveCrohn’s
Disease,withthespreadofIBD
plateauingintheUSA.InEurope
prevalenceisabouthalfashigh
asintheUSA,butgrowthisstill
increasing.
InflammatoryBowelDisease–CosmoPharmaceuticalsAnnualReport2008 17
Treatmentwith5-ASAsforthemildtomoderateformofthediseaseincludeoral
dosageforms(primarilytablets),enemasandsuppositories.Corticosteroidsare
deliveredintabletsandenemasandtreatmentwithimmunosuppressantsis
primarilywithtabletswithselectiveinjectedapplications.Biologicshave,todate,
allrequiredintravenousorsubcutaneousinjections.Thismeansthattheactive
pharmaceuticalingredientactsindifferentforms.Tablets,enemasandsupposi-
toriesdeveloptheireffectprimarilytopically(onlyasmallpartoftheactivepharma-
ceuticalisabsorbedandgetsintotheblood)buttheyhavethedisadvantage
thattheydonotconsistentlyreachthesiteofinflammation,whileinjectionsonly
actsystemicallyandthusalsoreachmanypartsofthebodythatdonotrequire
treatment.
Fromapuremarketvalueperspective,thevalueoftheIBDmarketintheseven
majormarkets(USA,Japan,UK,Germany,France,Italy,Spain)rosefromUSD1.7billion
in2004toUSD2.7billionin2007.Thisgrowthof16.7%perannumwasprimarily
duetotheintroductionofhigh-costanti-TNFαtreatments.Thesenowaccountfor
48%ofthetotalvalueofthemarketeventhoughtheyonlytreatasmallfragment
ofthepatientpopulation.Inthefuture,Datamonitor(ReportCommercialInsight:
InflammatoryBowelDisease.Page48.9/2008)expectsoverallmarketgrowthto
leveloffto4.6%perannumintheperiodof2008to2017.Interestingly,Datamonitor
forecaststheanti-TNFαgroupofdrugstogrowbyonly3%perannum,theanti-
inflammatorygroupofdrugstogrowby3.2%perannum(withthehighestgrowth
1)Statusofdiseaseseverity
Severe 1)
Surgery
Diet(andProbiotics)
Aminosalicylates(5-ASA)
Corticosteroids
Immuno-suppressants
Antibiotics
Biologics
Mild 1)
GiventhatIBDisachronic
disease,itisaconsiderable
challengeforthepharmaceut-
icalindustrytodevelopanti-
infectivesthatcanbeapplied
frequentlywithoutincurring
problemsassociatedwith
resistance.
comingfromCosmo’sLialda™),andthehighestgrowthtocomefromthecortico-
steroidgroupofdrugswith9.9%growthperannum(withthehighestgrowth
projectedforCosmo’sBudesonideMMX®).
AccordingtoDatamonitor,therestoftheworldmarketsgrewby22.9%per
annumfrom2004to2007andreachedUSD362millionor15%ofthesevenmajor
marketsin2007(Datamonitor.Page130.9/2008).Datamonitorhasnotmade
anymarketprojectionsfortheperiodupto2017forthesemarketsbutananalysis
madebyIMS(IMS2009GlobalPharmaceuticalMarketandTherapyforecast)has
identifiedsevenemergingmarkets(China,Brazil,India,SouthKorea,Mexico,Turkey
andRussia)anddeterminedthatthesewillgrowby14–15%in2009andreach
USD105–115billionandthatthesesevenemergingmarketswillsoonbelargerthan
themarketsofthetopfiveEuropeancountries.
18 CosmoPharmaceuticalsAnnualReport2008–InflammatoryBowelDisease
Keyvaluedrivers–CosmoPharmaceuticalsAnnualReport2008 19
Cosmo’smostimportantvaluedriveristhedecidedlyentrepreneurialapproach
toopportunitiesandrisks.Carefulcashmanagementhasbeenalongstanding
principleoftheCompanyandthishasenabledustobuildupCosmo’scashgener-
ationcapacityandimplementstrategiesthatcanbeexecutedwithintheCompany’s
ownfinancialresources.Cosmocarefullyconsiderstheeconomicrationaleofeach
newopportunityandinitiativepresentedtoittoensuretheCompanyisnot
overcommittedwithfinancialburden.
CosmodevelopeditsMMX®technologybasedonaclearmarketneed.Tothis
endhigh-leveltechnicalcompetencewasrequiredandCosmocontinuesbuilding
onthistoensureasustainabledevelopmentpipelineandproductportfoliointothe
future.AfterdevelopingtheMMX®technology,theCompanydiscoveredthatthe
majorityofdrugsthatwerebeingprescribedanddevelopedforcolondiseaseshad
complianceorsafetyissuesandsoCosmosetouttoidentifysuchdrugs.Thisability
tolooklaterallysetstheCompanyapartfromapureresearch-drivenorganization.
Indevelopingtheseapplications,theCompanyhasestablishedabroadknowledge
ofthecolon’sphysiologyandtheabsorptionofpharmaceuticalproductsinthe
gastrointestinaltract.Thisgivesrisetonewopportunities.TheCompanybelieves
thattheblendofitsknowledgeofthecolonandtheuniquecharacteristics
oftheMMX®technologygiveitastrongcompetitiveedgeindevelopingnewmedi-
cationsforthecolonwithoutbecomingoverexposedtotheexpensiveandhigh-
riskpureresearchprocessfornewchemicalentities.Cosmoprimarilyworkswith
moleculesthatareonthemarket.TheCompanyseekstoimprovetheirsafety
profile,theirefficacyortomakethemmorepatient-friendly.Whilstmanyofthe
Company’sproductsprimarilyrepresentimprovementsovertheirpredecessors,
theseproductsaremuchmorelikelytogainregulatoryapprovalthanentirelynew
chemicalentities.
ThethirdkeyvaluedriverliesintheCompany’sattentiontoitspartnerships.
Asasmallcompanyitiscrucialtodeterminewhatriskscanbetakeninbuildingup
adistributionorganizationandwhatpartnersshouldbesoughtifpartnerships
makemoresense.Cosmo’sfirstthreeproducts,Lialda™,BudesonideMMX®and
RifamycinSVMMX®,allhavethepotentialofattainingpeaksalesofseveralhundred
millionUSDeach;buttheyareprimarilygradualimprovementsandnotlikelyto
beblockbusters.Peaksalescanonlybeachievedwithdedicatedeffortssoitis
importanttofindpartnersthathavethewillandskillstodothis.TheCompany
believesthatithastheidealpartnerinShireforLialda™,inFerringandDr.Falk
PharmafortheEuropeaneffortsinBudesonideMMX®andinRifamycinSVMMX®,
andinSantarusfortheUSeffortsforBudesonideMMX®andRifamycinSVMMX®.
Keyvaluedrivers
Cosmo’skeyvaluedriversare
theentrepreneurialapproachto
opportunitiesandrisks,the
uniqueMMX®technologyand
successfulstrategicpartnering.
MMX®technologyprotectstheactivesubstancesfromadversepHconditionsandenzymaticpresenceintheupperdigestivetracts.
Businessstrategy–CosmoPharmaceuticalsAnnualReport2008 21
Businessstrategy
LMWHeparinMMX®
Lialda™/Mezavant®
CB-01-12CB-01-09
BudesonideMMX®
RifamycinSVMMX®
ZacolNMX®
1)Statusofdiseaseseverity
Severe 1)
Surgery
Diet(andProbiotics)
Aminosalicylates(5-ASA)
Corticosteroids
Immuno-suppressants
Antibiotics
Biologics
Mild 1)
InitiallyCosmofocussedondevelopinga5-ASA/mesalamineapplicationthat
wouldreducethehighnumberoftabletsthatpatientsneededtotakeinmultiple
dailydosesandeliminatetheneedforcertainpatientstoalsotakeenemas.This
ledtothedevelopmentoftheMMX®technology.ItthenbecameclearthattheMMX®
technology’scharacteristics,givenitsabilitytoprotecttheactiveingredientinits
passagethroughthestomachandsmallintestineanditsabilitytoevenlyand
topicallydeliveractiveingredientthroughoutthecolon,madeitidealforapplica-
tionsformanymoreopportunities.
ThustheCompany’sstrategyhasevolvedaccordingly.Cosmonowhasasepar-
ateproductportfoliostrategy,adistributionstrategyandamanufacturingstrategy.
Product portfolio strategy
Cosmo’sproductportfoliostrategyisfocussedondiseasesofthecolon,primarily
onInflammatoryBowelDiseases.Todate,themajorityofgastroenterologiststreat-
ingIBDhavefollowedastep-upstrategy,firstprescribing5-ASA-baseddrugsto
theirpatients,thenmovingontocorticosteroids,thenontoimmunosuppressants
andfinallytobiologicproducts.Soafterdevelopingthe5-ASAproduct,theCom-
panysetabouttoidentifycorticosteriods,immunosuppressantsandbiologics
whoseefficacyorsafetyprofilecouldbeimprovedbytheMMX®technology.This
ledtotheCompany’spipeline:Cosmonowhasproductsonthemarketorin
developmentforpatientsofalllevelsofseverity.
Afterdevelopingthe5-ASA
product,theCompanysetabout
toidentifycorticosteriods,
immunosuppressantsand
biologicswhoseefficacyor
safetyprofilecouldbeimproved
bytheMMX®technology.
22 CosmoPharmaceuticalsAnnualReport2008–Businessstrategy
Marketed products
Zacol NMX®
ZacolNMX®isanutraceuticalproductwhichusesanamendedformoftheMMX®
technologyinordertodeliverbutyricacidandinulindirectlytothecolon.Butyric
acidaccountsforpowerfulmetabolicactivitieswhicharethebasicsupportforthe
integrityandreconstitutionofthegutmucosaandinulinpromotesthegrowth
ofthesaprophyticflora,whichinturnproducesadditionalshort-chainfattyacids
(SCFAs)thusreinforcingcolonicdefencesagainstinfections.Todate,therehas
notbeenanyproductthatwasabletosuccessfullydeliverbutyricacidtothecolon.
ZacolNMX®,togetherwithanappropriatediet,couldrepresentthefirststepsfor
thetreatmentofcolondisorders.
TheCompanyhasbeenworkingonestablishingthebestdistributionstrategy
forthisnon-prescriptionproductandisalsolookingintothepossibilityofhaving
ZacolNMX®distributedoverthecounter.Inlate2008,theCompanychangedits
distributorintheItaliantestmarket.FurthermoretheCompanyisworkingon
developingadditionalNMX®applicationstobutyricacidtogetherwithoutside
partners.
Lialda™/Mezavant®
Lialda™(astheproductiscalledintheUSA)/Mezavant®(Europe)isthefirst
proprietaryproductCosmodeveloped,amesalamineMMX®.Itistheentrylevel
productforallpersonssufferingfrommildtomoderateUlcerativeColitis.Itwas
introducedintheUSmarketbyShire,whichhastheworldwidelicence(excluding
ItalyandotherselectedrestoftheworldmarketswhicharelicensedtoGiuliani),
inMarch2007forthetreatmentofacutemildtomoderateUlcerativeColitis.Its
principleadvantageisthatapatientrequiring4.8gofmesalaminetotreatthe
inflammationcantaketherequiredamountoftabletsatonceinsteadofhavingto
taketabletsthreetofourtimesaday.ThisisduetothefactthattheMMX®tech-
nologyassuresahighconcentrationinsidethecolonandlittleabsorptionintothe
mainbloodsystem.Atyearend2008,Lialda™hadalreadyachievedanoverall
marketshareof14%ofall5-ASAsintheUSA.Shireisalsoseekingapprovalforthe
useofLialda™inthetreatmentofmaintenanceofremission,i.e.asatreatment
betweentheacuteattacks.Itisexpectedthatthisapprovalwillbeobtainedin2011.
Atyearend2008,Lialda™had
alreadyachievedamarketshare
of14%ofall5-ASAsintheUSA.
Businessstrategy–CosmoPharmaceuticalsAnnualReport2008 23
ThetablebelowshowsthedevelopmentoftheLialda™tabletsandMezavant®
packssoldtoShire.
Products in clinical development
Budesonide MMX®
Corticosteroidsareknowntobemoreeffectivethan5-ASAsinthetreatmentofIBD
buttheyarealsoknowntohaveseveresideeffects.Asaresult,nocorticosteroid
iscurrentlyapprovedforusebymildtomoderateUlcerativeColitispatientsinthe
USA.CosmobelievesthatbyapplyingtheMMX®technologytobudesonide,
anoff-patentcorticosteroidthathasbeenpredominatelyusedforpulmonary
applications,atreatmentcanbecreatedthatismoreeffectivethanexisting5-ASA
applicationsandlesstoxicthanclassicalcorticosteroidapplicationsandthatthis
productmightgainFDAapprovalforinductionofremissioninpatientswithmild
tomoderateUlcerativeColitis.
TothisendCosmoispresentlyconductingtwophaseIIIclinicaltrials,one
intheUSAandoneintheEU.TheUStrialistestingefficacyandsafetyofneworal
BudesonideMMX®9mgand6mgextended-releasetabletformulations
(CB-01-02)inpatientswithmildormoderate,activeUlcerativeColitis.Thetrial
isamulticentre,randomized,double-blind,double-dummycomparativestudy
versusplacebo,withanadditionalreferencearmevaluatingAsacol®2400mg.
Atotalof440patientsarescheduledtocompletethetrialincentresintheUSA,
Canada,MexicoandPuertoRico.TheEUtrialisalsotestingefficacyandsafety
oftheneworalBudesonideMMX®9mgand6mgextended-releasetablet(CB-01-02)
inpatientswithmildormoderate,activeUlcerativeColitis–amulticentre,ran-
domized,double-blind,double-dummycomparativestudyversusplacebo,withan
additionalreferencearmevaluatingEntocort®ECcapsules.440patientsare
scheduledtocompletethestudywithpatientsenrollinginAustralia,Belgium,
Estonia,France,Israel,Italy,Latvia,Lithuania,Poland,Serbia,Slovakia,Sweden,
theUK,Romania,UkraineandRussia.
MMX® products 2008 2007
No. EUR 1,000 No. EUR 1,000
Lialda™(tablets) 84,161,484 6,472 32,092,010 2,409
Mezavant®(packs) 96,310 675 39,474 261
Totalrevenue 7,147 2,670
Wefeelconfidentthat
BudesonideMMX®canbe
submittedforregulatory
filingintheUSAandEU
concurrently.
24 CosmoPharmaceuticalsAnnualReport2008–Businessstrategy
Asof2March2009,72patientshavebeenrandomizedintheUSAand157patients
havebeenrandomizedintothetrialinEurope.TheFDAhasrequestedthatthe
first150patientsthatenterremissionshouldbetreatedforupto12additional
months(oruntilthenextacutephaseoccurs,whicheverisearliest)atalowerdose
of6mg.Thisadditionalrequirementhasmadeprojectingtheendoftheclinical
trialsdifficulttopredictbutwefeelconfidentthattheproductcanbesubmitted
forregulatoryfilingintheUSAandEUconcurrently.
Rifamycin SV MMX®
During2008,theCompanyconductedadose-rangingstudyinTurkeyandMexico
andaseriesofadditionalpreclinicaltestsinordertobestdesigntheupcoming
phaseIIIclinicaltrialsforTravellers’Diarrhoea.Aftersigninglicensingagreements
withDr.FalkPharmaandSantarus,theprotocolsfortheclinicaltrialsarecurrently
beingwrittenanddiscussedwiththeEMEAandtheFDAandthetrialsarelikelyto
startinthesecondquarterof2009.TheCompanybelievesthatRifamycinSVMMX®
couldbeindicatedforaseriesofdiseasesbeyondTravellers’Diarrhoeasuchas
Diverticulitis,HepaticEncephalopathy,ClostridiumDifficileandIBDconcomitant
infections.
ThemostcommoncoloninfectionisknownasTravellers’Diarrhoea.Itafflicts
between20%and50%ofallinternationaltravellers.Travellers’Diarrhoeaisprimar-
ilycausedbytheingestionoffoodorwatertaintedbybacteria.
Diverticulitisistheinflammationofdiverticulaofthecolonthatstrikesmainly
elderlypeople.Withincreasingage,muscularelasticitydecreasesincolonmuscles.
Thisallowstheformationofextrusionsofthewallofthecoloncalleddiverticula.
60%ofallpersonsover60havediverticula.Whenfaecalmattergetstrappedinthe
diverticulatheybecomeinfectedandinflamed.
HepaticEncephalopathyisaneurologicaldisorderrelatedtotheliverimpair-
ment.Whenthereisliverdysfunction,theammoniaproducedintheintestine
bybacteriaisnotneutralizedbytheliver,sothatitreachesthebraincausingtoxic
effects.Antibioticsarenecessarytoreducethebacterialproductionofammonia.
Itaffectsaround20%ofallpeoplewithCirrhosisoftheLiver.
ClostridiumDifficileAssociatedDiarrhoea(CDAD)isprimarilyahospital-
acquiredinfectionofthecolonthatmainlyaffectselderlypersons.Thisdisease
affectsaround500,000personsayearintheUSAanditcanhaveepidemic
dimensionsthatfrequentlyleadtofatalities.
Finally,althoughnoclinicalresearchhasbeenconducted,gastroenterologists
commonlybelievethatbetween20%and40%ofallpatientssufferingfromIBD
CosmobelievesthatRifamycin
SVMMX®couldbeindicated
foraseriesofdiseasesbeyond
Travellers’Diarrhoeasuchas
Diverticulitis,HepaticEncepha-
lopathy,ClostridiumDifficile
andIBDconcomitantinfections.
Businessstrategy–CosmoPharmaceuticalsAnnualReport2008 25
haveconcomitantinfections.TheCompanybelievesthatRifamycinSVMMX®
couldbeappliedforthetreatmentoftheseconcomitantinfections.
LMW Heparin MMX®
Heparinisapolysaccharidicdrugthathasbeenlongandsuccessfullyappliedas
aninjectableanticoagulantandanti-blood-clottingagent,especiallyaftermajor
surgery.Inthe1990sitwasobservedthatmajorsurgerypatientstreatedwith
heparinalsowitnessedastrongreductionofIBDs.ThisobservationledCosmoto
formulatethehypothesisthatatabletizedformoftherightheparin,broughttothe
colonandtopicallyapplied,couldretaintheanti-inflammatorypropertieswhilst
avoidinganyanticoagulationeffects.
Heparinisalargemolecule,soCosmosetouttoidentifyasmaller,lowermo-
lecularweightheparinsuitedtotheobjectives.Afterintenselaboratorytesting,a
low-molecular-weightheparin(CB-01-05)wasidentifiedandthecorresponding
tabletwasdevelopedusingtheMMX®technology.In2007,Cosmoconducteda
phaseIIrandomized,double-blindclinicaltrialwithactiveleft-sidedmildtomod-
erateUlcerativeColitis.In24sitesinfivedifferentcountries,157patientswere
screened,141randomizedand132completedthetrial.TheCompanyreceivedthe
finaldatareportinAugust2008.TheresultsfromthetrialshowthatLMWHeparin
MMX®metitsprimaryandsecondaryendpointsbyinducingsuperiorclinical
remissioninpatientswithactivemildtomoderateUlcerativeColitisandwaswell
toleratedatoncedailydosing.Efficacyandtolerabilityweremeasuredbycom-
paringtheefficacyofLMWHeparinMMX®asanadd-ontomesalazinetoaplacebo
add-ontomesalazine.Theprimaryendpointwasthenumberofpatientsachiev-
ingclinicalremission(clinicalactivityindex[CAI]<4)aftereightweekstreatment;
thesecondaryendpointwasclinicalimprovement(byatleasttwopointsreduc-
tionoftheCAI,theendoscopicindex[EI]andthehistologicscore)aftereightweeks
treatment.Astatisticallysignificanthigherpopulationofpatientsachievedclinical
remissionintheLMWHeparinMMX®plusmesalazinegroupcomparedtothe
placeboplusmesalazinegroup.TheCAI,EIandhistologicalscoresimprovementin
theLMWHeparinMMX®groupwasalsostatisticallysignificantlyhigherthanin
theothergroup.
Atthesametime,theCompany’sresearchteamcontinuedtoinvestigatethe
mechanismofactionofLMWHeparinMMX®.Theyfoundthatitinhibitspro-
inflammatorycytokines(TNFα,IFNγ,IL-2)andhasawideractivityprofilethan
monoclonalantibodies.LMWheparinisalsoanendogenoussubstance,meaning
thatthebodydoesnotproduceresistancenorneutralizingantibodiestoit.This
Theresultsoftheclinicaltrials
broadenedthepossibilities
ofthedevelopmentofLMW
HeparinMMX®andCosmo
isnowreviewingwhatnext
stepsshouldbetaken.
26 CosmoPharmaceuticalsAnnualReport2008–Businessstrategy
stronglydifferentiatesLMWHeparinMMX®fromotherbiologicdrugscurrently
onthemarket.
TheCompanyispresentlyconductingaseriesofanalysesthatwillassistitin
determiningwhichstrategyitshouldpursueregardingpatientbase(mildtomod-
erateormoderatetosevere),whetherthisshouldbeattemptedasastand-alone
drugorasanadjuvantand,ifasanadjuvant,whichdrugshouldbeusedtogether
withLMWHeparinMMX®.
CB-03-01
CB-03-01isthefirstnewchemicalentitythatCosmoisdeveloping.Itisanovel
anti-androgendrug,acortexolone17α-proprionate(CB-03-01)1%creamtargeted
atAcne,AlopeciaandHirsutism.AphaseItrialwasdesignedasarandomized,
double-blind,placebo-controlled,singleascendingdosestrialandwasaimedto
assessdrugsafety,tolerabilityandpharmacokineticsaftersingledoseadministra-
tion.ThetrialwascarriedoutattheDepartmentofClinicalPharmacologyofthe
MedicalUniversityHospitalofVienna,underthesupervisionofthemaininvestiga-
torProf.MarkusMuller.Inthestudy,threedosesofcortexolone17α-proprionate
wereadministeredto24healthymalevolunteersdividedinthreecohorts.Each
cohortincludedtwosubjectsreceivingonlyplacebocreamonbothforearmsand
sixsubjectsreceivingCB-03-011%creamononeforearmandplacebocreamon
theotherforearm.Safetyandtolerabilityassessment,aswellasPKevaluations,
wereperformedupto36hoursfollowingdrugapplication.
Thetrialresultsconcludedthatthedrugiswelltoleratedbothlocallyandsys-
temicallyanddevoidofmeasurablesideeffectsforallthedosestested.CB-03-01
wasshowntopermeatetheskinandtobequantifiableintheplasmaofabout40%
ofthetreatedsubjects:themaximumrecordedconcentrationoftheunchanged
compoundinplasmawasbelow10mg/ml.InallsubjectsCB-03-01wasundetect-
able24–36hoursafterdosing.Thesedataindicateaverylowbioavailability,even
thoughitwasimpossibletocalculatetheCB-03-01actualabsorption,duetothe
lackofareferencei.v.plasmaprofile.
FollowingthisPKstudyofthephaseItrial,theCompanydecidedtoimmedi-
atelymovetoaproof-of-concepttrialwiththedosesusedinthePKstudy.Onlyifthis
phaseIItrialissuccessfulwilltheCompanyproceedwithalengthierandmore
expensivepreclinicalreproductiontrialinanimals,thephaseIsteadystatePKplus
thesensitivitytrialwhichwouldbegininparallelinthesecondhalfof2009.
CB-03-01ispatentedbyCosmoasananti-androgenicdrugindicatedforthe
topicaltreatmentofandrogen-dependentskindisorders.Itsmechanismofaction
InDecember2008,wepro-
ceededwithaproof-of-concept
phaseIItrialtotesttheefficacy
ofCB-03-01inmenwithacne.
Businessstrategy–CosmoPharmaceuticalsAnnualReport2008 27
isthecompetitionbetweentestosteroneandDHTatthehumanandrogen-receptor
level.CB-03-01isdevoidofsystemicanti-androgenicactivity,itdoesnotinhibit
gonadotropinshypersecretion,anditpossessesamoderateanti-inflammatory
activity.Inpreclinicaltestsitwaswelltoleratedandrapidlymetabolizedtothe
parentcortexolonewhichisinactiveinhumanplasmaandskin.
Acneaffectsabout45millionpeopleintheUSA,i.e.around16%ofthepopula-
tion.TheworldwidemarketforAcneisvaluedatoverUSD2.8billion.Roche’s
Roaccutane™generatedsalesexceedingUSD253millionin2004butthese
decreasedfollowinganFDAwarningofsideeffects.
Alopecia(androgen-inducedhairlossinmales)affectsabout12%ofallmen
over20yearsofage.Propecia™,asystemicallyapplieddrug,generatedsalesof
USD405millionin2007.
Hirsutism(androgen-inducedgrowthoffacialand/orbodyhairinwomen)
affectsabout10%ofthefemalepopulation.Theworldwidemarketremainslargely
undeveloped.
Preclinical projects
CB-01-16
CB-01-16isaprojectthatfocusesonpreventingopioid-inducedconstipation.
Practicallyallpatientsthatneedheavydosagesofopioidsasapaintreatment
sufferfromseriousconstipationbecausetheopioidsinhibittheperistalticmove-
mentsinthecolon.Cosmohasbeenexperimentingwithoff-patentanti-opioids
withtheobjectiveofusingtheMMX®technologytotransportthesetothecolon
wheretheywouldselectivelyinhibitopioidattachmenttotheMUreceptorsthus
makingpossibletheperistalticmovementsagain.Thegalenicdevelopmentof
thesetabletsisscheduledtobecompletedinQ12009andaphaseItrialisplanned
tostartinQ22009.
CB-01-12
CB-01-12istheapplicationofCosmo’sMMX®technologytoananti-TNFα.Anti-
TNFαsaretraditionallygivenbyinjection,thushaveunwantedsideeffectsand
patientstendtobuildupresistancetothemovertime.TheCompanybelievesthat
byapplyingitsMMX®technologyitcantransformanti-TNFαintoananti-TNFα
MMX®tabletthatactstopicallyinthecolon,retainingitsefficacybutwithstrongly
reducedsideeffects.Cosmohascarriedoutearlypreclinicaltestsandisnowin
activecontactwithanti-TNFαcompaniesaboutdevelopingthisdrugtogether
TheCompanybelievesthatby
applyingitsMMX®technologyit
cantransformanti-TNFαinto
ananti-TNFαMMX®tabletthat
actstopicallyinthecolon,
retainingitsefficacybutwith
stronglyreducedsideeffects.
28 CosmoPharmaceuticalsAnnualReport2008–Businessstrategy
withthemandalsodevelopingadditionalpeptideorproteinMMX®application
forthecolon.
CB-01-09
CB-01-09wasinitiatedasaprojectwhenCosmostartedworkonawell-known
immunosuppressantthatisnowoff-patent.Alargemultinationalpharmaceutical
companysubsequentlyapproachedCosmoandrecommendedthatitdelaysthe
projectandalternativelydevelopsaMMX®-basedimmunosuppressantbasedon
anewchemicalentitytogetherwiththem.Thisprojectiscurrentlyunderconsid-
eration.
CB-01-13
CB-01-13isaprojectthatfocusesonColonCancerprevention.ColonCanceraffects
morepersonsonaworldwidebasisthananyothercancer;accordingtoDatamoni-
tor,incidenceinthesevenmajormarketsreached470,204personsperannum.
CurrentlythereisanecdotalevidencethatthedailyuseofCox-2inhibitorsinhibits
thedevelopmentoflesionsthatleadtoColonCancer.Cox-2inhibitorshave
recentlycomeunderattackfromregulatorsbecausetheyarepresumedtohave
aseriesofpotentiallyfatalsideeffects,predominatelyheartattacks.Consequently
wehavesoughttoidentifyaCox-2inhibitorthatisoff-patentandwhoseside
effectstheCompanybelievescanbestronglyreducedbyapplyingtheMMX®
technology.TheCompanyhasbeennegotiatinganagreementwithawell-estab-
lishedpharmaceuticalcompanythathasextensiveexperienceinCox-2inhibitors.
TheCompanybelievesthattheCox-2inhibitorthatwasdevelopedbyitsprospect-
ivepartnerisnotabsorbedinthecolonandthatitcouldthusbesafelyusedona
long-termbasisifitisdeliveredwiththeMMX®technology.Theprojectishowever
currentlyonholdsincetheCox-2moleculeisunderincreasedregulatoryscrutiny
anditsownerpresentlydoesnotplaceahighpriorityonparticipatinginthe
developmentofnewapplicationsofit.
Cosmo’s pipeline
ThechartonthenextpagesummarizesCosmo’sclinicalandpreclinicalprojects.
ItisareflectionoftheCompany’sconvictionthatawell-stockedpipelineshould
allowittoregularlybringnewproprietaryproductstothemarket,beginninginlate
2010.Wearefurthermoreconvincedthatwewillbeabletoaddonetotwonew
projectstothepipelineeachyearfortheforeseeablefuture.
Cosmo’spipelineisareflection
oftheCompany’sconviction
thatawell-stockedpipeline
shouldallowittoregularlybring
newproprietaryproductsto
themarket,beginninginlate
2010.
Businessstrategy–CosmoPharmaceuticalsAnnualReport2008 29
Distribution strategy
In2008,wecontinuedimplementingourstrategyofenteringintolicensing
agreementswithrenownedEuropeanIBDcompanies.Inadditiontoouragreement
withFerring,whowillmarketanddistributeBudesonideMMX®inEurope,we
negotiatedalicensingagreementwithDr.FalkPharmaforRifamycinSVMMX®in
2008.Dr.FalkPharmaisaprivatelyheldGermanresearch-drivenspecialtypharma-
ceuticalcompanyactiveinglobalmarkets.Thecompanyidentifies,developsand
marketsinnovativeproductsintheareasofhepatologyandgastroenterology.Itis
theownerofaseriesofwell-knowndrugsinIBDandiswidelyconsideredtobe
oneofthemostknowledgeableandrespectedIBDfirms.Ithasaffiliatesinseveral
EuropeancountriesandanextensivenetworkofpartnersintheremainingEuro-
peancountries.ThecompanyoutlicensesitsproductsforsaleoutsideoftheEU.
IntermsoftheUSA,Cosmohasbeendrivenbythehypothesisthatasuccessful
distributorwillgenerateapproximatelyasmuchprofitfromsalesasthepartythat
Product Drug typePre- clinical Phase I Phase II Phase III MA Launch Partner
Lialda™/ Mezavant®
MildtomoderateUlcerativeColitis
5-ASA
1Q10
03/07USA/10/07UK
12/05ITA
3Q10
4Q10
4Q09
2Q10PKStudy/POCSteadyStatePKSensitivityStudy
Shire
Ferring–Worldwide
(excludingJapan&USA)
Santarus–USA
Dr.FalkPharma–Europe&
Australia(excludingItaly)
Santarus–USA
Budesonide MMX®
MildtomoderateUlcerativeColitis
Corticosteroid
Rifamycin SV MMX®
Travellers’Diarrhoea
Antibiotic
LMW Heparin MMX®
MildtomoderateUlcerativeColitis
Biologic
Zacol NMX®
IntestinalDisorders(nutraceutical)
Dietary
supplement
Rifamycin SV MMX®
CDAD
Antibiotic
CB-03-01 (NCE)
Acne,malepatternbaldnessandHirsutism
Steroidester,
androgen
antagonist
CB-01-12
IBD
Anti-TNFα
CB-01-09
IBD
Immuno-
suppressant
CB-01-13
ColorectalCancerprevention
CB-01-14
Crohn’sDisease
CB-01-16
Opioid-inducedconstipation
Cox-2
inhibitor
Antibiotic
Opioid
antagonist
developedthedrug.Generallycolondiseasesaretreatedbygastroenterologists
andnotbygeneralpractitionersandsocolonapplicationsmustbemarketed
directlytothepopulationofgastroenterologists.Itiscommonlyassumedthatthe
approximately8,000gastroenterologistsintheUSAcanbemarketedbyasales
forceofaround150salespersonsfocussingonthosethatwritethemostprescrip-
tions.Cosmocarefullyconsideredtheoptionofestablishingitsownsalesforce
intheUSAbutgiventhelargenumberofproductentry,regulatoryandreimburse-
mentissuestobeconsideredwhichrequireahighly-developedknowledgeoflocal
practices,theCompanysignedamajorlicensingagreementwithSantarus.Santa-
rusisaspecialtypharmaceuticalcompanyfocussedonacquiring,developing
andcommercializingproprietaryproductsthataddresstheneedsofpatientstreated
bygastroenterologistsorprimarycarephysicians.Thecompany’scurrentmarketing
effortsareprimarilyfocussedonZegerid®(omeprazole/sodiumbicarbonate)
capsulesandpowderfororalsuspension,whichareindicatedforthetreatment
ofcertainupperGIdiseasesanddisorders,andonGlumetza®(metforminhydro-
chlorideextendedreleasetablets),whichisindicatedasanadjuncttodietand
exercisetoimproveglycemiccontrolinadultswithtype2diabetes.Santarushas
approximately300salesandmarketingpersonnelincludingsome100salespersons
fromacontractsalesorganization.In2008,Zegerid®salesreachedUSD101.2million.
CosmohasnotyetmadeanydecisiononthedistributionstrategyforLMW
HeparinMMX®.WithreferencetoCB-03-01itislikelythattheCompanywillbe
seekingaworldwidelicensingagreementoragreements.
Manufacturing strategy
TheexperiencegainedbyyearsofmanufacturingasaunitofParkeDavisand
WarnerLambertwasthebasisfortheestablishmentoftheMMX®technology.
Cosmoseekstoretainandcontinuouslyexpandthisexpertiseandstrivesto
manufactureasmuchofitsownproductsaspossible.Since2006anincreasing
proportionoftheproductionhasbeenforCosmo’sownproducts.Ingeneral,
classicallow-volatilitycontractdrugmanufacturingoflongestablishedproducts
istheleastprofitable,themanufacturingofgenericswheretheCompanyprovides
servicesthatgobeyondthesolemanufacturingoftheproductareconsiderably
morelucrativeandthehighestprofitscanbeachievedinthemanufacturingof
ownproducts.ItistheCompany’sstrategytoincreasemanufacturingprofitability
andtocontinuouslyexpanditsexcellenceinthemanufacturingfield.
Cosmoseekstoretainand
continuouslyexpanditsmanu-
facturingexpertiseandstrives
tomanufactureasmuchofits
ownproductsaspossible.
30 CosmoPharmaceuticalsAnnualReport2008–Businessstrategy
Thecontrolledreleaseoverthelengthofthecolonnotonlysimplifiestheapplicationforthepatientsbutallowsforthetopicalapplicationoftheactivepharmaceuticalingredientstothewholebowelsurfacethatisaffectedbyinflammations.
InordertosupportthedevelopmentofCosmoPharmaceuticalsbyproviding
adviceonscientificandclinicaldevelopmentandproductapplication,the
CompanyestablishedaScientificAdvisoryBoard.Itmeetsperiodicallyandadvises
theManagementinallmattersofscientificrelevance.TheScientificAdvisoryBoard
comprisesthefollowingmembers:
Prof. Jean-Frédéric Colombel, MD
Professorofgastroenterologyanddirectorofthedepartmentofhepatogastroen-
terologyintheHôpitalHuriez,Lille,France.HeispresidentoftheEuropeanCrohn’s
andColitisOrganizationandscientificsecretaryoftheInternationalOrganization
ofIBD(IOIBD).
Prof. Geert D’Haens, MD
Directorofgastroenterology,ImeldaGIResearchCentre,Bonheiden,Belgium,and
consultantgastroenterologistforIBD,sectionofgastroenterologyandendoscopy,
UniversityHospitalGasthuisberg,Leuven,Belgium.Heisthesecretaryofthe
EuropeanCrohn’sandColitisOrganization.
Prof. Brian Gordon Feagan, MD
Professorinthedepartmentofepidemiology&biostatisticsattheUniversityof
WesternOntario,London,Ontario,Canada,andprofessoratRobartsResearch
Institute,London,Ontario,Canada.HeisamemberoftheCanadianAssociationof
GastroenterologistsandoftheCrohn’sandColitisFoundationofCanada.
Prof. Claudio Fiocchi, MD
DirectorofIBDandvice-chairmanofresearchdepartmentofgastroenterologyand
hepatologyattheClevelandClinicFoundation,Cleveland,Ohio,USA,andprofessor
ofpathologyattheInstituteofPathology,CaseWesternReserveUniversity,School
ofMedicine,Cleveland,Ohio,USA.
Prof. Michael Kamm, MD
ProfessorofgastroenterologyatStVincent’sHospitalandtheUniversityof
Melbourne,Melbourne,Australia,andatImperialCollege,London,UK.Hesitson
theeditorialboardofseveralinternationalgastroenterologicaljournals.
ScientificAdvisoryBoard
32 CosmoPharmaceuticalsAnnualReport2008–ScientificAdvisoryBoard
Prof. Robert Löfberg, MD
Professorofgastroenterology,KarolinskaInstitutet,Stockholm,Sweden,andhead
oftheIBDunit,Sophiahemmet,Stockholm,andchairmanoftheSwedishorganiza-
tionforthestudyofIBD.
Prof. William Sandborn, MD
ProfessorofmedicineatthedivisionofgastroenterologyandhepatologyofMayo
Clinic,Rochester,Minnesota,USA.HeisamemberoftheAmericanCollegeof
Gastroenterology,theCrohn’sandColitisFoundationofAmericaandchairmanof
theIOIBD(InternationalOrganizationofIBD).
Prof. Maurizio Vecchi, MD
Directorofthegastroenterologyandgastrointestinalendoscopyunitatthe
PoliclinicoSanDonatoMilanese,Italy,andtheItalianrepresentativeinthe
EuropeanCrohn’sandColitisOrganization.
ScientificAdvisoryBoard–CosmoPharmaceuticalsAnnualReport2008 33
34 CosmoPharmaceuticalsAnnualReport2008–Operatingprinciplesandactivities
Research & Development
WhiletheCompanydoeshaveonenewchemicalentityunderdevelopmentit
doesnothaveapureresearchgroupinhouseanditsactivitiesareentirelyoppor-
tunitydriven.Researchisprimarilyfocussedonassessingifandhowdifferent
substancescanbebroughttothecolon.Consequentlyresearchanddevelopment
expendituresareprimarilyclinicaltrialcostsandwillconsequentlyvaryenor-
mouslyfromyeartoyear.
In2008developmentfocussedondrivingforwardthephaseIIIclinicaltrials
ofBudesonideMMX®,thephaseItrialofCB-03-01,thepreparationsforthephaseIII
clinicaltrialsofRifamycinSVMMX®andtheanalysisofthedataofthephaseIIb
clinicaltrialsofLMWHeparinMMX®.Oneproject,CB-03-01movedintophaseI
clinicaldevelopment.Nonewprojectswereinitiated.
Procurement
FortheCompany’scontractmanufacturingactivitiesactiveingredientsareeither
suppliedbytheclientorpurchasedinthemarketfromexternalItalianorinterna-
tionalsuppliers.Allofthematerialspurchasedarestandardmaterialsprovidedby
alargenumberofsellers.
WithreferencetotheCompany’sproprietaryproducts,allactiveingredients
arefromexternalsuppliers.Allactiveingredientsrequiredaremanufacturedby
morethanonesupplier.GenerallytheCompanynegotiateswiththesesuppliers
inordertodetermineonepreferredsupplieratattractivepricesandthenholds
certaininventorytopreventsupplybottlenecks.
Production
TheCompanyhastheabilitytomanufacturetablets,ointments,andliquids.Allof
Cosmo’sownproductsaremanufacturedinhouse,amongstother,atthenew
FDA-approvedplantwhichisadjacenttotheplantoriginallysetupbyParkeDavis.
InordertomonitortheproductionprocessestheCompanyhasitsownanalytics
departments.TheCompanydoesnotmanufactureunfinishedproducts.Allproducts
areeitherpackagedinbulkorfinalformattheCompany’spackagingline.Itisthe
Company’sintentiontomanufactureallofitsownproductsinhouse.
Environmental protection
Cosmoisfamiliarandawareoftheimportanceofprotectingtheenvironmentand
conductsitsoperationsinamannerdesignedtoprotectthelocalenvironment.
Cosmocontinuouslymonitorscompliancewithapplicableenvironmentalhealth
Operatingprinciplesandactivities
Operatingprinciplesandactivities–CosmoPharmaceuticalsAnnualReport2008 35
andsafetylawsandregulationsandtherequirementsofitspermitsandlicenses
andmaintainprogrammeswhichensurethatit:
• monitorsthequalityoftheambientairandtheprotectionofthewater
resources;
• evaluatesthesiteprogrammesfortheprotectionoftheenvironmentandthe
healthandsafetyofemployeesandneighbours;
• managesthewastedisposalinconformitywiththelocalregulations;
• designs,constructs,maintainsandmanagesitsplantandsystemsinaccord-
ancewiththebestpractices;
• communicateswiththelocalcommunityonsafetyandenvironmentalmatters
inatimelyandeffectivemanner.
Cosmoiscommittedtoaprogrammeofcontinualimprovementinenvironmen-
tal,healthandsafetyperformancebymakingitanintegralpartofallitsoperations.
Asapharmaceuticalcompany,CosmoisnotdirectlyobligedunderREACH
(Registration,Evaluation,AuthorisationandRestrictionofChemicalsubstances),
anewEuropeanCommunityRegulationonchemicalsandtheirsafeuse
(EC1907/2006),butconstantlymonitorsitssuppliers(i.elabelsandpackaging
materials)toassesstheircompliancetothatregulation.
Quality management
Cosmo’saimistoguaranteethedevelopmentandthemanufacturingofdrug
productsofhighqualityandtosatisfytheexpectationsofallourinternational
customers.TheQualitySystemimplementedatCosmomeetstherequirements
andtheexpectationsoftheEuropeanandAmericanHealthAuthorities(EMEAand
FDA)forthemanufacturingofdrugproducts.Pharmacopoeias,pharmaceutical
directivesandguidelines(i.e.thoseissuedbyICH)helptomaintaintheQuality
Systematahighstandardlevel.TheQualitySystemisfullyincompliancewiththe
currentgoodmanufacturingpractice(GMP)andallowstheproductionofdrug
productsofdefinedquality.
TheQualitySystematCosmo’splantisalsocertifiedaccordingtoISO9000
standard.Thiscertification,evenifnotrequiredforthedrugproductmanufactur-
ing,showstheattentionoftheCompanytothequalityandingeneraltotheservice
offeredtoourcustomers.
Cosmoiscommittedtoapro-
grammeofcontinualimprove-
mentinenvironmental,health
andsafetyperformanceby
makingitanintegralpartofall
itsoperations.
36 CosmoPharmaceuticalsAnnualReport2008–Operatingprinciplesandactivities
Internal control system and risk management
TheBoardhasapprovedacomprehensiveinternalcontrolsystem(ICS)inorder
toguaranteethattheinternalprocessesareadequate,thefinancialreportingis
reliable,theassetsofthecompanyareprotectedandalllawsandinternalregula-
tionsarecompliedwith.Thefollowingriskmatrixwasestablished:
Risksareclassifiedascashrisks,whereeventshaveimmediatecashcostsbyeither
lossofrevenueorunplannedexpenditures,orvaluerisks,whereeventscausethe
valueoftheCompanytofallbecausefuturerevenuewillnotbecomingorfuture
costswillbehigher.
Riskparametersweredefinedasexistentialrisksthat,shouldtheyoccur,could
putthebeingoftheCompanyinjeopardyorbusinessplanrisksthatcouldimpede
thefulfilmentofplannedstrategicobjectives.
Allriskswerethenbundledundereitherscientificrisks,developmentrisks,
manufacturingrisks,marketrisks,liquidityandfinancialrisksorlegalrisks.The
monitoringofeachoftheseriskgroupsisassignedtoaseparateperson.Foreach
oftheserisksthethreatsaredefined,probabilitiesassignedandnegativecash
andvalueimpactscalculated.Theserisksandtheparametersrespectivelyassigned
tothemareregularlyreassessed.
Theserisksarethenclassifiedintorisksthatcanbemanagedbyappropriate
inhouseactionorrisksthatcannotbemanagedbyinternalaction.Alltherisks
thatcannotbemetbyinternalactionarethensplitintorisksthatcanbeinsured
andthosethatcannotbereasonablyinsuredandmustbeborneasbusinessrisks.
TheBoardhasapproveda
comprehensiveinternalcontrol
system(ICS)inordertoguarantee
thattheinternalprocessesare
adequate,thefinancialreporting
isreliable,theassetsofthe
companyareprotectedandall
lawsandinternalregulations
arecompliedwith.
Development risk
Pers
onn
el
Equ
ipm
ent a
nd
syst
ems
Info
rmat
ionScientific risk
Products
Clients
Know-how
Manufacturing risk
Market risk
Liquidity and financial risk
Legal risk
Operatingprinciplesandactivities–CosmoPharmaceuticalsAnnualReport2008 37
Job safety
Cosmoconstantlymonitorsitsproceduresandprocessestoensurethatthehealth
andsafetyofallpersonnelworkingonsiteisprotectedandriskfromaccidents
orincidentsarisingfromsiteactivitiesisminimizedbothonandoffsite.
Fromajobcategoryperspective,employmentatCosmocaneitherbegrouped
intoofficeactivities,researchandanalysisactivitiesormanufacturingactivities.
Aninitialmedicaltestonhiringandanannualbloodandurinetestisperformedfor
allmanagers,employeesandworkersandallmalesabove40yearsoldaretested
forPSA(ProstateSpecificAntigen)too.Formanagersandemployeesworkingwith
aPC,eyeandeyesighttestaremadeeverytwoyearsandworkstationsarepro-
tectedwithblindsandproperlypositioned,whenexposedtonaturallight.With
respecttoresearchandanalysisactivities,strictpolicieswereestablishedtogether
withtheItalianMinistryofHealthspecificallywithreferencetothehandlingof
dangeroussubstances.Withreferencetomanufacturingactivitiesprimarilyinthe
manufacturing,packagingandhandlingofpharmaceuticals,therearestrictinternal
workflowprocessesintendedtoinsurethataccidentsareminimized.Thereisan
insurancecoveragepaidbytheCompanyforaccidentsoccurredoffsite.
In2008therewasoneaccidentand14workdayslosttoaccidentsinthegroup
ofofficeactivities(afall),noaccidentsandnoworkdayslostinthegroupof
researchandanalysisactivitiesandfouraccidentsand28workdayslostinthegroup
ofmanufacturingactivities(conjunctivitis:fiveworkdayslost;caraccidenton
thewayhome:tenworkdayslost;fall:tenworkdayslost;traumaticlipwound:
threeworkdayslost).
Performance management
Startingfrom2008,astaffincentiveplanisinplaceforCosmo’semployees,based
onpredeterminedgoalsachievedintheperiod1January–31Decemberofeach
year(theperformanceperiod).
Theplanhasbeenconceivedtoprovideanincentiveprogrammetoachieve
overallcorporateobjectivesandtoenhanceshareholdervalue,torewardstaff
attheachievementofcorporategoals,toencourageincreasedteamworkamong
alldisciplineswithintheGroupandtohelpattractandretainkeypeople.
Forthepurposeoftheplan,theCompany’sstaffhasbeendividedinthree
macroareasofactivity:
• Production&Logistics(Area1);
• Research&Development(Area2);
• Administration&Finance,Others(Area3).
Cosmoconstantlymonitorsits
proceduresandprocessesto
ensurethatthehealthand
safetyofallpersonnelworking
onsiteisprotectedandriskfrom
accidentsorincidentsarising
fromsiteactivitiesisminimized
bothonandoffsite.
38 CosmoPharmaceuticalsAnnualReport2008–Operatingprinciplesandactivities
Corporategoalsareeconomicandnon-economic,theyaremostlybasedonthe
figuresoftheconsolidatedbudgetapprovedbytheBoardandcanvarybymacro-
areaofactivityorbepresentinmorethanonemacroarea,butwithdifferent
incidence.
Theawardisbudgetedat6%oftheemployees’annualfixedcompensation
andisreducedindividuallyifgoalsareonlypartiallyachieved.
TheachievementofcorporategoalsisverifiedandapprovedbyCosmo’s
CompensationCommitteeandcommunicatedtotheCompany’sunions.
Information technology
Cosmohasthehard-andsoftwarewhichtheManagementconsidersasadequate
forrunningitsbusiness.Cosmohasafirewall-protectednetworkinfrastructure
linkingfourserversofwhichthreeareHPXeonservers.Theaccountingsoftwareis
KingbyNuovaMigra,theERPisGMAbyNuovaMigraandthequalitycontrol
softwareusedareQualityandFormula,bothbyDataCheck.Thehardware,except
forcopiers,isgenerallyowned.TheGrouphasconcludedmaintenanceandservice
agreementswhichtheManagementbelievesaresufficienttokeeptheGroup’s
hard-andsoftwarefunctional.
In2008Cosmoimproveditsdatarecoverysystembyincreasingitssecond
backupcapacity,atanoutsourcedlocation,to1.6terabyte.
Patents and licences
Cosmohasbeenpursuingadoublecoverselectivecountrypatentstrategy.Aglobal
MMXpatentprotectingtheplatformtechnologyhasbeenfiledandgrantedin
practicallyallmajorcountriesandderivingproductpatentshavebeenfieldand
receivedinmostofthecountries.InselectivecasestheCompanysubsequently
filesprocessandusepatents.
In2008theCosmopatentportfoliowasfurtherstrengthenedworldwidebythe
issueofthefollowingpatents:
• MMXtechnology–USA;
• RifamycinSV–28Europeancountries;
• LMWHeparin–25Europeancountries;
• CB-03-01–India.
TheCompanyhasbeenpursuingthepolicyofhavingsufficientfundstofinance
theclinicaltrialsforallitsproductsthroughfiling.Selectively,wheredeemed
Startingfrom2008,astaffincen-
tiveplanisinplaceforCosmo’s
employees,basedonpredeter-
minedgoalsachievedinthe
period1January–31December
ofeachyear.
Operatingprinciplesandactivities–CosmoPharmaceuticalsAnnualReport2008 39
advantageous,theCompanyhasenteredintolicensingagreementsafterproofof
conceptandifitfeltthatitneededsupportintheregulatoryprocessandforall
countrieswhereitfeltthatsettingupanowndistributionorganizationisunlikely.
On24November2008,theCompanyannouncedalicenceagreementwith
Dr.FalkPharmaforRifamycinSVMMX®forallofEurope(withoutItaly)andAus-
tralia.Dr.FalkPharmapaidasigningfee,willpaythephaseIIIclinicaltrialsin
Europe,afeeuponregistrationoftheproductforInfectiousColitisandroyalties
increasingwithsales.Dr.FalkPharmawillalsopurchaseallRifamycinSVMMX®
tabletsfromtheCompanyexclusively.
On15December2008,theCompanyannouncedalicenceandequityparticipa-
tionagreementwithSantarusforBudesonideMMX®andRifamycinSVMMX®
fortheUSA.SantaruspaidUSD2.5millionandsixmillionSantarussharesasasigning
feeupfrontandmayalsopayCosmouptoatotalofUSD9millioninclinicaland
regulatorymilestonesfortheinitialclinicalindications,uptoUSD6millioninclin-
icalandregulatorymilestonesforasecondindicationforRifamycinSVMMX®,
anduptoUSD57.5millionincommercialmilestones.Ifandwhenearned,themile-
stoneswillbepayableatCosmo’soptionineitherSantaruscommonstockorin
cash,subjecttocertainlimitations.SantarusreimbursedCosmoapproximately
USD2.8millionby31January2009whichrepresentsSantarus’50%shareofthe
phaseIIIclinicaltrialcostsforBudesonideMMX®incurredbyCosmothroughmid-
November2008.Infuture,Santaruswillberesponsiblefor50%ofthecosts
associatedwiththeongoingUSregistrationandEuropeanBudesonideMMX®
phaseIIIclinicaltrialsandallcostsforthefuturephaseIIIUSregistrationclinical
trialforRifamycinSVMMX®.Assumingregulatoryapprovalandcommercial
launch,SantaruswillpaytoCosmotieredroyaltiesonnetsalesofeachproduct
rangingfrom12%to14%,subjecttoreductioninlimitedcircumstances.Cosmo
oritsaffiliatewillberesponsibleforthemanufactureandsupplyoftheproducts
underasupplyagreementtobenegotiatedatalaterdate.
AglobalMMXpatentprotec-
tingtheplatformtechnologyhas
beenfiledandgrantedin
practicallyallmajorcountries.
40 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
MMX®technologycanbeusedasaplatformforapplicationsoutsidethecolonwhereacontrolledreleaseisofimportance.
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 41
Group structure and shareholders
TheCompanyisastockcorporation“SocietàperAzioni”/S.p.A.organizedunderthe
lawsofItalyandlistedontheSIXSwissExchange.Cosmowasoriginallyincorp-
oratedwithasharecapitalofEUR10,000.Itssharecapitalhasbeensubsequently
raisedtoEUR2,185,000on2August2006,throughthecontributioninkindof
CosmoHolding’s100%shareholdinginCosmoS.p.A.andCosmoTechnologiesLtd.
TheGrouphasnoequityinterestinunconsolidatedcompaniesthatcontribute
10%ormoreoftheconsolidatedequityoroftheconsolidatedprofitoftheGroup.
TheGroupisorganizedaccordingtoamatrixorganizationprinciple.Theline
organizationconsistsoffourlegalentities;CosmoPharmaceuticalsS.p.A.and
its100%subsidiaries,CosmoS.p.A.,CosmoTechnologiesLtd.,Ireland,andCosmo
Research&DevelopmentS.r.l.
ThesefourentitieshavetheirownBoardsofDirectorsandinternalmanage-
mentstructure.ThefunctionaltasksoftheGrouphavebeenallocatedtothediffer-
ententities.
CosmoPharmaceuticalsS.p.A.isresponsibleforoverallmanagementofthe
Group,administrationandpersonnel,andfinanceandinvestorsrelations.Cosmo
S.p.A.isresponsibleforproduction.CosmoTechnologiesLtd.isresponsiblefor
internationalbusinessdevelopmentandinternationalresearchanddevelopment
andCosmoResearch&DevelopmentS.r.l.executestheresearchanddevelopment
activitiesinItaly.
Businessdevelopmentisresponsibleforthenegotiationofcontractswith
licensing,productionandmarketingpartners,fortheidentificationofthird-party
productswhoseefficiencycouldbeimprovedbytheMMX®technology,for
theidentificationofproductsthatcouldfittheGroup’sportfoliowellandforthe
identificationofproductsthatareabouttolosetheirpatentprotectionand
couldbeproducedinhouse.
Research&Developmentisresponsiblefortheidentificationofnewchemical
andbiologicalsubstancesthatcouldbepurchasedbytheGrouporthatcouldbe
refinedbytheapplicationoftheGroup’sMMX®technology,forthecorrectdesign
andtimelyexecutionofallclinicaltrials,forthedefinitionofclinicalendpoints
ofclinicaltrials,fortheselectionandthemanagementofclinicalresearchorgan-
izations,forthepatentstrategydefinitionanditsexecution.
Productionisresponsibleforthequalityofproduction,forproductionplan-
ning,fortheidentificationofunusedcapacityanditsoptimaluse,forthemarket-
ingofcontractdrugmanufacturingclientsandforthemarketingoftemporarily
unusedcontractdrugmanufacturingcapacity.
Corporategovernance
42 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
Administrationisresponsibleforallpersonnel,infrastructureandsystems,insur-
anceandsecurity.
FinanceandinvestorrelationsarecentralizedintheCompanywhichprovides
financialservicesforsubsidiaries.
Asof31December2008,theGroup’sstructurewasthefollowing:
Major shareholders
CosmoHoldingS.p.A.isanItaliancompanywithitsregisteredofficeatLainate,
andhasasharecapitalofEUR2,800,000consistingof2,800,000shareswithapar
valueofEUR1each.CosmoHoldingS.p.A.iscontrolledbyitsmajorityshareholder,
CassiopeaS.A.,aLuxemburgcompany,holding81%ofthesharecapitalinCosmo
HoldingS.p.A.,whichinturniscontrolledbyMauroS.Ajani,theCEOandExecutive
DirectoroftheCompany,whoholdsa60%ofCassiopeaS.AFurthermore,MauroS.
Ajani’sdaughter,BenedettaAjani,andhiswife,GisellaDeSena,eachhold20%of
thesharesofCassiopeaS.A.RobertoVilla,LuigiMoro,GiuseppeCiprianoand
MassimoPedrani,membersoftheManagementoftheCompany,hold,inaggregate,
10.3%ofthesharesofCosmoHoldingS.p.A.dieviniHoppBioTechHoldingGmbH&
Co.KG,theinvestmentcompanyofDietmarHoppandhisfamily,owns10.6%ofthe
shares.
Cassiopea S.A. 1)
81%
63%
100% 100% 100%
37%
19%
Cosmo Research & Development S.r.l., Italy
Cosmo S.p.A., Italy Cosmo Technologies Ltd.,Ireland
Cosmo Holding S.p.A., Italy
Cosmo Pharmaceuticals S.p.A., Italy (Listing entity)
Other Investorsincluding Management 2)
Financial Investors
Source: Company information 1) Controlled by the Ajani family 2) Management holds 10%
63%
26.4%
10.6%
CosmoHoldingS.p.A.
dieviniHoppBioTechHoldingGmbH&Co.KG
Othershareholders
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 43
Capital structure
Share capital
Asper1January2009,thesharecapitaliscomposedof13,875,000shares,eachwith
anominalvalueofEUR0.25.Thesharecapitalisfullypaidup.Thesharesareissued
inbookentryformaccordingtoItalianlaw.Nosharecertificateshavebeenissued
andsharecertificateswillnotbeavailableforphysicaldelivery.Sharesarecentral-
izedinthecentralsecuritydepositorysystemmanagedbyMonteTitoli.Forthe
purposeoftheexerciseoftherelevantrights(suchasthevotingrightpursuantto
section2,370oftheItaliancivilcodeandtherighttoreceivepaymentofdividends),
shareholdersmustrelyontheproceduresofMonteTitoli,BancaIntesaS.p.A.,or
SISandontheintermediariesorparticipantsthathaveaccountswithMonteTitoli,
BancaIntesaS.p.A.,orSIS.Thefinancialintermediary,BancaIntesaS.p.A.,isin
chargeofliaisingbetweenMonteTitoliandSIS.Shareholdersareentitledtoreceive
writtenconfirmationregardingthenumberofsharesheldthroughtheintermedi-
aryorthedepositarybankatwhichtheyhavetheaccount.
Stock option plan
Theextraordinaryshareholders’meetingof14December2006authorizedthe
increaseofthesharecapitalbyamaximumofnominalEUR378,000withtheissue
of1,513,200newsharesattheserviceofanemployeestockownershipplan(ESOP),to
beimplementedwithinthefollowingfiveyears.Attheshareholders’meetingthe
BoardofDirectorswasformallyauthorizedtoexecutesuchplan.On18December
2007theBoardofDirectorsgrantedatotalof1,013,568options;theyvestafterthree
yearsandtheycanbeexercisedatapriceofCHF22pershareuntil14December
2011.In2008noadditionaloptionsweregranted.Italianlawdoesnotforeseethe
creationoftheconditionalcapitalforstockoptionplans.Thesharecapitalwillthus
notbeincreaseduntilsuchtimewhentheoptionholdersexecutetheiroptions.
Authorization to purchase own shares
Attheshareholders’meetingon28March2008theshareholdersapproved
theBoardofDirectors’proposaltohaveapositionofupto1.3millionshares.
AtyearendtheCompanyheld45,992sharesatanaveragepriceof
CHF13.09pershare.
Transfer of shares and disclosure of principal shareholders
Thetransferofsharesisaffectedbycorrespondingentryinsecuritiesaccounts
whichrecordthetransferoffinancialinstrumentsopenedwithauthorized
44 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
financialintermediariesandinaccordancewiththeapplicablelaw.Uponregistra-
tionofthetransferanduponrequestoftheshareholder,thefinancialintermedi-
ariesshallinformtheCompanyofthetransferofshares,andtheCompanyshall
updatetheshareholders’register(“LibroSoci”)inaccordancewithItalianlaw.
Ashareholdermayaskforhisregistrationatanytime.
TheCompanyhasbeenadvisedthat,sinceitisanItaliancompanylistedin
Switzerland,itanditsshareholdersmaynothavetheprotectionofeitherItalian
orSwisslawsandregulationsgoverningdisclosureofsignificantshareholdings.
However,eachshareholder(asdefinedintheArticlesofAssociation)who
directly,indirectlyorbeneficiallyhasvotingorinvestmentpowerintheCompany
isrequiredbytheArticlesofAssociation,tocomplywiththelaws,rulesandregula-
tions.
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 45
ChrisTanner(57)
ExecutiveDirector;
CFO
2006 Boardmember/BeiratofJoimaxGmbH
BoardmemberofCosmoBioscienceS.p.A.
BoardmemberofPrivateEquityHoldingAG
GianluigiBertolli(57)
Non-ExecutiveDirector
2006 GeneralsecretaryofItalianNational
AssociationofCharteredAccountants
Presidentofstatutoryauditorsofanumberof
majorItalianandinternationalcompanies
Founderandseniorpartnerof
StudioBertollieAssociati
Board of Directors
In2008,theBoardofDirectorsofCosmoPharmaceuticalsS.p.A.consistedoffive
non-ExecutivemembersandtwoExecutiveDirectors.Themanagementofthe
GroupisintheresponsibilityoftheBoardofDirectors.AllMemberswereelected
bytheshareholdersattheannualshareholders’meetingforatermofthreefiscal
yearsandareeligibletosuccessivetermsfollowingItaliancivilcoderules.
Name/current position Member since
Relevant external positions
RolfStahel(64)
Non-ExecutiveDirector;
Chairman
2006 ExecutivechairmanofChesylPharmaLtd.
Non-executivechairmanfor:
NewronPharmaceuticalsS.p.A.
EUSAPharmaInc.
MauroS.Ajani(54)
ExecutiveDirector;
CEO
2006 Chairmanandmemberoftheboardof
CosmoBioscienceS.p.A.
46 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
Name/current position Member since
Relevant external positions
FriedrichvonBohlenund
Halbach(46)
Non-ExecutiveDirector
2006 Chairmanoftheboard(Beirat)of
ApogenixGmbH,andofCureVacGmbH
ChairmanoftheboardofLifeBiosystemsAG
andofSygnisPharmaAG
MemberoftheboardofCosmoBioscience
S.p.A.,CuracyteAG,HeidelbergPharmaAGand
WilexAG
Memberoftheboard(Beirat)of
CytonetGmbH&Co.KG
DieterA.Enkelmann(49)
Non-ExecutiveDirector
2006 Chieffinancialofficerandmemberofthe
executivemanagementboardofJuliusBaer
HoldingAG
BoardmemberofiNNutriGELAG
AlessandroDellaChà(45)
Non-ExecutiveDirector
2006 SeniorpartneratStudioLegaleEdoardoRicci
eAssociati
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 47
Rolf Stahel
Swiss(born1944),hasbeenChairmanoftheBoardofDirectorsofCosmoPharma-
ceuticalsS.p.A.since2006.From2005to2007hewastheDeputyChairmanofthe
BoardofCosmoHoldingS.p.A.
RolfStahelhasadegreeinbusinessstudiesfromKSLLucerne,Switzerland,and
heattendedtheadvancedmanagementprogrammeatHarvardBusinessSchool.
FromMarch1994toMarch2003,hewaschiefexecutiveofficerofShirePharma-
ceuticalsGroupplc(nowShireplc).Hewasalsoamainboarddirectorandchair-
manoftheexecutivecommitteeofShirePharmaceuticals.From1967to1994,he
workedforWellcomeplcinSwitzerland,Italy,Thailand,SingaporeandtheUnited
Kingdom.From1990to1994,hewasWellcome’sdirectorofgroupmarketing,based
inLondonandBeckenham,withresponsibilityforgroupstrategy,R&Dportfolio
evaluation,marketingofexistingandnewproductsandbusinessdevelopment.In
thisposition,hereporteddirectlytothechiefexecutiveofficerofWellcomeplc.
From1979to1990,hewasaregionaldirectorofWellcomeplc,basedinSingapore,
withresponsibilityfor18PacificRimcountries.
ChesylPharmaLtd.,theadvisorycompanycontrolledbyRolfStahel,hadbusi-
nessdevelopmentcontractswiththeCompanyrespectivelyCosmoHoldingS.p.A.
TheagreementwithChesylPharmaLtd.wasterminatedpriortotheIPO.
RolfStahelisamemberoftheadvisoryboardoftheBusinessSchoolofImper-
ialCollegeLondon.In2009hereceivedthelifetimeachievementawardfromthe
UKBioindustryAssociation.
Mauro S. Ajani
Italian(born1955),residentinMilan,Italy,founderand,throughhisholdingsin
CassiopeaS.A.,mainshareholderofCosmoHoldingS.p.A.andCosmoBioscience
S.p.A.aswellasindirectlyofCosmoPharmaceuticalsS.p.A.
SoleDirectorofCosmoS.p.A.from1998toFebruary2001.
From1994to1996,hewasthegeneralmanageroftheRussiancompanyItal-
centerandtookpartinajointventureofItalianandRussianentrepreneursfor
thecreationofapharmaceuticalproductdistributioncompany.Hewasaconsult-
antofPharmhispaniafrom1991to1993,anItalian-Spanishjointventureforthe
import/exportanddistributionofpharmaceuticalproductsbetweenSpainand
Italy.Intheperiodfrom1983to1993,hewasthemarketingmanagerofPharmajani
S.r.l.,acompanyengagedinthecommercialdistributionandlogisticsofpharma-
ceuticalproducts.From1980to1983,hewasNielsen’sareamanagerforover-the-
counterproductsoftheSeronoOTCcompanywhileintheperiodfrom1978to1980
48 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
heworkedasasalesmanfortheLepetitcompanyandfortheGazzonicompany
intheOTCsector.
MauroS.AjaniischairmanandmemberoftheboardofCosmoBioscience
S.p.A.,Lainate,Milan,acompanywhich,throughitsCosmoBioscienceInc.,LaJolla,
USA,subsidiaryisdedicatedtothedevelopmentofcancervaccinesformelanoma.
In2008,CosmoBioscienceInc.,whichiscontrolledbyCosmoBioscienceS.p.A.,
whosemajorshareholderisMauroS.Ajaniandhisfamily,providedanalytical
servicesinthedeterminationofmechanismofactionofLMWHeparinfor
approximatelyUSD300thousand.
Chris Tanner
Swiss(born1951),hasbeenaBoardMemberofCosmoPharmaceuticalsS.p.A.since
2006andfrom2005to2007ofCosmoHoldingS.p.A.Since2006hehasbeenChief
FinancialOfficerofCosmoPharmaceuticalsS.p.A.
DrTannerhasadiplomaasaneconomistandaPhDineconomicsfromthe
UniversityofSt.Gallen.HejoinedUBSin1977andfollowingamanagement
traineeprogrammeworkedinvariousforeignassignments.In1985,hebecamea
memberoftheglobalcreditcommitteeandfrom1987to1992wastheheadof
corporatebankinginAsia,AustraliaandAfricaaswellasSouthernEurope.In1992
hebecameheadofcorporatefinanceandcapitalmarketsatUBSinZurich.In
1998,oneyearafterUBS’smergerwithSBC,helefttobecomeapartnerofDrErnst
Müller-Möhl,co-foundedthe“20Minuten”groupofnewspapersandfounded
A&AActiveInvestor,alistedinvestmentcompany.Since2002hehasbeenacor-
poratefinanceadviserandparticipatedinnumerousfundraisingsamongstother
fortheprivateplacementofCosmoHoldingS.p.A.Heisontheadvisoryboardof
MilleniumAssociates,afinancialadvisertothefinancialservicesindustryasse-
nioradviser.
HeisaBeiratrespectivelyboardmemberofJoimaxGmbH,CosmoBioscience,
Inc.andPrivateEquityHoldingAGwhichislistedontheSIXSwissExchange.
NoneofthecompaniesthatDrTannerisamajorshareholderofhasanybusi-
nessactivitieswiththeCompany.
Friedrich von Bohlen und Halbach
German(born1962),hasbeenaBoardMemberofCosmoPharmaceuticalsS.p.A.
since2006andwasaMemberoftheBoardofCosmoHoldingS.p.A.from2005
to2007.DrvonBohlenundHalbachhasadiplomainbiochemistryfromthe
UniversityofZurichandaPhDinneurobiologyfromtheSwissFederalInstitute
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 49
ofTechnology(ETH)inZurich.In2008,hewasappointedprofessorforinformation
sciencesattheUniversityofAppliedSciences(FH)inHeidelberg,Germany.
HeisfoundingmemberandshareholderofdieviniHoppBioTechHolding
GmbH&Co.KGwhichmanagesthelifesciencesinvestmentsoftheHoppfamily.
Hehas15yearsofentrepreneurialexperienceandwasawardednumerousprizes,
amongstotherstheMcKinseyStartUp-PrizeinGermanyin1998andtheGerman
EntrepreneuroftheYearPrizein1999byManagerMagazin,Ernst&YoungandSAP.
DrvonBohlenundHalbachismanagingpartnerofdieviniHoppBioTech
HoldingGmbH&Co.KG.Heisamemberofthefollowingboards:chairmanofthe
board(Beirat)ofApogenixGmbH,Heidelberg,memberoftheboardofCosmo
BioscienceS.p.A.,Lainate,Milan,memberoftheboardofCuracyteAG,Munich,
chairmanoftheBoard(Beirat)ofCureVacGmbH,Tübingen,memberoftheboard
(Beirat)ofCytonetGmbH&Co.KG,Weinheim,memberoftheboardofHeidelberg
PharmaAG,Heidelberg,chairmanoftheboardofLifeBiosystemsAG,Basel,chair-
manoftheboardofSygnisPharmaAG,Heidelberg,andmemberoftheboardof
WilexAG,Munich.
NoneoftheunrelatedcompaniesthatDrvonBohlenundHalbachisamajor
shareholderoforisontheboardofhadanybusinessactivitieswiththeCompany.
Gianluigi Bertolli
Italian(born1951),DrBertollihasbeenaBoardMemberofCosmoPharmaceuticals
S.p.A.since2006andwasaBoardMemberofCosmoHoldingS.p.A.from2005to
2007.
DrBertollihasadiplomaasbusinessandtaxconsultant,adiplomaaschar-
teredaccountantandaPhDfromtheBocconiUniversityinMilan.Heisthegeneral
secretaryofItalianNationalAssociationofCharteredAccountantsandpresident
ofstatutoryauditorsofanumberofmajorItalianandinternationalcompanies.
HeistheownerandheadofStudioBertolli,afirmthatspecializesinM&A,
accountingandtaxadvice.
DrBertolli,andrespectivelycompaniesthatheowns,carryoutaseriesoftax
andaccountingservicesfortheCompany.
Alessandro Della Chà
Italian(born1963),hasbeenaBoardMemberofCosmoPharmaceuticalsS.p.A.
since2006.
AlessandroDellaChàhasadegreeinlawfromtheUniversityofMilan,Italy,
andanLL.M.fromtheUniversityofLeicester,UnitedKingdom,inEuropeanUnion
50 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
CommercialLaw.Heisalecturerinconferencesandseminarsheldbyuniversities
andinstitutionsoncommercialandcompanylawissues.
HeisalsoseniorpartneratStudioLegaleEdoardoRiccieAssociati,Milan,
wherehespecializesincompanylaw,mergersandacquisitions.Hejoinedthefirm
in1988.From1987to1988hewasassistantofthecentraldirectorforcorporate
mattersatFininvestGroup.From1994to1998hewasdirectorofII.PP.A.B.Milan
(formerlyECA),acharitableinstitutionowninghospitalsandspecializedinelderly
care.
StudioLegaleEdoardoRiccieAssociatiprovidesaseriesoflegaladvisoryser-
vicestotheCompany.
Dieter A. Enkelmann
Swiss(born1959),hasbeenaBoardMemberoftheCompanysince2006.
HegraduatedfromtheUniversityofZurich,whereheobtainedadegreeinlaw.
DieterA.Enkelmannischieffinancialofficerandmemberoftheexecutiveman-
agementboardofJuliusBaerHoldingAG,oneofSwitzerland’slargestprivatebanks,
listedontheSIXSwissExchange.From2003to2006hewaschieffinancialofficer
ofBarryCallebautAG,theworld’sleadingmanufacturerofhigh-qualitycocoa,
chocolateandconfectionaryproductswhichislistedontheSIXSwissExchange.
From1997to2003hewasatSwissReasheadoffinanceofthebusinessunit
financialservicesandasheadofcorporatefinanceandinvestorrelations,treasury.
From1985to1997heheldseveralpositionsatCreditSuisse,bothinZurich
andLondon.DieterA.EnkelmannisaboardmemberofiNNutriGELAG,Schlieren,
Switzerland.JuliusBaerbankprovidesnoservicesfortheCompany.
Operating principles of the Board of Directors
ThegeneralpoliciesandthemanagementoftheCompanyaretheresponsibility
oftheBoardofDirectors,whichestablishesthestrategic,accounting,organiza-
tionalandfinancingpoliciesandappoints,recallsandsupervisesthemembersof
theManagement.Furthermore,theBoardofDirectorsisresponsibleforthe
organizationandpreparationofshareholders’meetingsandcarryingoutshare-
holders’resolutions.TheBoardofDirectorsmaydelegateitsauthoritytothe
ExecutiveCommitteeand/ortotheChiefExecutiveOfficer(CEO)anddetermines
thedurationofthetermandthepoweroftheCEO.
BoardofDirectors’meetingsarecalledbytheChairmanorbytheCEObywritten
notice,highlightingthematterstobediscussedandsentatleastthreedays(incase
ofurgencyatleastoneday)beforethedateofthemeeting.
SixmeetingsoftheBoardofDirectorstookplacein2008.
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 51
Board Committees
Compensation Committee
TheCompensationCommitteeassiststheBoardofDirectorsincompensation-
relatedmatters,includingmattersrelatedtotheCompany’sstockoptionplan.
TheCompensationCommitteeprovidesrecommendationsonandpolicesfor
thecompensationoftheMembersoftheBoardofDirectors,theManagement
andotheremployees.Itiscomposedsolelyofnon-ExecutiveMembersofthe
BoardandheadedbyRolfStahel.AdditionalMembersareFriedrichvonBohlen
undHalbachandDieterA.Enkelmann
OnemeetingoftheCompensationCommitteetookplacein2008.
Nomination Committee
TheBoardofDirectorshasestablishedaNominationCommittee,whichenacts
guidelinesforselectingcandidatesfortheelectiontotheBoardofDirectorsin
theeventoneormoreDirectorsisreplacedpursuanttosection2386oftheItalian
civilcode.ItalsoenactsguidelinesfortheappointmentofSeniorManagement
andmakesarrangementstoselectsuchcandidates.TheNominationCommittee
iscomposedsolelyofnon-ExecutiveMembersoftheBoardandisheadedby
RolfStahel.FriedrichvonBohlenundHalbachandDieterA.Enkelmannarethe
AdditionalMembers.
Audit Committee
TheBoardofDirectorshasestablishedanAuditCommittee.TheAuditCommittee
surveystheeffectivenessoftheexternalauditandtheinternalcontrolandrisk
managementprocesses.Italsoevaluatesthestateofcompliancewithnorms
withintheCompany.
Additionally,theAuditCommitteereviews–togetherwiththeChiefFinancial
Officer,and,separately,asthecasemaybe,withtheheadoftheexternalaudit–the
individualandconsolidatedfinancialstatementsaswellastheinterimstatements
intendedforpublication.Itdecideswhethertheindividualandconsolidatedfinancial
statementscanberecommendedtotheBoardofDirectorsforpresentationtothe
generalshareholders’meeting.TheAuditCommitteeassessestheperformanceand
thefeeschargedbytheexternalauditorsandascertainstheirindependence.It
examinescompatibilityoftheauditingresponsibilitieswithanyconsultingman-
dates.TheAuditCommitteeiscomposedsolelybynon-ExecutiveBoardMembers
andisheadedbyDieterA.Enkelmann.GianluigiBertolliandRolfStahelarethe
AdditionalMembers.
FourmeetingsoftheAuditCommitteetookplacein2008.
52 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
Executive Management
TheManagementisresponsiblefortheoperationalmanagementofCosmo
PharmaceuticalsS.p.A.inlinewiththeinstructionsissuedbytheBoardofDirectors.
Cosmohasgrownbasedonastrong,focussedManagementTeamencompassing
skillsacrossthespectrumofdisciplinesrequiredforanemergingfullyintegrated
specialtypharmaceuticalcompany.TheCompanyhasaninternationallyexperi-
encedandentrepreneurialManagementTeamofpharmaceuticalindustryexecu-
tivesandrecognizedexpertsintheirfieldwithdiversebackgroundsandcomple-
mentaryskillsinresearch,development,regulation,manufacturing,sales,
marketingandfinance.
M. S. AjaniFounder and
Chief Executive Officer
G. CiprianoChief Operating Officer
R. VillaChief Manufacturing Officer
M. LecchiDeputy Chief Financial Officer
G. CelascoChief Medical Officer
R. BozzellaR&D
RegulatoryAffairs
Manager
R. JonesClinical
Operations Manager
M. SuraceMedical
Manager
F. RasettiRegulatory
Manager
A. LovatiQuality
AssuranceManager
M. AlbasiniTechnicalDirector
C. TannerChief Financial Officer
L. MoroChief Scientific Officer
M. PedraniHead of Business
Development Generics
G. Naccari Head of IBD Business
Development
Totalemployeesasat31December2008:131• Production&Logistics:90• Administration&Finance:17• Research&Development:24
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 53
Members of the Management
Mauro S. Ajani
Italian(born1955),ChiefExecutiveOfficerofCosmoPharmaceuticalsS.p.A.and
MemberoftheBoardofDirectors.
Marco Albasini
Italian(born1969),TechnicalDirectorofCosmoS.p.A.since2006.From2004to
2005hewasqualitymanagerofGentiumS.p.A,Como,Italy.From2001to2003he
wasthequalitycontrolmanagerofthefinechemicalbusinessunitofZambon
GroupSpa,Vicenza,Italy,companiesinthefieldofAPIsandrelatedservices.From
1995to2001hewasqualitycontrolmanagerofTecresSpa,acompanyinthefield
ofsterilemedicaldevices.Heholdstwodegrees:chemistry&pharmaceutical
technologiesandpharmacy.
Roberta Bozzella
Italian(born1974),R&DRegulatoryAffairsManagerofCosmoResearch&Devel-
opmentS.r.l.Sheholdsauniversitydegreeinpharmaceuticalchemistryfrom
theUniversityofMilan.ShejoinedtheGroupin2002,comingfromSPA,anItalian
pharmaceuticalcompanywhereshewasthequalityassurancemanager.At
Cosmosheisresponsiblefortheregulatorydesignofthepipelinedevelopment
projects.From1999to2002sheworkedasqualityassurancemanageratasmall
Italianpharmaceuticalcompany(SocietàProdottiAntibioticiS.p.A.).
Giuseppe Celasco
Italian(born1941),ChiefMedicalOfficerofCosmoResearch&DevelopmentS.r.l.
HegraduatedinmedicineandsurgeryattheUniversityofGenova,Italy(1967).
Hebeganhiscareerasaresearcherinthefieldoftoxicologyandendocrinologyin
theWarner-VisterInstituteforResearchonSteroidsin1969,andwassubsequently
appointedresponsibleforthedepartmentofpharmacologyandtoxicologywithin
thesameresearchinstitute(1972–1985).Hetaughtexperimentalendocrinology
attheUniversityofPavia(1972),andgeneralpathologyandocularpathologyatthe
AdvancedInstituteofOptometricSciencesofMilan(1973–1975).From1985to1995
hewasseniormedicaladvisorofParkeDavisS.p.A.,and,from1995to2000,director
ofscientificaffairsandregulatoryaffairsmanagerwithinthesamecompany.Heis
authorof59scientificcontributions.HejoinedtheGroupin2001.
54 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
Giuseppe Cipriano
Italian(born1957),ChiefOperatingOfficerofCosmoS.p.A.since2001.From1996to
2001hewasmanagingdirectorofGianFrancoFerrèS.p.A.andGianFrancoFerrè
USAHolding,thewell-knownfashiongroup.From1990to1996hewasthemanag-
ingdirectorofCordaraS.p.A.andEcorImpiantiS.r.l.,companiesinthefieldof
commercializationofoilproductsandrelatedservices.From1982to1990hewas
avice-president(vicedirettore)inthePublicAdministrationInlandRevenue
DepartmentinMilan.
Richard Jones
British(born1969),ClinicalOperationsManagerofCosmoTechnologiesLtd.,which
istheinterfaceoftheGroupwithCROsinchargeofconductingtheclinicaltrials.
HejoinedtheGroupinFebruary2006.From1996to1999,RichardJonesworkedas
aclinicalscientistfortheNationalHealthService,UniversityHospitalBirmingham,
UK.From1999to2005,heworkedwithICONClinicalResearch,firstasadrugsafety
associate,thereafterasaprojectmanagerandfinallyasaseniorprojectmanager.
BeforehejoinedtheGroup,heheldapositionwithNabiBiopharmaceuticals
Europeasaclinicalprojectmanager.HeholdsaPhDinclinicalbiochemistryfrom
TrinityCollege,Dublin.
Marco Lecchi
Italian(born1964),DeputyChiefFinancialOfficerofCosmoPharmaceuticalsS.p.A.
HejoinedtheGroupin2001;from1999to2001heworkedasdirectorofadminis-
trationofGianfrancoFerrèS.p.A.anditssubsidiaryGFManufacturingSrlandfrom
1992to1999heworkedataninternationalauditfirm.In1999hegainedadmit-
tancetotheOfficialRegisterofPublicAuditor.MarcoLecchiobtainedhisdegreein
economicsandbusinessadministration,specializinginfinancialadministration,
fromtheBocconiUniversityinMilan.
Andrea Lovati
Italian(born1967),QualityAssuranceManagerofCosmoS.p.A.since1999.From
1997to1999hewasresponsibleforqualitycontroloflabsinCosmoS.p.A.From
1996to1997hewasresponsibleofthequalitycontrolchemicallabinParkeDavis
S.p.A.HebeganhiscareerasanalystinFormentiS.p.A.(1995).Heholdsadegree
inpharmaceuticalchemistryandtechnologyfromtheUniversityofMilan,Italy.
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 55
Luigi Moro
Italian(born1951),ChiefScientificOfficerofCosmoResearch&DevelopmentS.r.l.
HegraduatedinchemistryandpharmacologyattheUniversityofMilan.Hebegan
hiscareerin1976withFarmitalia–CarloErba,workingondiscovery/preclinical
phasetechnologicalprojectsandthedevelopmentofnewdrugadministration
systems,withparticularconcentrationonanti-cancerdrugs.
From1985to1988,withRecordatiIndustriaChimicaeFarmaceuticaS.p.A.,he
collaboratedonthedirectionoftechnologicalprojectsoftheparentcompanyand
inthedefinitionofdrugdeliverysystemsdevelopedbythesubsidiarycompany
Pharmetrix,aCaliforniancompanyspecializingintheapplicationofpolymermem-
branesandcontrolsystemsforproblemsrelatingtothecontrolledadministration
ofdrugs.Hewasappointedmanagerofthepharmaceuticaltechnologylaboratories
ofPoliIndustriaChimicaS.p.A.in1988andfrom1990to1995,hecoordinatedthe
company’sresearchactivitiesandindustrialapplicationsinthepharmaceutical,
synthesisandfermentationsector.In1996,hebecamemanagerofindustrialdevel-
opment,responsiblefortheidentificationofthetechnicalresourcesandfacilities
fortheindustrialimplementationofdevelopmentprojects.Heistheauthorof
numerousscientificpublicationsandpapersandinventorofnumerousinternational
technologypatents.HejoinedtheGroupin1999.
Gian Carlo Naccari
Italian(born1941),HeadofIBDBusinessDevelopmentofCosmoTechnologiesLtd.,
hasbeeninthepharmaceuticalbusinessfor40yearsandisconsideredoneofthe
leadingIBDexpertsinthefield.From1998to2006hewastheheadofprescription
drugsandheadofbusinessdevelopmentatGiulianiS.p.A.andwasassuchthe
interfacewithCosmoformanyyears.From1994to1997hewasmanagingdirector
forEuropeofOsteotechInc,aleadingbonereplacementandmedicaldevice
company,andfrom1989to1992hewasmanagingdirectorofCentocorItaly.Prior
tothathewasatGiulianiS.p.A.,GistBrocades,ItalfarmacoandPfizer.
Massimo Pedrani
Italian(bornin1954),HeadofBusinessDevelopmentGenericsofCosmoS.p.A.,
beganhiscareerasaresearcherinthegalenicallaboratoryofMidyS.p.A.(Sanofi
Group)in1981andthenworkedasresponsibleforpharmaceuticaldevelopment
departmentinPierrelS.p.A.from1983to1987.HethenjoinedFarmitalia–Carlo
Erba(ErbamontGroup)assupervisorofexternalresearchinstitutesandhead
oftheindustrialgalenicslaboratoriesuntil1992.During1992to1996,hewasthe
managingdirectoroftheItaliansubsidiaryofAppliedAnalyticalIndustriesInc.,
56 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
aUScompanyoperatinginthepharmaceuticalresearchandservicessector.Since
1997,hehasworkedasapharmaceuticalbusinessdevelopmentandregulatory
affairsconsultantthroughhisowncompany,EmmepiPharmaSAS.HejoinedCosmo
asanExternalConsultantinJuly2001.Hegraduatedinchemistryandpharmaceut-
icalTechnologyfromUniversityofPavia.
MemberoftheboardoftheItalianPharmaceuticalAssociation,sinceFebruary
1992,andoftheControlledReleaseSocietyItalianChapter,sinceJune1998.
Francesca Rasetti
Italian(born1966),RegulatoryManagerofCosmoS.p.A.since1999.Shegraduated
inpharmacyfromtheUniversityofMilanin1990.Sheholdsaspecializationin
pharmacologyandaPhDinpharmacognosyfromtheUniversityofMilan.From
1996to1997sheworkedinParkeDavisS.p.A.assenioranalystinlaboratoryand
wasresponsibleoftheanalyticalvalidationstudies.ShebeganhercareerinCosmo
in1997asaLaboratorySeniorAnalyst.Sheisresponsibleforthesupervisionofthe
manufacturingprocessvalidationandforthecleaningvalidation.
Matteo Surace
Italian(born1972),MedicalManagerofCosmoResearch&DevelopmentS.r.l.He
graduatedatUniversityofMilan.Afterthepost-graduatecourseingynaecology
andobstetricsattheMilanUniversityofSanRaffaeleHospital,heworkedas
gynaecologistbetween2003and2005.BeforejoiningCosmo,heservedasmedical
directorandscientificdirectorofSOFARS.p.A.Duringthisperiodhisactivitywas
mostlyconcernedwithgastroenterology(inparticularfocusingonInflammatory
BowelDisease)butalsowithgynaecology,dermatologyandurology.Hetook
careandsupervisedclinicaltrials,mainlypostmarketing,andscientifictraining
ofthefieldforce;healsocollaboratedwithmarketingmanagementandregulatory
affairsmanagementforthedevelopmentoftheproducts.Heistheauthorofa
numberofscientificpublications.HejoinedCosmoin2008.
Chris Tanner
Swiss(born1951),ChiefFinancialOfficerofCosmoPharmaceuticalsS.p.A.,Member
oftheBoardofDirectors.
Roberto Villa
Italian(born1943),ChiefManufacturingOfficer,joinedCosmoS.p.A.whenitwas
established.Hehassignificantexperienceinmultinationalpharmaceutical
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 57
companies.Hebeganhiscareerasalaboratoryanalyst,andwaspromotedover
theyearstoproductionmanager,headofdevelopmentlaboratories,andfinally,to
theheadofqualitycontrolandqualityassurancelaboratories.Giventheexperi-
enceacquiredinvariouspharmaceuticalsectors,hewasappointedasChief
ManufacturingOfficerofCosmoS.p.A.andisresponsibleforthesupervisionofall
industrial,logisticandqualityaspectsofitsproductionfacilities.
Board of Statutory Auditors
TheBoardofStatutoryAuditorsiscomposedofthreePermanentAuditors,plustwo
DeputyAuditors,withprioritygiventotheeldest,whowouldautomaticallyreplace
aStatutoryAuditorwhoresignsorisotherwiseunabletoserveasaStatutory
Auditor.AtleastonepermanentMemberandonedeputyMemberoftheBoardof
StatutoryAuditorsmustberegisteredwiththenationalregisterofauditors
(RegistrodeiRevisoriContabili).
TheBoardofStatutoryAuditorsoverseestheCompany’scompliancewiththe
lawandwiththeArticlesofAssociation,verifiestheCompany’sadherencetogood
principlesofadministration,andassessestheadequacyoftheCompany’sinternal
controlsandaccountingreportingsystems,aswellastheeffectivenessoftheprovi-
sionsconcerningthesupplyofinformationtoandfromtheCompany’ssubsidiar-
ies.ThereviewperformedbytheBoardofStatutoryAuditorsdoesnotconstitute
anauditinaccordancewithItalianauditingstandards.
Members of the Board of Statutory Auditors
• FabrizioGardi(60),Auditor(Chairmanoftheapprovalofthe2008financial
statementsBoardofStatutoryAuditors)
• AndreaRighetti(54),Auditorapprovalofthe2008financialstatements
• MariaCristinaChioda(42),Auditorapprovalofthe2008financialstatements
Compensation, shareholdings and loans
Compensation of Board of Directors and Board of Statutory Auditors
AccordingtoItalianlawthetotalcompensationoftheBoardofDirectorsissetby
theordinaryshareholders’meetingandtheallocationismadebytheBoardof
Directors.Compensationforthethree-yearperiodstarting2007hasbeensetby
CosmoPharmaceuticalsS.p.A.’sordinaryshareholders’meetingon14December
2006,atEUR400,000peryearforthewholeBoard.Additionalcompensationof
certainMembersoftheBoardofDirectorswhoareappointedtocertainspecific
functionsisdeterminedbytheBoardofDirectors.ChrisTanner’sremunerationis
58 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
includedintheManagementcompensationfiguresandexcludedinthecorrespond-
ingfiguresfortheBoardofDirectors.
ThecompensationoftheMembersoftheBoardofStatutoryAuditorsisin
accordancewiththeprofessionalfeessetbytheNationalAssociationofPublic
Auditors.ThetotalremunerationfortheMembersoftheBoardofStatutoryAuditors
ofCosmoPharmaceuticalsS.p.A.amountedtoEUR19.6thousandin2008andhas
beensetbythe2006ordinaryshareholders’meetingtoEUR19.6thousandforthe
followingyears.
EUR
Board of Directors
Function Base compensa-tion
Additional compensa-tion
Cash bonus Fringe benefits
Stock options **
Total compensa-tion
RolfStahel non-
Executive
Chairman
80,000 – – – 74,352 154,352
MauroS.
Ajani
Deputy
Chairman
CEO
200,000 – – – – 200,000
Gianluigi
Bertolli
Member,
non-
Executive
30,000 – – – 25,367 55,367
Alessandro
DellaChà
Member,
non-
Executive
30,000 – – – 25,367 55,367
DieterA.
Enkelmann
Member,
non-
Executive
30,000 10,000 – – 25,367 65,367
ChrisTanner Member,
Executive
CFO
177,000 * – 20,000 * – 156,580 * 353,580 *
Friedrichvon
Bohlenund
Halbach
Member,
non-
Executive
30,000 – – – 25,367 55,367
Total 577,000 10,000 20,000 – 332,400 939,400
Compensation of Board of Directors and Board of Statutory Auditors
*CompensationasCFO
**CosttotheCompanyofstockoptionsallocatedin2007
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 59
Additional fees and remuneration
StudioBertolli,throughitsmanagingpartnerDrGianluigiBertolli,whoisthe
Company’sTaxAdvisoronthemajorityofItaliantaxissues:EUR29thousand.
StudioLegaleEdoardoRiccieAssociati,Milan,throughtheintermediationof
Avv.AlessandroDellaChà,whoistheCompany’sLegalAdvisoronallItalianand
manyinternationalcorporatematters:EUR226.9thousand.
Stock option plan
TheCompensationCommitteedidnotallocateanyoptionsin2008.
In2007theoptionswereallocatedasfollows:
Allocationtonon-ExecutiveMembersoftheBoard
AllocationtoExecutiveMembersoftheBoardandMembersofManagementif
allocationexceeds100,000shares
EUR
Executive Management No. of members
Base compensa-tion
Cash bonus Fringe benefits
Stock options
Total compensa-tion
ExecutiveManagement 13members 1,126,457 123,960 22,013 306,600 1,579,030
Highestpaidof13member 155,000 15,000 – 83,100 253,100
Compensation for Management
RolfStahel Chairman 117,936
GianluigiBertolli Member 40,236
FriedrichvonBohlen
undHalbach
Member 40,236
AlessandroDellaChà Member 40,236
DieterA.Enkelmann Member 40,236
ChrisTanner MemberoftheBoard
andCFO
248,364
GiuseppeCipriano COO 131,812
LuigiMoro CSO 131,812
Othermembersof
Management
222,700
Unallocatedshares 373,944
60 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
On18December2007theBoardofDirectorsgrantedatotalof1,013,568options;
theyvestafterthreeyearsandtheycanbeexercisedatapriceofCHF22pershare
until14December2011.In2008noadditionaloptionsweregranted.Italianlaw
doesnotforeseethecreationoftheconditionalcapitalforstockoptionplans.The
sharecapitalwillthusnotbeincreaseduntilsuchtimewhentheoptionholders
executetheiroptions.
Thefairvalueofoptionsgranted,determinedusingtheblack-scholesvaluation
model,resultedinavalueofCHF3.14peroption.Theoptionsgrantedarerecognized
ascostsoverthevestingperiodfrom18December2007to18December2010.
Management transactions
PursuanttotheSIXSwissExchangeDirectiveontheDisclosureofManagement
Transactions,effectiveasof1July2005,membersoftheboardofdirectorsandof
themanagementofacompanylistedontheSIXSwissExchangearerequiredto
reporttransactionstheycarriedoutdirectlyorindirectlyinshares,call-and-put
optionsandconversionandsimilarrightswithrespecttosharesoftheissuer
withintwostockexchangetradingdays.Transactionsmustalsobereportedifthey
arecarriedoutbyorontheaccountofathirdparty,butthedecisionwasmade
byorsignificantlyinfluencedbyamemberoftheboardofdirectorsormanagement.
Dependingonthevolumeofsuchtransactions,theissuerisrequiredtoinformthe
SIXSwissExchangeofsuchtransactionswithintwostockexchangetradingdaysor
attheendofeachcalendarmonth.TheSIXSwissExchangewillpublishsuch
transactions,indicatingthepositionofthereportingpersons(butnottheirnames).
ThisdirectiveisalsobindingfortheCompany.
Intheyear2008thefollowingshareswereboughtbyMembersoftheBoardof
Directors,theBoardofStatutoryAuditorsandExecutiveManagement:
NosharesweresoldbyMembersoftheBoardofDirectors,theBoardofStatutory
AuditorsandExecutiveManagement.
Shares purchased in 2008 Purchased
MauroS.Ajani 15,600
GisellaDeSena(MauroS.Ajani’swife) 13,900
DieterA.Enkelmann 1,800
AlessandroDellaChà 14,100
SuzanneTanner(ChrisTanner’ssister) 2,900
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 61
Share purchases by the Company
TheCompanyenteredintoamarket-makingagreementwithawell-knownbank
on5October2007.TheCompanyselectivelybuysandsellssharestosupportthese
activities.AtyearendtheCompanyhad45,992sharesonitsbookspurchased
atanaveragepriceofCHF13.09.
Loans granted by the Group to Members of Board of Directors or
Management
NocompanyoftheGrouphasgrantedanyloansorguaranteestoanyMember
oftheBoardsofDirectors,theBoardofStatutoryAuditorsorMembersofthe
Management.
Shareholders’ rights
Eachsharecarriesonevote.Holdersofthesharesareentitledtoattendandvoteat
shareholders’meetingsonthebasisofonevoteforeachshareheld,although
sharesheldinbreachofcertainprovisionsofapplicablelawand/ortheCompany’s
ArticlesofAssociationmaynotbevoted.
Aninvestorwhoacquires33.33%ormoreoftheCompany’svotingsharecapital
hastolaunchapublicofferforallsharesasrequiredSwisstenderofferrules
apply.TheBoardofDirectorshastheauthorityundertheArticlesofAssociationto
takeanyandallactionitdeemsnecessary,initssolediscretion,inordertocause
ashareholdertocomplywiththisobligation,andtodisallowanyshareholderwho
doesnotcomplywithitsobligationtolaunchapublicoffertovoteattheshare-
holders’meeting.
TheArticlesofAssociationalsorequireinvestorsinthesharestonotifythe
Companyofcertainacquisitionsanddispositionsofshares.
Toattendameeting,theownersofsharesarerequiredtoinstructanyrelevant
authorizedintermediarywithwhichtheiraccountsareheldtoprovidetothe
Companyadmissioncertificatesornoticepursuanttosection2,370oftheItalian
civilcodeatleasttwoworkingdayspriortothefirstdatesetforthemeeting.
TheCompany’sshareholdersmayappointproxiesinwriting.Proxiesarevalid
onlyforsinglemeetings(including,however,thefirst,secondandsubsequent
calls).Generalproxiescanbereleasedonlybycompanies,associations,foundations
orotherlegalentitiesorinstitutions,andonlytotheirownemployees.
Directors,StatutoryAuditors,IndependentAuditorsandemployeesofthe
Companyorofitssubsidiaries,orasubsidiaryitself,maynotactasproxiesfor
shareholders.Ashareholdermayalsoappointanothershareholdertorepresent
itatshareholders’meetings.
62 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
Dividends, allocation of annual net profits and other financial rights
Asamatterofpractice,annualdividendsareproposedbytheBoardofDirectors
andaresubjecttoapprovalbytheshareholders,usuallyattheannualshareholders’
meeting,whichmustbeconvenedwithinsixmonthsaftertheendofthefiscalyear
towhichthedividendrelates.Dividendsarepayableonthedatespecifiedbythe
shareholders’resolutionattheannualmeetingontheaccountofeachshareholder
throughtherelevantintermediaries.
Pre-emptive rights
Newissuesofshares,whethersharesorotherclassesofsharecapital,areauthor-
izedbyaresolutionoftheshareholderspassedatanextraordinarymeeting.
PursuanttoItalianlaw,holdersofordinarysharesareentitledtosubscribefornew
issueofshares,debtinstrumentsconvertibleintosharesandanyotherwarrants,
rightsoroptionsentitlingtheholdertoacquireshares,ineachcaseinproportion
totheirrespectiveshareholdings.
Minority shareholders’ rights
MinorityshareholdershavetherighttoappointoneDirectorandoneStatutory
AuditoroftheCompany,eachshareholdermaybringtotheattentionoftheBoard
ofStatutoryAuditorsfactsoractsthatsuchshareholderbelievestobewrongful.
Ifshareholders,representingatleast2.0%ofthesharecapitaloftheCompany,
submitacomplainttotheBoardofStatutoryAuditors,theBoardmustinvestigate
withoutdelayandmustreportitsfindingsandrecommendationstotheshare-
holders’meeting.
Shareholdersrepresentingatleast5.0%ofthesharecapitaloftheCompany
havetherighttoreportmajorirregularitiesintheManagementoftheCompanyto
thecourtwheretheCompanyhasitsdomicile.
Forcompanieswhosesharesarelistedonrecognizedstockexchanges,aquali-
fiedminorityofshareholdersrepresenting2.5%oftheoutstandingsharecapital
canbringanactionagainsttheBoardofDirectorsforthebenefitoftheCompanyas
awhole.ThisactioncanbesettledbytheCompanyonlyifthereisnottheoppos-
itionofshareholdersrepresenting5%oftheoutstandingsharecapital.Thesame
actioncanbebroughtagainsttheStatutoryAuditors,astheyarejointlyandsever-
allyliablewiththeDirectors,forwhatevernegligenceormisconductofthelatter.
Independent Auditors
Duration of the mandate and term of office of the Independent Auditors
CosmohasappointedtheauditingcompanyMazars&GuerardS.p.A.,Milan,asits
IndependentAuditorson14December2006.TheyhavenotservedasAuditorsof
theCompanybefore.Mazars&GuerardS.p.A.hasauditedthecombinedfinancial
statements(balancesheet,incomestatement,statementofcashflowandstate-
mentofchangesinequityandthenotestheretoofCosmoS.p.A.andCosmo
TechnologiesLtd.)forthethree-yearperiod2004/2005/2006,andpreparedthe
2006stand-alonefinancialstatements(balancesheet,incomestatementandthe
notesthereto)oftheCompanyfortheIPO.Mazars&GuerardS.p.A.hasbeenalso
appointedfortheauditofthe2007and2008consolidatedfinancialstatements
andstand-alonefinancialstatements(balancesheet,incomestatementandthe
notesthereto)oftheCompany.
Suchappointmentshallexpirewiththeapprovalofthe2008financialstate-
ments.CarloConsonniisthePartnerinchargeforthereportoftheIndependent
Auditors.
Auditing honorarium
Mazars&GuerardS.p.A.’shonorariumsfor2008amountedtoEUR53thousand.
Additional honorariums
NootherhonorariumshavebeenpaidtotheIndependentAuditors.
Change of control and defences measures
Information and control instruments vis-à-vis the Board of Directors
ItalianlawprescribesthenominationofanexternalBoardofStatutoryAuditors
whichhasextensiverightstoreportitsfindingstotheBoardofDirectors.The
BoardofDirectorsiscurrentlyscheduledtomeetatleastfourtimesayearplusa
budgetmeetingplusameetingtodiscussandapprovethefinancialstatements.
Furthermeetingswillbecalledasneeded.TheBoardofDirectorshassetaseriesof
benchmarksandparameterstotrackthefinancial,scientific,product,andproduc-
tiondevelopmentoftheCompany.Thesebenchmarksandparametersareregularly
reviewed.
Information policy
CosmoPharmaceuticalsS.p.A.iscommittedtoaclear,transparent,consistentand
non-selectivedisclosureofmaterialinformation.InaccordancewiththeItalian
Corporategovernance–CosmoPharmaceuticalsAnnualReport2008 63
64 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance64 CosmoPharmaceuticalsAnnualReport2008–Corporategovernance
andtheSIXSwissExchangerules,CosmoPharmaceuticalsS.p.A.providescomplete
anddetailedinformationonannualandhalf-yearreports.TheCompanypublishes
additionalinformationonimportantevents.
TheCompanyhasformulatedacorporatecommitmenttokeepitsinvestors
fullyapprisedofCompany’sdevelopments.TheCEO,CFOandHeadofInvestor
Relationsareresponsibleforcommunicationwiththefinancialcommunity.The
CompanyadheresstrictlytotheadhocpublicityrulesoftheSIXSwissExchange
andhasissuedallpressreleasestoawiderangeofinternationalagenciesinthe
immediateperiodbeforethestockmarketopeningafterhavingnotifiedtheSIX
SwissExchange.Inselectivecasessuchasthepresentationofthesemi-annual
report,theCompanyhasalsoinvitedshareholdersandthefinancialpressto
conferencecallsandselectivenewsevents.
PursuanttotheArticlesofAssociation,noticesaremadebypublicationinan
Italiannewspaperchosenamong“IlCorrieredellaSera”,“LaRepubblica”,“IlSole
24Ore”,intheEnglishnewspaper“TheFinancialTimes”andintheSwissnewspaper
“NeueZürcherZeitung”.
IntheeventthepublicationinadailyItaliannewspaperisnotpossible,under
applicableItalianlaw,theCompanypublishesnoticesandotherannouncements
intheItalian“GazzettaUfficiale”.Noticesarealsotobepublishedasrequiredby
thelistingrulesoftheSIXSwissExchange.
66 CosmoPharmaceuticalsAnnualReport2008
Ulcerative colitis (Uc) has attacked aroUnd 0.24% of the Us popUlation. in eUrope, this horde is wreaking similar havoc.
at the observation centre:
"oh dear, instead of fighting the Uc, these pills fire too early jUst caUsing strong, adverse side effects."
"this is too horrible to watch: now they explode. withoUt even crossing the small intestine!"
CosmoPharmaceuticalsAnnualReport2008 67
"the Uc is terrible! bUt chasing him away doesn’t need to mean hUrting the whole body as the other pills did. me and my team have a better tactic ...”
"agent mmx team watch carefUlly: that's him. the gUy that grabs hold of the colon, attacks and leaves a bloody trail of destrUction. it comes back to haUnt Us time after time."
"those pills are no good. i need to send in the agent mmx team. they have extraordinary powers, they can do it!"
–
68 CosmoPharmaceuticalsAnnualReport2008
“i need a 24-hoUr permanent combat in all areas. no limitations. yoU know what to do – no collateral damage and no wastage. i’m going to send all of yoU on yoUr mission at the same time. it’s easier and qUicker.”
"beware Uc! i'm getting ready to find yoU. there's no escape!"
CosmoPharmaceuticalsAnnualReport2008 69
“observation centre to agent mmx: hold yoUr fire, yoU aren’t there yet!”
“this is it. now i’m entering the colon battle zone.”
"so, this is where the other pills fired – i can see the holes. no wonder they had no ammUnition later. what amateUrs ..."
70 CosmoPharmaceuticalsAnnualReport2008
"this looks dreadfUl. the Uc has been here!"
"and this is where the other pills exploded – i have to be carefUl. bUt my UniqUe composition and matrices seqUence coating protects me."
CosmoPharmaceuticalsAnnualReport2008 71
"now it's action time: by Using hydrophilic matrices the medicine grafts to the wall's mUcosal layer where the attacker is."
“i have got to beat him down and contain the damage."
72 CosmoPharmaceuticalsAnnualReport2008
"cUrsed agent mmx! yoUr colleagUes already nerved me. and now yoU! yoU've made me lazy and tired – i better rest for a while now. bUt remember, this isn't over yet!"
“Uc – this shoUld keep yoU Under control . yoU better give Up now.”
CosmoPharmaceuticalsAnnualReport2008 73
"he may be back tomorrow – bUt so will we! i promise: there's light at the end of the tUnnel for all who sUffer from Uc."
"my colleagUes - yoU did a great job! the Uc is contained!"
Financialreview–CosmoPharmaceuticalsAnnualReport2008 75
In2008,Cosmo’srevenuegrewby56.0%toEUR34,173
thousand.Thisenabledittomovefromanetprofit
aftertaxesofEUR116thousandtoanetprofitafter
taxesofEUR9,401thousand.
TheagreementsignedwithSantaruson10Decem-
ber2008hadamaterialimpactonthe2008resultsof
theCompany.SantaruspaidCosmoUSD2.5millionin
cashatsigningandissuedtoCosmosixmillionshares
ofSantaruscommonstock.Furthermore,Santarus
agreedtoreimbursetotheCompanyalloftheaccrued
2008costsfortheUStrialsandtobearallthefuture
costsoftheUSclinicaltrials.
Revenue
Overall,therevenuerelatedtoownproducts(which
includesmanufacturingofMMX®products,licence
fees,upfrontfeesandmilestonesandroyalties)
increasedfromEUR7,326thousandtoEUR21,073
thousandor187.6%.Thisisanindicationofthe
transformationprocesstheCompanyisgoingthrough.
In2008,CosmoPharmaceuticalshadastrongyear:
Thedecreaseinrevenuefrommanufacturingof
genericproductsandspecialtydrugsforthirdparties,
Financialreview
EUR1,000 Year ended 31 December 2008 Year ended 31 December 2007
% of revenue % of revenue
Manufacturingonbehalfofthirdparties:
Manufacturingofgenericproductsandspecialtydrugs 12,375 36.2 13,558 61.9
ManufacturingofMMX®products 7,147 20.9 2,670 12.2
Relatedservices 564 1.7 703 3.2
Otherrevenuesfromsales 161 0.5 313 1.4
Licencefees,upfrontfeesandmilestones 10,388 30.4 3,502 16.0
Royalties 3,538 10.4 1,154 5.3
Totalrevenue 34,173 100.0 21,900 100.0
EUR1,000 Year ended 31 December 2008 Year ended 31 December 2007
% of revenue % of revenue
Ownproducts 21,073 61.7 7,326 33.5
Third-partyproducts 13,100 38.3 14,574 66.5
Totalrevenue 34,173 100.0 21,900 100.0
76 CosmoPharmaceuticalsAnnualReport2008–Financialreview
duetoadecreaseintheproductionofgenericprod-
uctsasaconsequenceoflowerordersfromcustomers
in2008,wasoffsetbythestrongincreaseinthemanu-
facturingofMMX®productsbyEUR4,423thousand
or167.7%toEUR7,147thousand.Strongestgrowth
wasseeninlicencefees,upfrontfeesandmilestones
(mainlyEUR7,737thousandforBudesonideMMX®
andEUR2,486thousandforRifamycinSVMMX®),which
jumpedby196.6%toEUR10,388thousand,andin
royaltiesforLialda™/Mezavant®,whichincreased
by206.6%toEUR3,538thousand.
Net operating expenses
Researchanddevelopmentcostexpensedintheprofit
andlossdecreasedbyEUR485thousand.However,
in2008theGroupcapitalizeddevelopmentcostsfor
anamountof3,779thousandincludingoutsourced
clinicaltrialcosts(morethan90percentoftheamount
capitalized),material(API,excipient)fortheprep-
arationofclinicalbatchesandpersonnelexpenses
directlyrelatedtoBudesonideMMX®project.
EUR1,000 Year ended 31 December 2008 Year ended 31 December 2007
% of revenue % of revenue
Otherincome 47 0.1 516 2.4
Costofsales (13,203) (38.6) (13,162) (60.1)
Researchanddevelopmentcosts (4,287) (12.5) (4,772) (21.8)
Selling,generalandadministrativecosts (5,546) (16.2) (4,730) (21.6)
Totalnetoperatingexpenses (22,989) (67.3) (22,148) (101.1)
EUR1,000 Year ended 31 December 2008 Year ended 31 December 2007
% of revenue % of revenue
Otherincome 47 0.1 516 2.4
Changesininventoriesoffinishedgoodsandworkinprogress 148 0.4 380 1.7
Rawmaterialsandconsumablesused (5,791) (16.9) (6,642) (30.3)
Personnelexpenses (7,028) (20.6) (6,629) (30.3)
Outsourcedpreclinicalandclinicaltrialcosts (1,928) (5.6) (2,640) (12.1)
Otheroperatingexpenses (6,836) (20.0) (5,673) (25.9)
Depreciationandamortization (1,601) (4.7) (1,460) (6.7)
Totalnetoperatingexpenses (22,989) (67.3) (22,148) (101.1)
Operating expenses as per nature
Other income
Theitemin2008includesincomeforleaseof
officesarisingfromthesubleaseofsomeoffices
toothercompaniesandotherminorincome.
Changes in inventories of finished goods
and work in progress
Theamountin2008principallyreferstotheincrease
infinishedgoodsandisduetothehigherstockof
Lialda™tablets(59batchesasat31December2008
comparedto46batchesasat31December2007),
requiredtosatisfytheordersfromcustomers.
Raw materials and consumables used
Thedecreaseofcostforrawmaterialsandpackaging
in2008comparedto2007isduetothedifferent
mixofproductsmanufactured–highervolumesof
Lialda™/Mezavant®andlowerordersforgenerics.
Personnel expenses
PersonnelcostincreasedbyEUR399thousandor
6.02%toEUR7,028thousand.Theincreasewas
primarilyduetotheadditionalcostsofsixnew
personshired,increasingtotalpersonnelto131
persons,totheexpensesforstockoptionsandto
theannualbonus;in2007personnelexpenses
includedaonce-onlyloyaltypaymentpaidouttoall
employeestotheamountofEUR1,021thousand.
Growthinpersonnelprimarilycameatfactorylevel
andwasnecessarytostafftheincreasedproduction
runsforLialda™.
Inthetablebelow,weshowthenumberofemploy-
eesbyfunctionasat31December2008.
Staffinproductionandlogisticsinclude16persons
workinginanalytical,chemicalandbiologicallabora-
toriessupportingtheactivityofcontractmanufactur-
ingandrelatedservices.
Outsourced preclinical and clinical trial costs
Preclinicalandclinicaltrialscostsoutsourcedto
subcontractorsandexpensedintheprofitand
lossdecreasedfromEUR2,640thousandtoEUR1,928
thousand;startingfrom2008,asBudesonideMMX®
enteredphaseIII,outsourcedclinicaltrialcosts
relatingtotheEuropeantrialswerecapitalizedand
expensesfortheUSportionoftheBudesonideMMX®
phaseIIIclinicaltrialswerereimbursedbySantarus,
followingthestrategiccollaborationagreement
signedinDecember2008.
Employees as at 31 December 2008 by function
Research&Development 24
Production&Logistics 90
Administration&Finance 17
Total 131
Financialreview–CosmoPharmaceuticalsAnnualReport2008 77
78 CosmoPharmaceuticalsAnnualReport2008–Financialreview
EUR1,000 Year ended 31 December 2008 Year ended 31 December 2007
% of revenue % of revenue
Financialincome 1,369 4.0 870 4.0
Financialexpenses (940) (2.8) (469) (2.1)
Totalfinancialincome 429 1.3 401 1.8
Other operating expenses
OtheroperatingexpensesincreasedbyEUR1,163
thousandor20.5%toEUR6,836thousand.This
increasewasprimarilyduetoheavierexpensefor
investorrelationsactivities,consultancyservices,the
expensefornon-ExecutiveDirectors’stockoptions
grantedon18December2007andtheincreaseofthe
utilitiesandenergycosts.
Depreciation and amortization
Depreciationandamortizationofpropertyandplant
hasremainedlargelyunchangedatEUR1,601thousand.
Financial income and expenses
Financialincomeispositivelyinfluencedbythe
interestreceivedoncashandcashequivalentswhich
wereplacedintimedepositswithbanks;financial
expensesincludetheforeignexchangedifferenceof
EUR519thousandarisingfromthemeasurementat
fairvalueasat31December2008ofSantarusshares
includedinthefinancialassetsavailableforsale.
Income tax expenses
GiventheCompany’sincreaseinprofit,incometaxes
increasedfromEUR37thousandin2007toEUR2,212
thousandin2008.Currentincometaxincludescost
forIRESandothercorporationtaxesandIRAP(which
representsanItalianregionaltaxleviedonoperating
incomepluspersonnelcostsandfinancialcharges
whicharenotconsideredtax-deductible);deferredtax
benefitprimarilyreferstotheutilizedlossescarried
forwardanddeferredtaxexpensesprimarilyrelating
totemporarydifferencesonthedevelopmentcosts
capitalizedinthelocalstatutoryfinancialstatements.
EUR1,000 As at 31 December
Non-current assets 2008 2007
Property,plantandequipment 6,986 6,891
Goodwill 109 109
Otherintangibleassets 6,856 3,175
Financialassets 6,769 –
Deferredtaxassets 1,208 1,434
Othernon-currentreceivables 2,144 1,953
Totalnon-currentassets 24,072 13,562
Assets
Non-current assets
Property,plantandequipmentprimarilyconsists
oftheequipmentintheplantthatisusedfor
themanufacturingoftheMMX®tablets.Nocapacity
additionsweremadebutselectedequipment
wasreplaced.
Intangibleassetsconsistofcostsforfilingand
extensionofpatentsandofdevelopmentcosts
ontheBudesonideMMX®projectcapitalizedstarting
from2008,andamountedtoEUR3,779thousand.
Financialassetsavailableforsalereferstothe
investmentinSantarusshares:accordingtothe
strategiccollaborationagreementwithSantarus,
grantingSantarusexclusiverightstodevelopand
commercializeBudesonideMMX®andRifamycinSV
MMX®fortheUSmarket,Cosmoreceived,inaddition
tocashofUSD2.5million,sixmillionofnewlyissued
sharesofSantaruscommonstock,thataresubjectto
aninitial15-monthrestrictionontheirsaleortransfer.
Thereductionindeferredtaxassetsisdueto
theutilizationoflossescarriedforwardandispartially
compensatedbythedeferredtaxassetsonchange
inthefairvaluearisingfromthemeasurementatfair
valueoftheinvestmentinSantarusshares.
EUR1,000 As at 31 December
Current assets 2008 2007
Inventories 1,507 1,549
Tradereceivables 3,549 3,400
Currenttaxassets 578 273
Otherreceivablesand
otherassets
5,893
2,939
Cashandcashequivalents 22,166 25,505
Totalcurrentassets 33,693 33,666
EUR1,000 As at 31 December
Equity 2008 2007
Sharecapital 3,469 3,469
Sharepremium 29,372 29,372
Treasuryshares (394) –
Otherreserves 2,162 2,162
Fairvaluereserves (1,557) –
Stockoptionplanreserve 667 28
Retainedearnings 116 –
Profitfortheperiod 9,401 116
Totalshareholders’equity 43,236 35,147
Financialreview–CosmoPharmaceuticalsAnnualReport2008 79
Current assets
Otherreceivablesandotherassetsincreasedby
EUR2,954thousandtoEUR5,893thousandprimarily
becauseofanamountduebySantarus.According
tothestrategiccollaborationagreement,Santaruswas
topayby31January2009thecostsfortheUSphaseIII
clinicaltrialsofBudesonideMMX®thattheCompany
hadalreadyincurredduring2008.
Equity and liabilities
Equity
Asat31December2008and2007,CosmoPharma-
ceuticalshad13,875,000sharesissued,fullysubscribed
andpaidup,eachsharewithanominalvalueof
EUR0.25,foratotalsharecapitalofEUR3,469thousand.
Non-current liabilities
Non-currentliabilitiesdecreasedfromEUR5,503
thousandtoEUR5,145thousand,duetothereclassifi-
cationoftheshort-termportionofinterest-bearing
loansandborrowingsascurrentliabilities,inaccord-
ancewiththecontractuallyforeseenrepayment
schedulesoftheloanandfinancialleaseliabilities,
partiallycompensatedbytheincreaseindeferred
taxliabilitiesrelatingtotemporarydifferences
onthedevelopmentcostscapitalizedinthelocal
statutoryfinancialstatements.
Current liabilities
Short-terminterest-bearingloans,borrowingsand
bankoverdraftsdecreasedfromEUR1,540thousand
toEUR1,391thousand,duetotherepaymentofloans
andborrowingsinaccordancewiththecontractually
foreseenrepaymentschedules.
EUR1,000 As at 31 December
Current liabilities 2008 2007
Interest-bearingloans,bor-
rowingsandbankoverdraft
1,391
1,540
Tradepayables 4,228 4,162
Deferredincome 1,996 –
Currenttaxliabilities 562 171
Othercurrentliabilities 1,207 705
Totalcurrentliabilities 9,384 6,578
80 CosmoPharmaceuticalsAnnualReport2008–Financialreview
Deferredincomerelatestotheupfrontpayment
receivedfromSantarusandDr.FalkPharmafor
RifamycinSVMMX®thatwillbereversedduring
thenextyearbasedontheadditionalactivities,
whichhavetobeperformedinaccordancetothe
contractualobligations.
CurrenttaxliabilitiesincreasedfromEUR171
thousandtoEUR562thousandprimarilydueto
theincreasein2008incometaxes(IRESandIRAP).
EUR1,000 As at 31 December
Non-current liabilities 2008 2007
Interest-bearingloans
andborrowings
2,903
3,658
Employeebenefits 511 630
Deferredtaxliabilities 1,731 1,213
Othernon-currentliabilities – 2
Totalnon-currentliabilities 5,145 5,503
Consolidatedfinancialstatements–CosmoPharmaceuticalsAnnualReport2008 81
Consolidated income statements
Consolidatedfinancialstatements
EUR1,000 Year ended 31 December
Notes 2008 2007
Revenue 5 34,173 21,900
Otherincome 47 516
Costofsales (13,203) (13,162)
Researchanddevelopmentcosts (4,287) (4,772)
Selling,generalandadministrativecosts (5,546) (4,730)
Netoperatingexpenses 6 (22,989) (22,148)
Operatingresult 11,184 (248)
Financialincome 7 1,369 870
Financialexpenses 7 (940) (469)
Profitbeforetaxes 11,613 153
Incometaxexpenses 8 (2,212) (37)
Profitfortheyear 9,401 116
Earnings per share EUR
Basic 9 0.67773 0.00869
Diluted 9 0.67773 0.00866
82 CosmoPharmaceuticalsAnnualReport2008–Consolidatedfinancialstatements
EUR1,000 As at 31 December
Notes 2008 2007
Assets
Non-currentassets
Property,plantandequipment 10 6,986 6,891
Goodwill 11 109 109
Otherintangibleassets 12 6,856 3,175
Financialassets 13 6,769 –
Deferredtaxassets 14 1,208 1,434
Othernon-currentreceivables 15 2,144 1,953
Totalnon-currentassets 24,072 13,562
Currentassets
Inventories 16 1,507 1,549
Tradereceivables 17 3,549 3,400
Currenttaxassets 18 578 273
Otherreceivablesandotherassets 19 5,893 2,939
Cashandcashequivalents 20 22,166 25,505
Totalcurrentassets 33,693 33,666
Totalassets 57,765 47,228
Consolidated balance sheets
EUR1,000 As at 31 December
Notes 2008 2007
Equity
Sharecapital 3,469 3,469
Sharepremium 29,372 29,372
Treasuryshares (394) –
Otherreserves 2,162 2,162
Fairvaluereserve (1,557) –
Stockoptionplanreserve 667 28
Retainedearnings 116 –
Profitfortheperiod 9,401 116
Totalequity 21 43,236 35,147
Liabilities
Non-currentliabilities
Interest-bearingloansandborrowings 22 2,903 3,658
Employeebenefits 23 511 630
Deferredtaxliabilities 24 1,731 1,213
Othernon-currentliabilities 25 – 2
Totalnon-currentliabilities 5,145 5,503
Currentliabilities
Interest-bearingloans,borrowingsandbankoverdraft 26 1,391 1,540
Tradepayables 27 4,228 4,162
Deferredincome 28 1,996 –
Currenttaxliabilities 29 562 171
Othercurrentliabilities 30 1,207 705
Totalcurrentliabilities 9,384 6,578
Totalliabilities 14,529 12,081
Totalequityandliabilities 57,765 47,228
Consolidatedfinancialstatements–CosmoPharmaceuticalsAnnualReport2008 83
84 CosmoPharmaceuticalsAnnualReport2008–Consolidatedfinancialstatements
Consolidated statements of changes in
shareholders’ equity
EUR1,000 Nu
mb
er
of s
har
es
Shar
e ca
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al
Shar
e p
rem
ium
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ares
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Tota
l
Netequityasat
31December2006
8,740,000
2,185
–
370
357
1,850
299
–
(344)
4,717
Issueofshares(Jan.2007) 2,460,000 615 (370) 245
Allocationofpreviousyear
profit/(loss)
(45)
(299)
344
–
Issueofshares,IPO(Mar.2007) 2,675,000 669 32,495 33,164
Sharecapitalissuecosts (3,123) (3,123)
Personnelcostforstockoptions 28 28
Profit/(Loss)fortheyear 116 116
Netequityasat
31December2007
13,875,000
3,469
29,372
–
–
357
1,805
–
–
28
–
116
35,147
Allocationofpreviousyear
profit/(loss)
116
(116)
–
Personnelcostforstockoptions 639 639
Transactionswithtreasury
shares
(394)
(394)
Fairvaluemeasurementof
available-for-salefinancial
assets
(1,996)
(1,996)
Deferredtaxationonfair
valuemeasurement
439
439
Profit/(Loss)fortheperiod 9,401 9,401
Netequityasat
31December2008
13,875,000
3,469
29,372
(394)
–
357
1,805
–
(1,557)
667
116
9,401
43,236
Consolidated cash flow statements
*Reclassifiedfrom“cashflowfrominvestingactivities”
EUR1,000 As at 31 December
Notes 2008 2007
Profitbeforetaxes 11,613 153
Incometaxespaid (1,026) (399)
Foreignexchangeonavailable-for-salefinancialassets 13 519 –
Financialincomeatfairvalueonsubsidizedloans 7 (363) –
Financialexpensesonsubsidizedloansatamortizedcost 7 67 –
Share-payment-basedexpenses 31 639 28*
Depreciationandamortization 10, 12 1,601 1,460
Accrualtoemployeebenefits 23 257 145
13,307 1,387
Changeininventories 42 (583)
Changeintradereceivables (149) (232)
Changeintradepayables 66 (786)
Changeinotherreceivablesandotherassets (2,954) 65
Changeindeferredincome 1,996 –
Changeinothercurrentliabilities 502 (2,112)
Changeincurrenttaxliabilities 83 38
Paymentofemployeebenefits 23 (376) (270)
Cashflowsfromoperatingactivities (12,517) (2,493)
Investments/disposalsin
Investmentsinproperty,plantandequipment 10 (1,370) (949)
Investmentsinotherintangibles 12 (4,019) (113)
Disposalsofproperty,plantandequipment 10 12 1,987
Investmentsinfinancialassetsavailableforsale 5, 13 (9,284) –
Cashflowsfrominvestingactivities (14,661) 925
Changeininterest-bearingloansandborrowings (608) (3,652)
Changeinothernon-currentreceivables (191) (47)
Changeinothernon-currentliabilities (2) (8)
Sharecapitalincrease – 30,286
Purchaseofownshares 21 (394)
Cashflowsfromfinancingactivities (1,195) 26,579
Netincrease/(decrease)incashandcashequivalents (3,339) 25,011
Cashandcashequivalentsatthebeginningoftheyear 25,505 494
Cashandcashequivalentsattheendoftheyear 20 22,166 25,505
Cashathand 5 10
Bankaccounts 22,161 25,495
Totalcashandcashequivalentsattheendoftheyear 20 22,166 25,505
Consolidatedfinancialstatements–CosmoPharmaceuticalsAnnualReport2008 85
86 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
Explanatorynotes
1 General information
CosmoPharmaceuticalsS.p.A.withitssubsidiaries
CosmoS.p.A.,CosmoTechnologiesLtd.andCosmo
Research&DevelopmentS.r.l.(“CosmoPharmaceut-
icals”or“Company”or“Group”)isaspecialtypharma-
ceuticalcompany:theCompany’sobjectiveisto
becomeagloballeaderinthemarketofoptimized
therapiesforselectedGastrointestinalDisorders.
TheCompany’sclinicaldevelopmentpipelinespecif-
icallyaddressesinnovativetreatmentsforInflamma-
toryBowelDiseases(IBD),suchasUlcerativeColitis
andCrohn’sDisease,aswellasforColonInfections.
Inaddition,theCompanyisdevelopinganewchem-
icalentityforthetreatmentofAcne,Alopeciaand
Hirsutism.
Since12March2007,CosmoPharmaceuticals’
sharesarepubliclylistedattheSwissStockExchange
(SIX:COPN).TheCompany’sstockmarketcapitaliza-
tionasat31December2008wasequalto
CHF223,387,500.
Headquartersandregisteredaddressareatvia
CristoforoColombo,1–20020Lainate(Milan),Italy.
ThestructureoftheCompanyasof31December
2008isthefollowing:
2 Basis of preparation
The2008consolidatedfinancialstatementshave
beenpreparedinaccordancewiththeInternational
FinancialReportingStandards(the“IFRS”)issued
bytheInternationalAccountingStandardsBoard
(“IASB”).
Thedesignation“IFRS”alsoincludesallvalid
InternationalAccountingStandards(“IAS”),aswellas
allinterpretationsoftheInternationalFinancial
ReportingInterpretationsCommittee(“IFRIC”),
formerlytheStandingInterpretationsCommittee
(“SIC”).
IntheprecedingyearstheCompanyadoptedthe
IFRSandrelatedinterpretationspublishedbyIASB
andendorsedbytheEuropeanUnionwithRegulation
no.1725/2003,butitisnotedthat,withrespecttothe
Company’sfinancialstatements,theywereincompli-
ancewiththeonesadoptedin2008.
Thefinancialstatementsarepreparedusingthe
historicalcostconvention,modifiedasrequired
forthevaluationofcertainfinancialassets,aswellas
onthegoingconcernassumption.Inthisrespect,
despiteoperatinginadifficulteconomicandfinancial
environment,theGroup’sassessmentis
thatnomaterialuncertainties(asdefinedinpara-
graph25ofIAS1)existaboutitsabilitytocontinue
asagoingconcern.
Inordertoprovidethewidestandclearestpossi-
bleinformationonthebusinessoftheCompany,
startingfromthisyear,theManagementhasdecided
toreviewtheformatofpresentationoftheincome
statementusingaclassificationbasedonthefunction
ofexpenses(otherwiseknownasthe“costofsales”
method),ratherthanbasedontheirnature,asthisis
believedtoprovideinformationthatismorerelevant.
Theformatselectedisthatusedformanagingthe
businessandformanagementreportingpurposes
andisconsistentwithinternationalpracticeinthe
phamaceuticalsector.Consequently,theincome
statement2007hasbeenpresentedconsistently
withthesameanalysis.
Theconsolidatedfinancialstatementsare
expressedinthousandsofeurosunlessstatedother-
wise,roundingtheamountstothenearestthousand.
100%Cosmo
Research &Development S.r.l.
100%Cosmo S.p.A.
Cosmo Pharmaceuticals S.p.A.
100%Cosmo
Technologies Ltd.
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 87
3 New accounting standards and
IFRIC interpretations
Standards, amendments and interpretations
effective in 2008
Thefollowingstandards,amendmentsandinterpre-
tationstopublishedstandardsaremandatoryfor
accountingperiodsbeginningonorafter1January
2008buttheyarenotrelevanttotheGroup’soperations:
• IFRIC14,IAS19–“Thelimitonadefinedbenefit
asset,minimumfundingrequirementsandtheir
interaction”
• IFRIC11,IFRS2–“Groupandtreasuryshare
transactions”
• IFRIC13,“Customerloyaltyprogrammes”
(effectiveforannualperiodsbeginningonor
after1July2008)
• IFRIC12,“Serviceconcessionarrangements”
Standards, amendments and interpretations to
existing standards that are not yet effective and
have not been adopted early by the Group
Thefollowingamendmentsandinterpretationsto
existingstandardshavebeenpublishedandare
mandatoryfortheGroup’saccountingperiodsbegin-
ningonorafter1January2009orlaterperiods.The
Groupiscurrentlyassessinganyeffectthatthe
adoptionofthesenewstandards,amendmentsand
interpretationstoexistingstandardsmayhaveon
thefinancialstatementsiftheyarerelevantforthe
Groupoperations.
• IAS23(Amendment),“Borrowingcosts”(effective
from1January2009)
• IFRS3(Revised),“Businesscombination”(effective
from1July2009)
• IAS27(Revised),“Consolidatedandseparate
financialstatements”(effectivefrom1July2009)
• IFRS8,“Operatingsegments”(effectivefrom
1January2009)
• IAS1(Revised),“Presentationoffinancial
statements”(effectivefrom1January2009)
• IFRS2(Amendment),“Share-basedpayment”
(effectivefrom1January2009)
• IAS32(Amendment),“Financialinstruments:
presentation”,andIAS1(Amendment),
“Presentationoffinancialstatements”(effective
from1January2009)
• IFRS5(Amendment),“Non-currentassetsheld-
for-saleanddiscontinuedoperations”(and
consequentialamendmenttoIFRS1,“First-time
adoption”)(effectivefrom1July2009)
• IAS28(Amendment),“Investmentsinassociates”
(andconsequentialamendmentstoIAS32,
“Financialinstruments:presentations”,andIFRS7,
“Financialinstruments:disclosure”)(effective
from1January2009)
• IAS36(Amendment),“Impairmentofassets”
(effectivefrom1January2009)
• IAS19(Amendment),“Employeebenefits”
(effectivefrom1January2009)
• IAS39(Amendment),“Financialinstruments:
recognitionandmeasurement”(effectivefrom
1January2009)
• IAS1(Amendment),“Presentationoffinancial
statements”(effectivefrom1January2009)
• IAS38(Amendment),“Intangibleassets”
(effectivefrom1January2009)
• IFRIC16,“Hedgesofanetinvestmentinaforeign
operation”(effectiveforannualperiodsbeginning
onorafter1October2008)
• IAS27(Amendment),“Consolidatedandseparate
financialstatements”(effectivefrom1January2009)
• IAS20(Amendment),“Accountingforgovernment
grantsanddisclosureofgovernmentassistance”
(effectivefrom1January2009)
• IFRIC17,“Distributionofnon-cashassetsto
owners”(effectivefrom1July2009)
• IFRIC18,“Transferofassetsfromcustomers”
(effectivefrom1July2009)
• IAS16(Amendment),“Property,plantand
equipment”(andconsequentialamendmentto
IAS7,“Statementofcashflows”)(effectivefrom
1January2009)
• IAS28(Amendment),“Investmentsinassociates”
(andconsequentialamendmentstoIAS32,
“Financialinstruments:presentation”andIFRS7,
“Financialinstruments:disclosures”)(effective
from1January2009)
• IAS29(Amendment),“Financialreportingin
hyperinflationaryeconomies”(effectivefrom
1January2009)
• IAS31(Amendment),“Interestsinjointventures”
(andconsequentialamendmentstoIAS32and
IFRS7)(effectivefrom1January2009)
• IAS40(Amendment),“Investmentproperty”(and
consequentialamendmentstoIAS16)(effective
from1January2009)
• IAS41(Amendment),“Agriculture”(effectivefrom
1January2009)
• IFRS1(Amendment)“First-timeadoptionofIFRS”,
andIAS27“Consolidatedandseparatefinancial
statements”(effectivefrom1January2009)
• IFRIC15,“Agreementsforconstructionofreal
estate”(effectivefrom1January2009)
4 Accounting policies
Themajoraccountingpoliciesadoptedaredetailed
below.
Basis of consolidation
Theconsolidatedfinancialstatementsincludethe
financialstatementsofCosmoPharmaceuticalsS.p.A.
anditssubsidiariesCosmoS.p.A.,CosmoTechnologies
Ltd.andCosmoResearch&DevelopmentS.r.l.
SubsidiariesareallentitiesoverwhichtheGroup
hasthepowertogovernthefinancialandoperating
policiesgenerallyaccompanyingashareholdingof
morethanhalfofthevotingrights.
Accountingpoliciesofsubsidiarieshavebeen
changedwherenecessarytoensureconsistencywith
thepoliciesadoptedbytheGroup.
Intercompanytransactions,balancesandunrealized
gainsontransactionsbetweenGroupcompanieshave
beeneliminatedinconsolidation.
Property, plant and equipment
Property,plantandequipmentarestatedatcost
includingrelatedexpenses,lessaccumulated
depreciation(seebelow)andimpairmentlosses.
Thecostofself-constructedassetsincludesthe
costofmaterials,directlabour,theinitialestimate,
whererelevant,ofthecostsofdismantlingand
removingtheitemsandrestoringthesiteonwhich
theyarelocated,andanappropriateproportion
ofproductionoverheads.
Subsequentexpendituresarecapitalizedonlyif
theyincreasethefutureeconomicbenefitsembodied
intherelateditemofproperty,plantandequipment.
Allotherexpendituresareexpensedasincurred.
Property,plantandequipmentthatarebeing
constructedordevelopedforfutureuseareclassified
as“assetsunderconstruction”andstatedatcost
untilconstructioniscomplete,atwhichtimethey
arereclassifiedasproperty,plantandequipment.
Wherepartsofanitemofproperty,plantand
equipmenthavedifferentusefullives,theyare
separatelyidentifiedanddepreciatedonthebasisof
theirestimatedusefullives(“componentapproach”).
Thecostofreplacingpartofanitemisrecognized
inthecarryingamountofanitemofproperty,plant
andequipmentwhenthatcostisincurredifitis
probablethatthefutureeconomicbenefitsembodied
intheitemwillflowtotheGroupandthecostofthe
itemcanbemeasuredreliably.Theresidualcarrying
amountofthereplacedcomponentisrecognized
intheincomestatementasanexpense.Allothercosts
arerecognizedintheincomestatementasanexpense
asincurred.Financialexpensesrelatedtothepur-
chaseofsuchassetsarerecognizedintheincome
statement.
Depreciationisrecognizedstartingfromthemonth
inwhichtheassetisavailableforuseorpotentially
88 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
abletoprovidetheeconomicbenefitsassociated
therewithonasystematicbasis,wherebytheassets
aredepreciatedovertheirusefullivesor,intheevent
ofdisposal,untiltheirfinalmonthofuse.
Forassetsdisposedofduringtheyear,depreciation
iscalculatedfortheperiodinwhichtheassetwas
availableforuse,excludingassetspurchasedduring
theyear.
Residualamounts,usefullivesandthedepreciation
methodsarereviewedattheendofeveryaccounting
period.Thedepreciationratesappliedtotheitemsof
property,plantandequipmentarethefollowing:
Appurtenancelandrelatedtoownbuildingsor
purchasedthroughfinanceleasesisstatedseparately
andisnotdepreciated.
Improvementstothird-partyassetsareclassified
underproperty,plantandequipmentdependingon
thenatureoftheassettowhichitrefers.Thedeprecia-
tionperiodisbasedontheloweroftheasset’sremain-
ingusefullifeandtheresidualdurationoftheleaseof
theprincipalasset.
Ifspecificeventsindicatethatimpairmentofanitem
ofproperty,plantandequipmentmayhavetaken
place,theitem’srecoverabilityisassessedbycompar-
ingitscarryingamountwithitsrecoverableamount,
representedbythehigherofthefairvaluenet
ofdisposalcostsandvalueinuse,asdefinedinthe
paragraph“Impairmentofproperty,plantand
equipmentandintangibleassets”.
Assetsheldunderfinanceleases,whichprovide
theGroupwithsubstantiallyalltherisksandrewards
ofownership,arerecognizedasassetsoftheGroup
attheirfairvalueor,iflower,atthepresentvalueof
theminimumleasepayments.Thecorresponding
liabilitytothelessorisincludedinthefinancialstate-
mentsasfinancialliabilities.Leaseswherethelessor
retainssubstantiallyalltherisksandrewardsofown-
ershipoftheassetsareclassifiedasoperatingleases.
Operatingleaseexpendituresareexpensedona
straight-linebasisovertheleaseterms.
Goodwill
Allbusinesscombinationsareaccountedforby
applyingthepurchasemethod.Goodwillrepresents
amountsarisingupontheacquisitionofsubsidiaries,
associatesandjointventures.Inrespectofbusiness
acquisitionsthathaveoccurredsince1January2004,
goodwillrepresentsthedifferencebetweenthe
acquisitioncostandthefairvalueofthenetidentifi-
ableassetsandliabilitiesacquired,inproportionto
theinterestacquired.
Inrespectofacquisitionspriortothisdate,good-
willhasbeenretainedatthepreviousItalianGAAP
amount,subjecttobeingtestedforimpairmentatthat
date.Theclassificationandaccountingtreatmentof
businesscombinationsthatoccurredpriorto1January
2004hasnotbeenreconsideredinpreparingthe
Group’sopeningIFRSbalancesheetat1January2004.
Goodwillarisingonbusinesscombinationsisno
longeramortized,butistestedannuallyforimpair-
ment,asdescribedintheparagraph“Impairmentof
property,plantandequipmentandintangibleassets”.
Buildings–ownedbuildings 33years
Buildings–leaseholdimprovements Atthelower
oftheuseful
lifeofthe
improve-
mentandthe
residualterm
ofthelease
Plantandmachinery–general 10years
Plantandmachinery–specific 8years
Industrialandcommercialequipments 3years
Othertangibleassets–officeequipments–
electronic
5years
Othertangibleassets–officeequipments–
furniture
8years
Othertangibleassets–meansofinternal
transportation
5years
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 89
Other intangible assets
Otherintangibleassetsarerecognizedasassetswhere
itisprobablethattheuseoftheassetwillgenerate
futureeconomicbenefitsandwherethecostsofthe
assetcanbedeterminedreliably.Otherintangible
assetsthatareacquiredbytheGrouparestatedat
costlessaccumulatedamortization(seebelow)and
impairmentlosses,ifany.
Subsequentexpendituresoncapitalizedintan-
gibleassetsarecapitalizedonlywhentheyincrease
thefutureeconomicbenefitsembodiedinthespecific
assetstowhichtheyrelate.Allotherexpenditureis
expensedasincurred.
Otherintangibleassetswithdefiniteusefullives
areamortizedonastraight-linebasisovertheiruseful
lives,beingtheestimatedperiodoverwhichtheGroup
willusetheassets.Otherintangibleassetsareamor-
tizedfromthedatetheyareavailableforuse.
Residualamounts,usefullivesandtheamortiza-
tionmethodsarereviewedattheendofevery
accountingperiod.Theestimatedusefullivesare
asfollows:
• Patentsandrightsareamortizedovertheir
usefullives.
• Trademarksandlicences:trademarksareamort-
izedover10years.Licencesareamortizedoverthe
durationofthecontracttowhichtheyrelate.
Expendituresonresearchactivities,undertakenwith
theprospectofgainingnewtechnicalknowledgeand
understanding,arerecognizedintheincomestate-
mentsasanexpenseasincurred.
Developmentcostsarecapitalizedasanintan-
gibleassetifallofthefollowingcriteriaareintangible:
• thetechnicalfeasibilityofcompletingtheintangi-
bleassetsothatitwillbeavailableforuseorsale;
• theintentiontocompletetheintangibleassetand
useorsellit;
• theabilitytouseorselltheintangibleasset;
• theassetwillgenerateprobablefutureeconomic
benefitsanddemonstratetheexistenceofamar-
ketortheusefulnessoftheintangibleassetifit
istobeusedinternally;
• theavailabilityofadequatetechnical,financial
andotherresourcestocompletethedevelopment
andtouseorsellit;and
• theabilitytomeasurereliablytheexpenditure
attributabletotheintangibleassetduringits
development.
Followinginitialrecognitionofthedevelopment
expenditureasanintangibleasset,thecostmodel
isappliedrequiringtheintangibleassettobe
carriedatcost,lessanyaccumulatedamortization
andaccumulatedimpairmentlosses.Theintangible
assetisamortizedonastraight-linebasisoverthe
periodofitsexpectedbenefit,startingfromthedate
offullcommercialuseoftheproduct.Duringthe
periodofdevelopment,theassetistestedforimpair-
mentannually.
Ifspecificeventsindicatethatimpairmentofan
itemofintangibleassetmayhavetakenplace,the
item’srecoverabilityisassessedbycomparingitscar-
ryingamountwithitsrecoverableamount.Therecov-
erableamountisthehigherbetweenthefairvalue
netofdisposalcostsandthevalueinuse,asdefinedin
theparagraph“Impairmentofproperty,plantand
equipmentandintangibleassets”.
Impairment of property, plant and equipment
and intangible assets
ThecarryingamountsoftheGroup’stangibleand
intangibleassetsarereviewedateachbalancesheet
datetodeterminewhetherthereisanyindicationof
impairment.Ifanysuchindicationexists,theasset’s
recoverableamountisestimated.
Forgoodwillassetsthathaveanindefiniteuseful
lifeandintangibleassetsthatarenotyetavailablefor
use,therecoverableamountisestimatedateachbal-
ancesheetdate.
90 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
Animpairmentlossisrecognizedwheneverthe
carryingamountofanassetoritscash-generatingunit
exceedsitsrecoverableamount.Impairmentlosses
arerecognizedintheincomestatements.
Therecoverableamountisthehigherofanasset’s
fairvaluelesscoststosell,ifthereisanactivemarket,
anditsvalueinuse.Ifthereisnobindingsalesagree-
ment,thefairvalueisestimatedattheamount
expressedbyanactivemarket,byrecenttransactions
oronthebasisofthebestavailableinformation
indicatingtheamountthattheCompanywould
obtainfromtheasset’ssale.
Valueinuseisthepresentvalueoftheestimated
futurecashflowsexpectedtoarisefromthecontinu-
inguseofanassetorcash-generatingunitandfrom
itsdisposalattheendofitsusefullife.Thecashflows
aredeterminedonthebasisofreasonableanddocu-
mentedassumptionsrepresentingthebestestimate
ofthefutureeconomicconditionsthatwilltakeplace
overtheresidualusefullifeoftheasset,givinggreat-
estweighttoexternalindicators.Thediscountingrate
(pretax)takesintoaccounttheriskimplicitinthebusi-
nesssectorandthefinancialcomponentbasedon
thetiming.Withtheexceptionoflossesongoodwill,
impairmentsinvaluearereversedwhenthereisan
indicationthattheimpairmentlossmaynolonger
existandtherehasbeenachangeintheestimates
usedtodeterminetherecoverableamount.Animpair-
mentlossisreversedonlytotheextentthatthe
asset’scarryingamountdoesnotexceedthecarrying
amountthatwouldhavebeendetermined,netof
depreciationoramortization,ifnoimpairmentloss
hadbeenrecognized.
Financial assets
FinancialassetswithinthescopeofIAS39areclassi-
fiedasfinancialassetsatfairvaluethroughprofitor
loss,loansandreceivables,held-to-maturityinvest-
ments,oravailable-for-salefinancialassets,as
appropriate.Whenfinancialassetsarerecognized
initially,theyaremeasuredatfairvalue,plus,inthe
caseofinvestmentsnotatfairvaluethroughprofitor
loss,directlyattributabletransactioncosts.TheGroup
determinestheclassificationofitsfinancialassetson
initialrecognitionand,whereallowedandappropri-
ate,re-evaluatesthisdesignationattheendofeach
financialyear.All“regularway”purchasesandsales
offinancialassetsarerecognizedonthetradedate,
whichisthedatethattheGroupcommitstopurchase
theasset.
Regularwaypurchasesorsalesarepurchasesor
salesoffinancialassetsthatrequiredeliveryofassets
withintheperiodgenerallyestablishedbyregulation
orconventioninthemarketplace.
Available-for-salefinancialassetsarethose
non-derivativefinancialassetsthataredesignatedas
availableforsaleorarenotclassifiedinanyofthe
threeprecedingcategories.Afterinitialmeasurement,
available-for-salefinancialassetsaremeasuredat
fairvalue,atthecloseofbusinessonthebalancesheet
date,withunrealizedgainsorlossesrecognized
directlyinequityuntiltheinvestmentisderecognized
ordeterminedtobeimpaired,atwhichtimethe
cumulativegainorlosspreviouslyrecordedinequity
isrecognizedinprofitorloss.
Thefairvaluesoflistedinvestmentsarebased
oncurrentmarketprices.Ifthemarketforafinancial
assetisnotactiveandforunlistedsecurities,the
Groupestablishesfairvaluesbyusingvaluationtech-
niques.Theseincludetheuseofrecentarm’s-length
transactions,referencetootherinstrumentsthatare
substantiallythesame,discountedcashflowanalysis,
andoptionpricingmodelsrefinedtoreflecttheCom-
pany’sspecificcircumstances.
Ateachbalancesheetdate,theGroupassesses
whetherafinancialassetorgroupoffinancialassets
isimpaired.
Ifanavailable-for-salefinancialassetisimpaired,
anamountcomprisingthedifferencebetweenits
cost(netofanyprincipalpaymentandamortization)
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 91
anditscurrentfairvalue,lessanyimpairmentloss
previouslyrecognizedinprofitorloss,istransferred
fromequitytoprofitorloss.
Inventories
Inventoriesarestatedatthelowerofacquisitionor
productioncostandnetrealizablevalue.Netrealiz-
ablevalueistheestimatedsellingpriceintheordinary
courseofbusiness,lesstheestimatedcostsofcomple-
tionandsellingexpenses.
Thecostofinventoriesisdeterminedinaccord-
ancewiththefirst-infirst-out(FIFO)principleand
includesexpenditureincurredinacquiringtheinven-
toriesandbringingthemtotheirexistinglocationand
condition.Inthecaseofmanufacturedinventories
andworkinprogress,thecostincludesanappropriate
shareofoverheadcoststhatmayreasonablybeattrib-
utabletotheperformanceofmanufacturingactivities
innormaloperatingconditions.
Aprovisionforinventoriesiscalculatedtotakeinto
accountobsoleteandslow-movingitems,considering
theirpossiblefutureuseandrealizablevalue.Esti-
matedrealizablevaluerepresentstheestimatedsales
priceinnormalbusiness,netofestimatedcoststosell.
Foreign currency transactions and translation of
financial statements of the foreign controlled
companies
Transactionsinforeigncurrencyaretranslatedinto
eurosusingtheexchangeraterulingonthetransac-
tiondate.Monetaryassetsandliabilitiesdenomin-
atedinforeigncurrenciesatthebalancesheetdate
aretranslatedintoeurosattheforeignexchangerate
rulingatthatdate.Foreignexchangedifferences
arisingontranslationarerecognizedintheincome
statement.Non-monetaryassetsandliabilitiesthat
aremeasuredintermsofhistoricalcostinaforeign
currencyaretranslatedusingtheexchangerateatthe
dateofthetransaction.Non-monetaryassetsand
liabilitiesdenominatedinforeigncurrenciesthat
arestatedatfairvaluearetranslatedintoeuros
atforeignexchangeratesrulingatthedatesthefair
valuewasdetermined.
Trade and other receivables and payables
Tradeandotherreceivablesarestatedatamortized
costnetofimpairmentlosses.Theimpairmentloss
iscalculatedonthebasisofrecoveryassessments
byanalyzingeachreceivableconsideredunlikelyto
becollectedandtheoverallriskofnon-recovery
ofthereceivables.Whenthepaymentofthesumdue
ispostponedbeyondnormalcredittermsofferedto
customers,itisnecessarytodiscountthereceivable.
Tradeandotherpayablesaremeasuredat
amortizedcostwhichreflectstheeffectiveinterest
rateintheincomestatementandrepresentsthe
rateusedtodiscounttheexpectedfuturecashflows
tothecarryingvalueoftheassetstowhichthey
relate.
Theyareincludedincurrentassetsorliabilities,
exceptformaturitiesgreaterthan12monthsafter
thebalancesheetdate.
Cash and cash equivalents
Cashandcashequivalentscomprisecashbalances
andcalldeposits.Advancesoninvoicesandbank
overdraftsthatarerepayableondemandandforman
integralpartoftheGroup’scashmanagementare
includedasacomponentofcashandcashequivalents
forthepurposeofthestatementofcashflows.
Interest-bearing loans and borrowings
Interest-bearingloansandborrowingsareinitially
recognizedatfairvaluelessattributabletransaction
costs.Subsequenttoinitialrecognition,interest-
bearingloansandborrowingsarestatedatamortized
costwithanydifferencebetweencostandredemption
valuebeingrecognizedintheincomestatement
92 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
overtheperiodoftheborrowingsonaneffective
interestbasis.
Theyareincludedincurrentliabilities,exceptfor
maturitiesgreaterthan12monthsafterthebalance
sheetdate.
Employee benefits
Obligationsforcontributionstodefined-contribution
pensionplansarerecognizedasanexpenseinthe
incomestatementasincurred.
Employee termination benefits
Theemployeeterminationbenefitisconsideredas
adefined-benefitplanunderIAS19.Thebenefits
guaranteedtoemployees,intheformoftheemployee
terminationbenefitpaidoutuponleavingthe
Company,arerecognizedintheperiodinwhichthe
rightmatures.Therelatingliabilityiscalculatedon
thebasisofactuarialassumptionsandthebenefit
vestedandnotyetpaidoutatthebalancesheetdate,
applyingthecriteriarequiredbytheItalianlaw.
Thediscountingprocessisbasedondemographic
andfinancialassumptions,usingthe“Projected
UnitCreditMethod”(vestedbenefitmethod)applied
byprofessionalactuaries.
Thismethodinvolvescalculatingtheaverage
presentvalueofthevestedpensionbenefitonthe
basisoftheemployee’sservicerenderedtothemeas-
urementdate,basedonaprojectionoftheemployee’s
remuneration.
Actuarialgainsandlossesaretakentoincome
statementsonanaccrualbasisinlinewiththeperiod
ofservicenecessarytoearnthebenefits.TheGroup
hasdecidednottousetheso-called“corridormethod”,
whichwouldallowitnottorecordthecostcomponent
calculatedinaccordancewiththemethoddescribed
representedbyactuarialprofitsorlosses,whereit
doesnotexceedtenpercent.
Notapplyingthe“corridormethod”,theactuarial
gainsandlossesaretakentotheincomestatement
duringtheyear.
Forms of remuneration involving participation
in stock capital (stock option plans)
TheGroupgrantsadditionalbenefitstotheBoardand
SeniorManagementandkeyemployeesthrough
stockoptionplans.PursuanttoIFRS2,“Share-based
payment”–theseplansrepresentaformofremu-
nerationforthebeneficiaries.Thecostisequaltothe
fairvalueascalculatedonthedatetheoptionrights
aregrantedandisrecordedintheincomestatement
onastraight-linebasisoverthevestingperiod,i.e.
thedatebetweenthedatethestockoptionplanwas
grantedandthedatetherightsmatured.Thecorres-
pondingentryismadedirectlytoshareholders’
equity.Changesinfairvalueafterthegrantdatedo
nothaveaneffectontheinitialvaluation.Ateach
balancesheetdate,theGrouprevisesitsestimateof
thenumberofoptionsthatareexpectedtobecome
exercisable.Itrecognizestheimpactoftherevision
tooriginalestimates,ifany,intheincomestatements,
withacorrespondingadjustmenttoequity.The
proceedsreceivednetofanydirectlyattributable
transactioncostsarecreditedtosharecapital
(nominalvalue)andsharepremiumwhentheoptions
areexercised.
Provisions
Provisionsarerecordedwhen:
• theGrouphasanobligation,legalorconstructive,
tothirdparties;
• itisprobablethatresourceswillbeexpensedin
ordertomeettheobligation;
• areliableestimateoftheamountsoftheobliga-
tioncanbemade.
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 93
Animpliedobligationisdefinedasanobligation
arisingwhentheGrouphasmadeotherpartiesaware,
bywayofroutineprocedure,publiccompanypolicy
orasufficientlyspecificannouncement,thatitaccepts
theobligationinawaythat,asaconsequence,itleads
thethirdpartytobelievethattheGroupwillhonour
itsobligation.
Provisionsforrisksandchargesarerecognizedat
anamountwhichrepresentsthebestestimateofthe
amounttheGroupwillhavetopayinordertosettle
theobligation,orotherwisetransferittothirdparties
attheendoftheyear.
Whentheeffectofthetimevalueofmoneyis
materialandthepaymentdatesfortheobligations
maybeestimatedreliably,theprovisioniscalculated
bydiscountingtheestimatedfuturefinancialcash
flowsusingapretaxdiscountrateinordertoreflect
thecurrentmarketassessmentsofthecurrentvalue
ofmoneyandthespecificrisksconnectedtotheliabil-
ities.Followingdiscounting,theincreaseintheprovi-
sionisrecognizedintheincomestatementcaption
“financialexpenses”.
Theprovisionsareupdatedregularlytoreflect
changesincostestimates,settlementtimesandthe
discountrate.Reviewsoftheestimateoftheprovi-
sionsarerecognizedunderthesameincomestate-
mentcaptionwheretheprovisionwaspreviously
recognized.
Revenue and cost recognition
Revenue,income,costsandchargesarerecordednet
ofdiscountsandallowances.
Revenuefromthesaleofgoodsisrecognizedin
theincomestatementwhenthesignificantrisksand
rewardsofownershiphavebeentransferredtothe
buyer.Revenuefromservicesrenderedisrecognized
intheincomestatementinproportiontothestageof
completionofthetransactionatthebalancesheet
date.Thestageofcompletionisassessedbyreference
tosurveysofworkperformed.Norevenueisrecog-
nizediftherearesignificantuncertaintiesregarding
recoveryoftheconsiderationdue,associatedcosts
orthepossiblereturnofgoodscannotbeestimated
reliablyandthereisnocontinuingmanagement
involvementwiththegoods.
Revenuesfromlicensingcontractsfornon-refund-
ableupfrontfees,insituationswherenofurther
performanceobligationexists,arerecognizedonthe
earlierofwhenpaymentsarereceivedorcollection
isassured.Upfrontfeesrelatedtofutureperformance
obligationsareeitherspreadoverthedurationofsuch
obligationsorpartoftherevenueisprovisionedthere-
fore.Wherecontinuingsignificantinvolvementis
requiredintheformofsupport,revenuesarerecog-
nizedovertherelevantperiod.
Revenuesfromlicensingcontractsformilestones
arerecognizedintheperiodtheoutcomecanbeesti-
matedreliablywhichisingeneralwhenthemilestone
issuccessfullyachieved,whichisdeterminedwhen
thefundingpartyagreesthattherequiredresults
stipulatedintheagreementhavebeenmet.
Incomefromroyaltiesisrecognizedonanaccrual
basisandrepresentsincomeearnedasapercentage
ofproductsales,inaccordancewiththetermsofthe
relevantagreement.
Researchgovernmentgrantsarerecognizedat
theirfairvalueatthemomentinwhichtheGroup
issuingthegranthasconfirmeditsapprovalandthe
proceedsaredefinite;theyarerecognizedinthe
incomestatementovertheperiodnecessarytomatch
themwiththecoststhattheyareintendedtocom-
pensate.
Rentalincomefrominvestmentpropertyisrecog-
nizedintheincomestatementonastraight-linebasis
overthetermofthelease.
Interestincomeisaccountedforbasedonthe
effectiverateofreturnonanaccrualbasis.
94 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
Paymentsmadeunderoperatingleasesarerecog-
nizedinincomestatementsonastraight-linebasis
overthetermofthelease.
Minimumleasepaymentsmadeunderfinance
leasesareapportionedbetweenthefinanceexpense
andthereductionoftheoutstandingliability.
Income tax
Incometaxontheprofitorlossfortheyearcomprises
currentanddeferredtax.Incometaxisrecognizedin
theincomestatementexcepttotheextentthatit
relatestoitemsrecognizeddirectlyinequity,inwhich
caseitisrecognizedinequity.
Currenttaxistheexpectedtaxpayableonthe
taxableincomefortheyear,usingtaxratesenacted
orsubstantiallyenactedatthebalancesheetdate,
andanyadjustmenttotaxpayableinrespectof
previousyears.
Deferredtaxisprovidedusingthebalancesheet
liabilitymethod,providingfortemporarydifferences
betweenthecarryingamountsofassetsandliabilities
forfinancialreportingpurposesandtheamountsused
fortaxationpurposes.Thefollowingtemporarydiffer-
encesarenotprovidedfor:goodwillnotdeductiblefor
taxpurposes,theinitialrecognitionofassetsorliabil-
itiesthataffectneitheraccountingnortaxableprofit,
anddifferencesrelatingtoinvestmentsinsubsidiaries
totheextentthattheywillprobablynotreverseinthe
foreseeablefuture.Theamountofdeferredtaxpro-
videdisbasedontheexpectedmannerofrealization
orsettlementofthecarryingamountofassetsand
liabilities,usingtaxratesenactedorsubstantively
enactedatthebalancesheetdate.
Adeferredtaxassetisrecognizedonlytothe
extentthatitisprobablethatfuturetaxableprofits
willbeavailableagainstwhichtheassetcanbe
utilized.Deferredtaxassetsarereducedtotheextent
thatitisnolongerprobablethattherelatedtaxbene-
fitwillberealized.
Additionalincometaxesthatarisefromthedistribu-
tionofdividendsarerecognizedatthesametimeas
theliabilitytopaytherelateddividend.
Treasury shares
Treasurysharesarepresentedasadeductionfrom
equity.Thepurchasecostoftreasurysharesandthe
salesproceedsofanysubsequentsalearepresented
asmovementsinequity.
Dividends
Dividendspayablearereportedasamovementin
equityintheperiodinwhichtheyareapprovedby
shareholders.
Earnings per share
Basicearningspershareiscalculateddividingthe
netprofit(loss)attributabletotheownersofordinary
sharesintheCompany(thenumerator)bythe
weightedaveragenumberofordinarysharesinissue
(thedenominator)duringtheyear.
Dilutedearningspershareiscalculatedbyadjust-
ingthenetprofit(loss)attributabletoownersofor-
dinarysharesandtheweightedaveragenumberof
ordinarysharesduringtheyeartotakeaccountofall
potentialordinaryshareswithadilutingeffect.A
potentialordinaryshareisafinancialinstrumentor
othercontractthatcouldgiveitsownertherightto
obtainordinaryshares.
Segment reporting
TheManagementhasidentifiedonlyonebusiness
segment,whichisthepharmaceuticalsegment.
Indeed,theManagementdidnotidentifyother
segmentstowhichspecificanddifferentrisksand
benefitscanberelatedto.Moreover,theManagement
didnotbelievethatcostsofinvestmentscouldbe
reasonablyallocatedunlessthroughanarbitrary
allocationwhichwouldnotprovideabetterdisclosure
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 95
thanthatprovidedbythepharmaceuticalsector
consideredasawhole.Inparticular,undertheGroup’s
currentorganizationalstructure,mostoftheinvest-
mentsmadeandcostsincurredbytheGroupwhile
performingitsproductionactivitiescannotbe
allocatedtoaspecificgeographicalareaoraspecific
customersegment,ortheproductionofspecific
products.ThereforetheManagementbelievesthat,
todate,segmentreportingbyeithergeographical
areaorproductsorcustomerswouldnotimprovethe
understandingoftheGroupresultsorthepresenta-
tionofrisksandprofitability.
Critical accounting estimates, assumptions
and judgments
Thepreparationoftheconsolidatedfinancialstate-
mentsandtherelatednotesrequirestheuseof
estimatesandassumptionsthataffecttheapplication
ofaccountingpoliciesandthereportedamountof
assets,liabilities,incomeandexpenses.However,as
theyareestimates,actualfutureresultscoulddiffer
fromthoseincludedintheconsolidatedfinancial
statements.Suchestimatesandassumptionsare
basedonaccumulatedexperienceandonother
factorsdeemedtobeappropriateinthecalculation
ofthecarryingamountsofassetsandliabilitiesthat
cannotbemeasuredonthebasisofothersources.
Revisionstoaccountingestimatesarerecognizedin
theperiodinwhichtheestimateisrevisedandany
futureperiodaffected.
Accountingestimatesthatrequirethemoresub-
jectivejudgmentofmanagementinmakingassump-
tionsorestimatesregardingtheeffectsofmatters
thatareinherentlyuncertain,andforwhichchanges
inconditionsmaysignificantlyaffecttheresults
reportedintheconsolidatedfinancialstatements,
arereportedbelow.
Impairment of property, plant and equipment,
goodwill, other intangible assets and financial
assets
TheManagementreviewedthecarryingamount
ofproperty,plantandequipment,goodwill,other
intangibleassetsandfinancialassetsatbalance
sheetdatetodeterminewhethertherewasany
indicationofimpairmentanddeterminedthatsuch
anindicationdidnotexist.
ForfinancialassetsavailableforsaletheManage-
mentconcludesthatanavailable-for-salefinancial
assetisimpairedifitsfairvaluefallseithersignifi-
cantlyorforaprolongedperiodbelowitscost,less
anyimpairmentlosspreviouslyrecognizedinprofit
orloss.
TheManagementtakesthevolatilityandthemar-
ketenvironment(ifapplicable)ofthespecificasset
intoaccountwhenassessingthesignificanceofthe
asset’sreductioninfairvalue.
Financialassetsavailableforsaleforwhichthe
reductioninfairvalueismorethan30%oftheinitial
measurementandthereductionisobservedforacon-
tinuousperiodoftwelveormoreconsecutivemonths
areusuallytestedforimpairment.
Deferred tax assets
TheGrouphasaconsiderableamountoftaxlosses
carriedforwardandtemporarydifferencesbetween
carryingamountofassetsandliabilitiesforfinancial
reportingpurposesandfortaxationpurposesthat
allowfortherecognitionofdeferredtaxassets.
Deferredtaxassetsarerecognizedonlytotheextent
thatitisprobablethatfuturetaxableprofitswill
beavailableagainstwhichtheassetcanbeutilized,
determinedonthebasisoffutureresultsforecasts.
Share-based compensation expenses
TheGrouphasgrantedstockoptionstosomeofits
employeesandDirectors.Sincethereisnomarketfor
tradingstockoptions,theManagementmustusea
96 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
fairvaluemethodtovaluethestockoptions.Fair
valuemethodsrequiretheManagementtomake
severalassumptions,themostsignificantofwhichare
theselectionofafairvaluemodel,stockpricevolatility
andtheaveragelifeofanoption.Thefairvalueofthe
stockoptionsisdeterminedseparatelybyanexternal
appraiser.EstimateshavebeenbasedonCompany
historyormarketdatawhereappropriate.Thereisno
certaintythattheresultsofafairvaluemethodwould
bethevalueatwhichthestockoptionswouldbe
tradedforcash.Shoulddifferentassumptionsbeused,
theexpenditurerecognizedcouldbedifferent.Add-
itionalinformationisreportedin“Accountingpolicies –
Employeebenefits–Formsofremunerationinvolving
participationinstockcapital(stockoptionplans)”.
Development costs
Developmentcostsarecapitalizedinaccordance
withtheaccountingpolicydetailedin“Otherintan-
gibleassets”.
Basedonthefactsandcircumstancesofthe
projectBudesonideMMX®,theManagementbelieves
thatcapitalizationcriteriaaremetstartingfrom
phaseIIIclinicaltrial.Theproducthassuccessfully
completedphaseIIandenteredphaseIIIin2008.
Atthisstagethereisastatisticalprobabilityofsuccess
of66%to75%fornewchemicalentities.However,
BudesonideMMX®isnotanewchemicalentity,
havingbeenusedinthemarketformanyyears,
althoughindifferenttherapeuticareas.TheGroup
willbearphaseIIIcostsoftheEuropeanclinical
trialsuntilproductregistration.
5 Revenue
Revenuecanbesplitasfollows:
Thedecreaseinrevenuefrom“manufacturing
ofgenericproductsandspecialtydrugs”in2008
comparedto2007ismainlyduetoadecreasein
theproductionofgenericproductsasaconsequence
oflowerordersfromcustomersin2008.
Theitem“manufacturingofMMX®products”relates
tomanufacturingofShire’sLialda™/Mezavant®,
thefirstproductinthemarket,basedontheMMX®
technologywhosemanufacturinganddeliveries
startedinJuly2006.
Revenuefrom“licencefees,upfrontfeesandmile-
stones”in2008comprisesi)EUR7,737thousand
asupfrontfeeontheBudesonideMMX®licence
agreementsignedwithSantarusfortheUSmarket,ii)
EUR2,486thousandasupfrontfeeonthetwo
RifamycinSVMMX®licenceagreementssignedwith
Dr.FalkPharmaandSantarusfortheEuropean
andtheUSmarketrespectively,iii)EUR165thousand
forthedevelopmentofagenericproduct.
Accordingtothestrategiccollaborationagree-
mentsignedon10December2008withSantarus,
grantingSantarusexclusiverightstodevelopand
commercializeBudesonideMMX®andRifamycinSV
EUR1,000 Year ended 31 December
2008 2007
Manufacturingonbehalfof
thirdparties:
Manufacturingofgeneric
productsandspecialtydrugs
12,375
13,558
ManufacturingofMMX®
products
7,147
2,670
Relatedservices 564 703
Otherrevenuesfromsales 161 313
Licencefees,upfrontfees
andmilestones
10,388
3,502
Royalties 3,538 1,154
Totalrevenue 34,173 21,900
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 97
MMX®fortheUSmarket,SantaruspaidCosmoan
upfrontcashfeeofUSD2.5million(EUR1,935thou-
sand)forRifamycinSVMMX®andissuedtoCosmo
sixmillionsharesofSantaruscommonstock(onemil-
lionforRifamycinSVMMX®andfivemillionfor
BudesonideMMX®).Atthedateoftheagreement,the
fairvalueofoneshareofSantarus,publiclytraded
onNASDAQ(tickersymbol:SNTS),wasUSD2.00fora
totalofUSD12.0million(EUR9,284thousand).These
sharesaresubjecttoaninitial15-monthrestrictionon
theirsaleortransfer.
Upontheagreementsignedon24November2008,
Dr.FalkPharmapaidanupfrontfeeofEUR1,000
thousandforthelicensingofRifamycinSVMMX®
(CB-01-11)inEurope(excludingItaly)andAustralia.
RifamycinSVMMX®wasout-licensedin4Q2008
toDr.FalkPharmaandSantarusjustbeforethestart
ofphaseIIIclinicalstudies,whichwillbeconductedby
thetwolicenseesattheirownexpense.However,in
January2009,theFDArequestedthatsomeadditional
preclinicalandphaseIclinicalstudieshadtobeper-
formedbeforetheproductregistrationbyDr.Falkand
Santarus;soin2009theCompany,inaccordanceto
itscontractualobligations,willbearadditionalcosts
forthosepreclinicalandphaseIactivities.Asaconse-
quence,theupfrontfeesforRifamycinSVMMX®
werepartiallydeferredforanamountofEUR1,996
thousandbasedontheproportionofcostsincurred
todateinrelationtotheestimatedtotalcosts.
Revenuefrom“royalties”in2008includes
EUR3,516thousandrelatingtotheroyaltieson
Lialda™sales(theitemamountedtoEUR1,131
thousandin2006);italsoincludesEUR22thousand
forroyaltiesonthegenericproductcontaining
simethicone,aproductinternallydevelopedand
launchedin2003byanItaliancustomer(theitem
amountedtoEUR23thousandin2007).
6 Net operating expenses
Netoperatingexpensespresentedintheincome
stalementsbyfunctionaredetailedandcommented
bynaturebelow:
Other income
Theterm“otherincome”comprisesthefollowing:
Theitemin2008includesincomefor“leaseofoffices”
arisingfromsubleaseofsomeofficestoothercompa-
niesandotherminorincome.
Theitem“governmentgrant”in2007referstothe
grantfiledwiththeItalianMinistryofUniversityand
Research(MIUR)forthepreclinicalactivityonthe
anti-androgenproductCB-03-01.Thegrantfiledwith
MIURforthepreclinicalactivityontheanti-androgen
productCB-03-01totalledEUR1,936thousand,of
whichEUR929thousandascontributionsafonds
EUR1,000 Year ended 31 December
2008 2007
Leaseofoffices 13 41
Maintenanceservices – 161
Governmentgrant – 169
Other 34 145
Totalotherincome 47 516
EUR1,000 Year ended 31 December
2008 2006
Otherincome 47 516
Changesininventoriesof
finishedgoodsandworkin
progress
148
380
Rawmaterialsandconsum-
ablesused
(5,791)
(6,642)
Personnelexpenses (7,028) (6,629)
Outsourcedpreclinicaland
clinicaltrialcosts
(1,928)
(2,640)
Otheroperatingexpenses (6,836) (5,673)
Depreciationandamortization (1,601) (1,460)
Total net operating expenses (22,989) (22,148)
98 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
perdutocovertheresearchanddevelopment
expensesincurredbytheGroupandtheremaining
EUR1,007thousandintheformofasubsidizedloan.
ThegrantwasfiledinJuly2003andtheactivities
startedinJanuary2004;inJanuary2006,theresearch
projectwasofficiallyapprovedbytherelevantbodies
andpublishedintheItalian“GazzettaUfficiale”,and
inSeptember2007,theprojectwascompleted.
In2007,theitem“otherincome”includedincome
for“leaseofoffices”arisingfromsubleaseofsome
officestoothercompaniesandfor“maintenance
services”andotherfacilitiesprovidedtotenants.
Changes in inventories of finished goods
and work in progress
Theitemcomprisesthefollowing:
EUR1,000 Year ended 31 December
2008 2007
Changesininventoriesof
finishedgoods
141
356
Changesininventoriesof
workinprogress(wip)
7
24
Totalchangesininventories
offinishedgoodsandwip
148
380
EUR1,000 Year ended 31 December
2008 2007
Purchaseofrawmaterials
andpackaging
4,928
6,244
Purchaseofconsumables 224 216
Purchaseoflaboratory
suppliesandmaterialsfor
clinicaltrial
241
198
Purchaseofmaintenance
materials
123
108
Purchaseofsafetymaterials 52 44
Purchaseofwrappingand
crate
33
35
Totalpurchases 5,601 6,845
Changesinrawmaterials
inventories
190
(203)
Totalrawmaterialsand
consumablesused
5,791
6,642
Raw materials and consumables used
Theitem“rawmaterialsandconsumablesused”
comprisesthefollowing:
Rawmaterialsinthepharmaceuticalindustryare
mainlyreferredtoastheactivepharmaceutical
ingredient(API)oftheproduct,whichisthemost
significantcostitemofmaterialconsumption,
mainlywhentheproductionisrelatedtogeneric
products,whilefortheproductionofbranded
specialtydrugsitisgenerallyprovidedbythecommis-
sioningcompanyinaccountformanufactureaspart
oftheworkingcontract;otherrawmaterialsarethe
excipientsandthepackagingmaterials.
Thedecreaseofcostforrawmaterialsandpack-
agingin2008comparedto2007isduetothedifferent
mixofproductsmanufactured–highervolumes
ofLialda™/Mezavant®andlowerordersforgenerics.
Laboratorysuppliesaremainlyrelatedtothe
researchanddevelopmentactivitiescarriedoutinthe
laboratoriesoftheGroup.
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 99
Despiteanincreaseinrevenuefromcontractmanu-
facturing,rawmaterialsandconsumablesusedwill
decrease.
Personnel expenses
Theitem,whichincludesthecostoftheentirestaff,
comprisesthefollowing:
Theincreaseinpersonnelexpensesin2008isdueto
thehiringofsixnewpersons,totheexpenseforthe
valueofemployees’andDirectors’servicesexchanged
forstockoptionsandtotheannualbonus;in2007
personnelexpensesincludedaone-timepaymentof
EUR1,021thousandtoallemployees.
Theaveragenumbersoftheentirestaffforthe
yearsended31December2008and2007arethefol-
lowing:
Thenumbersbycategoryoftheentirestaffasat
31December2008and2007arethefollowing:
Outsourced preclinical and clinical trial costs
Outsourcedpreclinicalandclinicaltrialcostscanbe
brokendownasfollows:
Preclinicalandclinicaltrialscostsoutsourcedto
subcontractorsandexpensedintheprofitandloss
decreasedfromEUR2,640thousandtoEUR1,928
thousand;in2008BudesonideMMX®entered
phaseIIIdevelopmentandforthisreasonthe
outsourcedclinicaltrialcostsrelatingtothisproject
fortheEUwerecapitalized(seenote12,“Other
intangibleassets”).
Followingthestrategiccollaborationagreement
signedinDecember2008,Santarusisreimbursing
theCompanycompletelyallcostsforphaseIIIclinical
studiesonBudesonideMMX®thathadalready
beenincurredintheUSA(in2008,theseamountedto
EUR2,951thousand).
No.ofpeople Year ended 31 December
2008 2007
Managers 13.0 11.0
Juniormanagers 6.5 8.0
Employees 54.0 54.0
Workers 54.5 48.0
Totalaveragenumber 128.0 121.0
No.ofpeople Year ended 31 December
2008 2007
Managers 15 11
Juniormanagers 5 8
Employees 54 54
Workers 57 52
Totalaveragenumber 131 125
EUR1,000 Year ended 31 December
2008 2007
BudesonideMMX® – 435
LMWHeparinMMX® 861 1,002
RifamycinSVMMX® 424 421
Anti-androgens 509 740
Others 134 42
Outsourcedpreclinicaland
clinicaltrials
1,928
2,640
100 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
EUR1,000 Year ended 31 December
2008 2007
Salariesandwages 5,029 5,265
Socialsecuritycontributions 1,216 1,156
Employeebenefits 257 145
Stockoptions 463 20
Othercosts 63 43
Totalpersonnelexpenses 7,028 6,629
Other operating expenses
Theitem“otheroperatingexpenses”comprises
thefollowing:
Theitem“servicecosts”mainlycomprisescostsfor
professionalandconsultancyservices(i.e.scientific,
commercialandadministrativeservices),utilities
(gas,electricity,water)andmaintenanceservices
andthird-partymanufacturing,whicharedetailed
asfollows:
EUR1,000 Year ended 31 December
2008 2007
Servicecosts 4,601 3,678
Operatingleaseexpenses 1,796 1,611
Otheroperatingcosts 439 384
Totalotheroperatingexpenses 6,836 5,673
EUR1,000 Year ended 31 December
2008 2007
Externalconsultancyservices 817 572
Patentcosts 85 51
Maintenance 525 430
InvestorrelationsandWeb
sitemaintenance
224
93
Technicalassistance 36 28
Utilities,electricalpower 565 513
Utilities,gasandheating 225 193
Utilities,water 44 35
Wastedisposal 84 65
Premisescleaning 75 73
Receptionistandsecurity
services
140
148
Utilities,telephone,Internet 100 115
Insurance 139 116
Non-ExecutiveDirectors 218 238
Stockoptionsnon-Executive
Directors
176
8
BoardofStatutoryAuditors 47 51
Auditing 66 67
Advertisingand
marketingcosts
199
204
Freightandcustoms 58 50
Travelexpenses 184 94
Subcontractingandother
servicesinrelationtothe
manufacturing
355
334
Othercosts 239 200
Totalservicecosts 4,601 3,678
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 101
“Servicecosts”increasedparticularlyduetoaheavier
expenseforinvestorrelationsactivities,consultancy
services,theexpensefornon-ExecutiveDirectors’
stockoptionsgrantedon18December2007andthe
increaseoftheutilitiesandenergycosts.
Theitem“operatingleaseexpenses”isdetailedas
follows:
“Rent”increasedin2008comparedto2007,asthe
Companystartingfrom1June2008rentedsome
additionalspacefromCristoforoColomboRealEstate
S.r.l.,namelya3-floorofficebuildingintheLainate
complex;in2008thetotalcostfortherentofthe
LainatecomplexisEUR1,324thousand(seenote33,
“Relatedpartiestransactions–Leaseagreementfor
Lainate”).
“Rent”alsoincludesEUR37thousandandEUR13
thousandrespectivelyfortheannualrentofthe
Dublinofficeandtherentofalaboratoryforpreclin-
icalactivitiesinCatania,Italy.
“Otherrentals”in2008and2007includethe
amountofEUR308thousand,fortherentofthe
equipmentofthenewplant,suchasHVAC,electrical
andmechanical,purifiedwaterequipment,etc.(see
note33,“Relatedpartiestransactions–Leaseagree-
mentforLainate”).Italsoincludestherentofphoto-
copymachinesandcars.
Theitems“otheroperatingcosts”isdetailed
asfollows:
Depreciation and amortization
Theitemcomprisesthefollowing:
EUR1,000 Year ended 31 December
2008 2007
Representationexpenses 204 141
Stationery 50 49
Newspapersandmagazines 17 13
Fuelandoil 32 28
Tax,otherthanincometax 31 32
Clubmemberships 17 17
Postalcosts 75 85
Othercosts 13 19
Totalotheroperatingcosts 439 384
EUR1,000 Year ended 31 December
2008 2007
Depreciationofproperty,
plantandequipment
1,263
1,138
Amortizationofother
intangibleassets
338
322
Totaldepreciationand
amortization
1,601
1,460
102 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
EUR1,000 Year ended 31 December
2008 2007
Rent 1,374 1,201
Otherrentals 422 410
Totaloperatingleaseexpenses 1,796 1,611
7 Financial income/expenses
Theitemcomprisesthefollowing:
Financialincomein2008mainlyincludesEUR942
thousandduetotheinterestreceivedoncashandcash
equivalents,whichwereplacedintimedepositswith
banks;italsoincludesEUR363thousandarisingfrom
themeasurementatfairvalueofthesubsidizedloans.
Interestsonmedium-andlong-termbankloans
includealsoEUR67thousandarisingfromtheappli-
cationoftheamortizedcoststothesubsidizedloans.
Otherfinancialexpensesincludetheforeign
exchangedifferenceofEUR519thousandarisingfrom
thefairvaluemeasurementasat31December2008
ofSantarussharesincludedinthefinancialassets
availableforsale.
8 Income tax expenses
Theitemcomprisesthefollowing:
CurrentincometaxincludesIRAP,whichrepresents
anItalianregionaltaxappliedatarateequalto3.9%
(4.25%in2007)andleviedonprofit(loss)beforetax,
pluspersonnelcostsandnetfinancialchargeswhich
arenotconsideredtax-deductible,aswellasIRES,
whichrepresentstheItaliancorporateincometax
appliedatarateequalto27.5%(33%in2007),andthe
Irishcorporationtaxappliedatarateequalto12.5%
tothetaxableincomeofCosmoTechnologiesLtd.
Forexplanationofdeferredtaxbenefitanddeferred
taxexpenseseenote14andnote24.
Thereconciliationbetweentheoreticalincome
taxesdeterminedonthebasisofthetaxrates
applicableinItalyandtheincometaxes(currentand
deferred)reportedintheconsolidatedfinancial
statementsfortheyearended31December2008and
2007isasfollows:
EUR1,000 Year ended 31 December
2008 2007
IncometaxIRESand
othercorporationtaxes
765
5
IncometaxIRAP 264 190
Currentincometax 1,029 195
Deferredtaxbenefit 665 (211)
Deferredtaxexpense 518 53
Totalincomeexpenses 2,212 37
EUR1,000 Year ended 31 December
2008 2007
Financial income
Other 1,369 870
Totalfinancialincome 1,369 870
Financial expenses
Interestsonbankoverdraft/
advanceoninvoices
–
30
Interestsonmedium-and
long-termbankloans
184
150
Interestsonfinanciallease
payables
101
126
Other 655 163
Totalfinancialexpenses 940 469
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 103
Asat31December2008and2007,thetotalincome
taxwasEUR2,212thousandandEUR37thousand
respectively(fordetailsseealsonotes14and24).
Theoreticalincometaxesarecalculatedbyapply-
ingtheIREStaxrate(27.5%in2008and33%in2007)
totheresultbeforetax,andtheIRAP(anItalian
regionaltax)taxrate(3.90%in2008and4.25%in
2007)totheoperatingincomepluspersonnelcost
fortheItaliancompanies.
9 Basic and diluted earnings per share
Basicearningspersharearecalculatedbydividing
thenetprofit(loss)fortheyearattributableto
ordinaryshareholdersbytheweightedaverage
numberofordinarysharesoutstandingduring
theyear.Basicearningspershareareasfollows:
Dilutedearningspersharearecalculatedbydividing
thenetprofitfortheyearattributabletoordinary
shareholdersbytheweightedaveragenumberof
ordinarysharesoutstandingduringtheyear,plusthe
weightedaveragenumberofsharesthatwouldbe
issuedontheconversionofallthedilutivepotential
optionintoordinaryshares.Regardingthestock
optionplansetupinDecember2007,theexercise
priceasat31December2008washigherthanthe
weightedaveragemarketprice,thereforetheoptions
wouldnothavebeenexercised.
Year ended 31 December
2008 2007
Netprofitattributable
toshareholders
(inEUR1,000)
9,401
116
Weightedaveragenumberof
ordinaryshares
13,871,249
13,348,507
Basic earnings per share
(in EUR)
0.67773
0.00869
104 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
EUR1,000 Year ended 31 December
2008 2007
Profitbeforetaxes 11,613 153
IREStaxrate 27.5% 33%
IRES theoretical income taxes 3,194 50
OperatingincomeforIRAP
taxbasis(a)
928
(2,659)
Personnelcostsnotdeduct-
ibleforIRAP(a)
5,361
4,871
IRAPtaxbasis 6,289 2,212
IRAPtaxrate 3.90% 4.25%
IRAP theoretical income taxes 245 94
Total theoretical income taxes 3,439 144
Taxeffectofpermanent
differences(b)
(35)
60
Adjustment in 2007 on de-
ferred taxes due to IRES and
IRAP tax rate reduction (c)
–
21
Effectofdifferentcorporatetax
ratesintheIrishsubsidiary(d)
(1,378)
(267)
Unrecognizedtheoreticaltax
benefitforlosscarry-forward(e)
182
301
Unrecognized deferred tax on
temporary differences (IPO
and stock option costs) (e)
4
(222)
Current and deferred income
tax recognized in the consoli-
dated financial statements
2,212
37
(a)OperatingincomeandpersonnelcostsoftheItalian
companiesrelevantforIRAP
(b)Itmainlyincludesnon-deductiblecostsforentertainment
expensesandcompanycarsanddeductiblepersonnelcostsfor
IRAP
(c)NewItalianlegislationforeseesIRESrateas27.5%andIRAP
ratesas3.9%:deferredtaxesconsequentlyhavebeenrecalculated
(d)Applicabletaxrateof12.5%inIrelandforthesubsidiary
CosmoTechnologiesLtd.
(e)Duetouncertaintyaboutthetaxableprofitintheforeseea-
blefuture,nodeferredtaxassetcalculatedonlossofCosmo
PharmaceuticalsS.p.A.andontemporarydifferencesonthe
amortizationofIPOcostsandthecostofstockoptioncosts
10 Property, plant and equipment
Thecompositionandvariationof “property,plant
andequipment”areshowninthefollowingtables:
Year ended 31 December
2008 2007
Netprofitattributable
toshareholders
(inEUR1,000)
9,401
116
Weightedaveragenumberof
ordinaryshares
13,871,249
13,387,384
Diluted earnings per share
(in EUR)
0.67773
0.00866
Euro1,000 Plant and machinery
Industrial and commercial equipment
Other fixed assets
Assets under construc-tion and payments on account
Total
Cost
Balanceat1January2008 8,707 1,272 1,027 13 11,019
Additions 699 79 164 428 1,370
Constructioncompleted 182 – 252 (434) –
Disposals (14) – (4) – (18)
Balanceat31December2008 9,574 1,351 1,439 7 12,371
Accumulated depreciation
Balanceat1January2008 2,466 1,121 541 – 4,128
Depreciationcharge
fortheyear
1,003
116
144
–
1,263
Disposals (5) – (1) – (6)
Balanceat31December2008 3,464 1,237 684 – 5,385
Netbookvalueasat
31December2008
6,110
114
755
7
6,986
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 105
Euro1,000 Plant and machinery
Industrial and commercial equipment
Other fixed assets
Assets under construc-tion and payments on account
Total
Cost
Balanceat1January2007 8,018 1,149 936 – 10,103
Additions 708 123 105 13 949
Othermovements – – (14) – (14)
Disposals (19) – – – (19)
Balanceat31December2007 8,707 1,272 1,027 13 11,019
Accumulated depreciation
Balanceat1January2007 1,545 1,021 441 – 3,007
Depreciationchargefor
theyear
924
100
114
–
1,138
Othermovements – – (14) – (14)
Disposals (3) – – – (3)
Balanceat31December2007 2,466 1,121 541 – 4,128
Netbookvalueasat
31December2007
6,241
151
486
13
6,891
“Plantandmachinery”mainlyrelatestothecostof
acquisitionofmachineryandproductionfacilitiesfor
themanufacturingbusinessofpharmaceutical
products;theincreasein2008and2007mainlyrefers
totheacquisitionfortherenewalofproduction
machinery.ThetotalhistoricalcostincludesEUR4,176
thousandasplantandmachineryacquiredthrough
financeleaseagreements.
“Industrialandcommercialequipment”relates
totheinvestmentinthemodernizationoflaboratory
equipmentwhichoccurredthroughouttheyears.
Ofthelaboratoryequipmenthistoricalcosts,approxi-
matelyEUR341thousandwereacquiredbywayof
financeleaseagreements.
“Otherfixedassets”increasedin2008and2007,in
relationtotheinvestments(i)infittingsandfurniture
forthenewlaboratories,(ii)incomputersandservers
and(iii)inliftandpallettrucksforplantandware-
house.ApproximatelyEUR64thousandrefertoother
fixedassetsacquiredbywayoffinancelease
agreements.
11 Goodwill
Theitem“goodwill”isdetailedasfollows:
“Goodwill”relatestotheacquisitionin1997from
ParkeDavisofthemanufacturingbusinessofpharma-
ceuticalproducts.
Thegoodwillhasbeentestedforimpairment.The
recoverableamountisdeterminedbasedonvalue-in-
usecalculations.Thesecalculationsusecashflowpro-
EUR1,000 As at 31 December
2008 2007
Openingcarryingamount 109 109
Additions/disposalsfortheyear – –
Write-downs/revaluations
fortheyear
–
–
Closingcarryingamount 109 109
106 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
12 Other intangible assets
Thecompositionandvariationof“Otherintangible
assets”areshowninthefollowingtable:
jectionsbasedonfinancialplansapprovedbythe
Managementcoveringa3-yearperiod.Cashflows
beyondthe3-yearperiodareextrapolatedusingthe
estimatedgrowthratesstatedbelow.
Keyassumptionsforthegoodwillpositions
include:
1)Usedforcalculatingtheterminalvalue
2)Pre-taxdiscountrateappliedtothecashflowprojections
TheManagementdeterminedplannedgrossmargin
basedonpastperformanceanditsexpectationsfor
marketdevelopment.
Thegrowthratesusedareconsistentwiththe
forecastsandtheleveredWACCusedispre-tax.
Basedontheimpairmenttestconducted,no
impairmentswererecognizedin2008.
Terminalgrowthrate¹ 7.4%
Weightedaveragecostofcapital(WACC)² 9.1%
Euro1,000 Patents and rights
Trademarks and licences
Develop-ment costs
Total
Cost
Balanceat1January2008 4,367 20 – 4,387
Additions 240 – 3,779 4,019
Othermovements – – – –
Disposals – – – –
Balanceat31December2008 4,607 20 3,779 8,406
Accumulated amortization
Balanceat1January2008 1,198 14 – 1,212
Amortizationchargefortheyear 337 1 – 338
Othermovements – – – –
Disposals – – – –
Balanceat31December2008 1,535 15 – 1,550
Netbookvalueasat31December2008 3,072 5 3,779 6,856
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 107
“Patentsandrights”referstothecostsforfilingand
extensionofpatentsownedbytheGroup.
“Developmentcosts”referstotheBudesonide
MMX®project:atthebeginningof2008theproduct
hassuccessfullycompletedphaseIIandentered
phaseIII.Atthisstagestatisticallythereisa66%to
75%probabilityofsuccess,andfurthermoreBudeso-
nideMMX®isnotanewchemicalentity.TheGroup
willbearphaseIIIcostsoftheEuropeanclinicaltrials
untilproductregistration.
Thecapitalizedcostsincludeoutsourcedclinical
trialcosts(morethan90percentoftheamount
capitalized),material(API,excipient)fortheprepar-
ationofclinicalbatchesandpersonnelexpenses
directlyrelatedtotheBudesonideMMX®project.
Theassetisnotamortizedastheamortization
willstartfromthedateoffullcommercialuseof
theproductonastraight-linebasisovertheperiod
ofitsexpectedbenefit.
13 Financial assets
Theitemisdetailedasfollows:
“Financialassetsavailableforsale”referstothe
investmentinsharesofSantarus:accordingtothe
strategiccollaborationagreementwithSantarus
whichgrantedSantarusexclusiverightstodevelop
andcommercializeBudesonideMMX®andRifamycin
SVMMX®fortheUSmarket,Cosmoreceived,in
additiontocashofUSD2.5million,sixmillionofnewly
issuedsharesofSantaruscommonstock(onemillion
forRifamycinSVMMX®andfivemillionforBudeso-
nideMMX®).Theseshares(10.4%ofthecommon
sharesofSantarusoutstandingon31December2008)
aresubjecttoaninitial15-monthrestrictionontheir
saleortransfer.
Thefairvalueofeachshareatthedateofthe
agreement(10December2008)wasUSD2.00amount-
EUR1,000 Year ended 31 December
2008 2007
Financialassetsavailable
forsale
6,769
–
Financial assets 6,769 –
108 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
Euro1,000 Patents and rights
Trademarks and licences
Develop-ment costs
Total
Cost
Balanceat1January2007 4,260 20 – 4,280
Additions 113 – – 113
Othermovements (6) – – (6)
Disposals – – – –
Balanceat31December2007 4,367 20 4,387
Accumulated amortization
Balanceat1January2007 884 12 – 896
Amortizationchargefortheyear 320 2 – 322
Othermovements (6) – – (6)
Disposals – – – –
Balanceat31December2007 1,198 14 – 1,212
Netbookvalueasat31December2007 3,169 6 – 3,175
ingtoatotalofUSD12.0million(EUR9,284thousand).
Asat31December2008thefairvalue(marketprice
NASDAQ)ofthesharewasequaltoUSD1.57foratotal
ofUSD9.42million(EUR6,769thousandatyear-end
foreignexchangeUSD/EUR):thelossofEUR2,515thou-
sandwasrecognizedforEUR1,996thousandnetofthe
taxeffectofEUR439thousanddirectlyinequityand
forEUR519thousand(lossontheforeignexchange
USD/EUR)intheprofitandloss.
Fortheseassetsattheendof2008,thecondition
fortheimpairmentasdescribedin“Criticalaccount-
ingestimates,assumptionsandjudgments”havenot
beenfulfilled.FurthermoretheCompanyenteredinto
thisinvestmentinrelationwithalong-termcommer-
cialagreementwithSantarus,which,itfeelswillcre-
ateconsiderablevalueforbothcompanies.Presently
thereisnoindicationthatSantarusissufferingfroma
materialdeteriorationofitsbusinessenvironmentnor
performance.
14 Deferred tax assets
Thecaptionchangedasfollows:
EUR1,000 As at 1 January
Changes duringthe year
As at
31 De-
cember
Changes duringthe year
As at
31 De-
cember
2007
Increase
Decrease
2007
Increase
Decrease
Directly in equity
2008
Goodwilldepreciation – 3 – 3 2 – – 5
Entertainingexpenses 22 12 (11) 23 1 (9) – 15
Directors’feenotpaid – 8 – 8 – (8) – –
Lossescarriedforward 662 322 (101) 883 – (811) – 72
Patents 531 – (38) 493 – (38) – 455
Othercosts 4 – (2) 2 – (2) – –
Gainonassignmentof
enterprise
–
15
_
15
–
(4)
11
Developmentcosts – – – – 93 – – 93
Fairvaluefinancialinvest-
mentsavailableforsale
–
–
–
–
114
–
439
553
Formationandstart-up
expenses
4
4
(1)
7
–
(3)
–
4
Total deferred tax assets 1,223 364 (153) 1,434 210 (875) 439 1,208
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 109
Thefollowingtablesetsoutthenatureoftemporary
differencesdeterminingthecaptiondeferredtaxassets.
Deferredtaxassetsonlossescarriedforwarddecrease
toEUR72duetothetaxlossesutilizedagainstcurrent-
yearprofitofCosmoS.p.A.andCosmoTechnologiesLtd.
Deferredtaxassetsonpatentsrelatetotheelim-
inationofthegainonassignmentofpatentsfrom
CosmoS.p.A.toCosmoTechnologiesLtd.which
occurredin2004,netofthedeductionfortheperiod.
Deferredtaxassetsondevelopmentcostsrelates
tothedifferenceontheamountofdevelopmentcosts
capitalizedintheconsolidatedaccountscompared
totheamountcapitalizedinthelocalstatutoryfinan-
cialstatements.
Deferredtaxassetsonchangeinthefairvalue
arisefromthemeasurementatfairvalueofthe
investmentinSantarusshares.
Thedeferredtaxassetsincludedintheconsoli-
datedfinancialstatementsasat31December2007
aredeemedrecoverableonthebasisoffutureeco-
nomicforecastsassetoutinthebusinessplanto2015,
approvedbytheBoardofDirectors.
Intheanalysisoftherecoverabilityofthisitem,
analyses,basedonthenormalestimationprocessthat
theManagementcarriesoutinthepreparationof
theconsolidatedfinancialstatements,alongwithand
consistentwiththeimpairmenttestingofgoodwill
aswellastheassumptionsregardinggrowththatform
thebasisoffutureresultsforecasts,havebeensub-
jectedtosensitivityanalysis.Atthebalancesheet
date,theseanalyseshavenothighlightedanycritical
areasthatwouldrequireadjustmentstothedeferred
taxassetvalues.
15 Other non-current receivables
Theitem“othernon-currentreceivables”isdetailed
asfollows:
“Otherreceivables”relatetoguaranteedepositsfor
rentsoftheLainatecomplex:theincreasein2008of
EUR130thousandisduetothedepositpaidforthe
EUR1,000 As at 31 December
2008 2007
Otherreceivables 2,144 1,953
Totalothernon-current
receivables
2,144
1,953
110 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
EUR1,000 Temporary differences as at 31 December
Tax effect as at 31 December
Temporary differences as at 31 December
Tax effect as at 31 December
2007 % 2007 2008 % 2008
Goodwilldepreciation 9 31.40 3 17 31.40 5
Entertainingexpenses 75 31.40 23 49 31.40 15
Directors’feenotpaid 29 27.50 8 – – –
Lossescarriedforward 4,232 20.87 883 261 27.50 72
Patents 3,947 12.50 493 3,644 12.50 455
Othercosts 6 31.40 2 – 31.40 –
Gainonassignmentofenterprise 48 31.40 15 36 31.40 11
Developmentcosts – 31.40 – 295 31.40 93
Fairvaluefinancialinvestments
availableforsale
–
–
–
2,515
22.00
553
Formationandstart-upexpenses 19 31.40 7 14 31.40 4
Deferredtaxassets 8,365 1,434 6,831 1,208
rentofa3-floorofficebuildingintheLainatecomplex
fromCristoforoColomboRealEstateS.r.l.,theresidual
increaserelatestothelegalinterestsaccruedfor2008
inrelationwiththerentofplant,laboratoriesand
relatedofficesandtherentofequipment.(Seenote33,
“Relatedpartiestransactions–Leaseagreementfor
Lainate”.)
16 Inventories
Theitem“inventories”comprisesthefollowing:
Theitem“rawmaterials,auxiliarymaterialsand
consumables”coverstherawmaterialsandpackaging
materialsusedbytheGroupinitsmanufacturing
activity;theitem“workinprogress”referstothe“bulk”
readytobepackaged.
Theincreaseinfinishedgoodsisduetothehigher
stockofLialda™tablets(59batchesasat31December
2008comparedto46batchesasat31December2007),
requiredtosatisfytheordersfromcustomers.
Thevalueofrawmaterialsin2008and2007
includesadepreciationfund,amountingtoEUR220
thousand,whichspecificallyreferstoaslowmoving
item.
17 Trade receivables
Theitem“tradereceivables”comprisesthefollowing:
Theitemcoversreceivablesfromclientsderivingfrom
manufacturingofpharmaceuticalproductsand
supplyofrelatedservices,netoftheprovisionforbad
debt,andfromtheroyaltieswithrespecttothelicence
agreementforLialda™/Mezavant®(Mesalazine
MMX®).
18 Current tax assets
Theitem“currenttaxassets”comprisesthefollowing:
Asat31December2008,“currenttaxassets”included
theresidualamountoftaxwithheldatthesource
frominterestreceivablesthatwillbeoffsetduring
thefirstquarterofthefiscalyear2009withthe
paymentofemployer’scontributionsandwithholding
taxforemployees;italsoincludestherefundable
taxwithheldonthepaymentfromDr.FalkPharmafor
thelicencecontractofRifamycinSVMMX®andon
theroyaltiespaymentsfromGiulianiInternationalLtd.
Asat31December2007,“currenttaxassets”
includedtheresidualamountoftheadvancepayments
EUR1,000 As at 31 December
2008 2007
Rawmaterials,auxiliary
materialsandconsumables
995
1,185
Workinprogress 194 187
Finishedgoods 538 397
Depreciationfund (220) (220)
Totalinventories 1,507 1,549
EUR1,000 As at 31 December
2008 2007
Domesticcustomers 2,182 1,834
EUcustomers 386 982
Non-EUcustomers 176 –
Domesticcustomers–
invoicestobeissued
48
2
EUcustomers–
invoicestobeissued
789
614
Baddebtprovision (32) (32)
Total trade receivables 3,549 3,400
EUR1,000 As at 31 December
2008 2007
Advancepaymentsof
incometaxes
578
273
Total current tax assets 578 273
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 111
ofincometaxesexceedingtheamountdueforthe
yearandthetaxwithheldatsourcefrominterest
receivables.Theseamountswereoffsetduringthe
firstquarterofthefiscalyear2008withthepayment
ofemployer’scontributions,withholdingtaxfor
employeesandtheadvancepaymentofIRAPfor2008.
19 Other receivables and other assets
Theitem“otherreceivables”comprisesthefollowing:
For2008,theitem“governmentgrant”includesEUR
167thousandrelatedtothegrantfiledwiththeItalian
MinistryofUniversityandResearch(MIUR)forthe
preclinicalactivityontheanti-androgenproduct
CB-03-01:theresearchprojectwascompletedin
September2007,andinJanuary2008andJune2008
thefirsttwoinstalmentsamountingtoEUR762
thousandwerecollected;attheendof2008,
theMinistrymadethefinalcheck,andtheresidual
amountisexpectedtobecollectedin2009.
Thegovernmentgrantalsoincludestheamount
ofEUR78thousandrelatedtotheportionstilltobe
collectedforthegrantfiledwiththeMinistryofPro-
ductionActivities–“BandoTematicoLombardia”–
fortheresearchprojectonthemodifiedreleaseof
butyricacidcompletedin2006:attheendof2008
theMinistrymadethefinalcheck,andtheresidual
amountisexpectedtobecollectedin2009.
For2007,theitem“governmentgrant”includes
EUR929thousandrelatedtothegrantfiledwiththe
ItalianMinistryofUniversityandResearch(MIUR)
forthepreclinicalactivityontheanti-androgenprod-
uctCB-03-01andtheamountofEUR78thousand
relatedtotheportionstilltobecollectedforthegrant
filedwiththeMinistryofProductionActivities–
“BandoTematicoLombardia”–fortheresearchproject
onthemodifiedreleaseofbutyricacid.
“Receivablesfromothercompanies”attheendof
2008referstotheamountduebySantarusaccording
tothestrategiccollaborationagreementwithSanta-
rusthatforeseesthatstartingfromphaseIIIclinical
trials,thecostsfortheUSBudesonideMMX®clinical
trialarereimbursedbySantarustoCosmo.
“VATreceivables”asat31December2008refer
toCosmoS.p.A.,CosmoResearch&DevelopmentS.r.l.
andCosmoPharmaceuticalsS.p.A.andwerepartially
offsetatthebeginningof2009,bypayablesto
socialsecurityauthoritiesforcontributionsandto
taxauthoritiesforincometaxonsalaries.
“Prepaidexpenses”in2008mainlyincludes
advancepaymentstoCristoforoColomboRealEstate
S.r.l.for(i)therentofplant,laboratoriesandrelated
officesforEUR490thousand,(ii)therentofplant
equipmentforEUR1,271thousandand(iii)therent
ofthe3-floorofficebuildingforEUR104thousand.
(Seenote33,“Relatedpartiestransactions–Lease
agreementforLainate”.)
“Other”referstoadvancepaymentstosuppliers
ofservices.
20 Cash and cash equivalents
Theitem“cashandcashequivalents”comprises
thefollowing:
EUR1,000 As at 31 December
2008 2007
Cashathand 5 10
Bankaccounts 22,161 25,495
Total cash and
cash equivalents
22,166
25,505
112 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
EUR1,000 As at 31 December
2008 2007
Governmentgrant 245 1,007
Receivablesfromother
companies
2,951
–
VATreceivables 717 357
Prepaidexpenses 1,923 1,387
Other 57 188
Total other receivables and
other assets
5,893
2,939
“Bankaccounts”includeavailabilityoncurrentbank
accountandshort-term“timedeposit”bankcon-
tracts.
21 Total shareholders’ equity
Theitem“totalshareholders’equity”comprises
thefollowing:
Share capital
Asat31December2008and2007,CosmoPharmaceut-
icalshad13,875,000sharesissued,fullysubscribed
andpaidup,eachsharewithanominalvalueof
EUR0.25,foratotalsharecapitalofEUR3,469thousand.
Treasury shares
Treasurysharesarevaluatedatweightedaveragecost
andhavebeendeductedfromequity.
Asat31December2008,thenumberoftreasury
sharesamountedto45,992;duringtheyear2008,
46,992treasuryshareswerepurchasedand1,000
treasurysharesweresold.
Thenumberofsharesoutstandingdeveloped
asfollows:
Share premium
“Sharepremium”referstothe2007IPO.Thefunds
raisedbyofferingnewsharesduringthe2007IPOwere
equaltoEUR33,164thousand,ofwhichEUR669
thousandaresharecapitalandEUR29,372thousand
(netofsharecapitalissuecostsamountingto
EUR3,123thousand)aresharepremium.
Other reserves
“Otherreserves”asat31December2008and2007
comprisesthe“contributionsreserve”ofEUR357
thousandandthe“capitalcontributionforloss
coverage”ofEUR1,805thousand.
Fair value reserve
Asat31December2008,“fairvaluereserve”isdueto
measurementatfairvalueofSantarusshareswhich
areincludedinthefinancialassetsavailableforsale
(seenote13,“Financialassets”).
Stock option plan reserve
In2008,theexpenseforthestockoptions,allallocated
in2007,amountedtoEUR639thousand,ofwhich
EUR463thousandforthepersonnelstaffandEUR176
thousandfornon-ExecutiveDirectors(in2007,the
totalwasEUR28thousand,ofwhichEUR20thousand
foremployeesandEUR8thousandfornon-Executive
Directors).
EUR1,000 As at 31 December
2008 2007
Sharecapital 3,469 3,469
Sharepremium 29,372 29,372
Treasuryshares (394)
Otherreserves 2,162 2,162
Fairvaluereserve (1,557) –
Stockoptionplanreserve 667 28
Retainedearnings 116
Profitfortheyear 9,401 116
Total shareholders’ equity 43,236 35,147
2008 2007
As at 1 January 13,875,000 8,740,000
Issuanceofnewshares
Issueofshares(January2007) – 2,460,000
IssueofsharesIPO
(March2007)
–
2,675,000
Treasuryshares
Purchased 46,992 –
Sold (1,000) –
As at 31 December 13,920,992 13,875,000
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 113
22 Interest-bearing loans and
borrowings (non-current)
Theitem“interest-bearingloansandborrowings”
comprisesthefollowing:
Asat31December2008,“Bankloans”consistedof:
• asubsidizedloanofinitiallyEUR1,463thousand
atanominalinterestrateof2%p.a.,received
on17October2001fromSanPaoloIMIS.p.A.,pur-
suanttoagrantfiledwiththethennamed
MURST,nowMIUR(ItalianMinistryforUniversity
andResearch),duetoexpireon1January2011;
• aloanofinitiallyEUR1,320thousandatanominal
interestrateofEuriborrateplus0.80%,received
on22April2008fromBancaIntesaS.p.A.,dueto
expireon30April2011;
• asubsidizedloanofinitiallyEUR1.052thousand
atanominalinterestrateof0.816%p.a.,received
on8May2006fortheamountofEUR643thou-
sandandon2October2007fortheamountofEUR
409thousandfromCentrobancaS.p.A.,pursuant
toagrantfiledwiththeMinistryofProduction
Activities–“BandoTematicoLombardia”–for
theresearchprojectforthemodifiedreleaseof
butyricacid,duetoexpireon6October2018;
• asubsidizedloanofinitiallyEUR801thousand
atanominalinterestrateof0.500%p.a.,received
on16January2008fortheamountofEUR637
thousandandon12June2008fortheamountof
EUR164thousandfromBNLS.p.A-PariBas,pursu-
anttoagrantfiledwiththeMinistryofUniversity
andResearchforthepreclinicalactivitieson
theanti-androgenproductCB-03-01,dueto
expireon1July2015.
Duringtheyear2008theloanofinitiallyEUR2,200
thousandatanominalinterestrateofEuriborrate
plus1.50%,receivedon24November2004from
InterbancaS.p.A.,andduetoexpireon30November
2010,wasreimbursedinadvance.
Asummaryoftheabovedescriptionoflong-term
bankloansisshownbelow:
“Financialleaseliabilities”asat31December2008
and2007consistofthelong-termportionofleasing
payablesduetoIntesaLeasingS.p.A.andrelateto
plantandmachinery,industrialequipmentandother
fixedassets(seenote10).
23 Employee benefits
Theitem“employeebenefits”(“trattamentodifine
rapporto”/TFR)onlyreferstotheItaliancompanies
oftheGroupandhasbeendeterminedonanactuarial
calculationmethod,incompliancewithIAS19.It
consistsof:
EUR1,000 As at 31 December
2008 2007
SanPaoloIMI 192 388
Interbanca – 880
UnicreditBanca – 50
BancaIntesa 687 –
BNL-Paribas 513 –
Centrobanca 801 1,052
Bank loans 2,193 2,370
EUR1,000 As at 31 December
2008 2007
Managers 44 41
Juniormanagers 56 73
Employees 192 250
Workers 219 266
Employee benefits 511 630
114 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
EUR1,000 As at 31 December
2008 2007
Bankloans 2,193 2,370
Totalbankloans 2,193 2,370
Financialleaseliabilities 710 1,288
Totalfinancialleaseliabilities 710 1,288
Total interest-bearing loans
and borrowings
2,903
3,658
Movementsintheperiodareasfollows:
Theprincipalassumptionsforthepurposeof
theactuarialvaluationwereasfollows:
Amountsrecognizedunderstaffcostsintheincome
statementsareasfollows:
*Ofwhich211and193respectivelyfor2008and2007,
amounttransferredtoexternalfund
EUR1,000 As at 1 January
Changes during the year
As at
31 December
Changes during the year
As at
31 December
2007
Accrued
Utilized
Curtailment (effect of the
reforms)
2007
Accrued Utilized 2008
Employee
benefits
755
216
(270)
(71)
630
257
(376)
511
Total
employee
benefits
755
216
(270)
(71)
630
257
(376)
511
% As at 31 December
2008 2007
Discountrate 4.25 4.72
Inflationrate 2.00 2.00
Futuresalaryincrease 4.00 4.00
Futurepensionincrease n/a n/a
Mortalityrate RGS 48 RGS 48
Averageannual
departurerate
7.59
7.48
EUR1,000 As at 31 December
2008 2007
Currentservicescost* 212 195
Interestexpenseson
obligation
26
27
Actuarialgains(/losses) 19 (6)
Costsintheincome
statements
257
216
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 115
24 Deferred tax liabilities
Thecaptionchangedasfollows:
Thefollowingtablesetsoutthenatureoftemporary
differencesdeterminingthecaption“deferredtax
liabilities”.
EUR1,000 As at 1 January
Changes duringthe year
As at
31 December
Changes duringthe year
As at
31 December
2007 Increase Decrease 2007 Increase Decrease 2008
Tradereceivables (10) (6) 2 (14) _ _ (14)
Gainonsalesofinvestment
properties
(955)
–
351
(604)
–
201
(403)
Amortizationpatentand
software
(13)
(10)
5
(18)
0
14
(4)
Developmentcosts – – – _ (509) _ (509)
Amortizationpatentand
software
–
(271)
–
(271)
(21)
–
(292)
Goodwill (40) – 6 (34) – – (34)
Financialleaseonproperty,
plantandequipment
(134)
(153)
46
(241)
(132)
6
(367)
Fairvalueofloans – – – – (81) – (81)
Employeebenefits (8) (29) 6 (31) 0 4 (27)
Total deferred tax liabilities (1,160) (469) 416 (1,213) (743) 225 (1,731)
EUR1,000 Temporary differences as at 31 December
Tax effect as at 31 December
Temporary differences as at 31 December
Tax effect as at 31 December
2007 % 2007 2008 % 2008
Tradereceivables (54) 27.50 (14) (54) 27.50 (14)
Gainonsalesofinvestmentproperties (1,923) 31.40 (604) (1,282) 31.40 (403)
Amortizationpatentandsoftware (58) 31.40 (18) (14) 31.40 (4)
Developmentcosts – – – (4,074) 12.50 (509)
Amortizationpatentandsoftware (2,167) 12.50 (271) (2,333) 12.50 (292)
Goodwill (108) 31.40 (34) (108) 31.40 (34)
Financialleaseonproperty,plantandequip. (765) 31.40 (241) (1,166) 31.40 (367)
Fairvalueofloans – – – (296) 27.50 (81)
Employeebenefits (110) 27.50 (31) (97) 27.50 (27)
Deferred tax liabilities (5,185) – (1,213) (9,424) – (1,731)
116 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
Asat31December2008,theitemmainlyincludesi)
EUR403thousandrelatingtodeferredtaxliabilities
onthegain,resultingfromthesalein2006ofthereal
estate“Investmentproperties”,andtaxableinfive
years(in2007,theamountwasequaltoEUR604
thousand),ii)EUR367thousandrelatingtotemporary
differencesderivingfromtheapplicationofIAS17in
relationtofinanceleasesonproperty,plantand
equipment(EUR241thousandin2007),iii)EUR296
thousand(EUR292thousandandEUR4thousand)
relatingtotemporarydifferencesderivingfrom
patentsandsoftware,iv)EUR509thousandrelating
totemporarydifferencesonthedevelopmentcosts
capitalizedinthelocalstatutoryfinancialstatements.
25 Other non-current liabilities
Theitem“othernon-currentliabilities”comprises
thefollowing:
“Otherpayables”asat31December2007refersto
theguaranteedepositandrelatedinterestspaidby
thetenantofthesubleaseofsomeofficespaces
withinthefacilityinLainate,Milan.Thesublease
endedin2008.
26 Interest-bearing loans, borrowings and
bank overdraft (current)
Theitem“interest-bearingloans,borrowings
andbankoverdraft”comprisesthefollowing:
Theitem“bankloans”referstotheshort-termportion
ofinterest-bearingloansandisdetailedasfollows:
Inadditiontotheloansdetailedinnote22,current
interest-bearingloansinclude:
• aloanofinitiallyEUR250thousandatanominal
interestofEuriborrateplus2%,receivedon
29March2004fromUnicreditBancaS.p.A.,dueto
expireon30September2009.
“Financialleaseliabilities”asat31December2008
and2007consistoftheshort-termportionofleasing
payablesduetoIntesaLeasingS.p.A.andrelatesto
plantandmachinery,industrialequipmentandother
fixedassets(seenote10).
EUR1,000 Year ended 31 December
2008 2007
Otherpayables – 2
Total other non-current
liabilities
–
2
EUR1,000 Year ended 31 December
2008 2007
Bankloans 813 884
Totalbankloans 813 884
Financialleaseliabilities 578 656
Totalfinancialleaseliabilities 578 656
Total interest-bearing loans
and borrowings and bank
overdraft
1,391
1,540
EUR1,000 Year ended 31 December
2008 2007
SanPaoloIMI 185 188
Interbanca – 440
UnicreditBanca – 117
UnicreditBanca 50 67
BancaIntesa – 72
BancaIntesa 428 –
BNL-Paribas 79 –
Centrobanca 71 –
Bank loans 813 884
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 117
27 Trade payables
Theitem“tradepayables”includesthefollowing:
28 Deferred income
“Deferredincome”relatestotheupfrontpayment
receivedfromSantarusandDr.FalkPharmafor
RifamycinSVMMX®thatwillbecreditedtoprofit
andlossin2009,basedontheproportionofcosts
incurredtodateinrelationtotheestimatedtotalcosts.
29 Current tax liabilities
Theitem“currenttaxliabilities”includes:
Taxliabilitiescomprisestheamountsduetothetax
authoritiesinrelationtoincometaxwithheldfrom
salariesandthenetamountduebytheGroupfor
corporatetaxes(IRESandIRAPandothercorporation
taxes),netofadvancepaymentsmadeduringtheyear.
30 Other current liabilities
Theitem“othercurrentliabilities”includes
thefollowing:
“Socialsecuritypayables”comprisesboththecontri-
butionswithheldfromsalariesandthecontributions
dueinaccordancewithcurrentlawsandregulations.
“VATpayable”referstotheVATbalancepayableby
CosmoTechnologiesLtd.
“Otherliabilities”mainlyincludespayablesto
employeesrelatedtoaccrualsofdeferredpay
elements,calculatedonthebasisofthecollective
labouragreementcurrentlyinforceatCosmoS.p.A.
(ContrattoCollettivoNazionalediLavoro).
“Accruedexpensesanddeferredincome”refers
tointerestonthelong-termloansandincomeforrent,
tobedeferredincompliancewiththeaccrualbasis
rule.
31 Share-based payment
Theextraordinaryshareholders’meetingof
14December2006authorizedtheincreaseofthe
sharecapitalofamaximumofnominalEUR378,000
withtheissueof1,513,200newsharesattheservice
EUR1,000 Year ended 31 December
2008 2007
Domesticsuppliers 2,345 2,477
EUsuppliers 666 709
Non-EUsuppliers 143 349
Domesticsuppliers–
invoicestobereceived
678
646
EUsuppliers–
invoicestobereceived
398
1
Non-EUsuppliers–
invoicestobereceived
3
4
Domesticsuppliers–
creditnotestobereceived
(5)
(12)
EUsuppliers–credit
notestobereceived
–
(12)
Total trade payables 4,228 4,162
EUR1,000 Year ended 31 December
2008 2007
Deferredincomeonupfront
payment
1,996
–
Total deferred income 1,996 –
EUR1,000 Year ended 31 December
2008 2007
Withholdingtaxforemployees 221 135
Withholdingtaxfor
consultants
13
16
Taxpayables 328 20
Total current tax liabilities 562 171
EUR1,000 Year ended 31 December
2008 2007
Socialsecuritypayables 251 186
VATpayable 228 30
Otherliabilities 702 468
Advancesfromcustomers 12 12
Accruedexpensesand
deferredincome
14
9
Total other current liabilities 1,207 705
118 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
ofanemployeestockownershipplan(ESOP),to
beimplementedwithinthefollowingfiveyears.
Attheshareholders’meetingtheBoardofDirectors
wasformallyauthorizedtoexecutesuchplan.
On18December2007,theBoardofDirectors
grantedatotalof1,013,568options;theyvestafter
threeyearsandtheycanbeexercisedatapriceof
CHF22pershareuntil14December2011.
Thefairvalueofoptionsgranted,determined
usingtheblack-scholesvaluationmodel,resulted
inavalueofCHF3.14peroption.
Theoptionsgrantedarerecognizedascostsover
thevestingperiod.In2008theexpenseforthevalue
ofemployees’andDirectors’servicesexchangedfor
stockoptionsamountedtoEUR639thousand,of
whichEUR463thousandforthepersonnelstaffand
EUR176thousandfornon-ExecutiveDirectors(in
2007,thetotalwasEUR28thousand,ofwhichEUR20
thousandforemployeesandEUR8thousandfornon-
ExecutiveDirectors).
In2008,noadditionaloptionsweregranted.
Option series Number Grant date Vestingdate
Expiry date Exercise price
Fair value of the option atthe grantdate
CHF CHF
1)Issued18December2007 1,013,568 18.12.2007 18.12.2010 14.12.2011 22 3.14
2008 2007
Number
Weighted average ex-ercise price
Number
Weighted average ex-ercise price
CHF CHF
Outstanding as at 1 January 1,013,568 22 – –
Grantedduringtheperiod – – 1,013,568 22
Forfeitedduringtheperiod – – – –
Exercisedduringtheperiod – – – –
Expiredduringtheperiod – – – –
Outstanding as at 31 December 1,013,568 22 1,013,568 22
Exercisableasat31December – – – –
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 119
Theshareoptionsoutstandingattheendofthe
financialyearhadanexercisepriceofCHF22anda
weightedaverageremainingcontractuallifeof2.5years.
32 Contractual obligation, contingencies
and commitments
Thefollowingtablesetsforththecontractualcommit-
mentsandprincipalpaymentstheGroupwasobliged
tomakeasof31December2008and2007underdebt
instruments,financialleasesandotheragreements.
1)Notabalancesheetitem
Bankloansandfinancialleaseliabilitiesconsiderthe
residualdebtforprincipal.
Non-currentliabilitiesasat31December2008
includesEUR511thousandrelatedtorequiredindem-
nitiesforterminationofemployees(“Indennitàdifine
rapporto”/TFR)oftheItalianGroupcompanies.These
1) Issued 18 December 2007
Previousmonthlyaverageatgrant
dateshareprice
21.16
Exerciseprice 22
Expectedvolatility 19%
Optionlife 360 days
Discountrateduetothevestingperiod 7.12%
Risk-free interest rate 2.75%
EUR1,000 Total Less than 1 year
1–5 years More than 5 years
Bankloans 3,254 884 1,728 642
Financialleaseliabilities 1,944 656 1,288 –
Employeebenefits 630 – – 630
Operatingleaseexpenses1) 7,976 1,995 5,981 –
Totalcontractualobligationsasat31December2007 13,804 3,535 8,997 1,272
Bankloans 3,006 813 1,555 638
Financialleaseliabilities 1,288 578 710 –
Employeebenefits 511 – – 511
Operatingleaseexpenses1) 6,662 2,114 4,503 45
Totalcontractualobligationsasat31December2008 11,467 3,505 6,768 1,194
120 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
obligationsarepayabletoemployeesupontheter-
minationofemploymentand,althoughinpracticea
partofthisliabilitymaycomewithin12months,this
portionisnotquantifiableandisconventionally
treatedaslong-term.
Operatingleaseexpensesmainlyreferstothe
leasefromCristoforoColomboRealEstateS.r.l.for
plantandofficesatLainate’sheadquarters.Thelease
hasadurationof6years(renewableforanequal
periodoftime)startingfrom1December2006atan
initialrentofEUR1,150thousandperyear,withannual
increaseuponcostoflife(ISTAT).Startingfromthe
samedateasthelease,theCompanyhasalsorented
fromtheCristoforoColomboRealEstateS.r.l.equip-
ment,suchasheating,vacuumandairconditioning
(HVAC),electricalandmechanical,purifiedwater
equipment,etc.ofthenewplant.Theannualrentfor
theequipmentamountstoEUR740thousandfora
durationof5years;forthefollowing7years,namely
untilthedateofexpirationoftheleaseforplantand
offices,theequipmentwillbegratuitouslyusedby
theCompanyintheformofacommodate.Starting
from1June2008,thecompanyrentedfromCristoforo
ColomboRealEstateS.r.l.thegroundfloorofanoffice
buildingintheLainatecomplexatanannualrentof
EUR90thousand(six-yearduration,renewableatthe
sametermsforanequalperiodoftime)andsecond
andthirdfloor,plusmeetingandconferenceroomsat
thebasement,atarentofEUR160thousand(one-year
duration,renewableatthesametermsforanequal
periodoftime).(Seenote33,“Relatedpartiestransac-
tions–LeaseagreementforLainate”).
Other guarantees
“Guarantees–given”referstobankguaranteesissued
byBancaIntesaS.p.A.andCreditoArtigianoS.p.A.
intheinterestoftheCompanyandinfavourofthe
suppliersofgasandelectricity.
“Guarantees–received”refersforEUR1,000
thousandtomoneypledgedbyCosmoHoldingS.p.A.,
theGroupcontrollingcompany,toIntesaLeasingS.p.A.
asaguaranteeonthefinanceleaseagreementsfor
theindustrialmachineryofthenewindustrialplant.
Contingencies
On26June2008,theIrishRevenueCommissioners
acceptedtheCompany’sclaimfortaxreliefonthe
transferofsharesmadein2006fromCosmoHolding
toCosmoPharmaceuticals,bystampingthestock
transferformas“exempt”.Nostampdutypayments
weremadebytheCompany,pendingrevenue’s
decision.
In2008,MaurizioZanettiinvokedthearbitration
clauseonalicenceagreementsignedwithCosmo
S.p.A.in2001fortheexclusiveuseofapatentinthe
biotechsector.MaurizioZanettiallegedthatacertain
sublicenceagreementforscientificpurposesonly,
signedsixyearsbeforebetweenCosmoandCosmo
Bioscience,Inc.,atthattimeanUSsubsidiary,had
tobeseenastheeventwhichmadeacontractual
milestonepaymentinhisagreementfallingdue.
On1December2008,thepartieswereconvened
beforethearbitrationpanelfortheirdepositions.
Afterthedepositions,thearbitratorsdeemedthatno
furtherdiscoverywasneededandsetthetermsfor
theparties’finalbrief.TheManagementestimates
thattheawardshallbeissuedwithinthenextthree
months.Afinalsummoninghearingshallbecalled
beforetheissuanceoftheaward.
TheCompany’scounselsdeemthatCosmohas
verygoodargumentstoresisttheclaim.
EUR1,000 Year ended 31 December
2008 2007
Guarantees–given 92 154
Guarantees–received 1,000 1,000
Total 1,092 1,154
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 121
33 Related parties transactions
Relatedpartiestransactionsarecarriedoutonan
arm’s-lengthbasis.
TheBoardofDirectorsisnotifiedofanyproposed
relatedpartytransactionandtheDirectorsinvolved
mustabstainfromtherelateddiscussionandvoteon
decisionsrelatingtorelatedpartiestransactions.
Shouldthenature,valueorspecificcharacteristics
ofatransactionsorequire,theBoardofDirectorswill
drawontheassistanceofindependentexperts.
Lease agreement for Lainate
TheCompany’splantandofficesinLainateareowned
byCristoforoColomboRealEstateS.r.l.,arelatedparty
becauseitreferstothesamecontrollingshareholder,
whichleasesthemtotheCompanyasperthefollow-
ingagreements:
• aleaseagreementforplantandoffices,duration
sixyearsstartingfrom1December2006and
renewableforanequalperiodoftime.Theyearly
overallinitialrentwasequaltoEUR1,150thou-
sand,annuallyincreasedbyapplyingtheindex
measuringtheincreaseincostoflifeinItaly
(ISTAT);
• arentagreementfortheequipmentofthenew
plant,suchasHVAC,electricalandmechanical,
purifiedwaterequipment,etc.,durationfiveyears
startingfrom1December2006atanannualfixed
rentofEUR740thousand.Attheexpirationof
suchrentagreement,CristoforoColomboshall
provideCosmowiththegratuitoususeofthe
sameindustrialmachineryandequipmentforthe
followingsevenyears;
• aleaseagreementforthegroundfloorofanoffice
buildingintheLainatecomplexstartingfrom
1August2008atanannualrentofEUR90thou-
sand(six-yearduration,renewableatthesame
termsforanequalperiodoftime),annually
increasedbyapplyingtheindexmeasuringthe
increaseincostoflifeinItaly(ISTAT);
• aleaseagreementforthesecondandthirdfloor,
plusmeetingandconferenceroomsatthebase-
ment,startingfrom1August2008atarentofEUR
160thousand(one-yearduration,renewableat
thesametermsforanequalperiodoftime),annu-
allyincreasedbyapplyingtheindexmeasuring
theincreaseincostoflifeinItaly(ISTAT).
Cosmo Bioscience Inc. development activities
CosmoBioscienceInc.,acompanyalsocontrolledby
thesameultimateshareholdersasCosmoPharma-
ceuticalsS.p.A.,havingthreeDirectorsinbothboards,
andexpertinbiologicalanalysis,carriedoutsome
scientifictestsonthemechanismofactionofLMW
HeparinMMX®fortheCompanyin2008.TheBoardof
DirectorsoftheCompanyunanimouslyapprovedin
advancetheaboveactivities,whichin2008amounted
toUSD299,696(EUR235thousand).Additional
analyseswillbeperformedin2009.
122 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
Key Management personnel compensation
KeyManagementpersonnelconsistoftheBoardof
DirectorsandtheExecutiveManagement;thetable
belowshowsthecompensationrecognizedinthe
profitandlossstatement2008.
* CompensationasCFO
**CosttotheCompanyofstockoptionsallocatedin2007
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 123
EUR
Board of Directors
Function Base compensa-tion
Additional compensa-tion
Cash bonus Fringe benefits
Stock options **
Total compensa-tion
RolfStahel non-
Executive
Chairman
80,000 – – – 74,352 154,352
MauroS.
Ajani
Deputy
Chairman
CEO
200,000 – – – – 200,000
Gianluigi
Bertolli
Member,
non-
Executive
30,000 – – – 25,367 55,367
Alessandro
DellaChà
Member,
non-
Executive
30,000 – – – 25,367 55,367
DieterA.
Enkelmann
Member,
non-
Executive
30,000 10,000 – – 25,367 65,367
ChrisTanner Member,
Executive
CFO
177,000 * – 20,000 * – 156,580 * 353,580 *
Friedrichvon
Bohlenund
Halbach
Member,
non-
Executive
30,000 – – – 25,367 55,367
Total 577,000 10,000 20,000 – 332,400 939,400
EUR
Executive Management No. of members
Base compensa-tion
Cash bonus Fringe benefits
Stock options
Total compensa-tion
ExecutiveManagement 13members 1,126,457 123,960 22,013 306,600 1,579,030
Highestpaidof13member 155,000 15,000 – 83,100 253,100
34 Financial risk management objectives
and policies
Financial risk management
TheGroup’sprincipalfinancialliabilities,which
comprisebankloans,financialleasesandtrade
payables,aremainlycreatedtoraisefinancingfor
itsoperations.
TheGroup’sfinancialassets,suchascashand
cashequivalents,tradereceivablesandotherreceiva-
bles,aregeneratedbyitsoperationsandmanaged
bytheGroup’sTreasury.
ThemajorrisksarisingfromtheGroup’sfinancial
instrumentsarecreditrisk,liquidityrisk,marketrisk
(primarilyinterestrateriskandforeigncurrencyrisk).
TheGroup’sAuditCommitteeperiodicallyreviews
thepoliciesformanagingeachoftheabove-men-
tionedrisks.
Toillustratethecorrelationbetweenthefinancial
instrumentsandtherelatedriskexposure,adescrip-
tionofthepoliciesandthemeasuresadoptedbythe
Grouptomanageitsfinancialriskexposureispro-
videdherebelow.
Credit risk
CreditriskistheriskoffinanciallosstotheGroupifa
customeroracounterpartytoafinancialinstrument
failstomeetitscontractualobligations.Itarises
mainlyfromtheGroup’stradereceivablesandfrom
cashandcashequivalents.
TheGroup’sexposuretocreditriskisdrivenbythe
individualcharacteristicsofeachcustomer.TheGroup
hasaseriesoflong-standingcustomersandhasestab-
lishedconsiderableexperienceinassessingthese
customers’creditrisk.Forthesecustomers,theriskof
creditdeteriorationismonitored.Tothisendthe
Groupfollowsthedevelopmentofratings,andwhere
thecounterpartyisnotrated,itreliesonpro-active
marketinformation.Whentakingonanewclient,the
Group,wherecreditratingsarenotavailable,requests
bankreferencesandifthesefailtogeneratesufficient
comfort,maytransactonlyonaprepaymentbasis.
Inordertoreducethecreditriskconcentration,the
Group’spolicyistolimitdaysreceivablesallowed
toitsmajorcustomersandtoallocateitscashand
equivalentstoatleast4banks,whichasagroup,
maynotbeactiveinthesameareaofactivity.
Liquidity risk
LiquidityriskistheriskthattheGroupwillnotbeable
tomeetitsfinancialobligationsastheyfalldue.The
Group’sapproachtomanagingliquidityistoensure,
asfaraspossible,thatitwillalwayshavesufficient
liquiditytomeetitsliabilitieswhendue,underboth
normalandstressedconditions,withoutincurring
unacceptablelossesorriskingdamagestotheGroup’s
reputation.
TothisendtheGrouphasinvesteditscashinshort-
termdepositsorquicklyrealizablefinancialinvest-
mentsonly.Whereithasenteredintolong-termfinan-
cialobligations,thesearestructuredinsuchaway
thatmaturitiesareevenlyspreadout.Furthermore
theGroupstrivestohaveuncommittedlinesofcredit
availablefromatleasttwobanks.
TheGroupratesmanagingtheliquidityriskas
moreimportantthanoptimizinginvestmentincome.
Market risk
Marketriskistheriskthatchangesinmarketprices,
suchasforeignexchangerates,interestratesand
equityprices,willaffecttheGroup’sincomeorthe
valueofitsholdingsoffinancialinstruments.The
objectiveofmarketriskmanagementistomanage
andcontrolthemarketriskexposureswithinaccept-
ableparameters,whileoptimisingthereturnonrisk.
Interestraterisk
TheGroup’sexposuretotheriskofchangesinmarket
interestratesrelatesprimarilytotheGroup’scashin
bankdepositsandequivalentinvestments,loansand
financialleaseswithfloatinginterestrates.No
124 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
materialhedgingactivities(suchasinterestrate
swaps)wereusedduringtheperiodunderreview.
TheGroup’spolicyistomaintainitsinvestments
invariablerateinstrumentsandtohaveallitsfinancial
obligationsinvariablerates,thuscreatinganatural
hedge.
Foreigncurrencyrisk
TheGroupisexposedtocurrencyriskonrevenues
andpurchasesthataredenominatedinacurrency
otherthanitsfunctionalcurrency(EUR).
TheGroupintendstoworkwithnaturalhedges
wherepossible,matchingforeigncurrencyinflows
withoutflows.Wherethisisnotpossible,foreign
exchangeriskwillbehedged.
Othermarketpricerisk
Equitypriceriskarisesfromavailable-for-saleequity
investments.TheGroupwillfromtimetotime
reassesswhetheritisopportunetohedgethese
investments.Generally,however,itwillonlyenterinto
equityinvestmentswhereitthinksthattheequity
valuewillappreciateandwillthusgenerallynot
hedgethemarketrisks.
Capital management
Group’scapitalmanagementobjectivesarefocused
onsafeguardingtheGroup’scapacitytosafelyexecute
thebusinessplanoftheGroup.TothisendtheGroup
willnotrelyondebttofinanceanyofitslonger-term
capitalrequirementsandwillnotstrivetomaintain
anoptimalcapitalstructureuntilitsincomestreams
reachahighlevelofpredictability.
Fromtimetotime,theGrouppurchasesitsown
sharesonthemarketandthetimingofthesepur-
chasesdependsonmarketprices.Buyandselldeci-
sionsaremadebytheCFOafterpre-discussionwith
theCEO,whowasauthorizedbytheshareholders,
accordingtotheItalianCivilCode,tobuyinthemar-
ketuptomaximum1,387,500sharesoftheCompany
untilOctober2009.
NeithertheCompanynoranyofitssubsidiaries
aresubjecttocapitalrequirementsimposedbyany
regulatoryagencyorsimilarbody.
Withreferencetothesupplementaldisclosures
requiredbyIFRS7,thecommentsbelowsupplydetails
aboutthemeasuresandmechanismsimplemented
bytheGrouptomanageitsexposuretofinancialrisks.
Classes of financial instruments
Thetablebelowshowsthefinancialassetsand
liabilities,asrequiredbyIFRS7withintheframework
ofthedifferentcategoriescontemplatedbyIAS39,
resultingon31December2008and2007.
Separateinformationisprovidedoncurrentand
non-currentfinancialliabilities,asrequiredbyIFRS7
withintheframeworkofthedifferentcategoriescon-
templatedbyIAS39,resultingon31December2008
and31December2007.
* Onlyfinancialassets/liabilities
**Interestbearingguaranteedeposit
EUR1,000 Year ended 31 December
Carrying amount
2008 2007
Financialassetsavailable
forsale
6,769
–
Othernon-current
receivables**
2,144
1,953
Tradereceivables 3,549 3,400
Otherreceivablesand
otherassets*
3,196
1,007
Cashandcashequivalents 22,166 25,505
Financialleaseliabilities (1,288) (1,944)
Subsidizedloans (1,841) (1,628)
Unsecuredbankloans (1,165) (306)
Securedbankloans – (1,320)
Tradepayables (4,228) (4,162)
Othercurrentliabilities* (12) (12)
Othernon-current
liabilities**
–
(2)
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 125
Information and financial risk analysis
Credit risk
Exposuretocreditrisk
Thefollowingtableshowsthetradereceivables
outstandingasof31December2008and2007,with
separateinformationonthecommercialreceivables
notyetdue(“Tocomedue”line)andthosealready
comedue,withanindicationoftheperiodforwhich
theyarepastdue(“0–90days”,“90–120days”and
“Morethan120days”lines).
Theexposuretocreditriskasoftheendof2008
and2007isoutlinedinthefollowingtable.
Asat31December2008and2007,theitem“other
receivables”doesnotincludeoverduepositions.
Receivablesandwrite-downs
Thechangesinthereserveforthewrite-downof
commercialandotherreceivablesareshownin
thefollowingtable.
Morethan78percentoftheGroup’scustomershave
beentransactingwiththeGroupforoverfouryears
andnolosseshaveoccurredsofar.Thebiggestclient
hadamaximumofEUR1,810thousandoutstanding
attheendofanyquarter,thesecondbiggestclient
hadamaximumofEUR579thousandoutstanding
attheendofanyquarterin2008.
Atpresent,therearenopendinglitigationswith
referencetoGroup’stradereceivables,norhasthere
beenanyrecordoflitigationsinthepast.Neverthe-
less,receivablesareconstantlymonitoredbytheMan-
agementwithinthecontextofariskmanagement
system,approvedbytheBoardofDirectors.
Basedonpastexperience,theGroupbelievesthat
theamountrecordedinthereservefordoubtfuldebt
issufficientinrespecttotheriskrelatedtotrade
receivablesthatarenotpastdue;alltradereceivables
relatetocustomersthathaveagoodtrackrecordin
thebusinessrelationswiththeGroup.
Liquidity risk
TheliquidityriskistheriskthattheGroupwill
encounterdifficultyinmeetingfutureobligationswith
respecttofinancialliabilities,afterconsideringthe
Company’scashandcashequivalents’availability.
Theriskanalysisisaimedatquantifying,onthebasis
EUR1,000 Year ended 31 December
Ageing of trade receivables 2008 2007
0–90 19 23
90–120 – –
120+days (2) 29
Total 17 52
(Allowanceforbaddebt) (32) (32)
Receivablestocomedue 3,564 3,380
Totaltradereceivables 3,549 3,400
EUR1,000 Year ended 31 December
Ageing of trade receivables 2008 2007
Movementinthereservefor
doubtfuldebts
32
32
Balanceatbeginningof
theyear
–
–
Impairmentlossesrecognized
onreceivables
–
–
Amountswrittenoffas
uncollectible
–
–
Amountsrecoveredduring
theyear
–
–
Impairmentlossesreversed – –
Balanceatendoftheyear 32 32
126 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
ofcontractualmaturity,thecashflowinrelationto
thereimbursementoftheCompany’sfinancial
liabilitiesasof31December2007and2008asmuch
astheyareconsideredsignificantforthepurposeof
liquidityrisk.
TheCompany’sobjectiveistoachieveabalance
between(a)themaintenanceofbankcreditcapacity,
and(b)flexibilitythroughtheuseofmedium-term
financing.
TheGroupmonitorsitsliquidityriskusingarecur-
ringliquidityplanningtool.Thistoolconsidersthe
maturityofitsfinancialassets(e.g.cashandcash
equivalents,accountsreceivablesandotherfinancial
assets)aswellasprojectedcashflowsfromoper-
ations.
CorporateTreasurymaintainsflexibilityinfund-
ing,bymaintaininguncommittedcreditlinesand
monitorsrollingforecastsoftheGroup’sliquidity
reserve(whichcomprisesundrawnborrowingfacility
andcashandcashequivalentsonthebasisof
expectedcashflow).
Withreferencetothematuritiesofcashflowsrelated
totheCompany’sfinancialexposure,thereimburse-
mentplansforthemedium-termdebtaredeemed
importantforthepurposeofliquidityrisk,particularly
consideringthenatureoftheCompany’scashflow
cycle.
Herebelowthedebtrepaymentplansforannual
periodsarepresented,toquantifytheliquidityrisk
andthenecessarycashflows.
Inthisregarditisnotedthatthequantificationof
thecashflowpaymentsonnon-currentfinancialliabil-
itiesisrepresentedbythefutureflowsgeneratedby
thefinancialinstrument,takingintoaccountthecon-
tractualrepaymentplanandthefutureinterestrates
estimatedonthebasisoftheIRSinterestratesbyyear
asimpliedbytheEURIBORcurveon31December2008
and2007.
EUR1,000 Carrying amount
Total Less than 1 year
1–2 years 2–5 years More than 5 years
Bankloans 3,006 3,422 928 886 894 714
Financialleaseliabilities 1,288 1,408 614 557 237 –
Totalasat31December2008 4,294 4,830 1,542 1,443 1,131 714
Bankloans 3,254 3,484 990 847 987 660
Financialleaseliabilities 1,944 2,172 735 633 804 –
Totalasat31December2007 5,198 5,656 1,725 1,480 1,791 660
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 127
Market risk
Theactualexposuretosuchsourcesofriskisillus-
tratedasof31December2008and2007,along
withthepossiblebalancesheetimpactoftherisk
factor’splausiblevariations.
Interestraterisk
TheGroupisexposedtointerestrateriskforits
floating-rate,medium-/long-termdebtobligations
andcashandcashequivalents,asidentifiedinthe
followingtables:
EUR1,000 31 December 2008
Currency Interest Interest rate Expiry Nominal value
Carrying amount
Fixed interest rate
subsidized loans
SanPaoloIMI EUR fixed rate 2.000% 01.01.11 1,463 377
BNL-Paribas EUR fixed rate 0.500% 01.07.15 802 592
Centrobanca EUR fixed rate 0.816% 06.10.18 1,052 872
Unsecured bank loans
UnicreditBanca EUR floating rate Euribor
+1.75%
31.12.08 350 –
UnicreditBanca EUR floating rate Euribor
+2.00%
30.09.09 250 50
BancaIntesa EUR floating rate Euribor
+1.55%
31.03.08 400 –
BancaIntesa EUR floating rate Euribor
+0.80%
30.04.11 1,320 1,115
Uncommited bank overdraft
Variousbanks(5) EUR floating rate Euribor
+various %
until
revocation
4,910 not utilized
Financial lease liabilities
Intesaleasing(various) EUR floating rate Euribor
+1.00%
from
01.11.08
3,942 1,288
to
01.06.11
128 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
EUR1,000 31 December 2007
Currency Interest Interest rate Expiry Nominal value
Carrying amount
Fixed interest rate
subsidized loans
SanPaoloIMI EUR fixed rate 2.0% 01.01.11 1,463 576
Centrobanca EUR fixed rate 0.816% 06.10.18 1,052 1,052
Secured bank loans
Interbanca EUR floating rate Euribor
+1.50%
30.11.10 2,200 1,320
Unsecured bank loans
UnicreditBanca EUR floating rate Euribor
+1.75%
31.12.08 350 117
UnicreditBanca EUR floating rate Euribor
+2.00%
30.09.09 250 117
BancaIntesa EUR floating rate Euribor
+1.55%
31.03.08 400 72
Uncommited bank overdraft
Variousbanks(5) EUR floating rate Euribor
+various %
until
revocation
4,910 not utilized
Financial lease liabilities
IntesaLeasing(various) EUR floating rate Euribor
+1.00%
from
01.11.08
3,942 1,944
to
01.06.11
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 129
Sensitivityanalysis–interestraterisk
Thetablebelowprovidesanindicationoftheimpact
ontheprofitbeforetaxofaparallel+/-50basis-point
shiftoftheratecurveestimatedasof31December
2008and2007.Theanalysiswascarriedoutbyassum-
ingthattheothervariablesremainedconstant,and
itwasalsocarriedoutfor2008and2007onthebasis
ofthesameassumptions.
Foreign currency risk
TheGroupisexposedtocurrencyriskonrevenues
andcoststhataredenominatedinacurrencyother
thanthefunctionalcurrencyoftheGroup(EUR).It
istheGroup’spolicyonlytoprimarilyinvestitscash
andcashequivalentsineuroandonlyholdshort-
termforeignexchangebalancesinanticipationof
short-termpaymentobligationsinforeigncurrency.
UntilDecember2008,theexchangeriskofthe
Groupwasmitigatedbyanaturalhedgesinceits
USdollarrelatedroyaltyincomewasoffsetbyits
USdollarrelatedResearchandDevelopmentcosts
locatedintheUSA.
Sensitivityanalysis–foreigncurrencyrisk
A10-percentstrengtheningoftheeuroagainstthe
USdollarasat31December2008wouldhaveresulted
inaprofitdecreaseofEUR609thousand(EUR240
thousandasat31December2007).
A10-percentweakeningoftheeuroagainstthe
USdollarasat31December2008wouldhavehadthe
oppositeeffect,fortheequalamountshownabove.
Theanalysisassumesthatallothervariables,in
particularinterestrates,remainconstant.
EUR1,000 Profit(/Loss)
31 December 2008 50bp 50bp
increase decrease
Variablerateinstruments (16) 16
Cashandcashequivalents 120 (120)
Cashflowsensitivity(net) 104 (104)
EUR1,000 Profit(/Loss)
31 December 2007 50bp 50bp
increase decrease
Variablerateinstruments (25) 25
Cashandcashequivalents 100 (100)
Cashflowsensitivity(net) 75 (75)
EUR1,000 31 December 2008
Currency Interest Interest rate Carrying amount
Cashathand Various n/a n/a 5
Bankaccounts,variousbanks(9) EUR floating rate Euribor
+various %
21,068
Bankaccounts,variousbanks(1) USD floating rate Euribor
+various %
1,093
EUR1,000 31 December 2007
Currency Interest Interest rate Carrying amount
Cashathand Various n/a n/a 10
Bankaccounts,variousbanks(7) EUR floating rate Euribor
+various %
24,669
Bankaccounts,variousbanks(2) USD floating rate Euribor
+various %
826
130 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
TheManagementhaddecided,andtheBoardof
Directorshadapproved,thestrategyofthe“natural
hedge”,wherebyUSdollarbasedroyaltystreamsare
usedtopayUSDollarbasedcostsforclinicaltrials.
Theneteffectofsuchriskisminimizedaccordingly,
withgainandlosseffectsonthesetwocomponents.
Thisprovidesaneconomichedgeandnoderivatives
areenteredinto.
TheSantarusdealinDecember2008(seenote5
and6)hascalledforachangeinthenaturalhedge
strategybecauseitpracticallyeliminatedtheGroups
2008and2009USdollarR&Dcosts.Forthisreason
theManagementin2009decidedtohedgeforeign
exchangeriskbysellingforwardthe2009excesscash
flowsinUSdollar,whichessentiallywillderivefrom
theroyaltypaymentsonLialda™sales.
Other market price risk
AsaconsequenceoftheSantarusdeal,inDecem-
ber2008theGroupacquiredanequityinvestmentin
Santarus,whosesharesarelistedontheNewYork
StockExchange.Thisinvestmentrepresents10.4%of
thecommonsharesofSantarusandwasreceivedas
non-monetarydownpaymentinthelicenceagree-
mentsignedon10December2008.
ThisequityownershipinSantarusreflectsthe
Group’sconfidenceinthelong-termvalueofSantarus’
business.Thesharesaresubjecttoaninitial15
months’restrictionontheirsaleortransferandthe
investmentisactivelymonitoredandmanagedona
fairvaluebasis.
Forthisassetattheendof2008,theconditionfor
theimpairmentasdescribedin“Criticalaccounting
estimates,assumptionsandjudgments”havenot
beenfulfilled.FurthermoretheCompanyenteredinto
thisinvestmentinrelationwithalong-termcommer-
cialagreementwithSantarus,which,itfeelswillcre-
ateconsiderablevalueforbothcompanies.Presently
thereisnoindicationthatSantarusissufferingfroma
materialdeteriorationofitsbusinessenvironment
norperformance.
Sensitivityanalysis–othermarketrisk
Assumingthattheothervariablesremainedconstant,
a10-percentincreaseinthesharepriceatthereport-
ingdatewouldhaveincreasedequitybyEUR568
thousandaftertax;anequalchangeintheopposite
directionwouldhavedecreasedequitybyEUR568
thousandaftertax.
Share capital and share premium
Asat31December2008,theauthorizedshare
capitalcomprised13,875,000ordinaryshares(2007:
13,875,000).Allissuedsharesarefullypaid.
Theholdersofordinarysharesareentitledto
receivedividendsuponshareholders’resolution
andtheyareentitledtoonevotepershareatthe
shareholdersmeetings.
AccordingtotheItalianCivilCode,alltherights
forownsharesheldbytheGrouparesuspended.
EUR1,000 Year ended 31 December
2008 2007
Totalassets 57,765 47,228
Equity 43,236 35,147
Equityratio 75% 74%
Explanatorynotes–CosmoPharmaceuticalsAnnualReport2008 131
Fair values versus carrying amounts of financial
assets and liabilities
Thistableshowsthecomparisonoffairvaluesversus
carryingamountsoffinancialassetsandliabilities,as
requiredbyIFRS7.
Belowasummaryofthesignificantmethodsand
assumptionsusedinestimatingthefairvaluesof
financialinstrumentsinthetableabove.
Equityinvestments:
Thefairvalueoftheavailable-for-salefinancialassets
isdeterminedbyreferencetotheirquotedbidpriceat
thereportingdate.
Subsidizedloans:
Thefairvalueiscalculatedbasedonthepresentvalue
offutureprincipalandinterestcashflows,discounted
atinterestmarketrateatthereportingdate.
35 Subsequent events
Asatthedateofpresentationofthesefinancial
statementstherewerenomaterialeventsafterthe
balancesheetdate.Cosmoiscontinuingtodevelop
itsproductspipeline,inlinewithplansandpro-
grammedactivities.
EUR1,000 Year ended 31 December 2008 Year ended 31 December 2007
Carrying amount
Fair value
Carrying amount
Fair value
Financialassetsavailableforsale 6,769 6,769 – –
Othernon-currentreceivables** 2,144 2,144 1,953 1,953
Tradereceivables 3,549 3,549 3,400 3,400
Otherreceivablesandotherassets* 3,196 3,196 1,007 1,007
Cashandcashequivalents 22,166 22,166 25,505 25,505
Financialleaseliabilities (1,288) (1,288) (1,944) (1,944)
Subsidizedloans (1,841) (1,913) (1,628) (1,371)
Unsecuredbankloans (1,165) (1,165) (306) (306)
Securedbankloans – – (1,320) (1,320)
Bankoverdraft – – – –
Relatedpartiesloans – – – –
Tradepayables (4,228) (4,228) (4,162) (4,162)
Othercurrentliabilities* (12) (12) (12) (12)
Othernon-currentliabilities** – – (2) (2)
29,290 29,218 22,491 22,748
Unrecognized gain (/loss) (72) 257
* Onlyfinancialassets/liabilities
** Interestbearingguaranteedeposit
132 CosmoPharmaceuticalsAnnualReport2008–Explanatorynotes
134 CosmoPharmaceuticalsAnnualReport2008–Auditors’report
MAZARS & GUÉRARDCORSO DI PORTA VIGENTINA, 35 - 20122 MILANOTEL: +39 02 58 20 10 - FAX: +39 02 58 20 14 03 - www.mazars.it
SPA - CAPITALE SOCIALE DELIBERATO €3.000.000,00, SOTTOSCRITTO €2.703.000,00, VERSATO €2.587.500,00 - SEDE LEGALE: C.SO DI PORTA VIGENTINA, 35 - 20122 MILANO
REA N. 1059307 - COD. FISC. N. 01507630489 - P. IVA 05902570158 - AUTORIZZATA AI SENSI DI L. 1966/39 - REGISTRO DEI REVISORI CONTABILI GU 60/1997 ALBO SPECIALE DELLE SOCIETÀ DI REVISIONE CON DELIBERA CONSOB N° 10829 DEL 16/07/1997 UFFICI IN ITALIA: BOLOGNA - FIRENZE - MILANO - NAPOLI - PADOVA - PALERMO - ROMA – TORINO - UDINE
Auditors’ Report
To the Board of Directors of Cosmo Pharmaceuticals S.p.A.
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Cosmo Pharmaceuticals S.p.A. (“the Company”), which comprise the balance sheet as at December 31, 2008, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Auditors’report–CosmoPharmaceuticalsAnnualReport2008 135
Opinion
In our opinion, the consolidated financial statements give a true and fair view of the financial position of Cosmo Pharmaceuticals S.p.A. as of December 31, 2008, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Milan, March 20, 2009
Mazars & Guérard S.p.A.
Carlo Consonni Partner
Selectedfinancialinformation
Income statements data
EUR1,000 Year ended 31 December 2008 Year ended 31 December 2007
% of revenue % of revenue
Revenue 34,173 100.0 21,900 100.0
Otherincome 47 0.1 516 2.4
Costofsales (13,203) (38.6) (13,162) (60.1)
Researchanddevelopmentcosts (4,287) (12.5) (4,772) (21.8)
Selling,generalandadministrativecosts (5,546) (16.2) (4,730) (21.6)
Depreciationandamortization 0 – 0 –
Netoperatingexpenses (22,989) (67.3) (22,148) (101.1)
Operatingresult 11,184 32.7 (248) (1.1)
Financialincome 1,369 4.0 870 4.0
Financialexpenses (940) (2.8) (469) (2.1)
Profitbeforetaxes 11,613 34.0 153 0.7
Incometaxexpenses (2,212) (6.5) (37) (0.2)
Profitfortheyear 9,401 27.5 116 0.5
136 CosmoPharmaceuticalsAnnualReport2008–Selectedfinancialinformation
Other dataBalance sheet data
Cash flow data
EUR1,000 As at 31 December
2008 2007
Non-currentassets 24,072 13,562
Cashandcashequivalents 22,166 25,505
Othercurrentassets 11,527 8,161
Totalassets 57,765 47,228
Medium-tolong-terminterest-
bearingloansandborrowings
2,903
3,658
Othernon-currentliabilities 2,242 1,845
Short-terminterest-bearing
loans,borrowingsandbank
overdraft
1,391
1,540
Othercurrentliabilities 7,993 5,038
Equity 43,236 35,147
Totalequityandliabilities 57,765 47,228
EUR1,000 As at 31 December
2008 2007
Cashflowsfromoperating
activities
12,517
(2,493)
Cashflowsfrominvesting
activities
(14,661)
925
Cashflowsfromfinancing
activities
(1,195)
26,579
Netincrease(/decrease)in
cashandcashequivalents
(3,339)
25,011
EUR1,000 As at 31 December
2008 2007
Networkingcapital1) 3,518 3,021
Netfinancialindebtedness2) (17,872) (20,307)
EBITDA3) 12,785 1,212
1)Networkingcapitalisdefinedasinventoriesplustraderecei-
vables,otherreceivablesandotherassetslesstradepayables,
deferredincomeandothercurrentliabilities.
2)Netfinancialindebtednessisdefinedascurrentinterest-
bearingloans,borrowingsandbankoverdraftplusnon-current
interest-bearingloansandborrowings,lesscashandcash
equivalents.
3)EBITDAiscalculatedasnetprofit/lossfortheyear,before
incometaxexpenses,financialincomeandexpenses,
depreciationandamortization.
Selectedfinancialinformation–CosmoPharmaceuticalsAnnualReport2008 137
138 CosmoPharmaceuticalsAnnualReport2008–Informationforinvestors
Capital structure
Share price data
Share earnings
Stock exchange information
Research coverage
Calendar
Key reporting dates
HalfYearReport–29July2009
AnnualReport–April2010
EUR1,000 31.12.2008
Equity 43,236
Sharecapital 3,469
Reserves 30,366
Profitfortheperiod 9,401
Numberforregisteredshares 13,875,000
Nominalvaluepershare(inEUR) 0.25
Major shareholders No. of shares % of share capital
CosmoHoldingS.p.A. 8,740,000 63.0%
dieviniHoppBioTechHolding
GmbH&Co.KG
1,476,876
10.6%
CHF Price Date
Firsttradingday 22.30 12.3.2007
2008lowest 11.00 12.12.2008
2008highest 25.30 25.2.2008
2008lasttradingday 16.10 30.12.2008
Marketcapitalization
(inCHFmillion)
223.3
30.12.2008
EUR 31.12.2008
Earnings 0.678
Listing SIXSwissExchange,
MainBoard
SecurityID COPN
ISIN IT0004167463
Swisssecuritynumber(Valor) 2862650
Numberofshares 13,875,000
Jefferies
International
Peter
Welford
Phone:+442070298668
Sal.
Oppenheim
Carri
Duncan
Phone:+41442142326
Vontobel AndrewC.
Weiss
Phone:+41582837152
Informationforinvestors
Informationforinvestors–CosmoPharmaceuticalsAnnualReport2008 139
Share price
Trading volumes
CosmoPharmaceuticals
SPIBiopharma
SPIS&MCAP
2008 CHF
27.0
22.5
24.7
20.0
18.0
13.5
15.7
11.2
03
.01
.20
08
14
.02
.20
08
31
.03
.20
08
14
.05
.20
08
25
.06
.20
08
07
.08
.20
08
18
.09
.20
08
30
.10
.20
08
11
.12
.20
08
30
.12
.20
08
40,000
60,000
20,000
0
03
.01
.20
08
14
.02
.20
08
31
.03
.20
08
14
.05
.20
08
25
.06
.20
08
07
.08
.20
08
18
.09
.20
08
30
.10
.20
08
11
.12
.20
08
30
.12
.20
08
140 CosmoPharmaceuticalsAnnualReport2008–Glossary
Acute
Acuteoftenmeansurgent.Anacutediseaseoccurs
suddenly.
5–aminosalicylic acid
Itisadrugderivedfromsalicylicacidusedtotreat
inflammationoftheintestine.
Acne
Skindisordercharacterizedbyinflammationasa
resultofover-activityofthesebaceousglands.
Alopecia (male pattern baldness)
Hairfolliclediseasewhichinvolvesindividuals
geneticallypredisposed.
Androgens
Malesexhormones.
Antibiotic
Drugthatkillsbacteriaorpreventsthemfrom
multiplying.
AUC (area under the curve)
TermusedinPKstudiesasmeasureofsystemic
absorption.
Autoimmune
Aconditioninwhichthebodyproducesantibodies
toitsowntissue.
Bacteria
Single-celledmicroorganismsthatcanexistindepend-
entlyordependentlyuponanotherorganism
forlife.Theycancauseinfectionandareusually
treatedwithantibiotics.
Butyric acid
Isashort-chainfattyacidproducedinthecolonbythe
fermentationofalimentaryfibres.Itisthemain
physiologicalfuelforthemucosacellsinthecolon.
C.P.O.
ContractPharmaceuticalOrganization,acompany
thatcarriesoutservicesinthepharmaceuticalsector
onbehalfofthirdparties.
C.R.O.
ContractResearchOrganization,acompanythat
carriesoutresearchand/ordevelopmentactivitiesin
thepharmaceuticalsectoronbehalfofthirdparties.
Clostridium Difficile Associated Diarrhoea (CDAD)
DiarroheaduetoClostridiumDifficileinfection.
Colon
Thecolonisthepartofthelargeintestinebetweenthe
cecumtotherectum.Itsprimarypurposeistoextract
waterfromfaeces.
Clinical need
Therapeuticneednotcoveredbydrugsthatare
currentlymarketed.
Clinical phase I
PhaseItrialsarethefirststageofdrugtestingon
humansubjects.
Clinical phase II
Oncetheinitialsafetyoftherapyhasbeenconfirmed
inphaseItrials,phaseIItrialsareperformedonlarger
groups(20–200)andaredesignedtoassessclinical
efficacyofthetherapy,aswellastocontinuephaseI
assessmentonalargergroupofvolunteersand/or
patients.
Glossary
Glossary–CosmoPharmaceuticalsAnnualReport2008 141
Clinical phase III
PhaseIIIstudiesarerandomizedcontrolledtrialson
largepatientgroups(≥200,dependingonthecondi-
tion)andareaimedatproducingadefinitiveassess-
mentoftheefficacyofthenewtherapy,sometimesin
comparisonwithcurrent“goldstandard”treatment.
Clinical trial
Ameticulouslycontrolledtestofadrugcandidateon
humans.
Cmax
Maximiumdrugconcentrationreachedinabody
fluid,usuallyplasmaorblood.
Compliance
Compliancewiththetherapeuticregimeimposedby
theprescribingdoctor.
Crohn’s Disease (CD)
ItisatypeofchronicInflammatoryBowelDisease
(IBD)whichcanaffectanypartofthegastrointestinal
tractfrommouthtoanus.
Chronic
Lastingalongtime.
Cytokines
Anyclassofsubstancesthataresecretedbycellsof
theimmunesystem.
Diarrhoea
Itisagenerallyunpleasantconditioninwhichthe
suffererhasfrequentwatery,loosebowelmovements.
Dose finding study
Aclinicalstudydesignedtodeterminetheefficacyand
safetyofdifferentdosestohelpintheidentificationof
themostefficaciousandwell-tolerateddose.
Double-blind study
Aclinicaltrialdesigninwhichneithertheparticipat-
ingindividualsnorthestudystaffknowwhichpartici-
pantsarereceivingtheexperimentaldrugandwhich
arereceivingplacebooranotheractiveingredient
(comparator).
Disease activity index (DAI)
AnindexofseverityofIBDincludingsubjectiveand
endoscopicevaluations.
Diverticulitis
Diverticulitisisadiseaseofthebowel,inparticular
thelargeintestine,characterizedbyinflammation
andinfectionofintestinaldiverticula.Diverticulaare
fingershapeddilatationsoftheintestinalwall.
Drug delivery system
Atechnologyormethodthatisabletocontrolthetime
andtheextentofthereleaseofadrug.
Efficacy
Theabilityofadrugtocontrolorcureanillness.
Endoscopic activity index (EAI)
AnindexevaluatingtheseverityofIBDbyendoscopic
examinations.
Endoscopy
Endoscopymeanslookinginsideandreferstolooking
insidethehumanbodyformedicalreasons.
Endogenous
Producedorsynthesizedwithintheorganism.
Enzyme
Amoleculethatincludestheconversionofone
chemicalsubstancetoanother.
142 CosmoPharmaceuticalsAnnualReport2008–Glossary
Epidemiologic
Causeanddevelopmentcharacteristicsofadiseasein
populations.
EMEA
EuropeanMedicineEvaluationAgency.
EPO
EuropeanPatentOffice.
Ethical drugs
Prescriptiondrugsusedfortreatmentofserious
diseases.
Excipient
Aninertsubstanceusedasadiluentorvehicleforadrug.
FDA
FoodandDrugAdministration,theUSgovernment
agencythatgovernstheentryandmonitoringof
productsonthemarket.
Galenic
Galenicformulationdealswiththeprinciplesof
preparingandcompoundingmedicinesinorderto
optimizetheirabsorption.
Generic drugs
Drugsequivalenttobranddrugs.
Hirsutism
Excessivegrowthinwomenofthickhair,withamale
pattern.
ICH
TheInternationalConferenceonHarmonisationof
TechnicalRequirementsforRegistrationofPharma-
ceuticalsforHumanUse.
Ileum
Theileumisthefinalportionofthesmallintestine.
Infection
Aconditionresultingfromthepresenceofbacteria
orothermicroorganismsinthebody.
Inflammation
Swelling,reddening,heatand/orpainproducedinthe
areaofthebodyasaresultofirritation,injuryor
infection.
Inflammatory Bowel Disease (IBD)
Agroupofinflammatoryconditionsofthebowel,
includingUlcerativeColitisandCrohn’sDisease.
Intestine
Theportionofthealimentarytractextendingfrom
thestomachtotheanus,consistingoftwosegments,
thesmallintestineandthelargeintestine(orcolon).
Inulin
Inulinsareagroupofnaturallyoccurringoligosacchar-
ideswhicharefermentedbyintestinalbacteria
leadingtotheproductionofshortchainfattyacid,
includingbutyricacid.
In vitro
Inanartificialenvironment,referringtoaprocessor
reactionoccurringtherein,asinatesttubeorculture
media.
Lesions
Alesionisanyabnormaltissuefoundonorinan
organism,usuallydamagedbydiseaseortrauma.
Lipophilic
Thepropertyofachemicalcompoundtodissolvein
fats,oils,lipids,andnon-polarsolvents.
Glossary–CosmoPharmaceuticalsAnnualReport2008 143
Lumen
Thelumenistheinteriorofavesselwithinthebody,
suchasthesmallcentralspaceinanarteryorvein,
oranyoftheirrelatingvesselsthroughwhichblood
flows.Onalargerscale,theinteriorofthegastrointes-
tinaltractmayalsobereferredtoasitslumen.
Mechanism of action
Themannerbywhichadrugexertsitsactivity.
Monoclonal antibodies
Identicalantibodiesproducedbyselectedand
restrictedBlymphocytes.
NCE
Newchemicalentity,chemicalstructurewhichisnot
partofexistingtechnicalknow-how.
NDA
TheNewDrugApplication,aprocedurethrough
whichdrugsponsorsformallyproposethattheFDA
approveanewpharmaceuticalforsaleandmarket-
ingintheUSA.
Nutraceuticals
Referstofoodsclaimedtohaveaeffectonhuman
health.Thetermincludesdietarysupplementsand
specialfood.
OTC drugs
Over-the-counterdrugsaremedicinesthatmaybe
soldwithouttheprescriptionofamedicalprofessional,
incontrasttoprescriptiondrugs.
Off-label
Theuseofadrugforamedicalconditionotherthan
forwhichitwasofficiallyapprovedandmarketed.
Orphan diseases
Diseasescharacterizedbyalimitedincidenceinthe
population,generallyfewerthan5casesper10,000,
andforwhichtherearecurrentlynovalidtherapies
available.
Orphan drug
Drugintendedtocureorphandiseases.
Onset of action
Thelengthoftimeittakesforamedicinetostarttowork.
Open-label study
Astudyinwhichallparties(patient,physicianand
studycoordinator)areinformedofthedruganddose
beingadministrated.
Pivotal study
UsuallyaphaseIIIstudywhichpresentsthedatathat
thegovernmentalagenciesresponsibleforapproving
themarketingofpharmaceuticalproducts(e.g.theUS
FDAandtheEMEA)usetodecidewhetherornotto
approveadrug.
Placebo
Drugwithnoactiveingredients.
Pharmaceutical manufacturing plant
Facilitiesforthemanufacturingofdrugs,subjectto
authorizationbyspecifichealthauthorities.
Pharmacokinetic
Theprocessbywhichadrugisabsorbed,distributed,
metabolizedandeliminatedbythebody.
Pharmacokinetic parameters
Measuresrelatedtodrugabsorptionandelimination
ratesthatareusefultoevaluatethebehaviourofthe
drugsafteradministrationtoalivingorganism(like
Cmax,tmax,AUCetc.).
144 CosmoPharmaceuticalsAnnualReport2008–Glossary
Peptides
Peptides(fromtheGreekπεπτος,“digestible”)arethefamilyofshortmoleculesformedfromthelinking,ina
definedorder,ofvariousα-aminoacids.
Probiotic bacteria
Microorganismsnormallypresentintheintestine,
producingbeneficialeffects.
Proof of concept study
PhaseIIaclinicaltrials,usuallyconductedwithinthe
targetpatientgroup,todeterminewhetherthe
considerableresourcesnecessarytocompletedrug
developmentshouldbeinvested.
Prophylaxis
Amethodtopreventadisease.
Randomized/Randomization
Theproceduresensuringthatthesubjectsareequally
andrandomlydistributedtotreatmentorcontrol
groups.
REACH
Registration,Evaluation,AuthorisationandRestric-
tionofChemicalsubstances.
Receptor
Aproteincomplexlocatedinsideoronthewallofthe
cellscharacterizedbyselectivebindingofaspecific
substance.
Rectum
Thelastpartofthelargeintestine.
Registration
Authorizationrequiredtomarketadrug.
Seborrhoea
Askindiseasecharacterizedbyincreaseofsebum
associatedornottoinflammation.
Technology platform
Technologyappliedtovariousmoleculesgenerating
certainproducts.
Tmax (Time to maximium concentration)
TermusedinPKstudiestoindicatethetimeafter
administrationwhenthemaximumconcentrationin
abodyfluidisobtained.
Ulcerative Colitis (UC)
UlcerativeColitisisaformofInflammatoryBowel
Disease(IBD).Thediseaseislocatedonlyinthecolon,
andischaracterizedbypresenceofmucosalulcer-
ations.Themainsymptomsofactivediseaseare
usuallyabdominalpainanddiarrhoeamixedwith
blood,ofgradualonset.
CosmoPharmaceuticalsAnnualReport2008 145
Concerning forward-looking statements
Thisreportcontainscertain“forward-lookingstate-
ments”,whichcanbeidentifiedbytheuseoftermin-
ologysuchas“could”,“might”,“propose”,
“addressable”,“outlook”,“attractive”orsimilar
wording.Suchforward-lookingstatementsreflect
thecurrentviewsofManagementandarenot
guaranteesoffutureperformanceandinvolverisks
anduncertainties,readersarecautionedthatactual
resultsmaydiffermateriallyfromthoseinthe
forward-lookingstatementsasaresultofvarious
factors.Cosmoisprovidingtheinformationinthis
reportasofthisdateanddoesnotundertakeany
obligationtoupdateanyforward-lookingstatements
containedinitasaresultofnewinformation,future
eventsorotherwise.
146 CosmoPharmaceuticalsAnnualReport2008
Imprint
© 2009 Cosmo Pharmaceuticals S.p.A.
Phone: +390293337614
Fax: +390293337663
Concept
IRFCommunicationsAG,Zurich
Graphic design, illustrations, production
and prepress
TGGHafenSennStieger,St.Gallen
Portraits
CarloBevilacqua
photographeranddirector
www.carlobevilaqua.com
Printing and lithography
NiedermannDruckAG,St.Gallen
Contacts and addresses
Cosmo Pharmaceuticals S.p.A.
ViaCristoforoColombo,1
20020Lainate(Milan)
Italy
Phone: +390293337614
Fax: +390293337663
www.cosmopharmaceuticals.com
Cosmo S.p.A.
ViaCristoforoColombo,1
20020Lainate(Milan)
Italy
Phone: +390293337614
Fax: +390293337663
Cosmo
Research & Development S.r.l.
ViaCristoforoColombo,1
20020Lainate(Milan)
Italy
Phone: +390293337276
Fax: +390293337663
Cosmo Technologies Ltd.
1stfloor,ConnollyBuilding
42–43AmiensStreetDublin1
Ireland
Phone: +35318170370
Fax: +35318230718
Investor and public relations
ChrisTanner,CFOand
HeadofInvestorRelations
Phone: +390293337617
Fax: +390293337663
chris.tanner@cosmopharmaceuticals.com
Publications and further information
investor.relations@cosmopharmaceuticals.com
Cosmo Pharmaceuticals S.p.A.
ViaCristoforoColombo,1
20020Lainate(Milan)Italy
Phone: +390293337614
Fax: +390293337663
www.cosmopharmaceuticals.com
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