Announcement PDF Avecho Biotechnology Limited Appendix 4E Preliminary final report 1. Company details Name of entity: ABN: Reporting period: Previous period: Avecho Biotechnology Limited 32 056 482 403 For the year ended 31 December 2021 For the year ended 31 December 2020 2. Results for announcement to the market $ Revenues from ordinary activities up 106.3% to 793,600 Loss from ordinary activities after tax attributable to the owners of Avecho Biotechnology Limited up 29.7% to (3,416,116) Loss for the year attributable to the owners of Avecho Biotechnology Limited up 29.7% to (3,416,116) Explanation of loss from ordinary activities after tax Total revenue increased by 106% for the year to $793,600 (2020: $384,627), mainly attributable Vital ET® sales made to Ashland during the year. Other income increased by 47% to $1,144,568 (2020: $778,476), attributed to R&D tax incentives of $1,124,946 (2020: $360,309). Expenses from continuing operations increased by 39% to $5,068,621 (2020: $3,654,241), largely due to higher research and development cost of $2,134,259 (2020: $836,829). At the end of December 2021, the Consolidated Entity held $3,264,764 in cash and cash equivalents (2020: $1,872,776). The net assets of the Consolidated Entity increased by $1,882,170 to $4,536,590 as at 31 December 2021(2020: $2,654,420). Working capital, being current assets less current liabilities, was $4,112,078 (2020: $2,087,020). 3. Net tangible assets Reporting period Cents Net tangible assets per ordinary security 4. Control gained over entities Not applicable. 5. Loss of control over entities Not applicable. 6. Dividends Current period There were no dividends paid, recommended or declared during the current financial period. 0.24 Previous period Cents 0.14 Avecho Biotechnology Limited Appendix 4E Preliminary final report Previous period There were no dividends paid, recommended or declared during the previous financial period. 7. Dividend reinvestment plans Not applicable. 8. Details of associates and joint venture entities Not applicable. 9. Foreign entities Details of origin of accounting standards used in compiling the report: Not applicable. 10. Attachments Details of attachments (if any): The preliminary 2021 annual report of Avecho Biotechnology Limited is attached. 11. Signed Signed ___________________________ Dr Gregory Collier Chairman Date: 25 February 2022 Avecho Biotechnology Limited ABN 32 056 482 403 Annual Report - 31 December 2021 Avecho Biotechnology Limited Contents 31 December 2021 Corporate directory Directors' report Auditor's independence declaration Consolidated statement of profit or loss and other comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements Directors' declaration Independent auditor's report to the members of Avecho Biotechnology Limited Shareholder information 1 2 3 17 18 19 20 21 22 49 50 53 Avecho Biotechnology Limited Corporate directory 31 December 2021 Directors Dr Gregory Collier (Chairman) Dr Ross Murdoch (Non-Executive Director) Mr Matthew McNamara (Non-Executive Director) Chief Executive Officer Dr Paul Gavin Company Secretary Ms Melanie Leydin Registered office and Principal place of business Unit A8, 2A Westall Road Clayton VIC 3168 Australia Telephone: +61 3 9002 5000 Email: info@avecho.com.au Share register Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street Abbotsford VIC 3067 Australia Telephone: +61 3 9415 5000 Fax: +61 3 9473 2500 Auditor Grant Thornton Audit Pty Ltd Collins Square Tower 5 727 Collins Street Melbourne VIC 3008 Stock exchange listing Avecho Biotechnology Limited securities are listed on the Australian Securities Exchange. (ASX code: AVE) Website www.avecho.com.au 2 Avecho Biotechnology Limited Directors' report 31 December 2021 The directors present their report, together with the financial statements, on the consolidated entity consisting of Avecho Biotechnology Limited (referred to hereafter as the 'Company' or 'parent entity') and the entities it controlled (referred to hereafter as the 'Consolidated Entity') at the end of, or during, the year ended 31 December 2021. Directors The following persons were directors of Avecho Biotechnology Limited during the whole of the financial year and up to the date of this report, unless otherwise stated: Dr Gregory Collier (Chairman) Dr Ross Murdoch (Non-Executive Director) Mr Matthew McNamara (Non-Executive Director) Mr David Segal (Non-Executive Director, resigned on 31 May 2021) Principal activities Avecho Biotechnology Limited develops and commercialises innovative Human and Animal Health products using its proprietary drug delivery system called TPM® (Tocopherol Phosphate Mixture). TPM® is derived from Vitamin E using unique, proprietary and patented processes and is proven to enhance the solubility and oral, dermal and transdermal absorption of drugs and nutrients. The Consolidated Entity’s major projects include delivering TPM® enhanced injectable, oral and topical products for the human health market, including the recently announced application of TPM® to cannabinoids. The Company is also developing TPM® to enhance feed efficiency and health of livestock. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations Avecho’s core business strategy is to develop and commercialise products containing its TPM® technology. Each of the business divisions, Human Health, Animal Health and Nutrition, and Production, have progressed with the common goal of advancing commercialisation of products containing the Company’s TPM® technology. Avecho remained largely unaffected internally by the ongoing COVID-19 crisis. Strict social distancing guidelines and work from home practices were implemented, and staff continued to work to advance the ongoing programs. There were delays where research studies relied on partnership or collaboration with third parties around the world, as local shutdowns for specific countries have affected ongoing laboratory practices and the ability to transport material. The continued development of Avecho’s pharmaceutical CBD soft-gel product was the main focus during the current period. The program priority was the finalisation of the CBD soft-gel composition, and the supporting chemistry, manufacturing and control (CMC) work. CMC is an integral component of a product application to the Therapeutic Goods Administration (TGA) or FDA for a pharmaceutical product and describes the work required to prove that it can be reproducibly manufactured to pharmaceutical standards with acceptable stability. Avecho’s leading prototype CBD oil formulation was adapted and refined to a soft-gel capsule in the US by Catalent (St. Petersburg, Florida). The refinements were designed to ensure the formulation was appropriate for inclusion in commercial capsule manufacturing lines and displayed appropriate physical and chemical stability. Commercially appropriate stability is critical given the Company’s intention to register the finished product with the TGA. The formulation development work was completed in May, resulting in a soft-gel capsule containing 75 mg of CBD. This 75mg unit dose was chosen to align with the TGA’s down-scheduling of CBD, which has specified that future over-thecounter CBD products must have a maximum daily dose of 150 mg. A 75 mg CBD dose per soft-gel capsule could support twice daily dosing for indications benefiting from prolonged drug delivery (such as anxiety), or for the consumption of two capsules together for indications requiring a higher, single dose (for indications such as insomnia). In May, Avecho announced it would formally pursue an insomnia related indication for TGA registration of the CBD soft-gel. Having finalized the product composition, the manufacturing campaign to produce GMP product for use in the Company’s clinical trial program began. An initial pilot batch of CBD soft-gels was successfully manufactured in May 2021. This batch was used to validate the manufacturing process and analytical methods, as well as to inform the finished product specifications. Successful characterization of the prototype batch was completed, allowed formal GMP manufacture of the CBD soft-gel in August for use in a formal stability study and a Phase I PK study to characterise the CBD absorption profile from the product. 3 Avecho Biotechnology Limited Directors' report 31 December 2021 The primary objective of the study was to determine the single dose pharmacokinetics (PK) of cannabidiol absorbed from a single 75 mg and 150 mg oral dose of the CBD soft-gel. This information is required for future product registration with the TGA or FDA. The Study was conducted at CMAX in Adelaide with 16 healthy volunteers. Subjects received both doses over a period of two weeks, with each dose preceded by an overnight fast. Blood samples were collected for 48 hours after each dose and assayed for CBD content. The CBD absorption profile and pharmacokinetic parameters of both the 75 mg and 150 mg doses were well characterised, with a linear relationship in drug absorption between the two doses. Both doses of the CBD soft-gel were well tolerated, with all adverse events characterised as mild and no adverse events of concern related to the study medication. The absorption profiles will also inform the dosing regimen to be used in subsequent clinical trials, including the pivotal efficacy program being designed for an insomnia related indication. They will also form a key piece in partnering discussions. With the conclusion of the Phase I study, the Company had completed a thorough early phase data package to support the ongoing development and future registration of the CBD soft-gel product. This data package included formulation development and animal data; the use of high-purity, synthetic CBD; soft-gel capsule development and GMP manufacturing; ongoing stability; human trial data from the Phase I and ongoing open label CACOS study; and new IP for future patent protection. This data package was intended to support ongoing regulatory and ethics approvals, in addition to being a comprehensive data set of interest to potential licensees. Soon after the concluding the Phase I PK study, Avecho announced its first product license and supply agreement for the CBD soft-gel, granting Medterra Pharma exclusive rights to develop and commercialise Avecho’s soft-gel CBD capsule for the oral treatment of arthritis (other than in Australia and New Zealand). The Agreement signalled a strategic step forward in Avecho’s ambitions to secure Food and Drug Administration approval for its soft-gel CBD product. While Avecho focuses on a sleep related indication, this Agreement allows Medterra to fund the development of the CBD soft-gel product for an additional indication, providing Avecho with potential upside for an indication the company does not have the bandwidth to pursue. Using this strategy, the Company plans to collaborate with reputable, well-resourced partners to progress our products towards regulatory approval or commercialization on a number of parallel indications. Independent of Avecho’s cannabinoid program, external licensing discussions for the non-cannabinoid programs continued throughout 2021. In May, Avecho announced that one of its potential partners in the animal health space were expanding their assessment of the utility of TPM® in livestock feeds beyond its original program analysing feed efficiency and weight gain. TPM® containing feed products are also being assessed for their ability to control post-weaning diarrhoea in pigs. Pending a positive outcome of the planned programme, Avecho’s potential partner may look to bring TPM® to the animal feed market. Licensing opportunities for a number of Avecho’s human health products are still under review by third parties in the pharmaceutical space and involve a range of territories. In collaboration with this program, Avecho recently finalised a dossier for submission to the European Food Safety Authority (EFSA). EFSA’s scientific evaluation process will conclude with a written assessment of the data pack that will formally articulate what additional studies EFSA may require to support the approval of feed products containing TPM®. Avecho’s manufacturing arm continued to produce and sell Vital ET® to Ashland for use in the global personal care industry, manufacturing a total of 11.3 tonnes for sale during 2021. Review of financial results The loss for the Consolidated Entity after providing for income tax amounted to $3,416,116 (31 December 2020: $2,634,853). ● ● ● Total revenue increased by 106% for the year to $793,600 (2020: $384,627), mainly attributable Vital ET® sales made to Ashland during the year. Other income increased by 47% to $1,144,568 (2020: $778,476), attributed to R&D tax incentives of $1,124,946 (2020: $360,309). Expenses from continuing operations increased by 39% to $5,068,621 (2020: $3,654,241), largely due to higher research and development cost of $2,134,259 (2020: $836,829). At the end of December 2021, the Consolidated Entity held $3,264,764 in cash and cash equivalents (2020: $1,872,776). The net assets of the Consolidated Entity increased by $1,882,170 to $4,536,590 as at 31 December 2021(2020: $2,654,420). Working capital, being current assets less current liabilities, was $4,112,078 (2020: $2,087,020). The net operating cash outflow for the year increased by $1,675,245 to $3,099,205 (2020: outflow of $1,423,960). 4 Avecho Biotechnology Limited Directors' report 31 December 2021 Significant changes in the state of affairs On 16 February 2021, the Company has issued a total of 229,999,999 Fully Paid Ordinary Shares (Shares) at an issue price of $0.022 (2.2 cents) through a placement to institutional and sophisticated investors raising $4,765,801 net of transaction costs. On the same day, the Company issued 115,000,000 listed options, which expire on 31 December 2023, to the investors who participated in this placement. A further 7,500,000 listed options, which expire on 31 December 2023, were issued to the brokers. On 20 November 2020, the Company issued 13,977,753 Options to Directors at an exercise price of $0.0169 (1.69 cents) per option. These options were approved by Shareholders at the 2021 Annual General Meeting of the Company held on 31 May 2021. On 1 July 2021, the Company issued a total of 7,221,847 Fully Paid Ordinary Shares for nil consideration following the vesting of 7,221,847 unlisted Performance Rights on 1 July 2021. On 10 September 2021, 3,750,000 unlisted options expired without exercise or conversion. There were no other significant changes in the state of affairs of the Consolidated Entity during the financial year. Matters subsequent to the end of the financial year On 10 January 2022, the Company has issued 1,696,000 Fully Paid Ordinary Shares (Shares) to employees under the Company’s Equity Incentive Plan. On 2 February 2022, the Company announced it has entered into a product license and supply agreement (Agreement) with Team SAAS LLC (SAAS) granting SAAS exclusive rights to commercialise a recreational cannabis distillate containing TPM® for use in the manufacture of edible cannabis products in the US. The Company will receive a licence fee calculated by reference to SAAS’ net profits after tax. The Company will receive 50% of SAAS’ net profit after tax on net sales of the product, which will be paid quarterly. SAAS must pay a minimum licence fee of US$1M within the first 12 months, US$2.5m within the first 2 years and US$5 million within the first 4 years. No other matter or circumstance has arisen since 31 December 2021 that has significantly affected, or may significantly affect the Consolidated Entity's operations, the results of those operations, or the Consolidated Entity's state of affairs in future financial years. Business strategy and future developments The Company will continue to use its cash resources to invest in research and development activities and licensing activities. The development of the Company’s CBD soft-gel product will remain the priority for the coming year, with the focus on two key areas; the completion of the CMC work needed for a future TGA submission dossier, and the conduct of a pivotal efficacy study in a sleep related indication. These are the key milestones needed to compile a TGA dossier for submission. Work toward both endpoints has already begun. The manufacturing piece is especially critical, as it now also supports the clinical programs of our current (Medterra Pharma) and future partners. The company plans to complete further licensing deals for the CBD soft-gel, allowing it to be included in multiple development programs for various clinical indications. These deals will increase the likelihood that Avecho’s product will prove efficacious for one or more indications, as well as providing potential upside in therapeutic areas Avecho does not have the bandwidth to pursue on its own. It is anticipated that Avecho will be providing support to a number of partners across 2022 in order to help advance the clinical development of the CBD soft-gel product in their own indications. Beyond the oral CBD soft-gel capsule, Avecho continues to explore further clinical applications of its formulations in partnership with reputable, independent experts. In October 2021, the Company announced a collaboration with leading Australian research group for cannabinoid therapeutics, the Lambert Initiative, at the University of Sydney to conduct a proof of concept study to examine whether topically applied CBD can provide relief from symptoms of osteoarthritis. The study has been initiated in response to growing demand from patients who are unsatisfied with their level of pain management provided by current treatments for osteoarthritis of the hand. This study is currently scheduled to begin Q1 2022 with results expected Q2. The various applications of topical CBD gels are already receiving considerable attention, and Avecho intends to have products available for future licensees. 5 Avecho Biotechnology Limited Directors' report 31 December 2021 In 2022, Avecho has already finalised a product license and supply agreement with Team SAAS, granting them exclusive rights to commercialise a recreational cannabis distillate containing TPM® for use in the manufacture of edible cannabis products in the US. The Agreement signalled a strategic step forward in Avecho’s ambitions to increase the breadth of cannabis products and markets leveraging TPM formulations and provides Avecho with access to a stream of immediate revenue. Avecho is also expecting results from both its partnered animal health program and EFSA submission in H1 2022. Both items will influence how the program moves forward with partnership in the future. Avecho will continue to support Ashland during 2022, supplying Vital ET® for its global customers. In addition to the manufacturing of Vital-ET, Avecho will also manufacture TPM for sale to Team SAAS for inclusion in their TPM cannabis distillate. Should Team SAAS find success with their TPM cannabis distillate, it is anticipated that relatively large volumes of TPM will be manufactured on an ongoing basis in Avecho’s Clayton facility. Environmental regulation The Company is registered with relevant authorities to use certain compounds in the manufacture of goods. All waste chemicals are disposed of using accredited service providers with notification to the relevant authorities. The Company is not aware of any breaches of any environmental regulations. Information on directors Name: Title: Qualifications: Experience and expertise: Dr Gregory Collier Non-Executive Chairman PhD Dr Collier has more than 20 years’ experience spanning operational, clinical and scientific aspects of pharmaceutical research, development and commercialisation. Dr Collier has led the planning and execution of multiple commercial transactions including in and out licensing deals and major M&A activities, and he has successfully taken a drug from discovery through to regulatory approval. Notably, Dr Collier steered ChemGenex Pharmaceuticals Limited from a researchbased Company with a market capitalisation of $10 million to a Company with completed clinical trials and regulatory dossiers submitted to the FDA and EMA. In 2011, ChemGenex was sold to Cephalon Inc. (now subsidiary of Teva Pharmaceuticals Industries Limited) for $230 million. Prior to his commercial pharmaceutical career, Dr Collier had an outstanding academic career resulting in over 150 peer reviewed publications, and senior authorship on 33 patents. Dr Collier was the inaugural Alfred Deakin Professor at Deakin University, and also held positions at Melbourne University, Monash University and the University of Toronto. In 2010, Dr Collier was awarded the Roche Award of Excellence for his contribution to the biotechnology industry. Other current directorships: None Former directorships (last 3 years): Invion Limited Interests in shares: 2,000,000 ordinary shares Interests in options: 5,990,465 unlisted options 6 Avecho Biotechnology Limited Directors' report 31 December 2021 Name: Title: Qualifications: Experience and expertise: Dr Ross Murdoch Non-Executive Director PhD GAICD Dr Murdoch joined Avecho as CEO in January 2015 and was appointed as director in April 2015. He has almost 30 years' experience as a leader within the global healthcare, pharmaceutical and biotechnology industries. He has held senior management and executive positions in Australia, the USA and Europe, with responsibility for the strategy, development and commercialisation of products, product portfolios and the building and rebuilding of new and existing businesses. Highlights of his career include Senior Vice President at Shire Pharmaceuticals (one of the world’s leading specialty pharmaceutical companies), based in the USA and Switzerland, where he founded and grew both the Emerging Products Business and Haematology Business and President and COO of Prana Biotechnology Limited based in Australia. Dr Murdoch has a BSc degree with honours from Monash University, a PhD in Clinical Pharmacology from the University of Melbourne and additional postgraduate training in Health Economics from Monash University Business School. He is also a Graduate of the Australian Institute of Company Directors. Other current directorships: None Former directorships (last 3 years): None Interests in shares: 1,666,667 ordinary shares Interests in options: 3,993,644 unlisted options Name: Title: Qualifications: Experience and expertise: Mr David Segal Non-Executive Director (resigned on 31 May 2021) B.Com B.Law Mr Segal was the Investor Relations Manager at Phosphagenics from 2011 to 2015. Prior to this Mr Segal worked for over 30 years in stockbroking, including setting up, raising capital for and running Trent Securities which was absorbed into Shaw Stockbroking in 1992. Mr Segal has been a shareholder of Phosphagenics since 1999. Mr Segal has a law/commerce degree from Melbourne University and is a graduate of the Australian Institute of Company Directors. Other current directorships: None Former directorships (last 3 years): None Interests in shares: 18,491,281 ordinary shares (at the time of resignation on 31 May 2021) Interests in options: Nil Name: Title: Qualifications: Experience and expertise: Matthew McNamara Non-Executive Director BSc (Hons), MBA Mr McNamara joined the Board in January 2020. He has over 30 years’ experience in the healthcare and medical sciences sector. In 2003, he founded BioBridge Australia, a biotechnology commercialisation advisory company and advised a number of public biotechnology / investment companies. He is presently a director of Adherium Ltd (ASX:ADR), SciCapital Pty Ltd, Microbio Pty Ltd, ESN Cleer Pty Ltd and Grey Innovation Group Pty Ltd. He has held previous directorship in Avita Medical Ltd, Bioxyne Ltd, and Saluda Medical Pty Ltd. Mr McNamara has also served as CIO of BioScience Managers Pty Ltd, was CEO of SciCapital Pty Ltd, a Life Sciences Venture Capital fund, SVP Business Development for eBioinformatics Inc, General Manager of Vistakon Pty Ltd (a Johnson & Johnson Medical franchise), and held numerous management positions in Australia with Merck & Co. Other current directorships: Adherium Ltd (ASX: ADR) Former directorships (last 3 years): None Interests in shares: None Interests in options: 3,993,644 unlisted options (indirect) 7 Avecho Biotechnology Limited Directors' report 31 December 2021 'Other current directorships' quoted above are current directorships for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. 'Former directorships (last 3 years)' quoted above are directorships held in the last 3 years for listed entities only and excludes directorships of all other types of entities, unless otherwise stated. Company secretary Melanie Leydin - BBus (Acc. Corp Law) CA FGIA Ms Leydin holds a Bachelor of Business majoring in Accounting and Corporate Law. Ms Leydin is a member of the Institute of Chartered Accountants, Fellow of the Governance Institute of Australia and is a Registered Company Auditor. Ms Leydin graduated from Swinburne University in 1997, became a Chartered Accountant in 1999 and from February 2000 to October 2021 was the principal of Leydin Freyer. In November 2021 Vistra acquired Leydin Freyer and, Ms Leydin is now Vistra Australia's Managing Director. Vistra is a prominent provider of specialised consulting and administrative services to clients in the Fund, Corporate, Capital Markets, and Private Wealth sectors. Ms Leydin has over 25 years’ experience in the accounting profession and over 15 years’ experience holding Board positions including Company Secretary of ASX listed entities. Ms Leydin has extensive experience in relation to public company responsibilities, including ASX and ASIC compliance, control and implementation of corporate governance, statutory financial reporting, reorganisation of Companies, initial public offerings, secondary raisings and shareholder relations. Meetings of directors The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 31 December 2021, and the number of meetings attended by each director were: Full Board Held Attended Gregory Collier Ross Murdoch David Segal Matthew McNamara 8 8 5 8 8 8 5 8 Held: represents the number of meetings held during the time the director held office. The full Board assumes the responsibility of the Remuneration Committee and Audit Committee. Retirement, election and continuation in office of directors Mr David Segal, Non-Executive Director, resigned from the Company's Board on 31 May 2021. Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the Consolidated Entity, in accordance with the requirements of the Corporations Act 2001 and its Regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: ● Principles used to determine the nature and amount of remuneration ● Details of remuneration ● Service agreements ● Share-based compensation ● Relationship between remuneration and the Group's performance ● Additional disclosures relating to key management personnel 8 Avecho Biotechnology Limited Directors' report 31 December 2021 Principles used to determine the nature and amount of remuneration The objective of the Consolidated Entity's executive remuneration framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. The Board of Directors ('the Board') ensures that executive reward satisfies the following key criteria for good reward governance practices: ● ● ● ● Competitive and reasonable, enabling the Company to attract and retain key talent Aligned to the Company’s strategic and business objectives and creation of shareholder value Transparent and easily understood; and Acceptable to shareholders The Board is responsible for determining and reviewing remuneration arrangements for its directors and executives. The performance of the Consolidated Entity depends on the quality of its directors and executives. The remuneration philosophy is to attract, motivate and retain high performance and high quality personnel. Executive remuneration The Board has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the Consolidated Entity. The executive remuneration framework has three components: ● Base pay and benefits ● Short-term incentives ● Long-term incentives through participation in Avecho Equity Incentive Plan (EIP) A combination of these components comprises an executive’s total remuneration, with base pay and benefits at an appropriate level to competitive market benchmarks. Base pay and benefits Executives receive their base pay and benefits structured as a Total Remuneration Package (TRP) which may be delivered as a combination of cash and prescribed non-financial benefits at the executive’s discretion. Superannuation is included in the TRP. Eligible employees can receive cash bonus based on a percentage of their fixed base salary should they meet expected KPIs. Executives including CEO and