Contents
Corporate Directory
Chief Executive’s Report
Directors’ Report
Corporate Governance Statement
Financial Statements
Statements of Comprehensive Income
Statements of Financial Position
Statements of Changes in Equity
Statements of Cash Flows
Notes to the Financial Statements
Independent Auditors’ Report
Additional Information
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The Board of Directors is pleased to present
the Annual Report of Neuren Pharmaceuticals
Limited for the year ended 31 December 2012,
authorised by it on 25 March 2013.
For, and on behalf of, the Board
Dr Richard Treagus
Chairman
Dr Trevor Scott
Director
25 March 2013
Company
Neuren Pharmaceuticals Limited
ARBN 111 496 130
Corporate Head Office
Level 1, 59 Wellington Street,
Freemans Bay, Auckland, New Zealand
Tel: +64 9 3700 200
Australian Registered Office
Level 13, 122 Arthur Street,
North Sydney, NSW 2060, Australia
Tel: +61 2 9956 8500
Directors
Dr Robin Congreve
Mr Larry Glass
Mr Bruce Hancox
Dr John Holaday
Dr Trevor Scott
Dr Richard Treagus
Dr Douglas Wilson
Company Secretary
Mr Robert Waring
Auditors
PricewaterhouseCoopers
188 Quay Street
Private Bag 92162
Auckland, New Zealand
Share Registry
Link Market Services Limited
Level 9, 333 Collins Street
Melbourne, Victoria 3000
Australia
Tel: +61 3 9615 9800
Fax: +61 3 9615 9900
Stock Exchange Listing
ASX Limited
ASX Code: NEU
Website
www.neurenpharma.com
Neuren Pharmaceuticals Limited
Chief Executive’s Report
The Company has defined a corporate development strategy designed to increase the value of our key
assets by extending the therapeutic focus from acute brain injury to chronic conditions requiring longer
term dosing. The Company’s focus emphasises opportunities with five crucial attributes: solid scientific
rationale, significant unmet medical need, compelling market opportunity, favourable regulatory treatment
with a clear path to approval, and potential for development for additional conditions. The additional
therapeutic targets selected to complement the ongoing clinical development program in traumatic brain
injury are concussion and Rett Syndrome, a devastating neurodevelopmental disorder.
Scientific Rationale
Recent discoveries in the neurosciences have strengthened our understanding of the contribution of two
critical cellular processes to a wide range of acute and chronic conditions including brain injury,
neurodevelopmental disorders and neurodegeneration. These common processes are inflammation and the
function of microglia, a type of brain cell central to the maintenance of synapses which are the connections
through which signals pass between neurons. Inflammation, microglial dysfunction and deficits in synaptic
function (referred to as synaptic plasticity) play a major role in the development and progression of many,
if not most, brain disorders and are hallmarks of traumatic brain injury, concussion and Rett Syndrome.
These are precisely the processes targeted by NNZ-2566, Neuren’s lead clinical stage compound. In animal
models, NNZ-2566 has been shown to significantly inhibit inflammation and microglial dysfunction and to
improve synaptic plasticity with significant improvement of both cellular pathology and functional or
behavioural outcomes.
Unmet Medical Need
There are no drugs approved for traumatic brain injury (TBI), concussion or Rett Syndrome. Each year,
approximately 1.7 million people sustain a TBI or concussion in the US alone. Of these, 25% are classified as
moderate to severe while the remaining 75% are classified as mild TBI or concussion. TBI is a contributing
factor in one-third of all injury-related deaths. Moderate to severe TBI frequently leave patients with
profound physical, emotional and cognitive disabilities, often requiring life-long institutional or other
supportive care. Concussion also can result in long-term or permanent impairments and disabilities. The
direct medical costs and indirect costs of TBI are estimated to exceed US$80 billion per year in the US.
Rett Syndrome is a rare developmental disorder affecting an estimated 20,000 people in the US. A dramatic
decline typically begins between 6 and 18 months of age and results in severe physical and intellectual
disabilities which require life-long medical care and 24 hour a day supportive care. Most Rett Syndrome
patients live well into adulthood. In addition to direct costs for medical and related services – estimated to
average more than US$20,000 per patient per year – costs for institutional and special education services as
well as the financial and emotional impact on families are staggering.
Market Opportunity
As noted, there are no drugs approved to treat any of the conditions that we are pursuing. There also are
few drugs in development. Some drugs approved for other indications are used to treat selected symptoms
but none are more than modestly effective and none are disease-altering. NNZ-2566 provides an
opportunity to be a first in class therapeutic for one or more of these important indications. With little to
no competition and significant unmet medical need, we expect that product uptake will be rapid and
market penetration high if Neuren’s drug is approved. The Company estimates that the total potential
market for TBI and concussion in the US alone is approximately US$4.5 billion and for Rett Syndrome, we
estimate the total US market at US$800 million.
The majority of TBI patients are treated in trauma centres or emergency departments in tertiary care
hospitals. Virtually all Rett Syndrome patients are cared for in specialty clinics. In both cases, a small
number of readily identifiable physicians will represent the large majority of prescribers. This will make
product marketing and sales manageable and help to maintain profit margins. Further, Neuren has sought
input and support from key opinion leaders in both fields and a number of these clinicians are serving as
investigators on our clinical trials.
Favourable Regulatory Treatment
Because TBI and Rett Syndrome are serious medical conditions with unmet need, drugs being developed to
treat them qualify for Fast Track, Accelerated Approval and Priority Review, approaches intended to make
therapeutically important drugs available at an earlier time. Fast Track designation for NNZ-2566 in TBI has
been granted and has been requested for Rett Syndrome. Fast Track designation provides for early and
frequent communication with the FDA, assuring that questions and issues are resolved quickly to minimise
any potential impact on the progress of clinical development. The Food and Drug Administration Safety and
Innovation Act, which became effective in July 2012, incorporates a new provision enabling a sponsor to
request “Breakthrough Therapy” designation based on preliminary clinical evidence that the drug may
demonstrate substantial improvement over available therapies. Breakthrough Therapy designation conveys
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Neuren Pharmaceuticals Limited
all of the Fast Track program features as well as more intensive FDA guidance on an efficient drug
development program.
Potential in Additional Conditions
In large part because of the commonality of underlying pathologic processes, we believe that a product
which proves to be safe and effective in TBI, concussion or Rett Syndrome has good potential as a therapy in
a wide range of other neurological disorders. Among the possible acute conditions related to TBI are stroke,
cardiac arrest, perinatal asphyxia and near drowning. Conditions in which positive results in concussion
would be expected to be predictive include stroke and TBI recovery and recovery from myocardial infarction
or coronary artery bypass graft surgery. A safe and effective therapy for Rett Syndrome would be a good
candidate for other neurodevelopmental disorders such as Fragile X Syndrome, Angelman Syndrome, Phelan
McDermid Syndrome and tuberous sclerosis as well as idiopathic autism.
During 2012 and the first quarter of 2013, the Company made significant progress in pursuing its strategy.
Key accomplishments included:
Completed Data and Safety Monitoring Committee (DSMC) review of data on cohorts 1 and 2 and
the first 20 subjects in cohort 3 of the INTREPID-2566 trial.
Enrolled the 100th subject in the INTREPID-2566 trial.
Approval by the US Defense Department for enrolment in the INTREPID-2566 trial under Exception
from Informed Consent (EFIC) provisions which followed approval of the EFIC protocol by the FDA.
Completion of the Phase I safety study of the oral formulation of NNZ-2566 concluding that the
product is well-tolerated at the highest dose tested.
Receipt of a US$600,000 grant from the International Rett Syndrome Foundation by the lead
investigators from Baylor College of Medicine to support the first Phase 2 trial in Rett Syndrome.
Filing and approval of an IND for NNZ-2566 in Rett Syndrome.
Completion of a study in a mouse model of Fragile X Syndrome which found that NNZ-2566
normalized all anatomic, biochemical and behavioural features of the disorder with 28 days of
dosing.
Issuance of a second US patent for oral formulation of NNZ-2566 with additional claims for
composition and methods of oral administration in a wider range of therapeutic indications.
Issuance of a European patent for use of nefiracetam (Motiva®) to treat Apathy Syndrome in
patients with depression.
Entered into a research agreement with Noble Life Sciences to continue research and
development on Perseis’ therapeutic antibodies.
Updates on active development programmes are provided below.
INTREPID-2566
The INTREPID-2566 study is a randomised, double-blind, placebo-controlled, dose escalation trial to test
intravenous NNZ-2566 as a treatment for acute, moderate to severe TBI. 260 subjects between 16 and 75
years of age will be enrolled in one of three, sequential dose cohorts (30 subjects at 1 mg/kg/hr, 30
subjects at 3 mg/kg/hr and 200 subjects at 6 mg/kg/hr, all administered for 72 hours by continuous infusion
following a bolus loading dose of 20 mg/kg) with 2:1 randomisation of active to placebo. Endpoints include
safety, two global functional measures (Glasgow Outcome Scale Extended and Mayo Portland Adaptability
Inventory), incidence of non-convulsive seizures detected by continuous EEG monitoring and a battery of
standardised neuropsychological tests. Safety is assessed through the earlier of day 30 or discharge for AEs
and through day 90 for SAEs. EEG data are collected for 120 hours following enrolment. Functional and
neuropsychological efficacy measures are assessed at 30 and 90 days.
Test article administration is begun within 8 hours of injury which requires obtaining informed consent and
randomisation within ~6 ½ hours to enable preparation of the infusion solution. As essentially all subjects
are unconscious in the immediate post-injury period, a Legally Authorised Representative (LAR) must sign
the consent form. LARs are frequently not able to reach the hospital within the prescribed period which has
resulted in not being able to enrol approximately 35% of otherwise eligible subjects. Slow enrolment also
appears to reflect a generalised reduction in the incidence of TBI which has been estimated at 35% between
1993/4 and 2006/7 in the US.
103 subjects have now been enrolled in the study – 30 in cohort 1, 30 in cohort 2 and 43 in cohort 3. The
three best performing sites (Arrowhead Regional Medical Center, University of Pittsburgh and the University
of California at Davis) have collectively enrolled 68 subjects (66%). All three of those centres are
participating in the EFIC protocol. While the FDA approved enrolment under EFIC in July 2011, separate
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Neuren Pharmaceuticals Limited
approval is required for clinical trials utilising Department of Defense (DOD) funding. As sites complete the
community consultation and public disclosure (CCPD) process required by FDA regulations and obtain local
IRB approval, their documentation is submitted for DOD review and approval. Final DOD approval for the
EFIC protocol and for the first site participating under EFIC was received on 14 January 2013. Five sites
have obtained local IRB approval. Applications from these sites are pending review by DOD. Five additional
sites are currently completing the CCPD process. Once these sites have obtained local IRB approval, their
application packages will be submitted for DOD review and approval.
As the EFIC protocol is implemented, we expect a significant increase in enrolment by participating sites.
Further, 11 new sites are in the process of being activated and are expected to receive DOD approval by
July which will mean a total of 18 sites actively enrolling, 10 of which will be under the EFIC protocol. The
Company remains absolutely committed to and focused on accelerating enrolment on the INTREPID-2566 trial.
Phase 2 Concussion Study
The IND for use of the oral formulation of NNZ-2566 to treat concussion or mild TBI was approved by the
FDA at the end of 2011. The Phase I clinical protocol enabled by that approval was amended to significantly
increase the dose administered to support higher dose levels in subsequent Phase 2 trials. At the top dose
of twice daily 100 mg/kg for five days, oral NNZ-2566 appeared to be safe and well-tolerated. The final
Phase 1 study report was received in late October 2012.
The Phase 2 trial is presently planned as a randomised, placebo-controlled, double-blind study of NNZ-2566
(35 mg/kg or 70 mg/kg) or placebo, stratified 1:1:1, administered orally twice daily beginning within 24
hours of injury for 7 days. We intend to enrol 132 subjects between 16 and 75 years of age. Key outcome
assessments will be
to baseline pre-injury neuropsychological performance,
neuropsychological performance and clinical symptoms at 28 days and prevalence of post-concussion
symptoms at 8 weeks. We are currently evaluating the suitability of clinical sites in both civilian and
military settings to ensure that selected sites can enrol efficiently.
return
time
to
Phase 2 Rett Syndrome Study
Rett Syndrome is a post-natal neurological disorder which occurs almost exclusively in females following
apparently normal development for the first six months of life. Typically, between 6 to 18 months of age,
patients experience a period of rapid decline with loss of purposeful hand use and spoken communication.
Many patients have recurrent seizures. They experience a variety of motor problems including increased
muscle tone (spasticity) and abnormal movements. They are never able to provide for their own needs.
Rett Syndrome is caused by mutations on the X chromosome of a gene called MeCP2. There are more than
200 different mutations found on the MECP2 gene. Rett Syndrome strikes all racial and ethnic groups and
occurs worldwide in up to 1 of every 10,000 female births and affects some 20,000 girls and women in the
US alone.
In 2009, Daniela Tropea and her colleagues from MIT published a paper showing that IGF-1 and, more
particularly, (1-3)IGF-1 (Glypromate) reversed key symptoms and improved survival in a mouse model of
Rett Syndrome (MeCP2 knockout model). Subsequently, Neuren entered into a collaboration with the Rett
Syndrome Research Trust to test NNZ-2566 in the MeCP2 model. The study showed positive effects on
synaptic plasticity, dendritic morphology and survival. The putative mechanism of action is inhibition of
neuroinflammatory cytokines and normalisation of microglial function which are key molecular and cellular
processes that are dysregulated in Rett Syndrome. Comparable measurements in TBI and stroke model
strongly support this and results from the Fragile X model confirm it as well. The International Rett
Syndrome Foundation has provided US$600,000 in grant funding to the principal investigators at Baylor
College of Medicine to help support the trial.
The Phase 2 Rett Syndrome trial is actively recruiting. Approximately 120 families of patients who meet the
primary inclusion criteria have been identified by Baylor and are being screened for enrolment and
randomisation. The trial will enrol up to 60 subjects from 16-40 years of age, allowing for some early
discontinuation, in order to have 48 who complete all dosing and assessments. The study will involve two
dose cohorts (35 mg/kg and 70 mg/kg twice daily). A DSMC review will be conducted on completion of the
lower dose cohort. Assessments include safety, autonomic measures (respiratory function, heart rhythm
and rate), EEG abnormalities, behaviour and global and functional measures out to day 28. The study is
forecast to complete enrolment and follow-up with top-line results announced in 2H 2014.
Fragile X Syndrome Model
Fragile X Syndrome, like Rett Syndrome, is a genetically caused neurodevelopmental disorder. It is the most
common inherited form of intellectual disability in males with approximately 60,000 people affected. NNZ-
2566 was tested in a mouse model of Fragile X Syndrome. Animals were dosed once daily for 28 days and
assessments were undertaken at 42 days. NNZ-2566 normalised all anatomic, biochemical and behavioural
features of the disorder with results that achieved statistical significance in all outcome measures. Full
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Neuren Pharmaceuticals Limited
results will be presented at a neuropsychiatry meeting in April. The Company is presently considering the
implications of these results and options for possible development.
NNZ-2591
NNZ-2591 is the lead molecule in Neuren’s diketopiperazine (DKP or cyclic dipeptide) portfolio. It is a
synthetic analogue of the DKP cyclo-(Gly-Pro) which occurs naturally in the brain and has been described as
having neuroprotective, anxiolytic and nootropic (memory enhancing) effects. NNZ-2591 has been shown to
be neuroprotective in vitro in cytotoxicity tests, reduce infarct size in rodent models of stroke and hypoxia-
ischemia, improve behavioural outcome following repeated treatment in Parkinsonian rats, exhibit
nootropic effects in cognitively-impaired rats and provide significant protection against the development of
peripheral neuropathy. Like NNZ-2566, NNZ-2591 significantly attenuates activation of microglia following
injury. The molecule has excellent oral bioavailability (~100%) and is currently being assessed as a clinical
candidate for the treatment of chronic neurological disorders. NNZ-2591 has been protected for composition
of matter and therapeutic use in issued patents and pending applications.
Perseis Therapeutics
Perseis Therapeutics Limited, a joint venture between the New Zealand Breast Cancer Research Trust and
Neuren Pharmaceuticals Limited, is developing anti-cancer antibodies which target a family of proteins
produced by breast and many other cancers. Called Trefoil Factors (TFFs), these proteins make cancers
more aggressive and more likely to spread. High TFF levels are associated with resistance to treatment and
poorer survival.
Because of their role in tumour growth and drug resistance, TFFs are highly promising targets. Perseis is
developing antibodies that bind to TFFs and reduce the exposure of cancer cells to these proteins. In early
experiments conducted by Perseis, antibodies against TFF proteins showed the ability to kill cancer cells
being grown outside the body, including breast cancer cells that were resistant to tamoxifen. More
recently, an antibody developed by Perseis based on a research license for an antibody library developed by
the University of California San Francisco (UCSF) was tested in mice implanted with human breast cancer
cells. Mice that were treated with the new antibody had tumours that were 35% smaller at 8 weeks than in
untreated animals as well as fewer metastases and improved survival.
Perseis has entered into a research agreement with Noble Life Sciences to continue development of the
antibodies. Noble has successfully transfected the sequences from the UCSF library into stable cell lines
that are producing monoclonal antibodies. The 5 most active antibodies are being further tested for anti-
tumour activity and affinity (strength of binding to TFF) prior to final selection of the lead molecule(s) for
xenograft studies. Two xenograft models, one in breast cancer and one in stomach cancer, have been
optimised and validated for the studies.
Motiva®
Motiva® (nefiracetam) is a molecule that belongs to a class of drugs with nootropic and anti-epileptic
actions. In a number of Phase 2 and 3 trials conducted in stroke patients in Japan by Daiichi, the originator
of the compound, statistically significant improvements were observed in psychiatric symptoms and
activities of daily living. In a Phase 2 trial completed by Daiichi in the US in stroke patients with depression,
a statistically significant effect was observed in the most severely depressed patients but not in those with
less severe depression. Among patients exhibiting apathy, a statistically significant, time- and dose-
dependent benefit was detected. A Phase 2 trial of Motiva® in stroke patients with apathy but not
depression is presently enrolling subjects at the Freemantle and Royal Perth Hospitals in Western Australia
in a study funded by the National Health and Medical Research Council to Professor Sergio Starkstein. An
interim analysis is planned for mid-2013.
Mr Larry Glass
Chief Executive Officer
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Neuren Pharmaceuticals Limited
Directors’ Report
Principal Activities
Neuren Pharmaceuticals Limited (Neuren or the Company, and its subsidiaries, or the Group) is a publicly
listed biopharmaceutical company focusing on the development of drugs for neurological disorders and
discovery of molecules to treat certain cancers. The drugs target symptoms of acute brain injury resulting
from traumatic brain injury and stroke, as well as symptoms of chronic conditions such as Rett Syndrome,
Fragile X Syndrome, and Parkinson’s disease. The Group has operations in New Zealand and the United
States.
Performance Overview
The Intrepid-2566 and Motiva® trials continued throughout 2012, and in addition Neuren undertook an
additional Phase 1 safety study to support the oral administration of NNZ-2566. Following the successful
completion of this, the Company commenced trial start-up activities for the mild-TBI (concussion) and Rett
Syndrome Phase 2 studies, which together with the Perseis trefoil factor anti-cancer programme and a study
of NNZ-2566 in a Fragile X animal model, resulted in higher research & development costs in 2012 than in
2011. The foreign exchange loss in 2012 arose mainly on Australian dollar cash balances held since the
Rights Issue and private placements conducted in 2011, and the non-cash share option compensation
expense largely related to the amortisation over the vesting period of the cost of options awarded to
employees and directors during the previous year.
Neuren’s operations for 2012 are described further in the Chief Executive’s Report on pages 1 to 4.
All amounts are shown in New Zealand dollars unless otherwise stated.
The Group’s net loss for the year ended 31 December 2012 was $6,422,000 (2011: $6,113,000). The detailed
financial statements are presented on pages 13 to 29.
The net deficit per share for 2012 was $0.01 (2011: $0.01) based on 1,174,106,753 weighted average
number of shares outstanding (2011: 764,781,209).
No ordinary share dividends were paid in the year and the Directors recommend none for the year.
Directors
Dr Richard Treagus, BScMed, MBChB, MPharmMed, MBA (Executive Chairman)
Dr Treagus is a medical doctor and entrepreneur, with more than 20 years experience in all aspects of the
international biopharmaceutical industry. He is a business builder with a strong track record of delivering
exceptional outcomes and shareholder returns. He has held senior executive roles with pharmaceutical
organisations in South Africa and Australia and over the years has successfully established numerous
pharmaceutical business partnerships in the US, Europe and Asia. Dr Treagus served as Chief Executive of
ASX-listed company Acrux Limited until 2012. Under his leadership Acrux gained FDA approval for three drug
products and concluded the largest product licensing deal in the history of the Australian biotech industry; a
transaction with Eli Lilly worth US$335m plus royalties. Acrux is now a leading Australian biotechnology
company and has been profitable since 2010. In 2010 Dr Treagus was awarded the Ernst and Young
Entrepreneur-of-the-Year (Southern Region) in the Listed Company Category.
Dr Robin Congreve, LLM, PhD (Non-Executive Director)
Dr Congreve was for many years a partner in Russell McVeagh McKenzie Bartleet & Co specialising in
taxation and business law. He was subsequently on the Boards of or chaired a number of public and private
companies including NZ Railways Corporation, BNZ, Comalco NZ Limited, Lion Nathan Limited and TruTest
Limited. He is a principal of Oceania & Eastern Group, a New Zealand private equity group which has
provided private equity funding to both Neuren's predecessor companies, NeuronZ and EndocrinZ. Dr
Congreve was founding Chairman of the Auckland Medical School Foundation which led to the formation of
NeuronZ within the University of Auckland and subsequently to the introduction of private equity into that
company and EndocrinZ.
Mr Larry Glass (Managing Director and CEO)
Mr Glass joined Neuren in early 2004 as the Executive Vice President, USA. He is a seasoned manager with
more than 30 years in the life sciences industry. Before he joined Neuren, he worked as an independent
consultant for a number of biotech companies in the US and internationally providing management,
strategic and business development services. Prior to that, he was CEO of a contract research organisation
that provided preclinical research and clinical trials support for major pharmaceutical and biotechnology
companies and the US government. For a number of years, the CRO operated as a subsidiary of a NYSE-listed
company and was subsequently sold to a European biopharmaceutical enterprise which was then acquired by
Johnson & Johnson. Mr Glass was appointed Managing Director in May 2012.
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Neuren Pharmaceuticals Limited
Mr Bruce Hancox, BCom (Non-Executive Director)
Mr Hancox joined the Neuren Board in March 2012. Mr Hancox has had a long and distinguished career in
business in New Zealand and Australia. He was for many years involved with Brierley Investments Limited as
General Manager, Group Chief Executive and Chairman. He also served as a director of many Brierley
subsidiaries in New Zealand, Australia and the United States. Mr Hancox became an Australian resident in
2006. Since then he has pursued various private investment interests and has been a director of and
consultant to a number of companies. He has acted as advisor on a number of takeover situations. In 2007
he was appointed to the board of Australian listed company Retail Food Group Limited and became its
Chairman in 2011.
Dr John Holaday, PhD (Non-Executive Director)
Dr Holaday, a veteran life-science entrepreneur, has built five public and private biopharmaceutical
companies over the past 21 years and raised more than US$450 million in capital. Dr Holaday founded
EntreMed in 1992 and served as its Chairman, President and CEO until his retirement in 2003 and was the
co-founder, director, Scientific Director and SVP of Medicis Pharmaceutical Corporation. He was the
founder and Chief of the Neuropharmacology Branch at the Walter Reed Army Institute of Research for 21
years. Dr Holaday has received numerous honours and awards, including induction into Ernst and Young’s
Entrepreneur of the Year 2006 Hall of Fame. He holds over 60 U.S. and foreign patents, has published more
than 200 scientific articles and reviews, and edited five books. He is currently CEO of QRxPharma, a listed
specialty pharmaceutical company specialising in pain and CNS diseases.
Dr Trevor Scott, MNZM, LLD (Hon), BCom, FCA, FNZIM, DF Inst D (Non-Executive Director)
Dr Scott is founder of T.D. Scott and Co., an accountancy and consulting firm, which he formed in 1988. He
is an experienced advisor to companies across a variety of industries. Dr Scott serves on numerous corporate
boards and is chairman of several, including Mercy Hospital Dunedin Limited and Arthur Barnett Limited. He
is also a director of Argosy Property Trust Limited (formerly ING Property Trust Limited) which is listed on
the New Zealand Stock Exchange.
Dr Douglas Wilson, MB, ChB, PhD (Non-Executive Director)
Dr Wilson was originally a medical academic with postgraduate experience in Auckland, London, Oxford and
Walter and Eliza Hall Institute, Melbourne. He then spent many years in the international pharmaceutical
industry, firstly as Senior Vice-President for Boehringer Ingelheim USA. Dr Wilson was responsible for all
drugs and clinical development and all interactions with the FDA. He then carried these responsibilities
worldwide at Boehringer Ingelheim Head Office in Germany. He has overseen multiple drugs at all phases of
development including bringing many drugs successfully to the market in the USA. Dr Wilson is now a
consultant to the biotechnology sector.
Interests Register
The Company is required to maintain an interests register in which particulars of certain transactions and
matters involving Directors must be recorded. Details of the entries in this register for each of the Directors
are as follows:
Dr R L Congreve
Dr Congreve is a director of Oceania & Eastern Biotech Limited, EndocrinZ Founders Limited, and Hazardous
Investments Limited, all shareholders of the Company. Dr Congreve does not have any other interests
considered to cause any potential conflict of interests.
Mr L Glass
Mr Glass does not have any interests considered to cause any potential conflict of interests.
Mr B Hancox
Mr Hancox does not have any interests considered to cause any potential conflict of interests.
Dr J Holaday
Dr Holaday is CEO of QRxPharma, a listed specialty pharmaceutical company specialising in pain and CNS
diseases. Dr Holaday does not have any other interests considered to cause any potential conflict of
interests.
Dr T D Scott
Dr Scott is a director of Centralo Limited, a shareholder of the Company, and Essex Castle Limited, a
nominee company. Dr Scott is also the chairman of Mercy Hospital Dunedin Limited which also operates in
the biotechnology/pharmaceutical industry. Dr Scott does not have any other interests considered to cause
any potential conflict of interests.
Dr R Treagus
Dr Treagus does not have any interests considered to cause any potential conflict of interests.
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Neuren Pharmaceuticals Limited
Dr J D Wilson
Dr Wilson was appointed a director of Phylogica Limited, a Perth, Australia, based biopharmaceutical drug
discovery company, in March 2008. Dr Wilson does not have any other disclosed interests considered to
cause any potential conflict of interests.
The details of each Director’s relevant interests in securities of the Company are disclosed in the “Other
Information” section of this Annual Report.
Information used by Directors
During the year the Board received no notices from Directors of the Company requesting to use Company
information received in their capacity as Directors, which would not otherwise have been available to them.
Indemnification and Insurance of Directors and Officers
Neuren has arranged Directors and Officers Liability Insurance that provides that generally Directors and
Officers will incur no monetary loss as a result of actions undertaken by them as Directors and Officers. The
insurance does not cover liabilities arising from criminal activities or deliberate or reckless acts or
omissions.
Remuneration of Directors
Dr Robin Congreve (Chairman)
Directors’
Fees
2012
$’000
60
Other
Remuneration
2012
$’000
40
Directors’
Fees
2011
$’000
60
Other
Remuneration
2011
$’000
40
Mr Larry Glass
Dr John Holaday
Mr Bruce Hancox
Dr Graeme Howie
Dr Trevor Scott
Dr Doug Wilson
-
35
29
-
40
35
522
-
-
-
20
-
-
35
-
35
40
35
-
-
-
-
20
-
On retirement in May 2012, Dr Howie waived unpaid director fees due of $159,000. Details regarding 2011
Share Option Plan awards to directors in accordance with approvals sought under ASX Listing Rule 10.14 are
set out under “Additional Information” on page 32 of this Annual Report.
Executive Remuneration
The number of employees, not being directors of the Company, who received remuneration and benefits
above $100,000 per annum, is as follows:
$120,000 - $129,999
$140,000 - $149,999
$160,000 - $169,999
$210,000 - $219,999
$240,000 - $249,999
$250,000 - $259,999
$380,000 - $389,999
2012
$’000
2011
$’000
-
2
1
1
-
1
-
1
-
1
1
1
-
1
Donations
The Company made no donations during the year (2011: nil).
Auditors
PricewaterhouseCoopers are the auditors of the Company. Audit fees in relation to the annual and interim
financial statements were $45,000 (2011: $47,000). During 2011 PricewaterhouseCoopers also received
$1,000 (2012: nil) in relation to other financial advice and services.
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Neuren Pharmaceuticals Limited
Corporate Governance Statement
The Directors have adopted practices and procedures for the good corporate governance of the Company.
These practices and procedures establish the framework of how the Directors carry out their duties and
discharge their obligations. The Company has adopted appropriate policies and practices as provided by the
ASX Listing Rules and the Corporate Governance Principles and Recommendations issued by the ASX
Corporate Governance Council (“Council”) in March 2003, revised in August 2007 (2nd edition) and amended
in June 2010 which are as follows:
Principle 1.
Principle 2.
Principle 3.
Principle 4.
Principle 5.
Principle 6.
Principle 7.
Principle 8.
Lay solid foundations for management and oversight
Structure the Board to add value
Promote ethical and responsible decision-making
Safeguard integrity in financial reporting
Make timely and balanced disclosure
Respect the rights of shareholders
Recognise and manage risk
Remunerate fairly and responsibly
Neuren’s corporate governance practices were fully compliant with the Council’s best practice
recommendations apart from the following recommendations:
Recommendation 2.4: The Board should establish a nomination committee
The Board has previously considered establishing a Nomination Committee, however due to the small
number of Directors the Board considers it more efficient for the selection and appointment of
Directors to be considered by the Board itself. It is the Board’s policy to determine the terms and
conditions relating to the appointment and retirement of non-executive Directors on a case by case
basis and in conformity with the requirements of the Listing Rules. The Board may also engage an
external consultant where appropriate to identify and assess suitable candidates who meet the Board’s
specifications.
Recommendation 3.2: The Board should establish a policy concerning diversity (including gender
diversity)
The Board has considered establishing a diversity policy, however due to the small number and low
turnover of employees within the Group and the legislative framework regarding employment matters
within which the Group operates, a separate formal diversity policy has not been adopted. The Group
does not discriminate on the basis of age, ethnicity or gender in any employment matters, and when a
position becomes vacant the Group seeks to employ the best candidate available for the position.
Recruitment agencies are used to assist with identifying and assessing candidates. The Group presently
employs ten people with a number of different cultural backgrounds, of which five are women. In
addition, at board level, there are presently nine directors (including subsidiary appointments) of which
one is a woman.
Role of the Board
The Board is responsible for the overall corporate governance of the Company. The Board acts on behalf of
and is accountable to the shareholders. The Board seeks to identify the expectations of shareholders as well
as other regulatory and ethical expectations and obligations. The Board is responsible for identifying areas
of significant business risk and ensuring mechanisms are in place to manage those risks adequately. In
addition, the Board sets the overall strategic goals and objectives, and monitors achievement of goals.
The Board appoints the Chief Executive Officer and the responsibility for the operation and administration
of the Company has been delegated to the Chief Executive Officer and senior management. The Board
ensures this team is appropriately qualified to discharge their responsibilities and reviews the performance
of the Chief Executive Officer annually against agreed objectives. This performance review was conducted
in early in 2012 and again later in the year. The Chief Executive Officer is responsible for reviewing annually
the performance of senior management.
The Board ensures management’s objectives and activities are aligned with the expectations and risks
identified by the Board through a number of mechanisms including the following:
establishment of the overall strategic direction and leadership of the Company;
approving and monitoring the implementation by management of the Company’s strategic plan to
achieve those objectives;
reviewing performance against its stated objectives, by receiving regular management reports on
business situation, opportunities and risks;
monitoring and review of the Company’s controls and systems including those concerned with
regulatory matters to ensure statutory compliance and the highest ethical standards; and
review and adoption of the annual budget and monitoring the results against stated targets.
8
Neuren Pharmaceuticals Limited
The Board reviews its corporate strategy and financial targets in terms of shareholder expectations,
performance and potential in the interests of creating long-term value for shareholders.
The Board considers corporate governance to be an important element of its responsibilities. It meets
regularly throughout the year.
Board Composition
The Company must have between 3 and 9 Directors. The independence and tenure of each Director at the
date of this report is as follows:
Director
Position
Independence
Term in Office
Dr Richard Treagus
Mr Larry Glass
Dr Robin Congreve
Mr Bruce Hancox
Dr John Holaday
Dr Trevor Scott
Dr Doug Wilson
Chairman and executive director
Managing Director and CEO
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-executive director
Non-independent
Non-independent
Independent
Independent
Independent
Independent
Independent
<1
1
11
1
3
10
9
The Board’s composition, performance, and the independence of Directors are regularly reviewed by the
Chairman and lead independent director, Dr Scott, to ensure that the Board has the appropriate mix of
independence, expertise and experience. The Board has previously considered establishing a Nomination
Committee, however due to the small number of Directors the Board considers it more efficient for the
selection and appointment of Directors to be considered by the Board itself.
It is the Board’s policy to determine the terms and conditions relating to the appointment and retirement of
non-executive Directors on a case by case basis and in conformity with the requirements of the Listing
Rules. The Board may also engage an external consultant where appropriate to identify and assess suitable
candidates who meet the Board’s specifications.
The relevant skills, experience and expertise of each Board member are set out in the Directors’ Report.
For the purposes of the proper performance of their duties, Directors are entitled to seek independent
professional advice at the Company’s expense on prior approval of the Chairman.
Board Committees
It is the Board’s policy that Committees it has established should:
be entitled to obtain such resources and information from the Company including direct access to
employees of and advisers to the Company as it may require; and
operate in accordance with the terms of reference established by the Board.
Remuneration and Audit Committee
The Remuneration and Audit Committee must have a minimum of 2 non-executive directors. Currently the
Committee members are Dr Scott (Chair), Dr Congreve, Dr Holaday, and Mr Hancox. The Committee
operates under terms of reference approved by the Board. It is responsible for undertaking a broad review
of, ensuring compliance with, and making recommendations in respect of, the Company’s internal financial
controls, legal compliance obligations and remuneration policies. It is also responsible for:
review of audit assessment of the adequacy and effectiveness of internal controls over the Company’s
accounting and financial reporting systems, including controls over computerised systems;
review of the audit plans and recommendations of the external auditors;
evaluating the extent to which the planned scope of the audit can be relied upon to detect weaknesses
in internal control, fraud and other illegal acts;
review of the results of audits, any changes in accounting practices or policies and subsequent effects
on the financial statements and make recommendations to management where necessary and
appropriate;
review of the performance and fees of the external auditor;
audit of legal compliance including trade practices, corporations law, occupational health and safety
and environmental statutory compliance , and compliance with the Listing Rules of the ASX;
supervision of special investigations when requested by the Board;
setting and reviewing compensation policies and practices of the Company;
setting and reviewing remuneration of the Directors, Chief Executive Officer and members of the
executive team; and
setting and reviewing the Company’s equity plans for employees and/or Directors.
All members of the Committee meet at least twice during the year. In undertaking these tasks the
Remuneration and Audit Committee meets separately with management and external auditors where
9
Neuren Pharmaceuticals Limited
required. The Committee also seeks assurances from the Chief Executive Officer and Chief Financial Officer
in respect of the accuracy and compliance of the Company’s annual and half-year financial statements and
effectiveness of the Company’s management of its material business risks.
Diversity
The Board has considered establishing a diversity policy, however due to the small number and low turnover
of employees within the Group and the legislative framework regarding employment matters within which
the Group operates, a separate formal diversity policy has not been adopted. The Group does not
discriminate on the basis of age, ethnicity or gender in any employment matters, and when a position
becomes vacant the Group seeks to employ the best candidate available for the position. Recruitment
agencies are used to assist with identifying and assessing candidates, however employee turnover is low
with the average term of employment currently at 5.7 years. The Group presently employs ten people with
a number of different cultural backgrounds, of which five are women. In addition, at board level, there are
presently nine directors (including subsidiary appointments) of which one is a woman.
Ethical Standards and Share Trading
The Company recognises the need for Directors and employees to observe the highest standards of
behaviour and business ethics when engaging in corporate activity or share trading.
The Constitution permits Directors to acquire shares in the Company. The Company’s share trading policy
prohibits Directors, executives and employees from acquiring or disposing of securities unless this occurs
during a 42 day period commencing 24 hours after the announcement to the ASX of the quarterly, half-
yearly and annual results and/or after the conclusion of the Company’s Annual General Meeting and
provided that the person is not in possession of price sensitive information and the trading is not for short-
term or speculative gain. Other trading may only occur with Board approval.
Continuous Disclosure
As a listed company, Neuren is required to comply with the continuous disclosure requirements as set out in
the ASX Listing Rules. The Company discloses to the ASX any information concerning the Company which a
reasonable person would expect to have a material effect on the price or value of securities of the
Company, unless certain exemptions from the obligation to disclose apply.
All relevant information provided to the ASX is also posted onto the Company’s corporate website
www.neurenpharma.com, in compliance with the continuous disclosure requirements of the Listing Rules.
Rights of Shareholders
The Board strives to communicate regularly and clearly with shareholders, the principal methods being
through the Company’s annual and half-year reports, and Company announcements posted on the
Company’s website. Shareholders are encouraged to attend and participate at general meetings, which the
Auditors are also invited to attend.
Identification and Management of Significant Business Risk
The Board has identified the significant areas of potential business and legal risk for the Company.
The identification, monitoring and, where appropriate, the reduction of significant risk to the Company are
monitored by the Board. The Board reviews and monitors the parameters under which such risks will be
managed.
The Board has identified the Company’s activities in conducting clinical trials on humans as a significant
area of risk. The Board has established policies and procedures to mitigate the risks involved in this area.
These include:
all clinical activities are covered by clinical trials insurance policies at levels of coverage deemed
acceptable by the Board and Chief Executive Officer;
all clinical trials and studies involving human subjects are overseen by an independent Data Safety and
Monitoring Committee (DSMC), the composition and charter for which are fully compliant with FDA and
ICH guidelines ;
for clinical trials involving patients, a Clinical Advisory Board comprising board-certified experts in the
relevant clinical specialties and subspecialties provides advice and guidance to the CEO in the design
and implementation of trials from both ethical and safety perspectives;
for clinical trials conducted in the US, a Medical Monitor oversees pharmacovigilance and safety
reporting procedures and practices;
all emergent safety issues are immediately brought to the attention of the DSMC by the Medical Monitor
which has unilateral authority to unblind data and, if deemed necessary, to halt enrolment;
before any clinical trial is initiated, protocols are reviewed and approved by cognizant national
regulatory agencies (e.g., FDA, Med-Safe, Australian Therapeutic Goods Administration), a central
Institutional Review Board (IRB) and independent IRBs or Ethics Committees at each participating
clinical centre which are fully independent of Company management;
10
Neuren Pharmaceuticals Limited
clinical operations management staff maintain current certification by the Association of Clinical
Research Professionals with respect to knowledge of and compliance with clinical research regulations
and guidelines and Good Clinical Practices; and
the Company employs a full-time Director of Quality Assurance and Regulatory Affairs to oversee
compliance with FDA/ICH guidelines for preclinical research, manufacturing and clinical trials. This
person reports directly to the CEO.
The Remuneration and Audit Committee also assists the Board in its monitoring of financial and operational
risk.
Remuneration
Neuren believes having highly skilled and motivated people will allow the organisation to best pursue its
mission and achieve its goals for the benefit of shareholders and stakeholders more broadly. The ability to
attract and retain the best people is critical to the Company’s future success. The Board believes
remuneration policies are a key part of ensuring this success.
The Remuneration and Audit Committee of the Board is responsible for determining and reviewing
compensation arrangements for the Directors, Chief Executive Officers and members of the executive team.
The Committee assesses the appropriateness of the nature and amount of emoluments on a periodic basis
by reference to relevant employment market conditions, with the overall objective of ensuring maximum
stakeholder benefit from the retention of a high quality Board and executive team. To assist in achieving
these objectives, the Remuneration and Audit Committee links the nature and amount of executive
Directors’ and Officers’ emoluments to the Company’s performance.
Long-term incentive arrangements have been provided by participation in a share option plan to ensure key
employees maintain a long-term interest in the growth and value of the Company.
Non-executive Director fees are determined by the Board within the aggregate limit for Directors’ fees
approved by shareholders. The current remuneration level for the Chair is $60,000 and for non-executive
Directors is $25,000 per year with an additional $10,000 for committee membership and $5,000 for
committee Chairs. Executive Directors do not receive Directors fees. Directors and Executives receive no
retirement allowances. New Zealand Companies Act disclosures with regard to Directors’ Fees and
Executives’ remuneration are set out in the Directors’ Report.
11
Neuren Pharmaceuticals Limited
Financial Statements
for the year ended 31 December 2012
12
- grants
Neuren Pharmaceuticals Limited
Statements of Comprehensive Income
for the year ended 31 December 2012
Consolidated
Parent
2012
Notes
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
Revenue
- interest income
Other income - grants
Total revenue and other income
Depreciation and amortisation expense
Research and development costs
Patent costs
Share option compensation expense
Foreign exchange gain (loss)
Interest expense
Corporate and administrative costs
Loss before income tax
Income tax expense
Loss after income tax
4
5
253
253
5,333
5,586
(456)
(8,053)
(177)
(1,694)
(179)
-
(1,571)
(6,544)
-
(6,544)
174
174
4,150
4,324
(465)
(7,002)
(192)
(1,729)
299
(8)
(1,459)
(6,232)
-
(6,232)
250
250
-
250
(92)
(1,907)
(86)
(1,694)
(146)
-
(1,461)
(5,136)
-
(5,136)
166
166
-
166
(95)
(1,374)
(80)
(1,729)
315
(8)
(1,233)
(4,038)
-
(4,038)
Other comprehensive income (expense), net of tax
Exchange differences on translation of foreign operations
(122)
(70)
-
-
Total comprehensive loss
$
(6,666)
$
(6,302)
$
(5,136)
$
(4,038)
Profit (loss) after income tax attributable to:
Equity holders of the company
Minority interest
Total comprehensive loss attributable to:
Equity holders of the company
Minority interest
(6,422)
(122)
(6,113)
(119)
(5,136)
-
(4,038)
-
$ (6,544)
$ (6,232)
$
(5,136)
$
(4,038)
(6,544)
(122)
(6,183)
(119)
(5,136)
-
(4,038)
-
$
(6,666)
$
(6,302)
$
(5,136)
$
(4,038)
Basic and diluted loss per share
6
$
(0.01)
$
(0.01)
The notes on pages 17 to 29 form part of these financial statements
13
Neuren Pharmaceuticals Limited
Statements of Financial Position
as at 31 December 2012
ASSETS
Current assets:
Cash and cash equivalents
Trade and other receivables
Total current assets
Non-current assets:
Property, plant and equipment
Intangible assets
Investments in subsidiaries
Total non-current assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities:
Trade and other payables
Lease incentive – short term
Total current liabilities
Non-current liabilities:
Lease incentive – long term
Total liabilities
EQUITY
Share capital
Other reserves
Accumulated deficit
Consolidated
Parent
Notes
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
7
8
9
10
14
11
12
6,477
164
6,641
32
4,021
-
4,053
9,844
138
9,982
6
4,651
-
4,657
6,450
1,521
7,971
32
472
4,257
4,761
9,797
1,015
10,812
6
544
4,257
4,807
$
10,694
$
14,639
$
12,732
$
15,619
2,676
7
2,683
17
2,700
2,204
9
2,213
-
2,213
1,387
7
1,394
17
1,411
1,387
9
1,396
-
1,396
80,914
9,933
(82,672)
80,374
8,361
(76,250)
80,914
10,192
(79,785)
80,374
8,498
(74,649)
Total equity attributable to equity
8,175
12,485
11,321
14,223
holders
Minority interest in equity
Total equity
(181)
(59)
-
-
7,994
12,426
11,321
14,223
TOTAL LIABILITIES AND EQUITY
$
10,694
$
14,639
$
12,732
$
15,619
The notes on pages 17 to 29 form part of these financial statements
For and on behalf of the Board of Directors who authorised the issue of these financial statements on
25 March 2013.
Dr Richard Treagus
Chairman
Dr Trevor Scott
Director
14
Neuren Pharmaceuticals Limited
Statements of Changes in Equity
for the year ended 31 December 2012
Consolidated
Share
Option
Reserve
NZ$’000
Foreign
Currency
Translation
Reserve
NZ$’000
Total
Attributable
to Equity
Holders
NZ$’000
Accumulated
Deficit
NZ$’000
Share
Capital
NZ$’000
Minority
Interest
NZ$’000
Total
Equity
NZ$’000
Equity as at 1 January 2011
$ 68,858
$ 6,053
$
(67)
$ (70,137)
$ 4,707
$
(53)
$ 4,654
Comprehensive loss for the year
(70)
(6,113)
(6,183)
(119)
(6,302)
Transactions with Owners:
Shares issued in private placements
Shares issued in rights issue
Shares issued on option exercise
Shares issued on conversion of notes
Share issue costs expensed
6,330
4,774
311
928
(111)
Share option grants for services
(716)
2,445
6,330
4,774
311
928
(111)
1,729
Minority interest issued in subsidiary
-
113
6,330
4,774
311
928
(111)
1,729
113
Equity as at 31 December 2011
$ 80,374
$ 8,498
$
(137)
$ (76,250)
$ 12,485
$
(59)
$ 12,426
Comprehensive loss for the year
(122)
(6,422)
(6,544)
(122)
(6,666)
Transactions with Owners:
Shares issued on option exercise
Share issue costs expensed
547
(7)
Share option grants for services
1,694
547
(7)
1,694
547
(7)
1,694
Equity as at 31 December 2012
$ 80,914
$ 10,192
$
(259)
$ (82,672)
$ 8,175
$
(181)
$ 7,994
Parent
Share
Option
Reserve
NZ$’000
Foreign
Currency
Translation
Reserve
NZ$’000
Total
Attributable
to Equity
Holders
NZ$’000
Accumulated
Deficit
NZ$’000
Share
Capital
NZ$’000
Equity as at 1 January 2011
$ 68,858
$ 6,053
$
-
$ (70,611)
$ 4,300
Comprehensive loss for the year
(4,038)
(4,038)
Transactions with Owners:
Shares issued in private placements
Shares issued in rights issue
Shares issued on option exercise
Shares issued on conversion of notes
Share issue costs expensed
6,330
4,774
311
928
(111)
Share option grants for services
(716)
2,445
6,330
4,774
311
928
(111)
1,729
Equity as at 31 December 2011
$ 80,374
$ 8,498
$
-
$ (74,649)
$ 14,223
Comprehensive loss for the year
Transactions with Owners:
Shares issued on option exercise
Share issue costs expensed
547
(7)
Share option grants for services
1,694
(5,136)
(5,136)
547
(7)
1,694
Equity as at 31 December 2012
$ 80,914
$ 10,192
$
-
$ (79,785)
$ 11,321
The notes on pages 17 to 29 form part of these financial statements
15
Neuren Pharmaceuticals Limited
Statements of Cash Flows
for the year ended 31 December 2012
Cash flows from operating activities:
Receipts from grants
Interest received
GST refunded
Interest paid
Payments to employees
Payments to other suppliers
Consolidated
Parent
2012
2011
2012
2011
NZ$’000
NZ$’000
NZ$’000
NZ$’000
5,333
4,150
254
77
-
(1,696)
(7,687)
174
57
-
(1,545)
(6,948)
-
252
77
-
(1,611)
(1,844)
-
165
67
-
(1,398)
(1,311)
Net cash used in operating activities
(3,719)
(4,112)
(3,126)
(2,477)
Cash flows from investing activities:
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant
and equipment
Advance (to) from subsidiaries
(37)
(8)
2
-
(2)
-
-
-
Net cash used in investing activities
(43)
(2)
Cash flows from financing activities:
Proceeds from the issue of shares
Proceeds from the exercise of options
Proceeds from the issue of convertible notes
Proceeds from minority interest
Payment of share issue expenses
Net cash provided from financing activities
-
547
-
-
(7)
540
11,104
311
316
113
(113)
11,731
(37)
(8)
2
(576)
(619)
-
547
-
-
(7)
(2)
-
-
(303)
(305)
11,104
311
316
-
(113)
540
11,618
Net (decrease) increase in cash
(3,222)
7,617
(3,205)
8,836
Effect of exchange rate changes on cash balances
Cash at the beginning of the year
(145)
9,844
271
1,956
(142)
9,797
308
653
Cash at the end of the year
$
6,477
$
9,844
$
6,450
$
9,797
Reconciliation with loss after income tax:
Loss after income tax
$
(6,544)
$
(6,232)
$
(5,136)
$
(4,038)
Non-cash items requiring adjustment:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Convertible note interest
Share option compensation expense
Foreign exchange (gain) loss
Lease incentive recognition and amortisation
Changes in working capital:
Trade and other receivables
Trade and other payables
12
444
-
1,694
179
15
(29)
510
19
446
8
1,729
(299)
(12)
282
(53)
12
80
-
1,694
146
15
26
37
17
78
8
1,729
(315)
(12)
-
56
Net cash used in operating activities
$
(3,719)
$
(4,112)
$
(3,126)
$
(2,477)
The notes on pages 17 to 29 form part of these financial statements
16
Neuren Pharmaceuticals Limited
Notes to the Financial Statements
for the year ended 31 December 2012
1. Nature of business
Neuren Pharmaceuticals Limited (Neuren or the Company, and its subsidiaries, or the Group) is a publicly listed
biopharmaceutical company focusing on the development of drugs for neurological disorders and discovery of
molecules to treat certain cancers. The drugs target symptoms of acute brain injury resulting from traumatic brain
injury and stroke, as well as symptoms of chronic conditions such as Rett Syndrome, Fragile X Syndrome, and
Parkinson’s disease. The Group has operations in New Zealand and the United States.
The Company is a limited liability company incorporated and domiciled in New Zealand. The address of its
registered office in New Zealand is Level 1, 59 Wellington Street, Auckland, and in Australia Level 13, 122 Arthur
Street, North Sydney. Neuren ordinary shares are listed on the Australian Securities Exchange (ASX code: NEU).
These consolidated financial statements have been approved for issue by the Board of Directors on 25 March 2013.
Inherent Uncertainties
There are inherent uncertainties associated with assessing the carrying value of the acquired intellectual
property. The ultimate realisation of the carrying values of intellectual property totalling $4,015,000 (after
amortisation) is dependent on the Company and Group successfully developing its products, on licensing the
products, or divesting the intellectual property so that it generates future economic benefits to the Company.
The Group’s research and development activities involve inherent risks. These risks include, among others:
dependence on, and the Group’s ability to retain key personnel; the Group’s ability to protect its intellectual
property and prevent other companies from using the technology; the Group’s business is based on novel and
unproven technology; the Group’s ability to sufficiently complete the clinical trials process; and technological
developments by the Group’s competitors may render its products obsolete.
The Company has a business plan which will require a high level of expenditure until product revenue streams
are established and therefore expects to continue to incur additional net losses until then. In the future, the
Company will need to raise further financing through other public or private equity financings, collaborations or
other arrangements with corporate sources, or other sources of financing to fund operations. There can be no
assurance that such additional financing, if available, can be obtained on terms reasonable to the Company. In
the event the Company is unable to raise additional capital, future operations will need to be curtailed or
discontinued.
2. Summary of significant accounting policies
These general-purpose financial statements are for the year ended 31 December 2012 and have been prepared in
accordance with and comply with generally accepted accounting practice in New Zealand, International Financial
Reporting Standards, New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other
applicable Financial Reporting Standards as appropriate for profit-oriented entities.
(a) Basis of preparation
Entities Reporting
The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Group as at 31
December 2012 and the results of all subsidiaries for the year then ended. Neuren Pharmaceuticals Limited and
its subsidiaries, which are designated as profit-oriented entities for financial reporting purposes, together are
referred to in these financial statements as the Group.
The financial statements of the ‘Parent’ are for the Company as a separate legal entity.
Statutory Base
Neuren is registered under the New Zealand Companies Act 1993 and is an issuer in terms of the New Zealand
Securities Act 1978. Neuren is also registered as a foreign company under the Australian Corporations Act 2001.
These financial statements have been prepared in accordance with the requirements of the Financial Reporting
Act 1993 and the Companies Act 1993.
Historical cost convention
These financial statements have been prepared under the historical cost convention as modified by certain
policies below.
Critical accounting estimates
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires
the Company to exercise its judgement in the process of applying the Company’s accounting policies such as in
relation to impairment, if any, of intangible assets set out in note 10. Actual results may differ from those
estimates.
Changes in accounting policies
There were no changes in accounting policies in the year ended 31 December 2012.
17
Neuren Pharmaceuticals Limited
(b) Principles of Consolidation
Subsidiaries
Subsidiaries are all those entities over which the Company has the power to govern the financial and operating
policies, generally accompanying a shareholding of more than one-half of the voting rights.
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.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of
an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred
or assumed at the date of exchange. Costs attributable to the acquisition are expensed as incurred. Identifiable
assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially
at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s
share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair
value of the net assets of the subsidiary acquired, the difference is recognised directly in the Statement of
Comprehensive Income.
Inter-company transactions, balances and unrealised gains on transactions between Group companies 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 Company.
(c) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been identified as the Chief Executive Officer.
(d) Foreign Currency Translation
(i) Functional and Presentation Currency
Items included in the financial statements of each of the Group’s operations are measured using the currency that
best reflects the economic substance of the underlying events and circumstances relevant to that operation
(”functional currency”). The Consolidated and Parent financial statements are presented in New Zealand dollars,
which is the Group’s presentation currency.
(ii) Transactions and Balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in the Statement of Comprehensive Income, except when deferred in equity as
qualifying cash flow hedges and qualifying net investment hedges.
(iii) Foreign Operations
The results and financial position of foreign entities (none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the presentation currency are translated into the
presentation currency as follows:
assets and liabilities for each statement of financial position presented are translated at the closing rate at the
date of that statement of financial position;
income and expenses for each Statement of Comprehensive Income are translated at average exchange rates;
and
all resulting exchange differences are recognised as a separate component of equity.
Exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and
other currency instruments designated as hedges of such investments, are taken to shareholders’ equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and translated at the closing rate.
(e) Revenue recognition
Grants
Grants received are recognised in the Statement of Comprehensive Income when the requirements under the grant
agreement have been met. Any grants for which the requirements under the grant agreement have not been
completed are carried as liabilities until all the conditions have been fulfilled.
Out-licensing and royalty revenue
Out-licensing and royalty revenue comprises income generated from technology out-licensing and research and
development collaboration agreements. Where licensing agreements include non-refundable milestone income,
revenue is recognised on achieving the milestones. If any milestone income is creditable against royalty payments
then it is deferred and released to the comprehensive income statement over the period in which the royalties
would otherwise be receivable. Royalty income relating to the sale by a licensee of licensed product is recognised
on an accruals basis in accordance with the substance of the relevant agreement and based on the receipt from
the licensee of the relevant information to enable calculation of the royalty due.
18
Neuren Pharmaceuticals Limited
Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
(f) Research and development
Research costs include direct and directly attributable overhead expenses for drug discovery, research and pre-
clinical and clinical trials. Research costs are expensed as incurred.
When a project reaches the stage where it is reasonably certain that future expenditure can be recovered through
the process or products produced, development expenditure is recognised as a development asset using the
following criteria:
a product or process is clearly defined and the costs attributable to the product or process can be identified
separately and measured reliably;
the technical feasibility of the product or process can be demonstrated;
the existence of a market for the product or process can be demonstrated and the Group intends to produce and
market the product or process;
adequate resources exist, or their availability can be reasonably demonstrated to complete the project and
market the product or process.
In such cases the asset is amortised from the commencement of commercial production of the product to which it
relates on a straight-line basis over the years of expected benefit. Research and development costs are otherwise
expensed as incurred.
Income tax
(g)
The income tax expense for the period is the tax payable on the period’s taxable income or loss using tax rates
enacted at the balance sheet date and adjusted by changes in deferred tax assets and liabilities attributable to
temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial
statements, and to unused tax losses.
Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply
when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or
substantively enacted at the balance sheet date. The relevant tax rates are applied to the cumulative amounts of
deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made
for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax
asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than
a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit
or loss.
Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable
that future taxable amounts will be available to utilise those temporary differences and losses.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised
directly in equity.
(h) Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified
as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are
charged to the comprehensive income statement on a straight-line basis over the period of the lease.
Impairment of non-financial assets
(i)
Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.
Assets that are subject to amortisation are reviewed whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. The carrying amount of a long-lived asset is considered
impaired when the recoverable amount from such asset is less than its carrying value. In that event, a loss is
recognised in the Statement of Comprehensive Income based on the amount by which the carrying amount exceeds
the fair market value less costs to sell of the long-lived asset. Fair market value is determined using the
anticipated cash flows discounted at a rate commensurate with the risk involved.
(j) Goods and services tax (GST)
The financial statements have been prepared so that all components are presented exclusive of GST. All items in
the statement of financial position are presented net of GST, with the exception of receivables and payables,
which include GST invoiced.
(k) Intellectual property
Costs in relation to protection and maintenance of intellectual property are expensed as incurred unless the
project has yet to be recognised as commenced, in which case the expense is deferred and recognised as contract
work in progress until the revenues and costs associated with the project are recognised.
(l) Cash and cash equivalents
Cash and cash equivalents comprises cash and demand deposits held with established financial institutions and
highly liquid investments, which have maturities of three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
19
Neuren Pharmaceuticals Limited
(m) Accounts receivable
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision
for doubtful debts.
Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are
written off. A provision for doubtful receivables is established when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms of receivables.
(n) Property, plant and equipment
Property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure
that is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Company and the
cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statement of
Comprehensive Income during the financial period in which they are incurred.
Depreciation is determined principally using the straight-line method to allocate their cost, net of their residual
values, over their estimated useful lives, as follows:
Scientific equipment
Computer equipment
Office furniture, fixtures & fittings
Leasehold Improvements
4 years
2 years
4 years
Term of lease
(o) Intangible assets
Intellectual property
Acquired patents, trademarks and licences have finite useful lives and are carried at cost less accumulated
amortisation and impairment losses. Amortisation is calculated using the straight line method to allocate the cost
over the anticipated useful lives, which are aligned with the unexpired patent term or agreement over trademarks
and licences.
Acquired software
Acquired software licences are capitalised on the basis of the costs incurred to acquire and bring to use the
specific software. These costs are amortised over their estimated useful lives (two years).
(p) Employee benefits
Wages and salaries and annual leave
Liabilities for wages and salaries, bonuses and annual leave expected to be settled within 12 months of the
reporting date are recognised in accrued liabilities in respect of employees’ services up to the reporting date and
are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating
sick leave are recognised when the leave is taken and measured at the rates paid or payable.
Share-based payments
Neuren operates an equity-settled share option plan and awards certain employees and consultants share options,
from time to time, on a discretionary basis. The fair value of the services received in exchange for the grant of the
options is recognised as an expense with a corresponding increase in other reserve equity over the vesting period.
The total amount to be expensed over the vesting period is determined by reference to the fair value of the
options at grant date. At each balance sheet date, the Company revises its estimates of the number of options
that are expected to vest and become exercisable. It recognises the impact of the revision of original estimates, if
any, in the Statement of Comprehensive Income, and a corresponding adjustment to equity over the remaining
vesting period.
The proceeds received net of any directly attributable transaction costs are credited to share capital when the
options are exercised.
(q) Share issue costs
Costs associated with the issue of shares which are recognised in shareholders’ equity are treated as a reduction of
the amount collected per share.
(r) Financial instruments
Financial instruments recognised in the statement of financial position include cash and cash equivalents, trade
and other receivables and payables, equipment finance and convertible notes. The Company believes that the
amounts reported for financial instruments approximate fair value due to their short term nature.
Although it is exposed to interest rate and foreign currency risks, the Company does not utilise derivative financial
instruments.
Financial assets: Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted
in an active market. They are included in current assets, except for maturities greater than 12 months after the
balance sheet date. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade
and other receivables’ and cash and cash equivalents in the statement of financial position. Loans and receivables
are measured at amortised cost using the effective interest method less impairment.
20
Neuren Pharmaceuticals Limited
(s) Earnings per share
Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the
Company by the weighted average number of ordinary shares outstanding during the period.
(t) Standards, interpretations and amendments to published standards that are not yet effective
Certain new standards, amendments and interpretations to existing standards have been published that are
mandatory for later periods and which the Group has not early adopted. The key items applicable to the Group
are:
NZ IFRS 13 ’Fair value measurement’ (effective from 1 January 2013) replaces the guidance on fair
value measurement in existing IFRS literature with a single standard. The Group does not intend to adopt the
new standard before its operative date, which means that it would be first applied in the annual reporting
period ending 31 December 2013.
IAS 1 Presentation of Financial Statements (as amended in 2011) will be effective for years beginning 1 July
2012. It requires that items in Other Comprehensive Income be grouped on the basis of whether they are
potentially reclassifiable to the income statement in subsequent periods. The Group intends to adopt the new
standard from 1 January 2013.
NZ IFRS 10 ‘Consolidated Financial Statements’ (effective from 1 January 2013) requires a parent company to
present consolidated financial statements as those of a single economic entity, replacing the requirements
previously contained in NZ IAS 27 ‘Consolidated and Separate Financial Statements’. The Group does not intend
to adopt this until the effective date.
NZ IFRS 9: Financial Instruments (effective for annual periods beginning on or after 1 January 2015) partly
replaces NZ IAS 39 and introduces requirements for classifying and measuring financial assets and liabilities.
There are no other standards, amendments or interpretations to existing standards which have been issued, but
are not yet effective, which are expected to impact the Company or Group.
3. Segment information
(a) Description of Segments
The chief operating decision maker has been identified as the CEO, who reviews the business largely on a
geographic basis and assesses results from New Zealand and the USA separately. The information reviewed is
prepared in the same format as included in the financial statements.
(b) Geographic Segments
Consolidated
Segment revenue
Segment result before minority interest
Segment assets
Segment liabilities
Acquisitions of property, plant and equipment, intangibles
and other non-current segment assets
Depreciation and amortisation expense
2012
2012
2012
2012
New Zealand
United States
Consolidation
Total Group
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Adjustments
272
(5,576)
12,783
2,117
45
96
5,314
(968)
3,644
2,059
-
360
-
-
(5,733)
(1,476)
-
-
5,586
(6,544)
10,694
2,700
45
456
Consolidated
Segment revenue
Segment result before minority interest
Segment assets
Segment liabilities
Acquisitions of property, plant and equipment, intangibles
and other non-current segment assets
Depreciation and amortisation expense
2011
2011
2011
2011
New Zealand
United States
Consolidation
Total Group
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Adjustments
297
(4,468)
15,672
1,664
2
99
4,027
(1,764)
4,168
1,493
-
366
-
-
(5,201)
(944)
-
-
4,324
(6,232)
14,639
2,213
2
465
21
Neuren Pharmaceuticals Limited
4. Expenses
Loss before income tax includes the following specific expenses:
Depreciation – property, plant and equipment
Scientific equipment
Computer equipment
Fixtures and fittings
Leasehold improvements
Total depreciation
Amortisation – intangible assets
Intellectual property
Software
Total amortisation
Remuneration of auditors
Audit fees
Advisory fees
Taxation fees
Total remuneration of auditors
Employee benefits expense
Salaries and wages
Share option compensation
Total employee benefits expense
Directors’ fees
Directors’ fees waived
Directors’ share option compensation
Lease expense
5.
Income tax
Income tax expense
Current tax
Deferred tax
Income tax expense
Consolidated
Parent
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
-
10
1
1
12
442
2
444
45
-
-
45
1,581
997
2,578
208
(159)
697
128
8
6
3
2
19
446
-
446
47
-
1
48
1,567
833
2,400
205
-
720
175
-
10
1
1
12
78
2
80
44
-
-
44
1,497
997
2,494
208
(159)
697
128
8
4
3
2
17
78
-
78
43
-
1
44
1,421
833
2,254
205
-
720
175
Consolidated
Parent
2012
NZ$’000
2011
2012
NZ$’000
NZ$’000
2011
NZ$’000
-
-
-
-
-
-
-
-
-
-
-
-
Numerical reconciliation of income tax expense to prima
facie tax payable (receivable):
Loss before income tax
(6,544)
(6,232)
(5,136)
(4,038)
Tax at rates applicable in the respective countries
(1,963)
(1,983)
(1,438)
(1,130)
Tax effect of amounts not deductible (taxable) in calculating
taxable income:
Share option compensation
Other expenses not deductible for tax purposes
Foreign jurisdiction withholding tax
Under (over) provision in prior years
Deferred tax assets not recognised
Income tax expense
474
1
484
-
(1,488)
(1,499)
-
2
1,486
-
-
1,069
430
-
474
1
(963)
-
-
963
-
484
-
(646)
-
-
646
-
The weighted average applicable tax rate for New Zealand segments is 28% and for United States segments 41%
(2011: 28% and 41% respectively).
22
Neuren Pharmaceuticals Limited
6. Earnings (loss) per share
Basic loss per share is based upon the weighted average number of outstanding ordinary shares. For the years
ended 31 December 2012 and 2011, the Company’s potentially dilutive ordinary share equivalents (being the
options over ordinary shares set out in note 12) have an anti-dilutive effect on loss per share and, therefore, have
not been included in determining the total weighted average number of ordinary shares outstanding for the
purpose of calculating diluted loss per share.
Consolidated
2012
NZ$’000
2011
NZ$’000
Profit (loss) after income tax attributable to equity holders
(6,422)
(6,113)
Weighted average shares outstanding (basic)
Weighted average shares outstanding (diluted)
1,174,106,753
764,781,209
1,174,106,753
764,781,209
Basic and diluted loss per share
($0.01)
($0.01)
7. Cash and cash equivalents
Cash
Demand and short-term deposits
8. Trade and other receivables
Trade receivables
Prepayments
Due from subsidiaries
Consolidated
Parent
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
52
6,425
6,477
38
9,806
9,844
38
6,412
6,450
29
9,768
9,797
Consolidated
Parent
2012
NZ$’000
2011
2012
NZ$’000
NZ$’000
2011
NZ$’000
14
150
-
164
24
114
-
138
11
33
1,477
1,521
24
47
944
1,015
9. Property, plant and equipment
Parent
NZ$’000
NZ$’000
NZ$’000
NZ$’000
NZ$’000
Scientific
Equipment
Computer
Equipment
Fixtures
Leasehold
Total
& Fittings
Improvements
As at 1 January 2011
Cost
Accumulated depreciation
Net book value
Movements in the year ended
31 December 2011
Opening net book value
Additions
Depreciation
Disposals
Closing net book value
As at 31 December 2011
Cost
Accumulated depreciation
Net book value
Movements in the year ended
31 December 2012
Opening net book value
Additions
Depreciation
Disposals
Closing net book value
As at 31 December 2012
Cost
Accumulated depreciation
Net book value
100
(92)
8
8
-
(8)
-
-
100
(100)
-
-
-
-
-
-
41
(41)
-
75
(70)
5
5
2
(4)
-
3
77
(74)
3
3
37
(10)
-
30
53
(23)
30
43
(39)
4
4
-
(3)
-
1
43
(42)
1
1
1
(1)
-
1
36
(35)
1
10
(6)
4
4
-
(2)
-
2
10
(8)
2
2
-
(1)
-
1
2
(1)
1
228
(207)
21
21
2
(17)
-
6
230
(224)
6
6
38
(12)
-
32
132
(100)
32
23
Neuren Pharmaceuticals Limited
In addition to the Parent’s property, plant and equipment noted above, the only other property, plant and
equipment within the Group was computer equipment with a cost of US$4,000 purchased in 2009 by the US based
subsidiary for use in the Phase 2 trial of NNZ-2566. Accumulated depreciation as at 31 December 2012 was
US$4,000 (2011: US$4,000) and the depreciation expense for the year ended 31 December 2012 was nil (2011:
US$1,000).
Intellectual
Property
NZ$’000
Acquired
Software
Total
NZ$’000
NZ$’000
6,873
(1,752)
5,121
5,121
(446)
(24)
4,651
6,856
(2,205)
4,651
4,651
-
(442)
(194)
4,015
6,583
(2,568)
4,015
35
(35)
-
-
-
-
-
-
-
-
-
8
(2)
-
6
8
(2)
6
6,908
(1,787)
5,121
5,121
(446)
(24)
4,651
6,856
(2,205)
4,651
4,651
8
(444)
(194)
4,021
6,591
(2,570)
4,021
Intellectual
Property
NZ$’000
Acquired
Software
Total
NZ$’000
NZ$’000
1,167
(545)
622
622
(78)
544
1,167
(623)
544
544
-
(78)
466
1,167
(701)
466
35
(35)
-
-
-
-
-
-
-
-
8
(2)
6
8
(2)
6
1,202
(580)
622
622
(78)
544
1,167
(623)
544
544
8
(80)
472
1,175
(703)
472
10. Intangible assets
Consolidated
As at 1 January 2011
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2011
Opening net book value
Amortisation
Exchange differences
Closing net book value
As at 31 December 2011
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2012
Opening net book value
Additions
Amortisation
Exchange differences
Closing net book value
As at 31 December 2012
Cost
Accumulated amortisation
Net book value
Parent
As at 1 January 2011
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2011
Opening net book value
Amortisation
Closing net book value
As at 31 December 2011
Cost
Accumulated amortisation
Net book value
Movements in the year ended 31 December 2012
Opening net book value
Additions
Amortisation
Closing net book value
As at 31 December 2012
Cost
Accumulated amortisation
Net book value
24
Neuren Pharmaceuticals Limited
11. Trade and other payables
Trade payables
Accruals
Employee benefits
Due to subsidiaries
12. Share capital
Consolidated and Parent
Issued share capital
Consolidated
Parent
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
2,168
360
148
-
2,676
1,596
346
262
-
2,204
929
310
148
-
807
318
262
-
1,387
1,387
2012
Shares
2011
Shares
2012
2011
NZ$’000
NZ$’000
Ordinary shares on issue at beginning of year
1,155,864,425
Shares issued in private placements
Shares issued in rights Issue
Shares issued on conversion of notes
Shares issued on option exercise
Share issue expenses – cash issue costs
Share issue expenses – fair value of options granted
-
-
-
26,922,145
-
-
424,764,802
384,092,211
293,484,412
39,273,507
14,249,493
-
-
80,374
-
-
-
547
(7)
-
68,858
6,330
4,774
928
311
(111)
(716)
1,182,786,570
1,155,864,425
80,914
80,374
(a) Ordinary Shares
The ordinary shares have no par value and all ordinary shares are fully paid-up and rank equally as to dividends
and liquidation, with one vote attached to each fully paid ordinary share.
(b) Share Options
2011 option grants
From the beginning of the year until termination in May 2011 of the convertible loan agreement described in note
12, the Company granted 39,273,507 options in conjunction with monthly conversions and final conversion on
termination of convertible notes under the facility. The options have a term of 4 years from their grant date and
are exercisable into ordinary shares on a one-for-one basis with exercise prices ranging from A$0.0146 to A$0.0163
per share.
2010 and prior grants
Throughout 2010 the Company granted 72,517,351 options in conjunction with monthly conversions of convertible
notes under the facility described in note 12. The options have a term of 4 years from their grant date and are
exercisable into ordinary shares on a one-for-one basis with exercise prices ranging from A$0.0163 to A$0.0337 per
share. 14,249,493 of these options were exercised on 7 November 2011 for cash proceeds of A$240,000.
On 23 December 2009 the Company granted 40,306,174 options (“December 2009 Placement Options”) in
conjunction with a private placement on that date. The options are exercisable into ordinary shares on a one-for-
one basis with an exercise price of A$0.0457 per share. The options expire on 23 December 2013.
On 4 December 2009 the Company granted 4,629,630 options (“December 2009 Conversion Options”) in
conjunction with partial conversion of a convertible note. The options are exercisable into ordinary shares on a
one-for-one basis with an exercise price of A$0.0389 per share. The options expire on 4 December 2013.
On 18 November 2009 the Company granted 20,000,000 options (“November 2009 Options”) in conjunction with
obtaining a convertible loan facility. The options are exercisable into ordinary shares on a one-for-one basis with
an exercise price of A$0.0445 per share. The options expire on 18 November 2013.
The above options were otherwise issued on terms and conditions not materially different to those of the Share
Option Plan described below.
Share Option Plan
The Company has established a Share Option Plan to assist in the retention and motivation of senior employees of,
and certain consultants to, the Company (“Participants”). Under the Share Option Plan, options may be offered to
Participants by the Remuneration and Audit Committee. The maximum number of options to be issued and
outstanding under the Share Option Plan is 15% of the issued ordinary shares of the Company at any time, with one
third of these available to the directors with the approval of shareholders. No payment is required for the grant of
options under the Share Option Plan. Each option is an option to subscribe in cash for one ordinary share, but does
not carry any right to vote. Upon the exercise of an option by a Participant, each ordinary share issued will rank
equally with other ordinary shares of the Company. Options granted under the Share Option Plan generally vest
25
Neuren Pharmaceuticals Limited
over three years service by the Participant and lapse five years after grant date. At 31 December 2012 there were
153 million options outstanding under the Share Option Plan (2011: 138 million).
Movements in the number of share options are as follows:
Consolidated and Parent
Outstanding at 1 January 2011
Granted
Exercised
Expired
Outstanding at 31 December 2011
Granted
Exercised
Weighted
Average
Exercise Price
(NZ$)
$
$
$
$
$
$
$
0.048
0.029
0.022
0.325
0.036
0.024
0.020
Options
166,453,155
161,273,507
(14,249,493)
(3,000,000)
310,477,169
15,000,000
(26,922,145)
Weighted
Average
Exercise Price
(NZ$)
Exercisable
166,453,155
$
0.048
235,810,505
$
0.038
Outstanding at 31 December 2012
298,555,024
$
0.036
251,221,695
$
0.037
The weighted average remaining contractual life of outstanding share options is as follows:
Consolidated and Parent
Options
2012
Weighted Average
Remaining
Contract Life
(years)
Exercise price range
A$0. 0377 – A$0.0457
A$0. 0130 – A$0.0337
119,935,804
178,619,220
298,555,024
2.3
2.7
2.5
2011
Weighted Average
Remaining
Contract Life
(years)
3.3
3.5
3.4
Options
119,935,804
190,541,365
310,477,169
The weighted average assessed fair value of options granted during the year determined using the Black-Scholes
valuation model was NZ$0.035 per option (2011: NZ$0.027). The significant weighted average inputs into the
model were a grant date share price of NZ$0.043 (2011: NZ$0.032), volatility of 122% (2011: 130%), dividend yield
of 0% (2011: 0%), an expected option life of 3.6 years (2011: 3.6 years), and an annual risk-free interest rate of
2.93% (2011: 3.82%). The expected price volatility was derived by analysing the historic volatility of the Company’s
shares since listing on the ASX.
13. Deferred tax
Deferred tax asset (liability)
Amounts recognised in profit or loss
Provisions and accruals
Property, plant and equipment
Intangible assets
Tax losses
Unrecognised deferred tax assets
Deferred tax asset (liability)
Movements
Deferred tax asset (liability) at the beginning of the year
Credited (charged) to the income statement (note 5)
Effect of change in tax rates
Exchange differences
Change in unrecognised deferred tax assets
Deferred tax asset (liability) at the end of the year
Consolidated
Parent
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
496
4
(958)
22,317
21,859
(21,859)
-
-
1,486
-
50
(1,536)
-
324
9
(1,219)
21,209
20,323
(20,323)
-
-
430
(1,186)
(10)
766
-
30
4
25
17,796
17,855
(17,855)
-
-
963
-
-
(963)
-
64
9
(12)
16,831
16,892
(16,892)
-
-
646
(1,160)
-
514
-
26
Neuren Pharmaceuticals Limited
14. Subsidiaries
Investment in subsidiaries
(a)
The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in
accordance with the accounting policy described in note 2(b).
Name of entity
Date of
incorporation
Principal
activities
Interest
held
Domicile
AgVentures Limited
NeuroendocrinZ Limited
7 October 2003
Dormant
10 July 2002
Dormant
Neuren Pharmaceuticals Inc.
20 August 2002
US Based Office
Hamilton Pharmaceuticals Inc.
2 April 2004
Clinical research
Neuren Pharmaceuticals (Australia) Pty Ltd
9 November 2006
Dormant
100%
100%
100%
100%
100%
NZ
NZ
USA
USA
Australia
Perseis Therapeutics Limited
25 March 2009
Preclinical research
72.2%
NZ
Amount due to (from)
Parent
2012
NZ$’000
2011
NZ$’000
-
-
26
778
-
673
-
-
22
742
-
180
All subsidiaries have a balance date of 31 December, except Perseis Therapeutics which has a 31 March year end.
15. Commitments and contingencies
(a) Operating leases
The following aggregate future non-cancellable minimum lease payments for premises have been committed to by
the Company, but not recognised in the financial statements. The Company’s premises commitment is for a four
year and three month lease commencing May 2012, with no rights of renewal, and annual rental reviews
throughout.
Consolidated and Parent
Not later than one year
Later than one year and not later than five years
Later than five years
2012
NZ$’000
2011
NZ$’000
83
218
-
301
111
-
-
111
(b) Legal claims
The Company has not entered into any collaborative arrangements and has no other significant legal contingencies
as at 31 December 2012.
(c) Capital commitments
The Company is not committed to the purchase of any property, plant or equipment as at 31 December 2012
(2011: nil).
16. Related party transactions
(a) Key management and personnel
The key management personnel include the directors of the Company, the CEO, and direct reports to the CEO
Compensation for this group was as follows:
Consolidated and Parent
Directors’ – fees and other short term benefits
– accrued fees waived
– share option compensation
CEO and management – short-term benefits
– share option compensation
2012
NZ$’000
2011
NZ$’000
268
(159)
697
1,298
997
3,101
265
-
720
1,085
833
2,903
During 2011, in conjunction with the rights issue offer made by the Company, Dr Trevor Scott subscribed for and
was allotted 16,694,126 ordinary shares at NZ$0.017 per share.
(b) Subsidiaries
Interests in and amounts due from subsidiaries are set out in note 14. The Parent funds the activities of the
subsidiaries throughout the year through the intercompany accounts as needed. All amounts due between entities
in the Group are payable on demand and bear no interest. During the year ended 31 December 2012 the Parent
charged Perseis Therapeutics $45,600 (2011: $50,000) for monthly management, intellectual property and
administrative services.
27
Neuren Pharmaceuticals Limited
17. Events after balance date
As at the date of these financial statements there were no events arising since 31 December 2012 which require
disclosure.
18. Financial instruments and risk management
(a) Categories of financial instruments
Financial assets
Cash and cash equivalents
Trade receivables
Total financial assets (loans and receivables classification)
Financial liabilities
Amortised cost:
Trade and other payables
Total financial liabilities
Consolidated
Parent
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
6,477
14
6,491
2,676
2,676
9,844
24
9,868
2,204
2,204
6,450
11
6,461
1,387
1,387
9,797
24
9,821
1,387
1,387
(b) Risk management
The Company and its subsidiaries are subject to a number of financial risks which arise as a result of its activities.
Currency risk
During the normal course of business the Company and its subsidiaries enter into contracts with overseas
customers or suppliers or consultants that are denominated in foreign currency. As a result of these transactions
there is exposure to fluctuations in foreign exchange rates. The Company also has a net investment in a foreign
operation, whose net assets are exposed to foreign currency translation risk.
The Group does not utilise derivative financial instruments. It operates a policy of holding cash and cash
equivalents in the currency of estimated future supplier payments, however it does not designate formal hedges
and as such remains unhedged against foreign currency fluctuations. A foreign exchange loss of $179,000 is
included in results for the year ended 31 December 2012 (2011: $299,000 gain).
The carrying amounts of foreign currency denominated assets and liabilities are as follows:
Assets
US dollars
Australian dollars
UK pounds
Liabilities
US dollars
Australian dollars
UK pounds
Consolidated
Parent
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
3,645
3,643
1
1,658
233
373
5,055
4,241
2
1,202
150
181
805
3,643
1
548
166
312
1,651
4,241
2
460
142
181
The following table details the Group's sensitivity to a 10% increase and decrease in each of the currencies noted
against the New Zealand dollar as at the reporting date.
Decrease (increase) in loss after income tax
10% strengthening of NZ dollar against:
US dollar
Australian dollar
UK pound
10% weakening of NZ dollar against:
US dollar
Australian dollar
UK pound
Consolidated
Parent
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
139
(310)
34
(170)
379
(41)
127
(372)
16
(155)
455
(20)
(23)
(316)
28
29
386
(35)
(108)
(373)
16
132
455
(20)
28
Neuren Pharmaceuticals Limited
Foreign currency denominated transactions occur consistently throughout the year. In the directors’ opinion, the
sensitivity analysis set out above is unrepresentative of the inherent foreign exchange risk as the year end
exposure does not reflect the exposure during the year.
Interest rate risk
The Company and the Group are exposed to interest rate risk as entities in the Group hold cash and cash
equivalents.
The effective interest rates on financial assets are as follows:
Financial assets
Cash and cash equivalents
New Zealand dollar cash deposits
New Zealand dollar interest rate
US dollar cash deposits
US dollar interest rate
Australian dollar cash deposits
Australian dollar interest rate
Consolidated
Parent
2012
NZ$’000
2011
NZ$’000
2012
NZ$’000
2011
NZ$’000
2,796
3.0%
13
0.1%
3,616
2.5%
4,666
3.1%
924
0.1%
4,216
3.6%
2,796
3.0%
-
0.1%
3,616
2.5%
4,666
3.1%
886
0.1%
4,216
3.6%
The Company and Group do not have any interest bearing financial liabilities. Trade and other receivables and
payables do not bear interest and are not interest rate sensitive.
The Company and Group’s interest bearing financial assets bear interest at overnight deposit rates and accordingly
any change in interest rates would have an immaterial effect on reported loss after tax. Similarly, the Company
and Group’s financial liabilities are not interest bearing, and accordingly a change in market interest rates would
have no effect on reported loss after tax.
Credit risk
The Company and its subsidiaries incur credit risk from transactions with trade receivables and financial
institutions in the normal course of its business. The credit risk on financial assets of the Group, which have been
recognised in the statement of financial position, is the carrying amount, net of any allowance for doubtful debts.
The Company and its subsidiaries do not require any collateral or security to support transactions with financial
institutions. The counterparties used for banking and finance activities are financial institutions with high credit
ratings.
Liquidity risk
The Company and Group’s financial liabilities, comprising trade and other payables, are generally repayable within
1 – 2 months, and are managed together with capital risk as noted below.
Capital risk
The Company manages its capital to ensure that constituent entities are able to continue as a going concern. The
capital structure of the group consists of cash and cash equivalents, and equity of the parent, comprising issued
capital, reserves and accumulated deficit.
19. Going Concern Assumption
In the year ended 31 December 2012 the Group reported a net loss for the year of $6,422,000, and at year end had
cash balances of $6,477,000. Whilst the Directors are continuing to monitor the Group’s cash position and on an
ongoing basis initiatives to ensure adequate funding continues to be available for the Group to meet its business
objectives, they consider that the strategic plans of the Group may require additional financing within the next 12
months. The timing and terms of any such financing are presently unknown, however the Directors have a
reasonable expectation that it would proceed successfully.
Notwithstanding this, the Directors’ have concluded that the issue around a future fund raising is material. If no
funds are raised before the cash balances have been exhausted, the Group may cease to be a going concern and
the Group may be unable to continue in operational existence. Nevertheless after making enquiries, and
considering the uncertainties described above, the Directors’ have a reasonable expectation that the Group and
Company have adequate resources to continue in operational existence for the foreseeable future. For these
reasons, they continue to adopt the going concern basis in preparing these financial statements. These financial
statements do not include any adjustments relating to the recoverability and classification of recorded asset
amounts or to the amounts and classification of liabilities that may be necessary should the Group be unable to
continue as a going concern.
29
Independent Auditors’ Report
to the shareholders of Neuren Pharmaceuticals Limited
Report on the Financial Statements
We have audited the financial statements of Neuren Pharmaceuticals Limited (“the Company”) on pages 13 to 29,
which comprise the statements of financial position as at 31 December 2012, the statements of comprehensive income
and statements of changes in equity and statements of cash flows for the year then ended, and the notes to the
financial statements that include a summary of significant accounting policies and other explanatory information for
both the Company and the Group. The Group comprises the Company and the entities it controlled at 31 December
2012 or from time to time during the financial year.
Directors’ Responsibility for the Financial Statements
The Directors are responsible for the preparation of these financial statements in accordance with generally accepted
accounting practice in New Zealand and that give a true and fair view of the matters to which they relate and for such
internal controls as the Directors determine are necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit
in accordance with International Standards on Auditing (New Zealand) and International Standards on Auditing.
These standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments,
the auditors consider the internal controls relevant to the Company and the Group’s preparation of financial
statements that give a true and fair view of the matters to which they relate, 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 and the Group’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Other than in our capacity as auditors we have no relationship with, or interests in, Neuren Pharmaceuticals Limited
or any of its subsidiaries.
PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand
T: +64 (9) 355 8000, F: +64 (9) 355 8001, www.pwc.com/nz
30
Opinion
In our opinion, the financial statements on pages 13 to 29:
(i)
(ii)
(iii)
comply with generally accepted accounting practice in New Zealand; and
comply with International Financial Reporting Standards; and
give a true and fair view of the financial position of the Company and the Group as at 31 December 2012,
and their financial performance and cash flows for the year then ended.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 19 to the financial statements which indicates that the
ability of the Group to fund its planned product development and operating expenditure is dependent upon the level
of future capital raising. These conditions indicate the existence of a material uncertainty that may cast doubt about
the Company’s ability to continue as a going concern.
Report on Other Legal and Regulatory Requirements
We also report in accordance with Sections 16(1)(d) and 16(1)(e) of the Financial Reporting Act 1993. In relation to
our audit of the financial statements for the year ended 31 December 2012:
(i)
(ii)
we have obtained all the information and explanations that we have required; and
in our opinion, proper accounting records have been kept by the Company as far as appears from an
examination of those records.
Restriction on Distribution or Use
This report is made solely to the Company’s shareholders, as a body, in accordance with Section 205(1) of the
Companies Act 1993. Our audit work has been undertaken so that we might state to the Company’s shareholders
those matters which we are required to state to them in an auditors’ report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed.
Chartered Accountants, Auckland
27 March 2013
31
Neuren Pharmaceuticals Limited
Additional Information
Equity Securities Held by Directors as at 7 March 2013
Director
Direct
Indirect
Direct
Indirect
Interests in
Ordinary Shares
Interests in
Options
Robin Congreve
Bruce Hancox
John Holaday
Trevor Scott
Richard Treagus
Doug Wilson
-
-
-
-
-
-
22,386,224
-
-
33,388,252
-
135,000
20,000,000(1)
-
5,000,000(1)
20,000,000(1)
-
5,000,000(1)
-
-
-
10,604,991
-
-
(1) In accordance with approval received from shareholders under ASX Listing Rule 10.14, the options noted were
issued under the Share Option Plan to directors on 26 October 2011. Each option is unlisted, has an exercise
price of A$0.0377 for one Neuren ordinary share, and expires after five years.
Shareholding
Each ordinary share is entitled to one vote when a poll is called; otherwise on a show of hands at a general
meeting every member present in person or by proxy has one vote.
The number of ordinary shareholdings held in less than marketable parcels at 7 March 2013 was 754, holding
4,134,449 ordinary shares.
The following information is presented based on share registry information processed up to and including 7 March
2013.
Distribution of Shareholders
Analysis of numbers of ordinary shares by size of holding:
Number of
Shareholders
Number of
Ordinary Shares
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
162
264
246
1,046
771
2,489
28,696
1,002,280
2,082,728
49,066,461
1,130,606,405
1,182,786,570
Distribution of Optionholders
Analysis of numbers of options by size of holding:
Number of
Optionholders
Number of
Options
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
-
-
-
-
15
15
-
-
-
-
298,555,024
298,555,024
Substantial Security Holders who have notified the Company
as at 7 March 2013 are:
Number of
Ordinary Shares
Langley Alexander Walker (through Auckland Trust Company Limited in its
capacity as trustee)
National Nominees Ltd ACF Australian Ethical Smaller Companies Trust
228,322,986
68,335,436
There are no securities subject to escrow.
32
Neuren Pharmaceuticals Limited
Twenty Largest Holders of ordinary shares:
Auckland Trust Company Limited
UBS Nominees Pty Ltd
National Nominees Limited
Essex Castle Limited
K One W One Limited
HSBC Custody Nominees (Australia) Limited
HSBC Custody Nominees (Australia) Limited-GSCO ECA
Roxtrus Pty Limited
Centralo Limited
Citicorp Nominees Pty Limited
Oceania & Eastern Biotech Limited
BNP Paribas Noms Pty Ltd
Mr Robert Albert Boas
Mr He Zhao
Mr Craig William Manners
Mr Mladen Marusic
Invia Custodian Pty Limited
Auckland Trust Company Ltd
Pfizer Inc
ABN Amro Clearing Sydney Nominees Pty Ltd
Number of
Ordinary
Shares
%
Holding
228,322,986
131,034,524
76,186,762
39,844,696
32,611,730
24,315,717
23,188,005
19,000,000
11,925,508
11,507,294
10,283,956
10,278,660
10,160,806
10,000,000
8,600,000
8,537,000
8,500,000
8,230,852
8,081,438
7,731,257
19.30
11.08
6.44
3.37
2.76
2.06
1.96
1.61
1.01
0.97
0.87
0.87
0.86
0.85
0.73
0.72
0.72
0.70
0.68
0.65
688,341,191
58.20
Australian Stock Exchange Disclosures
Neuren Pharmaceuticals Limited is incorporated in New Zealand under the Companies Act 1993.
The Company is not subject to Chapters 6, 6A, 6B and 6C of the Corporations Act, Australia, dealing with the
acquisition of shares (such as substantial holdings and takeovers).
Limitations on the acquisition of shares are imposed by the following New Zealand legislation: Companies Act
1993, Securities Act 1978, Securities Amendment Act 1988, Takeovers Act 1993, Overseas Investment Act 1973,
Commerce Act 1986 and various regulations and codes promulgated under such Acts.
Corporations Act, Australia - Directors’ declaration
The Directors of Neuren Pharmaceuticals Limited (“Neuren”) declare that:
1. The financial statements on pages 13 to 29 of Neuren and its subsidiaries for the year ended 31 December
2012 and the notes to those financial statements:
(a) comply with the accounting standards issued by the Institute of Chartered Accountants of New Zealand;
and
(b) give a true and fair view of the financial position as at 31 December 2012 and of the performance for the
year ended on that date of Neuren and its subsidiaries.
2.
In the Directors’ opinion there are reasonable grounds to believe that Neuren will be able to pay its debts as
and when they become due and payable.
This declaration is made in accordance with a resolution of the Board of Directors dated 25 March 2013.
On behalf of the Board
Dr Richard Treagus
Chairman
33
ANNUAL REPORT 2012
Neuren Pharmaceuticals Limited
ARBN 111 496 130
Level 1, 59 Wellington Street
Freemans Bay, Auckland
New Zealand
Tel: +64 9 3700 200
Email: enquiries@neurenpharma.com
www.neurenpharma.com