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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

Commission file number 0-51373

CHEMGENEX PHARMACEUTICALS LIMITED

(Exact name of Registrant as specified in its charter)

Australia
(Jurisdiction of incorporation or organization)

Eric Merrigan

Level 4, 199 Moorabool Street

Geelong

Victoria 3220 Australia

Telephone number: 011-613-5223-9903

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

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

None

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

Ordinary shares without par value (“ordinary shares”)

American Depositary Shares each representing the right to receive 15 ordinary shares

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

None

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

187,112,274 ordinary shares without par value

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

Yes /No                  No

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

Yes /No                  No

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

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

Yes /No                  Yes

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

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

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

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

Yes /No                  No

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

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

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GLOSSARY

AML                                                                 Acute Myelogenous Leukemia is a malignant cancer of the myeloid line of white blood cells, characterized by the rapid proliferation of abnormal cells that accumulate in the bone marrow and interfere with the production of normal blood cells. AML is the most common acute leukemia affecting adults with an estimated 30,000 new cases per year in the developed world. The incidence of AML is increasing with increased life expectancy and ageing of the general population.

CML                                                                 Chronic Myelogenous Leukemia is a malignant cancer of the bone marrow that causes rapid growth of the blood-forming cells (known as myeloid precursors) in the bone marrow, peripheral blood, and body tissues. CML can occur in adults (usually middle-aged) and children. CML affects 1 to 2 people per 100,000 and accounts for 7-20% cases of leukemia.

HHT                                                                   Homoharringtonine is a natural compound isolated from the Chinese evergreen tree Cephalotaxus harringtonia . HHT has a broad antitumor activity in rodents and antileukemic effects in humans. HHT is used in China for the treatment of leukemia.

MDS                                                                 Myelodysplastic Syndrome is a group of conditions caused by abnormal blood-forming cells of the bone marrow. In MDS, the bone marrow cannot produce blood cells effectively, and many abnormal cells are destroyed before they leave the bone marrow or shortly after entering the bloodstream. This results in low blood counts causing anemia and other complications. It is estimated that there are between 10,000 and 15,000 new cases of MDS in the USA each year.

TKI                                                                        Tyrosine inhibitor. A class of drugs that can be used to alleviate the symptoms of CML by blocking the activity of the causative protein, Bcr-Abl.

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USE OF CERTAIN DEFINED TERMS

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

PRESENTATION OF FINANCIAL INFORMATION; AVAILABLE INFORMATION

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

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

ENFORCEMENT OF LIABILITIES AND SERVICE OF PROCESS

The Company is incorporated under the laws of New South Wales, Commonwealth of Australia.  The majority of its directors and executive officers, and the experts named in this Annual Report, reside outside the U.S. A substantial part of the Company’s assets, its directors’ and officers’ assets and such experts’ assets are located outside the U.S. As a result, it may not be possible for investors to effect service of process within the U.S. upon the Company or its directors, executive officers or such experts, or to enforce against them or the Company, judgments obtained in U.S. courts based upon the civil liability provisions of the federal securities laws of the U.S. In addition, the Company has been advised by its Australian lawyers, McCullough Robertson, that there is doubt that the courts of Australia will enforce against the Company, its officers, directors and experts named herein, judgments obtained in the U.S. based upon the civil liability provisions of the federal securities laws of the U.S. or will enter judgments in original actions brought in Australian courts based upon the federal securities laws of the U.S.

FORWARD-LOOKING STATEMENTS

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

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PART I

ITEM 1.                  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2.                  OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.                  KEY INFORMATION

A .            Selected consolidated financial data

The following table presents selected financial data of the Company as of the dates and for each of the periods indicated. You should read the selected financial data set forth below together with Item 5. “Operating and Financial Review and Prospects” as well as the Company’s audited consolidated financial statements and notes thereto appearing elsewhere in this Annual Report.

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

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

The balance sheet data as of June 30, 2008 and 2007 and the income statement data for fiscal years 2008, 2007 and 2006 are derived from our audited consolidated financial statements included in this annual report.  Balance sheet data as of June 30, 2006 and 2005 and income statement data for the 2005 financial years are derived from our audited consolidated financial statements which are not included in this Annual Report.  The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.

All amounts are stated in Australian dollars as of June 30 as noted.

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Consolidated Income Statement Data  in Accordance with IFRS :

Consolidated Balance Sheet Data in Accordance with IFRS:

(a)      Other expenses from continued ordinary activities comprise consulting and advisory costs, s, company taxation and outsourced employee costs.

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

Dividends

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

Exchange rates

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

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

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

B .            Capitalization and indebtedness

Not applicable.

C.            Reasons for the offer and use of proceeds

Not applicable.

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D.            Risk factors

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

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

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

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

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

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

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

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

·                   the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights;

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

·                   the emergence of competing products and other adverse market development; and

·                   changes in, or termination of, the Company’s existing collaboration and licensing arrangements.

The Company may not receive further revenues from collaboration and licensing agreements or changes in the development of the Company’s drug candidates may cause available capital resources to be used more quickly than expected.

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

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

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

The Company anticipates a net loss in fiscal 2009.

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

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

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

The Company has relationships with collaborators and consultants at academic and other scientific institutions who conduct trials under contractually defined terms at the Company’s request.  It is the Company’s policy that all of its employees, academic collaborators, consultants and scientific advisors enter into confidentiality agreements that control the dissemination of all intellectual property produced that results from their work for the Company.  It is possible; however, that unauthorized dissemination of such confidential information could materially adversely affect the Company’s business, financial condition and results of operations.  Such collaborators also could enter into employment agreements or consulting arrangements with competitors.

The Company may not be successful in its clinical trials programs.  These programs are costly, time consuming and of uncertain outcome.  If such programs are not successful, the Company may invest substantial amounts of time and money without developing revenue-producing products.

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

·                   as the Company enters a more extensive clinical program in several different diseases, the data generated in these studies may not be as compelling as the earlier results;

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·                   unforeseen safety issues or side effects;

·                   variability in the number and types of patients available for each study, and difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

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

·                   the failure to obtain required regulatory approvals.

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

The Company’s success depends on acceptance of the Company’s products by the market, including physicians and third-party payers, and consequently the Company’s liquidity and viability as a going concern may be adversely affected if it is unable to achieve market acceptance of its products. Factors that may affect the rate and level of market acceptance of any of the Company’s products include:

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

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

·                   public perception regarding the safety, efficacy and benefits of the Company’s products compared to competing products or therapies;

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

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

·                   the willingness of physicians to adopt a new treatment regimen; and

·                   publicity concerning the product type in general.

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

Even if the Company receives regulatory approval to sell any of its products, the U.S. Food and Drug Administration (“FDA”), the Australian Therapeutics Goods Administration or comparable foreign regulatory agencies could require the Company to conduct post-marketing trials to further evaluate safety and efficacy or could prevent the Company from using the labeling claims which the Company would like to use to promote its products. Regulators will undertake periodic reviews and inspections. If they discover previously unknown problems with a product or its manufacturing facility or if the Company fails to comply with regulatory requirements, regulators could:

·                   impose fines against the Company;

·                   impose restrictions on the product, its manufacturer, or the Company;

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

·                   suspend or withdraw its regulatory approvals;

·                   require the Company to conduct additional clinical trials;

·                   require the Company to change its product labeling; or

·                   require the Company to submit additional marketing applications.

If any of these events occur, the Company’s ability to sell its products will be impaired and the Company may incur substantial additional expense to comply with the regulatory requirements. In addition, in certain countries, even after regulatory approval, the Company is still required to obtain price reimbursement approval. This may delay the marketing of the Company’s products or, when approval cannot be obtained, mean that the product cannot be sold at all.

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

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

The Company’s business faces intense competition from major pharmaceutical companies and specialized biotechnology companies engaged in the development of drugs directed at the conditions and disorders that are the focus of the Company’s therapeutics programs.  As a result its competitors may be able to establish superior proprietary positions.

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

The Company’s products under development are expected to address a broad range of markets including, but not limited to anti-cancer drugs for the treatment of chronic myelogenous leukemia (“CML”) and other forms of leukemia, prostate cancer and other solid tumors. The Company’s competitive position will be determined in part by the potential indications for which the Company’s products are developed and ultimately approved by regulatory authorities. The relative speed with which the Company or its collaborative partners can develop products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market, are expected to be important competitive factors.

The Company’s competitors may be developing products that could compete with the products the Company is developing. The Company and its collaborators will need to persuade patients and physicians to adopt its products over its competitors’ products.

In the field of cancer therapeutics the Company faces intense competition from major pharmaceutical companies and specialized biotechnology companies engaged in the development of product candidates and other therapeutic products. Several of these companies have products in the same indications or utilize similar technologies and/or personalized medicine techniques.  The FDA has approved two drugs for CML patients who are resistant to the therapy imatinib mesylate (Gleevec ^® ); Sprycel ^® (dasatinib), a drug developed and commercialized by Bristol-Myers Squibb was approved in June 2006, and Nilotinib ^® (nilotinib) a drug developed and commercialized by Novartis was approved in October 2007. Significantly, neither Sprycel ^® nor Nilotinib ^® have demonstrated efficacy against the T315I Bcr-Abl mutation, and it is this sub-set of resistant CML patients that are being targeted by the Company for initial approval. Several biotechnology and pharmaceutical companies are seeking to develop effective therapeutics specifically for CML patients with the T315I mutation. Vertex Pharmaceuticals and its partner Merck are developing an aurora kinase inhibitor referred to as MK-0457 or VX-680. Phase 2 clinical trials for this agent were underway but were suspended in 2007. Nerviano Medical Sciences in collaboration with the U.S National Cancer Institute is conduction a small phase 2 study of the novel aurora kinase inhibitor PHA-739358. Astex Therapeutics is developing AT9283, an inhibitor of several targets including Bcr-Abl. This agent is currently in phase 1/2 clinical trials. Several companies have agents in phase 1 clinical trials, including Exelixis (XL228), Kyowa Hakko (KW2449) and Medimmune/Infinity Pharmaceuticals (IPI504).  Xanthus Pharmaceuticals is currently conducting a phase 3 study with amonafide malate (listed as an example product candidate – Refer Item 4B. Business Overview – ChemGenex’s development pipeline) in acute myeloid leukemia.  The previous list is indicative only, and there may be other competitive trials or technologies elsewhere in the world. Additionally, many of the Company’s competitors, including large pharmaceutical companies, have greater financial and human resources and more experience than the Company does.

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If the healthcare industry limits coverage or reimbursement levels, the acceptance of the Company’s products could suffer.  It may not be able to sell its drug profitably.

The healthcare industry is subject to changing political, economic and regulatory influences that may affect the procurement practices and operations of healthcare facilities.  During the past several years, the healthcare industry has been subject to increased government regulation of reimbursement rates and capital expenditures.  Among other things, third party payers are increasingly attempting to contain or reduce healthcare costs by limiting both coverage and levels of reimbursement for healthcare products and procedures. Cost control policies of third party payers, including government agencies, may adversely affect acceptance and use of the Company’s product line.

If the Company is unable to successfully establish and protect its intellectual property, which is significant to the Company’s competitive position, its competitors may be able to take advantage of its research and development efforts.

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

To develop and maintain its competitive position, the Company also relies on unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation, which it protects with security measures it considers to be reasonable, including confidentiality agreements with its collaborators, consultants and employees. The Company may not have adequate remedies if these agreements are breached and the Company’s competitors may independently develop any of this proprietary information.

If the Company fails to obtain adequate protection for its intellectual property, the Company’s competitors may be able to take advantage of the Company’s research and development efforts. The Company’s success will depend, in large part, on its ability to obtain and maintain patent or other proprietary protection for its technologies in general and, in particular, drugs and processes. The Company may not be able to obtain patent protection for the use of certain drug compounds, processes developed by its employees or medical uses of compounds discovered through its technology. Legal standards relating to patents covering pharmaceutical or biotechnological inventions and the scope of claims made under these patents are still developing. There is no consistent policy regarding the breadth of claims allowed in biotechnology patents. The Company’s patent position is therefore uncertain and involves complex legal and factual issues. This risk factor is one that faces many companies in the biotechnology industry and the Company is not aware of any Company-specific risks.

The Company may incur substantial costs as a result of disputes relating to intellectual property.

The Company may have to initiate litigation to enforce its patent and license rights. If the Company’s competitors file patent applications that claim technology also claimed by the Company, the Company may have to participate in interference or opposition proceedings to determine the priority of invention. An adverse outcome could subject the Company to significant liabilities and require the Company either to cease using a technology or to pay license fees.

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

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

Development of drug candidates involves a lengthy and complex process. Any drug candidate that the Company seeks to offer commercially to the public must be put through extensive research, development and pre-clinical and clinical testing which will be costly to the Company. This development process takes several years. In addition, the Company or its partners will need to obtain regulatory approvals to conduct clinical trials and manufacture drugs before they can be marketed. Results of pre-clinical studies are not necessarily indicative of results that may be obtained in clinical trials and results in early clinical trials may be different from those obtained in long-term testing or in general use. Adverse or inconclusive results from pre-clinical testing or clinical trials may substantially delay, or halt entirely, the development of products.

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

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

·                   the failure to produce a promising compound in sufficient quantities to conduct clinical trials or to manufacture the compound at commercially acceptable quantities and prices;

·                   the failure of the drug in pre-clinical studies;

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

·                   the failure to obtain required regulatory approvals.

ChemGenex Pharmaceuticals Limited shares may fluctuate in value.

The market price for ChemGenex Pharmaceuticals Limited shares and the securities of other similar companies have been volatile. Factors that could significantly impact the market price of ChemGenex Pharmaceuticals Limited shares in the future other than those described elsewhere in this Annual Report include:

·                   announcements concerning research activities, technological innovations, clinical trials or financial results by the Company or its competitors;

·                   termination of collaborations by the Company or its partners;

·                   governmental regulatory initiatives;

·                   the FDA, the Australian Therapeutic Goods Administration or European Medicines Evaluation Agency approving or denying new applications;

·                   patent or proprietary rights developments;

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

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

·                   price and volume fluctuations in the stock market at large that do not relate to the Company’s operating performance;

·                   changes in financial estimates by securities analysts, comments by securities analysts, or the Company’s failure to meet analysts’ expectation;

·                   actual or anticipated variations in periodic operating results;

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

·                   changes in the market valuations of other similar companies;

·                   announcements by the Company of significant acquisitions, strategic partnerships, joint ventures or capital commitments; and

·                   additions or departures of key personnel.

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

The international pharmaceutical industry is highly regulated by numerous governmental authorities in the U.S., Australia and Europe and by regulatory agencies in other countries where the Company intends to market products it may develop. National regulatory authorities administer a wide range of laws and regulations governing the testing, approval, manufacturing, labeling and marketing of drugs and also review the quality, safety and effectiveness of such products. These regulatory requirements are a major factor in determining whether a technology can be developed into a marketable clinical application or a specific product and the amount of time and expense associated with such development.

Government regulation imposes significant costs and restrictions on the development of pharmaceutical products for human use, including those the Company is developing. The development, clinical evaluation, manufacture and marketing of the Company’s products and ongoing research and development activities are subject to regulation by governments and regulatory agencies in all territories within which the Company intends to manufacture and market its products (whether themselves or through a partner). The Company’s products may not successfully complete the clinical trial process. Similarly, regulatory approvals to manufacture and market the Company’s products may not ultimately be obtained.

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

If regulatory approval is obtained, the product and its manufacture will be subject to continual review and this approval may be withdrawn or restricted. Changes in applicable legislation or regulatory policies, or discovery of problems with the product, or its production process, site or manufacturer, may result in the imposition of restrictions on the product, its sale, manufacture or use, including withdrawal of the product from the market, or may otherwise have an adverse effect on the Company’s liquidity and financial condition.

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

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

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

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The Company may face product liability claims.

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

The Company may be subject to special interest groups and adverse public opinion.

Government bodies and regulatory agencies require that potential pharmaceutical products are subject to pre-clinical studies, including animal testing, prior to conducting human trials. ChemGenex arranges for such work either directly or through its collaborators. While the Company has not been subject to the attention of special interest groups, or any adverse public opinion of which it is aware, such work entails the risk of adverse public opinion and the attention of special interest groups, including those of animal rights activists.  These groups may in the future focus on the Company’s activities or those of its licensees or collaborators, and this might adversely affect the Company’s operations, by requiring it to curtail its activities or to change its testing procedures.

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

ITEM 4.                                        INFORMATION ON THE COMPANY

A .            History and development of the Company

The Company was founded in September 1958 as N & B Finance and Development Corporation. It was renamed the Kingsway Finance Group in August 1964 and then became Australia Wide Industries Limited in May 1986. Australia Wide Industries Limited listed on the Australian Stock Exchange (“ASX”) in July 1986 and operated for ten years as a listed mining and exploration company (ASX: AWI). The Company commenced biotechnology activities in July 1996 and changed its name to Autogen Limited (ASX: AGT) in May 1999. Autogen Limited, in turn, changed its name to AGT Biosciences Limited in March 2003 and then to ChemGenex Pharmaceuticals Limited (ASX: CXS) in June 2004. Biotechnology remains the focus of the Company’s activities. The Company’s Australian Business Number (ABN) is 79 000 248 304. It operates pursuant to its constitution, the Australian Corporations Act 2001, other legislation in Australia and the U.S., and the rules of the ASX.  The Company’s registered office is C/- LBW Chartered Accountants, Suite 3 Level 2, 10 Moorabool Street, Geelong, Victoria 3220 Australia.  Its principal administration office is Level 4, 299 Moorabool Street, Geelong, Victoria 3220 Australia.  Its telephone number is +613-5223-9900.  The Company’s website address is www.chemgenex.com.  Information on the Company’s website and websites linked to it does not constitute part of this Annual Report.

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

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

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

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

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

Important events since June 30, 2008

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

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

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

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

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B.            Business overview

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

ChemGenex’s competitive advantage

The Company’s competitive advantage can be considered in terms of protected intellectual property (IP), the research and development platforms that support the development of existing IP and the creation of new IP and the organizational ability to realize the commercial value of the Company’s IP and other assets.

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

Business strategy

The Company’s business strategy for growth and profitability is to discover, develop and commercialize novel therapeutics that address significant unmet needs in the pharmaceutical industry, based on the Company’s understanding of the genetic basis of disease.  The Company keeps its core competencies in-house (such as laboratory research management, pre-clinical work, clinical strategy and management), outsourcing the majority of laboratory research and all clinical testing to specialists, to minimize its infrastructure and fixed overhead costs. The Company regularly reviews the commercial opportunities for its clinical stage assets and will seek to maximize value creation for these assets. This may entail either direct commercialization efforts, territory-specific distribution arrangements or the complete out-licensing of product candidates following Phase 2 clinical evaluation.

ChemGenex’s drug development platform

The Company’s pre-clinical and clinical development efforts are based in Australia, California and Europe.  In vitro and in vivo screening models are used to evaluate lead compounds. Data from these models is fed back into extensive in-house databases for iterative analysis. A parallel series of profiling assays is performed to determine the potential pharmaceutical attributes and vulnerabilities of a compound.

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

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

ChemGenex’s development pipeline

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

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Clinical stage product candidates

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

Omacetaxine (formerly Ceflatonin® homoharringtonine)

Omacetaxine is a small molecule with established clinical activity as a single agent in hematological malignancies. The Company’s scientists have discovered that it affects a number of critical cellular pathways, including the regulation of genes associated with programmed cell death (apoptosis) and the inhibition of formation of new blood vessels in solid tumors (angiogenesis). The Company has received Orphan Drug Status protection for omacetaxine in CML in both the U.S.A. and Europe, as well as Fast Track Status from the U.S. F.D.A. In previous published Phase 2 clinical trials, 70% of patients showed complete hematological remission (CHR) in chronic myeloid leukemia (“CML”) after interferon- a failure. In more recent pilot studies in CML patients who had failed imatinib, 100% of chronic-phase patients and 70% of accelerated-phase patients achieved a CHR. The Company is currently conducting Phase 2/3 trials in the U.S.A. and Europe for CML patients who have the T315I Bcr-Abl mutation that confers resistance to imatinib and other TKIs. Data published in 2007 indicated that omacetaxine had positive clinical activity against imatinib-resistant, chronic myeloid leukemia (CML) associated with the T315I Bcr-Abl mutation, and these findings were supported by presentations at the Society of Hematology (ASH) Annual Meeting in Atlanta, Georgia (December 2007), the New Directions in Leukemia Research (NDLR) conference in Queensland, Australia (April 2008) and the European Hematology Association (EHA) Annual Congress in Copenhagen, Denmark (June 2008). The Company is also conducting a complementary phase 2 clinical trial in the U.S.A. for CML patients who have failed multiple TKIs regardless of mutation status. Positive clinical activity from this trial was reported at the European Hematology Association (EHA) Annual Congress in Copenhagen, Denmark (June 2008).  In March 2008 the Company initiated a phase 2 study evaluating the use of omacetaxine in refractory or relapsed acute myeloid leukemia (AML) patients who have failed intensive chemotherapy. The study will be conducted in France and is designed as a two-stage study with potential enrolment of up to 27 patients. The primary endpoint will be the proportion of patients achieving complete and partial remissions, and the secondary endpoints will include survival. The Company is also conducting Phase 2 trials in patients with the bone marrow disease called myelodysplastic syndrome (“MDS”) in collaboration at the M.D. Anderson Cancer Center.  Including intellectual property exclusively assigned from Stragen Pharma S.A., the Company has 24 active patent families for omacetaxine, covering  omacetaxine formulations, purification, synthesis and uses.

Quinamed ^® (amonafide dihydrochloride)

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

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Pre-clinical stage product candidates

In addition to omacetaxine and Quinamed ^® the Company is developing several other pre-clinical oncology compounds, including the following:

CXS2101:  This compound inhibits NF-Kappa B and has been shown to increase the anti-cancer activity of other agents in animal models.

CXS6001:  This compound affects levels of the structural protein tubulin in cancer cells and has shown anti-tumor efficacy in mouse models.

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

The company suspended development of CXS299 in June 2008.

Research and product development programs

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

Commercial and research and development collaborations

The following section describes the Company’s existing commercial collaborators and the commercial agreements with respect to the Company’s principal research and development programs and commercialization agreement:

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

Patents, licenses and proprietary rights

The Company pursues a policy of seeking to obtain patent protection for its inventions in Australia, the U.S., Europe, Japan and in selected other countries. The Company also relies upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain its competitive position. To date, the Company has not threatened or instituted proceedings against any third party on patent or other proprietary rights nor has any third party threatened or instituted proceedings against the Company.

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Certain products and processes currently being developed or considered for development by the Company are in the area of biotechnology. The number of patent filings by biotechnology firms in major jurisdictions is particularly high and the outcome of such applications is generally uncertain and involves complex legal and factual questions. To date, no consistent international policy has emerged regarding the breadth of claims allowed in biotechnology patents. Accordingly, there can be no assurance that the Company will develop products or processes that are patentable, that patent applications made by the Company, or made by parties who have agreed to license their inventions to the Company, will result in patents being issued or that, if issued, the claims allowed will be sufficiently broad to protect what the Company believes to be its proprietary rights or that such patents will prevent others from developing similar or functionally equivalent products or processes. In addition, products or processes covered by such patents, or any other products or processes developed by the Company or licensed to the Company, may infringe patents owned by third parties or be subject to claims of patent infringement by these parties. In such a situation, the Company may have to obtain a license, defend an infringement action in court or challenge the scope or validity of any infringed or allegedly infringed patents. Such required licenses may not be available to the Company at all, or if available, such licenses may not be on terms acceptable to the Company or that the Company will prevail in any patent litigation. Failure to obtain a license or prevail in any patent litigation relating to any technology that the Company may require to commercialize its products or processes may have a material adverse impact on the Company.

Litigation may also be necessary to enforce any patents granted to the Company or to determine the scope and validity of third party patents. Patent litigation is time consuming and expensive. The Company may not have, or be able to devote the necessary resources to conduct patent litigation. Patent applications made by or licensed to the Company may not result in patents being issued or, if issued, the patents may not provide the right to exclude competitors with similar technology.

The Company maintains an active policy of filing patent applications.  It is possible that patents may not be granted on pending applications made by the Company or parties that have licensed their inventions to the Company. Similarly, issued patents may not provide significant proprietary protection or commercial advantage or may be infringed or designed around by others. Since publication of inventions or discoveries in scientific or patent literature often lags behind actual invention or discovery, it is possible that the inventions covered by each of the Company’s pending patent applications may not have dominant status in terms of date of invention. The Company’s patents or patent applications may become involved in opposition proceedings instituted by third parties. If such proceedings were initiated against the Company’s rights, the defense of such rights could involve substantial costs and the outcome cannot be anticipated. If patents are issued to other parties that contain valid claims that are interpreted to cover any of the Company’s products, it is possible that the Company may not be able to obtain licenses to such patents at a reasonable cost, if at all, or may not be able to develop or obtain alternative technology. Competitors or potential competitors may have filed applications for, may have received patents covering, or may obtain additional patents and proprietary rights that may relate to, compounds or processes competitive with those of the Company.

The Company also relies upon unpatented proprietary technology, and no assurance can be given that others will not independently develop substantially equivalent proprietary technology and techniques, or otherwise gain access to the Company’s proprietary technology or disclose such technology, or that the Company can meaningfully protect its rights to its unpatented proprietary technology, secrets and know-how.

It is the Company’s policy generally to require its consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements prior to the commencement of consulting or other relationships with the Company. Employees have a similar confidentiality provision in their employment contracts. These agreements provide that all confidential information developed or made known to the individual during the course of the individual’s relationship with the Company is to be kept confidential and not disclosed to third parties except in specific, limited circumstances. The Company also requires signed confidentiality or material transfer agreements from any person who is to receive confidential data or proprietary material from the Company. In the case of consultants, the agreements generally provide that all inventions conceived by the individual while rendering services to the Company shall be assigned to the Company as the exclusive property of the Company. Similar provisions are contained in the Company’s employment contracts, and provisions of many national laws, including Australia, provide that intellectual property rights created during the course of employment belong to the employer. There can be no assurance, however, that these agreements and provisions will provide meaningful protection or adequate remedies for the Company’s intellectual property rights, trade secrets or other confidential information in the event of unauthorized use or disclosure.

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

Under the PCT, a single patent application is filed which designates various countries or regions. The application is r eferred to as an International application. All major countries and regions (e.g. Europe) can be designated and this effectively reserves the right to lodge patent applications in those countries and regions up to 18 months following the filing of the PCT application. During that period, an International Search Report and an International Preliminary Examination Report are issued by the relevant national patent office (e.g. the United States Patent and Trademark Office (“USPTO”), or Australian Patent Office) and there are opportunities to amend the claims and specification although new matters cannot be added. At the end of the 18 month period (i.e. generally 30 months after filing of the initial provisional application), the applicant decides in which countries to pursue national or regional applications.

Competition

The Company faces, and will continue to face, intense competition from one or more of the following entities:

·                   biotechnology companies;

·                   pharmaceutical companies;

·                   academic and research institutions; and

·                   government agencies.

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

Specific competition risk according to disease class is summarized below.

Cancer

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

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Material effects of government regulation

The international pharmaceutical industry is highly regulated by numerous governmental authorities in Australia, the U.S., the U.K., Europe and by regulatory agencies in other countries where the Company intends to test or market products it may develop. National regulatory authorities administer a wide range of laws and regulations governing the testing, approval, manufacturing, labeling and marketing of drugs and devices and also review the quality, safety and effectiveness of pharmaceutical products and devices. These regulatory requirements are a major factor in determining whether a substance can be developed into a marketable product and the amount of time and expense associated with such development.

The national regulatory authorities have high standards of technical appraisal. Consequently, the introduction of new pharmaceutical products generally entails a lengthy development and approval process. Of particular importance is the requirement that products be authorized or registered prior to marketing and such authorization or registration be maintained. Of particular significance in the U.S. are the U.S. FDA requirements covering research and development, testing, manufacturing, quality control, labeling and marketing of drugs for human use. A pharmaceutical product cannot be marketed in the U.S. until it has been approved by the FDA, and then can only be marketed for the indications and claims approved by the FDA. As a result of these requirements, the length of time, the level of expenditure and the laboratory and clinical information required for approval of a New Drug Application (“NDA”) or a product license application are substantial and can require a number of years, although recently revised regulations are designed to reduce the time for approval of new products. In Europe, two systems for the registration of pharmaceutical products are in operation, the centralized procedure and the mutual recognition procedure. In the centralized system, review of the proposed new product is co-coordinated by the European Medicines Evaluation Agency (“EMEA”) located in London and, if the product is found to meet the criteria for marketing authorization, a European Marketing Authorization is granted which is valid throughout the EU. In the mutual recognition procedure, the initial review is undertaken by the national health authority of one of the EU member states and, if this country considers the product acceptable for marketing authorization, the other EU member states are asked to recognize this approval and issue their own authorization. The mutual recognition procedure thus results in a national authorization in each member state. However, irrespective of the procedure followed, the technical requirements for marketing authorization are the same. For European countries that are outside the EU, national marketing authorization procedures with similar technical standards exist. The Company anticipates that the introduction of new products will continue to require substantial effort, time and expense in order to comply with regulatory requirements.

No new drug is permitted to be sold in developed countries without extensive data on its quality, safety and efficacy first being obtained, organized and submitted to governmental regulatory authorities. The development stage of this process may be divided into two parts: (i) pre-clinical; and (ii) clinical development. Included in pre-clinical development are the development of processes for manufacturing the product candidate, toxicology studies and other activities such as pharmacology and drug metabolism studies. Clinical trials run until, and in some cases after, the product is marketed and covers several, sometimes overlapping, phases.

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

In addition to the forms of regulation referred to above, the prices of pharmaceutical products in many countries are controlled by law. In some countries, such as France and Japan, the prices of individual products are regulated. By contrast, in the U.K., prices are controlled by reference to limits upon the overall profitability, measured by the rate of return on capital employed, of sales of products supplied under the U.K. National Health Service. The permitted rate of return on capital employed for each pharmaceutical company is determined through negotiations with the U.K. Department of Health under the 1999 Pharmaceutical Price Regulation Scheme. If a company’s actual rate of return exceeds the agreed rate, it is required to negotiate either a repayment of past profits which the Department of Health considers to be excessive or future price reductions. There is no assurance that the current arrangements will continue in the future.

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Governments may also influence the price of pharmaceutical products through their control of national healthcare organizations which may bear a large part of the cost of supply of such products to consumers. In the U.S. and Germany, indirect pressure can be exerted on prices by government funded or private medical care plans. The Company is unable to predict whether, or to what extent, its business may be affected by legislative and regulatory developments relating to specific pharmaceutical products or the pricing of such products, or to its overall business. The uncertainties involved, or any adverse regulatory developments, could significantly affect the Company’s operational results and its ability to achieve profitability.

C .                                     Organizational structure

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

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

D.                                     Property, plant and equipment

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

These properties are in good condition.

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

ChemGenex Pharmaceuticals, Inc. leases premises of approximately 5,000 square feet in Menlo Park under a 38 month lease agreement which expires on October 31, 2010. This lease allows for an option for a further 2 years to October 31, 2012.

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

Environmental

The Company’s operations are not subject to any significant environmental regulations under either Australian Commonwealth or State legislation. The Company uses hazardous materials that could be dangerous to human health, safety or the environment. As appropriate, the Company stores these materials and various wastes resulting from their use at its facilities pending ultimate use and disposal. The Company is subject to a variety of federal, state and local laws in both Australia and the U.S. and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes resulting from the use of such materials. While the costs for compliance, including costs related to the disposal of hazardous materials, to date have been nominal, the Company may incur significant costs complying with both existing and future environmental laws and regulations. ChemGenex Pharmaceuticals, Inc. is subject to regulation by the Occupational Safety and Health Administration, or OSHA, the California and federal environmental protection agencies and to regulation under the Toxic Substances Control Act. OSHA or the California or federal EPA may adopt regulations that may affect the U.S. subsidiary’s research and development programs. The Company is unable to predict whether any agency will adopt any regulations that could have a material adverse effect on its operations.

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ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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

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

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

Significant accounting policies

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

Recently issued but not yet adopted accounting pronouncements applicable to ChemGenex

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

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

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

Adoption of new accounting standard

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

Application of critical accounting policies

The Company prepares its financial statements in accordance with generally accepted accounting principles. As such, it is required to make estimates, judgments, and assumptions that management believes are reasonable based upon the information available. The estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies listed in Note 2 of the Company’s audited consolidated financial statements that management believes are the most critical to aid in fully understanding and evaluating its financial condition and results of operations are discussed below.

A .                                     Operating results

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

The Company’s losses fluctuate from year to year principally due to the commencement or termination of collaborative research and development agreements, the timing of milestone payments, government grants, the level of interest income and variations in the level of expenditures relating to research and clinical development programs. The Company expects to incur continued losses in coming years. The Company continues to incur the greater part of its costs on personnel and external contract costs needed to support the research and development of its platforms, including expenses related to the protection of patent and other intellectual property rights.

Overview

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

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Inc. was a private company incorporated in the state of Delaware on September 14, 1999 to use genomic tools and medicinal chemistry to accelerate the development of anti-cancer therapeutics. The merged entity commenced trading on the ASX as ChemGenex Pharmaceuticals Limited on June 29, 2004. At June 30, 2008 the merged entity has an aggregate of 187,112,274 shares of ordinary stock outstanding.

To date, the Company has devoted substantially all of its resources to the development of its target discovery and validation technologies, research and development and preclinical and early stage clinical testing of omacetaxine and Quinamed® (amonafide dichloride) and other product candidates. It has incurred net losses since the commencement of biotechnology operations and expects to incur substantial and increasing losses for the next several years as it expands its research and development activities and moves its product candidates into later stages of development. To date, the Company has no product revenue and has funded its operations primarily through the payments from pharmaceutical industry partners, issue of equity securities and interest income. It had ongoing long term partnership agreement in diabetes and obesity with Merck Santé which was divested in Deceember 2007.  Planned core activities over the next several years are to:

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

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

·                   continue the development of its other cancer-treating product candidates;

·                   establish and maintain sales and marketing operations;

·                   commercialize any product candidates that receive regulatory approval; and

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

ChemGenex has a limited history of operations with its current management team and business focus.

The Company’s business is subject to significant risks, including but not limited to the risks inherent in its ongoing clinical trials and the regulatory approval process, the results of its research and development efforts, competition from other products and technologies and uncertainties associated with obtaining and enforcing patent rights.

Results of operations – fiscal years

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

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

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

The table below shows the proportion of individual expenses items to total operating costs for continuing activities for fiscal 2008, 2007, and 2006.

While the level of research and development expenditure has remained relatively constant for the past three fiscal years, the relativity of employee costs and other expenses has altered significantly as research specialists originally retained as consultants have been employed by the Company.

Comparison of fiscal year 2008 with fiscal year 2007 for continuing activities

Revenue

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

Costs and expenses

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

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Research expenditure

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

Employee costs

Employee expenses increased by A$4.8 million or 192% to A$7.3 million in fiscal 2008, as the numbers employed at the Menlo Park increased to support the clinical trials.

Patent costs

Patent costs include regulatory charges involved in applying for, and maintaining, patent protection together with charges from patent attorneys for specialist advice on these matters. Patent costs are expensed as incurred. Patent costs increased by 30.9% to A$0.4 million in fiscal 2008.

Legal costs

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

Depreciation

Depreciation costs reduced by A$157 thousand in fiscal 2008 as all research equipment was fully depreciated

Travel costs

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

Accounting and audit costs

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

Other administration expenses from continuing activities

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

Net loss

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

Comparison of fiscal year 2007 with fiscal year 2006 for continuing activities

Revenue

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

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Costs and expenses

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

Research expenditure

Research expenditure increased by 32% from A$3.3 million in fiscal 2006 to A$4.3 million in fiscal 2007. This reflects increased expenses associated with clinical trials incurred during the year.

Employee costs

Employee expenses reduced slightly in 2007 due to a reduction in the amortisation of share based compensation costs that year.

Patent costs

Patent costs include regulatory charges involved in applying for, and maintaining, patent protection together with charges from patent attorneys for specialist advice on these matters. Patent costs are expensed as incurred. Patent costs increased by 33% in fiscal 2007 due to different timing of various patent activities.

Legal costs

Legal costs reduced slightly in 2007.

Depreciation

No substantive change from previous year.

Travel costs

Travel costs reduced slightly in 2007.

Accounting and audit costs

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

Other expenses from ordinary activities

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

Net loss

The Company’s net loss increased by A$1.3 million, after including A$3.5 million loss from discontinued operations. The loss from continuing activities increased by A$0.4 million or 5% from A$7.8 million in fiscal 2006 to A$8.2 million in fiscal 2007 for the reasons described above.

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B .            Liquidity and capital resources

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

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

In common with biotechnology and drug development companies the Company’s operations are subject to considerable risks and significant uncertainty due primarily to the nature of the development and commercialisation undertaken. To allow the Company to execute its near term and longer term plans, it will be necessary to raise additional capital in the future. The Directors are investigating the opportune time to raise capital and/or enter into licensing/commercialisation arrangements. Having regard to the current market conditions and the Company’s development programs, the Directors have established a Board sub-committee to assess strategic alternatives including possible partnership, mergers, acquisitions and capital raising alternatives. The Directors plan to continue operations on the basis of the matters referred to above, and believe that future fund raising activities and the value of the Group’s existing net assets will generate sufficient funds for the Group to continue to operate in its normal manner in the future.

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

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

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

C.            Research and product development programs

Included within research and development expenditure for continued operations is the following external expenditure on research and development projects.

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

Whilst the Company made no expenditure in cancer research until fiscal 2005, ChemGenex Therapeutics, Inc. had expended US$5,955,000 (A$9,353,000) in cancer related research. This expenditure is reflected in the purchase price paid by the Company for ChemGenex Therapeutics, Inc.

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

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

See Item 4B. “Business overview - Commercial Collaborations” for further information on the status of research and development and commercial collaborations.

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

Research and Development

The Company has two therapeutic agents in Phase 2 clinical trials for three indications in the USA and several molecules in pre-clinical development.

Omacetaxine is currently in a Phase 2/3 trial in the U.S.A. and Europe for CML patients who have the T315I Bcr-Abl mutation that confers resistance to imatinib and other tyrosine kinase inhibitors (“TKIs”). The company is also conducting a complementary phase 2 trial in CML patients who have failed imatinib and one other TKI. The Company is also conducting Phase 2 trials in patients with myelodysplastic syndrome (“MDS”) and acute myeloid leukemia (AML).

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

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

In the US, the primary regulatory authority is the FDA. In addition to regulating clinical procedures and processes, the FDA investigates and approves market applications for new pharmaceutical products and is responsible for regulating the labeling, marketing and monitoring of all pharmaceutical products, whether currently marketed or under investigation. Upon approval in the US, a drug may be marketed only for the approved indications in the

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approved dosage forms and dosages. In addition to obtaining FDA approval for each indication to be treated with each product, each domestic drug manufacturing firm must register with the FDA, list its drug products with the FDA, comply with current Good Manufacturing Practice (cGMP) requirements and be subject to inspection by the FDA. In Australia, a similar role is played by the Therapeutic Goods Administration, and in Europe, the European Committee for Proprietary Medicinal Products provides a mechanism for European Union-member states to exchange information on all aspects of product licensing and assesses license applications submitted under two different procedures (the multistate and the high-tech concentration procedures).

The Company has an active international Phase 2/3 study in CML patients with the T315I Bcr-Abl point mutation, which confers resistance to TKI therapy. The first patients were dosed in September 2006, and enrollment under FDA approved protocols is ongoing. The Company was awarded Fast Track status from the FDA for this trial on November 15, 2006. The Fast Track designation will enable the Company to file a New Drug Application (“NDA”) on a rolling basis as data becomes available. This permits the FDA to review the filing as it is received, rather than waiting for an entire document prior to commencing the review process. It is anticipated that data from this trial will be submitted to the U.S. FDA for review in mid 2009.

The Company has an additional Phase 2 study in CML patients who have failed imatinib and an additional TKI. This study is currently enrolling patients globally.

Omacetaxine is currently in two separate Phase 2 clinical trials; treating MDS patients and AML patients respectively.

A Phase 2a clinical trial of Quinamed in solid cancer patients was completed in early 2007 and data was presented at the ASCO meeting in June 2007.  The trial was performed at the Sarah Cannon Cancer Center in Nashville, Tennessee. The key outcomes from this study were (i) demonstration that dose level could be optimised according to patient genotype, (ii) the drug was well tolerated, with predictable and manageable side effects, and (iii) there was evidence of anticancer activity in several solid tumor types.

Due to the high level of funds required to support clinical trials the Company has decided to concentrate its activities on the trial involving omacetaxine on CML patients with the T315I mutation, as this has been deemed to provide the best prospects for an early product approval at this time.

During these studies, the Company may seek to license the compounds to a pharmaceutical industry partner who would support appropriate registration-directed trials.

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

None of our product candidates have been approved for commercialization in the U.S. or elsewhere. We, or any of our collaborators, may not be able to conduct clinical testing or obtain the necessary approvals from the FDA or other regulatory authorities for some products. Failure by us, or our collaborators, to obtain required governmental approvals will delay or preclude our collaborators or us from marketing therapeutics or diagnostic products developed with us or limit the commercial use of such products and could have a material adverse effect on our business, financial condition and results of operations.

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Diabetes and Obesity

The Diabetes and Obesity programs ceased in December 2007 with the demerger of the Autogen Research Pty Ltd subsidiary.

D.            Trend information

The Company is a development stage company and it is difficult to predict with any degree of accuracy the outcome of the Company’s research and development efforts.  The following are developments that the Company considers a possible progression in the near term in its business:

·                   Phase 2 clinical trials for Quinamed® and omacetaxine,

·                   Phase 2/3 clinical trials for omacetaxine,  and

·                   possible partnering of these therapeutics with a pharmaceutical or biotechnology partner;

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

E .             Off-balance Sheet Arrangements

The Company has no off-balance sheet arrangements that have or are reasonably likely to have current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

F.             Tabular Disclosure of Contractual Obligations

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

G.            Assets Acquired in a Business Combination to be used in Research & Development Activities

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