Announcement PDF Avecho Biotechnology Limited ABN 32 056 482 403 Annual Report - 31 December 2024 Avecho Biotechnology Limited Contents 31 December 2024 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 Consolidated entity disclosure statement Directors' declaration Independent auditor's report to the members of Avecho Biotechnology Limited Shareholder information 1 2 3 17 18 19 20 21 22 44 45 46 50 Avecho Biotechnology Limited Corporate directory 31 December 2024 Directors Dr Gregory Collier (Chairman) Dr Ross Murdoch (Non-Executive Director) Mr Matthew McNamara (Non-Executive Director) Ms Katherine Connell (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 2024 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 2024. 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) Ms Katherine Connell (Non-Executive Director, appointed on 26 April 2024) 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. Avecho’s lead asset is a proprietary cannabidiol (“CBD”) TPM soft-gel capsule demonstrated to increase CBD absorption. The CBD capsule is currently undergoing Phase III clinical development for the treatment of insomnia. Dividends There were no dividends paid, recommended or declared during the current or previous financial year. Review of operations Phase III Clinical Trial Activities During the year, the Company achieved a major milestone, commencing dosing on its pivotal Phase III Clinical Trial (“the Trial”) for its proprietary TPM®-enhanced CBD capsule targeting insomnia. In February 2024, Avecho met with the Australian Therapeutic Goods Administration (TGA) to confirm the final Phase III clinical trial design and submission strategy. During 2020, the TGA announced it would allow cannabidiol products to be sold over the counter in Australia subject to appropriate regulatory approvals, incentivising pharmaceutical development and a shift away from unregistered cannabinoid products. To date, no Phase III cannabidiol trials in Australia have succeeded: Avecho is aiming to be the first company to gain such approval with its oral CBD capsule for the treatment of insomnia. Avecho’s study has been designed to be relevant to the requirements of the TGA, the FDA and the EMA using the help of international sleep and regulatory experts. In refining the final trial design, Avecho also reviewed the protocols and report ed results of the unsuccessful Phase III trials, to ensure its study incorporated the learnings to maximise its strengths. A review of the key differentiating features of Avecho’s study was presented to the TGA for comment during the meeting. The TGA did not recommend any changes to Avecho’s trial design and submission strategy, and the program commenced as planned. In March 2024, the Company commenced patient recruitment for its Phase III trial, seeking eligible participants who are 18 years or older; who have had difficulty getting to sleep, staying asleep and/or waking up earlier in the morning than desired, for at least the past three months (or are diagnosed with insomnia); and/or have a regular time period spent in bed, either sleeping or trying to sleep. The first patient was successfully dosed with study medication in May 2024. The ongoing Trial recruited patients across sites located in Melbourne, Sydney, Central Coast NSW, Brisbane, and Perth during 2024. The treatment groups will compare nightly cannabidiol doses of 75mg and 150mg cannabidiol against a placebo over an 8-week dosing period for their ability to improve insomnia. As of December 2024, approximately 70 participants had received study medication on the Phase III trial. Patient enrolment in 2024 was steady but slower than anticipated, due to the stringent inclusion and exclusion criteria used to define patient eligibility, as well as the careful design aimed at optimizing the trial's chances of success. 3 Avecho Biotechnology Limited Directors' report 31 December 2024 Insights from the 2024 recruitment phase revealed several opportunities to refine our approach for accelerating enrolment in 2025. Key improvements include adjustments to the inclusion/exclusion criteria and the addition of new of recruitment sites. In December 2024, Avecho submitted an amendment to the human research ethics committee to revise the inclusion/exclusion criteria. The revisions were approved and were implemented starting January 2025, broadening eligibility to include a number of previously ineligible participants who had expressed interest in the study. These individuals have been contacted to confirm their continued interest in participating. The amendment also approved two additional trial sites, one on the Gold Coast and one in Sydney, which are expected to begin operations in 2025. Additional sites may be added later in the year to further support recruitment efforts. Business Development Activities In 2024, the Company focused on advancing strategic business development efforts, with an emphasis on securing the ideal commercial partner for its Phase III CBD asset and finalizing a licensing agreement for the commercial rights to the Australian market. Avecho CEO, Dr Paul Gavin, attended pharmaceutical partnering summits in the US, Singapore and Switzerland, and was an invited speaker at the 7th Annual CB1, CB2 & Cannabinoid Drug Development Summit in Boston to present the Company’s research on mechanisms used to increase cannabinoid absorption from a range of dosage forms. The Summit was a unique opportunity to present to key stakeholders interested in the potential of pharmaceutical cannabinoids in various territories, and was especially timely given Avecho’s CBD product is in a pivotal Phase III trial heading towards an interim read-out. This business development effort culminated in a landmark licensing and development agreement with Sandoz AG ("Sandoz"), as announced in March 2025. Sandoz is a global leader in generic pharmaceutical and biosimilar medicines that provides over 800 million patient treatments annually around the world. Under the terms of the agreement, Sandoz will pay Avecho a US$3 million (~A$4.8 million) upfront payment for the exclusive rights to commercialize the CBD capsule for insomnia in Australia, with a first right of refusal for additional international territories. Avecho is also eligible for up to $US16M in development milestones prior to commercialization, along with tiered royalties ranging from 14-19% on net sales. Avecho will oversee the manufacturing and supply of the CBD capsule through third-party CMOs and will supply the finished product to Sandoz for commercialization. Manufacturing for VITAL-ET Avecho continued to support its U.S, partner, Ashland LLC, in the production and supply of Vital-ET® for the global personal care market. The Company manufactured a total of 11 tonnes of Vital-ET during 2024. Ashland purchased the manufacturing rights to Vital-ET from Avecho in 2019. Avecho has continued to manufacture Vital-ET on Ashland’s behalf, producing 38.7 T that has generated ~A$3.5M in revenue since selling the rights. A subsequent manufacturing campaign of 5.4 tonnes was completed in January 2025, with additional orders planned throughout the year. Corporate Activities On 26 April 2024, Katherine Connell was appointed as a Non-Executive Director of the Company. Katherine is an internationally recognised healthcare and lifesciences leader with extensive investment and licensing expertise, with a solid track record of value creating deals across pharmaceuticals, medtech, vaccines consumer and digital healthcare for some of the world's largest companies. In addition, in June 2024, the Company received R&D Grants of $1,066,298 for the year ended 31 December 2023 under the Australian Government’s R&D Tax Incentive Scheme. The Company has engaged Endpoints Capital to provide advances on future R&D tax refunds, so that these funds might be accessed to reinvest in the Phase III program. Review of financial results The loss for the Consolidated Entity after providing for income tax amounted to $3,122,048 (31 December 2023: $3,436,561). Total revenue decreased by 139% for the 2024 financial year to $1,132,672 (31 December 2023: $473,551), primarily due to increase in Vital ET® sales when compared to the 2023 financial year. Other income increased to 62% to $1,893,782 (31 December 2023: $1,167,984), primarily due to higher R&D tax incentives of $1,635,464 (31 December 2023: $1,075,567). The overall increase in the research and development activities for the 2024 financial year compared to 2023 financial year was due to the Phase III Clinical Trial evaluating the efficacy of its oral cannabidiol capsule for the treatment of insomnia, which commenced during the 2024 financial year. 4 Avecho Biotechnology Limited Directors' report 31 December 2024 Expenses from continuing operations, excluding cost of sales, increased 25% to $5,687,756 (31 December 2023: $4,560,750), primarily due to higher research and development costs of $3,591,156 (31 December 2023: $2,117,263). At 31 December 2024, the Consolidated Entity held $2,374,534 in cash and cash equivalents (31 December 2023: $5,504,396). The net assets of the Consolidated Entity increased by $3,108,032 to $3,269,738 as at 31 December 2024 (31 December 2023: $6,377,770). Working capital, being current assets less current liabilities, was $3,099,882 as at 31 December 2024 (31 December 2023: $6,160,327). The net operating cash outflow for the year was $3,968,718 (31 December 2023: outflow $3,179,955), resulting from the operations of the Consolidated Entity. Significant changes in the state of affairs In March 2024, the Company entered into a R&D Advance Facility agreement with Endpoints Capital, to advance on the Company’s 2024 R&D tax incentive. Repayment of the amounts advanced from Endpoints Capital coincide with receipt of R&D tax incentives and incur interest at 15.8% per annum. On 26 April 2024, Ms Katherine Connell was appointed as Non-Executive Director, and the Company has offered 3,993,644 sign-on options (“Options”), which vest in four equal tranches as part of remuneration. On 20 May 2024, 83,866,515 Options over ordinary shares expired as the conditions attached with these securities were not, or became incapable of being, satisfied. On 29 November 2024, 13,977,753 Options over ordinary shares expired as the conditions attached with these securities were not, or became incapable of being, satisfied. Matters subsequent to the end of the financial year On 3 March 2025, the Company announced that it has signed a licensing and development agreement with Sandoz AG. Sandoz is a global leader in generic pharmaceutical and biosimilar medicines that provides over 800 million patient treatments annually around the world. Under the terms of the agreement, Sandoz will pay Avecho a US$3 million (~A$4.8 million) upfront payment for the exclusive rights to commercialize the CBD capsule for insomnia in Australia, with a first right of refusal for additional international territories. Avecho is also eligible for up to $US16M in development milestones prior to commercialization, along with tiered royalties ranging from 14-19% on net sales. Avecho will oversee the manufacturing and supply of the CBD capsule through third-party CMOs and will supply the finished product to Sandoz for commercialization. No other matter or circumstance has arisen since 31 December 2024 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. 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. Future funding risks The Consolidated Entity had cash and cash equivalents of $2.4 million, and net assets of $3.3 million as at 31 December 2024. 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 and ability to raise additional funding to ensure the Consolidated Entity’s ability to generate sufficient cash inflows to settle its creditors and other liabilities. 5 Avecho Biotechnology Limited Directors' report 31 December 2024 Research and development risk The Consolidated Entity's product range includes products that are in pre-clinical and clinical development phases and need to be further tested before they can be commercialised. 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, 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 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 service providers or 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. 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. 6 Avecho Biotechnology Limited Directors' report 31 December 2024 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: Name: Title: Qualifications: Experience and expertise: 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 11,749,999 quoted options 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 over 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: 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 2,499,999 quoted options 7 Avecho Biotechnology Limited Directors' report 31 December 2024 Name: Title: Qualifications: Experience and expertise: 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. Mr McNamara 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: Name: Title: Experience and expertise: 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 2,499,999 quoted options Katherine Connell Non-Executive Director Ms. Connell is a commercial executive with deep business development expertise across pharmaceutical, vaccine, medtech, consumer and digital health industries. Ms. Connell is currently Senior Client Partner and Head of Healthcare and Life Sciences Australia/New Zealand at Korn Ferry. For the past 20 years, Ms Connell has held senior executive leadership positions in biotechnology, pharmaceutical, medical device and consumer health sectors specialising in business development, licensing, acquisitions and venture investment, including 12 years at Johnson & Johnson as Senior Director, New Ventures ANZ. Opthea Limited (ASX / NASDAQ: OPT) None None Unlisted options 3,993,644 '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 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, reorganisation of Companies, initial public offerings, secondary raisings and shareholder relations. 8 Avecho Biotechnology Limited Directors' report 31 December 2024 Meetings of directors The number of meetings of the Company's Board of Directors ('the Board') held during the year ended 31 December 2024, and the number of meetings attended by each director were: Full Board Held Attended Gregory Collier Ross Murdoch Matthew McNamara Katherine Connell 7 7 7 5 7 7 7 5 Held: represents the number of meetings held during the time the director held office. The full Board assumes the responsibility of the Remuneration & Nomination Committee and Audit & Risk Committee. 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 Consolidated Entity's performance ● Additional disclosures relating to key management personnel 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. 9 Avecho Biotechnology Limited Directors' report 31 December 2024 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 COO are eligible to receive up to 20% of their fixed base salary as a bonus. Executive bonus is set to be pai