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Half-year financial report - MolMed

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					                                        Bilancio al
                                   financial report
                        Half-year 31 dicembre 2008
                                  at 30 June 2010




Half-year financial
report
at June 30, 2010

English translation for convenience




          Pagina 1/69
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 therapeutics in clinical
development: TK, a cell-based therapy enabling bone marrow
transplants from partially compatible donors, in Phase III for
high-risk leukaemias, and NGR-hTNF, a novel vascular
targeting agent (VTA), in Phase III for malignant pleural
mesothelioma and in Phase II in five more types of solid
tumours: colorectal, small-cell lung, non-small-cell lung, liver
and ovarian cancer.

MolMed is headquartered at the San Raffaele Biomedical
Science Park in Milan, Italy. The company’s shares
(Milan:MLM) are listed on the Milan Stock Exchange (Standard
segment, class I) of the MTA managed by Borsa Italiana.
                                                                                                                        Bilancio al
                                                                                                           financial report
                                                                                                Half-year 31 dicembre 2008
                                                                                                          at 30 June 2010




Table of contents
General Company information .................................................................................... 2
Board of Directors and Control Bodies........................................................................... 3
Half-year report on operations.................................................................................... 5
1.  Corporate information ....................................................................................................... 5
2.  Fighting cancer................................................................................................................ 6
    2.1    A global challenge ................................................................................................... 6
    2.2    Investigational therapies developed by MolMed address severe oncology indications with
           high unmet medical need........................................................................................... 7
3. Product pipeline .............................................................................................................. 9
    3.1    TK - A cell-based therapy for the treatment of leukaemia.................................................... 9
    3.2    NGR-hTNF - A biological drug targeting tumour blood vessels for the treatment of solid
           tumours ............................................................................................................... 11
    3.3    Research activities: Vascular/tumour targeting programme................................................. 13
4. Development and GMP production activities ............................................................................ 14
    4.1    Development......................................................................................................... 14
    4.2    GMP production ..................................................................................................... 14
5. Research and developmet grants & other financial support .......................................................... 15
6. Corporate Governance ...................................................................................................... 15
    6.1    Direction and coordination activities ............................................................................ 15
    6.2    Implementing the Model of Organisation, Management and Control, pursuant to the Italian
           Legislative Decree 231/2001 ...................................................................................... 16
    6.3    Transactions with related parties ................................................................................ 16
7. Main risks and uncertainties to which MolMed is exposed ............................................................ 17
    7.1    Risks associated with external factors........................................................................... 17
    7.2    Strategic and operating risks ...................................................................................... 18
    7.3    Financial risks........................................................................................................ 20
8. Other information ........................................................................................................... 22
    8.1    Own shares ........................................................................................................... 22
9. Main achievements in the first half-year of2010 ....................................................................... 22
10. Highlights ..................................................................................................................... 25
    10.1 Income results ....................................................................................................... 25
    10.2 Equity and financial results........................................................................................ 27
11. Outlook ........................................................................................................................ 30
    11.1 Significant events subsequent to end of the period ........................................................... 30
    11.2 Business outlook..................................................................................................... 30
Condensed Interim Financial Statements at June 30, 2010 ............................................... 31
12.   Statement of Financial Position ........................................................................................... 31
13.   Income statement ........................................................................................................... 32
14.   Statement of Comprehensive Income .................................................................................... 33
15.   Statement of Cash Flows ................................................................................................... 34
16.   Statement of Changes in Shareholders’ Equity ......................................................................... 35
17.   Statement of Financial Position pursuant to Consob resolution no. 15519 of July 27, 2006..................... 36
18.   Income Statement pursuant to Consob resolution no. 15519 of July 27, 2006..................................... 37
Notes................................................................................................................... 38
19.   General information......................................................................................................... 38
20.   Accounting standards ....................................................................................................... 39
21.   Other information ........................................................................................................... 40
22.   Segment reporting........................................................................................................... 43
23.   Notes to the Statement of Financial Position ........................................................................... 44
24.   Notes to the Income Statement ........................................................................................... 52
25.   Other notes ................................................................................................................... 57
26.   Attestation of the condensed interim Financial Statements, pursuant to artIcle 81-ter of Consob
      regulation no. 11971 of May 14, 1999, and subsequent amendments and integrations .......................... 66
Report of the External Auditors.................................................................................. 67




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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:                                € 43,582,874.14 - fully paid (∗)


Borsa Italiana Code:                          MLM
ISIN:                                         IT0001080248
Ticker Reuters:                               MLMD.MI
Ticker Bloomberg:                             MLM IM
Circulating shares:                           210,415,616
                                              (100% ordinary shares with no par value)

(∗) data filed at the Company Register and waiting for registration




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.



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Board of Directors and Control Bodies

Board of Directors
Chairman and Chief Executive Officer               Claudio Bordignon
Directors                                          Luigi Berlusconi
                                                   Silvio Bianchi Martini (independent)
                                                   Renato Botti
                                                   Maurizio Carfagna
                                                   Paolo M. Castelli
                                                   Riccardo Cortese (independent)
                                                   Marina Del Bue
                                                   Alessandro De Nicola (independent)
                                                   Massimiliano Frank
                                                   Sabina Grossi
                                                   Alfredo Messina
                                                   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 April 26, 2010, following the Shareholders’ Meeting, the Board of Directors held its first meeting and
confirmed Claudio Bordignon as Chief Executive Officer. Silvio Bianchi Martini was confirmed as Lead
Indipendent Director.


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)


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


External Auditors
Deloitte & Touche S.p.A.




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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 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
  Biophysic 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 Ecóle 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, section “About MolMed/SAB”).




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Half-year 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 on 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 exploiting the strenght of its double vocation: quality of its science and research basis,
combined with a high efficiency of the business management, focused on a clear industrial project.
The reliability of this project is witnessed by MolMed’s decision to become a public company, by
getting listed on the Milan Stock Exchange.




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2.        FIGHTING CANCER

2.1       A global challenge
MolMed 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. leukaemias and lymphomas), radio- and pharmacotherapy are often followed by
transplants of haematopoietic stem cells.
Among pharmacotherapies, 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 US 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.
In oncology, the very high level of unmet medical need, particularly for some types of tumour, has
driven the emergence of the so-called innovative therapies, either biological or 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 else they can be 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.
Finally, novel targeted therapies often can act both as single-agent alternatives, and as enhancers of
or in synergy with exisiting treatments. The current focus in tumour therapy improvement is to use a
combination of different classes of agents rather than a single therapeutic approach: in perspective,




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

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the introduction of next generation biotechnology-derived innovative therapies, forecasted after
2010, is expected to enable further extension of patients’ 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 products and therapeutic strategies developed by MolMed belong to the context
of novel anti-tumour biologicals.


2.2                              Investigational therapies developed by MolMed 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
                                600.000
 Europe, Japan and Australia)
  Incidence (North America,




                                500.000                                              Lung
                                                                                    (NSCLC)
                                                                                                       No or few treatment options
                                400.000                    NGR-hTNF
                                                           NGR-hTNF                                    approved or in develoment in:
                                                                                                           First/second line
                                300.000
                                                                                                           Third/fourth line
                                                                                     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 (full lines) or planned
         (dotted line) clinical trials
         Sources: Globocan Database 2002; 1MolMed esitmate
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 leukaemias, 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 succesfully address the cure of each of these tumours, MolMed is developing two dinstinct
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:
• 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



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   is fully compatible with the patient, a condition that can be satisfied only for approximately 50%
   of candidates to the transplant;
• a biological drug targeting blood vessels: this approach is based on the use of a particular kind of
  drug, a 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.




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3.        PRODUCT PIPELINE

MolMed’s product pipeline is headed by the two investigational anticancer therapies TK and NGR-
hTNF, whose clinical and pharmaceutical development has been the chief focus of activities carried
out by the Company functions in the first half-year of 2010.

Product       Indication (trial code)            Res Precl                Phase I       Phase II     Phase III
TK            High-risk leukaemia (TK007, TK008)
              Leukaemia/Japan [by Takara Bio]
NGR-hTNF Solid tumours [ MTD] (EORTC 16041)
              Solid tumours [low dose] (NGR002)
              Colorectal cancer (NGR006)
single agent
              Hepatocarcinoma (NGR008)
              Mesothelioma (NGR010, NGR015)
              Solid tumours [high dose] (NGR013)
              Solid tumours (NGR003)
              Small cell lung cancer (NGR007)
+ doxorubicin
              Ovarian cancer (NGR012)
              Sarcomas
+ Xelox       Colorectal cancer (NGR005)
+ cisplatin   Solid tumours (NGR004)
  cis/gem     Lung cancer/NSCLC (NGR014)
+
  cis/pem
NGR-IFNγ      Solid tumours
Legenda for clinical trials:     planned      ongoing         completed

     Figure 2. MolMed pipeline as of June 30, 2010


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 leukaemias.
HSCT allows to regenerate the haematopoietic and immune system of a leukamic patient, which is
severely compromised by the disease and by the radio- and pharmaco-therapies 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 relapse, but on the other hand they carry
a very high risk of eliciting an aggression 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 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.




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                                                       Hospital                            Protection from infections,
                                                                                TK cells     with promotion of HSC
                    Haematopoietic                                                                engraftment
                      stem cells
                              HSC
                                                                                                  Protection from
                                       Transplant of             Infusion of                     leukaemia relapse
                                        stem cells                  T cells
                                          (day 0)             transduced with
                                                                   TK gene
      Partially compatible                                        (day 21)                  Graft versus host
              donor                                                                          disease (GvHD)
     (from bone marrow or                       MolMed – GMP facility
        peripheral blood)
                                             Transduction with TK gene,
                                             selection and expansion of                      If GvHD occurrs,
                                                    donor T cells                          ready abrogation by
                             T cells                                                        administration of
                                                                                                ganciclovir

                             T cells
                                                         TK



    Figure 3. Synthesis of the TK procedure in haematopoietic cell transplant from a partially compatible donor

TK therapy was designed in order to allow to keep 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 a
common antiviral drug. 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.
Following the results of a Phase I/II trial (TK007), published in May 2009 by the prestigious medical
journal The Lancet Oncology2, demonstrating that the introduction of TK therapy allows to achieve a
rapid and efficient immune-reconstitution, abating transplant-related mortality and permitting long-
term survival a Phase III trial of TK (TK008) i in Italy for high-risk leukaemia patients undergoing HSCT
from partially compatible donors. TK008 is a large-scale, randomised comparative trial, aimed at
assessing efficacy and sustainability of TK in its final formulation, in compliance with regulatory
requirements in view of registration and market launch. TK is the first cell therapy using genetically
engineered cells to get the authorisation to Phase III in Italy.
In order to strengthen the clinical and statistical relevance of the trial and gain international
recognition with key opinion leaders, MolMed decided to ensure the expansion of the trial to include
10-15 key European centres. In December 2009, the Italian Drug Agency (AIFA) has approved an
amendment to the clinical protocol of trial TK008, now involving a study population of 152 patients,
with a randomisation ratio (TK versus no TK) of 3:1. The key objectives of the trial are overall
survival and reduction of transplant-related mortality associated with the practice of haplo-
transplants. Currently, expansion of trial TK008 with the amended protocol to international clinical
centres is underway, and will be implemented by the first half of 2010. First data are expected by
the end of 2010.




2
    Ciceri, Bonini et al, “Infusion of suicide-gene-engineered donor lymphocytes after family haploidentical
    haemopoietic stem-cell transplantation for leukaemia (the TK007 trial): a non-randomised phase I-II study”,
    Lancet Oncol. 2009 May 1;10:489-500

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In the first half-year of 2010, long-term monitoring data of the Phase II trial TK007 were presented at
the annual meeting of the American Association of Clinical Oncology (ASCO). These data give
evidence of the direct role played by TK cells in fighting leukaemia relapse, and of their important
contribution in immune-reconstitution through restoration of the functionality of the thymus gland.
The ASCO poster is available in the section “Pipeline/Main Publications and abstracts” of MolMed’s
website (www.molmed.com).
Concerning TK manufacturing, in the first half-year of 2010 MolMed started the project for the
development of an automated process, whose investment is graduated following the progress of
Phase III trial TK008. The project obtained a non-refundable grant of approximately € 1.4 million by
Regione Lombardia that will partially cover the R&D costs incurred for a period of 36 months. The
project is carried on in collaboration with Areta International S.r.l. and Datamed S.r.l: Datamed will
carry out design and optimisation of the system modules and related engineering work, while Areta
will develop and implement an optimised production and purification process for the monoclonal
antibody used for the selection of engineered cells.
Abstracts of the key publications concerning TK are available at                        MolMed’s   website
(www.molmed.com), in the section “Pipeline/Main publications and abstracts”.


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, tvCD13, selectively expressed by endothelial cells of human tumour vessels.




                                                                       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. Structure of a monomer of the NGR-hTNF molecule, and properties of its moieties

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 efficacy. Therefore, NGR-hTNF can
be used both as new single-agent therapeutic option, and in synergistic combinations with most
cytotoxic regimens currently available.
Currently, the clinical development of NGR-hTNF includes clinical trials both as single agent and in
combination therapy with different chemotherapeutic regimens, in a total of six indications:
colorectal, liver, small-cell lung, non-small-cell lung and ovarian carcinomas, and malignant pleural


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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.
Three Phase II trials of NGR-hTNF as monotherapy in colorectal cancer (NGR006), primary liver cancer
(NGR008), and malignant pleural mesothelioma (NGR010), completed recruitment in 2008, and a
Phase II trial in combination with Xelox in colorectal cancer (NGR005) completed recruitment in
2009. In-depth evaluation and follow-up of these trials is still ongoing, while their clinical results
were delivered in 2009 at the two primary international meetings devoted to clinical oncology -
ASCO, the annual meeting of the American Society of Clinical Oncology, and ECCO-ESMO, the bi-
annual joint meeting of the European Cancer Organisation and the European Society of Medical
Oncology.
In the first half-year of 2010, the results of Phase II trial NGR010 in malignant pleural mesothelioma -
whose positive outcome provided the rationale for the start of a Phase III trial in this indication -
have been published by the Journal of Clinical Oncology3. The outcome of the trial showed an
overall disease control rate of 46% with a median duration of 4.7 months. A clear advantage of the
treatment frequency intensification, from once ervery three weeks to once a week, is highlighted in
terms of disease control duration (9.1 vs 4.4 months). The clinical benefit resulted into a
prolongation of overall survival, which is doubled in patients achieving initial disease control.
In April 2010, a pivotal international multicentre Phase III trial (NGR015) in malignant pleural
mesothelioma was started in Italy. NGR015 is a randomised, double-blind, placebo-controlled trial,
expecting to enrol 400 adult patients affected by malignant pleural mesothelioma with disease
progressing after a pemetrexed-based chemotherapy, the only approved therapy currently available.
The trial investigates the administration of NGR-hTNF plus best investigator’s choice (BIC) versus
placebo plus BIC, where BIC includes either supportive care alone or combined with one
chemotherapeutic agent (either doxorubicin, or gemcitabine, or vinorelbine). Randomisation ratio
will be 1:1 between NGR-hTNF and placebo. Before randomisation, investigators decide for each
patient if BIC will be either supportive care alone or combined with chemotherapy; patients are then
randomly assigned to either of the two treatment arms by specific stratification factors. NGR-hTNF is
given intravenously as 1-hour infusion at 0.8 µg/m2 once a week, until disease progression; placebo
follows the same administration schedule in the control arm. 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 May 2010, MolMed also received clearance from the U.S. Food and Drug Administration (FDA) for
the IND filed to initiate Phase III trial NGR015 in the United States. MolMed is also working to involve
other clinical centres in the European Union.
In the first half-year of 2010, patient enrolment was completed in a Phase II trial in combination
therapy with doxorubicin for the treatment of small-cell lung cancer (NGR007). Recruitment
progressed and is still ongoing in two Phase II trials of NGR-hTNF in combination therapy, with
doxorubicin for the treatment of ovarian cancer (NGR012), and with cisplatin-based regimens as first-
line treatment for non-small cell lung cancer in a randomised trial (NGR014). Recruitment progressed
also in a Phase I trial for the exploration of safety and clinical benefit of NGR-hTNF at increasing
doses in the high dose-range (NGR013).
In the first half-year of 2010, MolMed also continued the pharmaceutical development of NGR-hTNF,
that will allow MolMed to put in place a manufacturing process meeting regulatory and market
requirements. In particular, MolMed completed the production needed to cover drug supply for Phase
III trials, consisting of two batches of bulk drug substance (i.e., the active pharmaceutical ingredient,
or “API”) from which two GMP batches of final drug product (the API in its final formulation) have
been obtained.




3
    Gregorc V, Zucali PA, Santoro A, Ceresoli G.L., Citterio G., De Pas TM, Zilenmbo N, De Vincenzo F, Simonelli M,
    Rossoni G, Spreafico A, Viganò MG, Fontana F, De Braud FG, Bajetta E., Caligaris-Cappio F, Bruzzi P, Lambiase
    A, Bordignon C., “Phase II Study of Asparagine-Glycine-Arginine- Human Tumor Necrosis factor alpha, a
    selective vascular targeting agent, in priviously treated patients with malignant pleural mesothelioma”,
    Journal of Clinical Oncology (2010), Vol 28, n. 15:2604-2611

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Abstracts of the key publications concerning NGR-hTNF are available at MolMed’s website
(www.molmed.com), in the section “Pipeline/Main publications and abstracts”. Posters and
presentations of the results of NGR-hTNF clinical trials are available in the section “Pipeline/NGR-
hTNF” of the website.


3.3    Research activities: Vascular/tumour targeting programme
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-IFNγ, associating NGR with the cytokine interferon-γ, now in preclinical
development.
Due to the ever growing commitment required in connection with the clinical development of TK and
NGR-hTNF, MolMed decided to discontinue its research activities related to a third similarly
engineered molecule, NGR-IL12, combining the NGR peptide with the cytokine interleukin-12.
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.




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4.      DEVELOPMENT AND GMP PRODUCTION ACTIVITIES

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 semi-stable and stable large-scale
production of lentiviral vectors.
In the first half-year of 2010, activities carried on were focused on:
• completion of development activities related to the production of lentiviral vectors to be used in
  clinical trials of gene therapy for two orphan genetic diseases - metachromatic leucodystrophy
  (MLD) and Wiskott-Aldrich syndrome (WAS), and support to their GMP validation, under an
  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 concerning lentiviral vectors for animal
  applications, under the EU-FP7 co-funded project PERSIST.


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 a in-house GMP facility formally 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, from preclinical development to Phase III trials.
The facility - which encompasses 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 - also satisfies FDA requirements
for the production of clinical-grade bulk drug substances.
Besides manufacturing the TK cell therapy for its own Phase III trial, MolMed’s GMP facility also
provides gene and cell therapy services to selected customers and strategic partners, representing a
source of revenues.
Provision of GMP production 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 stategic collaborations in cell and gene
therapy.
In the first half-year of 2010, the following GMP service activities ongoing since year 2009 were
continued:
• production and validation of lentiviral vectors to be used in clinical trials of gene therapy for MLD
  and WAS, under the same agreement with the Telethon Foundation mentioned above in
  “Developemnt activities”;
• activites under several different agreements with the San Raffaele Foundation, under which
  MolMed provides:
  - manufacturing and release of clinical-grade lots of genetically modified patient-specific cells for
    use in cell- or gene therapy trials of rare diseases;
  - manufacturing and release of retroviral supernatants, peptides and dendritic cells;
  - cell selection and/or cell manipulation services.




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5.      RESEARCH AND DEVELOPMET GRANTS & 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 local level - aimed at supporting and promoting
innovation.
MolMed is a strategic partner in four projects, presented together with different international
research institutions, that successfully applied for co-funding under EU FP-7, i.e. the Seventh
Framework Programme of Research and Development of the European Union. The projects, named
“PERSIST”, “OPTISTEM”, “ATTRACT” and “CELL-PID”, do involve MolMed for some 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 the
projects mentioned will be carried out throughout the forthcoming years. The funding granted will be
from 50% to 75% of incurred costs, for a total amount of € 2.508 million.
At National level, the Italian Financial Bill 2010 provided for the same tax credit proportional to R&D
costs incurred that was introduced for the period 2007-2009. However, in this half-year financial
report no effect of this benefit has been considered, since no provisions for implementing the tax
benefit have been issued to date.
MolMed has applied, together with industrial and academic partners, for a grant from the Italian
Ministry of Research under the “National Research Programme (PNR) Project Ideas 2005-2007” in the
context of the “Major Strategic Projects”, with a project focused on “identification of innovative
anticancer treatments, from genomics to therapy” (project GPS DM28936). The project started in
2007 and ended on June 30, 2009: funding granted, as far as MolMed’s share is concerned, consist of
a low-interest rate loan of € 668 thousand, plus a market-interest rate loan of € 74 thousand, and a
non-refundable grant of € 131 thousand.
Still under the initiative “Project ideas” of the Italian Ministry of Research, MolMed has participated
to a project for “Study and treatment of cancer and of degenerative pathologies through novel
approaches derived from knowledge of the human genome” (project GPS DM24528), that should
receive a non-refundable grant of € 185 thousand, inclusive of a contribution of € 90 thousand
devoted to young researchers.
At local level, in 2009 MolMed has applied, together with two industrial partners, for a grant from the
regional authority Regione Lombardia under a “Call for industrial research and experimental
development activities in the priority thematic areas”, for a project devoted to the development of
an innovative automated manufacturing process for MolMed’s cell-based therapy product TK (see also
Chapter 3.1). The project was approved and included among those eligible for funding on June 7,
2010, and obtained a non-refundable grant of € 1.430 million that will partially cover the R&D costs
incurred for a period of 36 months: MolMed’s share of the grant amounts to € 499 thousand.


6.      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. 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 text of the Report is available (in Italian) on MolMed’s website (www.molmed.com), in the
section Investitori/Corporate Governance/Sistema di Corporate Governance; the report is
transmitted to Borsa Italiana according to ways and terms provided for in applicable regulations.

6.1     Direction and coordination activities
MolMed shareholders structure is such that no shareholder controls a majority of the votes or has
enough votes to exercise dominant influence over the Company, nor there is an obligation for
members to consolidate the statutory financial statements.




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6.2    Implementing the Model of Organisation, Management and Control,
       pursuant to 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.
The company, in order to implement the provisions of the existing legislation, approved in 2007 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 the first half-year of 2010, following the audit plan presented to the Board of Directors, the
Supervisory Body started and conducted a preliminary assessment of some of the Operational
procedures pursuant to Legislative Decree 231/2001 and forming Annex 6 to the Model; the Body has
prepared specific check lists, whose outcomes will be reported to the Board of Directors in the usual
half-year report.
In the first half-year of 2010, following the tutorial plan presented to the Board of Directors, the
Supervisory Body has also organised a two-day seminar for MolMed staff and collaborators, focused on
the offences included in the Legislative Decree 231/2001, with particular attention to the crimes
against the Public Administration.
The Model is publicly available on MolMed’s website (www.molmed.com), in the section
“Investors\Corporate social responsibility”.


6.3    Transactions with related parties
MolMed has adopted a "Code for the accomplishment of major or significant corporate transactions
with related parties", which aims to identify the procedure to be followed in order to approve and to
implement transactions with related parties carried out by the Company. The principles reported in
this document are intended to ensure effective transparency in the conduct of such operations, as
well as the respect of substantial and procedural criteria of fairness, in accordance with
requirements established by law and by the recommendations contained in the Code of Conduct
prepared by the Committee for Corporate Governance of listed companies. The text of the document
is available (in Italian) on MolMed’s Web site (www.molmed.com), in the section
Investitori/Corporate Governance/Operazioni con parti correlate.
Transactions with related parties, which refer to relations between MolMed, Fondazione San Raffaele
del Monte Tabor and the companies linked thereto, and Banca Esperia S.p.A., cannot be classified
either as atypical, or as unusual in the normal course of business of the Company . These operations
are carried out at market conditions, taking into account the characteristics of goods and services
provided.
Information on transactions with related parties is given in the Notes, to which reference should be
made.
Finally, following the new Regulations on transactions with related parties deliberated by Consob
(Consob deliberation n. 17221 of March 12, 2010) and subsequent modifications (Consob deliberation
n. 17389 of June 23, 2010), MolMed will adopt appropriate measures in order to comply with such
regulations within the due timeframe set forth by the same.




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7.     MAIN RISKS AND UNCERTAINTIES TO WHICH MOLMED IS EXPOSED

7.1    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
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

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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.

7.2     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
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


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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
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.

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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.

7.3     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.



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                                                                                 at June 30, 2010



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
Interim Financial Statements through contributions from its shareholders, including through the
listing on the screen-based equity market (Mercato Telematico Azionario), organised and managed by
Borsa Italiana, which occurred on March 5, 2008.
At June 30, 2010, the Company’s net financial position was positive at 12,259 thousand Euro.
In addition, at the date of preparing these Condensed Interim Financial Statements at June 30, 2010,
the share capital increase which was approved by the Shareholders’ Meeting on April 26, 2010, was
completed and generated gross income of 57,864 thousand Euro. The income from this share capital
increase ensures adequate resources to continue the Company’s operations in the foreseeable future.
Although the Company has accessed new resources through the above share capital increase, it
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 restricting 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, reorganise 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 impact the Company’s business and its income, equity
and/or financial position.

Interest rate risk and currency risk
At June 30, 2010, 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 by bank accounts, government
bonds, corporate bonds and current financial assets.



Further information relating to risk management is given in paragraph 20 – Accounting standards –
Going concern – and in Note 37 – Information on financial risks, in the Notes to the Condensed
Interim Financial Statements.




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8.      OTHER INFORMATION

8.1     Own shares
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.


9.      MAIN ACHIEVEMENTS IN THE FIRST HALF-YEAR OF2010

R&D activities
During the first half-year of 2010, MolMed’s activities were further focused on the 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. In particular, MolMed reached a milestone with the
launch of a randomised Phase III trial of NGR-hTNF for the treatment of malignant pleural
mesothelioma, which started in April 2010.
Substantial progress achieved in the development of NGR-hTNF included:
• Start in Italy of a randomised, double-blind, placebo-controlled Phase III trial (NGR015) in
  malignant pleural mesothelioma. This international multicentre pivotal study is expected to enrol
  400 adult patients with disease progressing after a pemetrexed-based chemotherapy, the only
  standard regimen currently available for this disease. The primary endpoint of the trial is overall
  survival; secondary endpoints include progression-free survival, disease control rates, safety
  profile and patient quality of life.
• Following the filing of a IND, clearance from the U.S. Food and Drug Administration (FDA) to
  initiate a Phase III clinical trial of NGR-hTNF for the treatment of malignant pleural mesothelioma
  in the United States.
• Publication by the Journal of Clinical Oncology of the results of Phase II trial NGR010 for malignant
  pleural mesothelioma, whose positive outcome provided the rationale for the start of a Phase III
  trial of NGR-hTNF in this indication.
• Completed patient recruitment in a Phase II trial of NGR-hTNF in combination with doxorubicin for
  non-small-cell lung carcinoma (NGR007).
• Patient recruitment progressed in two ongoing Phase II trials in combination therapy: with
  doxorubicin in ovarian cancer (NGR012), and with cisplatin-based regimens as first-line treatment
  in a randomised trial for non-small-cell lung cancer (NGR014). Patient recruitment progressed
  also in a Phase I trial for the assessment of safety and clinical benefit of NGR-hTNF at increasing
  doses in the high dose-range (NGR013).

Progress made with TK in the first half of 2010 included:
• Presentation at the annual meeting of the American Association of Clinical Oncology (ASCO) of
  long-term monitoring data of the Phase II trial TK007, giving evidence of the direct role played by
  TK cells in fighting leukaemia relapse, and of their important contribution in immune-
  reconstitution through restoration of the functionality of the thymus gland.
• Start of the development project of an automated manufacturing process, that obtained a non-
  refundable grant of € 1.4 million by Regione Lombardia to partially cover the R&D costs incurred
  for a period of 36 months. The project is carried on in collaboration with Areta International S.r.l.
  and Datamed S.r.l..
• Continuation of activities aimed at implementing the international expansion of Phase III trial
  (TK008).


Share capital increase
In the first half-year of 2010, MolMed’s Board of Directors submitted to the Shareholders’ Meeting the
proposal of a share capital increase with pre-emptive option rights for existing shareholders,
pursuant to to Article 2441 of the Italian Civil Code, upon payment and in a divisible manner, up to a
maximum amount of € 70 million, by the issuance of ordinary shares. The proposal was approved in
the same terms by the Shareholders’ Meeting on April 26, 2010.


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On June 23, 2010, the Board of Directors, under the powers conferred by the Shareholders’ Meeting,
approved terms and conditions of the share capital increase with pre-emptive option rights for
existing shareholders, and resolved to issue a maximum of 105,207,808 ordinary shares at the price of
€ 0.55 per share (of which € 0.3429 represents share premium), in the ratio of one newly issued share
for each ordinary share held.
On the same date, MolMed’s first shareholder, Fininvest S.p.A., and shareholder H-Equity S.à.r.l.
SICAR (now H-Equity S.r.l.) undertook an irrevocable underwriting commitment for the full quota of
their pre-emptive rights, corresponding to 23.956% and 8.128% of the new shares offered,
respectively.
The share capital increase was also supported by a stand-by undewriting agreement by Jefferies
International Limited and Banca IMI S.p.A., entered into on June 23, 2010, for the quota of new
shares unsubscribed within the share capital increase transaction; Jefferies International Limited and
Banca IMI S.p.A. acted as Joint Global Coordinators and Joint Bookrunners of the transaction.
The transaction was carried out according to the following timetable:
• 28 June-16 July 2010: exercise of option rights by shareholders (subscription period);
• 28 June-9 July 2010: trading of option rights on the MTA of Borsa Italiana;
• 22-28 July 2010: auction on the MTA of Borsa Italiana of the unexercised rights.
During the subscription period, from June 28 to July 16 included, 103,131,214 option rights were
exercised, resulting into the subscription of 103,131,214 newly issued MolMed ordinary shares,
corresponding to 98.026% of the total number of new shares offered, for an aggregate countervalue
of € 56,722,167.70.
Following the undertaken underwriting commitment, the shareholder Fininvest S.p.A. fully subscribed
its quota of 25,203,408 new shares, while the 8,551,695 new shares corresponding to the quota of the
shareholder H-Equity S.r.l. were fully subscribed by H-Invest S.p.A. (a Company under shared control
with H-Equity S.r.l.).
Jefferies International Limited and Banca IMI S.p.A., following the stand-by agreement with the
Company to ensure the successful completion of the share capital increase, jointly subscribed
41,243,070 newly issued shares (corresponding to 39.201% of the new shares offered within the share
capital increase). Jefferies International and Banca IMI then announced the results of an accelerated
bookbuilding transaction by which they placed 2,750,000 shares of the Company (corresponding to
2.614% of the new shares offered within the share capital increase) before the rights auction on the
MTA of Borsa Italiana.
At the end of the subscription period, 2,076,594 option rights were remained unexercised, valid for
the subscription of 2,076,594 newly issued MolMed ordinary shares, corresponding to 1.974% of the
total number of new shares offered, for an aggregate countervalue of € 1,142,126.70.
The unexercised rights have been be offered by Banca IMI S.p.A., on behalf of the Company, on the
MTA of Borsa Italiana through a rights auction during the trading sessions of July 22, 23, 26, 27 and
28, 2010. The rights auction was completed with the sale of all 2,076,594 unexercised rights, and
with the subscription of 282,275 newly issued MolMed ordinary shares, corresponding to 0.268% of the
total new shares offered, for an aggregate price of € 155,251.25.
The 1,794,319 newly issued shares that were not subscribed at the end of the rights auction
(corresponding to 1.706% of the total new shares offered, for an aggregate price of € 986,875.45)
have been subscribed on August 5, 2010, by Jefferies International Limited and Banca IMI S.p.A.,
according to the stand-by underwriting agreement.
Following the outcome of the entire capital increase subscription and the finalisation of the
transaction, the share capital increase has been completed with the subscription of all 105,207,808
newly issued ordinary shares offered, for an aggregate value of € 57,864,294.40, gross of fees and
charges.
MolMed’s new share capital is equal to € 43,582,874.14, represented by 210,415,616 ordinary shares
with no par value.




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Implementing a new IT operating system
During the first half of 2010, the Company implemented a new IT system for the administrative
processes and some operating processes, especially for the management of purchases and
inventories. The project, which was started in the second half of 2009 with the selection of the
product MS-AX and with the analysis of the Company’s needs, led on April 1, 2010 to the activation of
the system modules for management of inventories, computerisation of the authorisation cycle for
purchases and management of accounting entries.
In the second half of 2010, the Company intends to start a new planning stage which will lead to the
implementation of further modules in addition to those which have already been introduced and
which are related to the management of travel expenses and the computerised management of other
operating processes.




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10.       HIGHLIGHTS

10.1      Income results
(amounts in thousands of Euro)
                                                          1st half 2010   1st half 2009     Change       % change

   Revenues                                                        952           1,168        (216)        (18.5%)
   Other income                                                    226           1,711      (1,485)        (86.8%)
Total operating revenues                                        1,178           2,879      (1,701)        (59.1%)

   Purchases of raw materials and consumables                     (667)         (1,132)       465          (41.1%)
   Costs for services                                           (4,099)         (4,342)       243           (5.6%)
   Costs for use of third-party assets                            (501)           (668)       167          (25.0%)
   Personnel costs                                              (3,737)         (3,895)       158           (4.1%)
   Other operating costs                                           (78)           (142)        64          (45.1%)
   Amortization, depreciation and write-downs                     (601)           (875)       274          (31.3%)
Total operating costs                                          (9,683)        (11,054)      1,371         (12.4%)
Operating profit (loss)                                        (8,505)         (8,175)       (330)           4.0%

   Financial income                                                137             485       (348)         (71.8%)
   Financial charges                                              (274)            (98)      (176)          179.6%
Net financial income (charges)                                   (137)            387        (524)       (135.4%)
Pre-tax profit (loss)                                          (8,642)         (7,788)       (854)          11.0%

   Income taxes                                                      -               -           -               -
Profit (loss) for the period                                   (8,642)         (7,788)       (854)          11.0%


Operating revenues
Operating revenues totaled 1,178 thousand Euro at June 30, 2010, down by 59.1% compared to the
prior-year period. This decrease was mainly due to the fact that in the first half of 2009 other income
included 1,590 thousand Euro for revenues relating to the tax receivables on research and
development costs incurred in 2008 and 2009.
The fall in operating revenues was also partly connected to the trend in revenues from services for
third parties, an activity which, because of the nature of the services provided, is not regular and
constant over time.
For further details reference should be made to the Notes.

Operating costs
Operating costs in the first half of 2010 totaled 9,683 thousand Euro, down by 12.4% compared to the
first half of 2009.
The fall in the purchases of raw materials and consumables, which largely concerns materials and
reagents used in R&D activities, is connected to the fact that in the first half of 2009 batches of the
active principle of NGR-hTNF were produced which led to a higher consumption of materials than
that recorded in the first half of 2010, when such production did not take place. These costs in the
first half of 2010 totaled 667 thousand Euro, down by 41.1% compared to the same period in 2009.
Costs for services fell by 5.6% compared to the first half of 2009. This fall was largely due to the fall
in external costs for development, consultancy services and technical cooperation connected to the
industrialisation of NGR-hTNF, which were particularly concentrated in the first half of 2009. This fall
was partly offset by the increase in costs of clinical tests.
The fall in costs for services was also caused by lower patent expenses and consultancy costs
following the bringing in-house of some activities which were previously managed through
consultancies, and by the fall in legal and managerial costs, largely connected to progress in the work
to supplement and implement the Model of Organisation, Management and Control envisaged by
Legislative Decree no. 231/2001. In the first half of 2010 there was also an increase in support costs
and other IT expenses connected to the implementation of the new IT operating system.

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The costs for the use of third-party assets fell from 668 thousand Euro in the first half of 2009 to 501
thousand Euro in the same period of 2010, down by 25.0% and largely due to the renegotiation of the
lease on the premises in Milan, Via Olgettina 58, where the Company has its headquarters.
Personnel costs fell by 4.1%, from 3,895 thousand Euro in the first half of 2009 to 3,737 thousand
Euro in the first half of 2010. This decrease was largely linked to a fall in the number of employees.
The fall in other operating costs, which went from 142 thousand Euro at June 30, 2009 to 78 thousand
Euro at June 30, 2010, was mainly due to the fact that the first half of 2009 included the recognition
of contributions to finance study grants, which were not made in the first half of 2010.
Amortisation, depreciation and write-downs at June 30, 2010 totaled 601 thousand Euro, down by 274
thousand Euro compared to the prior-year period, due to the completion in 2009 of the amortisation
of some intangible assets. Investments in the period of 215 thousand Euro mainly related to the
implementation of the new IT operating system.

Net financial income (charges)
Financial income mainly arose from management of the Company’s cash resources through temporary
low-risk investments. The reduction recorded in the year is linked, on the one hand, to the gradual
decrease in financial resources due to the liquidity absorbed by ordinary operations, while, on the
other, it is linked to the sharp fall in market rates connected to the ongoing macroeconomic trends.
The trend in financial charges reflects the recognition in the Income Statement of 158 thousand Euro
from the fair value reserve at December 31, 2009, following the maturity and sale of some securities.

Operating profit (loss)
The operating loss in the first half of 2010 was 8,505 thousand Euro, compared to a loss of 8,175
thousand Euro in the same period of 2009. The higher operating loss was largely due to the recording
in the first half of 2009 of revenues linked to the tax receivables on research and development costs
incurred in 2008 and 2009.
Negative operating results are peculiar to the business model of biotech companies developing new
therapeutic products and having no products on the market. At this stage, high costs must be
sustained, linked to the clinical and pharmaceutical development of investigational new drugs, and
return is expected in forthcoming years.
Given the Company’s operating activities and the characteristics of the trials and testing conducted,
research and development costs are fully recognised in the year they are incurred.

Profit (loss) for the period
The result for the first half of 2010 shows a loss of 8,642 thousand Euro compared to a loss of 7,788
thousand Euro in the first half of 2009.




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10.2       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)                                            June 30, 2010 December 31, 2009


Non-current assets
Fixed assets and other non-current assets                                          9,098                  9,704
Total non-current assets                                                           9,098                 9,704

Net working capital
Inventories                                                                          339                    304
Trade receivables and other commercial assets                                      1,258                  1,456
Tax receivables                                                                    1,927                  2,381
Other receivables and current assets                                               2,316                  1,167
Trade payables                                                                    (4,497)               (4,152)
Other liabilities                                                                 (1,305)               (1,260)
Total net working capital                                                             38                  (104)

Non-current liabilities
Other non-current liabilities                                                      (511)                  (527)
Total non-current liabilities                                                      (511)                  (527)

TOTAL USES                                                                         8,625                 9,073


Shareholders' equity                                                              20,884                28,640
Net financial position                                                            12,259                19,567

TOTAL SOURCES                                                                      8,625                 9,073


Non-current assets
Non-current assets at June 30, 2010 and December 31, 2009 are analyzed in the following table:

(amounts in thousands of Euro)                  June 30, 2010 December 31, 2009    Change           % change



Tangible assets                                           1,971          2,189              (218)       (10.0%)
Goodwill                                                     77             77                 -           0.0%
Intangible assets                                         1,021          1,188              (167)       (14.1%)
Financial assets                                             13             13                 -           0.0%
Tax receivables                                           3,606          3,568                38           1.1%
Other assets                                              2,410          2,669              (259)        (9.7%)
Total non-current assets                                  9,098         9,704               (606)        (6.2%)

At June 30, 2010, non-current assets amounted to 9,098 thousand Euro.
It should be noted that non-current assets consist of, under the item Other assets, 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
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 amount.




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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 amortisation and depreciation.

Net working capital
The following table provides an analysis of net working capital at June 30, 2010 and at December 31,
2009:

(amounts in thousands of Euro)                    June 30, 2010 December 31, 2009    Change          % change



Inventories                                                    339            304               35         11.5%
Trade receivables and other commercial assets                1,258          1,456         (198)          (13.6%)
Tax receivables                                              1,927          2,381         (454)          (19.1%)
Other receivables and current assets                         2,316          1,167         1,149            98.5%
Trade payables                                              (4,497)        (4,152)        (345)             8.3%
Other liabilities                                           (1,305)        (1,260)            (45)          3.6%
Total net working capital                                       38          (104)             142      (136.5%)

It should be noted that net working capital at June 30, 2010 was mainly affected by the fall in tax
receivables, following the use in the first few months of 2010 of the tax receivables relating to the
research and development costs incurred by the Company during 2008.
In addition to the above, there was also an increase in other receivables and current assets due
largely to the costs directly linked to the share capital increase which was not completed at June 30,
2010. These costs were deferred at that date in order to be directly deducted from shareholders’
equity when the share capital increase was formally completed, as a reduction of the gross income
obtained.
Other receivables and current assets consist of the short-term portion of the amount recorded for the
purchase option for research projects signed with the shareholder Science Park Raf and its parent
company Fondazione San Raffaele. In addition, the item includes the deferred costs directly related
to the share capital increase, and the assets relating to public grants for research and development.

Non-current liabilities
The following table contains details of the items included in non-current liabilities:

(amounts in thousands of Euro)                     June 30, 2010 December 31, 2009   Change          % change


Liabilities for pensions and employee severance
indemnity (TFR)                                                199             220            (21)        (9.5%)
Trade payables                                                    -             38            (38)      (100.0%)
Other liabilities                                              312             269             43          16.0%
Total non-current liabilities                                 511             527          (16)           (3.0%)

Non-current liabilities were almost unchanged and recorded a slight decrease from 527 thousand Euro
at December 31, 2009 to 511 thousand Euro at June 30, 2010.

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

Investments
The main investments made by the Company during the first half of 2010 were largely due to the
implementation of the new IT operating system and the related enhancement of the Company’s IT
infrastructure, as well as to the routine renewal of laboratory equipment and the purchase of new
equipment for use in production processes.

Net financial position


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The net financial position fell from 19,567 thousand Euro at December 31, 2009 to 12,259 thousand
Euro at June 30, 2010, and is linked to the use of financial resources for the Company’s ordinary
operations.

(amounts in thousands of euro)                                     June 30, 2010 December 31, 2009


Cash on hand                                                                   10                   8
Other cash                                                                  5,944              4,300
Cash equivalents                                                               -                   -
A. Total cash and cash equivalents                                         5,954               4,308
B. Current financial receivables and other financial assets                6,684             15,679
Finance lease payables                                                       (93)                (87)
C. Current financial debt                                                    (93)                (87)
D. Net current financial position (A+B+C)                                 12,545             19,900
Finance lease payables                                                      (286)               (333)
E. Non-current financial debt                                               (286)              (333)
F. Net financial position (D+E)                                           12,259             19,567

The net financial position at June 30, 2010 included cash and cash equivalents of 5,954 thousand Euro
and other current financial assets of 6,684 thousand Euro, net of 379 thousand Euro for lease
payables connected to two lease contracts for laboratory equipment.
Taking into account current financial receivables and other financial assets, cash absorbed in the
year amounted to 7,349 thousand Euro (on average 1,225 thousand Euro per month), and was entirely
due to flows linked to the Company’s ordinary operations.
It should be noted that the Company has no financial debt, with the sole exception of the amounts
recorded under finance lease payables. At the date of these statements there were no covenants,
negative pledges or any other debt clause affecting MolMed S.p.A. which would limit the use of its
financial resources.
At June 30, 2010 the overdue payables solely concerned amounts paid in the following month or
which will be paid in the short term as agreed. The breakdown of these overdue payables is given
below:

(amounts in thousands of Euro)                                                        June 30, 2010


Trade payables                                                                                 1,072
Financial payables                                                                                  -
Tax payables                                                                                        -
Social security payables                                                                            -
Total                                                                                         1,072

In relation to the overdue amounts, there were no supply interruptions, payment demands or legal
enforcement measures by creditors.




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11.    OUTLOOK

11.1   Significant events subsequent to end of the period
In reference to the final outcome of the share capital increase approved by the Shareholders’
Meeting on April 26, 2010, reference should be made to paragraph 9 above.

11.2   Business outlook
Taking account of the current economic and financial situation, in 2010 MolMed will maintain its
commitment to increase the focus on its experimental products NGR-hTNF and TK, which are at an
advanced stage of clinical testing, and to maximise, including through cooperation agreements, the
value of its product portfolio.




Claudio Bordignon
Chairman of the Board of Directors
Chief Executive Officer




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Condensed Interim Financial Statements at June 30, 2010


12.        STATEMENT OF FINANCIAL POSITION

(amounts in thousands of Euro)                                       Notes   June 30, 2010 December 31, 2009

ASSETS

Tangible assets                                                        1             1,971             2,189
Goodwill                                                               2                77                77
Intangible assets                                                      2             1,021             1,188
Financial assets                                                       3                13                13
Tax receivables                                                        4             3,606             3,568
Other assets                                                           5             2,410             2,669
TOTAL NON-CURRENT ASSETS                                                            9,098              9,704

Inventories                                                            6               339               304
Trade receivables and other commercial assets                          7             1,258             1,456
Tax receivables                                                        8             1,927             2,381
Other receivables and sundry assets                                    9             2,316             1,167
Other financial assets                                                10             6,684            15,679
Cash and cash equivalents                                             11             5,954             4,308
TOTAL CURRENT ASSETS                                                               18,478            25,295
TOTAL ASSETS                                                                       27,576            34,999

LIABILITIES AND SHAREHOLDERS' EQUITY

Share capital                                                                       21,791             21,679
Share premium reserve                                                                4,965             21,815
Other reserves                                                                       2,051              2,121
Retained earnings (accumulated losses)                                                 719               194
Profit (loss) for the period                                                       (8,642)           (17,169)
TOTAL SHAREHOLDERS' EQUITY                                            12           20,884            28,640

Liabilities for pensions and employee severance indemnity (TFR)       13              199                220
Trade payables                                                        14                -                 38
Finance lease payables                                                15              286                333
Other liabilities                                                     16              312                269
TOTAL NON-CURRENT LIABILITIES                                                         797                860

Trade payables                                                        17             4,497             4,152
Other liabilities                                                     18             1,305             1,260
Finance lease payables                                                15                93                87
TOTAL CURRENT LIABILITIES                                                           5,895              5,499
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                                           27,576            34,999




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13.      INCOME STATEMENT

(amounts in thousands of Euro)                            Notes    1st half 2010   1st half 2009

   Revenues                                                19               952           1,168
   Other income                                            20               226           1,711
Total operating revenues                                                 1,178           2,879

   Purchases of raw materials and consumables              21              (667)         (1,132)
   Costs for services                                      22            (4,099)         (4,342)
   Costs for use of third-party assets                     23              (501)           (668)
   Personnel costs                                         24            (3,737)         (3,895)
   Other operating costs                                   25               (78)           (142)
   Amortization, depreciation and write-downs              26              (601)           (875)
Total operating costs                                                   (9,683)        (11,054)
Operating profit (loss)                                                 (8,505)         (8,175)

   Financial income                                                         137             485
   Financial charges                                                       (274)            (98)
Net financial income (charges)                             27             (137)            387
Pre-tax profit (loss)                                                   (8,642)         (7,788)

   Income taxes                                            28                 -               -
Profit (loss) for the period                                            (8,642)         (7,788)




(amounts in Euro)                                         Notes    1st half 2010   1st half 2009


   Basic earnings (loss) per share                         29           (0.0823)        (0.0745)
   Diluted earnings (loss) per share                                        -               -




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14.     STATEMENT OF COMPREHENSIVE INCOME

(amounts in thousands of Euro)                             1st half 2010       1st half 2009


Profit (loss) for the period                                    (8,642)             (7,788)
Other comprehensive income


   Net change in fair value of available-for-sale assets            162                  (3)
   Tax effect relating to components of other
   comprehensive income (loss)                                        -                   -

Other comprehensive income, net of taxes
                                                                   162                   (3)
Total comprehensive income (loss) for the period                (8,480)             (7,791)




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15.       STATEMENT OF CASH FLOWS

(amounts in thousands of Euro)                                                          1st half 2010        1st half 2009


Cash and cash equivalents                                                                         4,308              15,611
Opening cash and cash equivalents                                         A                      4,308              15,611

Cash flow from operating activities:
Profit (loss) for the period                                                                     (8,642)             (7,788)
Amortization/Depreciation of intangible/tangible assets                                             601                 875
Change in liabilities for pensions and employee severance indemnity                                 (21)                (68)
Non-cash costs for stock options                                                                    292                 293
Decrease in other assets due to option rights                                     (*)               259                 258
Reversal of financial income and charges                                                            137                (387)

Cash flow from operating activities before changes in working capital
                                                                                                 (7,374)             (6,817)

Changes in current assets and liabilities
(Increase) decrease in inventories                                                                  (35)                    (4)
(Increase) decrease in trade and other receivables                                (*)              (497)             (1,259)
Increase (decrease) in trade and other payables                                   (*)               345                (217)
Increase (decrease) in other liabilities                                                                45              278
Total changes in current assets and liabilities                                                   (142)              (1,202)

(Increase) decrease in non-current tax receivables                                                  (38)               (223)
Increase (decrease) in non-current trade payables                                                   (38)                (75)
Increase (decrease) in other liabilities                                                                43                  65
Interest paid                                                                                       (43)                (79)
Taxes paid                                                                                          -                   -
Total cash flow generated (absorbed) by operating activities              B                      (7,592)             (8,331)

Cash flow from investing activities
Net (investment) divestment in tangible assets                                                     (124)               (475)
Net (investment) divestment in intangible assets                                                    (91)                    (6)
Net (investment) divestment in other financial assets                                             8,940                (798)
Interest received                                                                                   122                 515
Total cash flow generated (absorbed) by investing activities              C                      8,847                 (764)

Cash flow from financing activities
Increases in share capital and share premium reserve                                                432                 -
Change in finance lease payables                                                                    (41)                203
Total cash flow generated (absorbed) by financing activities              D                        391                  203

Cash flow generated (absorbed) during the period                        E=B+C+D                  1,646               (8,892)
Closing cash and cash equivalents                                         A+E                    5,954               6,719



(*) of which with related parties (as required by Consob Resolution no.15519 of July 27, 2006)
(amounts in thousands of Euro)                                                          1st half 2010        1st half 2009

(Increase) decrease in trade and other receivables                                                  (14)                    (2)
(Increase) decrease in other non-current assets                                                     259                 258
Increase (decrease) in trade and other payables                                                    (180)                328




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16.        STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(amounts in thousands of Euro)                                                                                    Retained
                                            Share                 Stock option Actuarial       Fair value                         Profit         Total
                                 Share                  Other                                                     earnings
                                           premium                   plan       valuation      valuation                        (loss) for shareholders'
                                 capital               reserves                                                 (accumulated
                                           reserve                  reserve     reserve         reserve                         the period      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 loss        -      (23,768)       -                -         -               -               6,322        17,446                -
Personnel costs for stock
                                     -          -          -             293          -               -                  -            -                  293
options
Total comprehensive income
                                     -          -          -                -         -                   (3)            -         (7,788)         (7,791)
(loss) for the period
Balance at June 30, 2009         21,638     21,696         -           2,154          21                   4             -        (7,788)         37,725

(amounts in thousands of Euro)                                                                                    Retained
                                            Share                 Stock option Actuarial       Fair value                         Profit         Total
                                 Share                  Other                                                     earnings
                                           premium                   plan       valuation      valuation                        (loss) for shareholders'
                                 capital               reserves                                                 (accumulated
                                           reserve                  reserve     reserve         reserve                         the period      equity
                                                                                                                   losses)
Balance at January 1, 2010        21,679    21,815         -            2,257             21        (156)                194     (17,169)          28,640

Allocation of prior year loss        -      (17,169)       -                -         -               -                            17,169                -

Subscription of stock options        112        320                     (525)                                           525                              432
Personnel costs for stock
                                     -          -          -             292          -               -                  -            -                  292
options
Total comprehensive income
                                     -          -          -                -         -               162                -         (8,642)         (8,480)
(loss) for the period
Balance at June 30, 2010          21,791      4,965        -            2,024             21               6             719      (8,642)          20,884




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

(amounts in thousands of Euro)                                      Notes    June 30, 2010 December 31, 2009


ASSETS

Tangible assets                                                       1              1,971             2,189
Goodwill                                                              2                77                 77
Intangible assets                                                     2              1,021             1,188
Financial assets                                                      3                13                 13
Tax assets                                                            4              3,606             3,568
Other assets                                                          5              2,410             2,669
of which with related parties                                        33             2,410              2,669
TOTAL NON-CURRENT ASSETS                                                           9,098              9,704

Inventories                                                           6               339                304
Trade receivables and other commercial assets                         7              1,258             1,456
of which with related parties                                        33               208               425
Tax receivables                                                       8              1,927             2,381
Other receivables and sundry assets                                   9              2,316             1,167
of which with related parties                                        33               746               516
Other financial assets                                               10              6,684            15,679
Cash and cash equivalents                                            11              5,954             4,308
of which with related parties                                        33             4,354                 -
TOTAL CURRENT ASSETS                                                              18,478            25,295
TOTAL ASSETS                                                                      27,576            34,999
LIABILITIES AND SHAREHOLDERS' EQUITY

Share capital                                                                       21,791            21,679
share premium reserve                                                                4,965            21,815
Other reserves                                                                       2,051             2,121
Retained earnings (accumulated losses)                                                719                194
Profit (loss) for the period                                                       (8,642)          (17,169)
TOTAL SHAREHOLDERS' EQUITY                                           12           20,884            28,640

Liabilities for pensions and employee severance indemnity (TFR)      13               199                220
Trade payables                                                       14                 -                 38
Finance lease payables                                               15               286                333
Other liabilities                                                    16               312                269
TOTAL NON-CURRENT LIABILITIES                                                        797               860


Trade payables                                                       17              4,497             4,152
of which with related parties                                        33               921              1,101
Other liabilities                                                    18              1,305             1,260
Finance lease payables                                               15                93                 87
TOTAL CURRENT LIABILITIES                                                          5,895              5,499
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                                          27,576            34,999




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

(amounts in thousands of Euro)                     Notes   1st half 2010   1st half 2009



   Revenues                                         19              952           1,168
    of which with related parties                   33             332             303
   Other income                                     20              226           1,711
    of which with related parties                   33                -              (6)
Total operating revenues                                         1,178           2,879


   Purchases of raw materials and consumables       21             (667)         (1,132)
   Costs for services                               22           (4,099)         (4,342)
    of which with related parties                   33            (648)           (612)
   Costs for use of third-party assets              23             (501)           (668)
    of which with related parties                   33            (395)           (588)
   Personnel costs                                  24           (3,737)         (3,895)
   Other operating costs                            25              (78)           (142)
   Amortization, depreciation and write-downs       26             (601)           (875)
Total operating costs                                           (9,683)        (11,054)
Operating profit (loss)                                         (8,505)         (8,175)


   Financial income                                                 137             485
    of which with related parties                   33               14               -
   Financial charges                                               (274)            (98)
    of which with related parties                   33               (5)              -
Net financial income (charges)                      27            (137)            387
Pre-tax profit (loss)                                           (8,642)         (7,788)


   Income taxes                                     28                -               -
Profit (loss) for the period                                    (8,642)         (7,788)




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Notes
19.    GENERAL INFORMATION

MolMed’s Interim 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. “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”).
These Condensed Interim Financial Statements have been prepared in accordance with IAS 34 –
Interim Financial Reporting, applying the same accounting standards as those adopted in preparing
the Statutory Financial Statements at December 31, 2009, to which reference should be made,
except for some more complex processes for impairment testing which are generally only fully
applied in preparing the annual report when all the necessary information is available, except when
there are indications of impairment which require immediate analysis. Therefore, these Condensed
Interim Financial Statements do not include all the information required by the annual report and
must be read together with the Statutory Financial Statements for the year ended at December 31,
2009.

The tables in these Condensed Interim Financial Statements 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 December 17, 2008 and effective as from January
1, 2009.
In particular, in terms of the financial position, the statement used is based on the presentation and
classification between current and non-current assets and liabilities, while the Income Statement is
based on the classification of costs by nature. This type of presentation is considered representative
of the Company’s business.
The Statement of Cash Flows has been prepared showing the financial flows according to the
“indirect method”, as indicated by IAS 7.
In compliance with the requirements of Consob Resolution no. 15519 of July 27, 2006 as to the
format of the Financial Statements, specific supplementary tables have been provided for related
party and “non-recurring” transactions so as not to compromise an overall reading of the statements.
The Condensed Interim Financial Statements are in thousands of Euro, unless otherwise indicated.
The Euro is the Company’s functional currency.




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20.    ACCOUNTING STANDARDS

General principles
The Condensed Interim 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
Negative operating results are due to the business model peculiar to biotech companies which are
developing new therapeutic products and have no products on the market. At this stage, high costs
must be sustained, linked to the clinical and pharmaceutical development of investigational new
drugs, and return 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, from its
incorporation the Company has always reported losses. Consequently, the half year ended June 30,
2010 showed a loss of 8,642 thousand Euro, slightly higher than that of the same period in 2009
(7,788 thousand Euro).
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 which will continue to show a loss until the commercialisation or licensing of one of its
products.
In reference to the planned research and development activities, on the basis of the financial
resources available and the future cash flows envisaged by the business plans, the Company made
clear in the Statutory Financial Statements at December 31, 2009 that the financial resources
available – 19,987 thousand Euro at December 31, 2009 and 12,638 thousand Euro at June 30, 2010 -
would enable it to meet its own needs arising from research and development activities at least until
the end of 2010.
Therefore, the approved business plans show the Company’s need to find the funds needed to
complete its planned activities.
Having noted the Company’s equity, income and financial position, the Board of Directors submitted
to the Shareholders' Meeting a proposal for a share capital increase with option rights for
Shareholders, pursuant to Article 2441 of the Italian Civil Code, which would be divisible against
payment up to a total of 70 million Euro, through the issue of ordinary shares. The share capital
increase, which was approved by the Shareholders’ Meeting on April 26, 2010, as set out in detail in
the Interim Report on Operations, was successfully completed at the date of the preparation of these
Condensed Interim Financial Statements at June 30, 2010, and generated gross income of 57,864
thousand Euro.
The new funds obtained will enable the Company to continue both the development of its product
portfolio and its research activity, which is currently well advanced, as well as to improve the
Company’s business opportunities and overall operations and thus guarantee adequate resources to
maintain the Company as a going concern in the foreseeable future.
In light of the resources obtained through the share capital increase, the commitment previously
entered into by some shareholders to ensure financial support to the Company until August 31, 2011,
and considered for the preparation of interim financial statements at March 31, 2010, automatically
ended.
Having taken into account the above, the Directors, who had already shown their view in the interim
statements at March 31, 2010, have even more reasons to consider as superseded, and therefore no
longer valid, the significant uncertainties – as defined by paragraph 25 and 26 of IAS 1 – on the
Company as a going concern. These uncertainties were assessed and set out in the Statutory Financial
Statements at December 31, 2009.


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Hence these Condensed Interim 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 Interim Report on Operations.



21.     OTHER INFORMATION

Seasonality
The Income Statement for the half year ended June 30, 2010 is not significantly subject to seasonal
fluctuations in business levels.

Taxes
Taxes are calculated on the result for the period, on the basis of the best estimate of the tax rate
which is expected to be applied to the full-year result. It should be noted that the Company has no
taxable income.

Costs
Costs which are incurred at irregular intervals during the year are prepaid and/or deferred at the end
of the period only to the extent that their prepayment and/or deferral complies with the accounting
standards for the preparation of the annual financial statements.

Use of estimates
The preparation of the interim financial statements requires management to make estimates and
assumptions which impact on the values of revenues, costs, assets and liabilities and on disclosure
relating to contingent assets and liabilities at the date of the interim financial statements. If, in the
future, these estimates and assumptions, which are based on management’s best assessment, should
differ from the real circumstances, they would be appropriately adjusted in the period in which the
circumstances change.
It should also be noted that some assessment processes, in particular the more complex ones such as
the determination of any impairment of non-current assets, are generally only fully carried out on
preparing the annual report, when all the necessary information is available, except in cases where
there are indicators of impairment which require immediate assessment.
The Company’s assets were tested for impairment as at December 31, 2009. No impairment arose
from the assessment undertaken. At June 30, 2010, and at December 31, 2009 the book value of
tangible and intangible assets, and of shareholders’ equity, was considerably lower than the
Company’s market capitalisation.
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 paragraph 7 “Financial
risks” of the Report on Operations, presume that the necessary funds are found in the future to meet
the investment planned in order to continue with the research and development activities. The
uncertainty connected to this condition could lead to the need to write-down the intangible assets
which is currently not foreseeable and not reflected in the Financial Statements.
In reference to the description of the use of accounting estimates and for a broader description of
the most important assessment processes, reference should be made to the Statutory Financial
Statements at December 31, 2009.

Changes in accounting estimates
Pursuant to IAS 8 such changes are recognised prospectively in the Income Statement as from the
year in which they are adopted.




Accounting standards, interpretations and amendments effective as from January 1, 2010 but not

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applicable to the Company
The following amendments, improvements and interpretations are effective as from January 1, 2010
and regulate situations and cases which are not relevant for the Company at the date of these
Interim Financial Statements but which might have an accounting impact on future transactions or
agreements:
• IFRS 3 (revised in 2008) – Business Combinations.
• Improvements to IFRS 5 – Non-current Assets Held for Sale and Discontinued Operations.
• Amendments to IAS 28 – Investments in Associates, and IAS 31 – Interests in Joint Ventures, as a
  result of amendments to IAS 27.
• Improvements to IAS/IFRS (2009).
• Amendment to IFRS 2 – Share-based Payments: Group Cash-settled Share-based Payment
  Transactions.
• IFRIC 17 – Distributions of Non-cash Assets to Owners.
• IFRIC 18 – Transfers of Assets from Customers.
• Amendment to IAS 39 – Financial Instruments: Recognition and Measurement – Exposures
  Qualifying for Hedge Accounting
• IAS 27 (2008) – Consolidated and Separate Financial Statements. The changes to IAS 27 mainly
  concern the accounting treatment of transactions or events which change stakes in subsidiaries
  and the allocation of the subsidiary’s losses to third-party interests.

Accounting standards, amendments and interpretations which are not yet applicable and which
will not have a significant effect
On October 8, 2009, the IASB issued an amendment to IAS 32 – Financial Instruments: Presentation:
Classification of Rights Issues in order to regulate the accounting treatment for the issue of rights
(rights, options or warrants) in a currency other than the issuer’s functional currency.
On November 4, 2009 the IASB issued a revised version of IAS 24 – Related Party Disclosures which
simplifies the type of information required in the case of transactions with related parties controlled
by the government and clarifies the definition of related parties. IAS 24 will be applicable as from
January 1, 2011; at of the date of these Condensed Interim Financial Statements the amendment has
not yet been endorsed by the European Union.
On November 12, 2009 the IASB published IFRS 9 – Financial instruments on the classification and
measurement of financial assets applicable as from January 1, 2013. This publication represents the
first part of a staged process which aims to completely replace IAS 39. At the date of these
Condensed Interim Financial Statements the amendment has not yet been endorsed by the European
Union.
On November 26, 2009 the IASB issued a minor amendment to IFRIC 14 – Prepayments of a Minimum
Funding Requirement, thus allowing entities to recognise as an asset some voluntary prepayments for
minimum funding contributions. The amendment applies as from January 1, 2011; at the date of
these Condensed Interim Financial Statements, the amendment has not yet been endorsed by the
European Union.
On November 26, 2009 the IFRIC issued IFRIC 19 – Extinguishing Financial Liabilities with Equity
Instruments, which provides the guidelines for the recording of the extinction of a financial liability
through the issue of equity instruments. The interpretation establishes that if an entity renegotiates
the terms for extinguishing a financial liability and its creditor accepts its extinction through the
issue of company shares, then the shares issued by the entity become part of the price paid to
extinguish the financial liability and must be valued at fair value; the difference between the
carrying value of the extinguished financial liability and the initial value of the equity instruments
issued must be recognised in the Income Statement for the period. The interpretation applies as from
January 1, 2011; at the date of these Condensed Interim Financial Statements, the amendment has
not yet been endorsed by the European Union.
On May 6, 2010 the IASB issued a series of improvements to the IFRS which will be applied as from
January 1, 2011; a description of those which will lead to a change in the presentation, recognition
and assessment of accounting items is provided below. The changes which will affect only
terminology or format with a minimal impact in accounting terms are not described:



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•   IFRS 3 (2008) – Business Combinations: the amendment clarifies that non-controlling interests
    which do not provide holders with the right to receive a proportional share of the subsidiary’s
    net assets must be measured at fair value or in accordance with the provisions of the applicable
    accounting standards. Thus, for example, a stock option plan for employees must be measured,
    in the case of a business combination, in accordance with the provisions of IFRS 2 and the share
    of equity in a convertible bond must be measured in accordance with IAS 32. In addition, the
    Board considered in detail the issue of share-based payment plans which are replaced during a
    business combination and added a specific section to clarify their accounting treatment.
•   IFRS 7 – Financial Instruments: Disclosures: the amendment highlights the interaction between
    qualitative and quantitative disclosures required by the standard regarding the nature and
    extent of the risks arising from financial instruments. This should help readers of the annual
    report to connect the information presented and have a general description of the nature and
    extent of the risks arising from financial instruments. In addition, it eliminates the disclosure on
    financial assets that are past due but which have been renegotiated or written down and that
    relating to the fair value of collateral.
  • IAS 1 – Presentation of Financial Statements: the amendment requires that the reconciliation of
    changes in each shareholders’ equity item is shown in the notes or in the main statements.
  • IAS 34 – Interim Financial Reporting: by means of some examples clarification has been provided
    on the additional information which must be included in interim financial statements.
At the date of these Condensed Interim Financial Statements, the aforementioned improvements
have not yet been endorsed by the European Union.




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22.    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.




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23.        NOTES TO THE STATEMENT OF FINANCIAL POSITION

Note 1 – Tangible assets
The following table provides a breakdown of tangible assets at June 30, 2010 and movements thereon
in the relevant period:

(amounts in thousands of Euro)                         Balance at         Purchases      Reclassifications   Disposals      Depreciation     Balance at
                                                    December 31,2009                                                        & write-downs June 30, 2010
Gross book value
Plant and machinery                                                 512         -                     -            -                 -              512
Industrial and commercial equipment                            3,316                95                -            (30)              -            3,381
Leasehold improvements                                         3,994            -                     -            -                 -            3,994
Other tangible assets                                               877             29                -            -                 -              906
Assets under construction and payments on account                   -           -                     -            -                 -               -
Total gross book value                                         8,699            124                  -            (30)               -             8,794
Accumulated depreciation
Plant and machinery                                             (340)           -                     -            -                 (25)          (365)
Industrial and commercial equipment                           (2,285)           -                     -                30           (159)         (2,414)
Leasehold improvements                                        (3,330)           -                     -            -                (114)         (3,444)
Other tangible assets                                           (555)           -                     -            -                 (45)          (600)
Assets under construction and payments on account                   -           -                     -            -                 -               -
Total accumulated depreciation                                (6,510)           -                    -                 30           (343)        (6,823)
Net book value
Plant and machinery                                                 172         -                     -            -                 (25)           147
Industrial and commercial equipment                            1,031                95                -            -                (159)           967
Leasehold improvements                                              664         -                     -            -                (114)           550
Other tangible assets                                               322             29                -            -                 (45)           306
Assets under construction and payments on account                   -           -                     -            -                 -               -
Total net book value                                           2,190            124                  -            -                 (343)          1,971

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 provide services and develop the Company’s products.
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 and electronic office equipment.
During the first half of 2010 investments of 124 thousand Euro were made in tangible assets. The
most significant change concerns industrial and commercial equipment, up by 95 thousand Euro, due
to the periodic renewal of laboratory equipment and the improvement of existing equipment to cope
with the activity regarding clinical development of the Company’s products.
The item industrial and commercial equipment, of 967 thousand Euro, includes the net book value of
the tangible assets held under a finance lease, which at June 30, 2010 totaled 349 thousand Euro,
arising from the purchase of two laboratory instruments.
Depreciation totaled 343 thousand Euro, in line with the prior-year period.
It is worth pointing out that there is no collateral security on tangible assets.




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Note 2 – Intangible assets and goodwill
The following table provides a breakdown of intangible assets at June 30, 2010 and movements
thereon in the relevant period:
(amounts in thousands of Euro)                      Balance at       Purchases   Reclassifications   Disposals       Amortization     Balance at
                                                December 31, 2009                                                                    June 30, 2010


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


Patents and intellectual property rights                    818                                                              (167)            651
                                                                             -                  -                -
Concessions, licenses and trademarks                        352              1                  -                -            (82)            271
Other intangible assets                                          -           -               108                 -             (9)                99
Assets under construction and payments on account            18             90               (108)               -                            -
Intangible assets                                        1,188              91                  -                -           (258)          1,021
Total                                                    1,265              91                  -                -           (258)          1,098

Goodwill refers to the value recorded under this item following the merger of Genera S.p.A. into
MolMed.
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 reflected in the know-how of the technical
personnel carrying out the research activities on the new product development projects and by 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. which took place in 2002, for a net value of 383
thousand Euro at June 30, 2010.
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.
Amortisation amounted to 258 thousand Euro.
There were no intangible assets with indefinite useful life, other than goodwill.
In reference to the recoverability of intangible assets, reference should be made to the contents of
the paragraph “Use of estimates” in the Notes as well as to paragraph 7 of the Report on Operations.

Note 3 – Financial assets
Non-current financial assets, which amounted to 13 thousand Euro, mainly included guarantee
deposits.

Note 4 – Tax receivables (non-current)
Non-current tax receivables, which totaled 3,606 thousand Euro at June 30, 2010, were mostly
unchanged compared to December 31, 2009.
Non-current tax receivables represent the portion of VAT receivables not expected to be collected
after less than a year. As its costs exceed its revenues at this stage of business development, the
Company generates a VAT receivable. Under current tax receivables, the Company only shows the
amount of VAT receivables 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 recorded under non-current tax receivables.
At June 30, 2010 the item consisted of VAT receivables for which refund had been requested relating
to 2008 for 1,472 thousand Euro, VAT receivables of 1,822 thousand Euro for which refund had not
yet been requested and IRES receivables of 311 thousand Euro relating to 2008.
Further information on tax receivables under current assets is provided in Note 8.



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Note 5 – Other assets
Other assets, which amounted to 2,410 thousand Euro, include the agreed price of a purchase option
on research projects. The Company has signed the agreement with the Shareholder Science Park Raf
S.p.A. and its parent company Fondazione San Raffaele. This agreement is effective from the listing
of the Company’s shares on the stock market, which occurred on March 5, 2008. The agreement 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, during the
eight-year timeframe of the minimum contractual 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 June 30, 2010 inventories were broken down as follows:

(amounts in thousands of Euro)                                      June 30, 2010 December 31, 2009


Processing materials                                                          211                  204
Reagents                                                                       97                   67
General materials                                                              31                   33
Total inventories                                                             339                  304

Inventories consist of materials and reagents used in laboratory activities. The slight increase
recorded in 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 June 30, 2010 trade receivables were as follows:

(amounts in thousands of Euro)                                     June 30, 2010 December 31, 2009


Trade receivables                                                           1,050               1,031
Receivables from related parties                                              208                 425
Total trade receivables and other commercial assets                         1,258               1,456

The slight increase in trade receivables, in relation mainly to the provision of services, reflects the
trend in invoicing and receipts.
As stated in Note 33, receivables from related parties mainly regard the services performed by the
Company for the related party Fondazione San Raffaele.

Note 8 – Tax receivables (current)
At June 30, 2010 tax receivables were broken down as follows:

(amounts in thousands of Euro)                                     June 30, 2010 December 31, 2009


VAT receivables                                                               516                 516
Tax receivables                                                               224                 224
Research and development tax receivables                                      959               1,422
Withholding taxes                                                             228                 219
Total tax receivables                                                      1,927                2,381

At June 30, 2010 tax receivables mainly consisted of the tax receivables related to the research and
development costs incurred by the Company during 2009, totaling 959 thousand Euro, in relation to
which the Company has already obtained approval for their use from the Inland Revenue.


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At June 30, 2010 the balance included VAT receivables of 516 thousand Euro for the financial year
2009, which will be offset against other taxes in 2010. It also included IRES receivables of 224
thousand Euro and withholding taxes of 227 thousand Euro.
Under current tax receivables, the Company only shows the amount of VAT receivables 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 recorded under non-current
tax receivables; in this respect reference should be made to Note 4.

Note 9 – Other receivables and sundry assets
Other receivables, amounting to 2,316 thousand Euro at June 30, 2010 compared to 1,167 thousand
Euro at December 31, 2009, include 516 thousand Euro relating to the current portion of the agreed
price of a purchase option on research projects with Science Park Raf S.p.A. and its parent company
Fondazione San Raffaele, as described in Note 5. The portion classified under current assets is the
amount to be shown on the Income Statement within 12 months.
In addition, the item includes the costs, directly connected to the share capital increase, of 547
thousand Euro, which were deferred at June 30, 2010, in order to be directly deducted from
shareholders’ equity in the subsequent half-year period, receivables of 628 thousand Euro for public
research grants still to be collected, prepaid expenses relating to costs for insurance premiums,
maintenance and support fees for information services and other minor amounts.

Note 10 – Other financial assets
The item of 6,684 thousand Euro at June 30, 2010 (15,679 thousand Euro at December 31, 2009)
relates to the short-term use of the Company’s financial resources, through 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 for 13,779 thousand Euro, new
investments in government bonds of 4,976 thousand Euro, as well as fair value adjustments at the
period end.

Note 11 – Cash and cash equivalents
Cash and cash equivalents were as follows:

 (amounts in thousands of Euro)                                  June 30, 2010      December 31, 2009


 Bank and post office accounts                                             1,590                 4,300
 Bank and post office accounts - related parties                           4,354                      -
 Cash on hand                                                                  10                     8
 Total cash and cash equivalents                                           5,954                 4,308

At June 30, 2010 cash and cash equivalents amounted to 5,954 thousand Euro (4,308 thousand Euro at
December 31, 2009) including 5,944 thousand Euro of bank and post office accounts and 10 thousand
Euro of cash on hand. The increase in the period was due to the maturity of some cash investments
which were classified at December 31, 2009 under the item Other financial assets.
The book value of cash and cash equivalents is deemed to be in line with their fair value.

Note 12 – Shareholders’ equity
Shareholders’ equity at June 30, 2010 totaled 20,884 thousand Euro, broken down as follows:




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(amounts in thousands of Euro)                                      June 30, 2010 December 31, 2009


Share capital                                                               21,791               21,679
Share premium reserve                                                        4,965               21,815
Other reserves:
   Stock option plan reserve                                                 2,024                2,256
   Actuarial valuation reserve                                                  21                    21
   Fair value valuation reserve                                                  6                (156)
Retained earnings (accumulated losses)                                         719                 194
Profit (loss) for the period                                                (8,642)           (17,169)
Total shareholders' equity                                                 20,884              28,640

The breakdown of the movements in the period is provided in the relevant statement. The most
important items are explained below.
Share capital
At June 30, 2010, the share capital was fully subscribed and paid in. It amounted to 21,791 thousand
Euro and consisted of 105,207,808 ordinary shares with no nominal value.
The share capital increase of 112 thousand Euro (March 2010) was due to the exercise of the option
rights and the consequent subscription of 540,000 newly issued ordinary shares, as part of the 2001-
2002 stock option plans.
The allocation of the share capital at June 30, 2010 among the shareholders is detailed below:

                               Shareholder                          Number of shares    % ownership
Fininvest Finanziaria D'Investimento S.p.A.                                25,203,408            23.96%
Science Park Raf S.p.A.                                                    22,080,684            20.99%

Airain Servicos De Consultadoria e Marketing Sociedade Unipessoal          14,963,374            14.22%
Delfin SARL                                                                 9,046,912             8.60%
H-Equity S.r.l.                                                             8,551,695             8.13%
Banca Arner SA                                                              2,262,561             2.15%
Market                                                                     23,099,174            21.96%
Total                                                                   105,207,808           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 4,965 thousand Euro. The net fall in the share premium reserve
was due to the combined effect of the use of 17,169 thousand Euro to cover the loss at December 31,
2009, as per the Shareholders’ Meeting resolution of April 26, 2010, as well as the increase of 320
thousand Euro relating to the premium paid following exercise of option rights and the consequent
underwriting of 540,000 newly issued ordinary shares as part of the stock option plans for 2001-2002.
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 sharp decrease of 233
thousand Euro registered during the first half of 2010 was due to the combined effect of an increase
of 292 thousand Euro, reflecting the outstanding stock option plans, and a decrease of 525 thousand

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Euro, referring to the fair value of the options exercised during 2010, which was previously recorded
in the Stock option plan reserve, which thus fell by the same amount. For further information on
stock option plans reference should be made to Note 32 below.
Actuarial valuation reserve
The actuarial valuation reserve, which amounted to 21 thousand Euro, reflects actuarial
profits/losses arising from the valuation of the employee severance indemnity (TFR). In the period
there were no significant changes to the actuarial assumptions adopted.
Fair value valuation reserve
The fair value valuation reserve reflects the fair value adjustment of financial assets available for
sale. At June 30, 2010 the reserve amounted to 6 thousand Euro. The change in the item reflects, for
158 thousand Euro, the recognition in the Income Statement of the fair value reserve recorded at
December 31, 2009, following the maturity and sale of some securities and for 4 thousand Euro the
fair value adjustment at June 30, 2010.
Retained earnings (accumulated losses)
The item includes the fair value of the options exercised during the first quarter of 2010 and in 2009,
525 thousand Euro and 194 thousand Euro respectively, was previously recorded in the stock option
plan reserve, which therefore fell by the same amount.


Details completing the analysis of the items included in shareholders’ equity are provided in the
following table:
Main shareholders’ equity items


(amounts in thousands of Euro)                   Balance at June 30, 2010   Purpose of use       Amount available

Share capital                                                     21,791
Reserves
                       Share premium reserve                        4,965       A,B,C                        4,965
                    Stock option plan reserve                       2,024         -                           -
                 Fair value valuation reserve                           6         B                           -
                   Actuarial valuation reserve                         21         -                           -
    Retained earnings (accumulated losses)                            719       A,B,C                          719

Key:
A : for share capital increases
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.
Liabilities for pensions and employee severance indemnity amounted, at June 30, 2010, to 199
thousand Euro (220 thousand Euro at December 31, 2009). Changes in the period were as follows:

(amounts in thousands of Euro)                                               June 30, 2010 December 31, 2009


Opening balance                                                                         220                   284
Accruals for the period                                                                      4                    11
Utilizations                                                                            (25)                  (71)
Actuarial (gain)/loss                                                                   -                         (4)
Total liabilities for pensions and employee severance indemnity
                                                                                        199                   220
(TFR)




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Under IAS 19 - Employee Benefits, the employee severance indemnity has been considered a
“Defined benefit plan” determined based on actuarial calculations performed by an external
consultant in accordance with international accounting standards.

Note 14 – Non-current trade payables
The decrease in non-current trade payables was due to the ending of deferred income to be paid
after more than 12 months, concerning revenues pertaining to future periods and relating to upfront
payments. These revenues, arising from the sale of rights over company products under development
to third parties, have been recorded over the period between the signing of the relevant out-
licensing agreements and the subsequent development milestone envisaged by the agreements.
The portion of this deferred income pertaining to the following 12-month period has been classified
under current trade payables, as described in Note 17.

Note 15 – Finance lease payables
Finance lease payables at June 30, 2010 mainly refer to lease agreements for laboratory equipment.
In detail, current finance lease payables amounted to 93 thousand Euro, while non-current finance
lease payables amounted to 286 thousand Euro.

Note 16 – Other non-current liabilities
Other liabilities, totaling 312 thousand Euro at June 30, 2010, largely refer to the advances received
during 2009 and the first half of 2010 on two projects financed under the Seventh Framework
Program of the European Union.

Note 17 – Trade payables
Trade payables at June 30, 2010 amounted to 4,497 thousand Euro, compared to 4,152 thousand Euro
at December 31, 2009, and can be broken down as follows:

(amounts in thousands of Euro)                                     June 30, 2010 December 31, 2009


Trade payables                                                              3,380              2,722
Payables to related parties                                                   921              1,101
Deferred income concerning revenues pertaining to future periods              196                 329
Total trade payables                                                       4,497               4,152

At June 30, 2010 trade payables included 2,902 thousand Euro due in Italy, 332 thousand Euro due in
other European Union countries and 146 thousand Euro due in other countries (mainly in USD and GB
Pounds).
Payables to related parties mainly consisted of services provided to the Company by Fondazione San
Raffaele and premises leased by Science Park Raf to the Company, as described in Note 33. Payables
to related parties also included deferred income for services connected to cell and gene therapy, to
be rendered by the Company in future financial years (368 thousand Euro).
The deferred income mainly regards the current portion of revenues pertaining to future years
relating to upfront payments received on the sale to third parties of rights over company products
under development. These revenues have been recorded over the period between the signing of the
relevant out-licensing agreements and the subsequent development milestone envisaged by the
agreements. This item includes the deferred income pertaining to the following financial year, while
the deferred income relating to future years has been classified under non-current trade payables as
described in Note 14.

Note 18 – Other liabilities
This item is broken down as follows:




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(amounts in thousands of Euro)                                    June 30, 2010 December 31, 2009

Amounts due to employees for holiday and bonus pay                          634                  342
Amounts due to social security institutions                                 230                  319
Tax payables                                                                164                  421
Amounts due to freelance consultants                                         54                  100
Other payables                                                               91                   73
Amounts due to employees for salaries, expenses and other                   132                    5
Other liabilities                                                         1,305                1,260

Amounts due to social security institutions and tax payables consist of withholding taxes and social
security contributions on employee salaries and on the remuneration of freelance consultants for the
month of June 2010, but paid to the authorities the following month. The Company recorded tax
losses in the period considered. It also has no taxable income for IRAP purposes and, therefore, has
no current tax liabilities.
At June 30, 2010 other payables consisted mainly of liabilities for social-security contribution to be
paid and of accruals related to insurance costs.




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24.     NOTES TO THE INCOME STATEMENT

Note 19 – Revenues
The Company’s revenues were generated by the following services:

(amounts in thousands of Euro)                                    1st half 2010        1st half 2009


Gene therapy services                                                      765                  651
Cell therapy services                                                          44               297
Upfront and milestones                                                         75                 75
Other services and consultancy                                                 68               145
Total revenues                                                             952                1,168

The fall in revenues from 1,168 thousand Euro in the first half of 2009 to 952 thousand Euro in the
first half of 2010 is due to services for third parties which, because of the nature of the services
provided, do not follow a regular and constant trend over time.
Revenues for upfront and milestone payments refer to upfront payments relating to out-licensing
agreements signed in previous years and regarding the TK project. These revenues have been
recorded over the period between the date of the signing of the relevant out-licensing agreement
and the subsequent development milestone based on management estimates.
Total revenues at June 30, 2010 included 332 thousand Euro of revenues from related parties. In this
respect further information is provided in Note 33.

Note 20 – Other income
This item mainly consisted of public sector research and development grants.

(amounts in thousands of Euro)                                       1st half 2010     1st half 2009


European Commission ("Persist" project)                                         70                34
European Commission ("Optistem" project)                                       115                43
Ministry of University & Research (FIRB GPS DM24528)                            23                31
Other revenues                                                                  18             1,603
Total other income                                                          226               1,711

Income related to grants, amounting to 208 thousand Euro, regards subsidies that have actually been
granted by the relevant public sector bodies. It is recognised on the basis of the costs actually
incurred, as a percentage of the total costs budgeted for the subsidised research projects.
Income from the most important public grants recorded during the first half of 2010 related to two
projects under the Seventh Framework Program of the European Union (the “PERSIST” and
“OPTISTEM” projects) and to a project financed by the Ministry of University and Research (FIRB).
The fall in other revenues is due to the fact that in the first half of 2009 this item included 1,590
thousand Euro for revenues relating to the tax receivables on research and development costs
incurred in 2008 and 2009.




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Note 21 – Purchases of raw materials and consumables
This item is broken down as follows:

(amounts in thousands of Euro)                                         1st half 2010      1st half 2009

Processing materials                                                            168                635
Reagents                                                                        377                409
General laboratory materials                                                     73                 76
Maintenance materials                                                            14                 15
Change in raw materials inventory                                                35                 (3)
Total purchases of raw materials and consumables                                667              1,132

The fall in the costs of raw materials and consumables, which largely concerns materials and
reagents used in research and development activities, was due to the fact that in the first half of
2009 batches of the active principle of NGR-hTNF were produced leading to a higher consumption of
materials than that recorded in the first half of 2010, when such production did not take place.

Note 22 – Costs for services
The breakdown of the item at June 30, 2010 and at June 30, 2009 is as follows:

(amounts in thousands of Euro)                                       1st half 2010       1st half 2009
Outsourced development costs                                                 1,798               1,944
Option rights                                                                  258                 258
Consultancy and technical fees                                                 111                 302
License fees                                                                    21                  64
Patents and consultancy fees                                                   140                 224
Maintenance                                                                    163                 132
Transport and storage of laboratory materials                                   62                  46
Utilities                                                                      191                 189
Directors and statutory auditors' fees                                         216                 155
Tax consultancy and administrative fees                                         99                  82
Legal and managerial fees                                                      142                 220
Listing consultancy fees and other listing costs                                65                  60
Supervisory board fees                                                          65                  50
Communications agency fees                                                      71                  53
IT assistance and other IT costs                                               232                 121
Other general and administrative costs                                         136                 140
Other personnel costs                                                           86                  87
Travel expenses                                                                201                 175
Participation at conventions and meetings                                       28                  32
Staff training                                                                  14                   8
Total costs for services                                                     4,099               4,342

Costs for services fell by 5.6% compared to the first half of 2009. This fall was largely due to the
decrease in outsourced development costs and consultancy and technical fees connected to the
industrialisation of NGR-hTNF, which were particularly concentrated in the first half of 2009. This fall
was partly offset by the increase in costs linked to clinical tests.
The fall in costs for services was also caused by lower patents and consultancy fees following the
bringing in-house of some activities which were previously managed through consultancies, and by
the fall in legal and managerial fees, largely connected to the progress in the work to supplement
and implement the Model of Organisation, Management and Control envisaged by Legislative Decree
no. 231/2001. In the first half of 2010 there was also an increase in IT assistance and other IT costs
connected to the implementation of the new IT operating system.



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The costs for option rights include the share for 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 increase in fees paid to directors and statutory auditors reflects the particularly intense work of
the Boards in the first half of 2010 in preparation for the share capital increase.

Note 23 – Costs for use of third-party assets
This item is broken down as follows:

(amounts in thousands of Euro)                                        1st half 2010        1st half 2009


Rental of premises                                                             457                  636
Other rentals                                                                   44                  32
Total costs for use of third-party assets                                      501                 668

The costs for the use of third-party assets, 501 thousand Euro in the first half of 2010 compared to
668 thousand Euro in the same period of 2009, fell due to the renegotiation of the lease on the
premises in Milan, Via Olgettina 58, where the Company has its headquarters.

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)                                        1st half 2010        1st half 2009

Wages and salaries                                                           2.607                2.741
Social security contributions                                                  708                  726
Defined contribution plans                                                     119                  124
Stock option costs                                                             292                  293
Other personnel costs                                                           11                   11
Total personnel costs                                                        3.737               3.895

The fall recorded is due to the reduction in the number of employees compared to the prior-year
period.
The compensation component from stock option plans is related to plans with Company shares as
underlying securities and represents the notional cost recognised as an offsetting entry to a specific
shareholders’ equity reserve (see Note 12).
The precise number of employees was 85 at June 30, 2010, compared to 91 at June 30, 2009.
The average number of employees at June 30, 2010 was 84, broken down by position as follows:


                                                 June 30, 2010    December 31, 2009 June 30, 2009

Executives                                                   10                       10              10
Middle management                                            20                       18              18
Clerical staff                                               51                       57              59
Technicians                                                   3                        4              4
Total                                                        84                       89             91




Note 25 – Other operating costs

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This item is broken down as follows:
(amounts in thousands of Euro)                                       1st half 2010     1st half 2009

Printed and promotional materials                                               2                   4
Stationery                                                                         7                5
Entertainment costs                                                                8                9
Membership fees                                                                19                  17
Donations                                                                      29                  95
Losses on disposals                                                             -                   2
Books and magazines                                                                5                5
Other costs                                                                        8                5
Total other operating costs                                                    78                142

Note 26 – Amortisation, depreciation and write-downs
Amortisation, depreciation and write-downs totaled 601 thousand Euro, compared to 875 thousand
Euro in the prior-year period. This item is detailed as follows:
(amounts in thousands of Euro)                                      1st half 2010      1st half 2009


Amortization of intangible assets                                            258                497
Depreciation of tangible assets                                              343                378
Total amortization, depreciation & write-downs                               601                875

The decrease compared to the prior-year period is due to the completion in 2009 of the process
concerning amortisation of costs capitalised in previous years.

Note 27 – Financial income and charges
This item is detailed as follows:
(amounts in thousands of Euro)                                       1st half 2010     1st half 2009

FINANCIAL INCOME:
Interest and other financial income                                           125                462
Gains on securities                                                              9                 -
Exchange gains                                                                   3                23
Other income                                                                    -                  -
Total financial income                                                        137                485
FINANCIAL CHARGES:
Losses on securities                                                         (182)                 -
Exchange losses                                                               (55)               (51)
Finance lease interest expense                                                (24)               (26)
Other interest expense                                                         (5)                (7)
Other charges                                                                  (8)               (14)
Total financial charges                                                     (274)                (98)
Total financial income (charges)                                            (137)                387

The financial result reflects the impact of the management of the Company’s cash assets through
temporary low-risk investments.
The reduction recorded in the period is due, on the one hand, to the gradual decrease in financial
resources because of the liquidity absorbed by ordinary operations, while, on the other, to the sharp
fall in market rates connected to the ongoing macroeconomic trends.
The trend in financial charges reflects the transfer to the Income Statement of 158 thousand Euro
from the fair value reserve which was recorded at December 31, 2009, following the maturity and
sale of some securities.


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Other interest expense mainly involves the interest cost determined in the actuarial valuation of the
liabilities for pensions and employee severance indemnity.

Note 28 – Income taxes
No current or deferred taxes have been recorded in the Condensed Interim Financial Statements.
Taking account of the Company’s activities and the outlook provided by the business plans, as in 2009
the Company did not recognise the tax benefit that could derive from deferred tax assets calculated
on temporary differences deductible in future years. The valuation was performed through a critical
analysis aimed at verifying that the conditions for future recoverability exist, based on updated
strategic business plans. Directors have no reasonable assurance as regards recoverability of these
assets, due to a lack of adequate elements for forecasting their realisation.

Note 29 – Basic and diluted earnings (loss) per share
The basic earnings (loss) per share are detailed below:
(amounts in Euro)                                                     1st half 2010       1st half 2009


Basic earnings (loss) per share                                            (0.0823)             (0.0745)
Diluted earnings (loss) per share                                              -                    -

As required under IAS 33, diluted earnings 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 shares in the Company at a pre-determined strike price. The Company did not calculate
the diluted loss per share because under the 2001-2002 plan, the average value of the shares is
higher than the option strike price and this would result in an anti-dilutive effect not to be taken into
account. Under the 2008 plan, the strike price is higher than the average market value of the period,
and the option would not be exercised.
The calculation of the basic earnings per share is based on the net losses at June 30, 2010 and June
30, 2009 – 8,642 thousand Euro and 7,788 thousand Euro respectively – and on the weighted average
of outstanding ordinary shares in the relevant periods – 105,019,852 and 104,467,808 respectively.




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25.     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)                                     June 30, 2010 December 31, 2009


Cash on hand                                                                   10                    8
Other cash                                                                  5,944               4,300
Cash equivalents                                                               -                    -
A. Total cash and cash equivalents                                         5,954                4,308
B. Current financial receivables and other financial assets                6,684              15,679
Finance lease payables                                                       (93)                 (87)
C. Current financial debt                                                    (93)                 (87)
D. Net current financial position (A+B+C)                                 12,545              19,900
Finance lease payables                                                      (286)                (333)
E. Non-current financial debt                                               (286)               (333)
F. Net financial position (D+E)                                           12,259              19,567

The Company’s net financial position is positive and is influenced by the resources made available
following the stock market listing and the absorption of such resources in ordinary operations. As
shown in Note 10 and Note 11, the positive net financial position consists almost entirely 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)                                    June 30, 2010 December 31, 2009


Guarantees                                                                 1,254                  727
Commitments                                                                  160                  210
Total guarantees and commitments                                          1,414                  937

Guarantees included security deposits for refund of VAT receivables.
Commitments included 130 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.




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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 431,711 options entitling them to subscribe for the same number of shares. These options included
265,668 options granted to Claudio Bordignon and 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 was 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, at the end of the exercise period, as
described above, Claudio Bordignon and Marina Del Bue can subscribe 2,183,100 and 1,364,439
ordinary shares respectively. More specifically, Mr. Bordignon can subscribe 797,004 shares at a price
of 0.94253 Euro per share and 1,386,096 shares at a price of 0.8 Euro per share, while Ms. Del Bue
can subscribe 498,129 shares at a price of 0.94253 Euro per share and 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 dismissal 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 covered by 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
underlying each option not yet exercised). This shall be done as necessary and appropriate, in order


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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.
Here below is the breakdown of the options originally granted under the 2001-2002 stock option plan:

                                                                                                     Possibility     Expiry of
                                                                       Number of    Strike price
Grant period     Option holder              Position held                                           of exercise    possibility of
                                                                        options       (Euro)
                                                                                                                    exercise
    2001       Claudio Bordignon   Board Chairman, Chief                  797,004        0.94253    immediate      31/12/2011
    2002       Claudio Bordignon   Board Chairman, Chief                1,386,096        0.80000    immediate      31/12/2011
                                                               Total   2,183,100
    2001       Marina Del Bue      Director, General Manager              498,129        0.94253    immediate      31/12/2011
    2002       Marina Del Bue      Director, General Manager              866,310        0.80000    immediate      31/12/2011
                                                           Total       1,364,439
                                        Total for 2001-2002 plan       3,547,539

It should be noted that, at the date of preparing these Condensed Interim 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
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 organised for 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 organised for them. This share capital increase
may be performed in several installments, 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 of 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 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 the
Company 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, it comes no earlier 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 granted a
total of 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:

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• type A options, a total of 600,000 options;
• type B options, a total of 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 covered by options not yet exercised,
or it shall implement a new plan with roughly the same conditions.
Here below is the breakdown of the options granted under the 2008 stock option plans:

Grant period
                                                                               Number of             Strike price
                   Option holder                  Position held                             Type
                                                                                options                (Euro)

    2008       Claudio Bordignon     Board Chairman, Chief Executive              750,000    B          2.15
    2008       Marina Del Bue        Director, General Manager                    450,000    B          2.15
    2008       Enrico Cappelli       Chief Financial Officer                      180,000    A          2.15
    2008       Enrico Cappelli       Chief Financial Officer                      110,000    B          2.15
    2008       Holger Neecke         Director of Business Development             150,000    A          2.15
    2008       Holger Neecke         Director of Business Development              90,000    B          2.15
    2008       Marco Dieci           Director of Operations                        70,000    A          2.15
    2008       Marco Dieci           Director of Operations                        60,000    B          2.15
    2008       Antonio Lambiase      Director of Clinical Development              80,000    A          2.15
    2008       Antonio Lambiase      Director of Clinical Development              70,000    B          2.15
    2008       Paolo Rizzardi        Director of Research                          70,000    A          2.15
    2008       Paolo Rizzardi        Director of Research                          60,000    B          2.15
    2008       Daniele Pieraccioli   Director of Intellectual Property            100,000    B          2.15
    2008       Cynthia Giuliani      Director of Human Resources                   70,000    B          2.15
    2008       Catia Traversari      CancerTherapy Research Manager                50,000    A          2.15
    2008       Catia Traversari      CancerTherapy Research Manager                40,000    B          2.15
                                                         Total for 2008 plan   2,400,000




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Summary of the options granted
The table below shows the options granted and held at June 30, 2010:
                                                                                                Options      Options       Options
                                                                                                granted     exercised     expired
                                                        Options held at January 1, 2010                                                  Options held at June 30, 2010
                                                                                               during the during the     during the
                                                                                                period       period        period

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

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

Claudio Bordignon   Board Chairman, Chief              2,933,100         1.184       (*)                -            -             -    2,933,100      1.184   (*) (A)
                    Executive Officer
Marina Del Bue      Director, General Director         1,614,439         1.174       (*)                -     540,000              -    1,074,439      1.431   (*) (B)

Enrico Cappelli     Chief Financial Officer              290,000         2.150       (*)                -            -             -      290,000      2.150        (*)

Holger Neecke       Director of Business                 240,000         2.150       (*)                -            -             -      240,000      2.150        (*)
                    Development
Marco Dieci         Director of Quality and              130,000         2.150       (*)                -            -             -      130,000      2.150        (*)
                    Regulatory Compliance
Antonio Lambiase    Director of Clinical                 150,000         2.150       (*)                -            -             -      150,000      2.150        (*)
                    Department
Paolo Rizzardi      Director of Research                 130,000         2.150       (*)                -            -             -      130,000      2.150        (*)

Daniele Pieraccioli Director of Intellectual             100,000         2.150       (*)                -            -             -      100,000      2.150        (*)
                    Property
Cynthia Giuliani    Director of Human Resources           70,000         2.150       (*)                -            -             -       70,000      2.150        (*)
Catia Traversari    Cancer Therapy Research               90,000         2.150       (*)                -            -             -       90,000      2.150        (*)
                    Manager
                                               Total    5,747,539                                       -     540,000              -     5,207,539
(*) For information related to average expiry date of the options, reference should be made to stock option plans as described in these notes
(A) of which 2,183,100 options with average strike price of 0.852 Euro and average expiry 12/31/2011 - The expiry was changed by the Extraordinary Shareholders'
Meeting of April 14, 2009
(B) of which 624,439 options with average strike price of 0.914 Euro and average expiry of 12/31/2011 - The expiry was changed by the Extraordinary Shareholders'
Meeting of April 14, 2009

On March 5, 2010, the Director and General Manager, Marina Del Bue, exercised part of the options
granted through the 2001-2002 stock option plans by subscribing 540,000 shares at the price of 0.8
Euro per share. The impact of this transaction is described in Note 12.

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., its
main associates and Banca Esperia 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 S.p.A. 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 contract 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 integrations,
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.


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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, both those which are
currently at the clinical stage, such as TK and NGR-hTNF, and those which are in the preclinical
stage, such as isoDGR and isoDGR-TNF. 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 also has outstanding scientific research and cooperation agreements, which are generally
associated with in-licensing contracts, by which the Company has commissioned Science Park Raf and
Fondazione San Raffaele to carry out fee-based research projects, making use of the know-how of
researchers who operate in such structures, in order to develop technologies and products on behalf
of and which are held by MolMed. The average duration of these contracts is around two to three
years.
MolMed currently has outstanding contracts with Fondazione San Raffaele through which some clinical
tests 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 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 active 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, and to health physics and radiation safety 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
modified cells from patients, and cell selection and manipulation. Economic conditions of the
agreements are drawn up in a precise manner 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.

Transactions with other related parties
MolMed has commercial relationships with other related parties, namely Diagnostica e Ricerca San
Raffaele S.p.A. and HSR Resnati S.p.A., which are directly or indirectly owned 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 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.
In addition, the Company opened a current account and a deposit account at Banca Esperia, a joint
venture between Banca Mediolanum, a related party of MolMed, and Mediobanca. Part of this
relationship is the management of the investment of liquidity which exceeds the Company’s
operating needs. The relationship is regulated at market conditions.




Income and equity impact

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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 the first
half of 2010:
(amounts in thousands of Euro)                                Financial                                      Costs for use of         Financial
                                     Operating revenues                           Costs for services
                                                                income                                      third-party assets         charges
Science Park Raf S.p.A.                                   -                 -                       147                   395                     -
Fondazione Centro S.Raffaele                           332                  -                       493                         -                 -
Diagnostic San Raf S.p.A.                                 -                 -                           2                       -                 -
HSR Resnati S.p.A.                                        -                 -                           6                       -                 -
Marina Del Bue                                            -                 1                           -                       -                 -
Banca Esperia S.p.A.                                      -               13                            -                       -                 5
Total                                                  332                14                        648                  395                      5
Financial statements item                              952               137                    4,099                    501                  274
% on financial statements item                         35%               10%                        16%                   79%                     2%


(amounts in thousands of Euro)                                   Trade
                                                              receivables       Other receivables and        Cash and cash
                                        Other assets                                                                                Trade payables
                                                              and other             sundry assets              equivalents
                                                              commercial
Science Park Raf S.p.A.                                310                  -                          66                       -                 7
Fondazione Centro S.Raffaele                       2,100                 208                        450                         -             906
Diagnostic San Raf S.p.A.                                 -                 -                           -                       -                 2
HSR Resnati S.p.A.                                        -                 -                           -                       -                 6
Editrice San Raffaele                                     -                 -                                                   -                 -
Residenza Alberghiera San Raffaele                        -                 -                                                   -                 -
Marina Del Bue                                            -                 -                       230                         -                 -
Banca Esperia S.p.A.                                      -                 -                           -               4,354                     -
Total                                             2,410                  208                        746                4,354                  921
Financial statements item                         2,410             1,258                       2,316                  5,954                4,497
% on financial statements item                     100%                  17%                        32%                   73%                 20%

Revenues of 332 thousand Euro mainly arise from the services provided by MolMed to Fondazione San
Raffaele.
Costs for services of 648 thousand Euro relate to research agreements, contracts linked to the
management of clinical testing at the 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 of 395 thousand Euro relate to lease payments envisaged by
the contracts signed with Science Park for the premises occupied by the Company within the San
Raffaele Science Park.
Financial income and charges relate to income and expenses for the management of bank deposits.
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 recognised in the Income
Statement over the eight year minimum duration of the contract on a straight-line basis.
Trade receivables and payables reflect the trends in invoicing and payment of services linked to the
above contractual dealings.
Other receivables and sundry assets refer for 516 thousand Euro to the fee agreed for the
aforementioned option to buy research projects, while for 230 thousand Euro they refer to the
receivable relating to the deferment granted to stock option plan beneficiaries for repayment of tax
charges prepaid by the Company following exercise of option rights.
Cash and cash equivalents consist of bank deposits.
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.

Note 34 – Directors and Statutory Auditors' fees


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The fees due to MolMed’s Directors and Statutory Auditors are shown in the following table:

(amounts in thousands of Euro)                                          1st half 2010       1st half 2009

Directors' fees                                                                   574                531
Statutory auditors' fees                                                           34                 21
Total                                                                             608                552

It should be noted that on April 26, 2010 the Board of Directors recognised to the Chairman of the
Board of Directors, Claudio Bordignon, as compensation for a non-competition obligation for twenty-
four months following the termination, for whatever reason, of his role, the payment of 750,000 Euro
gross of taxes, to be paid at the end of the related mandate and should it not be renewed.

Note 35 - Significant non-recurring events and transactions
Pursuant to the Consob Communication of July 28, 2006, it should be noted that, during the period,
the Company did not undertake any significant non-recurring transaction, except the share capital
increase as described in the Report on Operations and which was completed after the end of the
period. The sole effect relates to the deferral of the costs directly connected to the share capital
increase process, as described in Note 9.

Note 36 - Transactions resulting from atypical and/or unusual events
Pursuant to the 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 the
following characteristics: their significance/importance, the other parties involved in the
transaction, the subject of the transaction, how the transfer price was determined and the timing of
the event/transaction (proximity to year end).

Note 37 – 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.

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.

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 liquidity arising from the
listing has been invested in current account deposits and in government and corporate bonds whose
yield is affected by 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 this way diversifying the counterparty risk.

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


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risks. Financial assets are denominated in Euro. The Company does not utilise 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 the financial activities.
Given the nature of the activities performed by the Company, and the resulting structure of those
activities, 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 counterparties consist of leading financial institutions and widely respected
companies. In addition, the investments were made at a number of different credit institutions, in
order to diversify the counterparty risk.

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 June 30, 2010, it shows
a net positive financial position of 13,017 thousand Euro, consisting of liquid assets available for use
immediately or in the short term.
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, plus market
conditions.
The Company has implemented a series of policies and processes designed to optimise 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 whatever actions prove necessary can be taken forthwith;
• monitoring of prospective conditions of liquidity, with regard to the process of corporate planning.

Following an update of the analysis of the available financial resources and the financial flows
forecast under the Company’s business plans, the Company holds that, with the financial resources
on hand, it will be possible to satisfy the needs generated by research and development activities up
to the end of 2010.
For further information reference should be made to the section on “Going concern” in these notes,
as well as to the paragraph “Financial risks” in the Report on Operations, regarding the actions taken
to find the funds needed to continue operations in the foreseeable future after the end of 2010.

Note 38 – Significant events after the reporting period
In reference to the description and final result of the share capital increase approved by the
Shareholders’ Meeting of April 26, 2010, reference should be made to paragraph 9 of the Report on
Operations.




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26.     ATTESTATION OF THE CONDENSED INTERIM 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 the 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
   Condensed Interim Financial Statements during the first half of 2010.
2. The adequacy of the administrative and accounting procedures for the preparation of the
   Condensed Interim Financial Statements at June 30, 2010 is assessed based on a process defined in
   keeping with the Internal Control – Integrated Framework model issued by the Committee of
   Sponsoring Organisations of the Treadway Commission which is a reference framework generally
   accepted internationally.
3. It is also stated that:
   • the Condensed Interim Financial Statements at June 30, 2010:
      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 changes and additions;
      b) are consistent with the results of the accounting records and entries;
      c) are suitable to provide a true and fair representation of the equity, income and financial
         position of the issuer.
   • the Interim Report on Operations includes a reliable analysis of the important events which
     occurred in the first six months of the year and their impact on the Condensed Interim
     Financial Statements, together with a description of the main risks and uncertainties to which
     the Company is exposed for the rest of the year. The Interim Report on Operations also
     includes a reliable analysis of information on significant transactions with related parties.




Milan, August 5, 2010



Claudio Bordignon                                       Enrico Cappelli
Chairman of the Board of Directors and                  Executive Officer responsible for preparing
Chief Executive Officer                                 company financial reports




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Report of the External Auditors




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