NewMarket Annual Report 2018

FY2018 Annual Report · NewMarket

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pharmaceuticals

A N N U A L R E P O R T 2 0 1 8
N e u r e n P h a r m a c e u t i c a l s L i m i t e d

Neuren Pharmaceuticals is a
biopharmaceutical company developing
new therapies for debilitating
neurodevelopmental disorders that are
characterised by impaired connections
and signalling between brain cells.
Incorporated in New Zealand and based
in Melbourne, Australia, Neuren is listed
on the ASX under the code NEU.

1 Why invest in Neuren?

2 Chairman’s Letter

3 Operating Review

14 Leadership Team

16 Corporate Governance

22 Directors’ Report

26 Consolidated Statement of Comprehensive Income

27 Consolidated Statement of Financial Position

28 Consolidated Statement of Changes in Equity

29 Consolidated Statement of Cash Flows

30 Notes to the Consolidated Financial Statements

46 Independent Auditor’s Report

49 Additional Information

The Board of Directors is pleased to present the Annual Report of
Neuren Pharmaceuticals Limited for the year ended 31 December 2018,
authorised on 24 April 2019.

For, and on behalf of, the Board

Dr Richard Treagus
Chairman

Dr Trevor Scott
Director

W H Y I N V E S T I N N E U R E N ?

Two drugs (trofinetide and NNZ-2591) targeting
broad impact on debilitating childhood
disorders with urgent unmet need

– Regulatory incentives – Orphan Drug, Fast Track,

Priority Review

– Strong support from advocacy groups and

leading physicians

– Protected by Orphan Drug exclusivity periods

as well as issued patents

Trofinetide in Phase 3, with US
commercial partner secured

– ACADIA Pharmaceuticals provides capabilities,
strategic intent and funding required to bring
trofinetide to market in the US

– ACADIA commencing Rett syndrome Phase 3

trial in 2019

– Neuren receives double digit percentage royalties
on all sales of trofinetide in North America, plus
payments of up to US$455 million (approximately
A$640 million) on achievement of development
and annual sales milestones, plus one third of
the value of any Rare Pediatric Disease Priority
Review Voucher

– Neuren retains 100% of value of trofinetide

outside North America

NNZ-2591 advancing to clinical trials
in neurodevelopmental disorders

– Recent positive results in model of Phelan-

McDermid syndrome, a disorder related to autism
with high unmet need

– Following first payment from ACADIA, Neuren had
$24 million cash at 31 December 2018, enabling
acceleration to clinical trials in 2020

Neuren Pharmaceuticals Limited Annual Report 2018

C H A I R M A N ’ S L E T T E R

D R R I C H A R D T R E A G U S

During the past year, Neuren’s
business has made substantial
progress and based on
fundamentals alone is in
its strongest position yet.

uring the past year, Neuren’s business
has made substantial progress and based
on fundamentals alone is in its strongest
position yet. We now have a late-stage drug in
development for a condition with high unmet
need commencing Phase 3 later this year and is fully funded
by a highly capable US partner, we have a commercial
partnership in place that can deliver revenue to Neuren of
many hundreds of millions of dollars if the drug is successful
in the US, we have retained the strategically important
rights to trofinetide outside North America and we have
secured non-dilutive funding enabling us to advance
our second very promising drug NNZ-2591 into human
clinical trials.

Notwithstanding our very much stronger position, we
have received a stark reminder that in small companies
with relatively low liquidity the price at which shares are
traded may not always appropriately reflect the intrinsic
risk-adjusted value of the assets. As shareholders ourselves
and owning approximately 10% of Neuren, the board and
management are extremely disappointed with the price the
market has placed on Neuren since the deal with ACADIA in
August 2018 was announced. Our confidence in ACADIA’s
strength and capabilities has increased since entering
into the partnership and the collaboration between our
companies is both strong and productive. Back in August
ACADIA was for a period of time negatively impacted by
some adverse publicity, which we judged to be incorrect.
ACADIA’s position was soon thereafter clarified with the FDA,
and this was followed by positive clinical trial results and
a successful capital raising. ACADIA has a current market
capitalisation of more than US$3.5 billion.

The board recently appointed Torreya, a global investment
bank specialising in life sciences, as Neuren’s corporate
advisor and we are now working closely with Torreya to
identify and evaluate all potential corporate transactions
including individual products, territories, or Neuren’s
entire business.

We continue to work very effectively with the ACADIA team
as they prepare for the Rett syndrome Phase 3 trial. The final
design of the trial which has been agreed with the FDA was
well informed by the results of Neuren’s ground-breaking
Phase 2 pediatric trial, which were recently published in
Neurology®, the most widely read and highly cited peer-
reviewed neurological journal. In the United States this
publication has received favourable commentary and been
widely reported in medical and industry media.

We are also very excited about the prospects of our second
drug NNZ-2591. Enabled by the funding we received from
the ACADIA partnership we are executing the required
non-clinical development as quickly as we can in order to
advance it into human clinical trials. The recent results in
the Shank3 model of Phelan-McDermid syndrome were very
promising and we look forward to working with physicians
and families as we expand Neuren’s business into additional
neurodevelopmental disorders with a high unmet need.

During the year we made a number of changes to our board
of directors to achieve a composition that we felt best meets
the needs of the business as we move forwards to the next
stage. The new board has a majority of independent non-
executive directors as well as a good mix of pharmaceutical
and commercial experience. I would like to thank my fellow
directors and Neuren’s management for their commitment
and achievements during this pivotal year for the business.

We now look forward to commencement of the Rett
syndrome Phase 3 trial, evaluating potential commercial
partnerships for trofinetide in Europe and Japan and
advancing NNZ-2591 into clinical trials. In parallel we will
continue to actively promote the very strong position of
the Company and build support from a broader range
of biotech investors.

Dr Richard Treagus
Chairman

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

Neuren completed Phase 2 development for trofinetide to
treat Rett syndrome and ACADIA is scheduled to start the
Phase 3 trial in the second half of 2019. A Phase 2 clinical
trial has also been conducted in Fragile X syndrome.
Currently, there are no drugs approved for these conditions
and there are few drugs in late-stage clinical development.
Some drugs that are approved for other indications are
sometimes used to treat selected symptoms, but none
are more than modestly effective and none are disease-
modifying.

As these are serious medical conditions with unmet need,
drugs being developed to treat them qualify for favourable
regulatory pathways intended to expedite the development
and approval of therapeutically important drugs.

The US Food and Drug Administration (FDA) granted
to Neuren:

– Orphan drug designation for trofinetide in each of Rett

syndrome and Fragile X syndrome

– Fast Track designation for trofinetide in each of Rett

syndrome, Fragile X syndrome and moderate to severe
traumatic brain injury

Orphan Drug designation is a special status that the FDA
may grant to a drug to treat a rare disease or condition.
Amongst other incentives, Orphan Drug designation
qualifies the sponsor of the drug for 7 years of marketing
exclusivity, plus 6 months if approved for paediatric use,
as well as waiver of the prescription drug user fee for a
marketing application.

COMMERCIAL STR ATEGY

euren has two novel patented drugs,
trofinetide and NNZ-2591, which potentially
have broad utility in the treatment of
neurological disorders. Each drug is
currently in development to treat debilitating

neurodevelopmental disorders that emerge in early
childhood, for which there are currently no approved drug
therapies. The disorders stem from problems in brain
development which lead to a wide range of serious issues,
both physical and mental.

Neurodevelopmental disorders are caused by different
genetic mutations, but in many cases they share similar
symptoms and the common characteristic of impaired
connections and signalling between brain cells. Trofinetide
and NNZ-2591, which are synthetic analogues of important
molecules that occur naturally in the brain, induce
improvements in the impaired connections and signalling,
which means that the target is a broad improvement
in the underlying disorder rather than aiming to treat
one symptom.

A critical feature of Neuren’s work to develop therapies
for these disorders is close collaboration with the leading
specialist physicians and with the well-organised patient
advocacy organisations.

Neuren’s strategy is to commercialise these therapies
in global pharmaceutical markets through partnerships
with established companies in those markets, leveraging
the expertise, infrastructure and financial capacity of
those companies. In August 2018, Neuren executed a
very important partnership with NASDAQ-listed ACADIA
Pharmaceuticals for trofinetide in North America, which
enabled Neuren to transition into a fundamentally stronger
position. The many benefits of the partnership are
described in detail later in this Operating Review.

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

A drug may be designated as a Fast Track product if it is intended for the treatment of a serious or life-threatening disease
or condition and it demonstrates the potential to address unmet medical needs for such a disease or condition. Fast Track
designation is intended to facilitate development and expedite review of drugs to treat serious and life-threatening conditions
so that an approved product can reach the market expeditiously.

The European Medicines Agency has also granted Orphan Designation for trofinetide in both Rett syndrome and Fragile X
syndrome. Orphan Designation in the European Union qualifies the sponsor of the drug for 10 years of marketing exclusivity
following marketing authorisation, plus 2 years if authorised for paediatric use.

These marketing exclusivity periods are extremely valuable for the commercialisation of Orphan Drugs. They provide
additional protection, along with patents, against generic competitors and potentially can continue to provide protection after
patent expiry.

Neuren owns issued composition of matter patents for trofinetide in the United States and Europe, which expire in 2022, with
the potential to extend to 2027. Neuren also owns issued patents that expire in 2032 concerning the use of trofinetide to treat
Rett syndrome and Fragile X syndrome in the United States; autism spectrum disorders in Europe; Rett syndrome, Fragile
X syndrome and autism in Japan; and autism spectrum disorders in Australia. Patent applications for trofinetide in autism
spectrum disorders are still under examination in Canada, Brazil and Israel.

For NNZ-2591, Neuren owns issued composition of matter patents in the United States, Europe and Japan which expire in 2024,
with the potential to extend to 2029. Neuren also owns an issued patent that expires in 2034 concerning the use of NNZ-2591 to
treat neurodevelopmental disorders in the United States. Patent applications for NNZ-2591 in neurodevelopmental disorders
are still under examination in Europe and Japan.

PRODUCT PIPELINE

Compound

Indication

Preclinical and Phase 1

Phase 2

Phase 3

Commencing
trial in H2 2019

Trofinetide

Rett syndrome

Trofinetide

Fragile X syndrome

NNZ-2591

Phelan- McDermid
syndrome

NNZ-2591

Other
neurodevelopmental
disorders

Commercial
Partner

(North America)

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

4. Neuren secured strong participation in the future value

of trofinetide in the US through the following:
– Double digit percentage royalties on sales of

trofinetide in all indications. The annual sales are
recorded in tiers and an escalating percentage is
applied to each successive tier. ACADIA has stated
the peak annual sales potential for Rett syndrome
alone as being more than US$500 million. There are
about 4 times as many patients with Fragile X as with
Rett syndrome.

– Payments of up to US$455 million (approximately

A$640 million) on achievement of development and
annual sales milestones. US$105 million is to be
paid on achievement of development milestones,
split between Rett and Fragile X. The remaining
US$350 million, is to be paid on achievement of a
series of 4 thresholds of total annual sales. If both
indications are approved in the US, Neuren expects
to collect all of these payments.

– One third of the market value of any Rare Pediatric
Disease Priority Review Voucher, if awarded to
ACADIA by the US Food and Drug Administration
upon approval of a New Drug Application for
trofinetide. These vouchers are tradeable and those
on-sold in 2017 fetched between US$110 million and
US$150 million.

5. Neuren retained 100% of the rights to trofinetide

outside North America, with free and full access to
utilise the US regulatory package for registration in
other territories. This has enabled Neuren now to pursue
additional value from further commercial partnerships
in those territories.

AC ADIA PARTNERSHIP
In August 2018 Neuren secured the considerable funding
and additional capabilities required to bring trofinetide to
the US market by entering into a partnership with ACADIA
Pharmaceuticals, under which ACADIA has exclusive rights
to trofinetide in all indications for the United States, Canada
and Mexico. Important factors for Neuren were the proven
capabilities within the ACADIA team in the development
and commercialisation of novel neurology therapies in the
US, their strong commitment to achieve a treatment option
for Rett syndrome patients, and the strategic importance
that ACADIA attaches to trofinetide. In the partnering
agreement, as well as securing significant participation in
the future value of trofinetide in the US, Neuren retained
all rights to countries outside North America.

A redacted version of the licence agreement with ACADIA
was filed with the US Securities and Exchange Commission
as a material contract exhibit to ACADIA’s Annual Report
on Form 10-K, which is available to view via the SEC Filings
section of ACADIA’s website.

The partnership with ACADIA has provided five key financial
benefits to Neuren:

1. ACADIA is investing circa. US$55 million (approximately
A$77 million) into the Rett syndrome Phase 3 program.
This would otherwise have been a minimum capital
raise requirement for Neuren in order to continue
development for Rett syndrome.

2. Receipt of the first payment from ACADIA of $13.5 million
provided non-dilutive funding necessary for Neuren to
retain ownership and advance the development of NNZ-
2591 as a therapy for neurodevelopmental disorders,
which is now a major focus for the Company.

3. ACADIA provides expert execution capabilities in the
US for Phase 3 and commercialization of trofinetide.
The Neuren and ACADIA teams are collaborating very
effectively, including the ongoing preparations for the
Rett syndrome Phase 3 trial, due to commence in the
second half of 2019.

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

TROFINETIDE FOR RETT SYNDROME

About Rett syndrome
Rett syndrome is a seriously debilitating and life-threatening
neurological disorder, for which there are no approved
medicines. It is first recognized in infancy and seen
predominantly in girls, but can occur very rarely in boys.
At diagnosis, Rett syndrome has often been misdiagnosed
as autism, cerebral palsy, or non-specific developmental
delay. Most cases of Rett syndrome are caused by mutations
on the X chromosome on a gene called MECP2. Rett
syndrome strikes all racial and ethnic groups and has been
estimated to occur worldwide in 1 of every 10,000 to 15,000
female births, causing problems in brain function that are
responsible for cognitive, sensory, emotional, motor and
autonomic function. These problems can include learning,
speech, sensory sensations, mood, movement, breathing,
cardiac function, and even chewing, swallowing, and
digestion. Rett syndrome symptoms appear after an early
period of apparently normal or near normal development
until six to eighteen months of life, when there is a slowing
down or stagnation of skills. A period of regression then
follows, with loss of communication skills and purposeful
hand use, loss or impairment of walking, and the onset of
stereotypic hand movements. Other problems frequently
include seizures and erratic breathing patterns, an
abnormal side-to-side curvature of the spine (scoliosis),
and sleep disturbances.

Partnership with Rettsyndrome.org
Rettsyndrome.org has provided valuable advice to Neuren
on clinical trial strategy, introductions to leading clinical
investigators, a start-up grant to Baylor College of Medicine
for Neuren’s first Phase 2 trial, and a grant towards the
cost of Neuren’s second Phase 2 trial in pediatric subjects.
The ongoing support from Rettsyndrome.org has been
instrumental in Neuren’s discussions with the FDA and in
communications with families, patients and investigators.
This was reflected in the rapid enrolment of 82 subjects
in seven months for the pediatric trial. Neuren has every
reason to believe this will continue to be a very productive
partnership as ACADIA moves into the Phase 3 trial.

Phase 2 paediatric trial published in Neurology®, the
Medical Journal of the American Academy of Neurology
Neuren’s Phase 2 trial in paediatric Rett syndrome was
recently published online with free access and appeared
in the 16 April 2019 issue of Neurology. This publication
(Glaze et al. 2019) in the most widely read and highly cited
peer-reviewed neurology journal provides strong validation
of the results from Neuren’s ground-breaking work in
Rett syndrome. The publication was also featured in an
editorial titled “Turning the tide on targeted treatments
for neurodevelopmental disorders” and in the “in-focus”
section of the journal. The publication has been widely
reported in the US media.

A further article appeared in the March 2019 Rare
Neurological Disease Special Report – a supplement
to Neurology Reviews, authored by Neuren, ACADIA
and Rettsyndrome.org (Glass et al. 2019). The article
“Pathophysiology of Rett Syndrome” explained the
biochemistry of Rett syndrome and the potential role
of IGF-1 and trofinetide.

The Phase 3 program
The Phase 3 program has been agreed with the FDA Division
of Neurology Products. Recognising the urgent unmet need
and the small population, it involves a single trial rather
than the standard 2 trials and provision for a smaller than
standard safety database.

ACADIA is scheduled to commence the randomised double-
blind placebo-controlled Phase 3 trial in the second half of
2019, with the following key features:

– Approximately 180 female participants in the US, aged

5 to 20, randomised into one active group and a placebo
group

– Rett Syndrome Behaviour Questionnaire (RSBQ) and

Clinical Global Impression – Improvement Scale (CGI-I)
after 12 weeks of treatment as co-primary efficacy
endpoints

– Optimised weight-banded dosing

The Phase 3 study will be followed by a nine month open
label extension study in which all participants, including
those on placebo in the Phase 3 study, will be eligible to
receive trofinetide. In the open label extension study,
all participants will be followed to evaluate long term
tolerability and safety of trofinetide.

If results from the Phase 3 trial are positive, ACADIA expects
to file a marketing application with the FDA in 2021. As an
Orphan Drug, the application will qualify for an expedited
Priority Review period of 6 months.

Results of Neuren’s Phase 2 paediatric trial highly
relevant for Phase 3
Neuren’s Phase 2 trial was a double-blind, randomized,
placebo-controlled study that tested three doses of
trofinetide compared with placebo in 82 girls with Rett
syndrome aged 5 to 15. Trofinetide was well tolerated and
had a good safety profile in these younger subjects, with no
dose-limiting effects observed. The highest dose achieved
statistically significant and clinically relevant benefit
compared with placebo measured by each of RSBQ (an
assessment by the caregiver) and CGI-I (an assessment by
the physician). The improvement increased through to the
time that treatment ceased after 6 weeks, suggesting that
further benefit may be achieved with a longer treatment
duration.

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

These efficacy results are illustrated in the following charts, in which a downward movement represents an improvement from
day 14 baseline and study day 54 to 66 is the period after treatment ceased:

RSBQ

Day 54 Change (LSmeans) from Treatment Baseline

Change (LSmeans) from Treatment Baseline

Placebo

200mg/kg

p = 0.042

-2.30

-6.70

0.0

-1.0

-2.0

-3.0

-4.0

-5.0

-6.0

-7.0

-8.0

-9.0

0.0

-1.0

-2.0

-3.0

-4.0

-5.0

-6.0

-7.0

-8.0

-9.0

CGI-I

Placebo

200mg/kg

Study Day

Day 54 Change (LSmeans) Compared to Treatment Baseline

CGI-I (LSmeans) Compared to Treatment Baseline

4.0

3.5

3.0

2.5

Placebo

200mg/kg

p = 0.029

3.5

4.0

3.5

3.0

Placebo

200mg/kg

2.5

Study Day

22% of subjects in the 200mg/kg dose group received a CGI-I score of 2 (“much improved”) compared with 4% of subjects in the
placebo group.

It was observed that lighter subjects experienced lower levels of drug in their blood compared with heavier subjects receiving
the same dose per kg. This meant that lighter subjects received lower than expected exposure to drug.

Building on the Phase 2 trial, the Phase 3 trial design has four important features:

– RSBQ and CGI-I will be the primary efficacy endpoints
– The sample size will be more than 3 times larger, greatly increasing the statistical power to detect a treatment effect
– The treatment period of 12 weeks will be twice as long as Phase 2
– Weight banded dosing will mean that lighter subjects receive a higher dose and are expected to achieve exposure

comparable with heavier subjects.

Neuren Pharmaceuticals Limited Annual Report 2018

O P E R AT I N G R E V I E W

C O N T I N U E D

NNZ-2591 IN PHEL AN-MCDERMID SYNDROME
AND OTHER NEURODEVELOPMENTAL DISORDERS
The funds of $13.5 million received as the first payment from
ACADIA in August 2018 have enabled Neuren to advance
NNZ-2591 as quickly as possible to clinical trials. The
program of standard non-clinical safety studies required
is in progress, with the aim of filing an Investigational New
Drug application (IND) with the FDA and commencing
clinical trials in 2020. In addition to preclinical evidence of
strong therapeutic potential in a range of applications and
a promising safety profile, Neuren expects that NNZ-2591
may have technical and commercial advantages compared
with trofinetide due to its physical and biochemical
characteristics.

In February 2019, Neuren announced positive effects of
NNZ-2591 in the Shank3 knockout mouse model of Phelan-
McDermid syndrome (PMS). PMS is a rare genetic condition
caused by a deletion or other change in the 22q13 region
of chromosome 22, which includes the SHANK3 gene, or a
mutation of the gene. PMS is also known as 22q13 deletion
syndrome. The SHANK3 gene codes for the Shank3 protein,
which supports the structure of synapses between nerve
cells in the brain and the function of other critical synaptic
proteins. The most common characteristics of PMS are
intellectual disability, delayed or absent speech, symptoms
of autism, low muscle tone, motor delays, and epilepsy.
There is currently no treatment specifically for PMS.

The study compared normal mice (“wild type”) and mice
with a disrupted Shank3 gene (“knockout”). In the knockout
mice, deficits in anxiety, repetitive behaviour, motor
performance and social interaction were restored to the
wild type state following treatment with NNZ-2591 for 3
weeks. Treated knockout mice also showed a 60% reduction
in susceptibility to seizures. In addition, the abnormal
length of dendritic spines between brain cells, the excess
activated ERK protein (pERK) and the depressed level of IGF-
1 in the knockout mice were all normalised after treatment
with NNZ-2591.

Neuren anticipates that PMS meets the criteria for Orphan
Drug designation. It is estimated that 1% of people with
autism have PMS, which implies that between 1 in 8,000 and
1 in 15,000 people have PMS. This may be an underestimate
since not all patients with PMS are autistic. Neuren is also
investigating the effects of NNZ-2591 in models of other
neurodevelopmental disorders, with a view to initiating
clinical trials in more than one indication.

Manufacturing and non-clinical
During the year, Neuren invested significant time and funds
into the manufacturing program and the non-clinical studies
required to enable the Phase 3 trial. For manufacturing this
encompassed the optimisation and increase to commercial
scale of the drug substance synthesis and the development
of the commercial finished product presentation. That
responsibility passed to ACADIA following commencement
of the partnership, with Neuren continuing to provide
assistance and complete some in-progress activities.
For non-clinical development Neuren completed the second
chronic dosing toxicity study that is required prior to dosing
for the longer period in a Phase 3 trial and to support a New
Drug Application.

TROFINETIDE FOR FR AGILE X SYNDROME
Fragile X syndrome is the most common inherited cause of
intellectual disability and the most common known cause
of autism. Fragile X syndrome is caused by a gene defect on
the X chromosome that impacts the FMRP protein, which
is responsible for regulating the synapses of nerve cells.
One in 4,000 males and one in 6,000 females are estimated
to have the full gene mutation. Generally, males are more
severely affected than females, with approximately 50% of
the females having features of Fragile X syndrome. Clinically,
Fragile X syndrome is characterized by intellectual disability,
hyperactivity and attentional problems, autistic symptoms,
anxiety, emotional lability and epilepsy. Currently, there
are no medicines approved for the treatment of Fragile X
syndrome.

Neuren previously conducted a randomized, double-
blind, placebo-controlled Phase 2 clinical trial in 70 males
aged 12 to 45 years with a confirmed diagnosis of Fragile
X syndrome. The trial was conducted in the United States
and was overseen by leading clinical experts in Fragile X
syndrome. Two dose levels of trofinetide were tested and
compared with placebo. Trofinetide was very well tolerated
and the high dose demonstrated a consistent pattern
of clinical improvement, observed in both clinician and
caregiver assessments. After a relatively short treatment
period of 28 days, improvements were seen across core
symptoms of Fragile X syndrome, including higher sensory
tolerance, reduced anxiety, better self-regulation and more
social engagement.

The FDA Division of Psychiatry Products required the
chronic dosing toxicity studies that have recently been
completed for the Rett syndrome Phase 3 trial to be
completed before a clinical trial of longer duration could
be conducted in children with Fragile X syndrome. The
next Fragile X trial also requires drug supply from the
commercial process being developed to supply the Rett
syndrome Phase 3 trial. In the meantime, Neuren is working
with ACADIA to design the most efficient development
program for Fragile X.

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

THE SCIENCE BEHIND NEUREN’S PRODUCTS
Trofinetide (also known as NNZ-2566) and NNZ-2591 are synthetic analogues of glypromate (“GPE”) and cyclic glycine-proline
(“cGP”) respectively, each of which occurs naturally in the brain and is related to IGF-1. IGF-1 is a growth factor stimulated
by growth hormone. In the central nervous system, IGF-1 is produced by both of the major types of brain cells – neurons and
glia. IGF-1 in the brain is critical both for normal development and to maintain or restore the biological balance required for
normal functioning. In the brain, IGF-1 is rapidly broken down by an enzyme into two separate molecules, GPE and Des(1-3)
IGF-1. GPE is further metabolised to cGP. All three are biologically active neuropeptides with a wide range of effects. GPE, which
comprises the last three peptides of IGF-1, primarily affects glial cells (astrocytes and microglia) while Des(1-3)IGF-1 mostly
affects neurons. During development, the brain and the cells that comprise it change rapidly and in complex ways. IGF-1 and its
metabolism play a significant role in regulating these changes. In the mature brain, it plays an important role in responding to
disease, stress and injury.

Neurons and Neuroglial Cells

Produce essential
growth factor

IGF-1

Enzyme
cleavage

Truncated
IGF-1

Reversible binding regulates

IGF-1

bioavailability

IGF
Binding
Protein-3

Regulates binding

Enzyme cleavage

cGP

GPE

Activates PI3K–Akt–mTOR and Ras–MAPK-ERK
signalling pathways in neurons, regulating
formation of new synapses

IGF-1 receptor
on cell surface

Regulates microglia, which
maintain and prune synapses

Trofinetide and NNZ-2591 mimic the natural function of GPE and cGP in the brain. Small modifications result in the drugs
having an increased half-life in the circulation, better stability for longer and easier storage and shipping, and suitability for use
as an oral medication, whereas the naturally occurring molecules and IGF-1 itself can only be administered by injection.

IGF-1
IGF-1

CO2H

H
N

NH2

CO2H

trofinetide

NNZ-2591

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

Whereas most drugs typically exert a specific effect on
a specific target, trofinetide and NNZ-2591 exert several
effects which collectively can help to control or normalise
abnormal biological processes in the brain.

Although different conditions – brain injury,
neurodevelopmental disorders and neurodegenerative
diseases – can result in very different symptoms and
outcomes, many share common, underlying pathological
features. These include inflammation, over-activation
of microglia, dysfunction of synapses (the connections
between neurons through which information is transmitted)
and reduced levels of IGF-1. In other words, diseases and
conditions that manifest differently are considered to arise
from similar pathology at the cellular and molecular level.

In models of the genetic mutations that cause
neurodevelopmental disorders, including Rett syndrome
(MeCP2), Fragile X syndrome (Fmr1) and Phelan-McDermid
syndrome (Shank3), treatment with GPE and cGP or their
analogues trofinetide and NNZ-2591 has fully or partially
corrected the following four hallmark pathological features
restoring the natural balance of brain function:

1. Inflammation
Inflammation in the brain (neuroinflammation) is perhaps
the most common pathological feature of CNS disorders.
Much of it is the result of excess production of molecules
called inflammatory cytokines. These are prominent in brain
injuries, neurodevelopmental disorders such as Rett and
Fragile X syndromes as well as autism, neurodegenerative
diseases like Alzheimer’s and Parkinson’s and even so-called
“normal” aging.

Neuroinflammation places significant stress on brain
cells. Stress can disrupt normal cellular processes such
as information signalling, increase energy requirements
beyond the ability of the cells to meet their metabolic
needs, disturb electrical functions which can lead to
seizures and other abnormalities and even result in
premature cell death.

In animal models ranging from brain injury and stroke
to Fragile X syndrome to age-associated cognitive
impairment, trofinetide and NNZ-2591 have shown an
ability to significantly reduce the levels of inflammatory
cytokines. This has resulted in improvement in a wide range
of symptoms including post-traumatic seizures, anxiety,
memory impairment and hyperactivity.

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

2. Over-activation of microglia
Microglia are the resident immune cells in the brain. Once thought to serve primarily a sentinel function
– responding to infection and damaged cells by surrounding and removing them – it is now known that
they play a central role in maintaining synapses during development and in mature brains by pruning
dendrites, the many small extensions of neurons that form synapses. Microglia are also a key source of
IGF-1. Due to this wide-ranging maintenance function, they have appropriately been referred to as the
“constant gardeners” of the brain.

Microglia are not only activated in response to infection and injury. They also are activated by
inflammation that accompanies acute brain injury and chronic conditions. In this activated state, they
not only lose their ability to effectively perform their normal function in synaptic maintenance but also
produce more inflammatory cytokines which can further compound the damage to neurons and other
brain cells.

Trofinetide and NNZ-2591 have been shown to normalize microglial biology and function in both
acute and chronic conditions. Restoring normal microglial activity has resulted in improved synaptic
structure as well as correction of imbalance in synaptic signalling and cell-to-cell communication. This
has led to reversal of symptoms such as impaired memory, anxiety, hyperactivity and compromised
social behaviour.

Resting
Microglial Cells

Activated
Microglial Cells

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

3. Dysfunction of synapses
Neurons communicate with each other by chemical and electrical signals transmitted via synapses. Normal synaptic function
is essential for healthy brain function and underlies memory, cognition, behaviour and other brain activities. Normal synaptic
function requires that the dendrites (part of the neurons) which form synapses are appropriately formed as well as that
excitatory and inhibitory signals are kept in balance.

When dendritic structure and synaptic signalling are abnormal, virtually all brain activities can be negatively
impacted. Synaptic dysfunction has been identified as a core feature of many conditions including acute brain injury,
neurodevelopmental disorders and neurodegenerative diseases.

For example, in Rett syndrome dendrites are sparse and immature while in Fragile X syndrome, dendritic branching is excessive
although the dendrites are also immature. Trofinetide increases the length and branching of dendrites in a model of Rett
syndrome while increasing pruning of excess branching in a model of Fragile X syndrome.

In models of Fragile X syndrome and Phelan-McDermid syndrome, NNZ-2591 normalised an excessive level of activated ERK
enzyme (pERK), which has been implicated in abnormal synaptic signalling.

Illustration of effect on dendrites

Rett Syndrome

Fragile X Syndrome

Rett Syndrome

Fragile X Syndrome

With introduction of Trofinetide

4. Reduced levels of IGF-1
IGF-1 levels in the brain have been reported to be depressed in a number of conditions, particularly in Rett and Fragile X
syndromes and brain injury. In these conditions, the critical role of IGF-1 in maintaining and repairing brain cells and synapses
is impaired.

In the Fragile X model, in which the IGF-1 level is depressed, trofinetide increased the amount of IGF-1 to normal levels. This
was accompanied by normalized synaptic signalling and complete reversal of cognitive and behavioural abnormalities.

In a model of Rett syndrome, increasing IGF-1 levels has been reported to correct deficits in dendritic spines and, in isolated
cells from human Rett syndrome patients, both IGF-1 and GPE are able to partially reverse the deficits in cellular function.

Neuren Pharmaceuticals Limited Annual Report 2018O P E R AT I N G R E V I E W

C O N T I N U E D

FINANCE
Following the ACADIA partnership, Neuren ended 2018 in a much stronger financial position, with cash reserves
of $23.6 million, cash inflow from operations of $6.4 million and cash inflow from financing of $11.7 million.

Summary of consolidated financial results for the year to 31 December 2018

Interest income

Revenue from licence agreement

Foreign exchange gain

Australian R&D tax incentive

Gains on financial assets measured at fair value through profit or loss

Total revenue

Research & Development

Corporate & Administration

Foreign exchange loss

Losses on financial assets measured at fair value through profit or loss

Profit before and after tax

Operating cash inflow / (outflow)

Financing cash inflow

Effect of exchange rates on cash balances

Cash at 31 December

2018
$’m

0.2

13.5

1.0

0.5

–

15.2

(6.1)

(2.1)

–

(3.9)

3.1

6.4

11.7

0.7

23.6

2017
$’m

–

0.6

9.5

10.1

(5.1)

(1.5)

(0.2)

–

3.3

(5.6)

5.3

(0.1)

4.7

The profit after tax for the year ended 31 December 2018 was $3.1 million compared with $3.3 million in 2017. Revenue of
$13.5 million was received under the licence agreement with ACADIA (2017: nil) and foreign exchange gains were $0.9 million
compared with foreign exchange losses of $0.2 million in 2017. These were offset by an increase of $1.0 million in research and
development costs, resulting from higher expenditure on manufacturing scale-up and non-clinical toxicity studies, and a loss
of $3.9 million compared with a gain of $9.5 million in 2017 on the fair value of the remaining settlements from Lanstead Capital
under the Sharing Agreement that was entered into as part of the capital raising in July 2017. Prudent control of expenditure
continues to be an important principle in the Group’s operations and financing.

Cash reserves at 31 December 2018 were $23.6 million (2017: $4.7 million). Cash generated from operations was $6.4 million,
compared with cash outflow of $5.6 million in 2017, due mainly to the receipt of $13.5 million from ACADIA. Financing provided
cash of $11.7 million, comprising $5.3 million from the issue of shares in May 2018 under the exclusivity deed with ACADIA and
$6.4 million from settlements under the Lanstead Sharing Agreement, compared with cash of $5.3 million in 2017, including
$3.9 million under the Lanstead agreement. At 31 December 2018, Neuren had already received $10.3 million from Lanstead
with 6 settlements still to be received in the first half of 2019.

Neuren Pharmaceuticals Limited Annual Report 2018L E A D E R S H I P T E A M

B O A R D

1. DR RICHARD TRE AGUS
Executive Chairman
BScMed, MBChB,
MPharmMed, MBA

Richard joined the Neuren Board as
Executive Chairman in January 2013.
He is a physician, with more than 20
years’ experience in all aspects of the
international biopharmaceutical industry.
He has held senior executive roles with
pharmaceutical organisations in South
Africa and Australia and has successfully
established numerous pharmaceutical
business partnerships in the US, Europe
and Asia. Richard served as Chief
Executive of the ASX-listed company
Acrux Limited from 2006 to 2012. Under
his leadership Acrux gained FDA approval
for three drug products, concluded a
product licensing transaction with Eli
Lilly worth US$335m plus royalties and
became profitable. In 2010 Richard
was awarded the Ernst and Young
Entrepreneur-of-the-Year (Southern
Region) in the Listed Company Category
and in subsequent years has served on
the judging panel. Richard is Chairman
of BTC Health Limited, which is listed
on the ASX.

2. DR TREVOR SCOT T
Non-Executive Director
MNZM, LLD (Hon), BCom, FCA, FNZIM, DF Inst D

Trevor joined the Neuren Board in March
2002. He is the 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. Trevor serves
on numerous corporate boards and
is chairman of several. He chair’s Neuren’s
Audit Committee and Remuneration
Committee as an independent director.

3. DIANNE ANGUS
Non-Executive Director
(Appointed 1 July 2018)
BSc (Hons), Master of Biotechnology, IPTA

Dianne joined the Neuren Board
in July 2018. She has worked as a
senior executive and non-executive
director within the biotechnology,
biopharmaceutical and agritech
industries for over twenty-five years.
She has created numerous global
industry partnerships which include
Prana Biotechnology, Gerolymatos
International, Florigene, Suntory &
Monsanto to yield novel and competitive
medical, pharmaceutical and agricultural
products. Dianne has successfully forged
strong partnerships with key medical
opinion leaders to create innovative
clinical research programs and driven the
development path for novel neurological
pre-clinical agents to late-stage clinical
assets before the FDA and European
regulators. With over fifteen years’
experience in an ASX and NASDAQ
listed company, she has expertise in
business development, capital raising,
investor relations, regulatory affairs
and intellectual property, together with
corporate governance and compliance
capabilities. Dianne holds a Masters
degree in biotechnology and is a
registered patent attorney.

4. DR JENNY HARRY
Non-Executive Director
(Appointed 7 July 2018)
BSc (Hons), PhD

Jenny joined the Neuren Board in 2018.
She has 20 years’ experience in executive
management of companies in the
biotechnology and biopharmaceutical
sectors. She is currently the Managing

Director of Ondek Pty Ltd, an Australian
biopharmaceutical company developing
new treatments for paediatric allergy. In
her previous role, as CEO and Managing
Director of Tyrian Diagnostics, Jenny
transformed the company from an R&D
business to a diagnostics company
and oversaw development of the
company’s first products through to
commercialisation and early revenue
generation. She is a graduate of the
Harvard Business School General
Manager Program and the Australian
Institute of Company Directors. Jenny
is currently Chair of QUT Enterprise
Holdings and a non-executive director
on the boards of QUTbluebox and
Creative Enterprise Australia.

5. PATRICK DAVIES
Non-Executive Director
(Appointed 1 July 2018)
B EC, MBA

Patrick joined the Neuren Board in July
2018. He has held executive management
roles in the Australian and New Zealand
healthcare industry for over twenty five
years having performed successfully in
senior roles across many industry sectors
including pharmacy, primary care,
pharmaceutical and consumer products.
During his ten year period as Chief
Executive Officer of EBOS Group Limited
(and previously Symbion), the enterprise
value of the group achieved compound
annual growth in enterprise value of +20%
(from circa $450M to in excess of $3.1B).
He is a director on other corporate boards
and provides strategic advice to a range
of healthcare businesses and investors.

Neuren Pharmaceuticals Limited Annual Report 2018L E A D E R S H I P T E A M

M A N A G E M E N T

1. L ARRY GL A SS
Chief Science Officer
BA (Biology)

Larry retired from the Neuren Board
on 31 December 2018 and continues as
Chief Science Officer. He joined Neuren
in 2004 and was an Executive Director
from May 2012. He has more than 30
years’ experience in the life sciences
industry, including clinical trials, basic
and applied research, epidemiologic
studies, diagnostics and pharmaceutical
product development. 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 (“CRO”) 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. Larry is a biologist
with additional graduate training in
epidemiology and biostatistics.

2. JON PILCHER

Chief Financial Officer
and Company Secretary
BSc (Hons), FCA

Jon joined Neuren in August 2013
from Acrux (ASX: ACR) where, as CFO &
Company Secretary, he was a member of
the leadership team for eleven years. That
period included Acrux’s IPO and listing
on the ASX, the development and FDA
approval of three novel pharmaceutical
products and a transforming licensing
deal with Eli Lilly in 2010. Jon is a

Chartered Accountant and holds a degree
in Biotechnology from the University of
Reading in the UK. He formerly spent
seven years in a series of senior financial
positions in the R&D and corporate
functions of international pharmaceutical
groups Medeva and Celltech (now part of
UCB). Jon is a non-executive director of
BTC Health Limited.

3. DR CLIVE BLOWER
Vice President,
Product Development
and Technical Affairs
BSc (Hons), PhD

Clive joined Neuren in August 2014 from
Acrux, bringing over twenty years of
global drug development experience.
Clive was at Acrux for seven years as
Director of Product Development and
Technical Affairs and then Chief Operating
Officer. During this period he led the
CMC (Chemistry, Manufacturing and
Controls) development of the company’s
lead product through Phase 3 clinical
trials, FDA approval and commercial
launch. Clive formerly served in senior
management positions at Hospira Inc.
(previously Faulding Pharmaceuticals,
then Mayne Pharma), including leading
the Injectable Drug Development
Group. He earned a Doctorate in
Chemistry from Monash University in
1992 and has experience in all stages
of drug development, from concept to
commercialisation, having contributed
to the development and launch of more
than 25 pharmaceutical products.

4. DR NANC Y JONES
Vice President, Clinical Development
PhD

Nancy joined Neuren in January 2013.
Prior to joining Neuren, she held a senior
position at Autism Speaks, the largest
science and advocacy organisation in

the US focused on autism spectrum and
related disorders. Nancy was at Autism
Speaks for 6 years, directing the overall
operations of the Autism Treatment
Network, a network of hospitals and
medical centers dedicated to improving
access to comprehensive, coordinated
medical care for individuals with ASD.
She also oversaw the Autism Clinical
Trials Network, a network developed
to promote and expedite clinical trials
in ASD, and played a lead role in an
initiative to enhance the development of
syndrome-specific outcome measures for
treatment trials in ASD. Nancy received
her Ph.D. in Applied Linguistics from
the University of California, Los Angeles
where she focused on the neurobiology of
language and developmental disorders.

5. JAMES SHAW
Vice President, Clinical Operations
BSc (Hons), MBA

James joined Neuren in August 2013
and brings twenty years of development
and commercialisation experience in
the pharmaceutical industry, having
worked for both large Pharma and
Clinical Research Organisations.
Before joining Neuren, he was CEO of a
Clinical Research and Site Management
Organisation providing full service
clinical trial support in Australia and New
Zealand. Prior to that he spent 7 years
with Quintiles in Sydney and Singapore
working across Business Development
and Operational leadership roles.
James brings a global focus to drug
development, having led product teams
from Phase II through to FDA submission
and commercialisation during six
years with AstraZeneca at their global
headquarters in the UK.

Neuren Pharmaceuticals Limited Annual Report 2018CO R P O R AT E G O V E R N A N C E

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 Group;

– approving and monitoring the implementation by

management of the Group’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 Group’s controls and
systems including those concerned with regulatory
matters to ensure statutory compliance and the highest
ethical standards; and

– review and adoption of budgets and forecasts and
monitoring the results against stated targets.

The Board sets the corporate strategy and financial targets
with the aim of creating long-term value for shareholders.

In accordance with Recommendation 1.2, the Board
undertakes appropriate checks before appointing a new
director, or putting forward to shareholders a candidate
for election and provides shareholders with all material
information in its possession relevant to a decision on
whether or not to elect or re-elect a director.

The Group has a written agreement with each director and
senior executive, setting out the terms of their appointment,
in accordance with Recommendation 1.3. The Company
Secretary is accountable directly to the Board on all
matters to do with the proper functioning of the Board,
in accordance with Recommendation 1.4.

At this stage of the Group’s development, considering the
very small size of the workforce and the specialist nature
of most positions, the Board has chosen not to establish
a formal diversity policy or formal objectives for gender
diversity, as recommended in Recommendation 1.5. The
Group does not discriminate on the basis of age, ethnicity,
religion, gender or sexuality and when a position becomes
vacant the Group seeks to employ the best candidate
available for the position. Currently there are three male
and two female directors. One of the six senior executives
is female. The Group currently has eight employees and
consultants, from different cultural backgrounds, of
which three are female.

euren’s board of directors (“Board”) aims to
ensure that the Company and its subsidiaries
(the “Group”) operates with a corporate
governance framework and practices
that promote an appropriate governance

culture throughout the organisation and that are relevant,
practical and cost-effective for the current size and stage
of development of the business.

This Statement provides a description of the framework
and practices, laid out under the structure of the
ASX Listing Rules and the Corporate Governance
Principles (the “Principles”) and Recommendations
(the “Recommendations”) 3rd Edition issued by the ASX
Corporate Governance Council in March 2014.

As anticipated in the Corporate Governance Statement
in the 2017 Annual Report, during 2018 the membership
and structure of the Board was reviewed and changed
significantly to meet the future needs of the business.
Dianne Angus, Patrick Davies and Jenny Harry all joined
as independent non-executive directors in July 2018.
Larry Glass retired from the Board on 31 December 2018,
continuing his executive position in the management team.
The transition in the Board composition is summarised
in the following table:

Period

Executive
directors

Independent
non-executive
directors

January 2018 to June 2018

July 2018 to December 2018

From 1 January 2019

PRINCIPLE 1. L AY SOLID FOUNDATIONS
FOR MANAGEMENT AND OVERSIGHT
The Board is responsible for the overall corporate
governance of the Group. 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 principal executive officer, currently
the Executive Chairman. The Board has delegated the
responsibility for the operation and administration of the
Group to the Executive Chairman and senior management.
The Board ensures that the management team is
appropriately qualified to discharge its responsibilities.

Neuren Pharmaceuticals Limited Annual Report 2018CO R P O R AT E G O V E R N A N C E

C O N T I N U E D

The performance of the Board, its committees and individual directors is periodically evaluated in accordance with
Recommendation 1.6. Each director completes a quantitative evaluation questionnaire and is able to provide qualitative
comments. The Company Secretary collates the responses and reports back to the board for discussion. A performance
evaluation was not undertaken during 2018, being deferred to an evaluation in 2019 after some experience of the new
Board composition.

In accordance with Recommendation 1.7, the Board periodically evaluates the performance of the Executive Chairman and the
Executive Chairman periodically evaluates the performance of senior executives. The evaluation of the Executive Chairman is
part of the board performance evaluation process. For the evaluation of senior executives, an individual discussion is held after
each senior executive complete a qualitative questionnaire, covering past individual and team achievements and challenges,
as well as forward-looking outcomes and areas of personal focus. Performance evaluations were not undertaken during 2018,
being deferred until 2019 after some experience of the new board composition.

PRINCIPLE 2. STRUCTURE THE BOARD TO ADD VALUE
The Board has not considered it necessary or value-adding to establish a separate Nomination Committee (Recommendation
2.1). The selection, appointment and retirement of directors is considered by the full Board, within the framework of the skills
matrix described below. The Board may also engage an external consultant where appropriate to identify and assess suitable
candidates who meet the Board’s specifications. The composition of the board is discussed regularly and each director may
propose changes for discussion.

In accordance with Recommendation 2.2, the Company has a skills matrix setting out the mix of skills that the Board is looking
to achieve in its membership. The matrix is summarised in the table below.

Skill

Requirements Overview

Professional Director Skills

Risk & Compliance

Financial & Audit

Strategy

Policy Development

Executive Management

Previous Board Experience

Industry Specific Skills

Pharmaceutical product development

International pharmaceutical
commercialisation
Pharmaceutical partnering

Risk capital management

Intellectual property

Identify key risks to the organisation related to each key area of operations.
Ability to monitor risk and compliance and knowledge of legal and
regulatory requirements.
Experience in accounting and finance to analyze statements, assess
financial viability, contribute to financial planning, oversee budgets and
oversee funding arrangements.
Ability to identify and critically assess strategic opportunities and threats
to the organization. Develop strategies in context to our policies and
business objectives.
Ability to identify key issues for the organisation and develop appropriate
policy parameters within which the organization should operate.
Experience in evaluating performance of senior management, and oversee
strategic human capital planning.
The board's directors should have director experience and have completed
formal training in governance and risk.

Experience in and/or understanding of the issues in clinical development,
interactions with international regulators and/or CMC development.
Experience in and/or understanding of the issues in entering international
pharmaceutical markets, including pricing, distribution and exclusivity.
Experience in and/or understanding of the issues in partnering transactions
and/or relevant contacts in international pharma companies.
Experience in raising funding from equity markets and/or relevant contacts
in relevant funds and/or investment banks.
Understanding of the importance and value of market exclusivity and
the various ways of protecting it across different jurisdictions, including
patents and data exclusivity.

Neuren Pharmaceuticals Limited Annual Report 2018CO R P O R AT E G O V E R N A N C E

C O N T I N U E D

Skill

Interpersonal Skills

Leadership

Ethics and Integrity

Contribution

Crisis Management

Requirements Overview

Make decisions and take necessary actions in the best interest of the
organisation, and represent the organisation favorably. Analyze issues
and contribute at board level to solutions. Recognise the role of the board
versus the role of management.
Understand role as director and continue to self educate on legal
responsibility, ability to maintain board confidentiality, declare
any conflicts.
Ability to constructively contribute to board discussions and communicate
effectively with management and other directors.
Ability to constructively manage crises, provide leadership around
solutions and contribute to communications strategy with stakeholders.

The Board is highly engaged in the oversight and direction of the business. Six members served during the year to 31 December
2018, as set out in the table below. Details of the relevant skills, experience and expertise of each Board member are set out on
page 23 of this report.

Appointment

Retirement

Role

Independent

Committees

Richard Treagus

Larry Glass

Trevor Scott

2013

2012

2002

Executive Chairman

31 December 2018

Executive director

Non-executive director

No1

Yes

Dianne Angus

1 July 2018

Non-executive director

Yes

Patrick Davies

1 July 2018

Non-executive director

Yes

Jenny Harry

7 July 2018

Non-executive director

Yes

Chair of Audit Committee
and Remuneration
Committee

Member of Audit
Committee and
Remuneration Committee

1 Richard Treagus and Larry Glass are not considered independent due to their executive roles.

From July 2018, there has been a majority of independent directors in accordance with Recommendation 2.4. The chair is not
independent (Recommendation 2.5) and the chair and principal executive officer roles are not separate (Recommendation
2.5). The directors believe that the structure and membership profile of the Board has provided and continues to provide the
maximum value to the business at its stage of its development.

In accordance with Recommendation 2.6, the Company has a program for inducting new directors and provides appropriate
professional development opportunities for directors to develop and maintain the skills and knowledge needed to perform
their role as directors effectively.

Neuren Pharmaceuticals Limited Annual Report 2018CO R P O R AT E G O V E R N A N C E

C O N T I N U E D

PRINCIPLE 3. PROMOTE ETHIC AL AND
RESPONSIBLE DECISION-MAKING
The Board has established a Code of Conduct, which
requires that Board members and executives:

– will act honestly, in good faith and in the best interests

of the whole Company

– owe a fiduciary duty to the Company as a whole
– have a duty to use due care and diligence in fulfilling the
functions of office and exercising the powers attached to
that office

– will undertake diligent analysis of all proposals placed

before the Board

– will act with a level of skill expected from Directors and

key executives of a publicly listed Company

– will use the powers of office for a proper purpose, in the

best interests of the Company as a whole

– will demonstrate commercial reasonableness in

decision-making

– will not make improper use of information acquired as

Directors and key executives

– will not disclose non-public information except where

disclosure is authorised or legally mandated

– will keep confidential information received in the course
of the exercise of their duties and such information
remains the property of the Company from which it was
obtained and it is improper to disclose it, or allow it to
be disclosed, unless that disclosure has been authorised
by the person from whom the information is provided,
or required by law

– will not take improper advantage of the position of
Director or use the position for personal gain or to
compete with the Company

– will not take advantage of Company property or use

such property for personal gain or to compete with the
Company

– will protect and ensure the efficient use of the

Company’s assets for legitimate business purposes
– will not allow personal interests, or the interest of any
associated person, to conflict with the interests of the
Company

– have an obligation to be independent in judgement and
actions and Directors will take all reasonable steps to
be satisfied as to the soundness of all decisions of the
Board

– will make reasonable enquiries to ensure that the

Company is operating efficiently, effectively and legally,
towards achieving its goals

– will not engage in conduct likely to bring discredit upon

the Company

– will encourage fair dealing by all employees with the

Company’s customers, suppliers, competitors and other
employees

– will encourage the reporting of unlawful/unethical

behaviour and actively promote ethical behaviour and
protection for those who report violations in good faith

– will give their specific expertise generously to the

Company

– have an obligation, at all times, to comply with the spirit,
as well as the letter of the law and with the principles of
this Code of Conduct

PRINCIPLE 4. SAFEGUARD INTEGRIT Y
IN FINANCIAL REPORTING
The Board has an Audit Committee, consisting of only
independent non-executive directors and chaired by an
independent director as suggested in Recommendation
4.1. Following the appointment of the three additional
non-executive directors, the Committee had at least three
members as recommended in Recommendation 4.1.
The Committee met twice during 2018, attended by all
members.

The Committee operates under a charter approved by
the Board, a summary of which is available on the Neuren
website. It is responsible for undertaking a broad review of,
ensuring compliance with, and making recommendations in
respect of, the Group’s internal financial controls and legal
compliance obligations. In respect of financial reporting, 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;

In undertaking these tasks the Audit Committee meets
separately with management and external auditors where
required.

Neuren Pharmaceuticals Limited Annual Report 2018CO R P O R AT E G O V E R N A N C E

C O N T I N U E D

All announcements, presentations, financial information
and meetings materials disclosed to the ASX are placed on
the website, so that current and historical information can
be accessed readily.

The Company’s investor relations program facilitates
effective two-way communication with investors
(Recommendation 6.2). The Executive Chairman and the
Chief Financial Officer interact with institutional investors,
private investors, analysts and media on an ad hoc basis,
conducting meetings in person or by teleconference and
responding personally to enquiries.

The Board seeks practical and cost-effective ways to
promote informed participation at shareholder meetings
(Recommendation 6.3). This includes providing access to
clear and comprehensive meeting materials and electronic
proxy voting. The Company’s constitution has been
amended to enable the Board in future to convene virtual
shareholder meetings, with participation by electronic
means.

In accordance with Recommendation 6.4, shareholders are
provided with and encouraged to use electronic methods to
communicate with the Company and with the share registry.

PRINCIPLE 7. RECOGNISE AND MANAGE RISK
The Board has established policies for the oversight and
management of material business risks, a summary of which
is available on the Neuren website. The Board does not have
a separate committee to oversee risk, judging that the whole
Board is better able to conduct that function efficiently
and effectively, given the small size of the Board and the
specialised nature of the business (Recommendation 7.1).

In accordance with Recommendation 7.2, the Board reviews
the Group’s risk management framework at least annually
to satisfy itself that it continues to be sound. A review was
conducted in 2018.

The size and complexity of the Group’s business is
not sufficient to warrant an internal audit function
(Recommendation 7.3). The risk management policy
is designed to involve the entire organisation in risk
management and to ensure that the effectiveness of the risk
management and internal control processes are continually
improved.

The Group does not have a material exposure to
economic, environmental or social sustainability risks
(Recommendation 7.4).

Notwithstanding that the New Zealand Companies Act 1993
does not require it, in accordance with Recommendation
4.2, the Board also seeks assurances in writing from the
Executive Chairman and the Chief Financial Officer that the
annual financial statements present a true and fair view,
in all material respects, of the Group’s financial condition
and operational results and are in accordance with New
Zealand Accounting Standards and that this is founded on
a sound system of risk management and internal control
that is operating effectively in all material respects with
regard to financial reporting risks. The Board received those
assurances on 27 February 2019.

Since Neuren is incorporated in New Zealand and applies
New Zealand financial reporting standards, its auditor
is located in New Zealand. The Board has considered it
impractical and an unnecessary expense for the auditor to
travel to Australia to attend the annual general meeting,
as suggested in Recommendation 4.3. The Company’s
constitution has been amended to enable the Board in
future to convene virtual shareholder meetings, with
participation by electronic means.

PRINCIPLE 5. MAKE TIMELY
AND BAL ANCED DISCLOSURE
Neuren is required to comply with the continuous disclosure
requirements as set out in the ASX Listing Rules, disclosing
to the ASX any information that a reasonable person would
expect to have a material effect on the price or value of
Neuren’s securities, unless certain exemptions from the
obligation to disclose apply.

In accordance with Recommendation 5.1, the Board has
approved policies and procedures to ensure that it complies
with its disclosure obligations and that disclosure is timely,
factual, clear and objective. The Board has designated the
company secretary as the person primarily responsible
for implementing and monitoring those policies and
procedures. A summary of the policies and procedures is
available on the Neuren website. All information disclosed
to the ASX is placed on the Neuren website after it has been
published by the ASX.

PRINCIPLE 6. RESPECT THE RIGHTS
OF SHAREHOLDERS
The Board strives to communicate effectively with
shareholders, give them ready access to balanced and
understandable information about the business and make
it easy for them to participate in shareholder meetings.

In accordance with Recommendation 6.1, comprehensive
information about the Company and its governance
is provided via the website www.neurenpharma.com.
This includes information about the Board and senior
executives, as well as corporate governance policies.

Neuren Pharmaceuticals Limited Annual Report 2018CO R P O R AT E G O V E R N A N C E

C O N T I N U E D

PRINCIPLE 8. REMUNER ATE FAIRLY
AND RESPONSIBLY
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 Board has a Remuneration Committee, which
consists of only independent non-executive directors
and is chaired by an independent director as suggested
in Recommendation 8.1. Following the appointment
of the three additional non-executive directors, the
Committee had at least three members as recommended
in Recommendation 8.1. The Committee met twice in 2018,
attended by all members.

The Committee operates under a charter approved by
the Board, a summary of which is available on the Neuren
website. It is responsible for undertaking a broad review of,
ensuring compliance with, and making recommendations
in respect of, the Group’s remuneration policies. It is also
responsible for:

– setting and reviewing compensation policies and

practices of the Company;

– setting and reviewing all elements of remuneration of
the directors and members of the executive team; and

– setting and reviewing long term incentive plans for

employees and/or directors.

In undertaking these tasks the Remuneration Committee
meets separately with management where required.

The Group’s remuneration policies and practices
are summarised below, in accordance with
Recommendation 8.2.

The Remuneration Committee assesses the appropriateness
of the nature and amount of remuneration of executive
directors and senior executives on a regular basis by
reference to relevant employment market conditions, with
the overall objective of ensuring maximum shareholder
benefit from the retention of a high quality executive
team. To assist in achieving these objectives, the nature
and amount of executive remuneration is linked to the
Company’s performance. Remuneration consists of
fixed cash remuneration, including superannuation
contributions required by law, and equity-based
remuneration. Fixed cash remuneration takes into account
labour market conditions, as well as the scale and nature
of the Group’s business. Equity-based remuneration
is provided by participation in a share option plan, a
loan funded share plan and equity performance rights.
These are designed to ensure that key executives are aligned
with shareholders through an interest in the long-term
growth and value of the Company. Senior executive service
agreements generally include a requirement for 3 months’
notice of termination by the executive or the Group. There
are no other termination payments. Termination for
misconduct does not require notice or payment.

Remuneration of non-executive directors comprises fixed
cash fees only. The fees are determined by the Board
within the aggregate limit for directors’ fees approved by
shareholders. Non-executive directors on payroll receive
retirement benefits as part of their fixed fee. All other non-
executive directors receive no retirement benefits.

Participants in equity based remuneration schemes
are not permitted to enter into transactions which
limit the economic risk of participating in the scheme
(Recommendation 8.3).

Neuren Pharmaceuticals Limited Annual Report 2018D I R E C TO R S’ R E P O R T

PRINCIPAL ACTIVITIES

euren Pharmaceuticals Limited (Neuren or
the Company, and its subsidiaries, or the
Group) is a publicly listed biopharmaceutical
company developing drugs for neurological
disorders.

PERFORMANCE OVERVIEW
During the year Neuren transitioned into a fundamentally
stronger position due to the licence agreement with
ACADIA Pharmaceuticals Inc (“ACADIA”) for trofinetide in
North America, which was executed in August 2018. Cash
reserves at 31 December 2018 were $23.6 million, compared
with $4.7 million at the start of the year. Cash inflow of
$6.4 million was generated from operations, compared
with an outflow of $5.6 million in 2017.

Under the licence agreement ACADIA was granted exclusive
rights to develop and commercialise trofinetide for all
clinical indications in North America. The partnership with
ACADIA has provided five key financial benefits to Neuren:

– ACADIA is investing circa. US$55 million (A$77 million at
the current exchange rate) into the Rett syndrome Phase
3 program. This would otherwise have been a minimum
capital raise requirement for Neuren in order to be able
to continue development for Rett syndrome.
– Receipt of the first payment from ACADIA of US$10

million (A$13.5 million) provided non-dilutive funding
necessary for Neuren to retain ownership and advance
the development of its highly promising drug candidate
NNZ-2591 as a therapy for neurodevelopmental
disorders, which is now a major focus for the Company.
These disorders include Phelan-McDermid syndrome
(PMS), for which Neuren recently announced positive
effects in a pre-clinical model. The program of standard
characterisation and non-clinical safety studies required
before filing an Investigational New Drug application
(IND) with the FDA and commencing clinical trials are
now in progress.

– ACADIA provides expert execution capabilities in the
US for Phase 3 and commercialization of trofinetide.
The Neuren and ACADIA teams are collaborating very
effectively on all the preparations for the Rett syndrome
Phase 3 trial, which include manufacturing the drug
supplies, finalising the trial protocols, preparing clinical
sites and completing standard non-clinical studies.
– Neuren secured strong participation in the future value
of trofinetide in the US through double digit percentage
royalties on all sales plus further payments of up to
US$455 million (A$640 million at the current exchange
rate) on achievement of development and sales
milestones, as well as one third of the market value of
any Rare Pediatric Disease Priority Review Voucher, if

awarded by the US Food and Drug Administration upon
approval of a New Drug Application for trofinetide. The
potential milestone payments to Neuren consist of
US$105 million subject to achievement of development
milestones in Rett syndrome and Fragile X syndrome
and up to US$350 million subject to achievement of
thresholds of annual net sales of trofinetide in North
America.

– Neuren retained all commercial rights to trofinetide

outside North America and has free access and rights
to use all the technical, clinical and regulatory data
that will be generated by ACADIA in the United States.
Anticipating discussions with interested parties, Neuren
recently appointed Torreya, a global investment bank
specialising in life sciences, as its corporate advisor.
Torreya is working closely with Neuren management
and will assist the board in considering all potential
corporate transactions including individual products,
territories, or Neuren’s entire business.

The licence agreement with ACADIA followed a period of
exclusive negotiations under an exclusivity deed executed
in May 2018. Under the deed, Neuren received US$4 million
and issued 1,330,000 Neuren shares at A$4.00 per share,
which was a premium of approximately 33% over the 10-day
volume-weighted average share price of $3.00.

Under the terms of the licence agreement for North America,
Neuren granted ACADIA a right of first negotiation for other
territories prior to Neuren negotiating with other parties,
which was exercised in October 2018. On 1 February 2019
Neuren reported that the period of exclusive negotiation
had concluded and that having considered the terms of a
proposal received from ACADIA, the board determined it
would not be in the best interests of Neuren’s shareholders
to accept the offer.

In April 2018 Neuren announced the grant of the first patent
by the Japan Patent Office for trofinetide. The new patent
titled “Treatment of autism spectrum disorders using glycyl-
L-2-methylprolyl-L-glutamic acid” will expire in January
2032, with the potential to be extended for up to 5 years.

During the year the composition of the board was
refreshed through the appointment in July 2018 of Dianne
Angus, Patrick Davies and Jenny Harry as non-executive
directors. The new directors have brought highly relevant
skills, diversity and experience in drug development and
commercialisation. Larry Glass retired from the board
at the end of 2018, continuing in his executive role as
Neuren’s Chief Science Officer. Following these changes, the
composition of the board is 4 independent non-executive
directors and 1 executive director.

The consolidated financial statements are presented on
pages 26 to 45. All amounts in the Financial Statements are
shown in Australian dollars unless otherwise stated.

Neuren Pharmaceuticals Limited Annual Report 2018D I R E C TO R S’ R E P O R T

C O N T I N U E D

The Group’s profit after tax attributable to equity holders
of the Company for the year ended 31 December 2018 was
$3.1 million compared with $3.3 million in 2017. Revenue
of $13.5 million was received under the licence agreement
with ACADIA (2017: nil) and foreign exchange gains were
$0.9 million compared with foreign exchange losses of
$0.2 million in 2017. These were offset by an increase of
$1.0 million in research and development costs, resulting
from higher expenditure on manufacturing scale-up and
non-clinical toxicity studies, and a loss of $3.9 million
compared with a gain of $9.5 million in 2017 on the fair value
of the remaining settlements from Lanstead Capital under
the Sharing Agreement that was entered into as part of the
capital raising in July 2017. Prudent control of expenditure
continues to be an important principle in the Group’s
operations and financing.

The basic earnings per share for 2018 was $0.031 (2017:
$0.036 per share) based on a weighted average number
of shares outstanding of 99,038,854 (2017: 91,960,841).

Cash reserves at 31 December 2018 were $23.6 million
(2017: $4.7 million). Cash generated from operations was
$6.4 million, compared with cash outflow of $5.6 million in
2017, due mainly to the receipt of $13.5 million from ACADIA.
Financing provided cash of $11.7 million from the issue of
shares in May 2018 under the exclusivity deed with ACADIA
and settlements from the Lanstead Sharing Agreement,
compared with $5.3 million in 2017 from the issue of shares
in the July 2017 capital raising and subsequent settlements
from the Sharing Agreement. At 31 December 2018, Neuren
had already received $10.3 million from Lanstead with
6 settlements still to be received in the first half of 2019.

No dividends were paid in the year, or in the prior year
and the Directors recommend none for the year.

DIRECTORS

Dr Richard Treagus, BScMed, MBChB, MPharmMed,
MBA (Executive Chairman)
Richard joined the Neuren Board as Executive Chairman
in January 2013. He is a physician, with more than 20
years’ experience in all aspects of the international
biopharmaceutical industry. He has held senior executive
roles with pharmaceutical organisations in South Africa
and Australia and has successfully established numerous
pharmaceutical business partnerships in the US, Europe
and Asia. Richard served as Chief Executive of the ASX-
listed company Acrux Limited from 2006 to 2012. Under
his leadership Acrux gained FDA approval for three drug
products, concluded a product licensing transaction
with Eli Lilly worth US$335m plus royalties and became
profitable. In 2010 Richard was awarded the Ernst and Young
Entrepreneur-of-the-Year (Southern Region) in the Listed
Company Category and in subsequent years has served
on the judging panel. Richard is Chairman of BTC Health
Limited, which is listed on the ASX.

Larry Glass (Executive Director
and Chief Science Officer)
Larry retired from the Neuren Board on 31 December 2018
and continues as Chief Science Officer. He joined Neuren
in 2004 and was an Executive Director from May 2012. He
has more than 30 years’ experience in the life sciences
industry, including clinical trials, basic and applied research,
epidemiologic studies, diagnostics and pharmaceutical
product development. 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
(“CRO”) 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. Larry is a biologist with additional
graduate training in epidemiology and biostatistics.

Dr Trevor Scott, MNZM, LLD (Hon), BCom, FCA,
FNZIM, DF Inst D (Non-Executive Director)
Trevor joined the Neuren Board in March 2002. He is
the 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. Trevor serves on numerous corporate boards and
is chairman of several. He chair’s Neuren’s Audit Committee
and Remuneration Committee as an independent director.

Dianne Angus BSc (Hons), Master of Biotechnology,
IPTA (Non-Executive Director) - Appointed 1 July 2018
Dianne joined the Neuren Board in July 2018. She has
worked as a senior executive and non-executive director
within the biotechnology, biopharmaceutical and agritech
industries for over twenty-five years. She has created
numerous global industry partnerships which include
Prana Biotechnology, Gerolymatos International, Florigene,
Suntory & Monsanto to yield novel and competitive
medical, pharmaceutical and agricultural products.
Dianne has successfully forged strong partnerships with
key medical opinion leaders to create innovative clinical
research programs and driven the development path for
novel neurological pre-clinical agents to late-stage clinical
assets before the FDA and European regulators. With over
fifteen years’ experience in an ASX and NASDAQ listed
company, she has expertise in business development,
capital raising, investor relations, regulatory affairs and
intellectual property, together with corporate governance
and compliance capabilities. Dianne holds a Masters degree
in biotechnology and is a registered patent attorney.

Neuren Pharmaceuticals Limited Annual Report 2018D I R E C TO R S’ R E P O R T

C O N T I N U E D

Patrick Davies B EC, MBA (Non-Executive Director)
– Appointed 1 July 2018
Patrick joined the Neuren Board in July 2018. He has held
executive management roles in the Australian and New
Zealand healthcare industry for over twenty five years
having performed successfully in senior roles across
many industry sectors including pharmacy, primary care,
pharmaceutical and consumer products. During his ten year
period as Chief Executive Officer of EBOS Group Limited
(and previously Symbion), the enterprise value of the group
achieved compound annual growth in enterprise value
of +20% (from circa $450M to in excess of $3.1B). He is a
director on other corporate boards and provides strategic
advice to a range of healthcare businesses and investors.

Dr Jenny Harry BSc (Hons), PhD (Non-Executive
Director) – Appointed 7 July 2018
Jenny joined the Neuren Board in 2018. She has 20 years’
experience in executive management of companies in
the biotechnology and biopharmaceutical sectors. She
is currently the Managing Director of Ondek Pty Ltd, an
Australian biopharmaceutical company developing new
treatments for paediatric allergy. In her previous role, as
CEO and Managing Director of Tyrian Diagnostics, Jenny
transformed the company from an R&D business to a
diagnostics company and oversaw development of the
company’s first products through to commercialisation
and early revenue generation. She is a graduate of the
Harvard Business School General Manager Program and
the Australian Institute of Company Directors. Jenny is
currently Chair of QUT Enterprise Holdings and a non-
executive director on the boards of QUTbluebox and
Creative Enterprise Australia.

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 during and since
the end of 2018 are as follows:

Dr Richard Treagus
In accordance with the rules of the Loan Funded Share
Plan, on 30 May 2018 the Company bought back 501,607
ordinary shares from Neuren Trustee Limited at the volume
weighted average price for the 5 days ended 29 May 2018 in
order to settle the outstanding loan of $1,560,000 relating
to 2 million vested Loan Funded Shares that were held in
trust for Dr Treagus pending repayment to the Company of
the loan. The remaining 1,498,393 shares were transferred
from Neuren Trustee Limited to Richard.

On 28 October 2018, Dr Treagus purchased 16,000 shares
at $1.24 per share.

Patrick Davies
On 10, 13 and 14 August 2018, Mr Davies purchased 69,646
shares at $1.44 per share.

Dr Jenny Harry
On 10 August 2018, Dr Harry purchased 14,084 shares at
$1.46 per share.

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.

INDEMNIFIC ATION AND INSUR ANCE
OF DIRECTORS AND OFFICERS
Neuren has entered into a deed of indemnity, insurance
and access with Directors and Officers, which provides that
Directors and Officers generally will incur no monetary loss
as a result of actions undertaken by them as Directors and
Officers. The indemnity does not cover criminal liability or
liability in respect of a breach of a director’s duty to act in
good faith and in what the director believes to be the best
interests of the Company or a breach of any fiduciary duty
owed to the Company or a subsidiary.

DONATIONS
No donations were made by the Company or its subsidiary
companies during the year (2017: $nil).

AUDITORS
Grant Thornton New Zealand Partnership (2017:
PricewaterhouseCoopers) is the independent auditor of
the Company. Grant Thornton audit fees in relation to
the 2018 annual and interim financial statements were
$58,538. PricewaterhouseCoopers fees in relation to the
2017 financial statements were $67,654 in 2018 and $59,255
in 2017. Grant Thornton Australia (member firm) received
$15,000 fees in relation to other financial advice and
services in 2018. PricewaterhouseCoopers did not receive
fees in relation to other financial advice and services in
2017 or 2018. No amounts were payable to an auditor by
subsidiary companies in 2018 or 2017.

Neuren Pharmaceuticals Limited Annual Report 2018D I R E C TO R S’ R E P O R T

C O N T I N U E D

REMUNER ATION OF DIRECTORS
Remuneration of the Directors is shown in the table below. Remuneration for Larry Glass was receivable from a subsidiary
company, Neuren Pharmaceuticals Inc. Remuneration for 2018 and 2017 includes the settlement of deferred amounts following
the waivers and reductions in fees that were implemented as cash conservation measures in October 2016, as disclosed in the
Directors’ Report and Financial Statements for the year ended 31 December 2017.

Remuneration of Directors

Dr Richard Treagus

Mr Larry Glass

Dr Trevor Scott

Dianne Agnus

Patrick Davies

Dr Jenny Harry

2018
$’000

536

310

2017
$’000

418

528

–

EXECUTIVE REMUNER ATION
The number of employees, not being directors of the Company, who received remuneration and benefits above NZ $100,000,
shown in bands denominated in Australian dollars, was as follows:

Excluding shared based payments

$150,000 - $159,999

$240,000 - $249,999

$270,000 - $279,999

$320,000 - $329,999

$410,000 - $419,999

Including shared based payments

$150,000 - $159,999

$240,000 - $249,999

$270,000 - $279,999

$290,000 - $299,999

$410,000 - $419,999

$430,000 - $439,999

2018
$’000

2017
$’000

–

2018
$’000

2017
$’000

–

For and on behalf of the Board of Directors who authorised the issue of these financial statements on 27 February 2019.

Dr Richard Treagus
Chairman

Dr Trevor Scott
Director

Neuren Pharmaceuticals Limited Annual Report 2018

C O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E
F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8

Interest income

Revenue from licence agreement

Foreign exchange gain

Australian R&D tax incentive

Gains on financial assets measured at fair value through profit or loss
Total income

Research and development costs

Corporate and administrative costs

Losses on financial assets measured at fair value through profit or loss

Foreign exchange loss
Profit before income tax
Income tax

Profit after income tax

Other comprehensive expense, net of tax

Amounts which may be subsequently reclassified to profit or loss:

Exchange differences on translation of foreign operations
Total comprehensive income for the year
Profit after tax attributable to Equity holders of the company:
Total comprehensive profit attributable to Equity holders of the company:

Basic earnings per share

Diluted earnings per share

The notes on pages 30 to 45 form part of these financial statements

Notes

2018
$’000

218

13,544

961

446

–
15,169

(6,101)

(2,074)

(3,921)

–
3,073
–

3,073

(58)
3,015
3,073
3,015

$0.031

2017
$’000

–

631

9,482
10,160

(5,136)

(1,568)

–

(168)
3,288
–

3,288

34
3,322
3,288
3,322

$0.036

$0.035

Neuren Pharmaceuticals Limited Annual Report 2018C O N S O L I D AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N
A S AT 3 1 D E C E M B E R 2 0 1 8

ASSETS

Current Assets:
Cash and cash equivalents
Trade and other receivables
Financial assets measured at fair value through profit or loss

Total current assets

Non-current assets:

Property, plant and equipment
Intangible assets
Financial assets measured at fair value through profit or loss

Total non-current assets

TOTAL ASSETS

LIABILITIES AND EQUITY

Current liabilities:
Trade and other payables

Total current liabilities

Total liabilities

EQUITY

Share capital
Other reserves
Accumulated deficit

Total equity attributable to equity holders

TOTAL LIABILITIES AND EQUITY

The notes on pages 30 to 45 form part of these financial statements

Notes

2018
$’000

2017
$’000

7
8
9

23,576
942
2,121

26,639

2
1
–

4,706
692
10,688

16,086

7
73
1,778

1,858

26,642

17,944

1,973

126,426
(8,497)
(93,260)

24,669

26,642

1,580

121,136
(7,332)
(97,440)

16,364

17,944

Neuren Pharmaceuticals Limited Annual Report 2018C O N S O L I D AT E D S TAT E M E N T O F C H A N G E S I N E Q U I T Y
F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8

Equity as at 1 January 2017

Shares issued in private placement
Share issue costs expensed
Share based payments

Transfer on exercise of options

Transactions with owners

Profit after income tax

Other comprehensive expense

Total Comprehensive income for the year

Share
Capital
$’000

Share
Option
Reserve
$’000

Currency
Translation
Reserve
$’000

Accumulated
Deficit
$’000

112,829

2,841

(10,659)

(100,828)

8,351
(44)

8,307

552

(100)

452

100

3,288

Equity as at 31 December 2017

121,136

3,293

(10,625)

(97,440)

Shares issued in private placement

Share issue costs expensed
Transfer on exercise of options

Transactions with owners

Profit after income tax
Other comprehensive expense

Total Comprehensive income for the year

5,306

(16)

5,290

(1,107)

1,107

3,073

(58)

Total
Equity
$’000

4,183

8,351
(44)
552

–

8,859

3,288

3,322

16,364

5,306

(16)
–

5,290

3,073
(58)

3,015

Equity as at 31 December 2018

126,426

2,186

(10,683)

(93,260)

24,669

The notes on pages 30 to 45 form part of these financial statements

Neuren Pharmaceuticals Limited Annual Report 2018

C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S
F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8

2018
$’000

2017
$’000

13,544
631
165
95
(1,909)
(6,118)
6,408

11,730
(16)
11,714

18,122
748
4,706
23,576

–
981
49
70
(1,494)
(5,196)
(5,590)

5,367
(44)
5,323

(267)
(78)
5,051
4,706

3,073

3,288

5
72
–
(806)
3,921

(250)
393
6,408

6
72
552
111
(9,482)

310
(447)
(5,590)

Cash flows from operating activities:
Receipts from licence agreement
Receipts from Australian R&D Tax Incentive
Interest received
GST refunded
Payments for employees and directors
Payments to other suppliers
Net cash flow (to)/from operating activities

Cash flows from financing activities:
Proceeds from the issue of shares
Payment of share issue expenses
Net cash provided from financing activities

Net increase / (decrease) in cash
Effect of exchange rate changes on cash balances
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year

Reconciliation with profit after income tax:
Profit after income tax
Non-cash items requiring adjustment:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Share based payment expense
Foreign exchange loss/(gain)
Gain on financial assets
Changes in working capital:
Trade and other receivables
Trade and other payables
Net cash flow from operating activities

The notes on pages 30 to 45 form part of these financial statements

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
F O R T H E Y E A R E N D E D 3 1 D E C E M B E R 2 0 1 8

1. NATURE OF BUSINESS
Neuren Pharmaceuticals Limited (Neuren or the Company,
and its subsidiaries, or the Group) is a publicly listed
biopharmaceutical company developing drugs for
neurological disorders. The drugs target treatment of
chronic neurodevelopmental and neurodegenerative
disorders, as well as acute traumatic brain injury.

The Company is a limited liability company incorporated
in New Zealand. The address of its registered office in New
Zealand is at the offices of Lowndes Jordan, Level 15 PWC
Tower, 188 Quay Street, Auckland 1141. 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 27 February
2019.

Inherent Uncertainties
– 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’s revenue from licence agreements is
contingent on future events and will be intermittent
until product sales commence. The Company’s business
plan therefore may require expenditure in excess of
revenue and in the future the Company may 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.

– The Company entered a Sharing Agreement with
Lanstead Capital LP as a part of the capital raising
completed in July 2017, under which the Company
receives 18 settlements calculated with reference
to both the volume weighted average price at which
Neuren’s shares are traded during the 20 days prior
to each settlement (VWAP), and a rate of return which
effectively results in a discount to the VWAP. Movements
in the share price could materially impact the fair value
of the 6 monthly instalments that remained outstanding
at 31 December 2018 and the cash amounts received
from those instalments (Refer Note 9).

2. SUMMARY OF SIGNIFIC ANT ACCOUNTING

POLICIES

These general-purpose consolidated financial statements
of the Group are for the year ended 31 December 2018
and have been prepared in accordance with and comply
with generally accepted accounting practice in New
Zealand (GAAP), New Zealand equivalents to International
Financial Reporting Standards (NZ IFRS) which comply
with International Financial Reporting Standards, the
requirements of the Financial Markets Conduct Act 2013,
and other applicable Financial Reporting Standards
as appropriate for profit-oriented entities that fall into
Tier 1 as determined by the New Zealand Accounting
Standards Board.

(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 2018 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.

Statutory Base
Neuren is registered under the New Zealand Companies
Act 1993. Neuren is also registered as a foreign company
under the Australian Corporations Act 2001.

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 and Group to exercise its judgement in the
process of applying the Company and Group’s accounting
policies. Actual results may differ from those estimates. The
areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to
the financial statements are disclosed in Note 17.

Going concern basis
The directors monitor the Group’s cash position and
initiatives to ensure that adequate funding continues to
be available for the Group to meet its business objectives.
The Group recorded operating cash inflow of $6.4 million
for the year ended 31 December 2018 and had net assets
at 31 December 2018 of $24.7 million, including cash
balances of $23.6 million and fair value of the outstanding
cash settlements due from Lanstead Capital of $2.1m.
The amounts of the settlements from Lanstead have a
dependency on the Company’s share price, as described
in Note 9.

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Subsidiaries are fully consolidated from the date on which
control is transferred to the group. They are deconsolidated
from the date that control ceases.

Inter-company transactions, balances and unrealised gains
on transactions between group companies are eliminated.
Unrealised losses are also eliminated. When necessary,
amounts reported by subsidiaries have been adjusted to
conform with the group’s accounting policies.

(i) Functional and Presentation Currency
The functional and presentation currency of the Company
and Group is Australian Dollars.

(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.

2. SUMMARY OF SIGNIFIC ANT ACCOUNTING

POLICIES (CONTINUED)

It is the considered view of the Directors that the Group
will have access to adequate resources to meet its ongoing
obligations for at least a period of 12 months from the
date of signing these financial statements. On this basis,
the Directors have assessed it is appropriate to adopt the
going concern basis in preparing its financial statements.
The financial statements do not include any adjustments
that would result if the Group was unable to continue as
a going concern.

Changes in accounting policies

Implementation of NZ IFRS15: Revenue from contracts
NZ IFRS 15 ‘Revenue from Contracts with Customers’
and the related ‘Clarifications to NZ IFRS 15 Revenue
from Contracts with Customers’ (hereinafter referred to
as ‘NZ IFRS 15’) replace NZ IAS 18 ‘Revenue’, NZ IAS 11
‘Construction Contracts’, and several revenue-related
Interpretations. The new Standard has not been applied
retrospectively and no restatement to comparative
numbers made. There are no adjustments to retained
earnings at 1 January 2018 from the implementation
of this standard.

Implementation of NZ IFRS9: Financial instruments
NZ IFRS 9 replaces NZ IAS 39 ‘Financial Instruments:
Recognition and Measurement’. It makes major changes
to the previous guidance on the classification and
measurement of financial assets and introduces an
‘expected credit loss’ model for the impairment of financial
assets. When adopting NZ IFRS 9, the Group has applied
transitional relief and opted not to restate prior periods.
There have been no differences arising from the adoption
of IFRS9 in relation to classification, measurement, and
impairment.

There have also been no financial instruments which have
been assigned a new category on transition.

There is no significant impact of changes in accounting
policies for the year ended 31 December 2018.

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 adopted early.
None are expected to impact the Group.

(b) Principles of Consolidation

Subsidiaries
Subsidiaries are all entities (including structured entities)
over which the group has control. The group controls
an entity when the group is exposed to, or has rights to,
variable returns from its involvement with the entity and
has the ability to affect those returns through its power over
the entity.

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2. SUMMARY OF SIGNIFIC ANT ACCOUNTING

POLICIES (CONTINUED)

(d) Revenue
Revenue arises mainly from grants received and interest.
In the current reporting period Licence revenue was
recognised in relation to the partnering agreement signed
with Acadia.

Revenue is recognised either at a point in time or over time,
when (or as) the Group satisfies performance obligations
by transferring the promised goods or services to its
customers.

Grants
Grants received are recognised in the profit or loss within
the Statement of Comprehensive Income over the periods
in which the related costs for which the grants are intended
to compensate are recognised expenses and when the
requirements under the grant agreement have been met.
Any grants received for which the requirements under the
grant agreement have not been completed are carried
as liabilities until all the conditions have been fulfilled.

Interest income
Interest income is recognised on a time-proportion basis
using the effective interest method.

Revenue from Licence agreements
The revenue from the Acadia license agreement is a Phase II
reimbursement fee and has been recognised as a separate
performance obligation as it is distinct from all the other
obligations within the Acadia licensing agreement. The
revenue from this performance obligation has therefore
been recognised at a point in time when Neuren had
transferred its intellectual property to Arcadia and Neuren
had an enforceable right to receive payment.

(e) 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.

(f) Income tax
The income tax expense for the period is the tax payable on
the period’s taxable income or loss using tax rates enacted
or substantively enacted at the reporting 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 reporting
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.

(g) 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.

(h) Impairment of non-financial assets
Assets that have an indefinite useful life are not subject to
amortisation and are tested annually for impairment. All
non-financial assets are also 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 value less costs of disposal
and value in use of the long-lived asset. Fair market value is
determined using the anticipated cash flows discounted at a
rate commensurate with the risk involved.

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2. SUMMARY OF SIGNIFIC ANT ACCOUNTING

(m) Intangible assets

POLICIES (CONTINUED)

(i) 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.

(j) 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.

(k) Trade and other receivables
The Group makes use of a simplified approach in accounting
for trade and other receivables and records the loss
allowance as lifetime expected credit losses. These are the
expected shortfalls in contractual cash flows, considering
the potential for default at any point during the life of the
financial instrument. In calculating, the Group uses its
historical experience, external indicators and forward-
looking information to calculate the expected credit losses
using a provision matrix.

(l) 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 Group 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

4 years

2-10 years

3-4 years

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.

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.

(n) 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
personal leave are recognised when the leave is taken
and measured at the rates paid or payable.

Share-based payments
Neuren operates a loan funded share plan and equity
performance rights plan. Both plans are accounted for as
share options. The fair value of the services received in
exchange for the grant of the options or shares 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 or shares at grant
date. At each reporting date, except for options that are
subject to a market condition for vesting, 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.

When options are exercised, the proceeds received net of
any directly attributable transaction costs are credited to
share capital.

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– the contractual terms of the financial assets give rise

to cash flows that are solely payments of principal and
interest on the principal amount outstanding

After initial recognition, these are measured at amortised
cost using the effective interest method.

Discounting is omitted where the effect of discounting is
immaterial. The Group’s cash and cash equivalents, trade
and most other receivables fall into this category of financial
instruments.

Financial assets at fair value through profit or loss (FVTPL)
Financial assets that are held within a different business
model other than ‘hold to collect’ or ‘hold to collect and sell’
are categorised at fair value through profit and loss. Further,
irrespective of business model financial assets whose
contractual cash flows are not solely payments of principal
and interest are accounted for at FVTPL. All derivative
financial instruments fall into this category, except for those
designated and effective as hedging instruments, for which
the hedge accounting requirements apply.

Assets in this category are measured at fair value with gains
or losses recognised in profit or loss. The fair values of
financial assets in this category are determined by reference
to active market transactions or using a valuation technique
where no active market exists.

(q) 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.

3. SEGMENT INFORMATION
The Group operates as a single operating segment and
internal management reporting systems present financial
information as a single segment. The segment derives its
revenue and incurs expenses through the development
of pharmaceutical products. Grant income arises from
the Australian R&D Tax Incentive and revenue from
licence agreements is derived from the United States.
The Board of the Company has been identified as the
chief operating decision maker. The Board assesses the
financial performance and position of the group, and
makes strategic decisions.

2. SUMMARY OF SIGNIFIC ANT ACCOUNTING

POLICIES (CONTINUED)

(o) 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.

(p) Financial instruments

Recognition and derecognition
Financial assets and financial liabilities are recognised
when the Group becomes a party to the contractual
provisions of the financial instrument.

Financial assets are derecognised when the contractual
rights to the cash flows from the financial asset expire, or
when the financial asset and substantially all the risks and
rewards are transferred.

A financial liability is derecognised when it is extinguished,
discharged, cancelled or expires.

Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a
significant financing component and are measured at the
transaction price in accordance with NZ IFRS 15, all financial
assets are initially measured at fair value adjusted for
transaction costs (where applicable).

Financial assets, other than those designated and effective
as hedging instruments, are classified into the following
categories:

– amortised cost
– fair value through profit or loss (FVTPL)
– fair value through other comprehensive income (FVOCI).

In the periods presented the corporation does not have any
financial assets categorised as FVOCI.

The classification is determined by both:

– the entity’s business model for managing the financial

asset

– the contractual cash flow characteristics of the financial

asset.

All income and expenses relating to financial assets that
are recognised in profit or loss are presented within finance
costs, finance income or other financial items, except for
impairment of trade receivables which is presented within
other expenses.

Subsequent measurement of financial assets

Financial assets at amortised cost
Financial assets are measured at amortised cost if
the assets meet the following conditions (and are not
designated as FVTPL):

– they are held within a business model whose objective
is to hold the financial assets and collect its contractual
cash flows

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
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4. EXPENSES

Loss before income tax includes the following expenses:

Depreciation – property, plant and equipment
Computer equipment
Fixtures and fittings

Total depreciation

Amortisation – intangible assets

Intellectual property
Software

Total amortisation

Remuneration of auditors

Audit and review of financial statements (PwC)
Audit and review of financial statements (Grant Thornton NZ)
Advisory services (Grant Thornton Australia – member firm)

Total remuneration of auditors

Employee benefits expense

Short-term benefits
Share based payments

Total employee benefits expense

Directors’ compensation

Short-term benefits

Total Directors’ compensation

Lease expense

Foreign exchange loss on fair value of forward contracts

2018
$’000

2017
$’000

4
1

73
–

67
59
15

141

1,104
–

1,104

1,008

–

4
2

71
1

59
–
–

1,240
552

1,792

946

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5. INCOME TA X

Income tax

Current tax
Deferred tax

Numerical reconciliation of income tax to prima facie tax receivable:

Profit before income tax
Tax at applicable rates

Non-taxable Australian R&D tax incentive income
Non deductible expenses for R&D incentive
Non deductible share option expenses
Non-taxable loss/(gain) in fair value of equity derivative
Utilisation of previously unrecognised tax losses

Deductible temporary differences and tax losses for which no deferred tax asset was recognised

Income tax

2018
$’000

2017
$’000

–
–

–

3,073
845

(123)
282
–
1,806
(2,710)

(100)

–

–
–

–

3,288
904

(174)
399
152
(2,476)

–

1,195

–

Gross tax losses for which no deferred tax asset has been recognised(a)

88,914

95,902

(a) Of these gross tax losses, NZ$63.9 million relates to New Zealand tax losses, which are unlikely to be utilised.

6. E ARNINGS PER SHARE
The Group has two categories of dilutive potential ordinary shares: loan funded shares and equity performance rights. For
loan funded shares, a calculation is performed to determine the number of shares that could have been acquired at fair value
(determined as the average annual market share price of the Company’s shares) based on the monetary value of the exercise
price attached to the outstanding loan funded shares. The number of loan funded shares calculated as above is compared with
the number of shares that would have been issued assuming the exercise of the loan funded shares. Any “out-of-money” loan
funded shares are also excluded. For equity performance rights, shares are assumed issued.

Profit after income tax attributable to equity holders (basic) - ($000)

Weighted average shares outstanding (basic) - (No.)

Basic earnings per share

Profit after income tax attributable to equity holders (diluted) - ($’000)

Weighted average shares outstanding (diluted) - (No.)

Diluted earnings per share

2018

2017

3,073
99, 038,854

3,288
91,960,841

$0.031

$0.036

3,073
99,751,382

3,288
93,029,924

$0.031

$0.035

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
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7. C A SH AND C A SH EQUIVALENTS

Cash

Demand and short-term deposits

8. TR ADE AND OTHER RECEIVABLES

Trade receivables

Other receivables
Interest receivables
Australian R&D tax incentive

2018
$’000

3,738
19,838

23,576

2018
$’000

423
16
57
446

942

2017
$’000

1,736
2,970

4,706

2017
$’000

44
14
3
631

692

The Group applies the NZIFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as
these items do not have a significant financing component.

In measuring the expected credit losses, the trade receivables have been assessed on an individual basis due to the limited
number of receivables.

The expected loss rates are based on the payment profile of the individual receivable and other transactions with that debtor
over the past 12 months before 31 December 2018 as well as the corresponding historical credit losses during that period.

Trade receivables are written off (i.e. de-recognised) when there is no reasonable expectation of recovery. Failure to make
payments within 180 days from the invoice date and failure to engage with the Group on alternative payment arrangements
amongst others are considered indicators of no reasonable expectation of recovery. No credit losses have been determined for
the current year (2017: nil).

9. FINANCIAL A SSETS ME A SURED AT FAIR VALUE THROUGH PROFIT OR LOSS

Current

Equity derivative

Non-Current
Equity derivative

TOTAL

Reconciliation of the fair values at the end of the current financial year are set out below:

Initial recognition of equity derivative

Opening fair value
Cash settlements received
Net (loss) or gain through profit or loss

Closing fair value

2018
$’000

2017
$’000

2,121

10,688

–

2,121

1,778

12,466

2018
$’000

–
12,466
(6,424)
(3,921)

2,121

2017
$’000

5,351
–
(2,367)
9,482

12,466

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
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9. FINANCIAL A SSETS ME A SURED AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)

Financial instruments classified under the equity swap arrangement are measured at fair value using a fair value hierarchy
reflecting the significance of the inputs used in making the measurements. These financial assets are classified as level 2. Fair
value calculations are based on a discounted cash flow model.

In July 2017, Neuren completed a placement of new ordinary shares, the subscribers for which included Lanstead Capital.
Neuren entered into a Sharing Agreement with Lanstead Capital, under which Neuren’s economic interest was an equity
derivative, determined and payable in 18 cash settlements commencing in September 2017. In August 2018 Neuren agreed with
Lanstead to pause for 120 days the monthly settlements, which means that 8 settlements were received in 2018 and the final
monthly settlement, which was originally due in February 2019 will now be calculated and received in June 2019. Therefore 6
settlements remained outstanding at 31 December 2018.

The calculation of each monthly settlement is dependent upon the volume weighted average price at which Neuren’s
shares are traded during the 20 days prior to settlement (VWAP). If the VWAP for each settlement is equal to $1.77 per share
(Benchmark Price), Neuren receives $472,222 (one eighteenth of $8.5 million). For each settlement, if the VWAP is higher than
the Benchmark Price, Neuren receives proportionately more than $472,222 and if the VWAP is lower than the Benchmark Price,
Neuren receives proportionately less than $472,222. Should the Company’s share price drop significantly, the cumulative
remaining settlement amount could reduce to zero. $6.4 million was received from the 8 settlements in 2018 (compared with
$3.8 million that would have been received if the VWAP had been the Benchmark Price).

The key assumption for the calculation of the fair value of the equity derivative is the estimated VWAP applicable to each
settlement. For the fair value on recognition, the VWAP was assumed to be $1.22 per share, which was the lowest traded price
of Neuren’s shares on 17 July 2017. For the fair value at 31 December 2018, the VWAP was assumed to be $1.40 per share which
was the closing price on 31 December 2018. (31 December 2017 : $3.12 per share, which was the lowest traded price of Neuren’s
shares on 29 December 2017). The fair value calculations were adjusted to reflect the time value of money and the estimated
credit risk associated with the counterparty.

A sensitivity analysis of the fair value at 31 December 2018 for different VWAP assumptions within a reasonably possible range
is presented in the following table:

2018
Assumed VWAP ($)

1.0

1.5
2.0

Fair value
($’m)

1.4
2.3
3.2

10. TR ADE AND OTHER PAYABLES

Trade payables

Accruals
Employee Benefits

2018
$’000

1,335
83
555

1,973

2017
$’000

723
265
592

1,580

Trade payables and accruals relate to operating expenses, primarily research and development expenses. Trade payables
comprise amounts invoiced prior to the reporting date and accruals comprise the value of work done but not invoiced at each
reporting date.

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

11. SHARE C APITAL

Issued Share Capital

Ordinary shares on issue at beginning of year
Shares issued on exercise of Equity Performance Rights
Shares bought back under Loan Funded Share Plan
Shares issued in private placement
Share issue expenses - cash issue costs

Share Consolidation

2018
Shares

2017
Shares

2018
$’000

2017
$’000

101,840,020
–
(501,607)
1,330,000
–

1,841,929,015
1,308,901
–
193,548,389
–

121,136
–
–
5,306
(16)

112,829
–
–
8,351
(44)

102,668,413

2,036,786,305

126,426

121,136

–

(1,934,946,285)

–

102,668,413

101,840,020

126,426

121,136

In May 2018 Neuren issued 1,330,000 ordinary shares at A$4.00 per share, which was a premium of approximately 33% over the
10-day volume-weighted average share price, under the terms of an Exclusivity Deed that provided for exclusive negotiations
with ACADIA Pharmaceuticals for a period of 3 months.

In July 2017, Neuren completed a placement of new ordinary shares in return for $3 million in cash and an equity derivative
under a Sharing Agreement with Lanstead Capital, the fair value of which was $5.4 million.

In November 2017 all issued ordinary shares were consolidated, with 20 ordinary shares being consolidated into 1 ordinary
share. Fractional entitlements were rounded up to the nearest whole share. The total number of shares on issue prior to the
consolidation was 2,036,786,305. After the share consolidation and at 31 December 2017 this was reduced to 101,840,020
shares.

At 31 December 2018 and 31 December 2017, 2.5 million ordinary shares were held as treasury stock in respect of the Loan
Funded Share Plan described in section (a) below.

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.

Share based payments
Neuren has operated 3 equity-settled share based payment plans; a share option plan, a loan funded share plan and an equity
performance rights plan.

No securities were issued under any of these plans in 2018 or 2017. At 31 December 2017, all services required for the
instruments issued under share based payment plans had been received.

Equity-settled share based payments expensed in the Income Statement were as follows:

Loan funded shares

Equity performance rights

Total

2018
$’000

–
–

–

2017
$’000

532
20

552

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

11. SHARE C APITAL (CONTINUED)

(a) Loan funded shares
The Company has a Loan Funded Share Plan to support the achievement of the Company’s business strategy by linking
executive reward to improvements in the financial performance of the Company and aligning the interests of executives
with shareholders. Under the Loan Funded Share Plan, loan funded shares may be offered to employees or consultants
(“Participants”) by the Remuneration and Audit Committee. The Company issues new ordinary shares, which are placed in a
trust to hold the shares on behalf of the Participant. The trustee issues a limited-recourse, interest-free loan to the participant,
which is equal to the number of shares multiplied by the issue price. A limited-recourse loan means that the repayment amount
will be the lesser of the outstanding loan and the market value of the shares that are subject to the loan. The trustee continues
to hold the shares on behalf of the Participant until all vesting conditions have been satisfied and the Participant chooses to
settle the loan, at which point ownership of the shares is transferred from the trust to the Participant. Any dividends paid by
the Company while the shares are held by the trust are applied as repayment of the loan at the after-tax value of the dividend.
On request by the participant, the Company may dispose of, or buy back, vested shares and utilise the proceeds to settle
the outstanding loan. The directors may apply vesting conditions to be satisfied before the shares can be transferred to the
Participant. Before the loan can be given, the New Zealand Companies Act requires the Company to disclose to shareholders
the provision of financial assistance to the Participant. The maximum loan term is 5 years.

All shares issued under the plan were issued subject to the following vesting conditions:

The Participant is continuously a director or employee of the Company for a period of three years commencing on the day
on which the directors resolved to issue the Loan Funded Shares (“Issue Date”) and finishing on the third anniversary of the
issue date (or such other date on which the directors make a determination as to whether the vesting conditions have been
met) (the “Vesting Period”); and

b. 50% of the Loan Funded Shares shall each vest where the following performance conditions are met:

i. The Total Shareholder Return (TSR) on the Company’s ASX-listed ordinary shares equals or exceeds 75% over the

Vesting Period. The TSR is calculated using the average closing share price over the period of 30 consecutive trading
days concluding on the Issue Date and the average closing share price over the period of 30 consecutive trading days
concluding on the date on which the Vesting Period ends; and

ii. Within the Vesting Period, either:

The Company determines to progress a product candidate to a Phase 2b or Phase 3 clinical trial following a positive
Phase 2 clinical trial outcome and a national regulatory authority approves the initiation of such trial, or

2. A material partnering or licensing transaction is concluded.

Movements in the number of Loan Funded Shares were as follows:

Outstanding at 1 January 2017

Share consolidation

Outstanding at 31 December 2017

Exercised

Outstanding at 31 December 2018

Loan Funded
Shares

Weighted
Average
Exercise Price

Exercisable

Weighted
Average
Exercise Price

90,000,000

$0.066

–

$0.039

(85,500,000)

4,500,000

(2,000,000)

2,500,000

$1.32

$0.78

$1.76

2,000,000

(2,000,000)

–

$0.78

The exercise prices for the outstanding loan funded shares are $1.84 per share in respect of 1.5 million shares and $1.64 per
share in respect of 1 million shares.

On 30 May 2018 the Company bought back 501,607 ordinary shares from Neuren Trustee Limited at the volume weighted
average price for the 5 days ended 29 May 2018 in order to settle the outstanding loan of $1,560,000 relating to 2,000,000
vested Loan Funded Shares held in trust pending repayment of the loan. The remaining 1,498,393 shares were transferred from
Neuren Trustee Limited to the participant.

Neuren Pharmaceuticals Limited Annual Report 2018

N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

11. SHARE C APITAL (CONTINUED)
In 2018 the directors deferred making a determination on the vesting conditions in respect of 2.5 million Loan Funded Shares
until 31 March 2019, or an earlier date determined by the directors. In 2017 the directors deferred making a determination on
the vesting conditions in respect of 2.5 million Loan Funded Shares until 1 September 2018, or an earlier date determined by
the directors.

(b) Equity Performance Rights
The Company previously issued equity performance rights (“EPR”) to certain executives, calculated as a fixed amount divided
by the average closing price of the listed ordinary shares of the Company over the five trading days immediately preceding the
date of acceptance of an offer of employment (“measurement date”). Subject to continuous service by the recipient, each EPR
vests three years from the date on which service commences (“vesting date”). When vested, the Company will issue at no cost
one new ordinary share for each EPR exercised. The issued shares shall rank equally with the Company’s other issued ordinary
shares and the recipient shall be free to deal with the issued shares in accordance with the Company’s Securities Trading
Policy. The EPR will vest automatically upon any effective change in control of the Company, control being when a person and
their associates become the holder of greater than 50% of the ordinary share voting rights. Any unvested EPR will expire if the
recipient ceases to be an employee or director of the Company.

Movements in the number of EPR were as follows:

Weighted
Average
Exercise Price

EPR

Weighted
Average
Share Price
on exercise

1,308,901

(1,308,901)

nil

$0.061

Exercisable

Weighted
Average
Exercise Price

1,308,901

nil

–

Outstanding at 1 January 2017

Exercised

Outstanding at 31 December 2017

Outstanding at 31 December 2018

12. SUBSIDIARIES

(a) Investment in subsidiaries
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

AgVentures Limited

NeuroendocrinZ Limited
Neuren Pharmaceuticals Inc.
Neuren Pharmaceuticals (Australia) Pty Ltd

Date of
incorporation

Principle activities

Interest
held

Domicile

07-Oct-03

10-Jul-02
20-Aug-02
09-Nov-06

Dormant

Dormant
Development services
Dormant

100%

100%
100%
100%

100%

NZ
USA
AUS

Neuren Trustee Limited

29-May-13

Hold loan funded shares

All subsidiaries have a reporting date of 31 December.

Neuren Pharmaceuticals Limited Annual Report 2018

N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

13. COMMITMENTS AND CONTINGENCIES

(a) Operating leases
There were no aggregate future non-cancellable minimum lease payments for premises committed to by the Group, but not
recognised in the financial statements as at 31 December 2018 or 31 December 2017.

(b) Legal claims
The Group had no significant legal matter contingencies as at 31 December 2018 or at 31 December 2017.

(c) Commitments
The Group was not committed to the purchase of any property, plant or equipment or intangible assets as at 31 December 2018
(2017: nil).

At 31 December 2018, the Group had commitments under contracts for the manufacture and development of trofinetide
amounting to approximately 4.5 million Euros and approximately 0.3 million US dollars (2017: nil).

In addition, the Company has entered into agreements with ACADIA Pharmaceuticals under which ACADIA provides cash
funding to Neuren to match Neuren’s commitments under further contracts for the manufacture and development of
trofinetide. At 31 December 2018 such commitments amounted to approximately 2.6 million Euros and approximately 0.3
million US dollars, matched by rights to receive the same amounts of cash from ACADIA.

(d) Contingent liabilities
The Group had no contingent liabilities at 31 December 2018 or at 31 December 2017 that require disclosure.

14. REL ATED PART Y TR ANSAC TIONS

(a) Key Management Personnel
The Key Management Personnel of the Group (KMP) include the directors of the Company and direct reports to the Executive
Chairman. Compensation for KMP was as follows:

Short-term benefits

Post-employment benefits
Share based payment compensation

2018
$’000

1,867
60
–

1,927

2017
$’000

1,814
60
552

2,426

On 30 May 2018 the Company bought back 501,607 ordinary shares from Neuren Trustee Limited at the volume weighted
average price for the 5 days ended 29 May 2018 in order to settle the outstanding loan of $1,560,000 relating to 2,000,000
vested Loan Funded Shares held in trust for KMP pending repayment of the loan. The remaining 1,498,393 shares were
transferred from Neuren Trustee Limited to KMP.

During the year ended 31 December 2017, 1,308,901 ordinary shares were issued to KMP, following vesting of Equity
Performance Rights.

(b) Subsidiaries
The ultimate parent company in the Group is Neuren Pharmaceuticals Limited (“Parent”). The Parent funds the activities of the
subsidiaries throughout the year as needed. Interests in and amounts due from subsidiaries are set out in Note 12. All amounts
due between entities in the Group are payable on demand and bear no interest.

15. EVENTS AFTER REPORTING DATE
As at the date of these financial statements authorised for issue, there were no events arising since 31 December 2018 that
require disclosure.

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

(a) Categories of financial instruments

Financial assets

2018

Cash and cash equivalents
Trade and other receivables
Equity derivative

Total financial assets

2017

Cash and cash equivalents
Trade and other receivables
Equity derivative

Total financial assets

Financial liabilities

Amortised cost - Non-Interest Bearing:

Trade and other payables

Total financial liabilities

At amortised cost

At fair value through
profit or loss

Floating
Interest Rate
$’000

Non-Interest
Bearing
$’000

7
8
9

23,576
–
–

23,576

4,706
–
–

4,706

–
942
–

942

–
692
–

692

–
–
2,121

2,121

–
–
12,466

12,466

2018
$’000

Total
$’000

23,576
942
2,121

26,639

4,706
692
12,466

17,864

2017
$’000

1,973

1,580

At 31 December 2018, the reporting value of all financial instruments approximated to the fair value.

These categories used above are consistent for both IAS39 and IFRS9.

(b) Risk management
The Group is subject to a number of financial risks which arise as a result of its activities.

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect
the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters, while optimising the return.

Equity price risk
The Group has an equity derivative for which market risk arises with movements in the share price of the Company, as
described in Note 9 above.

Currency risk
During the normal course of business the Group enters 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 principle currency risk faced by the business is the exchange rates between the Australian dollar, the US dollar and the
EURO. The Group holds cash denominated in US dollars, Australian dollars and Euro and has material expenditure in each
of these currencies. Where possible, the Group matches foreign currency income and expenditure as a natural hedge. When
foreign currency expenditure exceeds revenue, the group purchases foreign currency to meet future anticipated requirements
under spot and forward contracts. The Group does not designate formal hedges. At 31 December 2018, there were no forward
contracts outstanding.

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
During the year, the US dollar and Euro fluctuated against the Australian dollar. A foreign exchange gain of $961,000 is included
in results for the year ended 31 December 2018 (2017: loss $168,000). The majority of the gain relates to gains on the fair value
movement for reporting purposes of the Company’s US dollar and EURO denominated cash reserves into Australian dollars.

The carrying amounts of US dollar and Euro denominated financial assets and liabilities are as follows:

Assets

US dollars

EURO

Liabilities

US dollars

EURO

2018
$’000

2017
$’000

15,818

2,556

572

824

631

–

112

527

An increase of 10% in the cross rate of the US dollar against the Australian dollar as at the reporting date would have decreased
the consolidated profit after income tax by $1,386,000 (2017: $47,000). A decrease of 10% in the cross rate of the US dollar
against the Australian dollar as at the reporting date would have increased the consolidated profit after income tax by
$1,694,000 (2017: $58,000).

An increase of 10% in the cross rate of the Euro against the Australian dollar as at the reporting date would have decreased the
consolidated profit after income tax by $157,000 and increased it by $48,000 in 2017. A decrease of 10% in the cross rate of the
Euro against the Australian dollar as at the reporting date would have increased the consolidated profit after income tax by
$192,000 and decreased it by $59,000 in 2017.

Interest rate risk
The Group is 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
Australian dollar cash deposits
Australian dollar interest rate
US dollar cash deposits
US dollar interest rate
EURO cash deposits
EURO interest rate

2018
$’000

2017
$’000

5,625
2.46%
15,800
2.32%
2,150
0.00%

4,075
1.94%
631
0.00%
–
–

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.

A 10% change in average market interest rates would have changed reported profit after tax by approximately $22,000
(2017:$5,000).

Credit risk
The Group incurs credit risk from transactions with financial institutions. The total credit risk on an equity derivative (as
described in Note 9 above) and cash and cash equivalents, which have been recognised in the statement of financial position,
is the carrying amount. The Company and its subsidiaries do not retain any collateral or security to support transactions with
financial institutions. Cash and cash equivalents are held and transacted with National Australia Bank, Western Union and
Sonabank. The equity derivative counterparty is Lanstead Capital L.P. The estimated credit risk associated with the unsecured
equity derivative has been considered in the estimation of the fair value of the equity derivative, as described in Note 9.

Neuren Pharmaceuticals Limited Annual Report 2018N O T E S T O T H E C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
C O N T I N U E D

16. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)

Liquidity risk
The Group’s financial liabilities, comprising trade and other payables, are generally repayable within 1 – 2 months. The
maturity and availability of financial assets, comprising cash and cash equivalents, receivables and monthly cash settlements
from the equity derivative, are monitored and managed to ensure financial liabilities can be repaid when due.

Capital risk
The Company manages its capital, which is its equity, to ensure that the Group entities are able to meet their estimated
commitments as they fall due. In this regard, the Company raised additional equity capital during 2018 and 2017, as described
in Note 11. Capital risk is impacted by the inherent uncertainties described in Note 1.

17. CRITIC AL ACCOUNTING ESTIMATES AND A SSUMPTIONS
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing material
adjustment to the carrying amounts of assets and liabilities within the next financial year are as discussed below.

The Group’s research and development activities are eligible under the Australian R&D tax incentive. The Group has assessed
these activities and expenditure to determine which are likely to be eligible under the incentive scheme. For the period to
31 December 2018 the Group has recorded other income of $0.4 million (2017: $0.6 million).

The Group has assessed that all research and development expenditure to date does not meet the requirements for
capitalisation as an intangible asset because it is not yet probable that the expected future economic benefits that are
attributable to the asset will flow. The Group’s current assessment is that future expenditure will not meet that requirement
prior to the approval of a New Drug Application by the US Food and Drug Administration.

The fair value of the equity derivative described in Note 9 is dependent on an estimate of the 20 day VWAP each month over
6 months. Differences in the actual VWAP compared to the estimate may cause a material difference in the fair value.

The Group is subject to income taxes in Australia. There are transactions and calculations undertaken during the ordinary
course of business for which the ultimate tax determination may be uncertain, including the taxation of the changes in fair
value of the equity derivative described in Notes 1 and 9. Where the final tax outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in
which such determination is made.

Neuren Pharmaceuticals Limited Annual Report 2018I N D E P E N D E N T A U D I T O R ’ S R E P O R T

Independent Auditor’s Report

Grant Thornton New Zealand Audit
Partnership
L4, Grant Thornton House
152 Fanshawe Street
PO Box 1961
Auckland 1140

T +64 (0)9 308 2570
F +64 (0)9 309 4892
www.grantthornton.co.nz

To the Shareholders of Neuren Pharmaceuticals Limited

Report on the Audit of the Consolidated Financial Statements

Opinion

We have audited the consolidated financial statements of Neuren Pharmaceuticals Limited (the
Company) and its subsidiaries (the Group) on pages 26 to 45 which comprise the consolidated
statement of financial position as at 31 December 2018, and the consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of
cash flows for the year then ended, and notes to the financial statements, including a summary of
significant accounting policies

In our opinion, the accompanying financial statements present fairly, in all material respects, the
financial position of the Group as at 31 December 2018 and of its financial performance and cash flows
for the year then ended in accordance with New Zealand Equivalents to International Financial
Reporting Standards (NZ IFRS).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
(NZ)) issued by the New Zealand Audit and Assurance Standards Board. Our responsibilities under
those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Group in accordance with
Professional and Ethical Standard 1 (Revised) Code of Ethics for Assurance Practitioners issued by the
New Zealand Auditing and Assurance Standards Board, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our opinion.

Our firm carries out review procedures over the interim financial statements and financial advisory
services of the Group. The provision of these services has not impaired our independence as the
independent auditor of the Group.

Other Matter

The consolidated financial statements of the Group for the year ended 31 December 2017 were audited
by another auditor who expressed an unmodified opinion on those statements on 29 March 2018

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

Chartered Accountants and Business Advisers
Member of Grant Thornton International Ltd

Neuren Pharmaceuticals Limited Annual Report 20182

Why the matter is significant

How our audit addressed the key audit matter

The Company entered into a Sharing Agreement
with Lanstead Capital L.P. as part of a capital
raising. Under the arrangement the Company
would receive 18 monthly settlements. At 31
December 2018 there were still six settlements
outstanding. (2017: 14)

The arrangement gives rise to a financial asset
being receivable with an embedded derivative.
The Company has elected to measure the whole
instrument at fair value through profit or loss. At
31 December 2018 the value of the derivative is
$2.12m (2017: $12.466m) (Refer note 9).

The fair value of the instrument has been valued
using valuation techniques that are subject to
management estimation and judgements and
therefore could materially influence the
determination of the fair value at the end of each
reporting period.

We obtained an understanding of the
arrangement by reviewing the key contracts,
accounting treatment applied and valuation
methodology utilised.

We considered the appropriateness of the
accounting treatment adopted with reference to
the requirements set out in the accounting
standards.

Our internal valuation experts evaluated the
appropriateness of the methodology and inputs
applied for the derivative. We independently
recalculated the fair value of the derivative and
compared it to what is reflected in the financial
statements.

We challenged the key assumptions applied by
management and agreed the underlying data to
contracts or other supporting documentation. The
appropriateness of the disclosures in the financial
statements in relation to the arrangement were
considered for completeness and accuracy.

Other Information

The Directors are responsible for the other information. The other information comprises the Director’s
report and information included in the annual report, but does not include the consolidated financial
statements and our auditor’s report thereon. We obtained the Director’s report prior to the date of this
auditor’s report. The Annual report is expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and we will
not express any form of audit opinion or assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the
other information identified above when it becomes available and, in doing so, consider whether the
other information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.

Directors’ responsibilities for the Consolidated Financial Statements

The Directors are responsible on behalf of the Group for the preparation and fair presentation of the
consolidated financial statements in accordance with New Zealand equivalents to International Financial
Reporting Standards issued by the New Zealand Accounting Standards Board, and for such internal
control as the Directors determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible on behalf of the Group
for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a

Neuren Pharmaceuticals Limited Annual Report 20183

guarantee that an audit conducted in accordance with ISAs (NZ) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions
of users taken on the basis of these consolidated financial statements.

A further description of the auditor’s responsibilities for the audit of the financial statements is located on
the External Reporting Board’s website at https://www.xrb.govt.nz/assurance-standards/auditors-
responsibilities/audit-report-1/

Restriction on use of our report

This report is made solely to the Company’s shareholders, as a body. Our audit work has been
undertaken so that we might state to the Company’s shareholders, as a body those matters which we
are required to state to them in an auditor’s 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 its
shareholders, as a body, for our audit work, for this report or for the opinion we have formed.

Grant Thornton New Zealand Audit Partnership

Kerry Price
Partner
Auckland

27 February 2019

Neuren Pharmaceuticals Limited Annual Report 2018A D D I T I O N A L I N F O R M AT I O N

EQUIT Y SECURITIES HELD BY DIREC TORS A S AT 27 FEBRUARY 2019

Director

Richard Treagus

Trevor Scott

Dianne Angus

Patrick Davies

Jenny Harry

Interests in
Ordinary Shares

Direct

Indirect

1,979,163

105,517

1,000,000

2,989,784

–

69,646

14,084

DIREC TORS OF SUBSIDIARY COMPANIES AT 31 DECEMBER 2018

AgVentures Limited

NeuroendocrinZ Limited

Neuren Pharmaceuticals Inc.

Neuren Pharmaceuticals (Australia) Pty Ltd

Neuren Trustee Limited

Richard
Treagus

Larry
Glass

Trevor
Scott

Jon
Pilcher

√

AUSTR ALIAN 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 securities imposed under New Zealand law are as follows:

(a) In general, securities in the Company are freely transferable and the only significant restrictions or limitations in relation
to the acquisition of securities are those imposed by New Zealand laws relating to takeovers and overseas investment.

(b) The New Zealand Takeovers Code creates a general rule under which the acquisition of 20% or more of the voting rights
in the Company or the increase of an existing holding of 20% or more of the voting rights of the Company can only occur
in certain permitted ways. These include a full takeover offer in accordance with the Takeovers Code, a partial takeover
in accordance with the Takeovers Code, an acquisition approved by an ordinary resolution, an allotment approved by an
ordinary resolution, a creeping acquisition (in certain circumstances), or compulsory acquisition of a shareholder holding
90% or more of the shares.

investments in New Zealand by overseas interests. In general terms, the consent of the New Zealand Overseas Investment
Office may be required where an ‘overseas person’ acquires shares in the Company that amount to 25% or more of the
shares issued by the Company, or if the overseas person already holds 25% or more, the acquisition increases that holding.

Neuren Pharmaceuticals Limited Annual Report 2018A D D I T I O N A L I N F O R M AT I O N
C O N T I N U E D

EQUIT Y SECURITIES INFORMATION
The Company has only one class of shares, being ordinary shares. Each ordinary share is entitled to one vote when a poll is
called; otherwise on a show of hands at a shareholder meeting every member present in person or by proxy has one vote.
There are no securities subject to escrow and there is no current on-market buy-back of securities.

The following information is based on share registry information processed up to and including 27 March 2019.

The number of ordinary shareholdings held in less than marketable parcels at 27 March 2019 was 920, holding 169,911
ordinary shares.

DISTRIBUTION OF SECURIT Y HOLDERS

Ordinary shares

Size of holding

100,001 and Over

10,001 to 100,000

5,001 to 10,000

1,001 to 5,000

1 to 1,000

Total

Number of
ordinary shares

68,742,183

24,818,630

4,019,272

4,326,036

762,292

66.96

24.17

3.92

4.21

0.74

102,668,413

100.00

Number
of holders

117

815

519

1,561

1,760

4,772

2.45

17.08

10.88

32.71

36.88

100.00

Substantial Security Holders
Langley Alexander Walker – relevant interest in 18,267,119 ordinary shares at 27 March 2019.

Neuren Pharmaceuticals Limited Annual Report 2018A D D I T I O N A L I N F O R M AT I O N
C O N T I N U E D

Twenty largest holders of ordinary shares

Twenty largest holders of ordinary shares:

AUCKLAND TRUST COMPANY LIMITED

CITICORP NOMINEES PTY LIMITED

CAMERON RICHARD PTY LTD

ESSEX CASTLE LIMITED

NEUREN TRUSTEE LIMITED

HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED

DR RICHARD SPENCER TREAGUS

STUART ANDREW PTY LTD

LINWIERIK SUPER PTY LTD

SMITHLEY SUPER PTY LTD

INVESTMENT CUSTODIAL SERVICES LIMITED

WALKER GROUP HOLDINGS PTY LTD

MXB INVESTMENTS LLC

DR TREVOR SCOTT

DR ROBIN LANCE CONGREVE

ROXTRUS PTY LIMITED

J P MORGAN NOMINEES AUSTRALIA PTY LIMITED

JOJO ENTERPRISES PTY LTD

FIRST COLBYCO PTY LTD

NAMARONG INVESTMENTS PTY LTD

Total

Balance of share register

Total issued share capital

Number of
ordinary shares

% of issued
share capital

16,904,619

16.47%

5,553,261

4,426,387

2,769,251

2,500,000

2,042,858

1,979,163

1,964,609

1,550,000

1,525,000

1,480,587

1,362,500

1,330,000

1,000,000

991,637

850,000

648,420

613,478

591,949

555,556

5.41%

4.31%

2.70%

2.44%

1.99%

1.93%

1.91%

1.51%

1.49%

1.44%

1.33%

1.30%

0.97%

0.83%

0.63%

0.60%

0.58%

0.54%

50,639,275

52,029,138

102,668,413

49.35%

50.65%

100.00%

Neuren Pharmaceuticals Limited Annual Report 2018pharmaceuticals

NEUREN PHARMACEUTIC ALS LIMITED
Suite 201, 697 Burke Rd
Camberwell
Victoria 3124
Australia

Tel: +61 3 9092 0480
ABN: 72 111 496 130
ASX code: NEU

New Zealand Registered Office:
At the offices of Lowndes Jordan
Level 15 PWC Tower
188 Quay Street
Auckland 1141
New Zealand

Share Registry:
Link Market Services Limited
Tower 4, 727 Collins Street
Docklands
Victoria 3008
Australia

Postal address:

Locked Bag A14
Sydney South NSW 1235

Tel: +61 1300 554 474
Fax: +61 2 9287 0303