Medical science has made a significant number of breakthroughs over the past century. The average life span in western cultures has substantially increased. Heart disease and cancer have been amongst the most successful

science has made a significant number of breakthroughs over the past century.

The average life span in western cultures has substantially increased. Heart

disease and cancer have been amongst the most successful areas of drug discovery

over the last 20 years. The diseases associated with aging have, however,

yet to be fully understood or effectively treated. Diseases of aging are in fact

diseases capable of being prevented or cured. They are no longer regarded as an

inevitable part of aging.

develop therapeutic drugs designed to treat the underlying causes of

degeneration of the brain as the aging process

Fellow Shareholders,

delighted to report on the progress of the Company over the past year. It has

proven to be a very productive year and the fruits of the focused efforts by our

scientists, managers and staff have been reflected in a number of important

value-adding announcements and events.

tough market conditions, Prana successfully pursued funding that will be used to

promote our drug development pipeline; reached several significant research

milestones; and was allowed or granted key patents for our leading compound,

PBT2, by the United States and European Patent Offices respectively. At the same

time, we continued to engage in discussions with major pharmaceutical companies

interested in helping Prana conduct large clinical trials with PBT2, for the

treatment of Alzheimer's Disease (AD).

specific goal of the Company has been to produce a drug to treat Alzheimer's

Disease. It is our hope and expectation that, in PBT2, we have that drug and

will meaningfully improve the lives of patients. Increasingly, PBT2 is

attracting the attention of scientists, pharmaceutical companies and investors

around the world. In July, Prana was very strongly represented at the

International Conference on Alzheimer's Disease (ICAD) held in Chicago. ICAD is

the largest and highest profile academic and industry event in Alzheimer's

Disease. Our lead drug for AD, PBT2, was highlighted in the prestigious Hot

Topics segment of the conference.

same week, the results of a clinical trial of PBT2 on patients with AD were

published in The Lancet Neurology journal. PBT2 was able to affect patients in

at least two important ways - the drug reduced the level of a toxic protein

(Abeta42) in patient's spinal fluid, and the patients receiving PBT2 improved

their performance in measures of Executive Function, an important aspect of

cognition. Executive Function loss is clinically observed in AD patients, even

at the very early stages of the disease. Patients on the trial who received a

placebo rather than the real drug did not show either of these

success has come at a very interesting, and in some ways challenging, time in

the global effort to market a drug to treat AD by stopping or very significantly

slowing its progression. Current drugs on the market do not do this, they merely

treat the existing symptoms for a limited period of time. A great deal of time,

money and effort has been spent through the global effort of a great many

companies attempting to reduce Abeta42. This year there have been several high

profile and disappointing results reported that failed to prove the so called

"Amyloid Hypothesis" - that Abeta is poisonous to brain cells and causes

Alzheimer's Disease. In very stark contrast to these reports, PBT2 is a drug

specifically designed to stop the actual toxicity of Abeta. The drug achieves

this by targeting metals in the brain, such as copper and zinc, which react with

Abeta to make it toxic. The clinical trial results on patients are very

encouraging and larger longer trials are now being planned.

deal of our enthusiasm around the potential of PBT2 comes from the growing body

of information around how the drug works. Another very important milestone

achieved in July was the publication in Neuron of the laboratory research behind

the Company has commented on the potential of its drug pipeline to benefit

patients with other diseases such as Parkinson's Disease, Huntington's Disease

and some types of cancer. All the programs are progressing well and we

anticipate new drug candidates entering in the development pipeline in the

coming year. In each disease we target, our opportunity arises from our

specialized knowledge of the role of metals in the development and progression

continue to keep you updated with announcements and I encourage you to visit our

website at www.pranabio.com to learn more about your Company.

face many challenges, but looking ahead, I am optimistic that we will find ways

to commercialize Prana's unique MPAC technology in order to help millions of

Alzheimer's sufferers who currently have no hope for a cure. Plans are under way

for PBT2 to be back in the clinic to be tested in more advanced clinical trials

and, with the success to date of PBT2 in AD, we now expect our other programs to

like to extend my thanks and appreciation to the very dedicated and hard working

team of Prana scientists, managers, staff and consultants, as well as to my

fellow directors on the Board. I also want to thank Prana's investors and

shareholders for your continued loyalty and support. I look forward to sharing

with all of you the rewards that are to come.

2008, Professor Rudolph Tanzi, Co-Founding scientist of Prana, was appointed by

the U.S. Senate Special Committee on Aging on the Future of Alzheimer's:

Breakthroughs and Challenges, to testify on Alzheimer's Disease as a growing

health care crisis. His testimony spoke to the available therapeutic approaches

in Alzheimer's Disease, where PBT2 is differentiated to others by working to

detoxify the Abeta protein in brain synapses as well as promoting the clearance

of the toxic Abeta from the brain. PBT2 is Prana's lead drug candidate for the

treatment of Alzheimer's Disease.

July 2008, the results of the Phase IIa trial in Alzheimer's Disease patients

treated with Prana's PBT2 were published in The Lancet Neurology Journal. The

published results described the significant decrease in Abeta protein levels in

the cerebrospinal fluid of patients treated with PBT2 at the 250mg dose compared

to patients on placebo. The published results also reported that at this same

dose patients showed significant improvement in two measures of cognitive

Executive Function compared with placebo, as assessed using the

Neuropsychological Test Battery (NTB).

Prana's Annual General Meeting in November 2008, the company reported on the

prospect of PBT2 being suitable for the treatment of Huntington's Disease as a

second neurological therapeutic application. Prana had commissioned a report

from two independent U.S. based clinical researchers being key opinion leaders

in the field of Huntington's Disease entitled, "The suitability and

recommendations for the clinical development of PBT2 in Huntington's Disease".

The report reviewed the pre-clinical animal modeling undertaken on PBT2 and the

encouraging signs of cognitive effect and clinical safety observed with PBT2

from the Phase IIa Alzheimer's Disease trial. The authors of the report

concluded that PBT2 was a suitable drug candidate for clinical development in

Huntington's Disease.