Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out

Download - Molmed

VIEWS: 15 PAGES: 95

									Statutory financial
statements
at 31 December 2011

Approved by the
Shareholders Meeting
of 23 April 2012

English translation for convenience
MolMed S.p.A. is a biotechnology company focused on research,
development and clinical validation of novel anticancer therapies.

MolMed’s pipeline includes two novel anticancer therapeutics in
clinical development: TK, a cell-based therapy enabling bone
marrow transplants from partially compatible donors, in Phase III
for high-risk leukaemia, and NGR-hTNF, a novel vascular targeting
agent, in Phase III for malignant pleural mesothelioma and in Phase
II for six other different types of solid tumours: colorectal, small-
cell lung, non-small-cell lung, liver and ovarian cancers, and soft
tissue sarcomas.

MolMed is headquartered at the San Raffaele Biomedical Science
Park in Milan, Italy. The company’s shares (MLM.MI) are listed on
the Milan Stock Exchange (Standard segment, class I) of the MTA
managed by Borsa Italiana.
                                                                            Statutory Financial Statements at
                                                                                           31 December 2011




Table of contents
General Company Information ................................................................................... 3
Corporate Bodies ................................................................................................... 4
Letter to the Shareholders ....................................................................................... 6


Report on operations .............................................................................................. 7
1. Corporate Information ....................................................................................... 7
2. Fighting cancer ............................................................................................... 8
    2.1 A global challenge .................................................................................... 8
    2.2 MolMed’s investigational therapeutics address severe oncology indications with
           high unmet medical need ........................................................................... 9
3. Product pipeline ............................................................................................. 10
    3.1 TK - A cell-based therapy for the treatment of leukaemia ................................... 10
    3.2 NGR-hTNF - A biological drug targeting tumour blood vessels for the treatment of
           solid tumours ......................................................................................... 12
    3.3 Vascular/tumour targeting programme .......................................................... 15
4. Development and GMP production activities ........................................................... 16
    4.1 Development ......................................................................................... 16
    4.2 GMP production ...................................................................................... 17
5. IP protection activities ..................................................................................... 18
6. Business Development activities .......................................................................... 18
7. Communication and Investor Relations activities ...................................................... 18
8. Organisation and Human resources ....................................................................... 19
9. Research & development grants and other financial support ........................................ 20
10. Corporate Governance...................................................................................... 21
    10.1 Direction and coordination activities............................................................. 21
    10.2 Implementing the Model of Organisation, Management and Control, following the
           Italian Legislative Decree 231/2001 .............................................................. 21
    10.3 Transactions with related parties ................................................................. 21
11. Main risks and uncertainties to which MolMed is exposed ............................................ 23
    11.1 Risks associated with external factors ........................................................... 23
    11.2 Strategic and operating risks ...................................................................... 24
    11.3 Financial risks ........................................................................................ 27
12. Other information ........................................................................................... 28
    12.1 Own shares ........................................................................................... 28
    12.2 Protection of sensitive data and information ................................................... 28
    12.3 MolMed and the environment, health and safety in the workplace ......................... 28
    12.4 Shares held by Directors, General Managers, Statutory Auditors and other
           executives with strategic responsibilities (art. 79 of Consob Regulations,
           Resolution n°11971 of May 14, 1999) ............................................................ 29
13. Key achievements in year 2011 ........................................................................... 30
14. Economic and financial data .............................................................................. 31
    14.1 Income statement data ............................................................................. 31
    14.2 Equity and financial results ........................................................................ 33
15. Outlook      ................................................................................................... 36
    15.1 Significant events subsequent to the end of fiscal year 2011 ................................ 36
    15.2 Business outlook ..................................................................................... 36
16. Proposed allocation of the loss for the year ............................................................ 36




                                                         Page 1
                                                                           Statutory Financial Statements at
                                                                                          31 December 2011




Financial Statements at December 31, 2011 ................................................................. 37
1. Statement of Financial Position ........................................................................... 37
2. Income Statement ........................................................................................... 38
3. Statement of Comprehensive Income .................................................................... 39
4. Statement of Cash Flow .................................................................................... 40
5. Statement of Changes in Shareholders’ Equity ......................................................... 41
6. Statement of Financial Position pursuant to Consob resolution no. 15519 of July 27, 2006 .... 42
7. Income Statement pursuant to Consob resolution no. 15519 of July 27, 2006 .................... 43


Notes ............................................................................................................. 44
1. General information ........................................................................................ 44
2. Accounting principles and valuation policies ........................................................... 45
3. Segment reporting .......................................................................................... 56
4. notes to the statement of financial position............................................................ 57
5. Notes to the Income statement ........................................................................... 66
6. Other notes ................................................................................................... 72


Certification of the Statutory Financial Statements, pursuant to Article 81-ter of Consob
        Regulation no. 11971 of May 14, 1999, and subsequent amendments and integrations ..... 86

Report of the External Auditors ................................................................................ 87

Report of the Board of Statutory Auditors .................................................................... 89




                                                         Page 2
                                                               Statutory Financial Statements at
                                                                              31 December 2011




General Company Information



Registered office:                           Via Olgettina, 58 – 20132 MILANO (Italy)
Tax Number:                                  11887610159
VAT Number:                                  IT 11887610159
Milan Company Register:                      n.11887610159
REA:                                         1506630
Share capital:                               € 43,609,036.42 fully paid


Borsa Italiana Code:                         MLM
ISIN:                                        IT0001080248
Ticker Reuters:                              MLMD.MI
Ticker Bloomberg:                            MLM IM
Circulating shares:                          210,541,926
                                             (100% ordinary shares with no par value)




Disclaimer
This financial report may contain certain forward-looking statements. Although the company
believes its expectations are based on reasonable assumptions, these forward-looking statements
are subject to numerous risks and uncertainties, including scientific, business, economic and
financial factors, which could cause actual results to differ materially from those anticipated in the
forward-looking statements. The company assumes no responsibility to update forward-looking
statements or adapt them to future events or developments. This document does not constitute an
offer or invitation to subscribe or purchase any securities of MolMed S.p.A.




                                                Page 3
                                                                    Statutory Financial Statements at
                                                                                   31 December 2011




Corporate Bodies


Board of Directors
Chairman and Chief Executive Officer               Claudio Bordignon
Directors                                          Luigi Berlusconi
                                                   Silvio Bianchi Martini (independent)
                                                   Maurizio Carfagna
                                                   Paolo M. Castelli
                                                   Riccardo Cortese (independent)
                                                   Marina Del Bue
                                                   Alessandro De Nicola (independent)
                                                   Massimiliano Frank
                                                   Sabina Grossi
                                                   Alfredo Messina
                                                   Maurizia Squinzi
                                                   Maurizio Tassi
The Board of Directors, appointed by the Shareholders’ Meeting held on April 26, 2010, will remain in charge
until the date of the Shareholders’ Meeting convened to approve the Financial Statements as of December 31,
2012.
On February 6, 2011, Maurizia Squinzi was appointed as member of the Board, in replacement of Renato Botti
who resigned on November 4, 2011.


Board of Statutory Auditors
Chairman                                           Fabio Scoyni

Statutory Auditors                                 Antonio Marchesi
                                                   Enrico Scio
Substitute Statutory Auditors                      Alberto Gallo
                                                   Francesca Meneghel
The Board of Statutory Auditors, appointed by the Shareholders’ Meeting held on April 26, 2010, will remain in
charge until the date of the Shareholders’ Meeting convened to approve the Financial Statements as of
December 31, 2012.


Internal Control Committee()
Chairman                                           Silvio Bianchi Martini (independent Director)
Members                                            Alessandro De Nicola (independent Director)
                                                   Maurizio Tassi (Director)
() By Board resolution of November 11, 2010, the Internal Control Committee also carries out the functions of
Committee for Transactions with Related Parties.


Remuneration Committee
Chairman                                           Alessandro De Nicola (independent Director)
Members                                            Riccardo Cortese (independent Director)
                                                   Sabina Grossi (Director)


External Auditing Firm
Deloitte & Touche S.p.A.



                                                   Page 4
                                                               Statutory Financial Statements at
                                                                              31 December 2011




Scientific Advisory Board
MolMed’s Scientific Advisory Board (SAB), chaired by Professor Claudio Bordignon, is an independent
advisory body, peculiar of Companies where the quality of projects is determined by the value of
their scientific contents. The SAB contributes significantly to MolMed’s decisions on its R&D pipeline
by providing guidance on novel therapeutic strategies, as well as external assessment of results
obtained.

MolMed’s Scientific Advisory Board combines the knowledge and experience of leading international
scientific experts. Its membership includes:
 Claudio Bordignon, Chairman - Member of the Scientific Council of the European Research
  Council, and full Professor of haematology at the University Vita-Salute San Raffaele in Milan
  (Italy)
 Carl-Henrik Heldin - Branch Director of the Ludwig Institute for Cancer Research in Uppsala
  (Sweden), and Professor of Molecular and Cell Biology at Uppsala University
 Robert Kerbel - Senior Scientist in the Molecular and Cellular Biology Research Program at the
  Sunnybrook Health Sciences Centre in Toronto (Canada), Professor in the Departments of Medical
  Biophysics and of Laboratory Medicine & Pathobiology at the University of Toronto, and Canada
  Research Chair in Tumour Biology, Angiogenesis and Antiangiogenic Therapy
 Alberto Sobrero - Head of the Medical Oncology Unit at the clinical centre Ospedale San Martino
  in Genova (Italy), and member of the Protocol Review Committee of the European Organisation
  for Research and Treatment of Cancer (EORTC)
 Didier Trono - Deputy Director of the Swiss National Science Foundation’s “Frontiers in Genetics”
  area, and Professor and Dean of the School of Life Sciences at the École Polytechnique Fédérale in
  Lausanne (Switzerland)

The professional profiles of the members of the Scientific Advisory Board are available on the
Company website (www.molmed.com).




                                                Page 5
                                                                Statutory Financial Statements at
                                                                               31 December 2011




Letter to the Shareholders

Dear Shareholders,
We are pleased to report the progress made in 2011.
Regarding clinical development, we presented for NGR-hTNF new Phase II data in three indications,
ovarian cancer, small-cell lung cancer and non-small cell lung cancer; altogether, the clinical data
obtained provide additional evidence on the antitumour activity of the molecule. For TK, we
presented additional data showing restoration of a fully functional immune system in high-risk
leukaemia patients treated with our cell-based therapy; the same benefit has been observed also in
the first patients enrolled in the ongoing Phase III trial.
As planned, we pursued the international expansion of our two ongoing pivotal Phase III trials, with
24 centres in Europe, the US, Canada and Egypt participating in the trial of NGR-hTNF in
mesothelioma. In the trial of TK for high-risk leukaemia patients, 7 centres in Italy, Germany,
Greece and Spain are participating, and IND clearance was received from the FDA. Unfortunately,
additional and higher than expected regulatory requirements in some countries of the European
Union have delayed patient enrolment; therefore, MolMed plans to include additional centres
besides the 15 centres originally planned.
In line with our objective to maintain a constant dialogue with the regulatory authorities, we held
three meetings with the FDA - two regarding NGR-hTNF and one regarding TK - and one meeting with
the EMA regarding TK.
I would also like to highlight the importance of our collaboration with Telethon Foundation and
GlaxoSmithKline. These agreements represent a major recognition of our long-standing expertise in
the field of gene therapy treatments for different pathologies, leading to a positive impact on our
revenues which is expected to continue in 2012.
The increase in operating costs was expected and is mostly related to the progress of clinical trials
of NGR-hTNF and its industrial manufacturing process, as well as to the intensification of our GMP
production activities on behalf of third parties. Taking into account a strict control of our costs, we
managed to close the year with a positive net financial position of € 38.7 million.
In 2012, we will maintain our focus on advancing the development of our investigational therapies
NGR-hTNF and TK, while we will continue to expand the provision of strategic services in cell and
gene therapy.
Dear Shareholders, even though important milestones were achieved, we have not yet completed
our mission, which is that of bringing our investigational therapeutics to the market and respond to
critical patients’ needs.
On behalf of all my collaborators and myself, let me assure you that we will continue our full
commitment and devote our energies to achieve this objective, both in the interest of patients and
shareholders.
Finally, I would like to thank you All for the confidence and support you have granted us so far.

[Signed by]
Claudio Bordignon
Chairman and Chief Executive Officer




                                                Page 6
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




Report on operations

1.      CORPORATE INFORMATION

MolMed is a medical biotechnology company established in 1996, focused on research, development
and clinical validation of innovative therapies to cure cancer. Since March 2008, MolMed is a public
company listed on the Milan Stock Exchange - Standard segment, class I - of the MTA managed by
Borsa Italiana.
MolMed was born as a spin-off of the San Raffaele Institute, based on its core knowledge in the field
of gene and cell therapy applied to rare genetic diseases and to haematological malignancies, with
the first clinical trials on patients suffering from leukaemia. From year 2000, it started its evolution
from service to product company, with a primary focus on novel anticancer therapies. Today, MolMed
is an established business, with the capability to cover all functions of a biotech product company,
from basic research to production, up to the carrying out of proof-of-concept clinical trials of its
investigational therapies.
MolMed’s approach to cancer therapy is characterised by an integrated strategy, aimed on one side at
identification and development of bio-pharmaceuticals reducing the tumour mass and slowing down
its growth, and on the other side at the development of highly selective therapies to eliminate
residual tumour tissue.
MolMed has a unique pipeline in terms of novelty, diversification of therapeutic approaches and
technological peculiarity. Its investigational therapies are new, completely original, first-in-class
candidate products building up new therapeutic classes.
MolMed is based in Milan, within the San Raffaele Biomedical Science Park. This location offers
important advantages, allowing MolMed to integrate its own R&D capabilities with the cutting-edge
scientific, technological and clinical resources of its host institution. In particular, MolMed holds an
option right to all IP generated from research projects run by the San Raffaele Scientific Institute in
the field of gene and molecular therapy of cancer and AIDS.
At international level, since 2003 MolMed has entered into a strategic alliance with Takara Bio, an
important Japanese biotechnology company listed on the Tokyo Stock Exchange, through a co-
development and out-licensing agreement for MolMed’s cell-based therapies in major Asian markets.
MolMed’s mission is to concentrate commitment and resources on the development of new cures for
cancer by combining scientific and research excellence with a high effectiveness of business
management, focused on a clear industrial project.




                                                Page 7
                                                                       Statutory Financial Statements at
                                                                                      31 December 2011




2.        FIGHTING CANCER

2.1       A global challenge
MolMed’s activities are focused on medical oncology, the therapeutic area devoted to cancer
treatment. Cancer (i.e. tumour or neoplastic disease) is any type of malignant cell growth caused by
abnormal and uncontrolled local cell proliferation that can have origin in different tissues, and its
spread to other organs through the lymphatic system or the blood stream, giving origin to
metastases.
In fact, cancer is actually a wide and heterogeneous group of diseases, made up of over 200 different
types of tumour, commonly divided into two broad categories: solid tumours, and blood tumours (or
haematological malignancies).
Conventional treatment options available for solid tumours are surgery, radiotherapy and
pharmacotherapy (or chemotherapy). Early surgical removal is potentially curative for some tumour
types. But sometimes surgical treatment proves not to be sufficient, and the surgical option is
unavailable for patients with advanced and/or metastatic disease. In this case, available options are
only radio- and pharmacotherapy, often used in sequential combination. For haematological
malignancies (e.g. leukaemia and lymphomas), radio- and pharmacotherapy are often followed by
transplants of haematopoietic stem cells.
Within pharmacotherapy, the most commonly used regimens are based on cytotoxic agents, known as
chemotherapies and characterised by high toxicity, lack of specificity and loss of efficacy over time,
leading patients to undergo a particular line of treatment until they become refractory or reach the
maximum tolerated cumulative toxicity, and then having to switch to another line of treatment
(when available).
Clinical benefits limited over time and high levels of toxicity of current standard treatments translate
into a significant level of unmet medical need in oncology, making it an area of high intensity in
terms of research and development investments, with high potential for new therapies based on a
better understanding of the mechanisms implied in tumour genesis and growth, and thus able to
provide increased selectivity, reduced toxicity, enhanced therapeutic efficacy and improved survival
of patients.
Currently, oncology is the largest segment of the global pharmaceutical market, and it is also the one
with the fastest growth1. In Europe, the United States and Japan, cancer is the second most common
cause of death, and recently a rise in incidence has been observed. This phenomenon is due to a
combination of several factors, first of all to the ageing of the population worldwide: this leads per
se to an increased incidence of cancer, as the risk of all tumours increases with age. Moreover, as
treatments for cancer become more effective at prolonging patient survival, the number of patients
living with the disease expands.
The very high level of unmet medical need in oncology has driven the emergence of the so-called
innovative therapies, either biologics or anyway biotechnology-derived. Such innovative therapies
have as a common trait the fact of being specific and/or targeted, i.e. directed at specific molecular
targets involved in tumour genesis and/or tumour growth, and thanks to their targeted action they
have a remarkably lower systemic toxicity as compared to conventional regimens.
The molecular targets of novel therapeutics may be tumour type-specific, or common to different
tumour types, or specific to the blood vessels feeding the tumour mass or to the factors supporting
their formation and growth: in the second and third case, they offer the potential for application of a
therapy in several different oncology indications.
Novel targeted therapies often can act both as single-agent alternatives, and as enhancers of or in
synergy with existing treatments. The current focus in tumour therapy improvement is to use a
combination of different classes of agents rather than a single therapeutic approach: the introduction
of next-generation biotech-derived cancer therapies could enable further extension of patients’


1
    Source: “IMS Health Top 15 Global Therapeutic Classes 2008”, IMS Health, 2009.

                                                     Page 8
                                                                                                        Statutory Financial Statements at
                                                                                                                       31 December 2011




survival and improvement of their quality of life, eventually reducing tumours from rapidly
progressing and life-threatening diseases to well-managed chronic pathologies.
The investigational therapeutics developed by MolMed belong to the context of novel anti-tumour
biologics.


2.2                                     MolMed’s investigational therapeutics address severe oncology indications
                                        with high unmet medical need
MolMed’s activities are primarily focused on identification, characterisation, and preclinical, clinical
and pharmaceutical development of novel therapies for tumours with very different patterns and
very different levels of incidence: however, they all share the common traits of severity and actual
need of new therapeutic options.
                                                  700,000
                                                                     Colon-rectum
      (Europe, North America, Japan, Australia)




                                                  600,000

                                                                                                           Lung             No or few therapeutic
                                                  500,000                                                 (NSCLC)           options available or in
                                                                                                                            development:

                                                  400,000                     NGR-hTNF
                                                                              NGR-hTNF                                           First/second line
                      Incidence




                                                                                                                                 Third/fourth line
                                                  300,000
                                                                                                                                 Orphan Drug
                                                                                                                                 designation in EU & US
                                                                                                           Lung
                                                  200,000                                                 (SCLC)
                                                                                            Leukaemia               Liver

                                                  100,000                           Ovary
                                                                            Sarcomas1                               Mesothelioma1
                                                       0                                            TK
                                                                                                    TK
                                                            0.00   0.33                      0.67                      1.00
                                                                     Mortality/incidence ratio
                                                                   Unmet medical need

  Figure 1. Indications addressed by of MolMed’s investigational therapies in ongoing clinical trials
  Sources: Globocan Database 2008; 1MolMed estimate

On one hand, MolMed is addressing tumours considered to be uncommon - although with ever-growing
incidence because of exposure to environmental conditions that contribute to disease onset - that
have no or very few therapeutic options available, such as high-risk leukaemia, malignant pleural
mesothelioma, primary liver cancer, small-cell lung cancer (SCLC) and soft-tissue sarcomas.
On the other hand, clinical investigation of MolMed therapies includes much more widespread
indications, thus having indeed a much wider range of treatments available or in development - such
as colorectal, ovarian and non-small cell lung cancer (NSCLC) - but with many patients becoming
either intolerant (because reaching cumulative toxicity) or refractory (because of loss of disease
control over time) to all possible treatment lines. For these heavily pre-treated patients with no
efficacious treatment lines left, MolMed devotes its efforts to offer a new therapeutic option.
To successfully address the cure of each of these tumours, MolMed is developing two distinct
investigational therapies. Both are new, entirely original and giving origin to novel therapeutic
classes, but each of them is relying on a different technological approach:
 TK, a cell therapy product for blood tumours: this approach is aimed at making available to all
  patients the curative potential of transplants of haematopoietic stem cells derived from the bone
  marrow of a healthy donor, that is currently feasible in a safe and effective way only if the donor
  is fully compatible with the patient, a condition that can be satisfied only for approximately 50%
  of candidates to the transplant;


                                                                                Page 9
                                                                     Statutory Financial Statements at
                                                                                    31 December 2011




 NGR-hTNF, a biological drug targeting blood vessels for solid tumours: this approach is based on
  the use of a highly selective vascular targeting agent whose molecular target is a structure which
  is only present on blood vessels that feed the tumour mass. The antivascular effect of the drug
  cuts off supplies of oxygen and nutrients to the tumour, thus blocking its growth.


3.        PRODUCT PIPELINE

MolMed’s product pipeline is headed by the two investigational anticancer therapies TK and NGR-
hTNF. Further advancement of the clinical and pharmaceutical development of these two
investigational products has been the chief focus of activities carried out by the Company functions
in year 2011.
Product         Indication                  Trial code                    Phase I       Phase II    Phase III
                High-risk leukaemia         TK007, TK008 random.
TK
                Leukaemia (Japan/Takara Bio)
                Solid tumours  MTD         EORTC 16041
NGR-hTNF        Solid tumours – low dose    NGR002
                Solid tumours – high dose   NGR013
                Colorectal cancer           NGR006
Monotherapy Liver cancer                    NGR008
                Mesothelioma                NGR010, NGR015 random.
                Mesothelioma/maintenance NGR019 random.
+ doxorubicin Solid tumours                 NGR003
                Lung cancer/SCLC            NGR007
                Ovarian cancer              NGR012
                Ovarian cancer              NGR018 random.
                Soft tissue sarcomas        NGR016 random.
+ Xelox         Colorectal cancer           NGR005
                Solid tumours               NGR004
+ cisplatin
                Lung cancer/NSCLC           NGR014 random.
                                                                              ongoing              completed
     Figure 2. MolMed clinical development pipeline at 31 December 2011


3.1       TK - A cell-based therapy for the treatment of leukaemia
TK is an investigational cell therapy product based on genetically engineered cells, allowing more
safe and effective transplant of haematopoietic stem cells (HSCT) even from a partially compatible
donor, thus opening to all patients the door of this practice, which is the only potentially curative
treatment available, especially for high-risk leukaemia.
HSCT allows regenerating the haematopoietic and immune system of a leukaemic patient, which is
severely compromised by the disease and by the radiotherapy and pharmacotherapy endured before
the transplant; but it needs time - several months - in order to give origin to the mature cells
characterising a fully functional immune system. In the meantime, the patient lacks any defence
against both infections and possible disease relapse, so it is in absolute need of a vicarious
protection: when the donor is fully compatible, this can be provided by donor T cells, thanks to their
ability to fight infections and to detect and eliminate residual leukaemic cells. But, at present, donor
T cells cannot be used as vicarious protection when the donor is only partially compatible with the
patient, because in this case they become a double-edged sword: on one hand, they provide an
effective immunotherapeutic benefit against infections and leukaemia relapse, but on the other hand
they carry a very high risk of eliciting an attack to the normal tissues of the patient, known as graft-
versus-host disease (GvHD), that can produce very serious damage. This risk has so far prevented the

                                                     Page 10
                                                                            Statutory Financial Statements at
                                                                                           31 December 2011




use of donor T cells as add-backs to HSCT in all cases of partial incompatibility between donor and
recipient, thus making the transplant option unavailable for approximately the half of leukaemia
patients.
TK therapy was designed in order to allow keeping the protective action of donor T cells, which is
vital for the transplant to be really successful, even in the case of partial incompatibility between
donor and recipient. This is achieved by the genetic engineering of donor T cells, in order to endow
them with a selective elimination system acting only on the cells actively involved in a GvHD
reaction.
To this end, donor T cells are transduced with a gene (TK) making them sensitive to the common
antiviral drug ganciclovir. In the case of GvHD onset, T cells involved in the aggression can be
promptly eliminated by administering the drug at the very first symptoms. Thus, TK allows to take
advantage of the vicarious protection of a fully functional immune system provided by donor T cells,
while the new immune system entirely reconstitutes from the transplanted haematopoietic stem
cells, and therefore it opens the door of HSCT to all patients, since a partially compatible family
donor is available for nearly every candidate to the transplant.
TK was granted Orphan Drug designation both in the European Union and in the United States.


                                               Hospital
               Donor                                                                   Protection from
           haematopoietic                                                              infections
             stem cells                                                   TK cells
                      Haemat.
                                  Day 0                         Day 21+
                     stem cells                                             TK cells
                                                                                       Protection from
                                                                                       leukaemia relapse

                                                                                       No immune-suppression
          Haplo-                                                                       needed
         identical
                                                                                       (prompt abrogation of
           donor                          MolMed GMP facility                          GvHD by administration of
                                  Genetic engineering of donor T cells                 ganciclovir)

                      T cells




                     Donor
                                                  HSV-TK
                     T cells


  Figure 3. Overview of TK therapy application in HSC transplant from a partially compatible donor

In 2011, MolMed started the international expansion of Phase III trial (TK008) for the treatment of
high-risk leukaemia in adult patients undergoing HSCT from partially compatible donors (haplo-HSCT).
TK008 is a pivotal trial - which will compare the outcome of haplo-HSCT with or without TK add-
backs, with a randomisation ratio of 3:1 in favour of TK add-back - aimed at assessing efficacy and
safety of TK in its final formulation, in compliance with regulatory requirements in view of
registration and market launch. The trial is expected to involve 15 centres in several European
countries, Israel and the US.
In 2011, MolMed obtained clearance of the IND filed with the U.S. Food and Drug Administration (FDA)
to include patients enrolled in U.S. clinical centres in Phase III trial TK008. Following a meeting with
the FDA, the new trial design has been confirmed with a wider primary end-point, i.e. disease-free
survival - which includes also disease relapse in addition to transplant-related mortality - evaluated
on a patient population increased to 170 patients. Secondary end-points include overall survival,
reduction of transplant-related mortality associated with the haplo-HSCT procedure, safety and
patients’ quality of life.
At European level, in 2011 patient recruitment in the trial continued in Italy, and two clinical centres
were activated in Spain and Greece, with recruitment of the first patient in Spain. So far,
recruitment in the trial has been slower than expected due to additional regulatory requirements of

                                                           Page 11
                                                                  Statutory Financial Statements at
                                                                                 31 December 2011




some EU Member States, which delayed the activation of clinical centres. Taking also into account
the increased number of patients, the planned regulatory submissions have be postponed
accordingly, since the primary analysis is expected not before 2013. (Trial identifier in
clinicaltrials.gov: NCT00914628).
Results of a completed Phase II trial (TK007), published by The Lancet Oncology2, demonstrated that
TK add-backs after haplo-HSCT allow to achieve a rapid and efficient immune-reconstitution in adult
patients affected by high-risk leukaemia, substantially reducing transplant-related mortality and
leading to long-term disease-free survival. In 2011, new clinical data from the long-term monitoring
of the trial were presented3, giving evidence of the clinical benefit following treatment with TK:
patients treated - including the first patients enrolled in the ongoing Phase III trial - show restoration
of a fully functional immune system. Data presented in December 2011 at ASH show - in patients
treated with TK cells - a regeneration and renewed functionality of the thymus, which results into
circulation of T cell precursors mediating a robust and specific immune protection. This effect is due
to TK cells, which stimulate the production and release of interleukin-7, an important mediator in
the development of the immune system: without TK cells engraftment no rise in levels of interleukin-
7 is observed and no immune-reconstitution is achieved.
The IP coverage of TK progressed in 2011 with the grant of a key European patent (EP1781789)
covering the gene forming the basis of TK. This new composition of matter patent, part of a large
patent family owned by MolMed, covers a non-splicing variant of the HSV-TK gene, i.e. a variant that
is transcribed in a stable and unmodifiable manner. The patent affords protection until 2025 with the
possibility of a 5-year term extension, and gives right to market exclusivity in 29 designated countries
within the European Patent Convention, including all major countries of the European Union,
Switzerland and Turkey. Equivalent patent applications are pending in the United States, Japan and
important emerging markets. Moreover, in 2011 MolMed was granted another European patent
(EP1743029) covering a closed system for the production of TK cells, with the same terms of validity
and the same geographic coverage.
Concerning TK manufacturing, in 2011 MolMed continued the project for the development of an
automated production process, carried on in collaboration with Areta International S.r.l. and
Datamed S.r.l. The enjoys a non-refundable grant of approximately Euro 1.4 million awarded by
Regione Lombardia - of which MolMed’s share is Euro 449,000 - that will partially cover the R&D costs
incurred for a period of 36 months. Areta is in charge of the development and implementation of an
optimised production and purification process for the monoclonal antibody used for the selection of
TK cells, while Datamed carries out design and optimisation of the automated system modules and
related engineering work.
Abstracts of the key publications concerning TK, as well as posters of clinical results, are available on
MolMed’s website (www.molmed.com).


3.2       NGR-hTNF - A biological drug targeting tumour blood vessels for the
          treatment of solid tumours

NGR-hTNF is a selective vascular targeting agent characterised by a unique mode of action, and is
first-in-class in the class of peptide-cytokine complexes targeting tumour blood vessels. It is a
homotrimeric protein, where each of the three subunits is formed by combining a tumour homing
peptide (NGR) with the human cytokine Tumour Necrosis Factor (hTNF). NGR targets a particular
receptor complex including CD13, selectively expressed by endothelial cells of human tumour vessels.
NGR-hTNF acts specifically on blood vessels feeding the tumour mass, inducing an anti-vascular
effect that allows, inter alia, an improved penetration into the tumour tissue of other anticancer
drugs administered in combination, thereby enhancing their therapeutic effectiveness. Therefore,
NGR-hTNF can be used both as new single-agent therapeutic option, and in combinations with most
cytotoxic-based chemotherapeutic regimens currently available.



2
    Ciceri, Bonini et al, Lancet Oncol. 2009 May 1;10:489-500
3
    ASCO 2011, poster # 6526; ASH 2011, poster # 1968

                                                      Page 12
                                                                  Statutory Financial Statements at
                                                                                 31 December 2011




Unlike all other drugs commonly classified as vascular targeting/disrupting agents (VTAs/VDAs), NGR-
hTNF appears to exert its antivascular and antitumour activity without inducing harmful counter-
regulatory mechanisms: neither increase at the tumour site of bone marrow-derived cell infiltrates
nor increase in circulating growth factors are induced, i.e. two phenomena that stimulate
angiogenesis, post-therapy tumour re-growth and metastasis.




                                                                   Human TNF (hTNF):
                                                                     powerful antitumour activity
                                                                     Approved only for loco-
                                                                     regional treatment – systemic
                                                                     use hampered by toxicity
                                                                     Destroys blood vessel
             Cyclic CNGRCG peptide:                                  functions
             selectively binds receptor CD13,
             expressed on the surface of
             newly formed tumour blood vessels



    Figure 4. The NGR-hTNF molecule: properties of its moieties

The clinical development of NGR-hTNF includes clinical trials both as monotherapy and in
combination with different chemotherapeutic regimens, in a total of seven indications: colorectal,
liver, small-cell lung, non-small-cell lung and ovarian carcinomas, soft tissue sarcomas and malignant
pleural mesothelioma. For mesothelioma and liver cancer, NGR-hTNF has received Orphan Drug
designation both in the U.S. and in the European Union, where it is now listed in the Register of
orphan medicines for human use under the code EU/3/08/549 for malignant mesothelioma, and
under the code EU/3/09/686 for primary liver cancer. Clinical data obtained by MolMed to date
demonstrate the antitumour activity of NGR-hTNF in six different types of solid tumours; these
include two orphan indications as well as more widespread diseases, which altogether account for
more than 1.4 million new cases each year in Europe, North America and Japan.
In 2011, MolMed implemented the international expansion of pivotal Phase III trial (NGR015) for the
treatment of malignant pleural mesothelioma, with 24 centres participating in Europe (Italy, the UK,
Ireland and Poland), the US, Canada and Egypt. 124 patients were enrolled at 31 December 2011. The
trial is expected to include more than 40 centres worldwide, with primary data analysis expected in
2013. NGR015 is a randomised, double-blind, placebo-controlled trial, expecting to enrol 390 adult
patients affected by malignant pleural mesothelioma with disease progressing after a pemetrexed-
based chemotherapy. The primary endpoint of the trial is overall survival; secondary endpoints
include progression-free survival, disease control rate, safety profile and patient quality of life.
In 2011, new data of five clinical trials of NGR-hTNF were presented:
 First results of a randomised Phase II trial of NGR-hTNF in combination with cisplatin-based
  chemotherapy as first-line treatment for non-small cell lung cancer4.In this ongoing trial,
  MolMed presented interim data for safety and preliminary antitumour activity on the first 100
  patients enrolled, showing evidence of clinical improvement in terms of disease control and
  duration of progression-free survival as compared to chemotherapy alone, particularly in younger
  patients and in patients with squamous cell histology. Absence of pulmonary haemorrhage or
  bleeding events (which are associated to the use of antiangiogenic drugs in patients with
  squamous cell histology) was also confirmed. Patient recruitment is continuing beyond the initially
  planned population of 102 patients in order to ensure the inclusion of an adequate number of

4
    EMCC 2011, poster # 9014; ASCO 2011, poster # 7568

                                                     Page 13
                                                                    Statutory Financial Statements at
                                                                                   31 December 2011




    patients with squamous cell histology for a deeper primary analysis in this tumour subtype.
    Availability of trial results is expected in 2012 and will be one of the key determinants for
    selection of the second indication to take to Phase III, after mesothelioma. As a consequence, the
    start of a Phase III trial in a second indication is expected in 2012.
 Follow-up of a completed Phase II trial of NGR-hTNF in combination with doxorubicin for the
  treatment of relapsed ovarian cancer5. The primary endpoint - six partial responses on the entire
  study population - was met after the recruitment of less than half of the patients. The primary
  endpoint of the trial - six partial responses in the entire study population - was met after
  enrolment of less than half of patients. Long term follow-up data show that disease control was
  achieved in 50% of patients resistant/refractory to prior platinum-based regimens, with a median
  duration of 5.0 months, and in most patients partially sensitive to prior platinum-based therapy,
  with a median duration of 7.8 months. Resistant/refractory patients with a normal immune
  response (measured as normal/high baseline lymphocyte counts) experienced a prolonged clinical
  benefit, with median progression-free survival of 4.9 months and median overall survival of 15.8
  months. On the basis of this positive outcome, MolMed has started a randomised Phase II trial
  (NGR018).
 Follow-up of a completed Phase II trial of NGR-hTNF in combination with doxorubicin for the
  treatment of relapsed small-cell lung cancer6. Disease control was achieved in more than half
  the patients, with similar antitumour activity in terms of disease regression in both chemo-
  sensitive and chemo-refractory patients. Prolonged clinical benefit was also observed in patients
  heavily pre-treated with two or more prior therapies. Patients with a normal immune response
  (i.e. normal/high baseline lymphocyte counts) had an almost double median overall survival time
  (8.4 months) compared to patients with a weak immune response (4.6 months).
 Long-term follow up of a completed Phase II trial in malignant pleural mesothelioma7. the
  long-term analysis confirms a strong advantage of the weekly over the tri-weekly administration
  schedule in prolonging disease control: the 2-year survival rate was three-fold higher considering
  the entire patient population and five-fold higher in patients who achieved disease control at the
  first tumour re-assessment. In both cohorts, patients who achieved disease control at the first
  tumour re-assessment and continued therapy had a double median survival time with respect to
  patients who progressed at the first tumour re-assessment and consequently discontinued
  treatment (16.7 v 8.3 months). On the basis of these evidences, MolMed started a randomised
  Phase II trial (NGR019) of NGR-hTNF as first-line maintenance therapy.
 Outcome of a Phase I and pharmacodynamic trial of NGR-hTNF at high doses8. This trial tested
  the administration of NGR-hTNF at escalating dose levels higher than the previously established
  maximum tolerated dose. Results of the dose escalation up to 325 μg/m2 showed that NGR-hTNF
  can be safely administered by using a prolonged (2-hour) infusion time and a mild pre-medication
  with paracetamol. The trial plans to explore further dose escalation. Antivascular effects were
  registered by dynamic imaging (DCE-MRI) in 80% of patients.
As previously recalled, in 2011 MolMed started two new randomised Phase II trials: a double-blind,
placebo controlled trial as monotherapy for first line maintenance treatment in patients affected by
malignant pleural mesothelioma who completed the pemetrexed-based chemotherapy (NGR019), and
a trial in combination with pegylated liposomal doxorubicin in ovarian cancer refractory/resistant to
prior platinum-baed regimens (NGR018). Moreover, recruitment progressed in a randomised Phase II
trial (NGR016) for the treatment of soft tissue sarcomas, investigating the administration of NGR-
hTNF either as monotherapy or in combination with doxorubicin.
In February 2011, the positive outcome of a Phase I trial (NGR004) in combination with cisplatin,
leading the way to the ongoing randomised Phase II trial in non-small cell lung cancer, was published
as a full paper by Clinical Cancer Research9.


5
  EMCC 2011, poster # 8030: ASCO 2011, poster # 5022
6
  EMCC 2011, poster # 9103; ASCO 2011, poster # 7077
7
  ASCO 2011, poster # 7089
8
  EMCC 2011, oral presentation # 1205; ASCO 2011, poster # 2522
9
  Gregorc V. et al, Clinical Cancer Research 2011; doi:10.1158/1078-0432.CCR-10-1376

                                                   Page 14
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




Posters and presentations of the results of NGR-hTNF clinical trials, as well as abstracts - or full-text
in the case of open-source articles - of the key publications on NGR-hTNF are available on MolMed’s
website (www.molmed.com).
In terms of manufacturing, scale-up and formulation, NGR-hTNF is a fusion protein suited for
industrial development; it is produced by recombinant DNA technology in the host bacterium
Escherichia coli with a fermentation process. Manufacturing of the protein - representing the bulk
drug substance, i.e., the active pharmaceutical ingredient, or “API” - and of the drug product in its
final formulation are outsourced to external specialised CMOs. To date, a total of nine GMP batches
of NGR-hTNF have been produced: seven batches of bulk drug substance were used for Phase I and
Phase II trials, and the last two batches of bulk drug substane yielded two batches of drug product to
cover Phase III trials. MolMed is currently working on further scale-up of the manufacturing process
for commercial production of the drug, following the same outsourcing strategy.


3.3     Vascular/tumour targeting programme

NGR-IFN
NGR-hTNF is the first molecule resulting from MolMed’s vascular/tumour targeting programme. A
second compound issued from this programme, again formed by the combination of the NGR peptide
with a cytokine, is NGR-IFN, associating NGR with the cytokine interferon-, now in preclinical
development.
Similarly to NGR-hTNF, NGR-IFN shows a targeted location on newly formed tumour blood vessels,
mediated by interactions between the two moieties of the molecule - the NGR peptide and IFNγ - and
both their receptors, CD13 and IFN-R, while no location on healthy tissues has been observed. In
animal models, antitumor activity was observed in the absence of significant toxic effects, and
especially an antitumour activity at low dose in mouse models of lymphoma, colon cancer and
prostate cancer: in the latter, a prolonged survival was observed following multiple injections of
NGR-IFN.

New molecules
In view of feeding MolMed’s anticancer pipeline, the programme is currently carrying on the
exploration of other possible targeting molecules, either to tumour blood vessels or to other tumour
targets including cancer cells, and of effector molecules with strong anti-tumour activity. The
programme plans to identify and validate targeting moieties and appropriate effector moieties to be
conjugated or used in combination. So far, three new targeting molecules (targeting peptides) have
been identified, characterised by specificity for vascular or tumour targets and high stability;
moreover, some molecules with anti-tumour properties have been selected, including a class of
kinase inhibitors.




                                                Page 15
                                                                Statutory Financial Statements at
                                                                               31 December 2011




4.      DEVELOPMENT AND GMP PRODUCTION ACTIVITIES

Over the years, MolMed has developed a specific expertise in the field of gene and cell therapy,
including the use of stem cells for the treatment of different pathologies and tissues, positioning the
Company among the leading players at international level. The area “GMP Solutions” provides tailor-
made services to third parties for cell and gene therapy projects, offering top-level expertise to
develop, conduct and validate custom studies from preclinical to Phase III trials, devising innovative
testing procedures and addressing the unique test specifications required for novel cell-based
therapeutics. MolMed holds leading expertise in development, manufacturing and clinical trials of ex
vivo cell and gene therapeutics, including scale-up and cGMP production of clinical-grade viral
vectors, and manufacturing of patient-specific genetically engineered cells.
In 2011 there were important achievents in this area, with the signature of two agreements for
development and production of novel gene therapy treatments for seven rare genetic diseases, all
caused by a single defective gene, thus making it possible to develop a potential cure by inserting the
correct form of the gene into the patient’s own stem cells derived from the bone marrow, through ex
vivo gene transfer technology.
In March 2011, MolMed signed an agreement with the Telethon Foundation to develop and
manufacture novel gene therapy treatments for four more rare genetic diseases, in addition to
pursuing the production of investigational gene therapies for the treatment of metachromatic
leukodystrophy (MLD) and of Wiskott-Aldrich syndrome (WAS), started under a previous agreement.
The four new diseases involved are beta-thalassemia, mucopolysaccharidosis type I (MPS I), globoid
leukodystrophy (GLD) and chronic granulomatous disorder (CGD). Under the agreement, providing for
MolMed up to € 8.3 million in revenues over a 4-year period, MolMed will develop and produce clinical
grade lentiviral vectors carrying the relevant therapeutic gene and manufacture patients’ cells to be
investigated in clinical trials, already ongoing for MLD and WAS since 2010.
In August 2011, MolMed signed an agreement with GlaxoSmithKline (GSK) to develop a retroviral
vector-based production process for the investigational gene therapy of ADA-SCID, a severe form of
immunodeficiency (the so-called “bubble boy disease”). This gene therapy, which is in late stage
clinical trials, has been developed by the San Raffaele Telethon Institute for Gene Therapy (HSR-
TIGET) and was in-licensed by GSK for further development and commercialisation. The agreement is
worth up to € 5.5 million in revenues over a two-year period.
These activities on behalf of Telethon and GSK are consolidating the Company's leadership in the
field and is producing a significant increase in revenues, as well as providing new opportunities for
innovative partnerships in the context of cell-based therapies.

4.1     Development
Development activities, conducted by staff with high experience in the fields of cell biology,
molecular biology and virology, involve design and optimisation of processes and analytical methods
in order to transfer methods from the lab to GMP production. In this context, development projects
currently include implementing a technology platform for the large-scale, semi-stable and stable
production of lentiviral vectors.
In 2011, new activities were started related to development of investigational gene therapy
treatments:
 development activities for the production of lentiviral vectors to be used in clinical trials of gene
  therapy treatments for beta-thalassemia and mucopolysaccharidosis type I, as well as support
  activities for the GMP validation of such vectors. These activities were carried out under the new
  agreement with the Telethon Foundation;
 characterisation of two cell lines for the production of retroviral vectors to be used in
  manufacturing of ADA-SCID gene therapy, and development of analytical methods for GMP
  production of such vectors. These activities were carried on under the agreement with
  Glaxosmithkline.



                                               Page 16
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




Moreover, activities carried on in 2011 included pursuing projects ongoing since 2010:
 development of a stable packaging cell line prototype for the production of third-generation
  lentiviral vectors;
 development activities related to the production of lentiviral vectors to be used in clinical trials of
  gene therapy for MLD and WAS, and support to their GMP validation. These activities were carried
  on under the previous and the new agreement with the Telethon Foundation;
 scale-up of mesangioblast cell cultures for the subsequent GMP production phase, under the EU-
  FP7 co-funded project OPTISTEM;
 development and optimisation of the production process of lentiviral vectors for in vivo preclinical
  studies, under the EU-FP7 co-funded project PERSIST;
 development and optimisation of the production process of lentiviral vectors and transduction of
  haematopoietic stem cells for in vivo preclinical studies, under the EU-FP7 co-funded project
  CELL-PID.

4.2     GMP production
MolMed has been granted the status of Drug Company by the Italian healthcare authority AIFA
(Agenzia Italiana del Farmaco), and runs an in-house GMP facility authorised for the production of
cell-based medicinal products used in clinical trials, and qualified to support all stages of drug
development of cell-based therapies, including pivotal clinical trials.
The facility - which includes six aseptic rooms, five production rooms, one quality control room,
separate areas dedicated to fermentation and purification processes, and to research laboratories,
having a total surface area of approximately 1,400 square meters - satisfies EMA and FDA
requirements for the production of clinical-grade sterile investigational medicines.
Besides manufacturing TK for its own Phase III trial, the facility also provides GMP production services
in gene and cell therapy to third parties, representing a source of revenues. Provision of services is
regulated by dedicated contracts that often include also the relevant regulatory support activities.
Altogether, these service activities allow MolMed to optimise the use of its GMP facility, as well as
building and maintaining strategic collaborations in the field of cell and gene therapy.
In 2011, the following activities ongoing since 2010 were pursued:
 production of patient-specific transduced cells using lentiviral vectors for the investigational
  treatment of MLD and WAS, again under the mentioned agreement with the Telethon Foundation;
 production of cells for the investigational treatment of patients affected by Duchenne muscular
  dystrophy;
 service activities provided under several different agreements with the San Raffaele Foundation,
  including cell selection and manipulation, and manufacturing and release of clinical-grade lots of
  genetically modified patient-specific cells for use in cell- or gene therapy trials of rare diseases
 Quality Control services (sterility assays according to Pharmacopoeia).




                                                Page 17
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




5.      IP PROTECTION ACTIVITIES

In 2011, activities were focused on consolidating the intellectual property protection for TK and NGR-
hTNF, with the prosecution of patent applications in countries belonging to the major industrialised
areas, as well as in important emerging markets.
Regarding TK, in 2011 MolMed was granted two new European patents: a key composition of matter
patent (EP1781789) covering a non-splicing variant of the gene forming the basis of TK, i.e. a variant
that is transcribed in a stable and unmodifiable manner (see also chapter 3.1), and a patent
(EP1743029) covering a closed system for the production of TK cells. Both patents afford protection
until 2025 with the possibility of a 5-year term extension, and give right to market exclusivity in 29
designated countries within the European Patent Convention, including all major countries of the
European Union, Switzerland and Turkey. Equivalent patent applications are pending in the United
States, Japan and important emerging markets.
With regard to NGR-hTNF, in 2011 the key patent on the molecule - already granted in Europe and
the US - was granted in Japan.


6.      BUSINESS DEVELOPMENT ACTIVITIES

In 2011, the Business Development function focused its activities on exploring collaboration
agreement opportunities - from co-development to out-licensing - for MolMed’s investigational
therapeutics TK and NGR-hTNF. Such activities were oriented along two action lines: on one hand
there was an intensification of long-term relationships with major pharmaceutical companies, and on
the other hand actions were taken to increase the visibility of MolMed to new potential partners. The
first line led to a doubling, with respect to 2010, of one-to-one meetings aimed at evaluating
opportunities to maximise Molmed’s products value, while the second line resulted into presenting
the company and its products and holding new one-to-one meetings at several international
conferences devoted to partnering opportunities between biotech and pharmaceutical companies.
The Business Development function also continued its contribution to the selection of providers for
crucial activities linked to the development and forthcoming commercialisation of MolMed’s
investigational therapies, and performed analyses for their positioning in the competitive scenario.


7.      COMMUNICATION AND INVESTOR RELATIONS ACTIVITIES

In 2011, MolMed intensified contacts with investors and the financial community, with a particularly
intense IR activity towards institutional investors, including two international road shows, in the US in
June and in Switzerland in July.
MolMed held company presentations at several international meetings, particularly in Europe and the
US, aimed at bringing together public biotech companies and specialised investors. The
presentations, some of which with live and replay audio webcast, were published on the home page
of the Company’s website.
The Company held a live meeting with the financial community and the National press, organised in
Milan on April 5, 2011.




                                                Page 18
                                                                                                   Statutory Financial Statements at
                                                                                                                  31 December 2011




8.          ORGANISATION AND HUMAN RESOURCES

MolMed’s organisation structure in 2011 is reported here below.

                                                                       Chairman &
                                                                 Chief Executive Officer
                                                                      C. Bordignon




                        General Manager                                                                      General Manager
                    Business & Administration                                                               R&D and Operations
                           M. Del Bue                                                                          G. Carganico



      Administration,                   Business Development &                                                                     Special Projects
     Finance & Control                     Investor Relations



                                                                                       Regulatory Affairs                    Quality Assurance & CMC
                                            Legal Affairs &
     Human Resources
                                         Corporate Governance




  Intellectual Property                 Information Technology           Research & Development             Clinical Development               Operations




     Figure 6. Functional organisation flow chart at 31 December 2011

In the beginning of 2011, MolMed significantly strengthened its company organisation and top
management team with the arrival of Germano Carganico to serve as General Manager responsible for
Research & Development and Operations, in charge of coordinating the final development stages and
registration of MolMed’s investigational therapeutics, as well as their market launch.
MolMed’s staff at 31 December 2011 counted 88 employees and 11 project workers.
MolMed is aware that staff members are a very important factor for the successful achievement of its
target objectives. Respect, fair treatment, professional development, team work, continuous training
and communication are key values for MolMed.
In 2011, overall staff training activities were focused on deepening some aspects of the Model of
organisation, management and control - pursuant to Legislative Decree 231/2001 - adopted by
MolMed (see also chapter 11.2), through a workshop on "Legislative Decree 231, 10 years after". The
workshop training material was made available to MolMed staff through the Company intranet.
The upgrading of skills through scientific and professional training programmes and opportunities
(courses, seminars and other events) for specific roles and tasks, were pursued as usual. In
particular, internal courses were organised to enhance skills in statistics-computer science and in
project management.




                                                                        Page 19
                                                                Statutory Financial Statements at
                                                                               31 December 2011




9.      RESEARCH & DEVELOPMENT GRANTS AND OTHER FINANCIAL SUPPORT

As a R&D-based company, MolMed enjoys some benefits derived from funding schemes and other
financial measures - at European, National or regional level - aimed at supporting and promoting
innovation.
MolMed is a strategic partner in four projects co-funded by the European Union under the Seventh
Framework Programme of Research and Development (EU FP-7), with different international research
teams. The projects, named “PERSIST”, “OPTISTEM”, “ATTRACT” and “CELL-PID”, do involve MolMed
for development and manufacturing activities related to highly innovative investigational therapies,
as well as for education, training and exchange activities involving highly qualified staff. Activities
within these projects will continue throughout the forthcoming years: funding granted goes from 50%
to 75% of incurred costs throughout the whole duration of the projects, for a total amount of Euro
1,948 million.
At regional level, MolMed applied for a grant from the regional authority Regione Lombardia for a
project called “INNOPROTEGE - New manufacturing system of genetically modified cells for
innovative therapies in the fields of oncology, infectious diseases and genetic diseases”, under a call
for process and service organisation innovation. The project was approved and funded under the
regional Decree nr. 3432, and was awarded a contribution of Euro 322,000 over a 18-month period.
Again at regional level, MolMed - together with two industrial partners - is carrying on another
project approved for co-funding by the regional authority on 7 June 2010, under a “Call for industrial
research and experimental development activities in the priority thematic areas”. The project is
devoted to the development of an innovative automated manufacturing process for MolMed’s cell-
based therapy product TK (see also Chapter 3.1). The non-refundable grant awarded amounts to Euro
1,438 million, that will partially cover the R&D costs incurred for a period of 36 months: MolMed’s
share of the grant amounts to Euro 499,000.




                                               Page 20
                                                               Statutory Financial Statements at
                                                                              31 December 2011




10.    CORPORATE GOVERNANCE

MolMed adheres to the Code of Conduct of public companies set forth in March 2006 by the Corporate
Governance Committee promoted by Borsa Italiana, as subsequently amended. In compliance with
law requirements, MolMed publishes an annual Report on the company’s Corporate Governance,
providing information on ownership, on adherence to codes of conduct and on compliance with
arising commitments, highlighting the choices of the Company regarding the application of the
principles of self-discipline.
The Report is available (in Italian) on MolMed’s website (www.molmed.com), as well as on the
website of Borsa Italiana.

10.1 Direction and coordination activities
MolMed’s shareholders structure is such that no shareholder controls a majority of the votes or has
enough votes to exercise dominant influence over the Company. There is no obligation to
consolidate the statutory financial statements.

10.2 Implementing the Model of Organisation, Management and Control,
     following the Italian Legislative Decree 231/2001
According to the Legislative Decree 231/2001, entered into force on June 8, 2001, legal entities
respond, by way of administrative responsibility, of crimes committed by Directors, officers or
employees to the benefit or in advantage of the entity, unless it is demonstrated that, among other
things, a Model of organisation, management and control adequate to prevent the commission of
these crimes has been adopted and practically implemented.
In 2007 MolMed approved the adoption of a Model of organisation, management and control for the
prevention of crimes, and established a Supervisory Body characterised by the appropriate
requirements of autonomy, independence and professionalism, and endowed with the powers of
inspection and control of the Company’s powers and functions as provided for by the Model itself.
In 2011, in accordance with the Audit plan presented to the Board of Directors, the Supervisory Body
pursued the assessment of the Operating procedures (forming Annex 6 to the Model) with the
relevant heads of function; the assessment outcome will be reported by the Body to the Board of
Directors in its usual half-year report.
Furthermore, following the tutorial plan presented to the Board of Directors, the Supervisory Body
prepared and delivered to Company staff a multiple choice questionnaire in order to assess the actual
knowledge of the principles underlying Law 231 and identify any gaps to be filled by forthcoming
training initiatives.
An English translation for convenience of the public version of the Model is available on MolMed’s
website (www.molmed.com).

10.3 Transactions with related parties

MolMed has adopted the new procedure for transactions with related parties, unanimously approved
by the The Board of Directors on 11 November 2010 upon unanimous favourabel opinion expressed by
the ad hoc Committee formed by the three independent directors.
The procedure has been adopted by MolMed in order to implement the provisions of Consob
(Resolution nr. 17221 of March 12, 2010, as amended by Resolution nr. 17389 of June 23, 2010), by
which Consob issued the "Regulations containing provisions on transactions with related parties"
pursuant to Article 2391-a of the civil code and Articles. 113-ter, 114, 115 and 154-ter of the
consolidated text on finance (“TUF”, i.e. Legislative Decree nr. 58 of 24 February 1998, n. 58), and
taking into account the findings and the guidelines set forth in Consob Communication nr.
DEM/10078683 of 24 September 2010.



                                               Page 21
                                                              Statutory Financial Statements at
                                                                             31 December 2011




The procedure for transactions with related parties currently in force is available (in Italian) on
MolMed’s website (www.molmed.com).
For information on transactions with related parties, please the Notes to the statutory financial
statements.




                                              Page 22
                                                               Statutory Financial Statements at
                                                                              31 December 2011




11.    MAIN RISKS AND UNCERTAINTIES TO WHICH MOLMED IS EXPOSED

11.1 Risks associated with external factors

Risks associated with products in the clinical development stage
The Company has still not completed the development of its experimental products which are
currently at the clinical testing stage, in particular TK and NGR-hTNF. In regard to the experimental
products TK and NGR-hTNF, which have the largest revenue prospects, no guarantee can be provided
that the Company will successfully complete Phase III of the clinical testing.
The experimental products which are being developed by the Company could still prove to be
ineffective or cause side effects during clinical trials and might not receive the necessary approvals
from the competent authorities or may not obtain such approvals in good time for marketing the
products. In addition, it might happen that the non-randomised studies of Phase II, which were
successfully completed, do not provide the same positive results in subsequent stages of
development. Moreover, clinical trials may be suspended at any time by the Company or its partners,
or by the competent authorities in the interest of the patients’ health. Even after approval by the
competent authorities, a product might prove to be unsafe or not have the envisaged effects (for
example, side effects might emerge after the product is launched or the product’s real effectiveness
may be lower than that which emerged in the experimental stages), or, in any case, it might not be
accepted by market operators (who might prefer rival products) or, generally, for other reasons
which are beyond the Company’s control, thus preventing the product’s use on a wide scale or
forcing its withdrawal from the market. The inability of the Company or its partners to achieve
timely completion of the development programs and clinical trials for its products may materially and
adversely affect MolMed’s business, and its income, equity and/or financial position.

Risks associated with strong competition
The biotechnology and pharmaceutical products markets are characterised by significant
competition. This is especially true in the field of oncology. The Company may face competition from
pharmaceutical corporations and companies that have much greater financial resources and are able
to take advantage of economies of scale, making possible more effective and timely development of
their products. Because of their greater financial resources, this kind of competitors may also be
better able to in-license new products and technologies than the Company.
Moreover, the Company competes with companies of similar sise and operational features to sign out-
licensing agreements or partnerships with other bio-pharmaceutical companies. In the future, these
competitors might be able to develop safer, more effective or cheaper products than those
developed by MolMed. In addition, these companies might be more effective at manufacturing and
marketing their own products, due to the quality of their staff or that of their licensors and/or
licensees.
The level of competition in the reference market and the presence of well-structured and bigger
competitors might therefore in the future cause a loss of market shares, with a negative impact on
the Company’s positioning as well as a fall in possible revenues and profits.
Such circumstances might limit the Company’s chances of competing on the market, with a possible
impact on its income, equity and/or financial position.

Risks associated with sector regulation
The Company’s activities are subject to strict regulation by Italian and European laws, and the
Company is also subject to similar regulation in any country in which it may wish to test or
commercialise its products. The Ministry of Health in Italy, the European Medicines Agency (“EMEA”)
throughout Europe and the Food and Drug Administration (“FDA”) in the United States, plus similar
institutions in other countries, impose detailed restrictions on the production and commercialisation
of therapeutic products, all of which, together with the complex, time-consuming authorisation


                                               Page 23
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




procedures, may cause significant delays, both in the start-up of the Company’s planned or future
trials, and in the commercialisation of the Company’s products.
Moreover, even if the commercialisation of a product in a particular country is authorised, there can
be no certainty that the product will be authorised in other countries, with the subsequent need for
further testing which might entail the use of further significant resources. In addition, the
subsequent discovery of previously unknown problems or failure to comply with the applicable legal
requirements, might lead to restrictions on the commercialisation of the products, the withdrawal of
their authorisations or their withdrawal from the market, as well as the application of possible
sanctions. Furthermore, regulatory systems are subject to change, and the evolution of current
regulations may cause a lengthening of the procedures for production and/or testing, with
concomitant cost increases for the Company.
The occurrence of these circumstances could impact the Company’s business and its income, equity
and/or financial position.

11.2 Strategic and operating risks

Risks associated with research, clinical and preclinical trials, and production
The Company undertakes research, preclinical and clinical trials on its products as well as
manufacturing both directly and through third parties on the basis of cooperation agreements (with
entities, institutions and companies operating in the medical biotechnology industry). The Company’s
strategy therefore envisages maintaining and, in the future, signing other cooperation agreements for
the development of these products with third parties in order to undertake the necessary clinical
trials and the possible subsequent manufacture of the drug.
In addition, despite the fact that there are numerous companies specializing in the sector and that
the Company is not contractually related to any of them, it may happen that third parties engaged to
undertake research and preclinical and clinical trials as well as manufacture on behalf of the
Company do not fulfill their obligations in whole or in part or in an appropriate manner or are not
capable of undertaking the trials in compliance with the deadlines envisaged or the quality standards
requested by the Company. Such circumstances could cause delays in completing the preclinical and
clinical trials or even make it necessary to replace the third party that has been engaged.
The occurrence of such circumstances could impact the Company’s business and its income, equity
and/or financial position.

Risks related to the protection of intellectual property rights and dependence on industrial
secrets
MolMed is highly committed to protect its intellectual property and actively seeks to protect its
inventions through patents on an international basis, when appropriate. In addition to the patents,
MolMed also actively protects its industrial secrets, including those relating to manufacturing
processes for biologically active products. The effectiveness of this policy is essential for the success
of the Company’s business. In this regard, it should be noted that it is impossible to guarantee that
the Company is able to develop new products or processes with patentable features, or that currently
pending or future patent requests will be accepted, or that the patents held by the Company are not
challenged or considered invalid, or, finally, that the Company manages to obtain, at market
conditions, the right to use third-party patents which are necessary to carry out its business. In
addition, the right to exclusivity guaranteed by the patent might not be sufficiently extended either
in terms of scope or geographical area, and/or its duration might not be sufficient for its adequate
exploitation. Moreover, patent requests for new inventions are not usually published for 18 months
from the filing date; therefore, it is impossible to rule out the possibility that the invention covered
by the patent request may have already been developed by others who, having filed the patent
request first, can validly demonstrate that they have created such invention.
In addition, the Company relies on proprietary and non-patented technologies, processes, know-how
and data considered industrial secrets and protected under confidentiality agreements with its
employees, consultants and certain contract counterparties, including third-party manufacturers. In
this regard, it should be noted that it is not possible to guarantee: (i) that such agreements or means


                                                Page 24
                                                                  Statutory Financial Statements at
                                                                                 31 December 2011




of protection of industrial secrets will, in fact, provide adequate protection, or that such agreements
will not be breached; (ii) that the Company would obtain effective remedies in the case of any such
breach; or (iii) that the industrial secrets of the Company will not become publicly known or
otherwise be developed by competitors.
Finally, it should be noted that the protection of intellectual or industrial property rights or rights to
exclusivity is normally very complex and often leads to legal issues relating to the ownership of such
rights. For this reason, in carrying out its commercial and research and development activities, the
Company could in the future be involved in disputes relating to violations of third-party intellectual
or industrial property rights, or could be forced to take legal action against third parties to protect
its own rights. Any claims and/or disputes for violation of rights regarding patents and/or other
intellectual or industrial property rights – whether they are initiated by the Company or taken against
it – could entail significant legal costs, impose limitations or a ban on the use of the products which
are involved in any dispute and/or lead to payment of milestones and royalties for their
commercialisation.
The occurrence of such circumstances could impact the Company’s business and its income, equity
and/or financial position.

Risks connected to license and supply agreements
As part of its operations the Company has signed licenses with several companies (including
biotechnology and pharmaceutical companies, universities and research institutes) to acquire rights
over a range of technologies, patents and manufacturing and supply processes for the development
and future commercialisation of its own products as well as for the purchase of equipment for its own
research and business activities.
MolMed’s inability to maintain the contractual conditions in force and/or to sign new license and/or
supply agreements on acceptable terms for the Company, as well as the inability of suppliers to
provide MolMed with the material needed for the Company’s research and business, could have a
negative impact in the future on its business and income, equity and/or financial position.

Risks related to reliance on key personnel
The Company heavily depends on the professional contribution of key scientific and managerial staff
and, especially, on the Chairman and Chief Executive Officer, Claudio Bordignon, and the Director
and General Manager, Marina Del Bue, both of whom have made an essential contribution to the
Company’s growth and to the development of its strategies. Were MolMed to lose any of the key
personnel, there can be no assurance that the Company would be able to promptly find adequate
substitutes with the same operational and professional skills.
In addition, the development and future commercialisation of new products will largely depend on
the Company’s ability to attract and maintain its qualified scientific staff and other senior personnel,
also in light of the intense recruitment competition by biotech and pharmaceutical companies,
universities and research institutes. The Company’s ongoing expansion in areas and activities which
require greater know-how, for example in commercial development and marketing, will, moreover,
make it necessary to recruit managerial and technical staff with a range of competences.
The loss of any of the Company’s key personnel, or the Company’s failure to recruit, successfully
integrate or retain qualified scientific staff or other senior personnel, would have a materially
adverse effect on its business and its income, equity and/or financial position.

Risks related to the GMP manufacturing facility and the laboratories
MolMed owns a GMP manufacturing facility formally authorised by AIFA, the Italian pharmaceutical
industry regulator, for the production of genetically modified cell-based medicinal products for use in
clinical trials. Besides providing TK therapy for its own clinical trials, MolMed makes its GMP facility
available to selected customers or partners for cell therapy services. In addition, MolMed undertakes
research and development in its own laboratories.
This facility is subject to operating risks, such as breakdowns or delays in manufacturing processes, or
malfunctions of machinery, technical errors, delays in the supply of raw materials, strikes, natural

                                                 Page 25
                                                                   Statutory Financial Statements at
                                                                                  31 December 2011




disasters, the risk of the authorisations being revoked, new regulatory measures or environmental
regulation, including the risk that the facility be non-compliant with GMP regulations, that may
paralyze the Company’s research and development activities and the treatment of patients in clinical
trials, and which may prevent MolMed from fulfilling its contractual obligations to its customers. In
addition, although the Company has taken out relevant insurance, the negative impact of such events
might not be fully covered by the policies that the Company has entered into or may exceed the
indemnity limits.
The occurrence of such circumstances could impact the Company’s business and its income, equity
and/or financial position.
In addition, the Company’s GMP facility is adequate for its current production needs and it is planned
to develop a fully automated system for the production of TK cell therapy. However, should in the
future the Company increase the number of products which are under development or should it be
necessary to produce greater quantities of existing products, the facility production capacity might
reach saturation point, with consequent possible delays in progressing clinical testing and/or in the
time-to-market for its products. In this case, the Company might be required to invest to expand the
facility and its manufacturing capacity, with a possible impact on the Company’s business and its
income, equity and/or financial position.

Risks associated with civil liability related to the testing, manufacture and commercialisation of
products
The Company has never been involved in legal action for civil liability regarding its testing activities.
Nonetheless, the Company is exposed to liability risks related to its current and future operations in
the clinical testing, manufacture and commercialisation of therapeutic products for humans. Despite
the fact that the Company has taken out specific insurance cover, in keeping with market practice
and in compliance with the key legislation, with indemnity limits which are considered adequate for
its testing activities, should the Company face legal proceedings, be liable for compensation, and be
forced to incur damages exceeding the indemnity limits envisaged by its insurance cover, it could be
required to directly cover the relevant costs.
The Company signs specific contracts with the Italian and foreign clinical centers at which tests are
carried out. Although the Company, in line with relevant law, has taken out insurance cover for the
testing undertaken at these clinics, it is exposed to the risk of claims by the clinics and their insurers.
In addition, contracts signed with clinics and testing facilities generally exclude liability for the
Company should the clinical protocol not be complied with. However, should the clinical or testing
facilities deviate from the clinical protocols, the Company could nonetheless be exposed to the risk
of being involved in compensation suits and claims and be sentenced to pay compensation for any
damage caused to third parties.
The occurrence of these circumstances could impact the Company’s business and its income, equity
and/or financial position.

Risks connected to the use of dangerous materials and the breaking of laws which protect
environment and health
In its research and development activities the Company uses dangerous materials and chemical and
biological substances which require special disposal systems which must be set up in compliance with
specific legislative and regulatory provisions on the environment and health and safety at workplaces.
In this regard it should be noted that, although the safety procedures adopted by the Company for
the handling and disposal of such materials are considered suitable to avoid or reduce the risks of
accidental contamination or workplace injuries, it is impossible to rule out such events happening in
the future and thus the Company being required to pay compensation for any damage caused as a
consequence of its operations.
The occurrence of these circumstances could impact the Company’s business and its income, equity
and/or financial position.




                                                 Page 26
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




11.3 Financial risks

Risks related to external financing to fund research and development activities
The financial risk which the Company could be exposed to consists in the failure to find suitable
financial resources to fund its operations.
The Company envisages that over the coming years: (i) it will continue to complete the clinical
development of its own main products for various treatments; (ii) it will select further products as
clinical candidates for their subsequent development; (iii) it will invest in preclinical research or
purchases of further technologies and products through licenses; (iv) it will further develop its
production capacity; (v) it will significantly increase its investment (beyond current levels) due to the
possible creation of its own commercial network and enlargement of its production capacity through
the full automation of the production of TK cell therapy.
In particular, the Company plans to intensify and extend its own activity and investment in research
and development, in line with the success of preclinical and clinical trials for its own products. In
oncology successful preclinical and clinical testing is intensified, often by enrolling more patients,
and is extended to new therapeutic indications for the same product. In order to carry out these
activities, the Company must have significant cash reserves.
The Company has met its liquidity requirements from its incorporation up to the date of these
Financial Statements through contributions from its shareholders, including through the listing on the
screen-based equity market (Mercato Telematico Azionario), organized and managed by Borsa
Italiana, which occurred on March 5, 2008, and the share capital increase which was completed on
August 5, 2010 and which generated gross income of 57,864 thousand Euro.
Although the financial position at the date of preparing these Financial Statements was such as to
guarantee the Company adequate resources to continue its operations in the foreseeable future,
nonetheless the possibility cannot be ruled out that in the future the Company may need, also before
completing the clinical development of its products, further financial resources which may be
obtained through risk capital or third party capital, or through the signing of further cooperation
agreements, sponsored research or other means.
In this regard, it should be noted that it is not possible to guarantee that further financing may be
found or, if found, supplied on satisfactory terms for the Company. In particular, loan contracts
might include obligations such as financial and non-financial covenants which could have the effect
of limiting the Company’s operational flexibility. Should adequate funds not be available, the
Company’s business could also be affected and it might be forced to delay, reorganize or cancel
research and development programs, or to sign contracts for loans, licenses or cooperation on
unfavorable terms or waive rights over particular products which it would not otherwise have waived.
The occurrence of such circumstances could in future impact the Company’s business and its income,
equity and financial position.

Interest rate risk and currency risk
At December 31, 2011, the Company did not have significant exposure to currency fluctuation,
because there was no significant receivable or payable balance in a currency other than the Euro, nor
were there any financial instruments subject to currency risk.
The Company has no significant financial payables or receivables. Interest-rate risk exclusively
concerns financial instruments used to manage liquidity such as bank accounts, government bonds,
corporate bonds, repurchase agreements and other short/medium term cash instruments.
Further information on risk management is given in the Notes to which reference should be made.




                                                Page 27
                                                               Statutory Financial Statements at
                                                                              31 December 2011




12.    OTHER INFORMATION

12.1 Own shares
The Company does not own any of its issued shares, neither directly nor indirectly. During year 2011,
the Company did not purchase or sell, either directly or indirectly, any of its issued shares.


12.2 Protection of sensitive data and information
The protection of personal data and information collected and stored at MolMed - both electronically
and using traditional methods - is of great importance to the Company. For this reason, MolMed has
adopted a personal data protection system that meets the requirements of applicable regulations
provided for in the Code on Personal Data Protection (Legislative Decree no. 196/2003).
In 2011, the Company kept its intranet site up to date, in order to provide employees with access to
the entire privacy protection system by means of this useful means of internal communication. This
system also enables employees to keep abreast of data protection updates in real time.
MolMed and its consultants also started an audit of some business processes that may imply the
handling of sensitive information and related data streams. Following the outcome of this acitvity, in
the next year a review of the documentation relating to the management of sensitive information
will be carried out, along with a specific training programme for staff involved in this matter.
It should be noted that in 2011 there were no omissions, actions or other situations that might have
jeopardised the protection of anyone’s personal data within the Company.


12.3 MolMed and the environment, health and safety in the workplace
The facilities at which MolMed operates, as well as its production activities, must comply with
stringent environmental regulations and work safety regulations. These regulations govern, among
other things, air pollution emissions, the dumping of harmful substances into water, on the ground
and underground; storage and disposal of waste and hazardous materials, and decontamination of
contaminated sites.
The Company has adopted procedures to ensure the safe handling and disposal of biological refuse,
within the meaning of Italian Legislative Decrees No. 81/2008 and No. 206/01 regarding the use of
genetically modified microorganisms (“GMMOs”). In this regard, the Company’s laboratory space has
been registered with, and authorisation for each use of a GMMO is obtained from, the Italian Ministry
of Health. MolMed has laboratories in which Type-2 and Type-3 GMMOs can be used. All relevant
personnel have received specialised training to minimise risks of biological contamination.
With regard to chemical agents used by MolMed, the degree of risk presented by the Company’s
laboratories, within the meaning of Legislative Decree No. 81/2008, has been classified as “low” for
safety purposes and “not significant” for health purposes, according to a specific risk assessment.
MolMed has implemented industry-standard protective systems and procedures to protect its
personnel.
The Company also complies with Legislative Decree No. 152/06 regarding the disposal of infective
and chemical waste and uses a specialised sub-contractor to assist with such disposals.
The Company believes that it is carrying out its activities in full compliance with all environmental
regulations and has obtained all the authorisations required by applicable law. It intends to operate
in an environmentally responsible manner and identify methods aimed at improving the impact its
activities have on the environment, with progressive reduction of use of natural resources,
consistently with its economic, financial and investment management systems.
There are no environmental issues that might affect the Company’s use of its tangible assets.




                                               Page 28
                                                                        Statutory Financial Statements at
                                                                                       31 December 2011




12.4 Shares held by Directors, General Managers, Statutory Auditors and other
     executives with strategic responsibilities (art. 79 of Consob Regulations,
     Resolution n°11971 of May 14, 1999)

Based on information received by MolMed at 31 December 2011, and pursuant to Article 79 of Consob
Issuers’ Regulation, the following shares in the Company are held by Directors, General Managers,
Statutory Auditors or executives with strategic responsibilities, or by their spouses who are not
legally separated, or by underage children, either directly or through a subsidiary company, a trust
company or any other intermediary.

                                     Company in           Nr. of        Nr. of shares   Nr. of      Nr. of
         Name             Role      which stake is      shares at       purchased or    shares    shares at
                                        held           31/12/2010        subscribed      sold    31/12/2011

 Luigi Berlusconi       Director    MolMed S.p.A.               1,952         -           -           1,952

                        Director,
 Marina Del Bue         General     MolMed S.p.A.          369,859        126,310         -         496,169
                        Manager

 Alessandro De Nicola   Director    MolMed S.p.A.              23,000         -           -          23,000

 Alfredo Messina        Director    MolMed S.p.A.          400,000            -           -         400,000




                                                     Page 29
                                                                Statutory Financial Statements at
                                                                               31 December 2011




13.     KEY ACHIEVEMENTS IN YEAR 2011

Research & Development activities
In 2011, MolMed’s activities were mainly focused on pursuing the clinical and industrial development
of its investigational anticancer products, NGR-hTNF for the treatment of different types of solid
tumours, and TK for the treatment of high-risk leukaemia.
For NGR-hTNF, major progress included:
 international expansion of pivotal Phase III trial (NGR015) for the treatment of malignant pleural
  mesothelioma, with 24 centres participating in Europe (Italy, the UK, Ireland and Poland), the US,
  Canada and Egypt. 124 patients were enrolled at 31 December 2011. The trial is expected to
  include more than 40 centres worldwide, with primary data analysis expected in 2013;
 promising interim data of a randomised Phase II trial in non-small cell lung cancer, in particular in
  the squamous cell variant, and recruitment of a larger patient population, in order to ensure the
  inclusion of an adequate number of patients with this histology;
 start of two new randomised Phase II trials: in ovarian cancer refractory/resistant to prior
  platinum-based treatment regimens and in mesothelioma as first line maintenance treatment. As
  regards ovarian cancer, the study was initiated following promising results obtained in a non-
  randomised Phase II trial completed in 2011. Progress of recruitment in a randomised Phase II trial
  in soft tissue sarcomas.
For TK, major progress included:
 expansion of pivotal Phase III trial (TK008) in Europe, with the inclusion of centres in Spain and
  Greece, and the FDA clearance to include US centres in the trial. 7 centres were involved as of 31
  December 2011. Due to additional and higher than expected regulatory requirements in some EU
  countries, which have delayed patient enrolment, MolMed plans to include additional centres
  besides the 15 centres originally planned in an effort to compensate this delay. Primary data
  analysis is expected in 2013;
 new long-term data on the clinical benefit following treatment with TK: patients treated
  (including the first patients enrolled in the Phase III trial) show rapid post-transplant restoration
  of a fully functional immune system by effect of TK cells;
 grant of a key European patent on a proprietary modified form of the TK gene (EP1781789)
  providing IP protection in 29 countries belonging to the European Patent Convention until 2025,
  with the possibility of a further 5-year extension of market exclusivity.

Development and GMP production for third parties
Over the years, MolMed has developed specific expertise in the field of gene and cell therapy,
including the use of stem cells for the treatment of different pathologies, positioning the Company
among the leading players at international level. In 2011, MolMed concluded two new agreements for
the development and GMP production of gene therapy treatments for third parties:
 with GlaxoSmithKline (GSK), to develop a production process, based on a retroviral vector, for the
  investigational gene therapy of a severe form of immunodeficiency (ADA-SCID, the so-called
  “bubble boy disease”), worth up to € 5.5 million in revenues over a 2-year period;
 with Telethon Foundation, to develop and manufacture novel investigational gene therapy
  treatments for six rare genetic diseases (metachromatic leukodystrophy, Wiskott-Aldrich
  syndrome, beta-thalassemia, mucopolysaccharidosis type I, globoid leukodystrophy and chronic
  granulomatous disorder), worth up to € 8.3 million in revenues over a 4-year period.

Company organisation
In January 2011, MolMed significantly strengthened its top management and company organisation
with Germano Carganico joining as General Manager responsible for Research & Development and
Operations, in order to provide the Company with the expertise necessary for the final development
stages and registration of MolMed’s investigational therapeutics.


                                               Page 30
                                                                   Statutory Financial Statements at
                                                                                  31 December 2011




14.      ECONOMIC AND FINANCIAL DATA

14.1 Income statement data

(amounts in thousands of Euro)                            2011          2010    Change         % change

Revenues                                                  2.767        2.081             686         33,0%
Other income                                                651          595              56          9,4%
Total operating revenues                               3.418          2.676              742        27,7%

Purchases of raw materials and consumables            (2.863)         (1.339)       (1.524)         113,8%
Costs for services                                   (12.983)         (9.092)       (3.891)           42,8%
Costs for use of third-party assets                   (1.018)           (991)          (27)            2,7%
Personnel costs                                       (7.988)         (7.628)         (360)            4,7%
Other operating costs                                   (139)           (165)           26          (15,8%)
Amortization, depreciation and write-downs            (1.107)         (1.209)          102           (8,5%)
Total operating costs                                (26.098)        (20.424)      (5.673)          27,8%
Operating result                                     (22.680)        (17.748)      (4.931)          27,8%

Financial income                                          1.404          505             899         178,0%
Financial charges                                          (293)        (339)             46        (13,6%)
Net financial income (charges)                         1.111            166              945       569,3%
Pre-tax result                                       (21.569)        (17.582)      (3.987)          22,7%

Income taxes                                                  -            -               -              -
Profit (loss) for the year                           (21.569)        (17.582)      (3.987)          22,7%


Operating revenues
Operating revenues in FY 2011 increased by 27.7%, from Euro 2.7 million to Euro 3.4 million. In
particular, revenues generated from the intensification of development and GMP production
activities on behalf of third parties increased by 69.4%, from Euro 1.6 million in 2010 to Euro 2.7
million in 2011, as a result of the agreements with Telethon Foundation and GSK. Other development
and production activities carried out in collaboration with external institutions are covered by co-
funding grants, and generated in 2011 “other income” for Euro 651 thousand, an increase compared
to 2010.
For further details reference should be made to the Notes.

Operating costs
In 2011, operating costs totalled Euro 26.1 million. The expected increase (up 27.8%) compared to
2010 is linked to a particular concentration of costs related to the progress of clinical trials of NGR-
hTNF and its industrial manufacturing process, and to the above mentioned intensification of
development and GMP production activities on behalf of third parties.
In particular, the rise in costs for raw materials and consumable materials, which largely consist of
materials and reagents used in R&D activities, was primarily linked to the development of NGR-hTNF.
In 2011 such costs totalled Euro 2.9 million, up 113.8% compared to 2010.
Costs for external activities increased by 42.8% compared to 2010. This increase is due to a rise of
external costs for development and consultancy services linked to the industrial manufacturing
process of NGR-hTNF, as well as to the expansion of clinical trials of NGR-hTNF and TK.
Costs for the use of third-party assets totalled Euro 1.0 million in 2011, with no significant variation
compared to 2010. These costs essentially include the rental costs of premises housing MolMed’s
headquarters in Milan and its secondary offices in Segrate.




                                                Page 31
                                                              Statutory Financial Statements at
                                                                             31 December 2011




Personnel costs in 2011 grew by 4.7% compared to 2010, from Euro 7.6 million to Euro 8.0 million.
This rise is due to an increase in the number of employees in R&D and Operations, needed to meet
the escalation of development and production activities.
Other operating costs totalled Euro 139 thousand in 2011, with no significant variation compared to
2010.
Amortisation and depreciation for FY 2011 totalled Euro 1.1 million, down by Euro 102 thousand
compared to FY 2010, due to the completion in 2010 of the amortisation of some assets.
Investments made during FY 2011 totalled Euro 314 thousand, and were largely due to routine
renewal of laboratory equipment and purchase of new devices for use in production processes.

Operating result
The operating result for 2011 was negative for Euro 22.7 million. The expected increase in operating
loss, up 27.8% compared to 2010, is due to the expected increase in operating costs resulting from
the intensification of development activities for MolMed’s investigational therapeutics.

Net financial income (charges)
The financial income derives from the management of financial resources through temporary, low-
risk investments. The increase recorded in 2011 was linked to the investment of the financial
resources obtained through the share capital increase completed in August 2010. The trend in
financial charges reflects the transfer to the Income Statement of Euro 106 thousand from the fair
value reserve recorded at 31 December 2010, following the maturity and sale of some securities.

Profit (loss) for the year
The bottom-line result for 2011 shows a loss of Euro 21.6 million, compared to a loss of Euro 17.6
million in 2010.




                                              Page 32
                                                                   Statutory Financial Statements at
                                                                                  31 December 2011




14.2     Equity and financial results
The following table shows the Company’s equity and financial results as reclassified based on sources
and uses of funds.
(amounts in thousands of Euro)                                     December 31, 2011 December 31, 2010

Non-current assets
Fixed assets and other non-current assets                                         8.642                     9.671
Total non-current assets                                                          8.642                     9.671

Net working capital
Inventories                                                                           360                       344
Trade receivables and other commercial assets                                       3.601                     1.102
Tax receivables                                                                     1.194                     1.009
Other receivables and current assets                                                1.767                     1.441
Trade payables                                                                    (6.884)                   (4.488)
Other liabilities                                                                 (1.372)                   (1.656)
Total net working capital                                                        (1.334)                   (2.248)

Non-current liabilities
Other non-current liabilities                                                     (1.150)                   (1.058)
Total non-current liabilities                                                    (1.150)                   (1.058)

TOTAL USES                                                                        6.158                     6.365

Shareholders' equity                                                             44.825                    66.405
Net financial position                                                           38.667                    60.040

TOTAL SOURCES                                                                     6.158                     6.365


Non-current assets
Non-current assets at December 31, 2011 and December 31, 2010 are analyzed in the following table:

(amounts in thousands of Euro)              December 31, 2011 December 31, 2010      Change             % change



Tangible assets                                        1.330             1.720                 (390)        (22,7%)
Goodwill                                                  77                77                     -           0,0%
Intangible assets                                        384               759                (375)         (49,4%)
Financial assets                                          12                13                    (1)        (7,7%)
Tax receivables                                        5.203             4.950                   253           5,1%
Other assets                                           1.636             2.152                (516)         (24,0%)
Total non-current assets                               8.642             9.671              (1.029)        (10,6%)

Non-current assets amounted to 8,642 thousand Euro at December 31, 2011, and are predominantly
composed of tax receivables. The latter include VAT receivables of 2,521 thousand Euro for which
refunds were requested for 2009 and 2010, and VAT receivables of 2,625 thousand for which refunds
have not yet been requested.
It should be noted that, under the item Other assets, non-current assets consist of the amount
relating to the consideration agreed to under the option agreement for the purchase of research
projects entered into with the shareholder Science Park Raf S.p.A. and its parent company
Fondazione Centro San Raffaele del Monte Tabor. Under this option agreement, the Company is
entitled to purchase from the contracting parties the research projects they conduct in the field of
gene and molecular therapies for cancer and AIDS. The validity of the option agreement, for which
net consideration of 4,131 thousand Euro was to be paid, was subject to the precondition of

                                                    Page 33
                                                                            Statutory Financial Statements at
                                                                                           31 December 2011




admission of the Company’s shares to trading on a regulated market, which occurred on March 5,
2008. The agreement is valid for eight years after this date, with the possibility of renewal every four
years. Reference should be made to the Notes for the accounting treatment of this agreement.
The other changes that occurred to non-current assets in the period are mainly connected to the
decrease in tangible and intangible assets resulting from the fact that investments in the period did
not exceed the value of amortization and depreciation.

Net working capital
The following table provides an analysis of net working capital at December 31, 2011 and at
December 31, 2010:
(amounts in thousands of Euro)                    December 31, 2011 December 31, 2010         Change          % change



Inventories                                                       360                 344             16            4,7%
Trade receivables and other commercial assets                   3.601               1.102          2.499          226,8%
Tax receivables                                                 1.194               1.009            185           18,3%
Other receivables and current assets                            1.767               1.441            326           22,6%
Trade payables                                                (6.884)             (4.488)        (2.396)           53,4%
Other liabilities                                             (1.372)             (1.656)            284         (17,1%)
Total net working capital                                    (1.334)             (2.248)             914        (40,7%)

Net working capital at December 31, 2011 was mainly influenced by the increase in trade payables,
more than offset by the increase in trade receivables. Changes in trade receivables and payables
reflect trends in invoicing and payment of goods and services.

Non-current liabilities
The following table contains details of the items included in non-current liabilities:
(amounts in thousands of Euro)                      December 31, 2011     December 31, 2010    Change         % change


Liabilities for pensions and employee severance
indemnity (TFR)                                                     156                185             (29)      (15,7%)
Other liabilities                                                   994                873              121        13,9%
Total non-current liabilities                                     1.150              1.058               92        8,7%

Non-current liabilities, which rose from 1,058 thousand Euro at December 31, 2010 to 1,150 thousand
Euro at December 31, 2011, reported an increase mainly in relation to the item “Other liabilities”
following an advance received on a project financed under the Seventh Framework Programme of the
European Union.

Shareholders’ equity and capital transactions
Details about changes in shareholders’ equity are provided in the Notes.

Investments
The Company’s main investments during 2011 were largely due to the regular replacement of
laboratory equipment and the purchase of new machinery to be used in manufacturing processes.




                                                        Page 34
                                                               Statutory Financial Statements at
                                                                              31 December 2011




Net financial position
The net financial position decreased from 60,040 thousand Euro at December 31, 2010 to 38,667
thousand Euro at December 31, 2011, due to the absorption of financial resources by the Company’s
ordinary operations.

(amounts in thousands of Euro)                                 December 31, 2011 December 31, 2010

Cash on hand                                                                   12                  8
Other cash                                                                   3.251             36.909
Cash equivalents                                                            17.900                  -
A. Total cash and cash equivalents                                         21.163             36.917
B. Current financial receivables and other financial assets                17.740             23.456
Finance lease payables                                                       (111)               (98)
C. Current financial debt                                                    (111)               (98)
D. Net current financial position (A+B+C)                                  38.792             60.275
Finance lease payables                                                       (125)              (235)
E. Non-current financial debt                                               (125)              (235)
F. Net financial position (D+E)                                            38.667             60.040

The net financial position at 31 December 2011 totalled Euro 38.7 million, and included cash on hand
for Euro 12 thousand, other cash for Euro 3.3 million and cash equivalents (time deposit) for Euro
17.9 million. The net financial position also included investment in current assets for Euro 17.7
million, net of Euro 236 thousand for lease payables connected with lease contracts for laboratory
equipment.
Taking into account changes in current financial receivables and other financial assets (items A+B of
the above table), cash absorbed in the year amounted to 21,470 thousand Euro (on average 1,789
thousand Euro per month), and was entirely due to flows linked to the Company’s ordinary
operations.




                                                   Page 35
                                                                Statutory Financial Statements at
                                                                               31 December 2011




15.     OUTLOOK

15.1 Significant events subsequent to the end of fiscal year 2011
There have been no significant events subsequent to the end of fiscal year 2011 other than those
already described in the chapters of this Report on Operations.

15.2 Business outlook
In 2012, MolMed will maintain its focus on advancing the development of its investigational therapies
NGR-hTNF and TK, while also providing strategic services for gene therapy treatments. MolMed
expects in particular to:
 further advance the clinical development of NGR-hTNF, with the presentation of new clinical data
  on ongoing Phase II trials relevant for the selection of the indication for the next Phase III trial;
 expand the Phase III trial of TK in the United States and in other European countries;
 further increase revenues from development and GMP production activities of gene therapy
  treatments, by building on the important recognition of our know-how in gene therapy with the
  agreements signed in 2011 with Telethon and GSK;
 maintain a strict control of expenses in order to keep its expected burn rate in line with the 2011
  level.


16.     PROPOSED ALLOCATION OF THE LOSS FOR THE YEAR

MolMed Statutory Financial Statements, as explained in this Report on Operations and in the Notes,
report a loss for year 2011 of 21,569 thousand Euro. We propose to cover the loss by using:
 part of the share premium reserve to cover 20,695 thousand Euro.
 retained earnings, generated following the exercise, revocation and expiration of stock options
  that occurred during 2011, to cover 874 thousand Euro.


[Signed by]
Claudio Bordignon
Chairman of the Board of Directors
Chief Executive Officer




                                               Page 36
                                                                                Statutory Financial Statements at
                                                                                               31 December 2011




Financial Statements at December 31, 2011

1.         STATEMENT OF FINANCIAL POSITION

(amounts in thousands of Euro)                                          Notes        December 31, 2011 December 31, 2010

ASSETS

Tangible assets                                                          1                       1.330             1.720
Goodwill                                                                 2                          77                77
Intangible assets                                                        2                         384               759
Financial assets                                                         3                          12                13
Tax receivables                                                          4                       5.203             4.950
Other assets                                                             5                       1.636             2.152
TOTAL NON-CURRENT ASSETS                                                                         8.642             9.671

Inventories                                                              6                         360               344
Trade receivables and other commercial assets                            7                       3.601             1.102
Tax receivables                                                          8                       1.194             1.009
Other receivables and sundry assets                                      9                       1.767             1.441
Other financial assets                                                   10                     17.740            23.456
Cash and cash equivalents                                                11                     21.163            36.917
TOTAL CURRENT ASSETS                                                                            45.825           64.269
TOTAL ASSETS                                                                                    54.467           73.940

LIABILITIES AND SHAREHOLDERS' EQUITY

Capital                                                                                          43.609            43.583
Share premium reserve                                                                            20.696            37.476
Other reserves                                                                                      689             2.188
Retained earnings (accumulated losses)                                                            1.400               740
Profit (loss) for the year                                                                     (21.569)          (17.582)
TOTAL SHAREHOLDERS' EQUITY                                               12                     44.825           66.405

Liabilities for pensions and employee severance indemnity (TFR)          13                        156               185
Trade payables                                                           14                          -                 -
Finance lease payables                                                   15                        125               235
Other liabilities                                                        16                        994               873
TOTAL NON-CURRENT LIABILITIES                                                                    1.275             1.293

Trade payables                                                           17                      6.884             4.488
Other liabilities                                                        18                      1.372             1.656
Finance lease payables                                                   15                        111                98
TOTAL CURRENT LIABILITIES                                                                        8.367             6.242
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                                                        54.467           73.940




                                                              Page 37
                                                            Statutory Financial Statements at
                                                                           31 December 2011




2.      INCOME STATEMENT


(amounts in thousands of Euro)                    Notes                    2011          2010

Revenues                                               19                  2.767         2.081
Other income                                           20                    651           595
Total operating revenues                                                  3.418         2.676

Purchases of raw materials and consumables             21                 (2.863)       (1.339)
Costs for services                                     22                (12.983)       (9.092)
Costs for use of third-party assets                    23                 (1.018)         (991)
Personnel costs                                        24                 (7.988)       (7.628)
Other operating costs                                  25                   (139)         (165)
Amortization, depreciation and write-downs             26                 (1.107)       (1.209)
Total operating costs                                                   (26.098)      (20.424)
Operating result                                                        (22.680)      (17.748)

Financial income                                                           1.404           505
Financial charges                                                           (293)         (339)
Net financial income (charges)                         27                 1.111           166
Pre-tax result                                                          (21.569)      (17.582)

Income taxes                                           28                      -             -
Profit (loss) for the year                                              (21.569)      (17.582)




(amounts in Euro)                                 Notes                    2011          2010


Basic earnings (loss) per share                        29                (0,1025)      (0,1144)
Diluted earnings (loss) per share                                            -             -




                                             Page 38
                                                                        Statutory Financial Statements at
                                                                                       31 December 2011




3.       STATEMENT OF COMPREHENSIVE INCOME

(amounts in thousands of Euro)                                  Notes               2011              2010


Profit (loss) for the year                                                       (21.569)          (17.582)
Other comprehensive income (loss)


Net change in fair value of available-for-sale assets            12                 (183)                3
Tax effect relating to components of other comprehensive
income (loss)                                                                          -                 -

Other comprehensive income (loss), net of taxes
                                                                                    (183)                3
Total comprehensive income (loss) for the year                                   (21.752)          (17.579)




                                                      Page 39
                                                                                   Statutory Financial Statements at
                                                                                                  31 December 2011




4.        STATEMENT OF CASH FLOW

(amounts in thousands of Euro)                                                            December 31, 2011 December 31, 2010


Cash and cash equivalents                                                                           36.917             4.308
Opening cash and cash equivalents                                          A                        36.917             4.308

Cash flow from operating activities:
Profit (loss) for the year                                                                          (21.569)          (17.582)
Amortization/Depreciation of intangible/tangible assets                                               1.079             1.209
Bad debt provision                                                                  (*)                  28                 -
Change in liabilities for pensions and employee severance indemnity                                     (29)              (35)
Non-cash costs for stock options                                                                        103               590
Decrease in other assets due to option rights                                       (*)                 516               516
Reversal of financial income and charges                                                             (1.111)             (166)
Cash flow from operating activities before changes in working
capital                                                                                            (20.983)          (15.468)

Changes in current assets and liabilities
(Increase) decrease in inventories                                                                       (16)            (40)
(Increase) decrease in trade and other receivables                                  (*)              (2.982)           1.452
Increase (decrease) in trade and other payables                                     (*)               2.396              336
Increase (decrease) in other liabilities                                                                (284)            396
Total changes in current assets and liabilities                                                        (886)           2.144

(Increase) decrease in non-current tax receivables                                                     (253)           (1.382)
Increase (decrease) in non-current trade payables                                                         -               (38)
Increase (decrease) in other liabilities                                                                121               604
Interest paid                                                                                           (86)             (100)
Taxes paid                                                                                                -                 -
Total cash flow generated (absorbed) by operating activities               B                       (22.087)          (14.240)

Cash flow from investing activities
Net (investment) divestment in tangible assets                                                        (224)               (215)
Net (investment) divestment in intangible assets                                                       (90)                (96)
Net (investment) in other financial assets                                                          (5.985)           (28.519)
Net divestment in other financial assets                                                            11.701             20.678
Interest received                                                                                      959                 334
Total cash flow generated (absorbed) by investing activities               C                         6.361             (7.818)

Cash flow from financing activities
Increases in capital and share premium reserve                                                           69           58.297
Capital increase - other reserves                                                                         -               19
Other changes in shareholders' equity - deduction of listing costs                                        -            (3.562)
Change in finance lease payables                                                                        (97)              (87)
Total cash flow generated (absorbed) by financing activities               D                            (28)          54.667
Cash flow generated (absorbed) during the year                           E=B+C+D                   (15.754)           32.609
Closing cash and cash equivalents                                         A+E                       21.163            36.917

(*) of which with related parties (as required by Consob Resolution no.15519 of July 27, 2006)
(amounts in thousands of Euro)                                                        December 31, 2011 December 31, 2010

(Increase) decrease in trade and other receivables                                                      158                62
Bad debt provision                                                                                       28                 -
(Increase) decrease in other non-current assets                                                         516               516
(Increase) decrease in other financial assets                                                             -            (5.229)
Increase (decrease) in trade and other payables                                                        (643)             (343)




                                                               Page 40
                                                                                             Statutory Financial Statements at
                                                                                                            31 December 2011




5.          STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(amounts in thousands of Euro)                                                                            Retained
                                                    Share              Stock    Actuarial    Fair value                                Total
                                                            Other                                          earnings  Profit (loss)
                                    Capital       premium           option plan valuation    valuation                             shareholders'
                                                           reserves                                     (accumulated for the year
                                                  reserves            reserve    reserve      reserve                                 equity
                                                                                                            losses)
Balance at January 1, 2009           21.638        45.463           -     1.861        21            7        (6.322)     (17.446)       45.222

Allocation of prior year result               -    (23.768)         -         -         -            -         6.322       17.446             -

Subscription of stock options            41            119          -      (194)        -            -           194             -          160

Personnel costs for stock options         -              -          -      590          -            -             -             -          590
Profit (loss) for the year                -              -          -       -           -         (163)            -       (17.169)     (17.332)
Balance at December 31, 2009         21.679         21.815          -     2.257        21         (156)          194      (17.169)       28.640

(amounts in thousands of Euro)                                                                            Retained
                                                    Share              Stock    Actuarial    Fair value                                Total
                                                            Other                                          earnings  Profit (loss)
                                    Capital       premium           option plan valuation    valuation                             shareholders'
                                                           reserves                                     (accumulated for the year
                                                  reserves            reserve    reserve      reserve                                 equity
                                                                                                            losses)
Balance at January 1, 2010           21.679        21.815           -     2.257        21         (156)          194      (17.169)       28.640

Allocation of prior year result               -    (17.169)         -         -         -            -               -     17.169             -

Capital increase                     21.792         36.073         19         -         -            -               -           -       57.884

Deduction of capital increase
                                              -     (3.562)         -         -         -            -               -           -       (3.562)
costs
Subscription of stock options           112            320          -      (525)        -            -           525             -          432

Personnel costs for stock options         -              -       -         590          -            -           -               -          590
Other changes                             -              -       -            -       (21)           -            21             -            -
Profit (loss) for the year                -              -       -            -         -             3            -       (17.582)     (17.579)
Balance at December 31, 2010         43.583         37.476      19        2.322         -         (153)          740      (17.582)       66.405

(amounts in thousands of Euro)                                                                            Retained
                                                    Share              Stock    Actuarial    Fair value                                Total
                                                            Other                                          earnings  Profit (loss)
                                    Capital       premium           option plan valuation    valuation                             shareholders'
                                                           reserves                                     (accumulated for the year
                                                  reserves            reserve    reserve      reserve                                 equity
                                                                                                            losses)
Balance at January 1, 2011           43.583         37.476         19     2.322         -         (153)          740      (17.582)       66.405

Allocation of prior year result               -    (16.823)    (19)           -         -            -          (740)      17.582             -

Subscription of stock options            26             43          -      (122)        -            -           122             -           69

Personnel costs for stock options             -          -          -      103          -            -           -               -          103

Other changes - expiration of
                                              -          -          -      (839)        -            -            839            -            -
2008 stock options plan

Other changes - expiration of
                                              -          -          -      (439)        -            -            439            -            -
2001-2002 stock options plans

Profit (loss) for the year                    -          -          -         -         -         (183)              -     (21.569)     (21.752)

Balance at December 31, 2011         43.609         20.696     -          1.025         -         (336)        1.400      (21.569)       44.825




                                                                        Page 41
                                                                                    Statutory Financial Statements at
                                                                                                   31 December 2011




6.        STATEMENT OF FINANCIAL POSITION PURSUANT TO CONSOB RESOLUTION
          NO. 15519 OF JULY 27, 2006

(amounts in thousands of Euro)                                              Notes        December 31, 2011 December 31, 2010

ASSETS

Tangible assets                                                              1                       1.330             1.720
Goodwill                                                                     2                          77                77
Intangible assets                                                            2                         384               759
Financial assets                                                             3                          12                13
Tax receivables                                                              4                       5.203             4.950
Other assets                                                                 5                       1.636             2.152
of which with related parties                                                33                     1.636              2.152
TOTAL NON-CURRENT ASSETS                                                                            8.642             9.671

Inventories                                                                   6                        360               344
Trade receivables and other commercial assets                                 7                      3.601             1.102
 of which with related parties                                               33                       177               363
Tax receivables                                                               8                      1.194             1.009
Other receivables and sundry assets                                           9                      1.767             1.441
 of which with related parties                                               33                        516               516
Other financial assets                                                       10                     17.740            23.456
 of which with related parties                                               33                      5.229             5.229
Cash and cash equivalents                                                    11                     21.163            36.917
 of which with related parties                                               33                     20.286            32.126
TOTAL CURRENT ASSETS                                                                               45.825            64.269
TOTAL ASSETS                                                                                       54.467            73.940
LIABILITIES AND SHAREHOLDERS' EQUITY
Capital                                                                                              43.609            43.583
Share premium reserve                                                                                20.696            37.476
Other reserves                                                                                          689             2.188
Retained earnings (accumulated losses)                                                                1.400               740
Profit (loss) for the year                                                                         (21.569)          (17.582)
TOTAL SHAREHOLDERS' EQUITY                                                   12                    44.825            66.405

Liabilities for pensions and employee severance indemnity (TFR)              13                        156               185
Trade payables                                                               14                          -                 -
Finance lease payables                                                       15                        125               235
Other liabilities                                                            16                        994               873
TOTAL NON-CURRENT LIABILITIES                                                                       1.275             1.293

Trade payables                                                               17                      6.884             4.488
 of which with related parties                                               33                       115                758
Other liabilities                                                            18                      1.372             1.656
Finance lease payables                                                       15                        111                98
TOTAL CURRENT LIABILITIES                                                                           8.367             6.242
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                                                           54.467            73.940




                                                                  Page 42
                                                          Statutory Financial Statements at
                                                                         31 December 2011




7.       INCOME STATEMENT PURSUANT TO CONSOB RESOLUTION NO. 15519 OF
         JULY 27, 2006

(amounts in thousands of Euro)                  Notes                    2011            2010



   Revenues                                      19                    2.767           2.081
   of which with related parties                 33                      385             904
   Other income                                  20                      651             595
   of which with related parties                 33                         -               -
Total operating revenues                                               3.418           2.676


   Purchases of raw materials and consumables    21                    (2.863)         (1.339)
   Costs for services                            22                   (12.983)         (9.092)
    of which with related parties                33                    (1.073)        (1.291)
   Costs for use of third-party assets           23                    (1.018)            (991)
    of which with related parties                33                      (810)           (793)
   Personnel costs                               24                    (7.988)         (7.628)
    of which with related parties                33                        (24)              -
   Other operating costs                         25                       (139)           (165)
   Amortization, depreciation and write-downs    26                    (1.107)         (1.209)
    of which with related parties                26                        (28)              -
Total operating costs                                                (26.098)        (20.424)
Operating result                                                     (22.680)        (17.748)


   Financial income                                                    1.404              505
    of which with related parties                33                    1.281              354
   Financial charges                                                    (293)            (339)
    of which with related parties                33                       (8)              (23)
Net financial income (charges)                   27                    1.111              166
Pre-tax result                                                       (21.569)        (17.582)


   Income taxes                                  28                        -               -
Profit (loss) for the year                                           (21.569)        (17.582)




                                                Page 43
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




Notes

1.      GENERAL INFORMATION

MolMed’s Financial Statements have been prepared in accordance with the International Accounting
Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and approved by
the European Union, as well as the provisions issued pursuant to art. 9 of Legislative Decree 38/2005.
“IFRS” is also intended as including the International Accounting Standards (IAS) currently in force, as
well as all the interpretations issued by the International Financial Reporting Interpretations
Committee (“IFRIC”), previously known as the Standing Interpretations Committee (“SIC”).
The Financial Statements formats have been prepared on the basis of the revised version of IAS 1 –
Presentation of Financial Statements, as approved by Regulation no. 1274/2008 issued by the
European Commission on 17 December 2008 and effective as from January 1, 2009.
The financial statement formats adopted are consistent with those indicated in IAS 1. In particular,
the Statement of Financial Position has been prepared by classifying assets and liabilities into current
and non-current; the Income Statement has been prepared by classifying operating expenses by
nature of expense, since this form of presentation is considered more appropriate and representative
of the Company’s specific business. This type of presentation is considered representative of the
Company’s business.
The Statement of Cash Flows has been prepared showing the financial flows using the “indirect
method”, as indicated by IAS 7. In the Statement of Cash Flows, in order to provide a better
representation of cash flows, some reclassifications have been made to the comparative figures.
In compliance with the requirements of Consob Resolution no. 15519 of July 27, 2006 as to the
format of the Financial Statements, specific supplementary formats have been provided for related
party transactions so as not to compromise an overall reading of the statements.
The Financial statements are in thousands of Euro, unless otherwise indicated. The Euro is the
Company’s functional currency.




                                                Page 44
                                                                  Statutory Financial Statements at
                                                                                 31 December 2011




2.      ACCOUNTING PRINCIPLES AND VALUATION POLICIES


General principles
The Financial Statements have been prepared under the historical cost convention, modified as
required for the valuation of certain financial instruments, as well as on the going concern
assumption.

Going concern
MolMed’s operating results are due to the business model peculiar to biotech companies which are
developing new biopharmaceutical products and have no products on the market. At this stage, costs
are high, linked to the clinical and pharmaceutical development of new drugs, return of which is
expected in forthcoming years.
In keeping with the accounting arrangements adopted, which envisage the complete recognition of
research and development costs in the Income Statement in the year they are incurred, since its
incorporation the Company has always reported losses. Consequently, 2011 saw a loss of 21,569
thousand Euro, an increase compared to the previous year loss of 17,582 thousand Euro due to the
intensification of the research and development activities.
The Company is subject to some uncertainties related to the sector in which it operates and to
current product testing, regarding both the results that it may effectively achieve and the means and
timeframes in which these results may come to fruition.
The business plans envisage that in coming years the Company will continue its research and
development activities, the results of which currently seem promising, with consequent operating
results that will continue to be negative until the commercialization or licensing of one of its
products.
The Company, on the basis of an analysis of the future cash flows envisaged by the business plans,
considers that the financial resources available will enable the Company to continue developing its
product portfolio and other research and development work, as well as improving business
opportunities and the Company’s overall operations, thus ensuring adequate resources to continue
the Company’s operations in the foreseeable future of at least 12 months from the date of the
approval of the financial statements. Having taken into account the above considerations, it is
believed that there is no significant doubt, as defined by paragraphs 25 and 26 of IAS 1, about the
Company’s continuity.
Hence these Financial Statements were prepared on a going concern basis.
About risks and uncertainties to which MolMed is exposed, reference should be made to the specific
paragraph of the Report on Operations.


The accounting principles adopted are set out below.

Business combinations
Acquisitions of subsidiary companies are accounted for under the acquisition method. The acquisition
cost is determined based on the sum of fair values, at the transaction date, of the assets acquired,
the liabilities incurred or taken on and the financial instruments issued by the Company in exchange
for control of the business acquired, plus costs directly attributable to the combination.
The assets, liabilities and identifiable contingent liabilities of the business acquired that respect the
recognition criteria of IFRS 3 are recorded at their value at the acquisition date, except for non-
current assets (or groups of assets to be divested) which are recorded and evaluated at the lower of
book value and fair value net of selling costs.
The cost of a business combination is, therefore, allocated by recognizing at the acquisition date the
fair value of assets, liabilities and contingent liabilities which can be identified upon acquisition. The

                                                 Page 45
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




positive difference between the acquisition cost and the fair value of assets, liabilities and
contingent liabilities which can be identified upon acquisition is recorded under assets as goodwill.
Should the difference be negative, it is directly recorded in the Income Statement.
Goodwill deriving from acquisition is initially recorded at cost and is subsequently reduced only for
impairment losses.
In accordance with IAS 36 (Impairment of assets), goodwill is tested for impairment annually, or more
frequently, if specific events or changes in circumstances indicate that it may be impaired. However,
impairment losses of goodwill are not reversed when the underlying assumptions no longer exist. For
additional details, please refer to the “Impairment” paragraph, reported below.
In the context of IFRS first-time adoption, the Company in compliance with IFRS 1 elected not to
apply IFRS 3 retrospectively to those business combinations which had arisen before January 1, 2004.
As a consequence, goodwill on acquisitions before that date has been retained (except for possible
effects arising from the application of the new accounting standards) at the previous Italian GAAP
amounts, after being tested for recoverability. This exemption was applied with regard to the
acquisition of 100% of research company Genera S.p.A. in December 2001, followed by its merger into
MolMed S.p.A. with effect from May 2, 2002.

Impairment
Intangible assets with an indefinite useful life (goodwill) are tested annually or more frequently if
specific factors indicate that the goodwill may be impaired.
Tangible and intangible assets are tested when indicators of impairment exist. If indicators of
impairment exist, the recoverable amount of these assets is estimated to determine the amount of
the write-down. When it is not possible to estimate the recoverable amount of an individual asset,
the Company estimates the recoverable amount of the cash-generating unit to which the asset
belongs.
The recoverable amount of an asset is the higher of the fair value, less costs to sell, and its value in
use. In assessing the value in use, the estimated future cash flows are discounted to their present
value, using a pre-tax discount rate that reflects current assessments of market, time value of money
and risks specific to the asset.
An impairment loss is recognized in the Income Statement when the recoverable amount of an asset
or of a cash-generating unit is lower than the carrying amount.
When indicators of impairment loss for assets other than goodwill cease to exist, the carrying amount
of the asset or the cash-generating unit is increased to the revised estimate of its recoverable
amount, but never in excess of the carrying amount that would have been recorded had no
impairment loss been recognized. A reversal of an impairment loss is recognized in profit or loss.
In drawing up the Financial Statements at December 31, 2011, and specifically in carrying out
impairment tests for tangible and intangible assets, the recoverable value is calculated on the basis
of expected cash flows and under the following assumptions:
 use of post-tax cash flows deducted from the plans drawn up by the management;
 use of discount rates that refer to the WACC (Weighted Average Cost of Capital), with a free risk
  rate of 5.41%, a premium risk of 7.50% and a Beta coefficient of 1.8;
 assessment of the probability of success during Phase III studies of products in the pipeline, based
  on studies in the sector and doctrine.
In determining the period for projected financial flows, consideration was given to the MolMed
business model, which is typical of biotech companies that are engaged in the development of new
biopharmaceutical products and do not yet have any products out on the market. During this phase,
massive costs are incurred, due primarily to testing and product development activities, with
economic return seen in future years. Therefore, a period of more than 5 years was chosen, in order
to take into account the positive financial effects of the introduction and distribution of the
Company’s products on the market, up to the point where they become mature, based on the
penetration curves in their sector. It should also be noted that no terminal value has been
calculated.

                                                Page 46
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




For the purposes of the impairment test, therefore, use was made of the approved three-year plans,
under the best possible forecasts drawn up by the management, in order to take into account, under
a variety of prudential assumptions, the effects of the future market launches of the products
currently under development.
The sensitivity of the results was also analyzed, based on scenarios that take into       consideration
reductions in the probability of success for Phase II and III trials of products in       the pipeline,
considered to be a key parameter in estimates of the fair value, and, in all cases,       values in use
proved higher than the book values, even assuming a decreasing variation of +/-           10% in these
probabilities.
The valuations made for the medium/long term take account of the sector in which the Company
operates and of its research and development activities. In addition, consideration has also been
given to the fact that the forecast figures for the Company’s activities and its expected results are
based on business valuations regarding future and uncertain events, the occurrence of which could
lead to significant differences with respect to the forecasts made.
These events include, among other things, the Company’s ability to source adequate financial
resources to meet the investment planned in order to continue with its research and development
activities, given that the financial sustainability of the approved plans envisages, as noted above, the
acquisition of these resources.
At December 31, 2011, the book value of tangible and intangible assets and of shareholders’ equity
was considerably lower than the Company’s market capitalization.

Tangible assets
Tangible assets, net of accumulated depreciation and of any impairment losses, are recorded at
acquisition cost, including directly attributable expenses. Subsequent expenditures made for
improvements and variations of tangible assets are capitalized only if they increase the future
economic benefits reliably measurable. Ordinary maintenance or repair costs that did not
significantly increase the production capacity or the useful life of the assets are fully recognized in
the Income Statement.
Depreciation, recorded in the Income Statement, is calculated by estimating the utilization and
economic-technical life of the assets based on its residual useful life. The depreciation rates
indicated below are considered a fair reflection of this method. They have not changed since the
previous year:
   General and laboratory plant and machinery 10-30%;
   Laboratory equipment 10-20%;
   Office electronic equipment 20%;
   Office furniture and equipment 12%.
Depreciation starts when the assets are ready for use.
The depreciation rates are reviewed yearly and revised if the current estimated useful life is
different from that estimated previously.
Leasehold improvements are capitalized under the item to which they refer and are depreciated over
their estimated useful life or, if shorter, over the remaining period of the lease agreement.

Leased assets
Lease agreements are classified as finance leases when the terms of the agreement substantially
transfer all of the risks and benefits of ownership to the lessee. All other leases are considered
operating leases. Assets held under finance leases are recognized as tangible assets at their fair value
at the date of the contract signing or, if lower, at the present value of the minimum lease payment.
The corresponding liability towards the lessor is included in the Statement of Financial Position under
financial liability items.
Furthermore, gains realized on sale and leaseback transactions based on finance leases are deferred
over either the lease term or the remaining useful life of the asset, whichever is shorter.


                                                Page 47
                                                                   Statutory Financial Statements at
                                                                                  31 December 2011




Since there is no reasonable certainty as to the acquisition of the ownership of the asset at the end
of lease period, assets held under finance leases are depreciated over the shorter of the lease term
and their useful lives.
Leases where the lessor substantially retains all the risks and rewards of ownership of the assets are
recorded as operating leases. Operating lease rentals are recognized in the Income Statement on a
straight-line basis over the lease term.

Intangible assets
Purchased and internally-generated intangible assets are recognized as assets in accordance with IAS
38 – Intangible Assets, assuming they are identifiable, controllable and when it is probable that the
use of the asset will generate future economic benefits and that the costs of the asset can be reliably
determined.
Intangible assets may be divided between assets with a finite useful life and assets with an indefinite
useful life.
The former are recorded at acquisition or production cost, net of amortization and of any
accumulated impairment losses. Amortization is calculated over their estimated useful lives,
beginning from the date the asset is ready for use. The useful life is reviewed yearly and any changes
are recognized in the Income Statement on a prospective basis.
Intangible assets with an indefinite useful life are not amortized but are tested for impairment
annually or more frequently if necessary.

Goodwill
Goodwill, equal to the portion of the acquisition cost in excess of the purchaser’s portion of the fair
value of the assets, liabilities and contingent liabilities recorded on the acquisition date, is classified
as an asset with an indefinite useful life and is initially recorded at cost.
After acquisition, goodwill is not amortized, but it is tested for impairment annually or more
frequently if events or changes in circumstances indicate that it might be impaired. If the
recoverable amount is lower than the carrying amount, the value of the assets is reduced to the
recoverable amount. When goodwill has been allocated to a cash-generating unit that will be
partially sold/divested, the related goodwill is considered for determining any gain/loss deriving from
the transaction.

Other intangible assets
Other intangible assets are recorded at their historic acquisition cost, including accessory charges
directly attributable, or based on the costs directly incurred for their internal production. They are
amortized on a straight-line basis over their residual useful life, estimated at ten years, except for
certain costs regarding concessions, licenses and software, which are amortized over five years.
In detail:
 Concessions, licenses and trademarks
   These assets regard costs incurred under license and sub-license agreements for intellectual
   property used in the development of the Company’s products. They are amortized on a straight-
   line basis over their future useful life, which is estimated at ten years.
 Patents and intellectual property rights
   Patents that have been purchased are initially recorded at acquisition cost and amortized on a
   straight-line basis over their future useful life, which is estimated at ten years.
 Research and development costs
   Research costs are recognized in the Income Statement in the period in which they are incurred.
   In-house costs for the development of new products are recorded as intangible assets and are
   recognized as assets only if the following conditions are satisfied:
     it is technically possible to complete the asset in such a way as to make it available for use or
       sale and there is an intention to do so;

                                                 Page 48
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




 the Company is able to use or sell the asset;
 there is evidence that the costs incurred will generate probable future economic benefits. This
  evidence may consist of the existence of a market for the products resulting from the activity or of
  a possible internal use;
 there are sufficient technical and financial resources to complete the development and the sale,
  or the internal use, of the products developed;
 the costs attributable to the asset during development can be reliably valued.
Given the Company’s operating activities and the characteristics of the trials and tests carried on,
research and development costs are fully expensed each year: the Company believes that the current
state of development of MolMed’s products makes it more desirable not to capitalize research and
development costs.
Non-current financial assets
Non-current financial assets include items such as guarantee deposits that the Company intends and
is able to hold until maturity. These assets do not fulfill the requirements for classification as cash
equivalents. They are recorded and removed from the Statement of Financial Position in accordance
with the date of negotiation. The assets are initially recognized at fair value and subsequently
measured at amortized cost, net of impairment losses.

Receivables
Receivables are initially recorded at nominal value (representing the fair value of the transaction).
They are then stated at amortized cost, following deduction of the write-downs recorded in the
Income Statement where there is objective evidence that the value of the receivables may be
impaired.
These write-downs are determined by the difference between the book value of the receivables and
the present value of estimated future cash inflows, discounted at the effective interest rate. In
particular, for current trade receivables on which the time component has little effect, the valuation
at amortized cost is equal to the nominal value, net of impairment losses.

Inventories
Inventories are recorded at the lower of cost and net realizable. Acquisition cost is calculated based
on the weighted average cost.
The carrying amount of inventories is adjusted by relevant write-downs made to take into account
obsolete and slow moving stocks, taking into account their expected future use and estimated
realizable value.

Cash and cash equivalents
Cash and cash equivalents are recorded, depending on their nature, at nominal value (representing
the fair value) or amortized cost. They include cash on hand.

Other current financial assets
Financial assets are classified as “available-for-sale” and valued at fair value. As required by IAS 39,
changes in the value of these assets, measured at fair value, are recognized in a specific equity
reserve until the financial asset is disposed of or impaired, at which time income or losses are
reversed to the Income Statement. The fair value is represented by the value for the securities listed
on official markets.
Financial asset purchases and sales are recorded at the date of trading or settlement.

Employee benefits
Employee severance indemnity (TFR), mandatory for Italian companies pursuant to art. 2120 of the
Italian Civil Code, is considered as deferred remuneration and is based on the years of service and
the salary earned by the employee during the service period.



                                                  Page 49
                                                                  Statutory Financial Statements at
                                                                                 31 December 2011




Under IAS 19 (Employee benefits), the amount of employee severance indemnity calculated is
considered as a “defined benefit plan”, and the related liability to be recognized in the Statement of
Financial Position is determined through actuarial calculations, using the Projected Unit Credit
Method. As the time for payment of the benefit comes closer, the expenses attributable to the
increase in the present value of the employee severance indemnity are included in the Income
Statement under “Personnel costs”.
Starting from January 1, 2007, the Budget Law 2007, plus the related implementation decrees,
introduced significant changes in employee severance indemnity regulations, including the choice for
employees of accruing the employee severance indemnity either in supplementary pension funds or in
the “Treasury fund” managed by INPS.
As a result, the Company’s obligation to INPS and the contributions made to supplementary pension
funds take the form, under IAS 19, of “defined contribution plans”, whereas the amounts recorded in
the employee severance indemnity provision retain the status of “defined benefit plans”.
Liabilities relating to employee severance indemnity to be recognized in the Statement of Financial
Position for defined benefit plans represent the present value of the defined benefit obligation
adjusted for actuarial gains and losses.

Stock option plans
The Company provides additional benefits to the Chairman, the General Manager and specific
categories of employees through stock option plans.
In accordance with IFRS 2, Share-based Payments, these plans are a component of recipients’
remuneration whose cost is measured by the fair value of the stock options at the grant date and
recognized in the Income Statement on a straight-line basis from the grant date to the vesting date,
with the offsetting credit recognized directly in equity. Any subsequent changes in fair value do not
have any effect on the initial measurement.
Personnel costs include stock options by virtue of their remuneration nature.

Financial payables
Financial payables, consisting of liabilities arising under finance lease agreements, are initially
recognized at cost, equal to the fair value of the amount received, less transaction costs.
Subsequently they are measured at the amortized cost, determined using the effective interest rate.

Payables
Trade and other payables are recorded using the amortized cost method. Given the nature and due
date of the payables, this is normally the same as the nominal value.

Provisions for risks and charges
These include liabilities deriving from current (legal or implicit) obligations, relating to a past event
where performance of the obligations is likely to lead to a deployment of resources whose amount
can be reliably estimated. If the expected utilization of resources extends beyond a year, the liability
is recorded at present value, determined by discounting projected future cash flows at an interest
rate that takes into account the cost of borrowing and the risk of the liability.
The provisions are reviewed whenever Financial Statements are prepared, and they are adjusted, as
necessary, to reflect the best current estimate. Any changes are reflected in the Income Statement
for the period in which the change took place.
Risks involving a possible liability are disclosed in the Notes, but no provision is made.

Recognition of revenues and income
Revenues are recognized insofar as it is probable that the Company will enjoy economic benefits and
assuming that their amount can be reliably determined. Revenues are stated net of discounts,
allowances and returns.



                                                 Page 50
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




Revenues from the performance of services are recognized with reference to the state of completion
of the service only when the result of the service can be reliably estimated.
Revenues relating to upfront payments from the sale of rights to third party companies relating to
company products which are being developed have been divided in the period between the signing of
the related out-licensing contract and the subsequent development milestone envisaged on the basis
of management’s estimates. The revenues relating to milestone payments upon achievement of set
development objectives are fully recognized when the right to such payment is incurred.
Government grant income is recognized when it is reasonably certain that it will be received. This
takes place when the grant is approved by the relevant public sector bodies. This income is
recognized based on the costs actually incurred as a percentage of the total costs budgeted for the
research project in respect of which the grant has been awarded.

Recognition of costs and charges
Costs and charges are accounted for on an accrual basis when they concern goods and services
purchased or consumed during the year or when they have no identifiable future benefit.

Financial income and charges
Financial income and charges are accounted for on an accrual basis, calculated on the basis of the
net value of the related assets and liabilities using the effective interest rate.
Financial charges are accounted for on an accrual basis in the Income Statement of the year in which
they occur.
Financial income is accounted for on the basis of the effective rate of return, determined on an
accrual basis.

Income taxes
Income taxes include all taxes calculated on the basis of the taxable income of the Company.
Income tax expense in the year is determined on the basis of the legislation in force. Income taxes
are recorded in the Income Statement, except for those relating to items which are directly charged
or credited to equity, in which case the tax effect is directly recognized in equity.
Taxable income differs from the result shown in the Income Statement, as it does not include
revenues and charges that will be taxable or deductible in other years, as well as those items that
will never be taxable or deductible.
Deferred tax assets and liabilities are determined on the basis of all the temporary differences
between the carrying amount of an asset or liability and its underlying tax value used in calculating
taxable income, and recorded using the liability method.
Deferred tax liabilities are generally recorded for all taxable temporary differences, except in cases
where the Company is able to control the reversal of these temporary differences and it is likely that
they will not be reversed in the foreseeable future.
Any deferred tax assets, whether arising from temporary differences and/or accumulated tax losses,
are recognized to the extent that it is likely that there will be future taxable income to make
possible the use of the deductible temporary differences and/or the accumulated tax losses. In this
regard, on July 15, 2011, Law no. 111/2011 was approved which converted Decree Law no. 98/2011
governing urgent provisions for the financial stabilization of the country (Corrective Measure 2011). In
particular, the Decree Law amended article 84 of the Consolidated Law on Income Tax relating to
carrying forward tax losses, removing the time limit of 5 years set for carrying forward previous tax
losses (which therefore means that they can be carried forward without limit), and introducing a
quantitative limit for the use of previous tax losses equal to 80% of the income produced in the
following financial years. This quantitative limit of 80% is not applicable to tax losses generated in
the first three financial years of the company’s incorporation, on the condition that they relate to
new production activity. The new provisions shall apply from the 2011 financial year and, as clarified
in circular 53/E 2011 from the Revenue Agency, also affect tax losses generated prior to 2011 which


                                                Page 51
                                                                  Statutory Financial Statements at
                                                                                 31 December 2011




are still subject to a carry-forward procedure under the previous legislation (for example, losses
recorded from 2006 onwards).
These assets and liabilities are not recorded if the temporary differences are due to goodwill or to
initial recognition (not to business combinations) of other assets or liabilities in operations without an
impact on statutory or taxable results. The book value of deferred tax assets is reviewed at the end
of each reporting period and reduced in the event that it is no longer probable that there will be
sufficient future taxable income to permit recovery of all or part of the assets.
Deferred taxes are calculated by using the tax rate the Company expects to be in force when the
asset is realized or the liability is settled based on the rates in force or decided at the end of the
reporting period. Should the conditions exist, deferred taxes are directly recognized in the Income
Statement. Exceptions are deferred taxes regarding items directly recorded in equity, in which case
the deferred taxes are also recognized in equity.
Current and deferred tax assets and liabilities are offset when there is a legally enforceable right to
offset them, and they are classified as receivables or payables in the Statement of Financial Position.
Taxes other than income taxes are included in operating costs.

Foreign currency transactions
Transactions in foreign currencies are initially recorded at the foreign exchange rate prevailing on
the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
translated at the foreign exchange rate prevailing at the end of the reporting period.
Exchange differences arising from the settlement of monetary items and from their conversion at
rates different from those at which they were initially recorded are recognized in the Income
Statement.

Earnings per share
Basic earnings per share are calculated by dividing the net profit attributable to the owners of
ordinary shares in the Company (the numerator) by the weighted average number of ordinary shares
in issue (the denominator) during the year.
Diluted earnings per share are calculated by adjusting the net profit attributable to owners of
ordinary shares and the weighted average number of ordinary shares (the denominator) to take into
account all potential ordinary shares with a diluting effect. A potential ordinary share is a financial
instrument or other contract that could give its owner the right to obtain ordinary shares.

Other information

Use of estimates
The preparation of the Financial Statements and related notes, in conformity with IFRS, requires that
management make estimates and assumptions which affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the Financial
Statements.
The estimates and assumptions used are based on experience and other factors that are considered
as relevant. Actual results could differ from those estimated. Estimates and assumptions are
reviewed periodically, and the effects of any changes are reflected immediately in the Income
Statement for the year, if the review has effect only on this period, or for future years, if the review
affects both the present and future periods.
Furthermore, the preparation of the Financial Statements calls for the application of accounting
principles and methodologies that, in some cases, are based on difficult and subjective assumptions
and valuations tied to historical experience and to realistic and reasonable assumptions. The
application of such forecasts and assumptions has an impact on the amounts recorded in the
Statement of Financial Position, in the Income Statement, in the Statement of Cash Flows and in the
Notes.


                                                 Page 52
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




Below are detailed estimates of critical importance to the formulation of the Financial Statements,
since they rely to a significant degree on subjective judgments, assumptions and estimates involving
matters that are elusive by nature. Changes in the conditions underlying the judgments, assumptions
and estimates adopted might have a major impact on future results since there is the risk that
significant adjustments to the book value of assets and liabilities emerge in years following the
Financial Statements.

Recoverability of assets
Tangible and intangible assets are written down when specific events suggest that the book value is
not recoverable. Write-down is calculated by comparing the book value with the recoverable value,
with the latter representing the higher of fair value – net of disposal costs – and the value in use –
calculated by discounting the future cash flows arising from the use of the asset. The expected cash
flows are determined in accordance with the information available at the time of the evaluation,
based on subjective judgments regarding the trends of future variables.
Management reviews periodically the carrying value of non-current assets held and used, plus that of
assets to be disposed of, when events and circumstances warrant such a review. Management
performs this review using estimates of future cash flows deriving from the use or disposal of the
asset, plus a discount rate suitable to calculating the present value. If the carrying amount of a non-
current asset is considered impaired, the Company records an impairment loss for the amount by
which the carrying amount of the asset exceeds its estimated recoverable amount from use or
disposal, determined on the basis of the most recent Company plans.
When preparing the Financial Statements for the year ended December 31, 2011, and, more
specifically, when carrying out impairment testing of tangible and intangible assets, the Company has
taken into consideration the expected performance for 2012 and future years, as resulting from the
approved business plans and taking account of the current economic and financial position.
In the current year there were no impairment losses. Models utilized for valuation are based on the
assumptions indicated in the paragraph on the principle related to “Impairment”.
In particular, in reference to intangible assets, the assumption of their recoverability has been
assessed on the basis of the business plans which, as indicated previously in the paragraph on
“Impairment”, presume the sourcing of adequate finances in the future to meet the investment
planned in order to continue with the research and development activities, and which are currently
uncertain. The uncertainty connected to this situation could lead to the need, currently not
foreseeable, to proceed to a write-down of the intangible assets which is not currently reflected in
the Financial Statements.

Deferred taxes
Any deferred tax assets, whether arising from temporary differences and/or accumulated tax losses,
are recognized to the extent that it is probable that there will be future taxable income to enable
the utilization of the deductible temporary differences and/or the accumulated tax losses. The
effective recoverability of deferred taxes depends mainly on the recognition of a future taxable
profit sufficient to utilize them. Directors concluded that there is not sufficient evidence to consider
recoverability probable. Therefore, no deferred taxes have been recognized. For this valuation, an
opinion is required since changes in the assumptions could have a material impact on the accrual of
deferred tax assets.

Amortization and depreciation
Intangible and tangible assets with a finite useful life are amortized and depreciated according to the
straight-line method applied over their estimated useful life. The estimated useful life is determined
by management when assets are purchased or completed. The effective economic life may differ
from the estimated useful life. The Company periodically verifies technological changes, market
conditions and forecasts of future events that may impact useful life. Such periodical updates can
change the amortization and depreciation period, as well as the amortization and depreciation for
the years to come.


                                                Page 53
                                                                Statutory Financial Statements at
                                                                               31 December 2011




Equity compensation plans
The Company provides additional benefits to certain members of senior management through stock
option plans. In accordance with IFRS 2, Share-based Payments, these plans represent a component
of recipients’ remuneration. Employee stock options are measured at fair value at the grant date,
using models that take into account circumstances applicable at the grant date (option strike price,
vesting period, current price of the underlying shares, expected share price volatility, expected
dividends and interest rate for a risk-free investment over the option term) as well as the probability
to achieve targets expected.
At the end of each year, the previously determined fair value of each option is neither reviewed nor
updated, but maintained at its original value. At that date, instead, the Company updates its
estimates of the market conditions and future events that could impact the valuations.

Accounting standards, interpretations and amendments to accounting standards effective from
January 1, 2011 but not applicable to the Company
The following accounting standards, amendments and interpretations are effective as from January
1, 2011, and regulate situations and cases which are not relevant for the Company at the date of
these Financial Statements but which might have an accounting impact on future transactions or
agreements:
 IFRS 1, pursuant to which parties who adopt the IFRS principles for the first time must prepare a
  First-time Adoption document;
 IFRS 3, which concerns the measurement of non-controlling interests in the acquired entity in a
  business combination;
 IFRS 7, which amends the disclosures concerning financial risks;
 IAS 1, which requires an analysis of the other components of the comprehensive income statement
  for each component of shareholders’ equity;
 IAS 24, which requires additional disclosures concerning related-party commitments;
 IAS 34, which deals with the minimum content of interim financial reports;
 IFRIC 14 “Prepayments of a Minimum Funding Requirement”;
 IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments”;
 Other marginal amendments to other accounting principles and interpretations.

Accounting standards, amendments and interpretations not yet applicable and for which the
Company has not elected early adoption
At the date of these financial statements, the European Union had not yet endorsed the following
standards and amendments, with the exception of the Amendment to IFRS 7 – Financial Instruments:
Disclosures (7 October 2010), details of which are provided at the end of this section.
On 12 November 2009, the IASB issued IFRS 9 – Financial Instruments, which was later amended. The
new standard, applicable retrospectively from 1 January 2015, represents completion of the first
phase of a project to replace IAS 39 and introduces new requirements for classification and
measurement of financial assets and liabilities and derecognition of financial assets. For financial
assets, the standard uses a single approach to determine whether a financial asset is measured at
amortized cost or fair value – replacing the many different rules in IAS 39 – which is based on how an
entity manages its financial instruments and the contractual cash flow characteristics of the financial
assets. For financial liabilities, on the other hand, the principal amendment relates to the
recognition of changes in fair value of financial liabilities measured at fair value through profit or
loss, when such changes are due to changes in the credit risk of the liability. Under the new
standard, these changes must be recognized in other comprehensive income rather than through
profit or loss.
On 20 December 2010, the IASB issued a minor amendment to IAS 12 – Income taxes, requiring an
entity to measure the deferred tax relating to an asset depending on whether the entity expects to
recover the carrying amount of the asset through use or sale. As a result of this amendment, SIC 21 –
Income Taxes – Recovery of Revalued Non-Depreciable Assets will no longer apply. The amendment
must be adopted retrospectively from 1 January 2012.


                                               Page 54
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




On 12 May 2011, the IASB issued IFRS 10 – Consolidated Financial Statements that will replace SIC-12 –
Consolidation – Special Purpose Entities and parts of IAS 27 – Consolidated and Separate Financial
Statements (to be renamed Separate Financial Statements) which addresses accounting treatment for
investments in separate financial statements. There are no substantial changes from the previous
version. IFRS 10 builds on existing principles by identifying the concept of control as the determining
factor in whether an entity should be included within the consolidated financial statements of the
parent company. The standard provides additional guidance for situations where control may be
difficult to determine. IFRS 10 and IAS 27 are effective retrospectively from 1 January 2013.
On 12 May 2011, the IASB issued IFRS 11 – Joint Arrangements which supersedes IAS 31 – Interests in
Joint Ventures and SIC-13 – Jointly-controlled Entities – Non-monetary Contributions by Venturers.
The new standard sets out criteria for identifying joint arrangements, by focusing on the rights and
obligations of the arrangement rather than its legal form, and defines rules for treatment of joint
operations in the separate financial statements. The standard is effective retrospectively from 1
January 2013.
On 12 May 2011, the IASB issued IFRS 13 – Fair Value Measurement, which clarifies rules for
determination of fair value for the purposes of financial reporting and applies to all IFRS that require
or allow fair value measurement or disclosures based on fair value. The standard is applicable
prospectively from 1 January 2013.
On 16 June 2011, the IASB issued an amendment to IAS 1 – Presentation of Financial Statements
requiring entities to group together items within other comprehensive income that might
subsequently be reclassified to the profit or loss section and those that will not be reclassified
subsequently to the profit or loss section. The amendment is applicable for annual periods beginning
on or after 1 July 2012.
On 16 June 2011, the IASB issued an amended version of IAS 19 – Employee Benefits which eliminates
the option to defer recognition of gains and losses, known as the “corridor approach”, and requires
any plan deficit or surplus to be presented in the statement of financial position, the components of
cost relating to service and net interest to be recognized in profit or loss, and actuarial gains and
losses arising from the remeasurement of liabilities to be recognized in other comprehensive income.
The amendment also introduces additional disclosure requirements. The amendment is applicable
retrospectively from 1 January 2013.
On 16 December 2011, the IASB issued amendments to IAS 32 – Financial Instruments: Presentation,
which clarifies application of certain criteria contained in IAS 32 for offsetting financial assets and
liabilities. The amendments are effective retrospectively for annual periods beginning on or after 1
January 2014.
On 16 December 2011, the IASB issued amendments to IFRS 7 – Financial Instruments: Disclosures.
The amendments require disclosure of information on the effect or potential effect on an entity’s
financial position of netting arrangements for financial assets and liabilities. The amendments are
effective for annual periods beginning on or after 1 January 2013. Disclosure must be provided
retrospectively.
Lastly, on 7 October 2010, the IASB issued amendments to IFRS 7 – Financial Instruments: Disclosures,
applicable for reporting periods commencing on or after 1 July 2011. The amendments are intended
to improve the understanding of transfers of financial assets (derecognition) for users of financial
statements, including the possible effects of any risks that may remain with the entity that
transferred the assets. The amendments also require additional disclosures if a disproportionate
amount of transfers are undertaken around the end of a reporting period. Adoption of this standard
will have no effect on the measurement of items in the financial statements.




                                                Page 55
                                                                Statutory Financial Statements at
                                                                               31 December 2011




3.      SEGMENT REPORTING

With regard to the presentation of income and financial reporting by business segment and
geographical area in which the Company operates, it should be noted that management has
identified a single business segment. The essentially uniform nature of the activities and the state of
completion of the projects under development means that it is not possible to identify sectors with
risks and benefits different from the other business sectors. Moreover, because of the services
provided, the nature of the production processes and the type of client for the Company’s products,
it is not possible to split the Company’s activities into several business segments. Therefore, the
Company believes that, at present, reporting by business sector and geographical area would not
provide a better representation or understanding of the business or the related risks and benefits.




                                               Page 56
                                                                                 Statutory Financial Statements at
                                                                                                31 December 2011




4.        NOTES TO THE STATEMENT OF FINANCIAL POSITION

Note 1 – Tangible assets
The following table provides a breakdown of tangible assets at December 31, 2011 and movements
thereon in the relevant period:
(amounts in thousands of Euro)               Balance at    Purchases Reclassifications Disposals Depreciation      Balance at
                                         December 31, 2010                                       & write-downs December 31, 2011
Gross book value
Plant and machinery                                    512          -              -          -             -               512
Industrial and commercial equipment                  3.335        202              -         (1)            -             3.536
Leasehold improvements                               3.994          -              -          -             -             3.994
Other tangible assets                                  945         22              -         (5)            -               962
Assets under construction and payments
on account                                               -          -              -          -             -                 -
Total gross book value                               8.786        224              -         (6)            -             9.004
Accumulated depreciation
Plant and machinery                                   (391)         -              -          -           (45)             (436)
Industrial and commercial equipment                 (2.469)         -              -          1          (254)           (2.722)
Leasehold improvements                              (3.558)         -              -          -          (222)           (3.780)
Other tangible assets                                 (648)         -              -          5           (93)             (736)
Assets under construction and payments
                                                       -
on account                                                          -              -          -             -                 -
Total accumulated depreciation                     (7.066)          -              -          6          (614)           (7.674)
Net book value
Plant and machinery                                   121           -              -          -           (45)               76
Industrial and commercial equipment                   866         202              -          -          (254)              814
Leasehold improvements                                436           -              -          -          (222)              214
Other tangible assets                                 297          22              -          -           (93)              226
Assets under construction and payments
on account                                               -          -              -          -             -                 -
Total net book value                                 1.720        224              -          -          (614)            1.330

The item Plant and machinery includes specific plant and machinery used to develop the Company’s
products and to provide services.
Industrial and commercial equipment includes various types of tangible assets, including laboratory
equipment used to develop the Company’s products and to provide services.
Leasehold improvements include the cost of refurbishing the premises used by the Company, in
particular its pharmaceutical laboratories and offices. These premises are used under a lease
agreement. The costs incurred generally regarded building work and work on the systems that form
an integral part of the premises.
Other tangible assets include furniture and fittings as well as electronic office equipment.
During 2011 investments of 224 thousand Euro were made in tangible assets. The most significant
changes in the financial year concerned:
 purchases of industrial and commercial equipment totaling 202 thousand Euro due to the
  periodical renewal of laboratory equipment and the improvement of existing equipment to cope
  with the increased activity regarding clinical development of the Company’s products;
 the increase in other tangible assets of 22 thousand Euro, mainly due to the costs incurred to
  purchase electronic machinery as part of the periodic renewal of the Company’s IT equipment.
The item industrial and commercial equipment, of 814 thousand Euro at December 31, 2011, includes
the net book value of the tangible assets held under a finance lease, totaling 199 thousand Euro,
arising from the purchase of two laboratory instruments.
Depreciation totaled 614 thousand Euro, in line with the prior-year period.
It is worth pointing out that there is no collateral security on tangible assets.
In the period no internal or external indicators were identified requiring impairment test to be
carried out.

                                                              Page 57
                                                                                        Statutory Financial Statements at
                                                                                                       31 December 2011




Note 2 – Intangible assets and goodwill
The following table provides a breakdown of intangible assets at December 31, 2011 and movements
thereon in the relevant period:
(amounts in thousands of Euro)                          Balance at    Purchases   Reclassifications   Disposals       Amortization     Balance at
                                                    December 31, 2010                                                                 Dec.31, 2011

Merger with Genera S.p.A.                                        77           -                  -                -              -             77
Goodwill                                                         77           -                  -                -              -             77


Patents and intellectual property rights                        485          90                  -                -           (335)           240
Concessions, licenses and trademarks                            193           -                  -                -            (94)             99
Other intangible assets                                          81           -                  -                -            (36)             45
Assets under construction and payments on account                 -           -                  -                -              -             -
Intangible assets                                               759          90                  -                -           (465)           384
Total                                                           836          90                  -                -           (465)           461

Goodwill refers to the value recorded under this item following the merger of Genera S.p.A. into
MolMed in 2002.
For its IFRS first-time adoption, the Company decided not to apply IFRS 3 – Business Combinations on
a retroactive basis to business acquisitions taking place before January 1, 2004. As a result, goodwill
arising from acquisitions prior to the date of transition to IFRS has been maintained at the value
determined under the Italian GAAP at that date, after recognition of any impairment losses following
an appropriate test. The recoverability of this goodwill is linked to the know-how of the technical
personnel carrying out the research activities on the new product development projects and to the
possible revenues that could be generated by their commercial development.
The item Patents and intellectual property rights also includes the allocation of the entire merger
deficit arising from the merger of Genera S.p.A. In this regard, the last amortization charge of 255
thousand Euro was recorded in 2011.
In 2011 investments in intangible assets were made relating to the validation of patents in European
countries.
The item Concessions, licenses and trademarks includes the payments made under license and sub-
license agreements for intellectual property used in the development of the Company’s products.
The item Other intangible assets refers to costs incurred and capitalized for the implementation of
the new IT system.
Amortization amounted to 465 thousand Euro.
There were no intangible assets with indefinite useful life other than goodwill.
In accordance with IAS 36, at the year-end date, goodwill was tested for impairment. The impairment
test confirmed the absence of significant impairment losses. Regarding the model and assumptions
used to perform the impairment test, reference should be made to the section “Accounting standards
and valuation policies – Impairment”. In relation to the possibility of recovering intangible assets,
reference should be made to the section on “Use of estimates” and “Recoverability of assets” in
these Notes, as well as to section 11.3 – Financial risks in the Report on Operations.

Note 3 – Financial assets
Non-current financial assets, amounting to 12 thousand Euro, consist of guarantee deposits.

Note 4 – Tax receivables (non-current)
Non-current tax receivables amounted to 5,203 thousand Euro at December 31, 2011, compared to
4,950 thousand Euro at December 31, 2010.
Non-current tax receivables mainly relate to VAT receivables accrued by the Company. As its costs
exceed its revenues at this stage of its business development, the Company regularly generates a VAT
receivable.



                                                                 Page 58
                                                                  Statutory Financial Statements at
                                                                                 31 December 2011




At December 31, 2011, the item mainly consisted of 2,521 thousand Euro VAT receivables for which
refunds were requested relating to 2008, 2009 and 2010 and of 2,625 thousand Euro VAT receivables
for which refunds have not yet been requested. Tax receivables also include those relating to interest
on VAT receivables for which refunds have been requested.
Information on tax receivables classified under current assets is provided in Note 8.

Note 5 – Other assets
Other assets, which amounted to 1,636 thousand Euro, refer to the agreed price of the option
agreement the Company has signed with the Shareholder Science Park Raf S.p.A. and its parent
company Fondazione San Raffaele to purchase research projects. This agreement is effective as from
the listing of the Company’s shares on the stock market, which occurred on March 5, 2008. It is valid
for eight years after said date, with the possibility of renewal every four years. Effective from the
above-mentioned date, the amount recorded under the item Other assets has started to decrease,
pro rata temporis, with the related charge recorded in the Income Statement on a straight-line basis
over the contract eight-year minimum duration. This amount, originally equal to 4,131 thousand
Euro, is classified under current assets, with respect to the portion to be released in the Income
Statement within 12 months, with the remaining balance classified under non-current assets.

Note 6 – Inventories
At December 31, 2011 inventories are broken down as follows:
(amounts in thousands of Euro)                                    December 31, 2011 December 31, 2010

Processing materials                                                            189                  195
Reagents                                                                        119                  108
General materials                                                                52                   41
Total inventories                                                               360                  344

At December 31, 2011, inventories consisted of materials and reagents used in laboratory activities.
The slight increase recorded by the item was due to the temporary trend of the management of
stocks in relation to the activities to be carried out.

Note 7 – Trade receivables and other commercial assets
At December 31, 2011 trade receivables are broken down as follows:
(amounts in thousands of Euro)                                   December 31, 2011      December 31, 2010


Trade receivables                                                           2.104                    427
Receivables from related parties                                              177                    363
Prepaid expenses concerning costs pertaining to future periods              1.320                    312
Total trade receivables and other commercial assets                          3.601                  1.102

The increase in trade receivables, mainly relating to the provision of services, reflects the trend in
the invoicing and collection activities relating to the provision of services.
Prepaid expenses mainly relate to advance payments for the provision of services by suppliers.
Receivables from related parties, amounting to 177 thousand Euro, mainly concern the services
provided by the Company to the related party Fondazione San Raffaele. These receivables are
recorded net of a bad debt provision of 28 thousand Euro, set aside during the financial year. For
further information reference should be made to Note 33.




                                                       Page 59
                                                               Statutory Financial Statements at
                                                                              31 December 2011




Note 8 – Tax receivables (current)
At December 31, 2011, tax receivables are broken down as follows:
(amounts in thousands of Euro)                                   December 31, 2011December 31, 2010

VAT receivables                                                                858                 -
Tax credit                                                                     293               539
Research and development tax credit                                              -               414
Withholding taxes                                                               43                56
Total tax receivables                                                        1.194             1.009

Under current tax receivables, the Company only shows the amount of VAT receivables and tax credit
that may be offset against other taxes under Italian tax law together with VAT receivables for which
refunds were requested in previous years and are expected to be collected within the next financial
year. The remaining VAT receivables, which represent the bulk of the balance, are entered under
non-current tax receivables – therefore reference should be made to Note 4.
VAT receivables consisted of 634 thousand Euro VAT receivables concerning 2008 for which the refund
notice from the Revenue Agency has been received, and of 224 thousand Euro relating to the
remaining VAT receivables to be used for offsetting purposes during the financial year 2012.
At December 31, 2011 tax receivables included the remaining amount of corporate income tax (IRES)
of 293 thousand Euro arising from the Modello Unico tax return and which will be used for offsetting
purposes during 2012.
It should be noted that research and development tax credit has been fully used for offsetting
purposes during the financial year under review.

Note 9 – Other receivables and sundry assets
Other receivables and sundry assets, amounting to 1,767 thousand Euro and 1,441 thousand Euro at
December 31, 2011 and December 31, 2010 respectively, include 516 thousand Euro relating to the
current portion of the agreed price of the option agreement the Company has signed with the
Shareholder Science Park Raf S.p.A. and its parent company Fondazione San Raffaele to purchase
research projects, as detailed in Note 5. The portion classified under current assets is the amount to
be released in the Income Statement within 12 months.
The item also includes 935 thousand Euro of public sector research grants accrued but not yet
received, and prepaid expenses related to insurance premiums, IT maintenance and assistance fees
and other minor amounts.
The increase compared to the previous period was due to the intensification in 2011 of activities
connected to a project financed under the Seventh Framework Programme of the European Union.

Note 10 – Other financial assets
The item of 17,740 thousand Euro at December 31, 2011 (23,456 thousand Euro at December 31,
2010), relates to the short term use of the Company’s financial resources, through low-risk
investments in government and corporate bonds. The movements recorded in the period mainly
relate to the repayment of cash investments made in the previous period, new investments in
government and corporate bonds, as well as to fair value adjustments at the year end.
The other financial assets due from related parties are shown in Note 33, to which reference should
be made.




                                               Page 60
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




Note 11 – Cash and cash equivalents
Cash and cash equivalents are broken down as follows:
 (amounts in thousands of Euro)                                   December 31, 2011 December 31, 2010

 Bank and post office accounts                                                 865               4.783
 Bank and post office accounts - related parties                             2.386              32.126
 Cash on hand                                                                   12                   8
 Cash equivalents                                                           17.900                   -
 Total cash and cash equivalents                                            21.163              36.917

Cash and cash equivalents amounted to 21,163 thousand Euro at December 31, 2011 (36,917 thousand
Euro at December 31, 2010) including 3,251 thousand Euro of bank accounts, 12 thousand Euro of
cash on hand and 17,900 thousand Euro of time deposits. Time deposit accounts are opened with
leading banks; yield rates are set for the term of the deposit in line with market rates in force at the
date of the investment.
The decrease in the period was due to the combined effect of the investments made as part of the
Company’s cash management on the one hand, and of the use of the financial resources absorbed by
the Company’s ordinary operations on the other.
The book value of cash and cash equivalents is deemed to be in line with their fair value.
Cash and cash equivalents concerning related parties are detailed in Note 33, to which reference
should be made.

Note 12 – Shareholders’ equity
Shareholders’ equity totaled 44,825 thousand Euro at December 31, 2011, broken down as follows:
(amounts in thousands of Euro)                                    December 31, 2011 December 31, 2010

Share capital                                                                 43.609             43.583
Share premium reserve                                                         20.696             37.476
Other reserves:
  Stock option plan reserve                                                    1.025               2.322
  Actuarial valuation reserve                                                      -                   -
  Fair value valuation reserve                                                 (336)               (153)
  Other                                                                            -                  19
Retained earnings (accumulated losses)                                         1.400                 740
Profit (loss) for the year                                                  (21.569)            (17.582)
Total shareholders' equity                                                   44.825              66.405

The breakdown of the movements in the period is provided in the relevant statement.
The most important items are explained below.

Share capital
At December 31, 2011, the capital was fully subscribed and paid in. It amounted to 43,609 thousand
Euro and consisted of 210,541,926 ordinary shares with no nominal value.
The capital increase of 26 thousand Euro (May 2011) was due to the exercise of the option rights and
the consequent subscription of 126,310 newly issued ordinary shares, as part of the 2001-2002 stock
option plans.




                                                   Page 61
                                                                Statutory Financial Statements at
                                                                               31 December 2011




The allocation of capital at December 31, 2011 is detailed below:
                            Shareholder                                 No. of shares          %
Fininvest S.p.A.                                                           50.437.423          23,96%
Science Park Raf S.p.A.                                                    22.080.684          10,49%
Airain Lda                                                                 14.963.374           7,11%
Delfin Sàrl                                                                  9.047.724          4,30%
H-Equity S.r.l.                                                              8.551.695          4,06%
H-Invest S.p.A.                                                              8.551.695          4,06%
Lombard International Assurance SA                                           5.250.000          2,49%
Market                                                                     91.659.331          43,53%
Total                                                                    210.541.926         100,00%

The Company does not own any of its own shares, either directly or indirectly. During the year it did
not purchase or sell any of its own shares, either directly or indirectly.
Share premium reserve
The share premium reserve totaled 20,696 thousand Euro. The net decrease in the share premium
reserve was due to the combined effect of the use of 16,823 thousand Euro to cover the loss at
December 31, 2010, as per the Shareholders’ Meeting resolution of April 29, 2011, as well as to the
increase of 43 thousand Euro relating to the premium paid following exercise of option rights and the
consequent subscription of 126,310 newly issued ordinary shares as part of the 2001-2002 stock
option plans.
Other reserves
Other reserves are detailed as follows:

Stock option plan reserve
The stock option plan reserve was set up on January 1, 2006 upon first-time adoption of IFRS, in
order to reflect the fair value of stock option plans. The reserve was calculated by determining the
fair value of the rights issued as of the granting dates. In later years, the stock option plan reserve
has increased, with an effect on personnel costs in the Income Statement. The net decrease shown in
2011 of 1,297 thousand Euro was due to the combined effect of:
 a decrease of 839 thousand Euro reflecting the expiry of 70% of the first tranche of type “B”
  options under the 2008 stock options plans, following non-occurrence of the vesting condition;
 a decrease of 123 thousand Euro in the fair value of the options exercised during 2011, which was
  previously recorded in the stock option plan reserve, which thus fell by the same amount;
 an increase of 103 thousand Euro, linked to the recognition in the Income Statement of the last
  cost share accrued on the basis of the 2008 stock options plan;
 a decrease of 439 thousand Euro, reflecting the expiry of the options relating to the 2001-2002
  stock options plan.
For information on contents of the above-mentioned stock option plans reference should be made to
Note 32 below.

Fair value valuation reserve
The fair value valuation reserve reflects the fair value adjustment of financial assets available for
sale. At December 31, 2011 the reserve amounted to 336 thousand Euro (negative value). The
changes in the item include the recognition in the Income Statement of the fair value reserve (106
thousand Euro) recorded at December 31, 2010, following the maturity and sale of some securities
and the fair value adjustment at December 31, 2011 (289 thousand Euro).

Retained earnings (accumulated losses)
The item includes:
 the fair value of options exercised in the first six months of 2011 amounting to 122 thousand Euro;
 the fair value, equal to 839 thousand, of 70% of the first tranche of type “B” options, under the
  2008 stock options plans, expired following the non-occurrence of the vesting condition;

                                               Page 62
                                                                      Statutory Financial Statements at
                                                                                     31 December 2011




 the fair value of the options included in the 2001-2002 stock options plans which expired on
  December 31, 2011, equal to 439 thousand Euro, previously allocated to the stock option plan
  reserve.
Details completing the analysis of the items included in shareholders’ equity are provided in the
following table:
Main shareholders’ equity items
                                              Balance at December
(amounts in thousands of Euro)                                         Purpose of use          Amount available
                                                    31, 2011
Capital                                                      43.609
Reserves
                    Share premium reserve                    20.696         A,B                           20.696
                  Stock option plan reserve                   1.025          -                                 -
               Fair value valuation reserve                   (336)          B                                 -
    Retained earnings (accumulated losses)                    1.400        A,B,C                           1.400
Key:
A: for share capital increase
B: for coverage of losses
C: for distribution to shareholders


Note 13 – Liabilities for pensions and employee severance indemnity (TFR)
This item includes all liabilities for pension plans and other employee benefits following termination
of the employment relationship or payable when certain requirements are met. It consists of accruals
relating to the Company’s employee severance indemnity (TFR).
Liabilities for pensions and employee severance indemnity amounted to 156 thousand Euro at
December 31, 2011 (185 thousand Euro at December 31, 2010).
Changes in the period were as follows:
(amounts in thousands of Euro)                                         December 31, 2011 December 31, 2010


Opening balance                                                                         185                 220
Accruals for the year                                                                    13                       8
Uses                                                                                    (34)                (35)
Actuarial (gain)/loss                                                                    (8)                 (8)
Total liabilities for pensions and employee severance indemnity
                                                                                        156                 185
(TFR)

Under IAS 19, the employee severance indemnity has been considered a “Defined benefit plan”,
determined on the basis of actuarial calculations performed by an external consultant in accordance
with international accounting standards.
Pursuant to IAS 19, employee severance indemnity has been assessed using the method described
below, in compliance with the recent relevant measures introduced by the National Register of
Actuaries, together with the competent bodies – OIC, Assirevi and ABI – for companies with more than
50 employees. The calculation method can be broken down into the following phases:
 projection for each staff member employed, as of the assessment date, of the employee
    severance indemnity already accrued at December 31, 2006 and revalued at the assessment date;
 calculation for each staff member, on a probabilistic basis, of the employee severance indemnity
    that would have to be paid by the Company should the employee leave on account of dismissal,
    resignation, disability, death or retirement, as well as of probable payments of TFR advances;
 discounting of each payment, on a probabilistic basis, as of the date of assessment.
More in detail, the following assumptions were made:
 Annual discount rate: 4.75%

                                                   Page 63
                                                                   Statutory Financial Statements at
                                                                                  31 December 2011




 Annual inflation rate: 2.00%
 TFR annual increase rate: 3.00%
 Demographic assumptions:
   Probability of death: RG48 table
   Probability of disability: INPS tables by age and sex
   Age of retirement: achievement of the target required by compulsory general insurance (AGO)
   Yearly turnover and TFR advance payment
    Advance payment frequency %: 1.00%
    Turnover frequency: 4.00%

Note 14 – Trade payables
Non-current trade payables had a balance of zero at December 31, 2011.

Note 15 – Finance lease payables
Finance lease payables at December 31, 2011 mainly referred to lease agreements for laboratory
equipment. In detail, current finance lease payables amounted to 111 thousand Euro, while non-
current finance lease payables amounted to 125 thousand Euro. They can be broken down as follows:
(amounts in thousands of Euro)                                                       Between
                                                                      Within the
                                                                                      one and     Total
                                                                         year
                                                                                     five years
Minimum future lease payments                                            133             133        266
Interest expense                                                         (22)            (8)        (30)
Present value of minimum lease payments                                  111            125         236


Note 16 – Other liabilities
Other liabilities, totaling 994 thousand Euro at December 31, 2011, largely refer to the advances
received during 2009, 2010 and 2011 on four projects financed under the Seventh Framework
Program of the European Union (744 thousand Euro) and the ATP 2009 project subsidized by Region of
Lombardy (250 thousand Euro).

Note 17 – Trade payables
Trade payables amounted to 6,884 thousand Euro at December 31, 2011, compared to 4,488 thousand
Euro at December 31, 2010, and are broken down as follows:
(amounts in thousands of Euro)                                     December 31, 2011 December 31, 2010


Trade payables                                                                  6.301              3.649
Payables to related parties                                                        115              758
Deferred income concerning revenues pertaining to future periods                   468               81
Total trade payables                                                            6.884             4.488

At December 31, 2011, trade payables included 4,430 thousand Euro due in Italy, 1,501 thousand Euro
due in other European Union countries and 370 thousand Euro due in other countries (mainly in USD
and GBP).
Payables to related parties mainly consisted of services provided to the Company by Fondazione San
Raffaele, amounting to 92 thousand Euro, as described in Note 33.
Deferred income mainly referred to revenues from services connected to cell and gene therapy, to be
provided by the Company in future financial years.




                                                    Page 64
                                                               Statutory Financial Statements at
                                                                              31 December 2011




Note 18 – Other liabilities
This item is broken down as follows:
(amounts in thousands of Euro)                                   December 31,2011 December 31, 2010

Amounts due to employees for holiday and bonus pay                            289                267
Amounts due to social security institutions                                   486                344
Tax payables                                                                   354               400
Amounts due to freelance consultants                                            93                 12
Other payables                                                                 150               633
Total other liabilities                                                      1.372              1.656
Amounts due to social security institutions and tax payables consisted of withholding taxes and social
security contributions on employee salaries and on the remuneration of freelance consultants for the
month of December 2011, but paid to the authorities the following month. The Company recorded
tax losses in the two years considered. It also has no taxable income for IRAP purposes and,
therefore, has no current tax liabilities.
The other payables due at December 31, 2011 included amounts due for contributions to be paid in
relation to personnel (39 thousand Euro), and accrued liabilities of 43 thousand Euro.




                                                     Page 65
                                                               Statutory Financial Statements at
                                                                              31 December 2011




5.      NOTES TO THE INCOME STATEMENT

Note 19 – Revenues
The Company’s revenues are generated by the following activities:
(amounts in thousands of Euro)                                                  2011            2010

Revenues from development and
production activities undertaken on behalf of third parties                   2.679            1.581
Revenues from out-licensing and other services                                   88              500
Total revenues                                                                2.767            2.081
The marked increase in revenues from 2,081 thousand Euro in 2010 to 2,767 thousand Euro in 2011 is
linked to the intensification of GMP production and development activities carried out on behalf of
third parties. More specifically, revenues resulting from these activities increased from 1,581
thousand Euro in 2010, to 2,679 thousand Euro in 2011 thanks to the agreements signed with
Fondazione Telethon and with GlaxoSmithKline (GSK), both in relation to GMP production and
development activities for new gene therapy treatments for rare genetic diseases. According to the
agreements signed in 2011 MolMed expects to record revenues of up to 8.3 million Euro over a period
of four years in relation to activities for Fondazione Telethon and revenues of up to 5.5 million Euro
in two years concerning activities for GSK.
Revenues from out-licensing and other services refer to upfront payments relating to out-licensing
agreements signed in previous years and regarding the TK product. These revenues have been
recorded over the period between the date of the signing of the out-licensing agreements and the
subsequent development milestone, based on management estimates. The reduction in these
revenues is mainly due to income recorded in 2010 in relation to licensing of a number of patents
linked to the development of the TK product.
Total revenues at December 31, 2011 included 385 thousand Euro of revenues from related parties.
Further information is provided in Note 33.

Note 20 – Other income
This item mainly consists of public sector research and development grants and is broken down as
follows:
(amounts in thousands of Euro)                                                  2011            2010

European Commission (Persist project)                                            44             121
European Commission (Optistem project)                                          477             292
European Commission (Attract project)                                            47               -
Region of Lombardy (ATP 2009)                                                    27               -
Ministry of University and Research (FIRB GPS DM24528)                            -              48
Other grants                                                                     18               7
Other revenues                                                                   38             127
Total other income                                                              651             595
The item Other income includes public sector grants of 613 thousand Euro, which are recorded on the
basis of the costs actually incurred compared to the total costs planned in the budgets for the
research projects eligible for grants.
Income from the most important public sector grants recorded during 2011 related to two projects
under the Seventh Framework Programme of the European Union (the OPTISTEM, ATTRACT and
PERSIST projects) and to the ATP 2009 project financed by the Region of Lombardy.




                                                  Page 66
                                                               Statutory Financial Statements at
                                                                              31 December 2011




Note 21 – Purchases of raw materials and consumables
This item is broken down as follows:
(amounts in thousands of Euro)                                                 2011            2010

Processing materials                                                          1.770            498
Reagents                                                                        869            655
General laboratory materials                                                    163            124
Maintenance materials                                                            45              22
Change in raw materials inventory                                                16              40
Total purchases of raw materials and consumables                              2.863           1.339

The increase in costs for raw materials and consumables, which largely consists of materials and
reagents used in research and development activities, was mainly due to the development of the
NGR-hTNF product.

Note 22 – Costs for services
The breakdown of the item in 2011 and 2010 is as follows:
(amounts in thousands of Euro)                                               2011              2010
Outsourced development costs                                                7.807             4.535
Option rights                                                                 516               516
Consultancy and technical fees                                                572               261
License fees                                                                  335                77
Patents and consultancy fees                                                  348               307
Maintenance                                                                   291               284
Transport and storage of laboratory materials                                 280               146
Utilities                                                                     394               373
Directors and statutory auditors' fees                                        406               398
Tax consultancy and administrative fees                                        98               162
Audit                                                                          68                81
Legal and managerial fees                                                     264               342
Listing consultancy fees and other listing costs                               80               115
Supervisory board fees                                                        143               135
Communications agency fees                                                    259               154
IT assistance and other IT costs                                              264               399
Other general and administrative costs                                        321               303
Other personnel costs                                                         164               165
Travel expenses                                                               309               276
Participation at conventions and meetings                                      43                40
Staff training                                                                 21                23
Total costs for services                                                   12.983             9.092

Costs for services rose compared to the previous year, in line with the trend in the Company’s
product development plans. The most important changes were largely due to the increase in
outsourced development costs, consultancy and technical fees and the costs for license fees
connected to the industrial production of NGR-hTNF.
The costs for option rights include the share, relevant to the period, of the cost tied to the option
agreement for the purchase of research projects entered into in December 2001 by the Company with
the shareholder Science Park Raf S.p.A. and its parent company Fondazione San Raffaele.
The reduction in costs for tax consultancy and administrative fees, from 162 thousand Euro in 2010 to
98 thousand Euro in 2011, and for listing consultancy fees and other listing costs, from 115 thousand
Euro in 2010 to 80 thousand Euro in 2011, is due to the fact that in 2010 the Company incurred costs
linked to the capital increase.


                                                   Page 67
                                                               Statutory Financial Statements at
                                                                              31 December 2011




The item Directors and statutory auditors’ fees does not include the fees paid to the Chairman and
Chief Executive Officer of 750 thousand Euro, recorded under personnel costs. The fees paid to
directors and statutory auditors, including the fees recorded under personnel costs, are detailed in
the table below:
(amounts in thousands of Euro)                                                  2011            2010

Directors' fees                                                                1.068           1.106
Statutory auditors' fees                                                          88              42
Total                                                                          1.156           1.148
For the fee breakdown reference should be made to Note 36.

Note 23 – Costs for use of third-party assets
This item is broken down as follows:
(amounts in thousands of Euro)                                                  2011            2010

Rental of premises                                                               928             910
Other rentals                                                                    90               81
Total costs for use of third-party assets                                     1.018              991
The item Costs for use of third-party assets of 1,018 thousand Euro and 991 thousand Euro in 2011
and 2010 respectively did not change significantly. This item mainly includes costs relating to the
rental of the premises which house the Company’s registered offices in Milan and the secondary
offices in Segrate.
The available premises within the San Raffaele Scientific Park are granted by the related party,
Science Park Raf. For more information on transactions with related parties reference should be
made to Note 33.

Note 24 – Personnel costs
This item is detailed below:
(amounts in thousands of Euro)                                                  2011            2010

Wages and salaries                                                            5.832            5.359
Social security contributions                                                 1.604            1.376
Defined contribution plans                                                      310              279
Stock option costs                                                              103              590
Other personnel costs                                                           139               24
Total personnel costs                                                         7.988            7.628
The increase recorded in personnel costs is due to the higher average number of employees
compared to 2010.
The remuneration component from stock option plans is related to plans with Company shares as
underlying securities and represents the notional cost recognized as an offsetting entry to a specific
shareholders’ equity reserve (see Note 12).
The precise number of employees was 88 at December 31, 2011, compared to 85 at December 31,
2010.




                                                Page 68
                                                               Statutory Financial Statements at
                                                                              31 December 2011




The average number of employees in 2011 was 89 (84 in the previous year), broken down by position
as follows:

                                                                            2011               2010
Executives                                                                    11                  10
Middle management                                                             19                  20
Clerical staff                                                                57                  52
Technicians                                                                    2                   2
Total                                                                         89                  84


Note 25 – Other operating costs
This item is broken down as follows:
(amounts in thousands of Euro)                                                 2011            2010

Printed and promotional materials                                                 4               16
Stationery                                                                       15               12
Entertainment costs                                                              25               18
Membership fees                                                                  26               31
Donations                                                                        49               68
Books and magazines                                                              12                8
Other costs                                                                       8               12
Total other operating costs                                                     139              165
The reduction in other operating costs is mainly due to the decrease in costs incurred in relation to
the funding of research scholarships, recorded as Donations.

Note 26 – Amortization, depreciation and write-downs
Amortization, depreciation and write-downs amounted to 1,107 thousand Euro, compared to 1,209
thousand Euro at December 31, 2010. The item is detailed below:
(amounts in thousands of Euro)                                              2011               2010

Amortization of intangible assets                                            465                 525
Depreciation of tangible assets                                              614                 684
Bad debt provision                                                            28                   -
Total amortization, depreciation & write-downs                             1.107              1.209
The item Bad debt provisions refers to the allocation concerning receivables due from the related
party Fondazione San Raffaele.
For more information on transactions with related parties reference should be made to Note 33.




                                               Page 69
                                                               Statutory Financial Statements at
                                                                              31 December 2011




Note 27 – Financial income and charges
This item is detailed as follows:
(amounts in thousands of Euro)                                                2011             2010

FINANCIAL INCOME:
Interest and other financial income                                          1.344              454
Gains on securities                                                             43               36
Exchange gains                                                                  17               15
Other income                                                                     -                -
Total financial income                                                       1.404              505
FINANCIAL CHARGES:
Losses on securities                                                          (155)            (182)
Exchange losses                                                                (47)              (68)
Finance lease interest expense                                                 (35)              (46)
Other interest expense                                                          (8)               (8)
Other charges                                                                  (48)              (35)
Total financial charges                                                      (293)             (339)
Total financial income (charges)                                             1.111               166

Financial income mainly arose from management of the Company’s cash resources through temporary
low-risk investments. This increase recorded in the period was connected to investments of cash
following the capital increase, completed in August 2010.
Financial charges include losses on securities arising from the transfer of the fair value reserve
recorded at December 31, 2010 following the maturity and sale of some securities. The impact of this
transfer totaled 106 thousand Euro.
Other interest expense mainly involves the interest cost determined by the actuarial valuation of the
liabilities for pensions and employee severance indemnity.




                                               Page 70
                                                                                Statutory Financial Statements at
                                                                                               31 December 2011




Note 28 – Income taxes
No current or deferred taxes have been recorded in the Statutory Financial Statements.
Taking account of the Company’s activities and the outlook provided by the business plans, as in 2010
the Company did not recognize the tax credit that could arise from deferred tax assets calculated on
temporary differences deductible in future years. With reference to advance tax assets there is no
reasonable assurance as regards recoverability, due to a lack of adequate elements for forecasting,
even taking into account changes to the carry-forward system described in the section “Accounting
standards and valuation policies”.
The following table provides a summary of the temporary differences at December 31, 2011:
(amounts in thousands of Euro)                      December 31, 2011                             December 31, 2010
                                            Temporary                                       Temporary
                                            differences          Rate      Tax effect       differences    Rate      Tax effect
                                              amount                                          amount
Directors' fees                                      150          27,50%            41                65   27,50%           18
Other temporary differences                           10          31,40%             3                 6   31,40%            2
Upfront & milestone revenues difference              -            31,40%           -                  38   31,40%           12
Tax losses carried forward as per
Article 84, par. 2 TUIR (start up losses)           1.552         27,50%           427             1.552    27,50%         427
Tax losses carried forward as per
Article 84, par. 1 TUIR                            99.197         27,50%        27.279            77.457    27,50%      21.301

Total deferred tax assets                        100.909                       27.750            79.118                21.759
Merger deficit                                        -           31,40%           -                 103   31,4%            32
Other temporary differences                               6       27,50%                2              3   27,50%            1

Total deferred tax liabilities                            6                             2            106                   33


Note 29 – Basic and diluted earnings (loss) per share
The basic earnings (loss) per share are detailed below:
(amounts in Euro)                                                                                   2011                 2010


Basic earnings (loss) per share                                                                 (0,1025)              (0,1144)
Diluted earnings (loss) per share                                                                     -                     -

As required under IAS 33, diluted earnings (loss) per share should take into account the effects of all
dilutive potential ordinary shares. The Company has set up a stock option plan which offers call
options on Company’s shares at a pre-determined strike price.
The Company has not calculated the diluted loss per share since the strike price is higher than the
market price in the period, and therefore the options would not be exercised.
The calculation of the basic earnings (loss) per share is based on the net losses in 2011 and 2010 –
21,569 thousand Euro and 17,582 thousand Euro respectively – and on the weighted average of
outstanding ordinary shares in the relevant periods – 210,499,707 and 153,718,886 respectively.




                                                              Page 71
                                                               Statutory Financial Statements at
                                                                              31 December 2011




6.      OTHER NOTES

Note 30 – Net financial position
The net financial position, as per Consob Communication no. 6064293, dated July 28, 2006, is
detailed below:
(amounts in thousands of Euro)                                 December 31, 2011 December 31, 2010

Cash on hand                                                                    12                 8
Other cash                                                                   3.251             36.909
Cash equivalents                                                            17.900                  -
A. Total cash and cash equivalents                                         21.163             36.917
B. Current financial receivables and other financial assets                17.740             23.456
Finance lease payables                                                       (111)               (98)
C. Current financial debt                                                    (111)               (98)
D. Net current financial position (A+B+C)                                  38.792             60.275
Finance lease payables                                                       (125)              (235)
E. Non-current financial debt                                               (125)              (235)
F. Net financial position (D+E)                                            38.667             60.040

The company’s net financial position is positive and affected by the liquidity obtained following the
capital increase completed in August 2010. As indicated in Notes 10 and 11, the net financial
position is positive and almost entirely consists of cash and cash equivalents and other financial
assets.

Note 31 – Contingent liabilities, commitments and guarantees

Contingent liabilities
The Company has no outstanding positions which may result in contingent liabilities.

Commitments and guarantees
Commitments and guarantees are broken down as follows:
(amounts in thousands of Euro)                                  December 31, 2011December 31, 2010

Guarantees                                                                  3.030             2.952
Commitments                                                                     -               748
Total guarantees and commitments                                            3.030             3.700

Guarantees included 2,044 thousand Euro concerning bank guarantees for the refund of VAT
receivables, and 748 thousand Euro concerning a bank guarantee for the advance received from the
Region of Lombardy in relation to the grant for the subsidized project ATP 2009.
Following renegotiation of the bank guarantee, the previous commitment for the same amount was
cancelled.
Guarantees also included 208 thousand Euro of sureties issued to Università Vita Salute San Raffaele
for commitments undertaken by the Company in relation to the funding of research scholarships and
30 thousand Euro of sureties provided as guarantees for payment of real-estate rentals.




                                                   Page 72
                                                               Statutory Financial Statements at
                                                                              31 December 2011




Note 32 – Share-based payments

2001-2002 stock option plans
On December 11, 2001, an Extraordinary Shareholders’ Meeting gave the Board of Directors the
power to increase the share capital by up to a maximum of 431,711 Euro, in order to service a stock
option plan granted to the Chairman and CEO Claudio Bordignon and the Director and General
Manager Marina Del Bue. The Board of Directors then resolved to grant the said beneficiaries a total
of no. 431,711 options entitling them to subscribe for the same number of shares. These options
included no. 265,668 options granted to Claudio Bordignon and no. 166,043 options granted to Marina
Del Bue. The strike price of the options thus granted was set at 2.8276 Euro per share, in compliance
with the resolutions of the Extraordinary Shareholders’ Meeting of the Company, which provided that
the price be determined on the basis of an overall appraisal of the Company resulting from a
qualified expert’s report.
On November 26, 2002, taking into account the share capital increases that had occurred,          the
Company’s Board of Directors approved a new stock option plan to grant Claudio Bordignon          and
Marina Del Bue further stock options, so as to maintain the same percentage ratio between         the
number of shares offered for subscription to each of the beneficiaries of the stock option plan   and
the total number of shares included in the Company share capital.
On December 20, 2002, an Extraordinary Shareholders’ Meeting approved a share capital increase of
up to 1,669,144 Euro, in order to service the aforementioned stock option plans (i.e. the original
allocation made in December 2001 and the subsequent one to the same beneficiaries in November
2002). It revoked and replaced the powers granted to the Board of Directors on December 11, 2001
and validated the actions of the Company’s Board of Directors with regard to the stock options
granted to Claudio Bordignon and Marina Del Bue in December 2001 and November 2002.
On September 26, 2003, the Company’s Board of Directors resolved to fix the number of options
granted to Claudio Bordignon on November 26, 2002 at 462,032 shares while fixing the number of
shares granted to Marina Del Bue at 288,770; they were given the right to subscribe the said number
of shares. The strike price of these options was set at 2.4 Euro per share, based on a specific
appraisal of the value of the Company.
As amended by the Shareholders’ Meeting of April 27, 2007, the exercise period for the options
granted under both stock option plans is from December 31, 2008 to June 30, 2009. In execution of
the share capital increase approved by the Extraordinary Shareholders’ Meeting of the Company on
December 20, 2002, no further options can be granted, beyond those granted by the Board of
Directors on September 26, 2003.
After the accounting par value of the outstanding shares was reduced, and the total number of
ordinary outstanding shares increased, pursuant to a resolution approved by the Company’s
Extraordinary Shareholders’ Meeting on October 29, 2007, by the end of the year, as described
above, Claudio Bordignon and Marina Del Bue can subscribe no. 2,183,100 and no.1,364,439 ordinary
shares respectively. More specifically, Mr. Bordignon can subscribe no. 797,004 shares at a price of
0.94253 Euro per share and no. 1,386,096 shares at a price of 0.8 Euro per share, while Ms. Del Bue
can subscribe no. 498,129 shares at a price of 0.94253 Euro per share and no. 866,310 shares at a
price of 0.8 Euro per share.
The options are granted free of charge. They are registered, personal and non-transferable, except
upon death. They cannot be made subject to any restrictions – specifically with regard to pledges and
guarantees – and will cease to be valid in the case of discharge for just or reasonable cause of any
option holder who is a manager of the Company, or of removal from office of any option holder who
is a Director of the Company; they shall also cease to be valid if the option holder resigns.
Under the regulations that govern the stock option plan approved in 2002, in the event of
extraordinary transactions – e.g. changes in share capital or any transactions that increase or
decrease the Company’s net assets - the Company’s Board of Directors shall, insofar as necessary to
ensure that the substantive value of the options is maintained, adjust, in accordance with the rules
commonly accepted as normal practice on financial markets (pursuant to the regulations), the strike
price and/or the number of shares underlying the options not yet exercised, or it shall implement a
new plan with roughly the same conditions (except the strike price and/or the number of shares

                                               Page 73
                                                                                              Statutory Financial Statements at
                                                                                                             31 December 2011




underlying each option not yet exercised). This shall be done as necessary and appropriate, in order
to maintain the tax regime pursuant to Article 48(2) of Presidential Decree no. 917 of December 22,
1986.
The Extraordinary Shareholders’ Meeting of April 14, 2009 resolved to extend to December 31, 2011
the final deadlines for collecting subscriptions relating to the share capital increase which was
approved to service the incentive plan as set out in the Shareholders’ Meeting resolution of December
20, 2002, to support the 2001-2002 stock option plan. Following this resolution, the final deadline for
the exercise of options granted under this plan was extended from June 30, 2009 to December 31,
2011.
Following the share capital increase which is described in more detail above, MolMed’s Board of
Directors on October 11, 2010 approved a change to the regulations for the stock option plans in
force, aimed at ensuring, as envisaged by the regulations, that the substantial value of the options is
maintained.
In particular, it was arranged to adjust the strike price of unexercised options, by using the same
adjustment factor as determined by Borsa Italiana for the purposes of adjusting the value of shares
on the market when share capital increase data is published.
The strike prices were therefore adjusted as follows:

                                               Strike price before the
                                                                                   K adjustment factor           Adjusted strike price (€)
                                              share capital increase (€)


               2001 options                              0.94253                        0.68825301                           0.64870

               2002 options                              0.80000                        0.68825301                           0.55060

There is no prejudice to all the other conditions, terms and agreements as set out in the regulations
for stock option plans and subsequent modifications.
Here below is the summary of the options originally granted with the 2001-2002 stock option plan:

Grant period                                                                     Number of      Strike price   Possibility   Expiry of possibility
                 Option holder                    Position held
                                                                                  options         (Euro)       of exercise       of exercise
   2001        Claudio Bordignon   Board Chairman, Chief Executive Officer          797,004          0.64870   immediate      December 31, 2010
   2002        Claudio Bordignon   Board Chairman, Chief Executive Officer        1,386,096          0.55060   immediate      December 31, 2010
                                                                         Total   2,183,100
   2001        Marina Del Bue      Director, General Manager                        498,129           0.6487   immediate      December 31, 2010
   2002        Marina Del Bue      Director, General Manager                        866,310          0.55060   immediate      December 31, 2010
                                                                         Total   1,364,439
                                                     Total for 2001-2002 plan    3,547,539

It should be noted that, at the date of preparing these Financial Statements, Marina Del Bue
underwrote a total of 740,000 shares at a price of 0.8 Euro per share.

2008 stock option plan
The Company’s Extraordinary Shareholders’ Meeting of October 29, 2007 resolved a share capital
increase against payment of up to a total of 772,178.60 Euro, through the issue of a maximum of no.
3,728,034 ordinary shares. These shares will be reserved, pursuant to Article 2441 (last paragraph) of
the Italian Civil Code, for the employees of the Company and of any subsidiary or parent companies,
as part of the share option plans aimed at them and, pursuant to Article 2441 (5) of the Italian Civil
Code, for the executive directors and consultants of the Company and of any subsidiary or parent
companies, as part of the share option plans aimed at them. This share capital increase may be
performed in tranches, pursuant to Article 2439 (2) of the Italian Civil Code and may be carried out
and subscribed in one or more stages by December 31, 2023. The Shareholders’ Meeting also resolved
to grant to the Board of Directors powers to draw up one or more incentive schemes, to identify the
beneficiaries of options among the executive directors, consultants and employees of the Company
(or subsidiary or parent companies) and to determine the number of options to be granted to each
beneficiary, as well as the strike price that will be determined each time that options are granted, at



                                                                     Page 74
                                                                    Statutory Financial Statements at
                                                                                   31 December 2011




an amount equal to the “normal value” of the newly issued ordinary shares, pursuant to Article 9 (4)
(a) of Presidential Decree no. 917/1986, at the date of allocation of the options.
Pursuant to the powers granted by the Shareholders’ Meeting of January 7, 2008, the Board of
Directors approved the adoption of an incentive scheme, subject to the start of trading of its shares
on the MTA. The scheme provides for two different types of options that may be granted to
beneficiaries to be identified by the Board of Directors – or by the Shareholders’ Meeting, when
required by law – from among the Executive Directors, consultants and employees of the Company
(and of any subsidiary and parent companies):
 Type A options: maturing at the end of the third year from the date on which trading of the
  Company shares begins on the MTA; these may be exercised in a single installment, starting from
  the maturity date and up to a deadline of seven years from the maturity date;
 Type B options: maturity is subject to achievement of the objectives identified by the Board of
  Directors upon granting and, in any case, comes no sooner than the end of the third year from the
  date of allocation. The options may be exercised in one or more installments, starting from the
  maturity date and up to a deadline of seven years from the maturity date.
The Board of Directors approved an initial allocation of options to Company management, in
accordance with the stock option plan and in the manner required under the regulations. It has
granted a total of no. 2,400,000 options, giving the right to subscribe one ordinary share each, for a
total face value of 497,106.24 Euro, at a price per share equal to the Offering Price, in the following
quantities:
 Type A options, a total of no. 600,000 options;
 Type B options, a total of no. 1,800,000 options;
The Board of Directors established that Type B options will mature in several installments, depending
on achievement of business objectives, after three and five–year periods.
The options are granted free of charge. They are registered, personal and non-transferable, except
upon death or incapacity. They cannot be made subject to any restrictions – specifically with regard
to pledges and guarantees – and will cease to be valid in the case of dismissal for just or reasonable
cause of any option holder who is a manager of the Company or removal from office for just cause of
any option holder who is a Director of the Company; they shall also cease to be valid if the option
holder resigns.
Under the regulations of the aforementioned incentive scheme, in the event of any extraordinary
transactions - e.g. changes in share capital or merger and/or spin-off operations - the Company Board
of Directors shall, insofar as necessary to maintain the substantive value of the options, adjust, in
accordance with the rules commonly accepted as normal practice on financial markets (pursuant to
the regulations), the strike price and/or the number of shares underlying the options not yet
exercised, or it shall implement a new plan with roughly the same conditions.
Following the share capital increase which is described in more detail above, MolMed’s Board of
Directors on October 11, 2010 approved a change to the regulations for the stock option plans in
force, aimed at ensuring, as envisaged by the regulations, that the substantial value of the options is
maintained.
In particular, it was arranged to adjust the strike price of unexercised options, by using the same
adjustment factor as determined by Borsa Italiana for the purposes of adjusting the value of shares
on the market when share capital increase data is published.
The strike prices were therefore adjusted as follows:

                                 Strike price before the
                                                             K adjustment factor   Adjusted strike price (€)
                                share capital increase (€)


          2007 options                   2.15000                 0.68825301                1.47974




                                                   Page 75
                                                                    Statutory Financial Statements at
                                                                                   31 December 2011




On May 9, 2011 the Board of Directors noted in reference to March 5, 2011:
 the expiry of the time period established in the regulations for stock option plans, due to the
  vesting, for the beneficiaries, of the type “A” options allocated by the resolution of January 7,
  2008;
 that, on the contrary, the condition had not occurred to which, under the same resolution, the
  vesting of the first tranche of type “B” options was subject, equal to 70% of the options, for a
  total of 1,260,000 options which must, therefore, be considered expired.

There is no prejudice to all the other conditions, terms and agreements as set out in the regulations
for stock option plans and ensuing amendments.
Below is a summary of the options originally allocated relating solely to the stock options plans for
2008, with the options that are to be considered as expired in light of the above comments:
                                                                         Number of     Number of
                                                                                                     No. of residual
    Grant period       Option holder     Type      Strike Price (Euro)    options       options
                                                                                                        options
                                                                          granted       expired
       2008        Claudio Bordignon      B                    1,47974       750.000       525.000          225.000
       2008        Marina Del Bue         B                    1,47974       450.000       315.000          135.000
       2008        Enrico Cappelli        A                    1,47974       180.000                        180.000
       2008        Enrico Cappelli        B                    1,47974       110.000        77.000           33.000
       2008        Holger Neecke          A                    1,47974       150.000                        150.000
       2008        Holger Neecke          B                    1,47974        90.000        63.000           27.000
       2008        Marco Dieci            A                    1,47974        70.000                         70.000
       2008        Marco Dieci            B                    1,47974        60.000        42.000           18.000
       2008        Antonio Lambiase       A                    1,47974        80.000                         80.000
       2008        Antonio Lambiase       B                    1,47974        70.000        49.000           21.000
       2008        Paolo Rizzardi         A                    1,47974        70.000                         70.000
       2008        Paolo Rizzardi         B                    1,47974        60.000        42.000           18.000
       2008        Daniele Pieraccioli    B                    1,47974       100.000        70.000           30.000
       2008        Cynthia Giuliani       B                    1,47974        70.000        49.000           21.000
       2008        Catia Traversari       A                    1,47974        50.000                         50.000
       2008        Catia Traversari       B                    1,47974        40.000        28.000           12.000
                                                                 Total    2.400.000     1.260.000        1.140.000




                                                Page 76
                                                                                                              Statutory Financial Statements at
                                                                                                                             31 December 2011




Summary of the options granted
The table below shows the options granted and held at December 31, 2011:
                                                                                            Options       Options
                                                                    Options held            granted      exercised     Options expired                 Options held
                                                                at January 1, 2011         during the    during the   during the period           at December 31, 2011
                                                                                             period        period


                                                          (1)           (2)          (3)       (4)          (5)              (6)             (7)=1+4-5-6    (8)       (9)

                                                                      Average    Average                                                                   Average   Average
    Name and                                           Number of                           Number of     Number of       Number of           Number of
                             Position held                             strike    expiry                                                                     strike   expiry
    surname                                             options                             options       options         options             options
                                                                       price      date                                                                      price     date

Claudio Bordignon Board Chairman, Chief                 2.933.100        0,815       (*)             -            -           2.708.100         225.000      1,480     (*)
                  Executive Officer
Marina Del Bue      Director, General Director          1.074.439        0,985       (*)             -      126.310                813.129      135.000      1,480     (*)

Enrico Cappelli     Chief Financial Officer              290.000         1,480       (*)             -            -                 77.000      213.000      1,480     (*)

Holger Neecke       Director of Business                 240.000         1,480       (*)             -            -                 63.000      177.000      1,480     (*)
                    Development & Investor
                    Relations
Marco Dieci         Director of Special Projects         130.000         1,480       (*)             -            -                 42.000       88.000      1,480     (*)
Antonio Lambiase Director of Clinical                    150.000         1,480       (*)             -            -                 49.000      101.000      1,480     (*)
                 Development
Paolo Rizzardi      Director of Research &               130.000         1,480       (*)             -            -                 42.000       88.000      1,480     (*)
                    Development
Daniele Pieraccioli Director of Intellectual             100.000         1,480       (*)             -            -                 70.000       30.000      1,480     (*)
                    Property
Cynthia Giuliani    Director of Human Resources           70.000         1,480       (*)             -            -                 49.000       21.000      1,480     (*)
Catia Traversari    Director of Research                  90.000         1,480       (*)             -            -                 28.000       62.000      1,480     (*)

                                               Total   5.207.539                                     -     126.310           3.941.229       1.140.000
(*) For information related to the option average expiry date, reference should be made to stock options plans as described in these Notes


During 2011, the Director and General Manager, Marina Del Bue, exercised part of the options
granted through the 2001-2002 stock option plans by subscribing 126,310 shares at the price of
0.55060 Euro per share. The impact of this transaction is described in Note 12.
In addition to the provisions of the previous paragraph on the options relating to the 2008 stock
options plans to be considered expired, it should be pointed out that the date of December 31, 2011
corresponded to the deadline for exercising the options assigned on the basis of the 2001-2002 stock
options plans, for which, from this date onward, the following options, not exercised at the
aforementioned date, have expired:
     2,183,100 options originally assigned to the Chairman and Chief Executive Officer, Claudio
     Bordignon;
     498,129 options originally assigned to the Director and General Manager, Marina Del Bue.




                                                                                     Page 77
                                                                Statutory Financial Statements at
                                                                               31 December 2011




Note 33 – Transactions with related parties
Transactions with related parties include transactions between MolMed, its shareholder Science Park
Raf S.p.A., Fondazione San Raffaele del Monte Tabor, which controls Science Park Raf S.p.A., and
some associated companies. MolMed has also started bank dealings with Banca Esperia S.p.A. and
Banca Mediolanum S.p.A., which are both related parties of the shareholder Fininvest S.p.A.
These transactions do not qualify as either atypical or unusual and are part of the Company’s
ordinary business. These transactions are regulated at market conditions, taking account of the
features of the goods and services provided.

Transactions with Science Park Raf and Fondazione San Raffaele
In 2001 MolMed, Science Park Raf and Fondazione San Raffaele have entered into an option
agreement, under which Science Park Raf and Fondazione San Raffaele have undertaken to sell or to
license or sublicense to MolMed all or some of their research projects involving genetic or molecular
therapies for cancer and AIDS, as well as the rights to benefit economically from these projects, plus
any technology or know-how that are part of or otherwise instrumental to said projects, together
with the right for MolMed to obtain access to any and all information regarding such projects. The
effectiveness of the option agreement, under which in 2008 the Company paid a fee of 4,131
thousand Euro plus VAT, was subject to admission of the Company’s shares to trading on a regulated
market; subsequent to fulfillment of this condition, which occurred in March 2008, the agreement is
valid for eight years, with the possibility of renewal on a four year basis. On May 11, 2009 the Board
of Directors of MolMed approved some amendments to the option agreement: the amendments,
relating to the updating of some regulatory references which had changed over time, as well as the
introduction of further means of exercising the option right by MolMed, were considered necessary
for the purposes of the correct and effective execution of the contractual terms which, as they had
been developed some time ago, needed adjusting to the current operational conditions, with the aim
of maximizing the opportunities and benefits offered to the parties by the agreement.
Between 2001 and 2008 MolMed signed in-licensing contracts with Science Park Raf and Fondazione
San Raffaele, by which it acquired (exclusive and non-exclusive) rights over patents or claims over
patents owned by related parties, in order to be able to develop its products. The length of these
contracts is linked to the expiry of the patent. These contracts envisage different means of payment
(upfront payments, milestones and royalties), linked to progress in activities regarding the products.
MolMed currently has outstanding contracts with Fondazione San Raffaele through which some clinical
trials relating to the Company’s products TK and NGR-hTNF are carried out at the hospital managed
by Fondazione San Raffaele. The fees for the purchase of these services are in line with market
prices for contracts signed with other clinical centers.
MolMed also has outstanding scientific cooperation agreements, by which the Company has
commissioned Fondazione San Raffaele to carry out fee-based analysis projects, making use of the
know-how of their researchers.
MolMed signed a lease with Science Park Raf for the premises located in Milan, Via Olgettina 58,
where the Company has its headquarters. This contract, which was signed at the start of 2010,
annulled and replaced the previous leases which were in force up to 2009. The new contract expires
at the end of 2015 and represents an improvement for the Company compared to the previous
version. In calculating the rental fee, a series of services offered by the San Raffaele Science Park
are taken into account, such as security and reception services, maintenance service, and access to
livestock facilities, to the library and to the cafeteria and canteens by MolMed’s staff. Again as part
of managing its own facilities, agreements have been activated relating to the provision, by Science
Park Raf and Fondazione San Raffaele, of some services linked to the technical upkeep of scientific
equipment, to health physics and radiation safety services and to livestock facility services.
As part of the operations, MolMed signed a series of contracts with Fondazione San Raffaele under
which MolMed supplies, as part of the work of its own GMP facility, cell manipulation services, as well
as the development and production of materials for clinical trials managed by researchers from
Fondazione San Raffaele. In particular, GMP activities include the production of batches of retroviral
supernatant, of peptides and dendritic cells, the supply of clinical batches consisting of genetically

                                               Page 78
                                                                                                Statutory Financial Statements at
                                                                                                               31 December 2011




modified cells from patients, and cell selection and manipulation. Economic conditions of the
agreements are promptly established by the Company, based on the costs specific to the activities
requested, plus the portion of the general costs attributed to the service performed and the margin
deemed adequate.
As part of its operations, MolMed has commercial relationships with other related parties, such as
Diagnostica e Ricerca San Raffaele S.p.A. and HSR Resnati S.p.A., which are directly or indirectly
controlled by Fondazione San Raffaele.
Diagnostica e Ricerca San Raffaele S.p.A. performs microbiological analyses on the samples generated
by clinical trials of MolMed’s investigational therapies, while HSR Resnati S.p.A. carries out diagnostic
assays for MolMed’s personnel and other staff, in compliance with prescriptions related to workers’
safety. Services provided also include other occupational medicine activities, such as definition and
management of healthcare protocols for preventive and periodic monitoring of the Company’s
personnel.

Transactions with other related parties
The Company has a current account at Banca Esperia S.p.A. and at Banca Mediolanum S.p.A. in order
to manage the investment of liquidity which exceeds the Company’s operating needs. Transactions
are regulated at market conditions.

Income and equity impact
The following table shows the effect of transactions with related parties, identified in accordance
with IAS 24, on the Company’s Income Statement and Statement of Financial Position for 2011:

Income impact
(amounts in thousands of Euro)                                                                                                Amortization,
                                                                                         Costs for use of                                        Financial
                                    Revenues    Financial income   Costs for services                      Personnel costs   depreciation and
                                                                                        third-party assets                                        charges
                                                                                                                               write-downs
Science Park Raf S.p.A.                     -                 -                  294                 800               -                     -            -
Fondazione Centro S.Raffaele              385                 -                  756                   -               -                    28            -
Diagnostica San Raf S.p.A.                  -                 -                    9                   -               -                     -            -
HSR Resnati S.p.A.                          -                 -                   14                   -               -                     -            -
Banca Esperia S.p.A.                        -               785                    -                   -               -                     -            8
Banca Mediolanum S.p.A.                     -               496                    -                   -               -                     -            -
Alba Servizi Aerotrasporti S.p.A.           -                 -                    -                  10               -                     -            -
Other related parties                       -                 -                    -                   -              24                     -            -
Total                                     385             1.281                1.073                 810              24                    28            8
Financial statements item               2.767             1.404               12.983               1.018           7.988                 1.107          293
% on financial statements item            14%               91%                   8%                 80%              0%                    3%           3%


Revenues of 385 thousand Euro mainly arise from the services provided by MolMed to Fondazione San
Raffaele.
Costs for services of 1,073 thousand Euro relate to research agreements, contracts linked to the
management of clinical testing at San Raffaele Hospital, some services connected to the management
of the MolMed structure, as well as the recognition in the Income Statement of the charge relating to
the straight-line decrease in the fee paid for the option to buy research projects signed with Science
Park Raf and Fondazione San Raffaele.
The costs for use of third-party assets include 800 thousand Euro of lease payments envisaged by the
contract signed with Science Park for the use of premises by the Company within the San Raffaele
Science Park, while 10 thousand Euro refers to the lease of car parking areas at the headquarters of
Milano 2, made available by Alba Servizi Aerotrasporti S.p.A., a related party of the shareholder
Fininvest S.p.A.
The item Amortization, depreciation and write-downs refers to the allocation concerning receivables
due from the related party Fondazione San Raffaele, involved in an arrangement with creditors
pursuant to Article 160 et seq. of the Bankruptcy Law. For further information reference should be
made to the description given in the section “Equity impact”.
Financial income and charges relate to income and expenses for the management of bank deposits
and investments in securities held with Banca Esperia and Banca Mediolanum.


                                                                    Page 79
                                                                                 Statutory Financial Statements at
                                                                                                31 December 2011




Equity impact
(amounts in thousands of Euro)
                                                     Trade receivables
                                     Other non-                          Other receivables Other financial   Cash and cash
                                                         and other                                                              Trade payables
                                    current assets                       and sundry assets     assets         equivalents
                                                     commercial assets

Science Park Raf S.p.A.                        211                  -                  66              -                    -               8
Fondazione Centro S.Raffaele                 1.425                177                 450              -                    -              92
Diagnostica San Raf S.p.A.                       -                  -                   -              -                    -               6
HSR Resnati S.p.A.                               -                  -                   -              -                    -               6
Banca Esperia S.p.A.                             -                  -                   -              -                  332               -
Banca Mediolanum S.p.A.                          -                  -                   -              -               19.954               -
Mediobanca S.p.A.                                -                  -                   -          5.229                    -               -
Alba Servizi Aerotrasporti S.p.A.                -                  -                   -              -                    -               3
Total                                        1.636                177                 516          5.229              20.286              115
Financial statements item                    1.636              3.601               1.767         17.740              21.163            6.884
% on financial statements item                100%                 5%                 29%            29%                  96%              2%


The other assets refer to the fee agreed for the option to buy research projects signed with Science
Park Raf and Fondazione San Raffaele; this amount, which was originally of 4,131 thousand Euro, is
subject to a pro quota temporis decrease and the related charge will be recognized in the Income
Statement on a straight-line basis over the contract eight year minimum duration.
Trade receivables and payables reflect the trends in invoicing and payment of services linked to the
above contractual dealings.
Regarding the recent affairs involving Fondazione Centro San Raffaele del Monte Tabor, subject to an
arrangement with creditors pursuant Article 160 et seq. of the Bankruptcy Law, it should be noted
that the aforementioned dealings generated trade receivables of 177 thousand Euro, net of the
provision of 28 thousand Euro as previously described, and trade payables of 92 thousand Euro, with a
net balance at December 31, 2011 of 85 thousand Euro which is not a significant amount for the
Company and which, therefore, is free from significant repercussions linked to its credit exposure to
Fondazione San Raffaele. As for the shareholdings and equity investments of the Foundation, it
should be recalled that Science Park Raf S.p.A., which is controlled by Fondazione San Raffaele,
holds an equity investment limited to 10.488% of MolMed’s capital.
At October 10, 2011, the reference date for the Fondazione San Raffaele application to arrangement
proceedings with creditors, receivables of 95 thousand Euro were due from the former to the
Company, as shown in the receivables statement sent by the Company to the Receivers.
Other receivables and sundry assets refer for 516 thousand Euro to the fee agreed for the
aforementioned option to buy research projects. This agreement was not impacted by the events
mentioned above.
Other financial assets consist of bonds of Mediobanca S.p.A. which is also a related party of MolMed.
Cash and cash equivalents consist of bank deposits.
For information on fees paid to directors, statutory auditors and managers with strategic
responsibilities, reference should be made to Note 36.
For information on stock options assigned to directors and managers with strategic responsibilities,
reference should be made to Note 32.
For information on equity investments held by directors, auditors and managers with strategic
responsibilities, reference should be made to section 12.4 of the Report on Operations.
As far as the main impacts on financial flows of transactions with related parties are concerned, as
illustrated in the Statement of Cash Flows, it should be noted that these regard the dealings and
transactions described above.




                                                      Page 80
                                                                                                   Statutory Financial Statements at
                                                                                                                  31 December 2011




Note 34 - Significant non-recurring events and transactions
Pursuant to Consob Communication of July 28, 2006, it should be noted that, during 2011, the
Company did not undertake any significant non-recurring transactions.

Note 35 - Transactions resulting from atypical and/or unusual events
Pursuant to Consob Communication of July 28, 2006, it should be noted that, during the period, the
Company did not enter into any atypical or unusual transactions. The Communication defines as
atypical or unusual transactions those transactions that may raise doubts as to the
accuracy/completeness of the information in the Financial Statements, the existence of conflicts of
interest, the safeguarding of the business net assets and of the minority shareholders, due to their
significance/importance, the other parties involved in the transaction, the subject of the
transaction, the way the transfer price was determined and the timing of the event/transaction
(proximity to year end).

Note 36 – Fees paid to Directors, Statutory Auditors, General Managers and Managers with
strategic responsibility (Article 78 of Consob Regulation no. 11971/99)
Pursuant to Article 78 of Consob Regulation no. 11971 of May 14, 1999, as subsequently amended, on
the adoption of regulation implementing Legislative Decree no. 58 of February 24, 2008 (Testo Unico
Draghi) on the provisions governing issuers, the following information is provided in relation to the
fees paid to the Directors and Statutory Auditors.
                                                                                                                                          Fringe
Name and surname         Position held                         Term of office         Term of office expiry date           Fees
                                                                                                                                          benefits

DIRECTORS
Claudio Bordignon        Chairman and CEO                          1.1 - 12.31.2011   on approval of 2012 Fin.Statements            767              50
Luigi Berlusconi         Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             14
Silvio Bianchi Martini   Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             44
Renato Botti             Director                                  1.1 - 11.04.2011   on approval of 2012 Fin.Statements             13
Maurizio Carfagna        Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             17
Paolo Michele Castelli   Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             17
Riccardo Cortese         Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             27
Marina Del Bue           Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             17
Alessandro De Nicola     Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             53
Massimiliano Frank       Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             17
Sabina Grossi            Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             25
Alfredo Messina          Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             17
Maurizio Tassi           Director                                  1.1 - 12.31.2011   on approval of 2012 Fin.Statements             40
                                                                                                                                  1.068              50
STATUTORY
AUDITORS
Fabio Scoyni             Chairman of Board of Stat. Auditors       1.1 - 12.31.2011   on approval of 2012 Fin.Statements            38
Enrico Scio              Statutory auditor                         1.1 - 12.31.2011   on approval of 2012 Fin.Statements            25
Antonio Marchesi         Statutory auditor                         1.1 - 12.31.2011   on approval of 2012 Fin.Statements            25
                                                                                                                                    88                -
GENERAL MANAGERS
Marina Del Bue                                                     1.1 - 12.31.2011   Indefinite                                   407               2
Germano Carganico                                                  1.1 - 12.31.2011   Indefinite                                   399               3
                                                                                                                                   807               5
OTHER MANAGERS WITH STRATEGIC RESPONSIBILITIES
No. 10 managers with strategic responsibilities                    1.1 - 12.31.2011   Indefinite                                  1.266              18
                                                                                                                                  1.266              18

The fees due to “Managers with corporate strategic responsibilities”, identified on the basis of the
Procedures for Transactions with Related Parties approved and implemented by the Company,
amounted to 1,266 thousand Euro, consisting of salaries of 1,111 thousand Euro, bonuses of 155
thousand Euro and fringe benefits of 18 thousand Euro.
On April 26, 2010 the Board of Directors recognized to the Chairman of the Board of Directors,
Claudio Bordignon, as compensation for a non-competition obligation for 24 months following the
termination, for whatever reason, of his role, the payment of 750 thousand Euro gross of taxes, to be
paid at the end of the related mandate and should it not be renewed.


                                                                            Page 81
                                                                                            Statutory Financial Statements at
                                                                                                           31 December 2011




On May 24, 2010, based on the Board of Directors’ resolution of April 26, 2010, an agreement was
signed between the Company and the Chairman and Chief Executive Officer, Claudio Bordignon,
according to which, in the event that:
a) the Shareholders’ Meeting should revoke his appointment as a director without just cause,
b) all or part of the powers and responsibilities granted by the Board of Directors should be revoked
   and / or powers or responsibilities should be attributed to other parties which, except for deputy
   powers and responsibilities assigned to other Directors and those granted to the General Manager,
   are, as a whole, essentially equivalent to those attributed to the Chairman and Chief Executive
   Officer, or, are of such importance that they would have a significant effect on his position and
   his role as head of the Company, without just cause or
c) the company should be put into liquidation,
the Chairman and Chief Executive Officer will be paid indemnity equal to a gross total annual fee of
750 thousand Euro provided for the role of Chairman and Chief Executive Officer, multiplied by the
number of remaining years until the Shareholders’ Meeting convened to approve the 2012 Statutory
Financial Statements.
Similarly, the Chairman and Chief Executive Officer will be entitled to receive the indemnity in the
event of his resignation from the role with just cause corresponding to only one of the situations set
out in point b).

Note 37 – Information pursuant Article 149 (12) of the Consob Issuers’ Regulations
The table below has been prepared in accordance with Article 149(12) of the Consob Issuers’
Regulations. It shows the fees for 2011 and 2010 for the audit services and for other non-audit
services provided by the external auditors. No additional services were provided by other entities
belonging to the external auditors’ network.
(amounts in thousands of Euro)      Entity that provided the service                        Fees for 2011                      Fees for 2010

Audit                                    Deloitte & Touche S.p.A.                                  58.100 (3)                         86.300   (1)
Certification services                   Deloitte & Touche S.p.A.                                   2.000 (4)                        152.000   (2)
Total                                                                                             60.100                            238.300


(1) Audit of Statutory Financial Statements at December 31, 2010, of the half-year report at June 30, 2010, limited audit of the interim report at
March 31, 2010 and control activities on accounting procedures and reporting of operating events

(2) Activities relating to the issue of comfort letters on the Prospectus and preparation of Modello Unico and Modello 770 tax returns
(3) Audit of Statutory Financial Statements at December 31, 2011, limited audit of the half-year report at June 30, 2011 and control activities on
accounting procedures and reporting of operating events
(4) Activities relating to the preparation of Modello Unico and Modello 770 tax returns



Note 38 – Information on financial risks
The Company constantly monitors the financial risks to which it is exposed, in order to detect the
potentially negative effects in advance and take the necessary action to mitigate them. The
following section provides qualitative and quantitative disclosures on the effect that these risks may
have upon the Company.
The quantitative data reported in the following paragraphs do not have any value as forecasts;
specifically, the sensitivity analysis of market risks is unable to reflect the complexity of the market
and the reactions that may result from any changes that occur.

Capital management
The Company’s capital management objectives are geared towards guaranteeing its ability to
continue to pursue the best interests of the stakeholders while also maintaining an optimal capital
structure.




                                                                    Page 82
                                                                  Statutory Financial Statements at
                                                                                 31 December 2011




Market risk
Market risk is the risk of fluctuations in the fair value or the financial flows of a financial instrument
following variations in the market price due to changes in exchange rates or interest rates, or in the
price quotations for equity instruments.

Interest rate risk
The Company has no significant financial payables or receivables. The available liquidity was invested
in current account deposits, government and corporate bonds. Their yield depends on the trend in
short-term interest rates. In order to limit the risk of default in the performance of obligations by the
counterparties, the investments were made at various top-flight banks and financial institutions with
high credit ratings, in order to diversify the counterparty risk.
The extent of exposure to interest-rate risk can be determined through a sensitivity analysis, as
provided for under application of IFRS 7. This analysis illustrates the effects of a given hypothetical
variation on the levels of the variables pertinent to financial charges and income and, on occasion,
directly to net equity. The sensitive analysis was carried out on the basis of the following premises
and assumptions:
 the analysis was performed by applying reasonably possible variations of the risk variables to the
  figures of the Statutory Financial Statements at December 31, 2011 and 2010, assuming that these
  figures are representative of the entire year;
 variations in the value of financial assets generated by variations in the benchmark interest rates
  have an effect on income only when, in keeping with IAS 39, they are recognized at their fair
  value;
 variations in value of floating rate financial assets generated by variations in the benchmark
  interest rates have an impact on the financial income for the year.
In order to determine the effects of interest rate variations on the Income Statement and on the
Statement of Comprehensive Income, below are the results of a sensitivity analysis, in line with the
requirements of IFRS 7, applying parallel, negative and positive shifts to the zero-coupon curve for
market rates. The shifts in the zero-coupon curve are equal to +/- 100 basis points.
(amounts in thousands of Euro)                             2011                           2011
                                                                                effect on the fair value
                                              effect on financial income
                                                                                        reserve
Shift compared to zero-coupon                      +1%            -1%             +1%             -1%
Effect                                                   340            (340)           (49)            49


Currency risk
The Company’s exposure to fluctuations in currency-exchange rates is marginal, since there are no
significant debit or credit positions in foreign currency, or financial instruments subject to currency
risks. Financial assets are denominated in Euro. The Company does not use hedging instruments for
its currency positions.

Credit risk
This is the risk that a client or counterparty causes a loss by defaulting on an obligation and it is
primarily related to financial transactions.
Given the nature of the activities performed by the Company, and the resulting structure of relevant
assets, the Company is subject to limited credit risk. The credit risk involving the Company’s current
assets, which include cash on hand, miscellaneous financial assets, tax receivables, trade receivables
and other assets, presents a maximum risk equal to the value of these assets in the event that the
counterparty becomes insolvent. There are no significant amounts past due. It should also be noted
that all the main counterparties consist of leading financial institutions and widely respected



                                                 Page 83
                                                                                                        Statutory Financial Statements at
                                                                                                                       31 December 2011




companies. In addition, investments were made at a number of different credit institutions, in order
to diversify the counterparty risk.
With regard to recent events involving Fondazione Centro San Raffaele del Monte Tabor, reference
should be made to Note 33.

Classes of financial instruments
In order to provide full disclosure as required by IFRS 7, the following table show a break-down of the
types of financial instruments recorded in the Statutory Financial Statements, with an indication of
the measurement criteria applied and, in the case of financial instruments measured at their fair
value, of the recognition (profit or loss or equity). When applicable, the last two columns of the table
lists the fair value of the financial instrument and the amount recognized in the relevant reserve at
December 31, 2011.
(amounts in thousands of Euro)                          Measurement criteria for financial instruments in the Statutory Financial Statements

                                                      Financial instruments at fair
                                                            value through                      Financial             Book value at Fair value at of which fair
                                                                                            instruments at           December 31, December           value
Class of financial instruments
                                                                                            amortized cost               2011        31, 2011       reserve
                                                     profit or loss         equity

                                                           (1)                 (2)                 (3)
Assets
Cash and cash equivalents                                                                                21.163             21.163        21.163             -
Financial assets                                                                 17.740                                     17.740        17.740          (336)
Trade receivables                                                                                            3.601           3.601         3.601             -

Liabilities
Trade payables                                                                                               6.884           6.884         6.884                -
Finance lease payables                                                                                         236             236           236                -

(1) Financial assets and liabilities measured at fair value with changes recognized in profit or loss
(2) Financial assets available for sale measured at fair value with gain or loss recognized in equity
(3) Loans & receivables and financial liabilities measured at amortized cost

The following table includes the net financial income and charges relating to financial assets and
liabilities broken down into the categories provided for by IAS 39, showing for each item the type of
charge and income.
(amounts in thousands of Euro)
                                                                                          From write-              From           From other
                                                                    From changes                                                                   Net profit
IAS 39 categories at December 31, 2011 From interest                                      down at fair         shareholders'      income and
                                                                     in fair value                                                                   (loss)
                                                                                             value            equity reserve        charges
Assets
Cash and cash equivalents                                    160                     -                   -                   -                 -            160
Financial assets                                           1.184                     -                   -                (106)                -          1.078
Trade receivables                                              -                     -                   -                   -                 -              -

Liabilities
Trade payables                                                 -                     -                   -                   -                 -             -
Finance lease payables                                       (35)                    -                   -                   -                 -           (35)

IAS 39 categories - total                                  1.309                     -                   -                (106)                -          1.203

For further details on cash and cash equivalent, plus other financial assets, reference should be made
to Notes 10 and 11.

Fair value hierarchy
In relation to the financial instruments recognized at fair value in the Statement of Financial
Position, IFRS 7 requires such values to be classified on the basis of a hierarchy of levels which reflect
the inputs used in determining the fair value. The following levels can be identified:
 Level 1 – prices recorded on an active market for assets or liabilities to be valued;



                                                                           Page 84
                                                                Statutory Financial Statements at
                                                                               31 December 2011




 Level 2 – inputs other than listed prices as set out in the previous point, which can be observed
  directly (prices) or indirectly (price derivatives) on the market;
 Level 3 – inputs which are not based on observable market data.
Financial assets valued at fair value at December 31, 2011 were classified under Level 1.

Liquidity risk
Liquidity risk can arise from an inability to procure, under economical conditions, the financial
resources necessary for the operations, as well as for the development of activities.
The Company does not present significant indebtedness and, as of the date of December 31, 2011, it
showed a net positive financial position of 38,667 thousand Euro, consisting of liquid assets and
investments in current financial assets.
The two main factors that determine the Company’s liquidity are, on the one hand, the resources
generated or absorbed by the operating and investing activities and, on the other hand, the
characteristics of the financial investments in terms of their expiration and liquidity, as well as
market conditions.
The Company has implemented a series of policies and processes designed to optimize the
management of financial resources and reduce liquidity risk:
 an adequate level of cash on hand is maintained;
 the financial flows generated by the Company’s operations are constantly monitored, together
  with the net financial position, so that any necessary actions can be taken forthwith;
 monitoring of prospective conditions of liquidity, with regard to the process of corporate planning.
For more information reference should be made to the section “Going concern” in these Notes, as
well as to the section on “Financial risks” in the Report on Operations.

Note 39 – Significant events after the reporting period
Following the end of the reporting period, no significant events occurred that could have a material
impact on operations or make it necessary to adjust the Statement of Financial Position, the Income
Statement and the Statement of Cash Flows of the Company.




                                               Page 85
                                                                Statutory Financial Statements at
                                                                               31 December 2011




Certification of the Statutory Financial Statements, pursuant to
Article 81-ter of Consob Regulation no. 11971 of May 14, 1999, and
subsequent amendments and integrations
1. The undersigned, Claudio Bordignon, as Chairman and Chief Executive Officer, and Enrico
   Cappelli, as the Executive Officer responsible for preparing MolMed S.p.A. financial reports,
   declare the following, taking into account the provisions of Article 154-bis (3) and (4) of
   Legislative Decree no. 58 of February 24, 1998:
    the adequacy of the reports in relation to the characteristics of the Company and
    the effective application
   of the administrative and accounting procedures applied in the preparation of the Company’s
   Statutory Financial Statements during 2011.
2. The adequacy of the administrative and accounting procedures for the preparation of the
   Statutory Financial Statements at December 31, 2011 is assessed based on a process defined in
   keeping with the Internal Control – Integrated Framework model issued by the Committee of
   Sponsoring Organizations of the Treadway Commission which is a reference framework generally
   accepted internationally.
3. It is also stated that:
    the Statutory Financial Statements at December 31, 2011:
     a) have been prepared in compliance with the applicable international accounting standards
        approved by the European Union through Regulation (EC) no. 1606/2002 of the European
        Parliament and Council of July 19, 2002 and subsequent amendments and integrations;
     b) are consistent with the results of the accounting records and entries;
     c) are suitable to provide a true and correct representation of the financial conditions, results
        of operations and cash flows of the issuer;
    the Report on Operations includes a reliable operating and financial review of the Company, as
     well as a description of the main risks and uncertainties to which it is exposed.



March 12, 2012



[signed by]                                              [signed by]
Claudio Bordignon                                        Enrico Cappelli
Chairman of the Board of Directors and                   Executive Officer responsible for preparing
Executive Officer                                        company financial reports




                                               Page 86
                                            Statutory Financial Statements at
                                                           31 December 2011




REPORT OF THE EXTERNAL AUDITORS




                                  Page 87
          Statutory Financial Statements at
                         31 December 2011




Page 88
                                                                 Statutory Financial Statements at
                                                                                31 December 2011




REPORT OF THE BOARD OF STATUTORY AUDITORS


Report of the Board of Statutory Auditors to the Shareholders’ Meeting of MolMed S.p.A. pursuant
to art. 153 of Legislative Decree 58/1998


Dear Shareholders,
During the year ended 31 December 2011, the Board of Statutory Auditors of MolMed S.p.A.
(hereinafter the “Company”) performed the supervisory activities provided for under the law, also in
consideration of the principles of conduct recommended by the Italian National Councils of Certified
Public Accountants and Bookkeepers.
During the year 2011, the Board of Statutory Auditors obtained the information needed to carry out
its tasks of general supervision, by holding meetings with the management and the various corporate
departments and by taking part in the meetings of the Board of Directors, which holds decision-
making powers over strategic transactions, as well as those having the most significant impact on the
corporate business. The Board of Directors as a whole, together with the members of the Board of
Statutory Auditors, provides prior approval of significant or material transactions with related
parties. The Board of Statutory Auditors has obtained information from the Directors on the activities
undertaken and the most important transactions carried out at least on a quarterly basis.
   1. MolMed is a medical biotechnology company, focused primarily on the research, development
      and clinical validation of innovative therapies for the treatment of tumors with high unmet
      medical need.
      The Company’s product portfolio is innovative and diversified. The main activities in which the
      Company was engaged in 2011 were:
      the clinical and pharmaceutical development of two anti-tumor treatments which are being
      tested:
         NGR-hTNF, a biological drug targeting blood vessels for solid tumors – this approach is
           based on the use of a highly selective vascular targeting agent whose molecular target is a
           structure which is only present on blood vessels that feed the tumor mass. The
           antivascular effect of the drug cuts off supplies of oxygen and nutrients to the tumor, thus
           blocking its growth;
         TK, a cell therapy product for blood tumors – this approach is aimed at making available to
           all patients the curative potential of transplants of haematopoietic stem cells derived
           from the bone marrow of a healthy donor, that is currently feasible in a safe and effective
           way only if the donor is fully compatible with the patient, a condition that can be satisfied
           only for approximately 50% of candidates to the transplant.
      The activities that were ongoing in 2010 continued in 2011, in particular:
        production of transduced cells with lentiviral vectors for the experimental treatment of
          patients affected by MLD and WAS as per the agreement signed with Fondazione Telethon;
        production of cells for the experimental treatment of patients affected by Duchenne
          muscular dystrophy;
        supply of various services as provided for by agreements entered into with Fondazione San
          Raffaele.
        supply of services related to Quality Control activities (sterility tests in accordance with
          the Pharmacopoeia).
      The Company’s main investments during 2011 were largely due to the regular replacement of
      laboratory equipment and the purchase of new machinery to be used in manufacturing
      processes.
      The net financial position decreased from 60,040 thousand Euro at December 31, 2010 to
      38,667 thousand Euro at December 31, 2011, due to the use of financial resources in the
      Company’s ordinary operations.
      The Company’s transactions outlined above are adequately illustrated in the Report on
      Operations and in the Notes.


                                                Page 89
                                                              Statutory Financial Statements at
                                                                             31 December 2011




   The Board of Statutory Auditors has confirmed that the transactions referred to above comply
   with the law, the company by-laws and the principles of good management, having ensured
   that they were not manifestly imprudent or risky, that they did not conflict with the
   resolutions of the Shareholders’ Meeting and that they were not likely to negatively affect the
   Company’s assets.

2. The Board of Statutory Auditors did not ascertain, during the year 2011 or after the reporting
   period, any atypical and/or unusual corporate transactions carried out with third parties or
   with related parties, as defined in Consob communication of July 27, 2006.
   Information on transactions carried out with related parties in the year 2011, along with a
   description of the characteristics and economic effects of such transactions, is found in the
   Report on Operations (point 10.3), in the Notes (no. 33), in the Statement of Financial Position
   and in the Income Statement drawn up in accordance with CONSOB Resolution no. 15519,
   issued on July 27, 2006.
   During the year 2011, the Board of Statutory Auditors, also through joint meetings with the
   Control and Risk Management Committee, verified whether the Company has implemented
   actions aimed at ensuring both the procedural and substantial fairness and transparency of
   decision-making and operating processes involved in transactions with related parties. In
   particular, the Board monitored compliance with Code provisions for the performance of
   significant or material transactions with related parties.

3. Taking into account the Company’s structure and size, the information on the Company’s
   transactions with related parties included in the 2011 Financial Statements is considered
   adequate.

4. On April 2, 2012 the external auditors Deloitte & Touche issued their report pursuant to articles
   14 and 16 of Leg. Decree no. 39 of January 27, 2010 certifying that:
   The financial statements at December 31, 2011 comply with the rules governing their
   preparation criteria, have been drawn up clearly and provide a true and fair representation of
   the income, equity and financial position and cash flows of the Company; they comply with
   IFRS as well as the implementing provisions of art. 9 of Leg. Decree no. 38/2005.
   The external auditors also certify that the Report on Operations and the information – as set
   out in para. 1, letters c), d), f), l), m) and para. 2, letter b) of art. 123-bis of Leg. Decree
   58/98 – included in the report on corporate governance and ownership structure are in line
   with the financial statements as required by the law. Finally, the external auditors «focus on
   the directors’ analysis included in the Report on Operations and in the Notes regarding the fact
   that during the year the company incurred a loss of 21,569 thousand Euro compared to a loss of
   17,582 thousand Euro in the previous year and that this situation is typical of the business
   model of biotech companies during the development of products the economic return on which
   is expected for future years».
   The Board of Statutory Auditors held meetings with the external auditors and assessed their
   independence, general methods and specific approach adopted for the purposes of carrying out
   their audit activities, and did not identify any problematic issues.
   Against this background, the Directors state that the financial resources available, following
   the share capital increase, will enable the Company to continue developing its product
   portfolio and to continue its research and development activities in 2012, as well as improving
   business opportunities and the Company’s overall operations and, therefore, will guarantee
   adequate resources for the Company’s operations in the foreseeable future, for a period of at
   least 12 months starting from the date the financial statements for the year ended December
   31, 2011 have been approved.

5. During the year 2011, no reports of the type referred to under Article 2408 of the Italian Civil
   Code were submitted to the Board of Statutory Auditors.

6. During the year the Board of Statutory Auditors did not receive any notifications or reports.



                                             Page 90
                                                            Statutory Financial Statements at
                                                                           31 December 2011




7. During the year 2011, the Board of Statutory Auditors did not issue to the Board of Directors,
   pursuant to Article 2389, paragraph 3, of the Italian Civil Code any opinion on the fees paid to
   the Directors with key responsibilities.

8. During the year 2011, the Company’s Board of Directors held 5 meetings, all of which were
   attended by the Board of Statutory Auditors. The Control and Risk Management Committee met
   8 times. The Remuneration Committee met 4 times.
   The Board of Statutory Auditors held 12 meetings, 8 of them jointly with the Control and Risk
   Management Committee. The Board of Statutory Auditors also took part in the Shareholders’
   Meeting held to approve the financial statements for 2010.

9. The Board of Statutory Auditors obtained information on and monitored, within the scope of its
   responsibilities, compliance with the principles of good management, through interviews,
   direct observations and collection of information from the top management and the heads of
   corporate departments, as well as meetings with the external auditors Deloitte & Touche.
   With regard to the decision-making processes of the Board of Directors, the Board of Statutory
   Auditors has verified, in part through direct participation in board meetings, that the
   Directors’ decisions comply with the law and with the company by-laws, as well as that the
   resulting resolutions are adequately supported by reliable information and analysis and
   assessment processes. For the purposes of these activities the Board of Statutory Auditors
   relied, when necessary, on the services of outside professionals.
   The Board of Statutory Auditors holds that the governance policies adopted by the Company
   constitute a valid control of compliance with the principles of good management in operating
   activities. With regard to these policies, the Board of Statutory Auditors expresses a positive
   evaluation.

10.The Board of Statutory Auditors gained knowledge and monitored the adequacy of the
   company’s organizational structure by collecting information from relevant managers and from
   the supervisory body with which the Board of Statutory Auditors held several meetings. The
   organizational structure is of fundamental importance to a rational business conduct, making
   possible both a specialization of functions and the coordination and harmonization of the
   activities undertaken by individual staff members in the performance of their assigned tasks.
   At December 31, 2011, MolMed S.p.A.’s organizational structure was broadly unchanged from
   the previous year, except for the appointment of the new General Manager Germano Garganico
   who took over full responsibility for operations.
   This organizational structure is supplemented by the departments and committees outlined in
   this report. At December 31, 2011, the Company’s total staff consisted of 88 employees and 16
   temporary staff members.
   The Board of Statutory Auditors expresses a positive judgment on the organizational structure,
   which appears adequate to implement the measures necessary for the achievement of
   corporate targets and adequate with respect to the size of the Company, the activities to be
   performed and the coordination measures to be implemented.
   Significant training activities have been undertaken with regard to the governance system
   adopted, the Organizational Model pursuant to Legislative Decree 231/2001 and liability for
   crimes involving the misuse of price sensitive information and the manipulation of markets. In
   addition, specific scientific training programs have been carried out, as well as training on
   information technology, safety and the protection of personal data.

11.During the year 2011, the Board of Statutory Auditors monitored the internal control system
   adopted by the Company, assessing its adequacy by holding meetings with the top management
   and with the Internal Control Manager, joint meetings with the Control and Risk Management
   Committee, as well as by obtaining and analyzing the relevant documentation.
   The internal control system consists of a complex set of rules, procedures and organizational
   structures, all aimed – through an adequate process of identification, measurement,
   management and monitoring of the main corporate risks – at ensuring correct, coordinate and
   efficient management, as well as the ongoing pursuit of the Company’s targets. The aim of
   internal control is to develop within the Company transparent and reliable procedures and
   conduct which are linked to specific responsibilities. This system helps to ensure the

                                            Page 91
                                                            Statutory Financial Statements at
                                                                           31 December 2011




   effectiveness and efficiency of operations, further ensuring that they can be assessed and
   verified, that the financial information provided is reliable, that laws and regulations are
   observed, that the company’s assets are protected and that fraud to the detriment of the
   Company and financial markets is prevented.
   The Internal Control Manager, who is also in charge of internal audit, developed an audit plan
   for 2010-2012. This plan, which was agreed with the Chief Executive Officer, was submitted for
   approval on December 14, 2009 to the Control and Risk Management Committee and, to the
   extent of their respective responsibilities, for examination by the Supervisory Committee and
   the Board of Statutory Auditors. Subsequently, the Internal Audit Manager drew up an annual
   plan including the activities to be undertaken in 2012; the plan focuses, among other things, on
   audits concerning the risks connected with the production and testing of drugs.
   The audits carried out did not identify any problematic issues.
   The Board of Statutory Auditors states that, on the whole, the internal control system
   implemented by MolMed S.p.A. appears to be well structured and adequate, with respect to
   the characteristics of the Company. To date, problems have not been reported. The Board of
   Statutory Auditors, therefore, expresses a positive judgment, also taking into account that this
   system is continuously subject to improvements in order to be adapted to the environment and
   corporate changes.

12.The Board of Statutory Auditors has assessed and monitored the               adequacy of the
   administrative-accounting system, as well as its reliability in terms of    correctly depicting
   operating results, by obtaining information from the managers of the        relevant corporate
   departments, examining the Company’s documentation and analyzing            the results of the
   activities undertaken by the external auditors Deloitte & Touche.

13.The Board of Statutory Auditors has ascertained, through direct assessments and based on
   information received from the external auditors Deloitte & Touche, as well as from the
   management, that the Financial Statements and the Report on Operations have been drafted in
   compliance with IAS/IFRS (as well as with relevant rules and regulations). In particular, the
   directors indicated in the Report on Operations the financial risks to which the Company is
   exposed and, in the Notes, the actions undertaken to meet financial requirements.
   The Board of Directors verified the adequacy of the powers and means available to the
   Executive Officer responsible for preparing company financial reports; it also verified
   compliance with the administrative and accounting procedures pursuant to art. 154-bis, point
   4, of Legislative Decree 58/1998.
   The Chairman and the Chief Executive Officer, together with the Executive Officer responsible
   for preparing company financial reports, have complied with the requirements of art. 154-bis,
   paragraphs 3 and 4, of Legislative Decree no. 58 of February 24, 1998.

14.The Board of Statutory Auditors oversaw the arrangement and implementation of the corporate
   governance rules envisaged by the Code of Conduct prepared by the Corporate Governance
   Committee for Listed Companies, approved by the Company with resolution of the Board of
   Directors of November 6, 2007, and unchanged following the issue of the new Code of Conduct
   in 2011. The Board of Directors, in accordance with the by-laws, is appointed using the system
   of lists of candidates, in order to ensure that at least one of the Board Members is selected
   from the minority list. The Board of Directors, appointed during the Shareholders’ Meeting of
   April 26, 2010, consists of thirteen Directors, three of whom have been classified as
   independent, in accordance with both the Code of Conduct and Legislative Decree 58/1998.
   The Chairman of the Company has been appointed as Chief Executive Officer, and the Board of
   Directors granted him specific delegated powers. Executive powers were also delegated to the
   two General Managers.
   From among the independent Directors, the Company has established the figure of the Lead
   Independent Director (the Chairman of the Control and Risk Management Committee was
   selected for this purpose), who serves as manager responsible for the requests and
   contributions of the non-executive Directors, and of the independent Directors in particular.
   The Board of Directors, on the basis of the information available to the Company and supplied
   by the Directors, assessed the existence of the independence requirements. The Board of
   Statutory Auditors reported that the criteria and procedures adopted by the Board of Directors

                                            Page 92
                                                             Statutory Financial Statements at
                                                                            31 December 2011




   have been applied correctly. The Board of Directors also verified the number of positions held
   by members in other companies. The Board of Statutory Auditors determined, pursuant to art.
   10, paragraph 2, of the Code of Conduct – and based on the written statements submitted by
   each Statutory Auditor – that there exist no connections or relationships that could negatively
   affect the impendence of the Statutory Auditors’ judgments; the Board of Statutory Auditors
   has also verified compliance with the regulations governing the maximum number of positions
   that can be held by Statutory Auditors.
   The Board of Statutory Auditors points out that it has been constantly involved in the activities
   of analysis and implementation of the Company’s corporate governance system and, as already
   specified in this report, it expresses an overall positive judgment.

15.The Board of Statutory Auditors, in accordance with the provisions of art. 19 of Legislative
   Decree 39/2010, monitored: a) financial disclosure as also specified at point 13 of this report,
   b) the effectiveness of the systems for internal control, internal audit, and risk management,
   as set out in more detail at point 11; c) the audit of the annual results and d) the
   independence of the external auditors, in particular in terms of the provision of non-audit
   services to the body responsible for the independent audit of the accounts.

16.The supervisory and control activities carried out by the Board of Statutory Auditors, as
   described earlier, did not result in further observations worthy of note to be pointed out in the
   Report to the Shareholders’ Meeting or to be reported to the other supervisory bodies.

17.The Board of Statutory Auditors, having examined the Statutory Financial Statements at
   December 31, 2011, has no objections to raise with regard to the resolutions proposed by the
   Board of Directors to cover the loss for the year 2011, as better described in the Report on
   Operations, section 16, to which reference should be made.

Milan, April 2, 2012
                                             The Board of Statutory Auditors

                                              [signed by] Fabio Scoyni
                                              [signed by] Antonio Marchesi
                                              [signed by] Enrico Scio




                                            Page 93

								
To top