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 2023 For the year ended 31 December 2022 2. Results for announcement to the market $ Revenues from ordinary activities down 58.1% to 473,551 Loss from ordinary activities after tax attributable to the owners of Avecho Biotechnology Limited up 46.7% to (3,436,561) Loss for the year attributable to the owners of Avecho Biotechnology Limited 46.7% to (3,436,561) up Explanation of loss from ordinary activities after tax Total revenue decreased by 58% for the 2023 financial year to $473,551 (31 December 2022: $1,129,260), primarily due to a reduction in Vital ET® sales when compared to the 2022 financial year. Other income increased to 60% to $1,167,984 (31 December 2022: $727,823), primarily due to higher R&D tax incentives of $1,075,567 (31 December 2022: $622,923). The increase in the research and development activities for the 2023 financial year compared to 2022 financial year was due to the pre-Phase-III trials of CBD soft-gel capsule which commenced during the 2023 financial year. Expenses from continuing operations, excluding cost of sales, increased 18% to $4,560,750 (31 December 2022: $3,863,332), primarily due to higher research and development costs of $2,117,263 (31 December 2022: $1,593,880). At 31 December 2023, the Consolidated Entity held $5,504,396 in cash and cash equivalents (31 December 2022: $1,468,210). The net assets of the Consolidated Entity increased by $3,952,874 to $6,377,770 as at 31 December 2023 (31 December 2022: $2,424,896). Working capital, being current assets less current liabilities, was $6,160,327 as at 31 December 2023 (31 December 2022: $2,105,685). 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. 0.20 Previous period Cents 0.13 Avecho Biotechnology Limited Appendix 4E Preliminary final report 6. Dividends Current period There were no dividends paid, recommended or declared during the current financial period. 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. Audit details Details of audit: This report and the accompanying Annual report of Avecho Biotechnology Limited for the year ended 31 December 2023 has been audited. 11. Attachments Details of attachments (if any): Annual report of Avecho Biotechnology Limited for the year ended 31 December 2023 is attached. 12. Signed Signed ___________________________ Dr Gregory Collier Chairman Date: 29 February 2024 Avecho Biotechnology Limited ABN 32 056 482 403 Annual Report - 31 December 2023 Avecho Biotechnology Limited Contents 31 December 2023 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 18 19 20 21 22 23 46 47 51 Avecho Biotechnology Limited Corporate directory 31 December 2023 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 registry 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 2023 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 2023. 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) 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 Capital raising to fund Phase III Clinical Trial for CBD Soft-Gel Capsule The Company commenced a capital raise in April 2023 to fund the pivotal Phase III clinical trial designed to test the Company’s proprietary CBD soft-gel capsule for the treatment of insomnia. The raise was undertaken in two parts. On 10 May 2023, Avecho completed the non-renounceable entitlement offer of one (1) fully paid ordinary share for every 1 existing share held by eligible shareholders at an issue price of $0.006 per share, raising an amount of approximately $2 million. The initial contribution from our shareholders allowed the Company to commence the initial Phase III activities with the manufacture of our product. On the 28 August 2023, Avecho announced it had received firm commitments from sophisticated and institutional investors to raise $6 million by way of a placement, which was completed in two separate tranches; ● 536,128,321 fully paid ordinary shares at an issue price of $0.006 per share to raise approximately $3.22 million (before transaction costs), which was completed on 8 September 2023; and ● 471,004,997 fully paid ordinary shares at an issue price of $0.006 per share to raise approximately $2.84 million (before transaction costs), on 22 November 2023. The total capital raised during 2023 for was approximately $8 million (before transaction costs). Phase III Clinical Trial Activities and Timelines At the conclusion of the initial entitlement offer which raised $2 million in May 2023, Avecho commenced manufacturing activities to support its pivotal Phase III Clinical Trial with a US-based Contract Manufacturing Organisation (“CMO”), Procaps Group (NASDAQ: PROC). Procaps spent the remainder of the 2023 financial year conducting the manufacturing work necessary to support the Good manufacturing practice (GMP) manufacture of the capsule to be used in both the pivotal Phase III clinical trial, as well as the formal registration batches used to demonstrate formal stability. The documentation from registration batches is a key component of a future registration submission to the TGA or FDA and proves that the product can be manufactured reproducibly with a pharmaceutically acceptable shelf life. With the placement Avecho was able to commence the remaining activities required to begin the Phase III trial. These included building the electronic database that will capture all the trial information from patients and final preparations at the various sites. The trial will be conducted across 5 sites around Australia; Melbourne, Brisbane, Perth, Western Sydney and Central Coast. 3 Avecho Biotechnology Limited Directors' report 31 December 2023 Patient recruitment and dosing is currently planned for March 2024. The Company anticipates it will reach its interim analysis toward the end of the 2024 financial year, depending on the final rate of patient recruitment for the study. The interim analysis will be a key milestone, allowing the company to review the data set for any observed effect, and repower the study to determine how many remaining patients are required to maximise the chance of a successful outcome. If no difference is seen between treatment groups, Avecho will not continue to dose the remaining patients. Avecho's Phase III study occurs at a pivotal moment, particularly considering Australia's unique regulatory environment that allows OTC registration of pharmaceutical CBD products. This situation presents a significant commercial opportunity, as OTC products can be accessible directly to consumers without prescriptions. With insomnia being a widespread problem and existing treatments having various limitations, Avecho's market entry could fulfill a substantial unmet medical need. Expanding cannabinoid portfolio In June 2023, Avecho announced it has completed the development of first generation TPM gummies containing cannabinoids. Gummies are chewable, jelly-like preparations made from a mixture of glycerin and gelatin and can incorporate a range of medications or nutraceutical ingredients. With the inclusion of edibles, Avecho’s current cannabinoid portfolio now contains four different dosage forms with increased absorption – oral oils, oral soft-gel capsules, oral edibles and topical gels. TPM business development agreements During the 2023 financial year, Avecho announced a series of agreements with third parties for products outside of the core CBD program. These agreements would allow third parties to fund development programs for TPM enhanced products of interest for their own portfolios. New York-based global biopharmaceutical company Athenex submitted Avecho’s TPM®-enhanced phytonadione injectable product to the FDA for feedback via a pre-IND meeting request. Formal FDA feedback stated that the existing toxicology package demonstrating the safety of TPM appeared sufficient to support the use of the TPM in a phytonadione injection – although toxicology reports would need to be examined in more detail to confirm adequacy upon submission of an IND application. Injectable products maker, Sagent Pharmaceuticals, purchased Athenex’s injectable assets in June 2023 after Athenex attempted to spin-out their injectable business, dissolving the partnership with Avecho. Avecho commenced work with NYSE-listed global consumer packaged goods business Perrigo Company plc (NYSE: PRGO), focussing on development of a topical TPM®-enhanced ibuprofen gel for the US market. Perrigo is planning the development of a pain-related indication using the ibuprofen TPM® gel. Avecho is managing the manufacture of the Ibuprofen TPM® product in Australia using a third party GMP contract manufacturer. In May 2023, Avecho secured a licensing and development agreement with Arthur Group to produce a series of optimised cancer drugs solubilised using TPM. This work is being conducted in the Arthur Group’s US facility. With the addition of cannabinoid gummies to the portfolio, Avecho’s CEO dedicated a substantial amount of time towards the end of the 2023 financial year to exploring business opportunities within the North America medicinal and recreational cannabis market. The products that make up these lucrative North American markets are already commodities without commercial differentiation, presenting unique and immediate opportunities for Avecho’s cannabinoid products. The Company will update the market as to future material developments arising from these discussions. Extended patent protection In May 2023, the Company announced that the US Patent and Trade Marks Office (USPTO) has allowed its new patent application directed to an optimized manufacturing process for TPM. The patent protecting the manufacture of TPM has always been the core intellectual property. Now granted, the US patent will provide Avecho with monopoly rights to Avecho’s TPM manufacturing process until at least December 2037. With this new patent, allowed in the largest pharmaceutical market in the world, Avecho ensured our ability to protect our technology and products that contain the technology, well into the future. In addition to the US, the manufacturing patent is granted in India, Japan, Mexico, Russia and Singapore, was also allowed for grant in Europe, Korea and Australia. Further territories are currently examining the manufacturing patent. During the 2023 financial year, new IP covering the combination of TPM and cannabinoids completed the PCT phase and has now entered the National/Regional phase, with specific national applications for patents within individual countries. A new provisional patent was submitted for further cannabinoid compositions augmented by TPM in December 2023. Review of financial results The loss for the Consolidated Entity after providing for income tax amounted to $3,436,561 (31 December 2022: $2,342,391). 4 Avecho Biotechnology Limited Directors' report 31 December 2023 Total revenue decreased by 58% for the 2023 financial year to $473,551 (31 December 2022: $1,129,260), primarily due to a reduction in Vital ET® sales when compared to the 2022 financial year. Other income increased to 60% to $1,167,984 (31 December 2022: $727,823), primarily due to higher R&D tax incentives of $1,075,567 (31 December 2022: $622,923). The overall increase in the research and development activities for the 2023 financial year compared to 2022 financial year was due to the pre-Phase-III trials of CBD soft-gel capsule which commenced during the 2023 financial year. Expenses from continuing operations, excluding cost of sales, increased 18% to $4,560,750 (31 December 2022: $3,863,332), primarily due to higher research and development costs of $2,117,263 (31 December 2022: $1,593,880). At 31 December 2023, the Consolidated Entity held $5,504,396 in cash and cash equivalents (31 December 2022: $1,468,210). The net assets of the Consolidated Entity increased by $3,952,874 to $6,377,770 as at 31 December 2023 (31 December 2022: $2,424,896). Working capital, being current assets less current liabilities, was $6,160,327 as at 31 December 2023 (31 December 2022: $2,105,685). Significant changes in the state of affairs On 10 May 2023 the Company completed a non-renounceable entitlement offer of 1 new fully paid ordinary share (New Share) for every 1 existing share held by eligible shareholders at an issue price of $0.006 per New Share as announced to ASX on 3 April 2023 (Entitlement Offer). Participants in the Entitlement Offer were also entitled to 3 free attaching options, with an exercise price of $0.012 each and expiring 3 years from their issue date (New Options) for every 2 New Shares subscribed under the Entitlement Offer. The Entitlement Offer was closed on 3 May 2023 with applications received for 324,289,814 New Shares, raising an amount of approximately $2 million. On 10 May 2023, the Company completed issuing of 324,289,814 New Shares and 486,434,641 New Options to participating eligible shareholders. On the 28 August 2023, the Company announced it had received firm commitments from sophisticated and institutional investors to raise $6 million by way of a placement ("Placement"). The Placement will be conducted on the same terms as the Company’s Entitlement Offer announced to ASX on 3 April 2023. The $6 million Placement was completed in two separate tranches; ● ● 536,128,321 fully paid ordinary shares at an issue price of $0.006 per share to raise approximately $3.22 million (before transaction costs), which was completed on 8 September 2023; and 471,004,997 fully paid ordinary shares at an issue price of $0.006 per share to raise approximately $2.84 million (before transaction costs), on 22 November 2023. On the same day, the Company also issued 1,510,699,959 free attaching options, exercisable at $0.012 each, expiring on 10 May 2026. In addition, the Company issued 150,000,000 Broker Options, exercisable at $0.012 each and expiring on 10 May 2026, to the Joint Lead Managers as compensation for the capital raising services. 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 No matter or circumstance has arisen since 31 December 2023 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 Development Program Avecho was actively engaged in a range of business development activities throughout the 2023 financial year, both for its differentiated cannabinoid products and legacy pharmaceutical portfolio. These are summarised in the Review of operations section. The Company looks forward to concluding further deals on various products during the 2024 financial year. Risks and uncertainties The Consolidated Entity is subject to risks that are specific to the Consolidated Entity and the Consolidated Entity’s business activities, as well as general risks. 5 Avecho Biotechnology Limited Directors' report 31 December 2023 Future funding risks The Consolidated Entity had cash and cash equivalents of $5.5 million, and net assets of $6.4 million as at 31 December 2023. The Consolidated Entity requires additional financing in the future to sufficiently fund the continued research, development and operations and its other longer-term objectives. The Consolidated Entity's ability to raise additional funds will be subject to, among other things, factors beyond the control of the Consolidated Entity and its Directors, including cyclical factors affecting the economy and share markets generally. If for any reason the Consolidated Entity was unable to raise future funds, its ability to achieve its milestones or continue future development / commercialisation of its technology / product would be significantly affected. The Directors regularly review the cash flow requirements to ensure that the Consolidated Entity has sufficient cash inflows to settle its creditors and other liabilities. In addition, the Consolidated Entity is eligible for certain government grants and R&D tax incentive. Research and development risk The Consolidated Entity's product range includes products that are in clinical development phase and need to be further tested before they can progress to human clinical trials. Pre-clinical and clinical development of the Consolidated Entity's products could take several years to complete and might fail for several reasons including but not limited to lack of efficacy, failure to obtain regulatory approval, difficulty or failure to manufacture the Consolidated Entity’s products on a large scale, or toxicity. The Consolidated Entity monitors product developments and engages proactively with key stakeholders to manage this risk. Regulatory and licensing risks The research, development, manufacture and sale of products is subject to a number of regulations prescribed by government authorities in Australia and overseas. Generally, there is a high rate of failure for drug candidates proceeding through preclinical and clinical trials. Further, even if the Consolidated Entity views the results of a trial to be positive, the FDA or other regulatory authorities may disagree with the Consolidated Entity’s interpretation of the data. Thus, any product deploying Avecho’ technology may be shown to be unsafe, non-efficacious, difficult or impossible to manufacture on a large scale, uneconomical to market, compete with superior products marketed by third parties, fail to secure meaningful reimbursement approval, or not be as attractive as alternative treatments. The Consolidated Entity monitors legislative and regulatory developments and engages proactively with key stakeholders to manage this risk. Dependence on service providers and third-party collaborators There is no guarantee that the Consolidated Entity will be able to find suitable third-party providers and third-partly collaborators including academic institutions to complete the development and commercialisation of its products. The Consolidated Entity therefore is exposed to the risk that any of these parties can experience problems related to operations, financial strength or other issues, and collaborative agreements may be terminable by the Consolidated Entity’s partners. Non-performance, suspension or termination of relevant agreements could negatively impact the progress or success of the Consolidated Entity’s product development efforts, financial condition and results of operations. The Consolidated Entity monitors commercial developments and engages proactively with key stakeholders to manage this risk. Reliance on key personnel The Consolidated Entity’s success depends to a significant extent upon its key management personnel, as well as other management and technical personnel including those employed on a contractual basis. The loss of the services of such personnel or the reduced ability to recruit additional personnel could have an adverse effect on the performance of the Consolidated Entity. The Consolidated Entity maintains a mixture of permanent staff and expert consultants to advance its programs and ensure access to multiple skill sets. The Consolidated Entity reviews remunerations and staffing requirements regularly. 6 Avecho Biotechnology Limited Directors' report 31 December 2023 Intellectual property risk The Consolidated Entity’s ability to leverage its innovation and expertise is dependent on its ability to protect its intellectual property including maintaining patent protection for its product candidates and their respective targets and any improvements to it. A failure or inability to protect the Consolidated Entity’s intellectual property rights could have an adverse impact on operating and financial performance. The Consolidated Entity may incur significant costs in maintaining or defending its intellectual property rights. The Consolidated Entity proactively monitors applications and renewals of patents and licences; and requires relevant stakeholders to comply with the requirements set out in the confidentiality policy. IT system failure and cyber security risks Any information technology system is potentially vulnerable to interruption and/or damage from a number of sources, including but not limited to computer viruses, cyber security attacks and other security breaches, power, systems, internet and data network failures, and natural disasters. The Consolidated Entity is committed to preventing and reducing cyber security risks through outsourcing the IT management to a reputable services provider. In addition, the Consolidated Entity has an insurance policy covering IT and cyber security matters. 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 25 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. Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: 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. None None 9,833,333 ordinary shares 5,990,465 unlisted options 11,749,999 quoted options 7 Avecho Biotechnology Limited Directors' report 31 December 2023 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. Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Name: Title: Qualifications: Experience and expertise: 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. None None 3,333,333 ordinary shares 3,993,644 unlisted options 2,499,999 quoted options Matthew McNamara Non-Executive Director BSc (Hons), MBA Mr Matthew McNamara has over 30 years’ executive and funds management experience in the healthcare and medical sciences sector. He has a BSc (Hons) in Molecular Biology, has an MBA, and is a GAICD. In 2003, he founded BioBridge Australia, a biotechnology commercialisation advisory company and advised a number of public biotechnology / investment companies. Mr McNamara is currently Director and Chief Investment Officer of Horizon 3 Healthcare, a healthcare fund manager that has invested in Avecho Biotechnology Limited through trustee Melbourne Securities Corporation Limited. He is presently a director of Microbio Pty Ltd, ESN Cleer Pty Ltd and Cardiac Dimensions Pty Ltd. He has held previous directorship in Adherium Ltd (ASX: ADR), Avita Medical Ltd (ASX: AVH), Bioxyne Ltd (ASX: BXN) and Saluda Medical Pty Ltd. Other current directorships: Former directorships (last 3 years): Interests in shares: Interests in options: Mr McNamara has also served as CIO of BioScience Manager Pty Ltd, and was CEO of SciCapital Pty Ltd, a Life Sciences Venture Capital fund. None Adherium Ltd (ASX: ADR) 1,666,666 ordinary shares 3,993,644 unlisted options 2,499,999 quoted options '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. 8 Avecho Biotechnology Limited Directors' report 31 December 2023 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 which was acquired by Vistra in November 2021. Ms Leydin is now Vistra Australia's Managing Director and Regional Managing Director. Vistra is a prominent provider of governance and compliance solutions and finance and accounting solutions in the Fund, Corporate, Capital Markets, and Private Wealth sectors. Ms Leydin has over 30 years’ experience in the accounting profession and over 20 years’ experience holding Board positions including Company Secretary and CFO 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, reo