Anatara Lifesciences Limited
Annual Report 2016

Plain-text annual report

Annual Report 2016 2 Contents 2016: A Year in Numbers Chairman and CEO’s Report Operations Review - Detach™ - Partnering and Commercialisation - Key Elements of the APVMA Submission - Human Applications - Anatara’s Commercialisation Strategy: From Pigs to People Directors’ Report Auditors’ Independence Declaration 4 6 10 14 33 ANATARA LIFESCIENCES Annual Report 2016 3 4 A Year in Numbers CLINICAL TRIALS PR PARTNERING/LICENSING OPPORTUNITIES R&D 41.4% 44.5% Weaner Trial (SE QLD) reduction in scour incidence reduction in scour severity 501 Anatara media mentions 12 – number of major animal in licensing discussions health companies we engaged $430,000 R&D tax refund HUMAN RESOURCES INDUSTRY DATA1 27 25 22 Major US restaurants Major US food producers Major US supermarkets offering “responsibly raised meat and poultry” 6 new staff/ contractors 100% increase in Anatara team members MANUFACTURING 3 batches of Detach™ manufactured 10,344 bottles 139.65kg 1,034,444 sucker doses IP 2 $4.8 billion annual revenue (2015) 10,000 staff including 3600+ field force 5 product categories SOCIAL MEDIA @AnataraANR Tweets 61 2678 Twitter profile visits patents filed 1 Provisional & 1 PCT species8 animal 1. source: http://www.pewtrusts.org/en/multimedia/data-visualizations/2016/major-food-companies-committed-to-reducing-antibiotic-use Executed “Option to License” agreement with #1 global animal health company 60+ years of experience in animal health 120+ countries in which Zoetis products are sold 42 Pork CRC participants (key pork industry partners) - Anatara has executed a commercial collaboration agreement with the Pork CRC ANATARA LIFESCIENCES Annual Report 2016A Year in Numbers 41.4% 44.5% Weaner Trial (SE QLD) reduction in scour incidence reduction in scour severity 501 Anatara media mentions HUMAN RESOURCES INDUSTRY DATA1 27 25 22 Major US restaurants Major US food producers Major US supermarkets offering “responsibly raised meat and poultry” 6 new staff/ contractors 100% increase in Anatara team members MANUFACTURING 5 CLINICAL TRIALS PR PARTNERING/LICENSING OPPORTUNITIES R&D 12 – number of major animal health companies we engaged in licensing discussions $430,000 R&D tax refund Executed “Option to License” agreement with #1 global animal health company 60+ years of experience in animal health 120+ countries in which Zoetis products are sold 42 Pork CRC participants (key pork industry partners) - Anatara has executed a commercial collaboration agreement with the Pork CRC 3 batches of Detach™ manufactured 10,344 bottles 139.65kg 1,034,444 sucker doses IP 2 $4.8 billion annual revenue (2015) patents filed 1 Provisional & 1 PCT species8 animal 10,000 staff including 3600+ field force 5 product categories SOCIAL MEDIA @AnataraANR Tweets 61 2678 Twitter profile visits 1. source: http://www.pewtrusts.org/en/multimedia/data-visualizations/2016/major-food-companies-committed-to-reducing-antibiotic-use 6 Chairman and CEO’s Report Dear Shareholders, It is my pleasure to present Anatara’s 2016 annual report, following a year of significant progress for your company. In a world where consumers are increasingly demanding antibiotic free meat, the need for products like Detach™ – our natural treatment for gastrointestinal diseases in production animals - continues to build. At the time of writing, world leaders had just committed to working at national, regional and global levels to address the growing threat of antimicrobial resistance (AMR). This commitment came via the 71st meeting of the United Nations (UN) General Assembly. It was only the fourth time the UN had held a meeting to address a health issue, a fact that coherence at the international, regional, and national levels” and one which is gravely challenging many 20th century achievements. In line with this thinking, during the year, international governments introduced tighter legislation around the use of antibiotics in livestock farming, actively promoting the judicious use of therapeutic antimicrobials. A global ‘One Health’ collaborative effort from human and veterinary medicine, has created a funding and policy environment which is encouraging the development of new medicines, including antibiotic alternatives. These things combined see Detach™ positioned strongly to have an impact on the global animal health market and ultimately, on the health of humans. At a time when scientists have confirmed the discovery of a new mechanism of resistance in bacteria to the “last ditch” human antibiotic, colistin, there has never been a greater imperative for antibiotic alternatives. underscores how seriously world leaders are viewing drug resistance from overuse of antibiotics. Detach™ moves closer to market Before the meeting, delegates agreed to a draft political declaration in which they undertook to develop and implement national action plans to address the growing issue of drug resistance. The declaration stated “…that resistance of bacterial, viral, parasitic, and fungal microorganisms to antimicrobial medicines that were previously effective for treatment of infections, is mainly due to inappropriate use of antimicrobial medicines in human, animal, food, agriculture and aquaculture sectors; lack of access to health services, including to diagnostics and laboratory capacity; as well as residues of antimicrobials into soil, crops and water.” It stated that resistance to antibiotics was “…the greatest and most urgent global risk that requires increased attention and Our naturally derived, lead product, Detach™ continues to advance rapidly towards regulatory approval and product launch in Australia. In order to return Detach™ to market, Anatara must submit an application (or dossier) to the Australian Pesticides and Veterinary Medicines Authority (APVMA). While much has been achieved during the year, the dossier has been our primary point of focus and one which has required considerable effort from the whole Anatara team. I am delighted that we are well positioned to submit the dossier shortly. The APVMA dossier is the culmination of a significant amount of work by the Anatara team and encompasses data and ANATARA LIFESCIENCES Annual Report 20167 reports across the following areas: Occupational Health and Safety; Environmental Risk Assessments; Metabolism and kinetics; Chemistry and Manufacture; Toxicology assessment; Residues and metabolism and Efficacy and safety. The submission of our application to the APVMA for regulatory approval will be a significant milestone in the Detach™ development program and brings the Company closer to market launch in Australia. Under the guidance of Dr Tracey Mynott, our Chief Scientific Officer and Company co-founder, Anatara has now completed several successful trials on Australian commercial pig farms, with a further Detach™ trial successfully completed in weaner piglets in September 2015. Through trials, Detach™ continues to show an almost 50% reduction in mortality among young pigs whilst increasing the average weight of each piglet at time of weaning. These improvements have the ability to make a significant impact on animal health and reduce the use of antibiotics. At the time of writing, the pivotal Target Animal Safety (TAS) study for Detach™ had just been completed. It demonstrated that Detach™ was safe for pigs, even when administered at much higher doses than recommended. Data from this study reinforces Anatara’s pre-existing large safety database, where through previous field trials, the Company had proven the safe nature of the product. The TAS study was conducted to the highest international standard of major commercial territories and may reduce the need for separate TAS studies in each global jurisdiction where registration is needed. Long term, this strategy presents the most efficient and cost effective way to prepare for the global roll out of Detach™. The appointment in June 2016 of Dr Mike West as Chief Operating Officer, has been of enormous benefit in readying our Sydney-based pharmaceutical manufacturer, Sphere Healthcare, for commercial supply. With Mike’s input, Sphere now has the ability to manufacture commercial scale batches of Detach™ reproducibly, and to produce the necessary documentation for the APVMA registration. We expect to submit our dossier for Australian registration to the APVMA well before the end of 2016. Zoetis licensing option Anatara was pleased to kick off the 2016 calendar year with the significant announcement that the Company had entered into an exclusive agreement with leading global animal health company, Zoetis Inc. Under the agreement, Zoetis would have the exclusive right to evaluate the potential applications of Detach™ for veterinary use in food production animals in all countries aside from Australia and New Zealand. As the world’s largest international animal health company, Zoetis has access to substantial research resources and facilities. Zoetis has already begun an aggressive evaluation program of Detach™. Discussions have been held with the Zoetis researchers at their facilities in the USA and they have already received material with which to begin their evaluation. In return we have already received an upfront payment, but importantly have retained the intellectual property protecting our technology. In this context, it should be noted that we have applied for two new patents covering both the formulation and active ingredient. Your Company independently will continue to conduct our own proof of principle studies in other livestock species and other delivery methods. The financial terms of the Zoetis agreement are confidential, however included both an upfront and subsequent cash milestone payments during the Option period, providing early validation of Anatara’s strategy to use Detach™ in animals as a revenue generating pre-clinical model for our human program. 8 Commercial focus In closing Anatara’s initial focus remains on the pork industry globally, however with the pending Australian APVMA submission, the team is increasingly focussing on other livestock applications and pursuing lucrative human applications for our technology. In June 2016, we announced a research and development collaboration with The La Trobe Institute for Molecular Science at La Trobe University (Melbourne) to explore the potential of the active components within Detach™ for the treatment of inflammatory diseases in humans and companion animals. While this collaboration is in its infancy, we are excited about working with La Trobe to explore our human program in earnest. The geographical concern around the overuse of antibiotics in both livestock and humans continues to escalate. Taco Bell, In-N-Out Burger, Subway, Perdue Farms and Cargill have joined the ever growing list of major US food companies looking to provide antibiotic free meat. Furthermore, the U.S. Food and Drug Administration (FDA) in May 2016 finalised its antimicrobial sales rule requiring that drug companies report species-specific sales data for all antimicrobials intended for food-producing animals. It is anticipated that this data will assist to ensure the judicious use of medically important antimicrobials in the animal health industry. resistance to antibiotics was “…the greatest and most urgent global risk that requires increased attention and coherence at the international, regional, and national levels” and one which is gravely challenging many 20th century achievements. Investor relations During the year, the Company continued an active market awareness program with presentations being delivered to the Brisbane Investors group, CommSec’s “Executive Series”, the Gold Coast Investment Showcase, ASX’s “The CEO Sessions” and the Financial News Network, as well as participation in the 12th Bioshares Biotech Summit. In addition, Anatara has presented to a combination of new and existing institutional investors. On behalf of my fellow directors, I thank all our shareholders for their support throughout the year. We look forward to seeing those shareholders who can make it to the Anatara AGM at 11am on Tuesday, 15th November 2016 at the offices of McCullough Robertson, Level 11, 66 Eagle Street, Brisbane. At a time when scientists have confirmed the discovery of a new mechanism of resistance in bacteria to the “last ditch” human antibiotic, colistin, there has never been a greater imperative for antibiotic alternatives. Finding this startling new superbug, in meat, animals and humans, now confirmed in more than twenty countries, completes the link between agricultural use of antibiotics and antibiotic resistance in animals and humans. Anatara’s naturally derived substances offer a safe but effective alternative to antibiotics for gastrointestinal diseases and the Company is uniquely positioned to fulfil a currently unmet need in the huge, global animal health market. The increasingly supportive macro-environment and progress at a company level combine to make this an exciting time to be a shareholder in Anatara. ANATARA LIFESCIENCES Annual Report 20169 Finally, the small Anatara team has accomplished much throughout the year. My thanks to the team for their ongoing dedication and commitment to bringing Detach™ through to commercialisation. Thanks also to my fellow Directors for the discipline applied to guiding the Company during the year. I look forward to keeping shareholders updated as we move our important products to market. Yours sincerely, Dr Mel Bridges Chairman and CEO 10 Operations Review Detach™ Significant progress was made during the year transitioning Anatara’s lead product, Detach™, towards commercialisation in livestock, initially with pigs and importantly this year with human applications for the technology. On 16 September 2015, the Company reported it had completed a second field trial with Detach™ in nearly 500 piglets. The study saw Detach™ reduce the incidence and frequency of diarrhoea in weaner piglets - resulting in significant health benefits to the piglets. Specifically, under the trial, Detach™ reduced the number of pigs with scour by 41% and reduced the severity of scour by 45%. The data was consistent with earlier registration trials on commercial pig farms, and further supported Anatara’s plans to re-register and launch Detach™ in Australia. Results from the second field trial led to formalising a collaboration with the Pork Collaborative Research Council (CRC). Pork CRC Chief Executive, Dr Roger Campbell remarked at the time: “the latest results confirm our decision to work with Anatara to pursue Detach as an alternative to antibiotics for control of diarrhoea in young pigs.” “The results are typical of what we see with post-weaning scour. It can be severe or mild but it always has been and always will be present in the industry. Given the increasing global pressure to reduce antibiotic use and resistance in animal agriculture Anatara’s technology would seem to have a role in helping achieve these objectives. We are encouraged by the latest results.” At the time of writing, results of a Target Animal Safety Study (TAS) study had just been reported. The purpose of the study was to provide detailed safety data on Detach™ when administered orally to piglets at dose rates higher than the recommended single dose. It demonstrated that Detach™ was safe for pigs, even when administered at much higher doses than recommended. The study was conducted in accordance with VICH, a trilateral (EU-Japan-USA) program aimed at harmonising the technical requirements for veterinary product registration. It will support the global roll out of Detach™ and forms an important component of the Company’s submission to re-register Detach™ for sale in Australia with the Australian Pesticides and Veterinary Medicines Authority (APVMA). Partnering and Commercialisation The collaboration with the Pork CRC will provide Anatara with services to locate key clinical trial sites and ongoing test sites and promote the results of these trials; with the relationship opening the door for Anatara to work closely with key players in the Australian pork industry. Active partners and participants in the CRC include the largest Australian pork producers, feed manufacturers, key government and farmer industry bodies, including the CSIRO. On 18 January 2016, Anatara announced an Exclusive Research Evaluation and License Option Agreement with the leading animal health company, Zoetis Inc. Anatara granted Zoetis an option to license Detach™ for worldwide development and commercialisation, with the exception of Australia and New Zealand. Under the terms of the agreement, Zoetis will have exclusive rights to evaluate the potential applications of Detach™ for veterinary use in food production animals. Anatara retains all intellectual property rights. The financial terms of the Zoetis agreement are confidential, however they did include an upfront and subsequent cash payments during the Option period. On 1 April 2016, Anatara announced it had shipped an evaluation batch of Detach™ to Zoetis, triggering the start of the evaluation period. ANATARA LIFESCIENCES Annual Report 201611 Key Elements of the Australian Regulatory APVMA Submission While there have been many highlights in the 2016 financial year, Anatara’s submission to register the new formulation of Detach™ with the APVMA has been of core significance. All members of Anatara’s small team contributed to the compilation of the APVMA dossier. The registration is pivotal to seeing Detach™ return to the Australian market, which we expect will occur in 2017. Environmental Risk Assessments Metabolism and kinetics Chemistry and Manufacture Occupational Health and Safety Toxicology assessment Residues and metabolism Efficacy and safety 12 Human Applications Livestock producers have traditionally relied upon antibiotics to treat scour (diarrhoea), a leading cause of death in piglets. Scour costs the Australian pig industry more than $7 million each year, but it has a greater implication for the cost to human health. The high use of antibiotics in meat production has led to the rise of multi-drug resistant bacteria, known as superbugs, and these superbugs affect humans. Data from the US Centers for Disease Control and Prevention and the World Health Organisation indicate that tens of thousands of people die every year due to the antibiotic resistant superbugs, with many millions falling ill with resistant infections introduced through the food chain. Furthermore, with 4 billion episodes of human diarrhoea in the world annually and no one product available that prevents all causes of gastro-intestinal disease, the need for better human therapeutics is clear. On 16 June 2016, it was announced that Anatara had entered into a research and development collaboration with The La Trobe Institute for Molecular Science at La Trobe University (Melbourne) to explore the potential for active components within Detach™ for the treatment of inflammatory diseases in humans and companion animals. The agreement is for the production, validation and pre-clinical evaluation of a specific active components isolated from the active ingredient in Detach™. Anatara’s commercialisation strategy From Pigs to People $$ Pigs = pre-clinical for humans & clinical for animals Clinical Trials Human Regulatory Market end user Discovery Bromelain X Detach™ - From Pigs to People • Same mechanism of action for treatment of disease in pigs and humans • Pre-clinical program for animals complete therefore development for humans de-risked • Revenue already secured • Clinic ready (CMC, Toxicology, Pharmacology well developed) • Ready to Partner/Develop Animal Regulatory $ To Market Organisms that cause disease in pigs are very similar to those that cause disease in humans, which opens plenty of doors for us. It means our work with pigs forms our pre-clinical trials for human medicine. From a business perspective it’s quite clever because it means our animal testing model is revenue generating – that’s very different to a drug development program where rats and mice are used for testing.” Dr Tracey Mynott, Anatara CSO ANATARA LIFESCIENCES Annual Report 201613 Speaking about the collaboration, Professor Rob Pike of La Trobe University said, Pike. “We hope it will open up new avenues for the treatment of diarrhoea in humans.” “There are three important molecules in the extract, and two are critical to the treatment of scour. “Using recombinant DNA technology, we are working to develop methods for testing the components, to isolate and produce the two beneficial proteins, and to learn more about how these molecules interact with gut cells to prevent inflammation and diarrhoea. “This research is a wonderful opportunity to treat scour in a way that doesn’t cause antibiotic resistance,” said Professor that addressing antimicrobial Experts agree resistance requires measures that will ensure the judicious use of existing pharmaceutical treatments in combination with a robust pipeline of new drugs. Anatara’s naturally derived active components will provide a safe, novel approach to the treatment of diarrhoea and other gastrointestinal diseases in humans, without contributing to antimicrobial resistance. $$ Pigs = pre-clinical for humans & clinical for animals Clinical Trials Human Regulatory Market end user Anatara’s commercialisation strategy From Pigs to People Discovery Bromelain X • Same mechanism of action for treatment of disease in pigs and humans • Pre-clinical program for animals complete therefore development Detach™ - From Pigs to People for humans de-risked • Revenue already secured • Ready to Partner/Develop • Clinic ready (CMC, Toxicology, Pharmacology well developed) Animal Regulatory $ To Market Organisms that cause disease in pigs are very similar to those that cause disease in humans, which opens plenty of doors for us. It means our work with pigs forms our pre-clinical trials for human medicine. From a business perspective it’s quite clever because it means our animal testing model is revenue generating – that’s very different to a drug development program where rats and mice are used for testing.” Dr Tracey Mynott, Anatara CSO 14 Directors’ Report 30 June 2016 Your directors present their report on the consolidated entity consisting of Anatara Lifesciences Ltd and the entities it controlled at the end of, or during, the year ended 30 June 2016. Throughout the report, the consolidated entity is referred to as the Group. Directors and company secretary The following persons held office as directors of Anatara Lifesciences Ltd during the financial year: Dr Mel Bridges, Non-Executive Chairman Mr Iain Ross, Non-Executive Director Dr Jay Hetzel, Non-Executive Director Dr Tracie Ramsdale, Non-Executive Director Mr Paul Grujic, Non-Executive Director Dr Paul Schober, Chief Executive Officer and Managing Director On 27 June 2016 the Company announced that Dr Paul Schober plans to move to retirement over the next three months and Dr Mel Bridges will transition into a combined CEO/ Chairman role. And the following person held office as company secretary of Anatara Lifesciences during the financial year: Mr Stephen Denaro, Company Secretary Principal activities The Company is an Australian listed entity that focuses on developing oral solutions for gastrointestinal diseases in production animals and humans and the development and commercialisation of DetachTM, a non-antibiotic therapy that prevents and treats diarrhoea (also known as scour) in piglets. Review of operations Remain on track – moving forward on all fronts Progress During FY16, significant progress was made transitioning Anatara’s lead program, Detach™ towards commercialisation in livestock, starting with pigs and importantly this year with human applications for the technology. On 16 September 2015, the Company reported it had completed a second field trial with Detach™ in nearly 500 piglets. The ANATARA LIFESCIENCES Annual Report 201615 study saw Detach™ reduce the incidence and frequency of diarrhoea in weaner piglets - resulting in a significant commercial benefit to the producer. At the time of writing, the Safety Study (TAS) study was well underway. The purpose of this study is to provide detailed safety data on Detach™ when administered orally to piglets at dose rates higher than the recommended single dose. The study is being conducted in accordance with VICH, a trilateral (EU-Japan-USA) program aimed at harmonising the technical requirements for veterinary product registration. It will support the global roll out of Detach™. Partnering and commercialisation On 11 August 2015, the Company announced it had signed a Commercial Collaboration Agreement with the Pork Cooperative Research Centre (Pork CRC). The Pork CRC will provide the Company with services to locate key clinical trial sites and ongoing test sites, assist with the APVMA approval of Detach™, and promote the results of these trials. Active partners and participants in the CRC include the largest Australian pork producers, feed manufacturers, key government and farmer industry bodies, including the CSIRO. On 18 January 2016, Anatara announced an Exclusive Research Evaluation and License Option Agreement with the leading animal health company, Zoetis. Anatara granted Zoetis an option to license Detach™ for worldwide development and commercialisation, with the exception of Australia and New Zealand. Under the terms of the agreement, Zoetis will have exclusive rights to evaluate the potential applications of Detach™ for veterinary use in food production animals. Anatara retains all intellectual property rights. The financial terms of the Zoetis agreement are confidential, however they did include an upfront and subsequent cash payments during the Option period. On 1 April 2016, Anatara announced it had shipped an evaluation batch of Detach™ to Zoetis, triggering the start of the evaluation period. Other Indications On 16 June 2016, it was announced that Anatara had entered into a research and development collaboration with The La Trobe Institute for Molecular Science at La Trobe University (Melbourne) to explore the potential for active components within Detach™ for the treatment of inflammatory diseases in humans and companion animals. The agreement is for the production, validation and pre-clinical evaluation of a specific active components isolated from the active ingredient in Detach. Intellectual Property (IP) Anatara continued to strengthen its IP with further patents filed during the financial year. Corporate On 27 June 2016, Anatara announced changes to the executive team, with Dr Paul Schober retiring from the position of CEO and Managing Director, and Dr Mel Bridges to transition to CEO whilst retaining the Chairman role. Dr Michael West was 16 appointed Chief Operating Officer and Ms Kylie Davis was appointed Clinical Trials Manager. Financial results and position The Group reported a loss for the full-year ended 30 June 2016 of $723,934 (2015: $1,795,228). The loss is after fully expensing all research and development costs. The Group’s net assets increased by $7,994,527 ($146%) compared with the previous year to $13,475,343. As at 30 June 2016, the Group had cash reserves of $6,387,041 and financial assets of $7,437,669 an increase of $8,273,752 on the previous financial year end. Information on directors Dr Mel Bridges Non-Executive Chairman Experience and expertise Dr Bridges has a Bachelor Degree of Science (Chemistry), Honorary Doctorate from Queensland University of Technology and Fellow of the Australian Institute of Company Directors. Dr Bridges has extensive experience as a CEO/Managing Director and Company Director in healthcare, agricultural technology, drug development, pathology, diagnostics and medical devices. Related experience in retail. He has successfully raised in excess of $300 million investment capital in the healthcare/biotech sector and been directly involved in over $1 billion in M&A and related transactions. He is the Co-Founder and former Chairman of PanBio Limited and ImpediMed Limited. He has been awarded an Australian Export Award, Australian Quality Award, Business Bulletin “Business Star of the Year”, Ernst & Young “Entrepreneur of the Year”, AusBiotech Gold Medal Award and BRW Top 100 Fastest Growing Companies Award. Dr Bridges is currently a director of ASX 100 Company ALS Ltd, and is Chairman and Non-Executive Director of Oventus Medical Ltd. Date of appointment 15 July 2010 Special responsibilities Chairman of the Nominations Committee, Member of the Remuneration Committee and Member of the Audit and Risk Management Committee Interests in shares and options Interest in shares Interest in options 5,906,870 80,000 ANATARA LIFESCIENCES Annual Report 201617 Mr Iain Ross Non-Executive Director Experience and expertise Mr Ross joined the Company as a Director in November 2013. Following a career with multinational companies including Sandoz, Fisons plc, Hoffman La Roche and Celltech Group plc for the last 20 years. Mr Ross has undertaken a number of company turnarounds and start-ups as a board member on behalf of private equity groups and banks including Quadrant Healthcare plc, Allergy Therapeutics Ltd, Eden Biodesign Ltd, Phadia AB, and Silence Therapeutics plc. Currently he is Executive Chairman of e-Therapeutics plc and a Non-Executive Director at Premier Veterinary Group plc each of which are listed on the London Stock Exchange. In addition he is Chairman of Biomer Technology Limited, a private UK Company. During the period he was Non-Executive Director of Benitec Biopharma Limited, and is currently Non-Executive Director of Novogen Limited, each of whose shares are traded on the Australian Securities Exchange and the NASDAQ. He is a Qualified Chartered Director of the UK Institute of Directors and Vice Chairman of the Council of Royal Holloway, University of London. Date of appointment 17 February 2014 Special responsibilities Chair of the Remuneration Committee, Member of the Audit and Risk Management Committee and Nomination Committee Interests in shares and options Interest in shares Interest in options Dr Jay Hetzel Non-Executive Director 1,377,942 65,000 Experience and expertise Dr Hetzel has a background in technology commercialisation, animal genetics R&D and product development. During a scientific career with CSIRO spanning 20 years, he was an internationally recognised pioneer in cattle genomics and genetics and played a key role in establishing the foundations for beef industry applications of DNA technology. In 1998 he co-founded Genetic Solutions Pty Ltd which commercialised genomics technology in livestock. The company was sold to Pfizer Animal Health in 2008. Subsequently, he has been involved in the development and commercialisation of a range of life science technologies. Dr Hetzel has been a Director of Anatara Lifesciences Ltd since August 2014 and is currently Non-Executive Chairman of Leaf Resources Ltd. Dr Hetzel is a Fellow of the Australian Academy of Technological Sciences and Engineering and a Fellow of the Australian Institute of Company Directors. He holds a Bachelor of Agricultural Science (Hons) from the University of Melbourne and a Ph.D in Animal Genetics from the University of Sydney. Date of appointment 4 August 2014 Special responsibilities Member of the Audit and Risk Management Committee, Remuneration Committee and Nomination Committee Interests and options in shares Interest in shares Interest in options 456,109 65,000 18 Dr Tracie Ramsdale Non-Executive Director Experience and expertise Dr Ramsdale holds a PhD in Biochemistry from the University of Queensland, a Master of Pharmacy from the Victorian College of Pharmacy and a Bachelor of Applied Science (Chemistry) from the Royal Melbourne Institute of Technology. Following a successful career as a Principal Investigator and Commercial Manager of the Centre for Drug Design and Development at the University of Queensland, Tracie co-founded Alchemia Limited, a drug discovery and development company and led the company’s development as its General Manager and Chief Executive Officer from 1998 to 2007. During this time, she was responsible for multiple financing transactions including a successful IPO, licensing the company’s technology to major international pharmaceutical and manufacturing partners and the acquisition of a publicly listed biotech to strengthen the company’s product pipeline. Dr Ramsdale has served on a number of industry and government advisory groups including the Australian Federal Government Advisory Council on Intellectual Property, the Queensland Biotechnology Advisory Council, and the Industry Research and Development Board’s Biological Committee. Dr Ramsdale is a Fellow of the Australian Academy of Technological Sciences and Engineering and a member of the Australian Institute of Company Directors. She currently provides independent consulting advice to the biotechnology industry, academia and government. Date of appointment 4 August 2014 Special responsibilities Chairman of the Audit and Risk Management Committee and Member of Nominations Committee Interests in shares and options Interest in shares Interest in options Mr Paul Grujic Non-Executive Director 45,614 65,000 Experience and expertise Mr Grujic is a graduate in Applied Biology and in Marketing with more than 30 years’ experience in the Animal Health industry. His roles have included Sales, Marketing, Business Development and General Management in the UK, USA and Australia. He was previously the President of CSL Animal Health with 250 staff and operations in the USA, Australia and New Zealand. He has also held senior positions with Glaxo, Pitman-Moore, Webster Animal Health, American Cyanamid and Fort Dodge(Wyeth). In addition he has worked as an advisor to several Animal Health companies and was a Non-Executive Director of Catapult Genetics, an Executive Director of Peptech Animal Health and a Director of NOAH the UK Animal Health trade association. Mr Grujic has wide experience in acquisition, divestment and integration of companies and played a major role in the sale of CSL Animal Health and Catapult Genetics to Pfizer and Peptech Animal Health to Virbac, a global Animal Health company. Date of appointment 24 February 2015 Special responsibilities Member of the Audit and Risk Management Committee, Remuneration Committee and Nomination Committee Interests in shares and options Interest in shares Interest in options 71,219 65,000 ANATARA LIFESCIENCES Annual Report 201619 Dr Paul Schober Chief Executive Officer and Managing Director Experience and expertise Dr Schober has extensive global experience in the animal health field encompassing R&D, clinical trial management, regulatory affairs, manufacturing, sales and marketing as well as in ASX investor relations. In his most recent position, Paul was General Manager of Peptech Animal Health Pty Limited, now owned by the Australian Division of global animal health company Virbac SA. Dr Schober’s achievements include approval of the first Australian biotechnology product by the FDA (Ovuplant in 1998); launch of Ovuplant in the US & the EU; regulatory approval and launch of animal health product Suprelorin in Australia and the EU and worldwide distribution agreements with leading animal health companies including Dechra, Fort Dodge Animal Health and Virbac. He was also instrumental in the successful positioning and trade sale of an animal health company. Dr Schober has a BSc (Hons), PhD and MBA from the University of Sydney. Date of appointment 2 March 2015 Special responsibilities - Interests in shares and options Interest in shares Interest in options Mr Stephen Denaro Company Secretary 212,038 375,000 Experience and expertise Stephen has extensive experience in mergers and acquisitions, business valuations, accountancy services, and income tax compliance gained from positions as Company Secretary and Chief Financial Officer of various public companies and with major chartered accountancy firms in Australia and the United Kingdom. He provides company secretarial services for a number of start-up technology and ASX listed and unlisted public companies. Stephen has a Bachelor of Business in accountancy, Graduate Diploma in Applied Corporate Governance and is a member of the institute of Chartered Accountants in Australia and the Australian Institute of Company Directors. Date of appointment 24 February 2014 20 Meetings of directors The numbers of meetings of the Company’s board of directors and of each board committee held during the year ended 30 June 2016, and the numbers of meetings attended by each director were: Dr Mel Bridges Mr Iain Ross Dr Jay Hetzel Dr Tracie Ramsdale Mr Paul Grujic Dr Paul Schober Full meetings of directors Meetings of committees Audit Nomination Remuneration A 11 11 11 11 11 11 B 11 11 11 11 11 10 A - 4 4 4 4 - B - 4 4 4 4 - A 1 1 1 1 1 - B 1 1 1 1 1 - A 2 2 2 - 2 - B 2 2 2 - 2 - A = Number of meetings attended B = Number of meetings held during the time the director held office or was a member of the committee during the year Unissued shares under option Unissued ordinary shares of Anatara Lifesciences Ltd under option at the date of this report are: Expiry date Exercise price of shares ($) Number under option Issue of options to Pork CRC 18 September 2017 Issue of options to Pork CRC 18 September 2018 Issue of options to Directors 11 November 2018 Issue of options under ESOP 14 December 2020 0.50 0.50 1.35 1.45 125,000 250,000 340,000 1,265,000 1,980,000 During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of options as follows (there were no amounts unpaid on the shares issued): Shares issued 22 December 2015 11 March 2016 Issue price of shares ($) Number of shares issued 0.50 0.50 50,000 75,000 125,000 ANATARA LIFESCIENCES Annual Report 2016 21 Remuneration report The Remuneration report, which has been audited, outlines the key management personnel remuneration arrangements for the Group, in accordance with the requirements of the Corporations Act 2001 and its Regulations. The Remuneration report is set out under the following main headings: A. Principles used to determine the nature and amount of remuneration B. Details of remuneration C. Service agreements D. Share-based compensation E. Relationship between the remuneration policy and Group performance F. Key management personnel disclosures A. Principles used to determine the nature and amount of remuneration Remuneration governance The objective of the remuneration committee is to ensure that pay and rewards are competitive and appropriate for the results delivered. The remuneration committee charter adopted by the Board aims to align rewards with achievement of strategic objectives and the creation of value for shareholders. The remuneration framework applied provides a mix of fixed and variable pay and a blend of short and long-term incentives as appropriate. Issues of remuneration are considered annually or otherwise as required. Non-executive Directors Fees and payments to non-executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. The Company’s policy is to remunerate non-executive Directors at market rates (for comparable companies) for time commitment and responsibilities. Fees for non-executive Directors are not linked to the performance of the Company, however to align Directors’ interests with shareholders’ interests, Directors are encouraged to hold shares in the Company. Non-executive Directors’ fees and payments are reviewed annually by the Board of Directors. The Board of Directors considers advice from external sources as well as the fees paid to non-executive Directors of comparable companies when undertaking the annual review process. Each director receives a fee for being a director of the company. The Chairman’s fees are determined independently to the fees of other non-executive Directors based on comparative roles in the external market. The chairman is not present at any discussions relating to determination of his own remuneration. Retirement benefits and allowances No retirement benefits are payable other than statutory superannuation, if applicable to the Directors of the Company. 22 Other benefits No motor vehicle, health insurance or other similar allowances are made available to Directors (other than through salary- sacrifice arrangements). Executive pay Executive pay and reward consists of base pay, short-term performance incentives, long-term performance incentives and other remuneration such as superannuation. Superannuation contributions are paid into the executive’s nominated superannuation fund. Base pay Executives are offered a competitive level of base pay which comprises the fixed (unrisked) component of their pay and rewards. Base pay for senior executives is reviewed annually to ensure market competitiveness. There are no guaranteed base pay increases included in any senior executives’ contracts. Base pay was increased during the year. Short-term and long-term incentives Contractual agreements with key management personnel provide for the provision of incentive arrangements should these be introduced by the Company. There are currently both an STI and LTI scheme in place. The STI component is performance based for Dr Schober and Dr Mynott and represents up to 30% of their respective base salaries, and is awarded on the basis of performance to a set of board approved Key Performance Indicators (KPI’s). Executive KPI’s are based on: the APVMA approval process; • • EU and USA regulatory pathway partnering and financial performance; and • Completion of in-feed pilot trial. The CSO has the following additional KPI’s: • KPI’s around clinical trials; and • New patent applications. Long term incentives relate to director share option and executive share option plans put in place this year. The options vest up to two to three years with a service requirement. Directors options are subject to the following service conditions: 1/3 of the options will vest immediately on grant date; 1/3 of the options will vest 12 months after the grant date; and 1/3 will vest 24 months after the grant date. If the employment is terminated or the director resigns, unvested options will be considered forfeited. Executive options options are subject to the following service conditions: 1/3 of the options will vest 12 months after the date of issue; 1/3 of the options will vest 14months after the grant date; and 1/3 will vest 36 months after the grant date. If the employment is terminated or the executive resigns, unvested options will be considered forfeited. Both directors and executive options are not subject to additional performance criteria. Given the nature of the Company’s activities and the small management team responsible for its running, the Company considers that the performance of the executives and the performance and value of the Company are closely related. ANATARA LIFESCIENCES Annual Report 201623 Securities trading policy The trading of Company’s securities by employees and Directors is subject to, and conditional upon, the Policy for Trading in Company Securities which is available on the Company’s website (www.Anatara Lifesciences.com). Voting and comments made at the company’s 2015 Annual General Meeting The Company did not vote on its remuneration report for the 2015 financial year. The Company did not receive any specific feedback at the AGM or throughout the year on its remuneration policies. Use of remuneration consultants If remuneration consultants are to be engaged to provide remuneration recommendations as defined under section 9B of the Corporations Act 2001, then they are engaged by, and report directly to, the remuneration committee. No remuneration consultants were engaged to provide remuneration services during the financial year. B. Details of remuneration Amounts of remuneration Key Management Personnel (KMP) of the Company are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company, directly or indirectly, including any director (whether executive or otherwise) of the Company receiving the highest remuneration. Details of the remuneration of the KMP of the Company are set out in the following tables. The key management personnel of the Company consisted of the following Directors of Anatara Lifesciences Ltd: Dr Mel Bridges Mr Iain Ross Dr Jay Hetzel Non-Executive Chairman* Non-Executive Director Non-Executive Director Dr Tracie Ramsdale Non-Executive Director Mr Paul Grujic Non-Executive Director And the following persons: Dr Paul Schober Chief Executive Officer and Managing Director, retiring September 2016* Dr Tracey Mynott Chief Scientific Officer *On 27 June 2016 the Company announced that Dr Paul Schober plans to move to retirement over the next three months and Dr Mel Bridges will transition into a combined CEO/ Chairman role. 24 30 June 2016 Short-term benefits Cash salary and fees Annual leave Non- monetary Cash bonus (1) Post- employ- ment benefits Superan- nuation Long- term benefits Share- based payments Long service leave Equity settled shares Total % of total remuneration At risk STI At risk LTI not related to perfor- mance $ $ $ $ $ $ $ $ % % % Non-executive directors: Dr Mel Bridges Mr Iain Ross Dr Jay Hetzel Dr Tracie Ramsdale 131,152 71,608 66,667 71,666 Mr Paul Grujic 66,126 Other key management personnel: - - - - - Dr Paul Schober 220,000 2,118 Dr Tracey Mynott 220,000 16,923 Total 847,219 19,041 - - - - - - - - - - - - - 90,000 - 90,000 - - 6,333 6,808 6,102 20,578 20,900 60,721 - - - - - - - - 7,331 138,483 5,956 5,956 5,956 77,564 78,956 84,430 95% 92% 92% 93% -% -% 8% -% 5% 8% 8% 7% 5,956 78,184 92% -% 8% 44,827 287,523 84% -% 16% 26,999 374,822 64% 24% 7% 102,981 1,119,962 90k bonus granted to Tracey Mynott: 40k relates to meeting FY2016 performance KPI, and 50k relates to meeting FY2015 performance KPI which was approved by the Board during FY2016. ANATARA LIFESCIENCES Annual Report 2016 30 June 2015 Short-term benefits Post- employ- ment benefits Long- term benefits Share- based payments Cash salary and fees Annual leave Non- monetary Superan- nuation Long service leave Equity settled shares Total 25 % of total remuneration At risk STI At risk LTI not related to perfor- mance $ $ $ $ $ $ $ % % % Non-executive directors: Dr Mel Bridges 116,700 Mr Iain Ross Dr Jay Hetzel Dr Tracie Ramsdale Mr Paul Grujic Executive directors: 57,066 49,973 54,087 16,346 Dr David Venables 117,000 - - - - Other key management personnel: Dr Paul Schober 64,086 5,393 Dr Tracey Mynott 214,905 22,316 Total 690,163 27,709 - - - - - - - 12,050 - 3,927 4,617 1,553 - 14,425 20,416 56,988 - - - - - - - - - - - - - - 128,750 57,066 53,900 58,704 17,899 100 100 100 100 100 -% -% -% -% -% -% -% -% -% -% 117,000 100 -% -% 83,904 257,637 774,860 100 100 -% -% -% -% 26 C. Service agreements Executives The employment conditions of the Chief Executive Officer and Director, Dr Paul Schober is formalised in a contract of employment which commenced on the 2 March 2015. This contract stipulates a salary of $220,000 pa, exclusive of superannuation and any salary sacrifice items. The base salary may increase up to a maximum of 10% based on agreed key performance indicators (KPI) in the first year of employment. Up to 30% of the salary is to be paid for each financial year subsequent to the completion of the first year of employment upon meeting KPI’s at the Board’s discretion. This component will be reviewed annually by the Board. The Executive will be permitted to participate in the Company’s Share and Option Plan. The contract term is continuing, termination benefits are as prescribed by statutory entitlements. Similarly, the employment conditions of the Chief Science Officer, Dr Tracey Mynott, is formalised in a contract of employment which commenced on the 1 August 2014. The agreement stipulates that at the absolute discretion of the Board, upon meeting key performance indicators set in accordance with this Agreement, and subject to tax as required by law, the Executive may be paid an additional gross amount up to 30% of the Salary, to a maximum of $54,000, for each financial year of this Agreement, commencing from the financial year 2014 - 2015. The Executive will be permitted to participate in the Company’s Share and Option Plan. The contract term is continuing, termination benefit are as prescribed by statutory entitlements and an additional six months. Key management personnel are entitled to receive on termination of employment their statutory entitlements of accrued annual and long service leave, together with any superannuation benefits. Non-Executive Directors In accordance with best practice corporate governance, the structure of non-executive Directors and executive remunerations is separate and distinct. Directors’ fees cover all main board activities and committee memberships. The current base fees, plus superannuation and GST (as applicable), for each non-executive Director is $70,000 per annum (plus a further $5,000 per annum for acting as chair of a Board committee). The Chairman’s fee is $140,000 per annum. The maximum amount of fees that can be paid to non-executive Directors is subject to approval by shareholders at a General Meeting and is currently at a maximum aggregate of $500,000 per annum. Director agreements are continuing. Key management personnel have no entitlement to termination payments in the event of removal for misconduct. D. Share-based compensation During the financial year, options were issued to Directors and other key management personnel as part of compensation under the company’s directors and executive option plan (2015: $nil). The options vest subject to the employee continuing to be employed by the company at the vesting date. Should the employee leave, the options are forfeited. ANATARA LIFESCIENCES Annual Report 201627 Details of options granted to directors and other key management personnel as compensation during the reporting period are as follows: Grant date No. options granted No. options vested Fair value per option at grant date Exercise price Expiry date $ $ Value of options at grant date $ Non-executive directors: Dr Mel Bridges (1) 13 November 2015 80,000 26,667 Mr Iain Ross (1) 13 November 2015 65,000 21,667 Dr Jay Hetzel (1) 13 November 2015 65,000 21,667 Dr Tracie Ramsdale (1) 13 November 2015 65,000 21,667 0.142 0.142 0.142 0.142 1.35 11 November 2018 1.35 11 November 2018 1.35 11 November 2018 1.35 11 November 2018 11,360 9,230 9,230 9,230 Mr Paul Grujic (1) 13 November 2015 65,000 21,667 0.142 1.35 11 November 2018 9,230 Other key management personnel: Dr Paul Schober (2) 14 December 2015 375,000 Dr Tracy Mynott (2) 14 December 2015 500,000 - - 0.171 0.171 1.45 14 December 2020 1.45 14 December 2020 Total 1,215,000 113,335 64,125 85,500 197,905 Executive options options are subject to the following service conditions: 1/3 of the options will vest 12 months after the date of issue; 1/3 of the options will vest 24 months after the grant date; and 1/3 will vest 36 months after the grant date. If the employment is terminated or the executive resigns, unvested options will be considered forfeited. Executive options are not subject to any performance conditions. E. Relationship between the remuneration policy and group performance As detailed under headings a & b, remuneration of executives consists of an unrisked element (base pay) and cash bonuses based on performance in relation to key strategic, non-financial measures linked to drivers of performance in future reporting periods. As such, remuneration is not linked to the financial performance of the Company in the current or previous reporting periods. Details of the short-term incentive cash bonuses awarded as remuneration to each key management personnel, the percentage of the available bonus that was paid in the financial year, and the percentage that was forfeited because the person did not meet the service and performance criteria is set out below. No part of the bonus is payable in future years. 28 Non-Executive Directors: Dr Mel Bridges Mr Iain Ross Dr Jay Hetzel Dr Tracie Ramsdale Mr Paul Grujic Other key management personnel: Dr Paul Schober Dr Tracey Mynott (1) Entitled as remuneration ($) % vested during the year % forfeited during the year - - - - - - 100,000 -% -% -% -% -% -% 90% -% -% -% -% -% -% 10% (1) 90k bonus granted to Tracey Mynott: 40k relates to meeting FY2016 performance KPI, and 50k relates to meeting FY2015 performance KPI which was approved by the Board and paid during FY2016. F. Key management personnel disclosures Shareholding The number of shares in the parent entity held during the financial year by each director and other members of key management personnel of the Company, including their personally related parties, is set out below: 30 June 2016 Balance at start of year Balance at date of appointment Received as part of remuneration Additions Disposals/ other Balance at date of resignation Balance at end of year Non-executive directors: Dr Mel Bridges 5,853,230 Mr Iain Ross 1,332,500 Dr Jay Hetzel Dr Tracie Ramsdale 444,495 44,000 Mr Paul Grujic 29,605 Other key management personnel: Dr Paul Schober 188,810 Dr Tracey Mynott Total 5,002,635 12,895,275 Option holding - - - - - - - - - - - - - - - - 53,640 45,442 11,614 1,614 41,614 23,228 - 177,152 - - - - - - - - - - - - - - - - 5,906,870 1,377,942 456,109 45,614 71,219 212,038 5,002,635 13,072,427 ANATARA LIFESCIENCES Annual Report 2016 29 The number of options over ordinary shares in the company held during the year by each Director and other Key Management Personnel, including their personally related parties, are set out below. 30 June 2016 Non-executive directors: Dr Mel Bridges Mr Iain Ross Dr Jay Hetzel Dr Tracie Ramsdale Mr Paul Grujic Other key management personnel: Dr Paul Schober Dr Tracey Mynott Total Balance at start of year Granted as compensation Option expired Net change other Balance at end of year Vested & exercisable Escrowed & unvested - - - - - - - - 80,000 65,000 65,000 65,000 65,000 375,000 500,000 1,215,000 - - - - - - - - - - - - - - - - 80,000 65,000 65,000 65,000 26,667 21,667 21,667 21,667 53,333 43,333 43,333 43,333 65,000 21,667 43,333 375,000 500,000 - - 375,000 500,000 1,215,000 113,335 1,101,665 END OF REMUNERATION REPORT Related party transactions There are no related party transactions during the year ended 30 June 2016. 30 Event since the end of the financial year No other matter or circumstance has arisen since 30 June 2016 that has significantly affected, or may significantly affect the Company’s operations, the results of those operations, or the Company’s state of affairs in future financial years. Significant changes in the state of affairs There have been no significant changes in the state of affairs of the Group during the period. Likely developments and expected results of operations The likely developments in the Group’s operations, to the extent that such matters can be discussed upon, are covered in the Review of operations of this annual report. Environmental regulation The Group is not affected by any significant environmental regulation in respect of its operations. Insurance of officers and indemnities (a) Insurance of officers The Company has indemnified the Directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the Directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. (b) Indemnity of auditors The Company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the company or any related entity. ANATARA LIFESCIENCES Annual Report 201631 Proceedings on behalf of the company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services The following non-audit services were provided by the entity’s auditor, Grant Thornton. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. Consolidated entity Taxation services Grant Thornton Audit Pty Ltd firm: Tax compliance services Total remuneration for taxation services year ended 2016 $ 2015 $ 31,590 31,590 51,335 51,335 Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 33. Auditor Grant Thornton Audit Pty Ltd, appointed 20 November 2014, continue in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. 32 Corporate governance statement In accordance with ASX Listing Rule 4.10.3, the Company’s 2016 Corporate Governance Statement can be found on its website at http://anataralifesciences.com/investors/corporate-governance. This report is made in accordance with a resolution of directors. Dr Mel Bridges Chairman Date: This Day 29th of August 2016 Melbourne ANATARA LIFESCIENCES Annual Report 201633 The Rialto, Level 30 525 Collins St Melbourne Victoria 3000 Correspondence to: GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Auditor’s Independence Declaration To the Directors of Anatara Lifesciences Ltd In accordance with the requirements of section 307C of the Corporations Act 2001, as lead auditor for the audit of Anatara Lifesciences Ltd for the year ended 30 June 2016, I declare that, to the best of my knowledge and belief, there have been: a b no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and no contraventions of any applicable code of professional conduct in relation to the audit. GRANT THORNTON AUDIT PTY LTD Chartered Accountants M.A. Cunningham Partner - Audit & Assurance Melbourne, 29 August 2016 Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies. 34 Consolidated Statement of Profit or Loss and Comprehensive Income For the year ended 30 June 2016 Consolidated entity Licensing (evaluation) revenue Interest received Other income - R&D tax incentive Expenses from operating activities Depreciation and amortisation expense Research and development expenses Patent expenses Consultancy expenses Staff expenses Travel and accommodation ASX and share registry fees Other expenses Loss before income tax Income tax expense Loss for the period Other comprehensive income for the period, net of tax Total comprehensive loss for the period Losses per share: Basic losses per share Diluted losses per share Notes 3 5 year ended 30 June 2016 $ 30 June 2015 $ 2,283,095 - 352,144 165,246 140,904 61,383 (15,125) - (735,071) (143,789) (760,671) (1,411,746) (261,709) (70,085) (126,223)) (128,672) (84,893) (496,699) (774,860) (257,605) (139,227) (115,559) (723,934) (1,795,228) - - (723,934) (1,795,228) - - (723,934) (1,795,228) Cents Cents (0.01) (0.01) (0.05) (0.05) The above consolidated statement of profit or loss and comprehensive income should be read in conjunction with the accompanying notes. ANATARA LIFESCIENCES Annual Report 2016 35 Consolidated Statement of Financial Position As at 30 June 2016 Consolidated entity ASSETS Current assets Cash and cash equivalents Other receivables Financial assets - term deposits Other current assets - prepayments Total current assets Non-current assets Property, plant and equipment Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Employee entitlements Total current liabilities Total non-current liabilities Total liabilities Net assets EQUITY Share capital Other reserves Accumulated losses Total equity Notes 7 8 9 10(a) 10(b) year ended 30 June 2016 $ 30 June 2015 $ 6,387,041 60,272 7,437,669 18,720 1,497,539 52,060 4,053,419 - 13,903,702 5,603,018 16,259 16,259 24,776 24,776 13,919,961 5,627,794 403,377 41,241 444,618 119,268 27,710 146,978 - - 444,618 146,978 13,475,343 5,480,816 16,941,392 8,420,555 197,624 - (3,663,673) (2,939,739) 13,475,343 5,480,816 The above Consolidated statement of financial position should be read in conjunction with the accompanying notes. 36 Consolidated Statement of Changes in Equity For the year ended 30 June 2016 Notes 10(a) 10(a) 10(a) 10(a) Attributable to owners of Anatara Lifesciences Ltd Share capital $ 1,971,292 - 7,000,000 (550,737) 6,449,263 8,420,555 8,420,555 - 9,106,685 (585,848) - 8,520,837 16,941,392 Share-based payment reserve $ - - - - - - - - - - 197,624 197,624 Retained earnings $ (1,144,511) (1,795,228) Total equity $ 826,781 (1,795,228) - - - (2,939,739) (2,939,739) (723,934) - - - 7,000,000 (550,737) 6,449,263 5,480,816 5,480,816 (723,934) 9,106,685 (585,848) 197,624 8,718,461 197,624 (3,663,673) 13,475,343 Consolidated entity Balance at 1 July 2014 Profit for the period Transactions with owners in their capacity as owners: Shares issued Capital raising cost Balance at 30 June 2015 Balance at 1 July 2015 Profit for the period Transactions with owners in their capacity as owners: Shares issued Capital raising cost Share-based payment expense Balance at 30 June 2016 ANATARA LIFESCIENCES Annual Report 2016 37 Consolidated Statement of Cash Flows For the year ended 30 June 2016 Consolidated entity Cash flows from operating activities Receipts from customers Payments to suppliers and employees Interest received Research and development concessions grant Net cash (outflow) from operating activities Cash flows from investing activities Payments for purchases of plant and equipment Investments in term deposits Net cash (outflow) from investing activities Cash flows from financing activities Proceeds from issues of shares and other equity securities Proceeds from calls on shares and calls in arrears Net cash inflow from financing activities Net increase in cash and cash equivalents year ended 30 June 2016 $ 30 June 2015 $ Notes 2,283,095 - (2,996,563) (2,073,898) 267,856 165,246 87,904 61,383 (280,366) (1,924,611) (6,608) (24,776) (3,300,000) (3,306,608) (4,053,419) (4,078,195) 9,062,324 7,000,000 (585,848) 8,476,476 (550,737) 6,449,263 4,889,502 446,457 15 9 10(a) 10(a) Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at end of period 1,497,539 6,387,041 7 1,051,082 1,497,539 The above Consolidated statement of cash flows should be read in conjunction with the accompanying notes. 38 Notes to The Consolidated Financial Statements 1. Summary of significant accounting policies (a) Corporate information The financial report of Anatara Lifesciences Ltd (the “Company”) and its subsidiaries (together the “Group”) for the year ended 30 June 2016 was authorised for issue in accordance with a resolution of the Directors on 29 August 2016. The financial report is for the Group consisting of Anatara Lifesciences Ltd and its subsidiaries. Anatara Lifesciences Ltd is a listed public company limited by shares incorporated and domiciled in Australia whose shares are publicly traded on the Australian Securities Exchange. The principal activities of the Group are to develop oral solutions for gastro-intestinal diseases in animals and in humans. (b) Basis of preparation The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards, required for a for-profit entity. The financial report has been prepared on an accruals basis and is based on historical costs. The financial report is presented in Australian dollars, which is the Group’s functional and presentation currency. All values are rounded to the nearest dollar unless otherwise stated. Management is required to make judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstance, the results of which form the basis of making the judgements. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of Australian Accounting Standards that have significant effects on the financial statements and estimates with a significant risk of material adjustments in the next year are disclosed, where applicable, in the relevant notes to the financial statements. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. (c) Statement of compliance The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. ANATARA LIFESCIENCES Annual Report 201639 (d) New and amended standards adopted by the group The were no adoption of new standards that had a material impact on the Company. (e) New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2016 reporting periods and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. There are no other standards that are not yet effective and that would be expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions. Title of standard Nature of change Impact The Group is yet to undertake a detailed assessment of the impact of AASB 9. However, based on the Group’s preliminary assessment, the Standard is not expected to have a material impact on the measurement of transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2019. There is no impact on current revenue. AASB 9 Financial Instruments AASB 15 Revenue from Contracts with Customers AASB 9 introduces new requirements for the classification and measurement of financial assets and liabilities and includes a forward-looking ‘expected loss’ impairment model and a substantially-changed approach to hedge accounting. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. AASB 15 − replaces AASB 118 Revenue, AASB 111 Construction Contracts and some revenue-related Interpretations− establishes a new revenue recognition model − changes the basis for deciding whether revenue is to be recognised over time or at a point in time − provides new and more detailed guidance on specific topics (e.g. multiple element arrangements, variable pricing, rights of return, warranties and licensing) − expands and improves disclosures about revenue. Mandatory application date Accounting periods beginning on or after 1 January 2018 Accounting periods beginning on or after 1 January 2018 40 AASB 16 Leases AASB 16 − replaces AASB 117 Leases and some lease-related Interpretations− requires all leases to be accounted for ‘on-balance sheet’ by lessees, other than short-term and low value asset leases− provides new guidance on the application of the definition of lease and on sale and lease back accounting− largely retains the existing lessor accounting requirements in AASB 117− requires new and different disclosures about leases Interpretations. The Group is yet to undertake a detailed assessment of the impact of AASB 16. However, based on the Group’s preliminary assessment, the Standard is not expected to have a material impact on the transactions and balances recognised in the financial statements when it is first adopted for the year ending 30 June 2020. Accounting periods beginning on or after 1 January 2019 (f) Principles of consolidation The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Anatara Lifesciences Ltd as at 30 June 2016 and the results of all subsidiaries for the year ended. Subsidiaries are all those entities over which the Group has control. The Group controls an entity when they are exposed to, or have rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (g) Segment reporting Identification and measurement of segments - The Group uses the “management approach” to the identification, measurement and disclosure of operating segments. The “management approach” requires that operating segments be identified on the basis of internal reports that are regularly reviewed by the entity’s chief operating decision maker (comprising the Board of Directors), for the purpose of allocating resources and assessing performance. (h) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. Interest revenue is recognised as interest accrues using the effective interest method. Research and Development Tax Incentive - is recognised when it has been established that the conditions of the tax incentive have been met and that the expected amount of tax incentive can be reliably measured. ANATARA LIFESCIENCES Annual Report 201641 Grant income is recognised when the Group determines that it will comply with the conditions attached to the grant and that the grant will be received. The funding is recognised on a systematic basis over periods in which the entity recognises as expenses the costs related to the grant. License income is income that arises when the Group grants the licencee the right to use patented technology owned by the Group Revenues are recognised when it has been established that the conditions under the agreement have been met, there are no significant continuing obligations and that the income will be received. (i) Research and development costs Research costs are expensed as incurred. An intangible asset arising from development expenditure on an internal project is recognised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. (j) Income tax Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting loss nor taxable profit or loss. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilised except where the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the accounting loss nor taxable profit or loss. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Income taxes relating to items recognised directly in equity are recognised in equity and not in profit or loss. The Company and its wholly-owned Australian resident entities are members of a tax consolidated Group under Australian taxation law. The Company is the head entity in the tax consolidated Group. Entities within the tax consolidated Group have entered into a tax funding agreement and a tax-sharing agreement with the head entity. Under the terms of the tax funding arrangement, the Company and each of the entities in the tax consolidated Group have agreed to pay a tax equivalent payment to or from the head entity, based on the current tax liability or current tax asset of the head entity. 42 (k) Earnings per share Basic earnings per share is calculated as net loss attributable to members, adjusted to exclude costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element. Diluted earnings per share is calculated as net loss attributable to members, adjusted for: • • costs of servicing equity (other than dividends); the after tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and • other non-discretionary changes in revenues or expenses during the period that would result from the dilution of potential ordinary shares; divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element. (l) Cash and cash equivalents Cash and short-term deposits in the Consolidated statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above. (m) Trade receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment, once they become over due by more than 60 days. A separate account records the impairment. An allowance for a doubtful debt is made when there is objective evidence that the Group will not be able to collect the debts. The criteria used to determine that there is objective evidence that an impairment loss has occurred include whether the financial asset is past due and whether there is any other information regarding increased credit risk associated with the financial asset. Bad debts which are known to be uncollectible are written off when identified. (n) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except: • where the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables are stated with the amount of GST included. Cash flows arising from operating activities are included in the Statement of cash flows on a gross basis (i.e. including GST) and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. The net amount of GST recoverable from or payable to, the taxation authority is included as part of the receivables or payables in the Consolidated statement of financial position. ANATARA LIFESCIENCES Annual Report 201643 (o) Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument, and are measured initially at fair value adjusted by transactions costs, except for those carried at fair value through profit or loss, which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities are described below. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and all substantial risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. (p) Held to maturity investments Held to maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. If the Group were to sell other than an insignificant amount of held to maturity financial assets, the whole category would be tainted and reclassified as available-for-sale. Held to maturity financial assets are included in non-current assets, except for those maturities less than 12 months from the end of the year, which are classified as current assets. (q) Plant and equipment Plant and equipment are measured at cost or fair value less any accumulated depreciation and any impairment losses. Such assets are depreciated over their useful economic lives as follows: Plant and equipment 3-5 years Straight line Life Method (r) Intangible assets Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred. (s) Intellectual property costs Amounts incurred for rights to or for acquisition of intellectual property are expensed in the year in which they are incurred to the extent that such intellectual property is used for research and development activities. (t) Impairment of assets The carrying values of non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets that suffer impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed. 44 Impairment exists when the carrying value of an asset exceeds its estimated recoverable amount. The asset is then written down to its recoverable amount. (u) Trade and other payables Trade and other payables are carried at amortised cost and represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. (v) Employee benefits Short term employee benefits Provision is made for the Group’s obligation for short-term employee benefits. Short-term employee benefits are benefits (other than termination benefits) that are expected to be settled wholly before 12 months after the end of the annual reporting period in which the employees render the related service, including wages, salaries and sick leave. Short-term employee benefits are measured at the (undiscounted) amounts expected to be paid when the obligation is settled. The Group’s obligations for short-term employee benefits such as wages, salaries and sick leave are recognised as a part of current trade and other payables in the statement of financial position. The Group’s obligations for employees’ annual leave entitlements are recognised as provisions in the Statement of financial position. Long service leave The liability for long service leave is recognised for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currencies that match, as closely as possible, to the estimated future cash outflows. Share-based payments Equity-settled and cash-settled share-based compensation benefits are provided to employees. Equity-settled transactions are awards of shares, or options over shares, that are provided to employees in exchange for the rendering of services. The cost of equity-settled transactions are measured at fair value on grant date. Fair value is independently determined using the Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option, together with non-vesting conditions that do not determine whether the consolidated entity receives the services that entitle the employees to receive payment. No account is taken of any other vesting conditions. The cost of equity-settled transactions are recognised as an expense with a corresponding increase in equity over the vesting period. The cumulative charge to profit or loss is calculated based on the grant date fair value of the award, the best estimate of the number of awards that are likely to vest and the expired portion of the vesting period. The amount recognised in profit or loss for the period is the cumulative amount calculated at each reporting date less amounts already recognised in previous periods. ANATARA LIFESCIENCES Annual Report 201645 (w) Contributed equity Ordinary shares are classified as equity. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction (net of tax) of the share proceeds received. (x) Foreign currency translation The functional currency of the Group is based on the primary economic environment in which the Group operates. The functional currency of the Group is Australian dollars. Transactions in foreign currencies are converted to local currency at the rate of exchange at the date of the transaction. Amounts payable to and by the Group outstanding at reporting date and denominated in foreign currencies have been converted to local currency using rates prevailing at the end of the financial year. All exchange differences are taken to profit or loss. (y) Leases The minimum lease payments of operating leases, where the lessor effectively retains substantially all of the risks and benefits of ownership of the leased item, are recognised as an expense on a straight-line basis. (z) Parent entity financial information The financial information for the parent entity, Anatara Lifesciences Ltd, disclosed in note 16 has been prepared on the same basis as the consolidated statement. (aa) Significant accounting estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Share-based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black-Scholes model taking into account the terms and conditions upon which the instruments were granted. The accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact profit or loss and equity. Recognition of deferred tax assets The extent to which deferred tax assets can be recognised is based on an assessment of the probability of the Group’s future taxable income against which the deferred tax assets can be utilised. Capitalised development costs Development costs are only capitalised by the Group when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use or sale. No development costs were capitalised during the current year. 46 Licence (evaluation) revenue recognition The Group recognised the first payment under the licence (evaluation) agreement as revenue because the payment was non-refundable, the conditions of the agreement were met and there were no significant continuing obligations post 30 June 2016. As the evaluating party has discretion to cease the arrangement at any time during the evaluation period, further receipts under the arrangement are not recognised as revenue until receipted. 2. Segment Information Operating segments are reported in a manner consistent with the internal reporting provided to the Board of Directors (Chief Operating Decision Makers), which make strategic decisions for the Group. The Chief Operating Decision Maker evaluates the results on a Group wide basis and as such does not have specific operating segments. 3. Income Tax Expense (a) Income tax expense Consolidated entity Income tax expense year ended 30 June 2016 $ - 30 June 2015 $ - (b) Numerical reconciliation of income tax expense to prima facie tax payable Consolidated entity Profit from continuing operations before income tax expense Tax at the Australian tax rate of 30.0% (2015 - 30.0%) Tax effect of amounts which are not deductible (taxable) in calculating taxable income: Research and development tax concession refund Adjustment to provision of tax from prior year Benefit of tax (benefit)/losses not brought to account Income tax expense year ended 30 June 2016 $ 30 June 2015 $ (723,934) (217,180) (1,795,228) (538,568) (49,574) - 266,754 - (18,415) (148,034) 705,017 - ANATARA LIFESCIENCES Annual Report 2016 (c) Tax losses Consolidated entity 47 year ended 30 June 2016 $ 30 June 2015 $ Unused tax losses for which no deferred tax asset has been recognised 4,202,753 3,478,821 (d) Deferred income tax benefit Deferred tax assets arising from tax losses are, to the extent noted above, not recognised at reporting date as realisation of the benefit is not regarded as probable. This deferred income tax benefit will only be obtained if: • • future assessable income is derived of a nature and of an amount sufficient to enable the benefit to be realised; the conditions for deductibility imposed by tax legislation is complied with, including Continuity of Ownership and/or Same Business Tests; and • no changes in tax legislation adversely affect the Group in realising the benefit. 4. Remuneration of Auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-related audit firms: Grant Thornton Audit Pty Ltd Consolidated entity Audit and other assurance services Audit and review of financial statements Other assurance services Other services Total remuneration for audit and other assurance services Taxation services Tax compliance services Total auditors remuneration year ended 30 June 2016 $ 30 June 2015 $ 51,000 50,000 - 51,000 31,590 82,590 2,950 52,950 51,335 104,285 48 5. Loss Per Share Both the basic and diluted earnings per share have been calculated using the profit attributable to shareholders of Anatara Lifesciences Ltd as the numerator, i.e. no adjustments to profits were necessary during the year ended 30 June 2016 and 2015. The weighted average number of shares for the purposes of the calculation of diluted earnings per share can be reconciled to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows: (a) Basic earnings per share Consolidated entity Basic losses per share Diluted losses per share year ended 30 June 2016 cents 30 June 2015 cents (0.01) (0.01) (0.05) (0.05) (b) Reconciliation of earnings used in calculating earnings per share Consolidated entity year ended 30 June 2016 $ 30 June 2015 $ Net loss used in the calculation of basic and diluted loss per share (683,934) (1,795,228) (c) Weighted average number of shares used as the denominator Consolidated entity year ended 30 June 2016 Nmber 30 June 2015 Number Weighted average number of ordinary shares used as the denominator in calculating basic earnings per shar 48,587,665 33,722,603 There have been no other conversions to, call of, or subscriptions for ordinary shares, or issues of potential ordinary shares since the reporting date and before the completion of this financial report. ANATARA LIFESCIENCES Annual Report 2016 49 6. Dividends No dividends were paid and no dividends are expected to be paid during the year ended in 30 June 2016 (2015: Nil). 7. Cash and Cash Equivalents Consolidated entity Cash at bank and in hand Term deposits 8. Other Receivables Consolidated entity GST receivable 9. Property, Plant and Equipment Consolidated entity Year ended 30 June 2016 Opening net book amount Additions Depreciation charge Closing net book amount year ended 30 June 2016 $ 30 June 2015 $ 1,387,041 497,539 5,000,000 1,000,000 6,387,041 1,497,539 year ended 30 June 2016 $ 30 June 2015 $ 60,272 52,060 year ended Plant and equipment $ Total $ 24,776 6,608 (15,125) 16,259 24,776 6,608 (15,125) 16,259 50 Consolidated entity Year ended 30 June 2015 Opening net book amount Additions Closing net book amount 10. Equity (a) Share capital Ordinary shares Ordinary shares - fully paid Total share capital Movements in ordinary share: year ended Plant and equipment $ Total $ - (24,776) 24,776 - (24,776) 24,776 30 June 2016 Shares 30 June 2016 $ 30 June 2015 Shares 30 June 2015 $ 49,413,236 49,413,236 16,941,392 16,941,392 37,750,000 37,750,000 8,420,555 8,420,555 Details Notes Number of shares (thousands) $ Opening balance 1 July 2014 Subversion of shares, 5 shares for every 1 share Transaction costs relating to share issues Shares issued Balance 30 June 2015 Shares redeemed and capital raised Transaction costs relating to share issues Balance 30 June 2016 10(a)(i) 10(a)(i) 10(a)(ii) 10(a)(ii) 4,750,000 1,971,292 19,000,000 - - (550,737) 14,000,000 7,000,000 37,750,000 8,420,555 11,663,236 9,106,685 - (585,848) 49,413,236 16,941,392 (i) Details of shares issued during the prior year are as follows Date 14 October 2014 16 October 2014 Details Capital raising from IPO Number Issue price 14,000,000 7,000,000 Subdivision of shares, 5 shares for every 1 share 19,000,000 - Transaction cost - (550,737) 33,000,000 6,449,263 ANATARA LIFESCIENCES Annual Report 2016 (ii) Details of shares issued during the current year are as follows Date 9 July 2015 29 July 2015 17 August 2015 22 December 2015 11 March 2016 Details Placement of ordinary shares Placement of ordinary shares Placement of ordinary shares Options exercised Options exercised Transaction cost 51 Number Issue price 5,641,025 2,563,878 3,333,332 50,000 75,000 11,663,235 4,400,000 1,999,825 2,599,986 42,750 64,124 (585,848) 8,520,837 Ordinary shares participate in dividends and the proceeds on winding up the Company in proportion to the number of shares held. At shareholder meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands. The ordinary shares have no par value. (b) Share-based payment reserve Consolidated entity Balance at 30 June 2015 Transactions with owners in their capacity as owners Share-based payment expenses Exercise of options At 30 June 2016 Share based payments $ Total $ - 241,999 (44,375) 197,624 - 241,999 (44,375) 197,624 As at 30 June 2016, the Company maintained two (2) share-based payment scheme, Executive Option Plan and Directors Option Plan. It also issued options under a collaboration agreement with Pork CRC. Executive Option Plan The Executive Option Plan is part of the remuneration package of the Company’s Senior Management. The maximum term of the options granted under the plan ends on 14 December 2020. The options will vest as follows: • • • 1/3 of the options will vest and be exercisable at any time from the date that is 12 months after the date of issue of the options; 1/3 of the options will vest and be exercisable at any time from the date that is 24 months after the date of issue of the options; and 1/3 of the options will vest and be exercisable at any time from the date that is 36 months after the date of issue of the options. The Executive Options are subject to an employment requirement. 52 Directors Option Plan The Directors Option Plan is part of the remuneration package of the Company’s Directors. The maximum term of the options granted under the plan ends on 11 November 2018. The options will vest as follows: • • • 1/3 of the options will vest immediately; 1/3 of the options will vest and be exercisable at any time from the date that is 12 months after the date of issue of the options; and 1/3 of the options will vest and be exercisable at any time from the date that is 24 months after the date of issue of the options. The Directors Options are subject to an employment requirement. Pork CRC The maximum term of the options granted ends on 18 September 2018. The options issued to Pork CRC have the following vesting terms: • 125,000 options have been issued on 18 September 2015; • 250,000 options will vest on 18 September 2016; and • 125,000 options will vest on 18 September 2017. Upon vesting, each option allows the holder to purchase one ordinary share at the exercise price. The weighted fair value of the options granted during the year was $0.10. The fair value of the options were calculated by using a Black-Scholes model applying the following inputs: Executive Options Directors Options Options issued to PORK CRC Expected volatility Risk-free interest rate Expected life of option (years) Option exercise price Share price at grant date 33% 2.13% 5 $1.45 $0.94 33% 2.15% 3 $1.35 $1.00 33% 1.93% 3 $0.50 $0.78 The expected price volatility is estimated based on the volatility of comparable publicly traded companies. Set out below are summaries of option movements for the year: Opening balance at 1 July 2015 Granted: Executive Option Plan Directors Option Plan Issued to Pork CRC Exercised: Exercise of option by Pork CRC Closing balance at 30 June 2016 Exercisable at the end of 30 June 2016 Number of options Fair value per option Weighted Average Exercise price ($) - 1,265,000 340,000 500,000 (125,000) 1,980,000 238,334 0.171 0.142 0.32 1.45 1.35 0.50 0.50 1.25 0.90 ANATARA LIFESCIENCES Annual Report 2016 53 The weighted average share price at the date of exercise for share options exercised during the period was $1.30. The options outstanding at 30 June 2016 had an exercise price range from $0.50 to $1.45, and weighted average remaining contractual life of 3.25 years. During or since the end of the financial year, the Company issued ordinary shares as a result of the exercise of options as follows (there were no amounts unpaid on the shares issued): Date option granted Issue price of shares ($) Number of shares issued 22 December 2015 11 March 2016 0.50 0.50 50,000 75,000 125,000 Share options at the end of the year had the following features: Grant date Expiry date Number of options Exercise price 18 September 2015 18 September 2015 13 November 2015 14 December 2015 18 September 2017 18 September 2018 11 November 2018 14 December 2020 125,000 250,000 340,000 1,265,000 1,980,000 0.50 0.50 1.35 1.45 11. Related Party Transactions There were no related party transactions for the year ended 30 June 2016 (2015: nil). 12. Key Management Personnel Compensation Consolidated entity Short-term employee benefits Post-employment benefits Share-based payments year ended 30 June 2016 $ 30 June 2015 $ 847,220 60,722 102,983 717,872 56,988 - 1,010,925 774,860 54 13. Commitments Capital commitments Significant capital expenditure contracted for at the end of the reporting period but not recognised as liabilities is as follows: Consolidated entity Lease expenditure commitments - not later than 12 months Other commitments - not later than 12 months year ended 30 June 2016 $ 30 June 2015 $ - 20,176 65,385 - 14. Contingent Liabilities and Contingent Assets The Group had no contingent liabilities at 30 June 2016 (2015: nil). 15. Cash flow information Reconciliation of profit after income tax to net cash inflow from operating activities Consolidated entity Profit for the period Adjustment for Depreciation and amortisation Share-based payment expense Change in operating assets and liabilities: Movements in accounts receivable Movements in other current assets Movements in accounts payable Movements in employee entitlements Net cash flow from operating activities year ended 30 June 2016 $ 30 June 2015 $ (723,934) (1,795,228) 15,125 241,985 (8,212) (102,970) 284,209 13,431 - - (51,604) 2,860 (108,348) 27,709 (280,366) (1,924,611) ANATARA LIFESCIENCES Annual Report 2016 55 16. Parent Entity Financial Information (a) Summary financial information The parent entity financial statements resemble the consolidated financial statements as the Company’s subsidiary, Sarantis Pty Ltd, is a dormant entity. (b) Guarantees entered into by the parent entity The parent entity has not entered into any guarantees in the current or prior financial year in relation to debts of its subsidiaries. (c) Significant accounting policies The accounting policies of the parent entity are consistent with those of the Group as disclosed in note 1. 17. Subsidiaries Name of entity Place of business/ country of incorporation Ownership interest held by the group Sarantis Pty Limited Australia 2016 % 2015 % 100 100 18. Financial Risk Management The Group’s principal financial instrument is cash and cash equivalents and financial assets - term deposits. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial assets and liabilities such as receivables and trade payables, which arise directly from its operations. It is, and has been throughout the entire period, the Group’s policy that no trading in financial instruments shall be undertaken. The main risk arising from the Group’s financial instruments is liquidity risk. Other minor risks are summarised below. The Board reviews and agrees policies for managing each of these risks. (a) Liquidity risk Liquidity risk is the risk that the Group might be unable to meet its obligations. The Group manages its liquidity needs by monitoring forecast cash inflows and outflows due in day-to-day business. The data used for analysing these cash flows is consistent with that used in the contractual maturity analysis below. Liquidity needs are monitored in various time bands. Long-term liquidity needs for a 180-day and a 360-day lookout period are identified monthly. Net cash requirements are compared to available funding in order to determine headroom or any shortfalls. The Group’s non-derivative financial liabilities have contractual maturities as summarised below: 56 Maturities of financial liabilities Contractual maturities of financial liabilities Less than 6 months 6 - 12 months Between 1 and 2 years Between 2 and 5 years Over 5 years Total contractual cash flows Carrying amount (assets)/ liabilities At 30 June 2016 Non-derivatives Trade payables At 30 June 2015 Non-derivatives Trade payables (b) Interest rate risk 403,377 119,268 - - - - - - - - 403,377 403,377 119,268 119,268 The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s cash deposits with floating interest rates which expose the Group to interest rate risk. All other financial assets and liabilities in the form of receivables and payables are non-interest bearing. The Group does not engage in any hedging or derivative transactions to manage interest rate risk. In regard to its interest rate risk, the Group continuously analyses its exposure. Within this analysis consideration is given to potential renewals of existing positions, alternative investments and the mix of fixed and variable interest rates. The following tables set out the Group’s financial instruments and its exposure to the type of interest rate risk and the effective weighted average interest rate for each class of these financial instruments. Also included is the effect on profit and equity after tax if interest rates at that date had been 10% higher or lower with all other variables held constant as a sensitivity analysis. At 30 June 2016 Financial assets Non-interest bearing $ Floating interest rates $ Fixed interest rates $ 10% of current rate $ -10% of current rate $ Effect on profit Other receivables 60,272 - Cash and cash equivalents Financial assets - term deposits - - 6,387,041 - Total 60,272 6,387,041 - - 7,437,669 7,437,669 - - 15,968 (15,968) - - 15,968 (15,968) Financial liabilities, amortised cost Trade and other payables Total Total (403,377) (403,377) - - - - - - - - (343,105) 6,387,041 7,437,669 15,968 (15,968) ANATARA LIFESCIENCES Annual Report 201657 At 30 June 2015 Financial assets Non-interest bearing $ Floating interest rates $ Fixed interest rates $ 10% of current rate $ -10% of current rate $ Effect on profit Other receivables 52,060 - - Cash and cash equivalents Financial assets - term deposits - - Total 52,060 497,539 497,539 1,000,000 - 4,053,419 5,053,419 Financial liabilities, amortised cost Trade and other payables Total Total (119,268) (119,268) (67,208) - - - - 497,539 5,053,419 1,244 (1,244) - 1,244 - 1,244 - - (1,244) (1,244) - - - - A sensitivity of 10% of current prevailing interest rates has been selected as this is considered conservative and reasonable given the current level of both short term and long term Australian interest rates. A 10% sensitivity would move short term rates from 2.50% to approximately 2.75% representing a 25 basis points shift. This would represent an interest rate increase, which are reasonably possible in the current environment. Based on the sensitivity analysis only interest revenue from variable rate deposits and cash balances is impacted resulting in a decrease or increase in overall income. (c) Foreign exchange risk Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group’s functional currency. Payments under the license agreement are denominated in USD. There are no USD amounts receivable at year end. (d) Credit risk Credit risk arises from cash and cash equivalents and outstanding trade and other receivables. The cash balances are held in financial institutions with high ratings. The Group has assessed that there is minimal risk that the cash and trade and other receivables balances are impaired. 19. Events Occurring After the Reporting Period No matter or circumstance has occurred subsequent to period end that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group or economic entity in subsequent financial years. 58 20. Capital Management The Group’s objectives when managing capital are to ensure that the Group has sufficient funds to be a going concern. This is achieved by ensuring that the Board is focussed on cash flow management through periodic Board reporting. The Board reviews financial accounts on a monthly basis and reviews actual expenditure against budget on a monthly basis. The Group could also raise additional capital if necessary by issuing new shares so as to fund the development of its key products. The total capital is shown as the equity in the Statement of Financial Position. There is expected to be no debt in the next 12 months and there are no external restrictive agreements on the Group for the use of its capital. Management also maintains a capital structure that ensures the lowest cost of capital available to the entity. The Group does not have a defined share buy-back plan. No dividends were paid in 2016 and no dividends are expected to be paid in 2017. There is no current intention to incur debt funding on behalf of the Group as on-going development expenditure is expected to be funded via equity or partnerships with other companies. The Group is not subject to any externally imposed capital requirements. ANATARA LIFESCIENCES Annual Report 201659 Directors’ Declaration 30 June 2016 The Directors’ of the Company declare that; • • • • the attached financial statements and notes thereto comply with the Corporations Act 2001, the Australian Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; the attached financial statements and notes thereto comply with International Financial Reporting Standards as issued by the International Accounting Standards Board as described in note 1 to the financial statements; the attached financial statements and notes thereto give a true and fair view of the Group’s financial position as at 30 June 2016 and of its performance for the financial year ended on that date; and there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by section 295A of the Corporations Act 2001. Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001. On behalf of the Directors Dr Mel Bridges Chairman Date: This Day 29th of August 2016 Melbourne Independent Auditor’s Report To the Members of Anatara Lifesciences Ltd The Rialto, Level 30 525 Collins St Melbourne Victoria 3000 Correspondence to: GPO Box 4736 Melbourne Victoria 3001 T +61 3 8320 2222 F +61 3 8320 2200 E info.vic@au.gt.com W www.grantthornton.com.au Report on the financial report We have audited the accompanying financial report of Anatara Lifesciences Ltd (the “Company”), which comprises the consolidated statement of financial position as at 30 June 2016, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information and the directors’ declaration of the consolidated entity comprising the Company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ responsibility for the financial report The Directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001. The Directors’ responsibility also includes such internal control as the Directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. The Directors also state, in the notes to the financial report, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, the financial statements comply with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require us to comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. Grant Thornton Audit Pty Ltd ACN 130 913 594 a subsidiary or related entity of Grant Thornton Australia Ltd ABN 41 127 556 389 ‘Grant Thornton’ refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton Australia Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate one another and are not liable for one another’s acts or omissions. In the Australian context only, the use of the term ‘Grant Thornton’ may refer to Grant Thornton Australia Limited ABN 41 127 556 389 and its Australian subsidiaries and related entities. GTIL is not an Australian related entity to Grant Thornton Australia Limited. Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies. 2 In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Auditor’s opinion In our opinion: a b the financial report of Anatara Lifesciences Ltd is in accordance with the Corporations Act 2001, including: i ii giving a true and fair view of the consolidated entity’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001; and the financial report also complies with International Financial Reporting Standards as disclosed in the notes to the financial statements. Report on the remuneration report We have audited the remuneration report included in pages 21 to 29 of the directors’ report for the year ended 30 June 2016. The Directors of the Company are responsible for the preparation and presentation of the remuneration report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards. Auditor’s opinion on the remuneration report In our opinion, the remuneration report of Anatara Lifesciences Ltd for the year ended 30 June 2016, complies with section 300A of the Corporations Act 2001. GRANT THORNTON AUDIT PTY LTD Chartered Accountants M.A Cunningham Partner - Audit & Assurance Melbourne, 29 August 2016 62 Corporate Directory Auditors Grant Thornton Audit Pty Ltd The Rialto, Level 30, 525 Collins Street Melbourne, Victoria, Australia 3000 Telephone +61 (0)3 8320 2222 Solicitors McCullough Robertson Level 11, Central Plaza Two, 66 Eagle Street, Brisbane Queensland 4000 Bankers CBA Melbourne Victoria Website www.anataralifesciences.com Company Anatara Lifesciences Ltd ACN 145 239 872 ABN 41 145 239 872 Directors Dr Mel Bridges Non-Executive Chairman Mr Iain Ross Non-Executive Director Dr Jay Hetzel Non-Executive Director Dr Tracie Ramsdale Non-Executive Director Mr Paul Grujic Non-Executive Director Dr Paul Schober Chief Executive Officer and Managing Director Company Secretary Mr Stephen Denaro Principal registered office in Australia 433 Logan Road, Stones Corner, Brisbane, Queensland, Australia 4120 Telephone +61 (0)7 3394 8202 Share and debenture register Computershare Investor Services Pty Ltd 117 Victoria Street, West End Queensland, Australia 4101 Telephone 1300 787 272 (local) +61 (0)3 9415 4000 (international) Facsimile: +61 (0)3 9473 2500 (local and international) ANATARA LIFESCIENCES Annual Report 201663 Shareholder Information Below is the current shareholder information at 28 September 2016 based on available information: Top 20 Security Holders Rank Name No of Shares % Issued Capital 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. PARMA CORPORATION MYENG PTY LTD UBS NOMINEES PTY LTD HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED IAIN ROSS DAVID CHARLES VENABLES JACOBY MANAGEMENT SERVICES MORGAN STANLEY AUSTRALIA SECURITIES (NOMINEE) PTY LIMITED BEEBEE HOLDINGS PTY LTD MR JAMES PETER KALOKERINOS + MRS MARY-ANNE ELIZABETH KALOKERINOS AZALEA FAMILY HOLDINGS PTY LTD MATTHEW TURNER JONTRA HOLDINGS PTY LTD PYLARA PTY LTD MR MERVYN IAN LEO BASSETT + MRS SHIRLEY ETHEL BASSETT MR JOHN DUGALD MACTAGGART BUDUVA PTY LTD JOHN SIEBERT PICTON COVE PTY LTD 20. GENETIC HORIZONS PTY LTD Totals: Top 20 Holders - GROUPED Total Remaining Holders Balance Total Distribution of Security Holders 5,789,128 5,002,635 2,507,773 2,424,240 1,316,328 1,125,000 940,731 690,880 690,614 591,219 535,246 464,102 405,614 400,000 350,000 311,614 300,000 300,000 286,386 279,495 24,711,005 24,702,231 49,413,236 11.72 10.12 5.08 4.91 2.66 2.28 1.90 1.40 1.40 1.20 1.08 0.94 0.82 0.81 0.71 0.63 0.61 0.61 0.58 0.57 50.01 49.99 100.00 No of Securities Held 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 – (max) No of Shareholders No of Securities 90 314 188 415 72 56,651 991,008 1,479,014 14,143,779 32,742,784 Total 1,079 49,413,236 ANNUAL REPORT 2016 Anatara Lifesciences Ltd ABN 41 145 239 872 433 Logan Road, Stones Corner, Brisbane, Queensland, Australia, 4120 Telephone: + 61 (0)7 3394 8202 

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