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Annual Report 2023

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Improving the lives of people with neurodevelopmental disabilities 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 A N N U A L R E P O R T 2 0 2 3 Neuren Pharmaceuticals is developing new therapies for debilitating neurodevelopmental disorders that emerge in early childhood and 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. Contents 1 Neuren’s value proposition 2 Chair and CEO message 4 Operating Review 22 Board 23 Executive Team 24 Corporate Governance 30 Consolidated Statement of Comprehensive Income 31 Consolidated Statement of Financial Position 32 Consolidated Statement of Changes in Equity 33 Consolidated Statement of Cash Flows 34 Notes to the Consolidated Financial Statements 51 Independent Auditor’s Report 53 Additional Information N E U R E N ’ S V A LU E P R O P O S I T I O N Key achievements in 2023 A$157 million profit after tax for 2023 Approval and successful launch of DAYBUE™ (trofinetide) in the US as the first approved treatment for Rett syndrome, with net sales for 2023 since launch in April of US$177 million Expansion of DAYBUE™ (trofinetide) partnership with Acadia to include ex-North America, delivering A$146 million up-front plus attractive future royalties and milestone payments Highly encouraging positive results in Phase 2 trial of NNZ-2591 for Phelan-McDermid syndrome Completion of enrolment in Phase 2 trials of NNZ-2591 for Pitt Hopkins and Angelman syndromes Leading pipeline in neurodevelopmental disorders Indication Compound Geography Preclinical Phase 1 Phase 2 Phase 3 Registration Commercial rights Trofinetide NNZ-2591 Trofinetide NNZ-2591 US RoW World World World NNZ-2591 World NNZ-2591 World Rett Fragile X Phelan- McDermid Pitt Hopkins Angelman NNZ-2591 World Prader- Willi NNZ-2591 World pharmaceuticals Three key drivers transforming near term value 1 Realise Neuren’s share of trofinetide value in the US through Acadia’s successful commercialization of 2 Realise Neuren’s share of trofinetide ex-US value through expanded global partnership with Acadia 3 Confirm efficacy of NNZ-2591 in Phase 2 trials for four valuable indications, with global rights retained by Neuren Positive top-line results for Phelan-McDermid syndrome • Top-line results for Pitt Hopkins and Angelman syndromes in Q2 and Q3 2024 1 Neuren Pharmaceuticals Limited Annual Report 2023Neuren Pharmaceuticals Limited Annual Repor t 2023 C H A I R A N D C E O M E S S A G E PAT R I C K D A V I E S & J O N P I L C H E R Jon Pilcher CEO Patrick Davies Chair 2023 was a transformational year for Neuren. In all three areas of the business, we achieved the key planned milestones that generated very significant value for all stakeholders. The approval of DAYBUE™ by the US Food and Drug Administration (FDA) in March 2023 as the first ever treatment for Rett syndrome was a proud moment for the Neuren team. Our partner Acadia launched DAYBUE a month later. In our message to you last year, we stated that we were confident Acadia was very well placed for successful commercialisation. The launch was indeed highly successful and 2023 net sales of US$177 million in less than 9 months, with Acadia’s guidance for net sales to more than double in 2024, is an outstanding outcome. We are very encouraged by testimonials from families about the impact of treatment. In July 2023 we expanded our partnership with Acadia for DAYBUE from North America to worldwide, following a competitive partnering process. Acadia is in a unique position of being able to leverage knowledge of all aspects of the development, marketing and distribution of DAYBUE. The expanded agreement delivered to Neuren US$100 million up-front and very attractive future economics linked to launches and sales in key territories. In December 2023 we announced highly encouraging results from our Phase 2 clinical trial of NNZ-2591 in Phelan-McDermid syndrome. These results exceeded our expectations, both in the consistency of the findings and the magnitude of improvements seen across clinically important aspects of Phelan-McDermid syndrome, including communication, behaviour, cognition/learning and socialisation. Neuren is currently leading the way in striving to achieve the first approved treatment for Phelan- McDermid syndrome and the team is very excited by that prospect. We have noted before that Neuren has no cost attached to the royalty and milestone revenue we receive from Acadia, which therefore flows straight into pre-tax profit. The impact of this was evident in our financial results for 2023, the highlight of which was profit after tax of $157 million. This reflected revenue from Acadia of A$232 million, comprising royalty of A$27 million, a milestone payment of A$59 million and A$146 million from the expanded worldwide agreement. Neuren was promoted into the S&P/ASX 200 index in September 2023 and was the best performing ASX 200 stock in 2023, with a share price increase of 214%. We now have many more institutional shareholders and a high level of interest and engagement from the financial markets community. We continue to seek higher interest and investment, both in Australia and overseas, assisted by a wide range of intermediaries. In October 2023, Neuren was presented with the 2023 Australian Growth Company of the Year Award for Health and Life Sciences. 2 C H A I R A N D C E O M E S S A G E C O N T I N U E D We are passionate about making a difference to the lives of patients and their families We aim to earn the respect of everyone we deal with NEUREN’S VALUES We are determined and creative to break through barriers We harness the power of collaboration and different perspectives We recognise the importance of all stakeholders and endeavour to use financial resources efficiently The Neuren team is far from complacent following the success of the last two years. We are acutely aware that it follows, and has been built on, a ten-year journey since our first clinical trial in Rett syndrome and that many loyal and committed shareholders have accompanied us on that journey. The experience we have gained on the ten-year journey is extremely valuable. Everything we have learnt from the development of trofinetide in Rett syndrome is directly relevant to our development of NNZ-2591 in other neurodevelopmental disorders, led by Phelan-McDermid syndrome. We believe that this and the connection of both drugs to IGF-1 enhances the risk profile of the NNZ-2591 programs. There is so much more to achieve and 2024 is another very important year for the business. We look forward to the continued progress of DAYBUE, both in the US and in other territories. We await the results of the Phase 2 trials of NNZ- 2591 for Pitt Hopkins syndrome in Q2 2024 and for Angelman syndrome in Q3 2024. In the meantime, the team is highly focused on advancing the Phelan-McDermid syndrome program. We are diligently preparing for an End of Phase 2 Meeting with the FDA and are commencing manufacture of the drug supplies that will be required for a Phase 3 program. We are also actively exploring further potential indications for NNZ-2591 and will say more about this as our assessment progresses. Neuren is in a very strong financial position, with cash and short-term investments of more than A$200 million and the ongoing revenues from DAYBUE. This supports our commitment to achieving the best outcome for shareholders by pursuing value-adding opportunities to their fullest potential. For NNZ-2591, we will continue to evaluate all options to achieve this as the events of this year unfold. We are grateful to our shareholders, both longstanding and new, and all the patient communities for the support that is so critical for our success. We commend and thank the Neuren team for their achievements and dedication, assisted by a range of development partners. Patrick Davies Chair Jon Pilcher CEO 3 Neuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W Treating neurodevelopmental disorders Rett MECP2 Fragile X Phelan- McDermid Angelman Pitt Hopkins Prader-Willi FMR1 SHANK3 UBE3A TCF4 15q11-q13 Impaired communication between neurons, abnormal formation/pruning of dendrites & chronic inflammation Neuren’s drugs target the critical role of IGF-1 in this upstream process, using analogs of peptides that can be taken orally as liquids Severe impact on nearly every aspect of life walking and balance issues anxiety and hyperactivity seizures impaired communication intellectual disability impaired social interaction impaired hand use sleep disturbance gastrointestinal problems NEUREN’S GROUND -BREAKING THER APIES Neuren focuses on developing treatments for debilitating neurodevelopmental disorders that emerge in early childhood and stem from problems in brain development which lead to a wide range of serious issues affecting nearly every aspect of life. These neurodevelopmental disorders have severe life-long impact on the patients and their families. Each neurodevelopmental disorder is caused by a different genetic mutation, but in many cases, they share similar symptoms and the common characteristic of impaired connections and signalling between brain cells. Neuren currently has two novel patented drugs, trofinetide and NNZ-2591, which potentially have broad utility in the treatment of neurological disorders. Both drugs are synthetic analogues of important molecules that occur naturally in the brain, aiming to improve the impaired connections and signalling, meaning that the drug’s target is to have a broad impact on the disorder rather than aiming to treat one symptom. Both drugs can be administered orally in a patient-friendly liquid dose. A critical feature of Neuren’s work to develop therapies for each of these disorders is close collaboration with the leading specialist physicians and with the well-organised patient advocacy organisations. THE IMPORTANCE OF ORPHAN DRUG DESIGNATION The US Food and Drug Administration (FDA) and European Medicines Agency (EMA) have both granted Orphan Drug designation for trofinetide in Rett syndrome and Fragile X syndrome and for NNZ-2591 in each of Phelan-McDermid, Angelman and Pitt Hopkins syndromes. The FDA has also granted orphan drug designation for NNZ-2591 in Prader- Willi syndrome. Orphan Drug designation is a special status that the regulators 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 exclusivity periods during which the regulators will not approve a generic competitor product. 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. The exclusivity periods after marketing authorisation of products approved for pediatric use are 7.5 years in the United States and 12 years in the EMA region. Japan, South Korea and Taiwan also have Orphan Drug programs. 4 Neuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W C O N T I N U E D As well as the exclusivity periods, Orphan Drugs have many other commercial advantages compared with existing markets that have apparently attractive large sales in which established products and companies have to be displaced. The serious and urgent unmet need results in a more supportive regulatory and pricing environment and strong engagement from the patient community and leading physicians. Historical data indicates a higher probability of achieving regulatory approval and the potential for immediate access to known patients means that a large sales organisation is less important. In short, the Orphan Drug business model targets a leadership position in markets with urgent need, at an attractive price and with a higher probability of getting to market. The neurodevelopmental disorders that Neuren is aiming to treat are “rare diseases”, however they are not “ultra- rare”, and in each disorder there are tens of thousands of potential patients. COMMERCIAL EXCLUSIVIT Y In addition to the primary protection of the important exclusivity periods from Orphan Drug designation explained above, Neuren has additional commercial protection from issued patents and pending patent applications, which extend as far as 2041. Since trofinetide and NNZ-2591 are new chemical entities, following the first marketing authorisation for each drug, the term of one patent may potentially be extended by up to 5 years in many countries, including the United States, Europe and Japan. TROFINETIDE FOR RETT SYNDROME Successful launch of DAYBUE™ (trofinetide) in the United States In March 2023, Neuren’s partner for trofinetide, Acadia Pharmaceuticals (NASDAQ: ACAD), received US Food and Drug Administration (FDA) approval of DAYBUETM (trofinetide) for the treatment of Rett syndrome in adult and pediatric patients two years of age and older. On 17 April 2023, Acadia Pharmaceuticals launched DAYBUE™ (trofinetide) in the United States as the first approved treatment for Rett syndrome. Adoption of DAYBUE in the diagnosed Rett syndrome population has been faster than expected, with approximately 860 patients on DAYBUE at the end of February 2024. Caregivers and physicians have continued to report meaningful improvements in patients and the high demand has been well supported by access from Medicaid and private health insurance payors. In the United States there are approximately 5,000 diagnosed Rett syndrome patients and prevalence studies suggest the total number of patients may be 6,000 to 9,000. Acadia reported net sales of US$177 million for 2023 and has provided guidance for net sales in 2024 of between US$370 million and US$420 million. DAYBUE Net Sales (US$m) Royalty and Sales Milestone to Neuren (A$m) 420 370 87 177 80-87.5 67 45-55 23 21-23 4 10 13 27 Q2 2023 Q3 2023 Q4 2023 CY2023 CY2024 Acadia Guidance Q2 2023 Q3 2023 Q4 2023 CY2023 Royalty only* Royalty + # Historical Acadia guidance 2023 net sales of US$177m 2024E net sales of US$370 – 420m 2023E royalty of A$27m 2024E royalty of A$61 – 70m, plus A$77m sales milestone Further information about DAYBUE, including prescribing information can be accessed at www.DAYBUE.com * Based on 10% of DAYBUE net sales up to US$250m and 12% of DAYBUE net sales between US$250m and US$500m, and AUDUSD of 0.65 ^ Neuren will be entitled to US$50m sales milestones (receivable in Q1 2025) if CY2024 DAYBUE net sales reaches US$250m; assumes AUDUSD of 0.65 5 1 147 138 70 61 Sales Milestone^ CY2024 Neuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W C O N T I N U E D A characteristic of all long-term medicines is that not all patients who commence treatment will persist with treatment. Furthermore, for patients and caregivers, adjusting to a novel treatment regimen can take time, especially when it is the first treatment ever to become available. The number of patients commencing treatment and the proportion that persist with treatment long-term are key factors in the sales outcome. Acadia has provided detailed metrics for real world persistency since launch, which continues to outperform the clinical trial experience and has improved as new patient cohorts are added. The chart below shows the data reported in Acadia’s Q4 earnings call presentation in February 2024. The real world persistency has PPeerrssiisstteennccyy rraatteess iimmpprroovviinngg iinn nneeww ppaattiieenntt ccoohhoorrttss consistently tracked at more than 10 percentage points above clinical experience and monthly cohort persistency rates are trending up. Persistency Rates1 (Based on confirmed discontinuations and patients who were 60 days past their scheduled refill) 80% 75% 76% 66% 64% 68% 70% 58% 63% 51% Month 4 n.a. Month 5 Month 6 n.a. Month 7 Lilac-1 experience Previously presented real world Current real world 1 Acadia Fourth Quarter and Full Year 2023 Earnings Call presentation in Feb 2024 1 Acadia Fourth Quarter and Full Year 2023 Earnings Call presentation in Feb 2024 Growing sustainable income to Neuren In June 2023, Neuren received from Acadia a milestone payment of US$40 million earned following the first commercial sale of DAYBUE (trofinetide). Neuren is eligible to receive ongoing royalties on net sales of trofinetide in North America, plus milestone payments of up to US$350m on achievement of a series of four thresholds of total annual net sales, plus one third of the market value of the Rare Pediatric Disease Priority Review Voucher that was awarded to Acadia by the FDA upon approval of the New Drug Application (NDA)”, to be paid when Acadia sells or uses the voucher. Neuren estimates the value of its one third share as US$33 million. No royalties or similar costs are payable by Neuren to third parties, which means Neuren’s revenue from Acadia will flow through to pre-tax profit. The royalty rates and sales milestone payments are related to the total amount of annual net sales of trofinetide in all indications in North America, as set out in the following tables: 14 Tiered royalty rates (% of net sales)1 Sales milestone payments1 Annual Net Sales ≤US$250m >US$250m, ≤US$500m >US$500m, ≤US$750m >US$750m Rates Net Sales in one calendar year US$m 10% 12% 14% 15% ≥US$250m ≥US$500m ≥US$750m ≥US$1bn 50 50 100 150 1 Royalty rates payable on the portion of annual net sales that fall within the applicable range. Each sales milestone payment is payable once only. 6 Neuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W C O N T I N U E D 80-87.5 67 45-55 23 Q2 2023 Q3 2023 Historical Acadia guidance 21-23 # DAYBUE Net Sales (US$m) 87 420 Net sales of US$177 million in 2023 delivered royalties of A$27 million to Neuren. Assuming Acadia’s guidance for 2024 is met and an exchange 370 rate of 0.65, Neuren anticipates royalties of A$61-70 million (US$39- 45 million), plus A$77 million (US$50 million) from the first sales milestone 177 payment due for the first calendar year in which net sales exceed US$250 million. The milestone payment would be earned as revenue in 2024 and received in Q1 2025. CY2024 Acadia CY2023 Guidance Acadia anticipates potential approval of a New Drug Submission (NDS) filing for trofinetide in Canada around year-end 2024. There are currently 600 to 900 Rett patients in Canada. Any net sales in Canada will be included in the North America net sales for the purpose of calculating royalties and sales milestone payments to Neuren. Q4 2023 2023 net sales of US$177m 2024E net sales of US$370 – 420m Royalty and Sales Milestone to Neuren (A$m) 70 61 4 10 13 27 Q2 2023 Q3 2023 Q4 2023 CY2023 Royalty only* 147 138 Royalty + Sales Milestone^ 2023E royalty of A$27m 2024E royalty of A$61 – 70m, plus A$77m sales milestone CY2024 * Based on 10% of DAYBUE net sales up to US$250m and 12% of DAYBUE net sales * Based on 10% of DAYBUE net sales up to US$250m and 12% of DAYBUE net sales between US$250m and between US$250m and US$500m, and AUDUSD of 0.65 US$500m, and AUDUSD of 0.65 Neuren will be entitled to US$50m sales milestones (receivable in Q1 2025) if CY2024 ^ Neuren will be entitled to US$50m sales milestones (receivable in Q1 2025) if CY2024 DAYBUE net sales DAYBUE net sales reaches US$250m; assumes AUDUSD of 0.65 reaches US$250m; assumes AUDUSD of 0.65 ^ 1 7 Neuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W C O N T I N U E D Development and commercialisation outside North America In July 2023 Neuren and Acadia expanded their partnership for trofinetide from North America to worldwide. Neuren received US$100 million up-front and is eligible to receive milestone payments and royalties related to development and commercialization of trofinetide outside North America as set out in the table below. Trofinetide Upon 1st commercial sale for Rett in Europe Upon 1st commercial sale for Rett in Japan Upon 1st commercial sale for second indication in Europe Upon 1st commercial sale for second indication in Japan Total development milestones Europe Japan Rest of World Total sales milestones on achievement of escalating annual net sales thresholds Tiered royalties on net sales Payment US$35m US$15m US$10m US$4m US$64m Up to US$170m Up to $110m Up to US$83m Up to US$363m Mid-teen to low twenties per cent A redacted version of the expanded licence agreement between Neuren and Acadia was filed with the US Securities and Exchange Commission as a material contract exhibit to Acadia’s 2023 10-K Annual Report, which is available to view via the SEC Filings section of Acadia’s website. Following the expansion of the partnership with Acadia for trofinetide to worldwide, Acadia is now advancing in key markets outside North America. For Europe, Acadia is engaging with the European Medicines Agency (EMA) in Q1 2024, with a potential Marketing Authorisation Application filing in H1 2025. For Japan, Acadia is engaging with the regulator, Pharmaceuticals and Medical Devices Agency (PMDA) in 2024. There is urgent unmet need for a treatment for Rett syndrome around the world, evidenced by communications received from families, patient support groups and physicians. The estimated number of potential patients and currently identified patients is shown in the table below. Neuren expects rates of diagnosis to increase with greater awareness and accelerate with the availability of a treatment. Potential Rett patients Currently identified Rett patients Europe Japan 9,000 – 14,0001 1,000 – 2,0001 ~4,0002 ~800 – 1,0002 Other ~30,0002 ~2,0002 1 Acadia estimates 2 Neuren estimates based on prevalence studies and patient organisations i About Rett syndrome Rett syndrome is a seriously debilitating and life-threatening neurological disorder. 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. 8 Neuren Pharmaceuticals Limited Annual Report 2023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 FOR MULTIPLE NEURODEVELOPMENTAL DISORDERS Neuren is developing NNZ-2591 for four other serious neurodevelopmental disorders that emerge in early childhood and have no or limited approved treatment options. The estimated number of potential patients being targeted across these four disorders is more than five times larger than Rett syndrome. Potential patients Disorder Gene mutation Published prevalence estimates US1 Europe1 RoW1, 2 Phelan-McDermid SHANK3 1/8,000 to 1/15,000 males and females Pitt Hopkins Angelman TCF4 UBE3A 1/34,000 to 1/41,000 males and females 1/10,000 to 1/20,000 males and females Prader-Willi 15q11-q13 1/10,000 to 1/30,000 males and females 24,000 6,000 19,000 17,000 31,000 8,000 24,000 21,000 104,000 28,000 81,000 72,000 66,000 84,000 285,000 Estimates derived by applying the mid-point of the prevalence estimate range to the populations under 60 years 1 2 RoW comprises Japan, China (urban population), Brazil, Israel, South Korea, Australia and New Zealand All four programs have been granted Orphan Drug designation by the US Food and Drug Administration (FDA) and are being developed under Investigational New Drug (IND) applications. In designing and executing the NNZ-2591 development program, Neuren has been able to leverage the extensive and highly relevant experience the management team has gained from the trofinetide Rett syndrome program across manufacturing, non-clinical, clinical and regulatory. Phase 2 clinical trials Phase 2 clinical trials are being conducted in all four indications. The open label trials are each enrolling up to 20 children to examine safety, tolerability, pharmacokinetics and efficacy over 13 weeks of treatment with NNZ-2591. All subjects receive NNZ-2591 as an oral liquid dose daily, with escalation in two stages up to the target dose during the first 6 weeks of treatment, subject to independent review of safety and tolerability data. The study begins with 4 weeks of observation to thoroughly examine baseline characteristics prior to treatment, against which safety and efficacy are assessed for each child. This is followed by the treatment period of 13 weeks. A follow-up assessment is made 2 weeks after the end of treatment. The overall aim of these first trials is to expedite the generation of data that will enable the subsequent trials to be designed as registration trials. In 2023 positive results were achieved in the Phelan-McDermid syndrome trial and enrolment was completed in both the Pitt Hopkins and Angelman syndrome trials. Top-line results are anticipated for Pitt Hopkins in Q2 2024 and for Angelman in Q3 2024. Phelan-McDermid Pitt Hopkins Angelman Prader-Willi n subjects Age range Location Up to 20 3 to 12 US Up to 20 3 to 17 US Up to 20 3 to 17 Australia Up to 20 4 to 12 US Screening/Baseline NNZ-2591 treatment Follow-up Up-titration to 12mg/kg BID Week 0 Week 4 Week 10 Week 17 Week 19 Phase 3 preparation Non-clinical toxicity studies and optimisation of drug product and drug substance manufacturing 9 Neuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W C O N T I N U E D Positive results in Phelan-McDermid syndrome Phase 2 trial In December 2023, Neuren announced positive top-line results from the Phase 2 clinical trial of NNZ-2591 in children with Phelan-McDermid syndrome. NNZ-2591 was well tolerated and demonstrated a good safety profile. There was only one serious treatment emergent adverse event (TEAE) of gastroenteritis, which was not related to study drug and occurred during the safety follow-up period after end of treatment. Three subjects discontinued due to TEAEs, two testing positive for COVID-19 and one due to seizures that were not related to study drug. No clinically significant changes in laboratory values, electrocardiogram (ECG) or other safety parameters were observed during treatment. TEAEs occurring in two or more subjects are listed in the following table: Event Constipation Diarrhea Nausea Vomiting COVID-19 Nasopharyngitis Otitis Media Psychomotor Hyperactivity N=18 n (%) 2 (11.1) 2 (11.1) 2 (11.1) 2 (11.1) 3 (16.7) 2 (11.1) 2 (11.1) 4 (22.2) Event Somnolence Pyrexia Fatigue Aggression Insomnia Decreased Appetite Rhinorrhea N=18 n (%) 3 (16.7) 3 (16.7) 2 (11.1) 2 (11.1) 2 (11.1) 3 (16.7) 2 (11.1) Significant improvement was observed by both clinicians and caregivers from treatment, across multiple efficacy measures. Improvements were consistently seen across many of the core PMS characteristics. The results for the global efficacy measures rated by both clinicians and caregivers showed a level of improvement typically considered clinically meaningful. 16 out of 18 children showed improvement measured by the Clinical Global Impression of Improvement (CGI-I), an assessment by the clinician of the child’s overall status compared with baseline. The mean CGI-I score was 2.4. 10 children received a score of either 1 (“very much improved”) or 2 (“much improved”). 15 out of 18 children showed improvement measured by the Caregiver Overall Impression of Change (CIC), an assessment by the caregiver of the child’s overall status compared with baseline. The mean CIC score was 2.7. Seven children received a score of either 1 (“very much improved”) EEffffiiccaaccyy eennddppooiinnttss ssuummmmaarryy or 2 (“much improved”). CGI-I and CIC are 7 point scales in which scores of 1, 2 or 3 indicate improvement. Efficacy measures and p-values1 (Total/Overall scores) Global Behaviour • Statistically significant improvement vs baseline in 10/14 efficacy endpoints • Mean CGI-I of 2.4 and Median of 2.0 with p-value <0.0001 CGI-I CIC CGI-S <0.0001 0.0003 0.0156 GI Health GIHQ total frequency 0.0013 Quality of Life • Mean CIC of 2.7 and QL Inventory- Disability total Median of 3.0 with p-value =0.0003 Impact of Childhood Neurologic Disability Sleep 0.0066 0.1094 1 Wilcoxon signed rank test 1 Wilcoxon signed rank test CSHQ total 0.0191 10 Aberrant Behavior Checklist-2 total Behavior Problems Inventory total frequency Vineland Adaptive Behavior Scales Composite Symptom Specific PMS Clinician Domain Specific Rating Scale total Caregiver Top 3 Concerns total Communication 0.0013 0.0326 0.1710 0.0156 0.0005 MB-CDI Total Vocabulary ORCA T-Score 0.0647 0.0714 30 Neuren Pharmaceuticals Limited Annual Report 2023 SSiiggnniiffiiccaanntt iimmpprroovveemmeenntt aasssseesssseedd bbyy bbootthh cclliinniicciiaannss aanndd ccaarreeggiivveerrss O P E R AT I N G R E V I E W C O N T I N U E D Clinician and caregiver global efficacy measures showed a level of improvement typically considered clinically meaningful Mean CGI-I score of 2.4 with 16 out of 18 children Mean CGI-I score of 2.4 with 16 out of 18 children showing improvement showing improvement Mean CIC score of 2.7 with 15 out of 18 children showing improvement Waterfall Plot of CGI-I Overall Score ITT Population 1 - Very Much Improved 2- Much Improved ) 6 1 t i s i SSiiggnniiffiiccaanntt iimmpprroovveemmeenntt aasssseesssseedd bbyy bbootthh cclliinniicciiaannss aanndd ccaarreeggiivveerrss 5 - Minimally Worse 3 - Minimally Improved 4 - No Change V ( T O E 3 1 k e e W t a e r o c S Clinician and caregiver global efficacy measures showed a level of improvement typically considered clinically meaningful 7 - Very Much Worse Individual Subjects All subjects (n=18) 6 - Much Worse Mean CGI-I score of 2.4 with 16 out of 18 children showing improvement Mean CIC score of 2.7 with 15 out of 18 children Mean CIC score of 2.7 with 15 out of 18 children showing improvement showing improvement Waterfall Plot of Caregiver Impressions of Change Score ITT Population 31 ) 6 1 t i s i V ( T O E 3 1 k e e W t a e r o c S 1 - Very Much Improved 2- Much Improved 3 - Improved 4 - Unchanged 5 - Worse 6 - Much Worse 7 - Very Much Worse Individual Subjects All subjects (n=18) Preparation for Phase 3 In order to expedite the overall development plan, in parallel with conducting the Phase 2 trials Neuren has been executing the additional development work required to be ready for Phase 3 development. Non-clinical toxicity studies to support longer clinical trials and commercial use of the product have been completed. Optimisation and scale-up of the drug product and drug substance manufacturing arrangements are well advanced, with manufacturing of supplies for Phase 3 trials scheduled in 2024. 31 Neuren plans to discuss proposals for Phase 3 development in Phelan-McDermid syndrome with the FDA during 2024. 11 Neuren Pharmaceuticals Limited Annual Report 2023 O P E R AT I N G R E V I E W C O N T I N U E D Phelan-McDermid syndrome has an overwhelming unmet medical need Phelan-McDermid syndrome (PMS) is 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. PMS has severe quality of life impacts for those living with the syndrome, as well as parents and siblings. There are no approved treatments for PMS despite its severely debilitating impact. The estimated prevalence of PMS is 1% of people diagnosed with autism, or between 1 in 8,000 and 1 in 15,000 males and females. It has historically been underdiagnosed, but this is changing with rising awareness and enhancement of genetic testing technologies. In November 2022, an important Externally-Led Patient Focused Drug Development (EL-PFDD) Meeting was held, in order for the FDA and other key stakeholders to hear directly from patients, their families, caregivers, and patient advocates about the impact PMS has on patients’ daily lives. The meeting content was collated in a “Voice of the Patient” report. In 2023 for the first time an International Classification of Disease (ICD) code was assigned to PMS. From the Phelan-McDermid Syndrome Voice of the Patient Report: “ PMS has an overwhelming unmet medical need. There are no FDA approved treatments for PMS despite its severely debilitating manifestations. Parents and caregivers are open to trying almost anything to try to relieve their child’s suffering; most have tried an incredibly high number of treatments and approaches for symptom management, with very little success. Some received medications that caused more harm than good.” “ PMS has severe quality of life impacts on those living with the disease, as well as on parents and siblings. Most activities of daily life, including communicating needs or wants, self-care (bathing, dressing, toileting) and socializing with peers/siblings are affected. Most individuals living with PMS rely on their parents and caregivers for all their daily needs, and many require 24-hour care.” Strong foundations built for NNZ-2591 Neuren has meticulously built strong foundations to enable clinical development of NNZ-2591 in multiple indications. Clear and consistent efficacy in mouse models of all four disorders The studies in these models compared normal mice (“wild type”) and mice with a disrupted gene (“knockout”). The knockout mice exhibit behavioural and biochemical deficits that mimic each disorder in humans. The wild type mice and the knockout mice were each treated with placebo and NNZ-2591. In all four models, treatment with NNZ-2591 for 6 weeks eliminated all the deficits so that the knockout mice were indistinguishable from the wild type mice. In the Prader-Willi syndrome model, treatment with NNZ-2591 also normalized fat mass (obesity), insulin levels and IGF-1 levels. Treatment had no impact on the wild type mice which is important from a safety point of view. Following review of the data from the mouse models and the mechanistic rationale for treatment, FDA granted Orphan Drug designation for NNZ-2591 in each of the four disorders. 12 Neuren Pharmaceuticals Limited Annual Report 2023 EFFICACY IN MOUSE MODEL OF ANGELMAN C O N T I N U E D O P E R AT I N G R E V I E W The charts below show the results in the Angelman syndrome, Pitt Hopkins and Prader-Willi syndrome models. In the Angelman model, treatment also eliminated seizures in the knockout mice. Efficacy in mouse model of Angelman (Ube3a) Hypoactivity & anxiety y t i l a u q g n d i l i u B t s e N Daily living ) 5 o t 1 e d a r g ( 6 4 2 0 i ) n ( g n y r u b e b r a M l Daily living 20 15 10 5 0 W T-vehicle U be3a m -/p+ + vehicle m -/p+ + N N Z 2591 W T + N N Z 2591 U b e3a Sociability -/p+ + vehicle W T-vehicle U be3a m m -/p+ + N N Z 2591 W T + N N Z 2591 U b e3a 80 Motor -/p+ + vehicle W T-vehicle U be3a m m -/p+ + N N Z 2591 W T + N N Z 2591 U b e3a 8 Cognition 80 60 40 20 0 200 150 l EFFICACY IN MOUSE MODEL OF PITT HOPKINS EFFICACY IN MOUSE MODEL OF PITT HOPKINS e m 100 40 4 ( ) m c ( d e l l e v a r t e c n a t s D i ) s ( e s u o m e v o n e h t h t i w t n e p s e m T i 50 0 -/p+ + vehicle W T-vehicle U be3a m m -/p+ + N N Z 2591 W T + N N Z 2591 U b e3a ) % 60 i t g n i t a o F l 20 0 -/p+ + vehicle W T-vehicle U be3a m m -/p+ + N N Z 2591 W T + N N Z 2591 U b e3a 6 s e s s o r c m r o f t a l P f o r e b m u N 2 0 -/p+ + vehicle W T-vehicle U be3a m m -/p+ + N N Z 2591 W T + N N Z 2591 U b e3a 7 Efficacy in mouse model of Pitt Hopkins (Tcf4) 150 150 ) m c ( Hypoactivity Hypoactivity d e l l e v a r t d e l l e 100 v a r t 100 e c n a t s D i e c n a 50 t s D i 50 0 0 W T + V ehicle W T + V ehicle +/_ + V ehicle +/_ + V ehicle W T + N N Z 2591 W T + N N Z 2591 +/_ + N N Z 2591 +/_ + N N Z 2591 Tcf4 Tcf4 Tcf4 Tcf4 y t i l a u q g n d i l i u B t s e N y t i l a u q g n d ) 5 o t 1 e d a r g ( u B l i i t s e N ) 5 o t 1 e d a r g ( 6 6 4 4 2 2 0 0 Daily living Daily living Learning & Memory Learning & Memory 60 60 40 20 i n m 5 f o % n i g n i z e e r F 40 20 i n m 5 f o % n i g n i z e e r F 0 0 W T + V ehicle W T + V ehicle +/_ + V ehicle +/_ + V ehicle W T + N N Z 2591 W T + N N Z 2591 +/_ + N N Z 2591 +/_ + N N Z 2591 Tcf4 Tcf4 Tcf4 Tcf4 W T + V ehicle W T + V ehicle +/_ + V ehicle +/_ + V ehicle W T + N N Z 2591 W T + N N Z 2591 +/_ + N N Z 2591 +/_ + N N Z 2591 Tcf4 Tcf4 Tcf4 Tcf4 ) s ( e s u o m ) s ( 60 e s u o m l e v o n e h t h t i w t n e p s e m T i l e v 40 o n e h t h t i 20 w n e p s e m 0 T t i Sociability Sociability 60 40 20 0 i ) s ( g n m o o r g t n e p s e m T i 150 100 i 150 ) s ( g n m 100 o o r g t n e 50 p s e m T i +/_ + V ehicle +/_ + V ehicle N _ W T + N N Z 2591 N _ W T + N N Z 2591 N _ W T + V ehicle N _ W T + V ehicle +/_ + N N Z 2591 +/_ + N N Z 2591 N _Tcf4 N _Tcf4 N _Tcf4 N _Tcf4 Repetitive behavior Repetitive behavior Motor performance Motor performance 1.0 1.0 0.8 0.8 50 e c r o F 0 0 W T + V ehicle W T + V ehicle +/_ + V ehicle +/_ + V ehicle W T + N N Z 2591 W T + N N Z 2591 +/_ + N N Z 2591 +/_ + N N Z 2591 Tcf4 Tcf4 Tcf4 Tcf4 ) N ( ) ( N 0.6 e c r o 0.4 F 0.6 0.4 0.2 0.2 0.0 0.0 W T + V ehicle W T + V ehicle +/_ + V ehicle +/_ + V ehicle W T + N N Z 2591 W T + N N Z 2591 +/_ + N N Z 2591 +/_ + N N Z 2591 Tcf4 Tcf4 Tcf4 Tcf4 13 8 8 Neuren Pharmaceuticals Limited Annual Report 2023 O P E R AT I N G R E V I E W C O N T I N U E D Efficacy in mouse model of Prader-Willi (Magel2-null) Insulin levels (pM) WT plus vehicle 110 Magel2-null plus vehicle WT plus NNZ-2591 low dose Magel2-null plus NNZ-2591 low dose WT plus NNZ-2591 high dose Magel2-null plus NNZ-2591 high dose 173 112 143 115 119 Obesity Obesity Circulating IGF-1 levels Circulating IGF-1 levels Cognition Cognition ) g ( s s a m t a F 30 20 10 0 W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) ) l / m g n ( 1 - F G I 150 100 50 0 W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) Hypoactivity Hypoactivity Hypoactivity (Open Field time spent active) (Open Field distance travelled) Hypoactivity (Open Field distance travelled) (Open Field time spent active) 10000 8000 6000 4000 2000 0 ) S ( e m T i 800 600 400 200 0 W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) Social preference W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) Social Interaction Social preference Social interaction ) m c ( d e l l e v a r t e c n a t s D i e h t h t i w t n e p s e m T i ) S ( e s u o m 150 100 50 0 W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) ) n ( s t n e v e g n i f f i n S 100 80 60 40 20 0 W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) 14 e h t h t i w t n e p s e m T i ) S ( t c e j b o l e v o n 10 8 6 4 2 0 W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) Daily Living Daily living ) 5 o t 1 e d a r g ( 6 4 2 0 OPTIMUM DOSE IN MOUSE MODEL OF PHELAN- MCDERMID Motor function Anxiety Repetitive behavior y t i l a u q g n d i l i u B t s e N W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) Anxiety Anxiety ) S ( e m T i 200 150 100 50 0 W T + V ehicle M a g el2-n ull + V e hicle W T + N N Z 2591 (lo w d o se) W T + N N Z 2591 (hig h d o se) M ag el2-n ull + N N Z 2591 (lo w d o se) M ag el2-n ull + N N Z 2591 (hig h d o se) Daily living Daily living 10 Neuren Pharmaceuticals Limited Annual Report 2023 MCDERMID O P E R AT I N G R E V I E W C O N T I N U E D OPTIMUM DOSE IN MOUSE MODEL OF PHELAN- OPTIMUM DOSE IN MOUSE MODEL OF PHELAN- MCDERMID Optimum dose identified In the Phelan-McDermid syndrome model, the effect of four escalating dose levels was investigated. The results of this dose ranging study are shown in the charts below. They were consistent across all 8 behavioral tests and the incidence of seizures, demonstrating that the second highest dose was the optimum dose level in the mouse model. Comparison with human pharmacokinetic data from the Phase 1 clinical trial has informed the equivalent human dose for the Phase 2 trials in patients. A further observation was that the optimum dose in this 6-week study showed better efficacy than the same dose in an earlier study for 3 weeks, indicating that efficacy increases with treatment duration. In the Phase 2 trials Neuren is testing treatment with NNZ-2591 for 13 weeks. OPTIMUM DOSE IN MOUSE MODEL OF PHELAN- MCDERMID OPTIMUM DOSE IN MOUSE MODEL OF PHELAN- MCDERMID Memory Memory Motor function Learning Motor function Learning Anxiety Sociability Repetitive behavior Sociability OPTIMUM DOSE IN MOUSE MODEL OF PHELAN- MCDERMID Repetitive behavior Anxiety OPTIMUM DOSE IN MOUSE MODEL OF PHELAN- MCDERMID OPTIMUM DOSE IN MOUSE MODEL OF PHELAN- MCDERMID Motor function Motor function Incidence of seizures WT + vehicle 0% KO + vehicle 60% KO + x mg/kg 50% WT + vehicle 0% KO + 2x mg/kg 30% Anxiety Anxiety Incidence of seizures Memory KO + 2x mg/kg 30% KO + x mg/kg 50% KO + 8x mg/kg 10% Daily living KO + vehicle 60% KO + 4x mg/kg Daily living 10% Repetitive behavior Repetitive behavior Learning Daily living KO + 4x mg/kg 10% Daily living KO + 8x mg/kg 10% 9 Daily living Daily living Daily living Daily living Incidence of seizures Sociability 9 10 10 KO + 4x mg/kg 10% KO + 8x mg/kg 10% KO + x mg/kg WT + 50% vehicle KO + vehicle KO + 2x mg/kg KO + x 30% mg/kg 0% 60% 50% KO + 2x mg/kg KO + 4x mg/kg KO + 8x mg/kg 30% 10% 10% 10 10 9 WT + vehicle 0% KO + vehicle 60% 15 Neuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W C O N T I N U E D CORRECTING IMPAIRED SIGNALING IN NEURONS Effects on biochemistry and brain cell structure confirmed Biochemical testing in the Phelan-McDermid model showed that 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, as shown in the charts below. Correction of abnormal dendritic spines in mouse models: Left - Phelan-McDermid syndrome (shank3) Right - Fragile X syndrome (fmr1) Abnormal dendrites in shank3 knockout mice Normalisation after treatment with NNZ-2591 Correction in fmr1 knockout mice after treatment with trofinetide (NNZ-2566) Blood-brain barrier penetration confirmed As well as very high oral bioavailability, good penetration of the blood-brain barrier by NNZ-2591 has been demonstrated in a rodent study. A single dose was administered at 2 dose levels, with the high dose twice the low dose. The concentration of NNZ-2591 in the blood and cerebrospinal fluid was determined after 1.5 hours and again after 4 hours. The amount in the brain tissue was also measured after 4 hours. In each case the concentration was approximately proportional to the dose and after 4 hours the concentration in blood and brain tissue was approximately equivalent. 12 Large scale manufacturing process developed Neuren has successfully developed a proprietary process for manufacturing drug substance at large scale with exceptional purity and high yield. Positive Phase 1 clinical trial results Neuren completed a Phase 1 clinical, in which twice daily oral dosing of NNZ-2591 for seven days was safe and well tolerated in healthy volunteers at doses expected to be within the effective therapeutic range. This was an important milestone for NNZ- 2591 to be able to move forward to Phase 2 clinical trials in patients. The primary objective was to evaluate safety and tolerability, with a secondary objective to evaluate pharmacokinetic parameters. No Serious Adverse Events (SAEs) were reported. All reported Adverse Events (AEs) were mild or moderate and resolved during the trial. There were no clinically significant findings from safety laboratory tests, vital signs, or cardiac tests. In the cohorts dosed for seven days, the most common AE reported was drowsiness. 16 Neuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W C O N T I N U E D To find out more about these syndromes: www.pmsf.org www.pitthopkins.org www.angelman.org www.fpwr.org Other indications The mechanism of action of NNZ-2591 is relevant for many other neurodevelopmental synaptopathies and potential additional indications are currently being assessed. As part of the expanded global partnership with Acadia signed in July 2023, Neuren granted Acadia exclusive worldwide licence for NNZ-2591 solely in Rett syndrome and Fragile X syndrome, which enabled coordinated global development and removed restrictions on Neuren for NNZ-2591 in those two indications. Neuren retains worldwide rights to NNZ-2591 in all other indications. Potential future payments to Neuren related to NNZ-2591 in Rett syndrome and Fragile X syndrome are identical to the payments for trofinetide in each of North America and outside North America. Acadia is responsible for all costs of development and commercialization in those two indications. 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 involved in the biology of IGF-1, which 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. During development, the brain and the cells that comprise it change rapidly and in complex ways. IGF-1 and its metabolites play a significant role in regulating these changes. In the mature brain, these molecules play an important role in responding to disease, stress and injury. Trofinetide and NNZ-2591 mimic the function of the natural molecules in the brain, however each drug is designed to have a longer half-life in circulation, be suitable for use as an oral medication, more readily cross the blood brain barrier and have better stability for longer and easier storage and shipping. Whereas many drugs typically exert a specific effect on a specific target related to one symptom, trofinetide and NNZ-2591 exert diverse effects which can help to control or normalise abnormal biological processes in the brain. Many neurological conditions share four common, underlying pathological features: 1. Inflammation Inflammation in the brain (neuroinflammation) is perhaps the most common pathological feature of neurological 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 syndrome, neurodegenerative diseases like Alzheimer’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, and disturb electrical functions which can lead to seizures and other abnormalities and even result in premature cell death. 17 Neuren Pharmaceuticals Limited Annual Report 2023O 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. 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. Resting Microglial Cells Activated Microglial Cells 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 (the branches on 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. 4. Reduced levels of IGF-1 IGF-1 levels in the brain have been reported to be depressed in a number of conditions, which means that the critical role of IGF-1 in maintaining and repairing brain cells and synapses is impaired. The aim of treatment with Neuren’s drugs is to restore the natural balance of brain function by: – reducing inflammation – restoring the normal functioning of microglia – improving the dendritic structure of synapses – normalising the levels of IGF-1 in the brain 18 Neuren Pharmaceuticals Limited Annual Report 2023 O P E R AT I N G R E V I E W C O N T I N U E D FINANCE Summary Financials Revenue from contracts with customers Interest income Other income Foreign exchange gain Total income Research & Development Corporate & Administration Loss on financial derivatives measured at fair value Profit before tax Income tax Profit after tax Cash flow received from operations Cash flow used in investing Cash flow received from financing Effect of exchange rates on cash balances Cash and short-term investments at 31 December 2023 $’m 231.9 5.7 – 2.4 240.0 (26.8) (5.9) (2.2) 205.1 (48.0) 157.1 184.9 (211.5) 3.6 (0.1) 228.5 2022 $’m 14.5 0.4 0.9 1.2 17.0 (12.7) (3.4) (0.7) 0.2 – 0.2 3.6 – – (0.2) 40.2 1 1 Cash and short-term investments The consolidated financial statements are presented on pages 30 to 50. All amounts in the consolidated Financial Statements are shown in Australian dollars unless otherwise stated. 19 FFiinnaanncciiaall ssttrreennggtthh ttoo mmaaxxiimmiissee ggrroowwtthh ooppppoorrttuunniittiieess740.226.859.4145.75.72.5-8.2-26.8-48.127.73.6228.5Dec 2022CashRoyaltyMilestoneex-NA upfrontInterestOther incomeOther expensesR&DTaxNon cash adjFinancing/investingDec 2023 Cash2023 Profit After TaxA$157.1mA$mNeuren Pharmaceuticals Limited Annual Report 2023O P E R AT I N G R E V I E W C O N T I N U E D Financial commentary The consolidated profit after tax attributable to equity holders of the Company for the year ended 31 December 2023 was A$157.1 million compared with A$0.2 million in 2022. Revenue of A$231.9 million was received under the licence agreement with Acadia (2022: A$14.6 million). This includes A$59.4 million for the first commercial sale milestone, an upfront of A$145.7 million under the expanded global licence agreement with Acadia and A$26.8 million from quarterly royalty income. Other income includes interest income of A$5.7 million (2022: A$0.4 million) and foreign exchange gains of A$2.4 million (2022: A$1.2 million). There was an increase of A$14.1 million in research and development costs, due to higher expenditures in 2023 for the NNZ-2591 Phase 2 clinical trials and the foundational work to prepare for Phase 3 development of NNZ-2591 across multiple indications. There was also an increase in corporate and administrative costs of A$2.5 million, mainly due to higher employee benefits and share-based payments expense. In addition, a loss of A$2.2 million on the fair value of outstanding forward contracts to sell Australian dollars and buy US dollars was recognised at 31 December 2023 (2022: A$0.7 million). The net income tax expense recognised for the year ended 31 December 2023 was A$48.1 million (2022: nil). After utilising Australian carried forward tax losses and the expectation of offsetting the 5% withholding tax paid to the US Internal Revenue Service in relation to the milestone payments, Neuren has recognised a current tax liability of A$37.1 million. Total cash and short-term investments at 31 December 2023 were A$228.5 million (2022: A$40.2 million). Net cash received from operating activities was A$184.9 million (2022: A$3.6 million). The increase of A$181.3 million was primarily due to the receipt of A$221.0 million (2022: A$15.9 million) from Acadia for the first commercial sale milestone payment of US$40 million, the up-front payment of US$100 million under the expanded global licence agreement for trofinetide and receipt of quarterly royalty payments. This was offset by higher payments to other suppliers of A$24.6 million (2022: A$11.3 million) due to higher expenditures for the NNZ-2591 Phase 2 clinical trials and the foundational work to prepare for Phase 3 development of NNZ-2591 across multiple indications. Withholding tax of A$11.8 million was paid to the US Internal Revenue Service by Acadia on Neuren’s behalf. This will be offset against Neuren’s Australian tax liability. Net cash from financing activities for 31 December 2023 was A$3.6 million (2022: nil), comprising proceeds received on conversion of loan funded shares and exercise of share options. Following the receipt of the first commercial sale milestone, up-front payment under the expanded global licence agreement for trofinetide and quarterly royalty payments, Neuren is holding more funds than are required to meet currently forecast short-term cash commitments. As a result, Neuren has classified A$211.4 million of short-term deposits as Short-term Investments. 20 Neuren Pharmaceuticals Limited Annual Report 202321 Neuren Pharmaceuticals Limited Annual Report 2023B O A R D PATRICK DAVIES Non-Executive Chair B EC, MBA Patrick joined the Neuren Board in 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. JON PILCHER Chief Executive Officer/Managing Director BSc (Hons), FCA Jon joined Neuren in 2013 as CFO and was appointed CEO in May 2020. He has played a central role in all aspects of Neuren’s R&D, commercial and corporate activities. Before joining Neuren he was a member of the leadership team at Acrux throughout a period that 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. He formerly spent seven years in a series of executive positions in the R&D and corporate functions of international pharmaceutical groups Medeva and Celltech, which are now part of UCB. Jon is a Chartered Accountant and holds a degree in Biotechnology from the University of Reading in the UK. DR TREVOR SCOTT Non-Executive Director MNZM, LLD (Hon), BCom, FCA, FNZIM, DF Inst D Trevor joined the Neuren Board in 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. DIANNE ANGUS Non-Executive Director BSc (Hons), Master of Biotechnology, IPTA Dianne joined the Neuren Board in 2018. She has extensive executive managerial and company director experience in the biotechnology, biopharmaceutical, medical device, agritech and healthcare industries. Dianne has created numerous global industry partnerships to yield innovative and competitive medical, pharmaceutical and agricultural products. She has also successfully driven the development path for novel neurological pre-clinical agents to late-stage clinical assets before the FDA and European regulators. With over twenty five years’ experience in ASX and NASDAQ listed companies, she has expertise in business development, capital raising and investor relations together with corporate governance and compliance capabilities. Her current roles include Non-Executive Chair of Argenica Therapeutics (ASX:AGN) and Non- Executive Director of Cyclopharm (ASX: CYC), she is also a council member of Deakin University. Dianne is a registered patent and trade mark attorney and is a member of Australian Institute of Company Directors (AICD). DR JENNY HARRY Non-Executive Director 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 industry. Jenny is an accomplished CEO and Managing Director with experience in growing companies from start-up to commercialisation. She has served on Board’s of a number of listed and unlisted companies and is currently a Non-Executive Director of Aeris Environmental Limited (ASX:AEI) and on the Board’s IP sub-committee of the Children’s Medical Research Institute. Jenny is a graduate of the Harvard Business School General Manager Program and the Australian Institute of Company Directors. MR JOE BA SILE Non-Executive Director FIPA, FFA Joe joined the Neuren Board in March 2023. He has held a number of executive roles in the pharmaceutical industry for over 30 years, most recently as Group CFO at iNova Pharmaceuticals based in Singapore and prior to that with Novartis in senior Finance leadership and Commercial Sales leadership roles in Australia and Asia. 22 Neuren Pharmaceuticals Limited Annual Report 2023E X E C U T I V E T E A M JON PILCHER Chief Executive Officer/Managing Director BSc (Hons), FCA Refer to page 22 for biography. L ARRY GL A SS Chief Science Officer BA (Biology) Larry joined Neuren in 2004 and was an Executive Director from 2012 to 2018. He directs Neuren’s scientific and non-clinical development, as well as playing a leading role in clinical and regulatory strategy. Larry 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 provided management, strategic and business development services. Prior to that, he was CEO of a contract research organisation that provided preclinical research and clinical trials support for major pharmaceutical and biotechnology companies and the US government. Larry is a biologist with additional graduate training in epidemiology and biostatistics. LIZ A SQUIRES, M.D. Chief Medical Officer Liza joined Neuren in 2022 and leads the medical, clinical and regulatory aspects of Neuren’s development programs. Liza is a board certified physician in General Pediatrics and Neurology with Special Competence in Child Neurology. Over the past 20 years, she has held positions of increasing responsibilities in both early and late-stage drug development at Johnson and Johnson, Shire Pharmaceuticals, Lumos Pharma, Aevi Genomic Medicine and Origin Biosciences. She has led and contributed to multiple New Drug Applications resulting in global regulatory approvals and has extensive experience in orphan drug development. Liza received her B.S. from the University of Michigan and M.D. from Michigan State University. She trained in general pediatrics at Yale University and did her residency in Child Neurology at Massachusetts General Hospital. DR CLIVE BLOWER Vice President, Product Development BSc (Hons), PhD Clive joined Neuren in 2014, bringing over twenty years of global drug development experience. He has led all aspects of CMC (Chemistry, Manufacturing and Controls) development of both trofinetide and NNZ-2591. Before joining Neuren, 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 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. L AUREN FR A ZER Chief Financial Officer & Company Secretary BBus (Acc), CA Lauren joined Neuren in 2020 and brings over fifteen years of experience in accounting and finance. Prior to joining Neuren, Lauren was at Boundary Bend, one of Australia’s leading agribusinesses and owner of Australian olive oil brands Cobram Estate and Red Island. Lauren was at Boundary Bend for ten years as Financial Controller and then Senior Manager of Accounting & Tax. Lauren is a Chartered Accountant and began her career with Pitcher Partners. GERRY ZHAO Vice President, Corporate Development B Com (Hons Finance), B Law (Hons) Gerry joined Neuren in 2022 and has more than 16 years of global investment banking and financial services experience, with approximately 12 years at Bank of America Merrill Lynch responsible for healthcare investment banking coverage. He has advised numerous local and international corporations and private equity funds on public and private mergers and acquisitions, capital management and financing. Since 2019, Gerry has been consulting to several Australian and global biotech companies regarding strategic projects, including successfully facilitating the A$400m strategic licence and commercial partnership between China Grand Pharmaceutical and Healthcare Holdings and Telix Pharmaceuticals in November 2020. 23 Neuren Pharmaceuticals Limited Annual Report 2023CO R P O R AT E G O V E R N A N C E Neuren’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 has been approved by the Board and provides a description of the framework and practices that are in operation at the Reporting Date, laid out under the structure of the ASX Listing Rules and the Corporate Governance Principles (the “Principles”) and Recommendations (the “Recommendations”) 4th Edition. 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 Chief Executive Officer. The Board has delegated the responsibility for the operation and administration of the Group to the Chief Executive Officer and senior management. The Board ensures that the management team is appropriately qualified to discharge its responsibilities. 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. At 31 December 2023 there were four male and two female directors. Five of the ten senior executives were female. The Group had twenty-four employees and consultants, of which thirteen were female. In accordance with Recommendation 1.6, there is a process to evaluate periodically the performance of the Board, its committees and individual directors. A performance evaluation was undertaken by an independent external party, with the process commencing during 2023. The final report with recommendations was presented to the Board in February 2024. In accordance with Recommendation 1.7, there is a process for the Board to evaluate periodically the performance of the Chief Executive Officer and for the Chief Executive Officer to evaluate periodically the performance of senior executives. The evaluation of the Non-Executive Chair 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 undertaken during early 2024, in relation to the performance of the senior executives in 2023. The performance evaluations were postponed until after the announcement of top-line results from the Phase 2 clinical trial of NNZ-2591 in Phelan- McDermid syndrome in late December 2023, given the importance of that milestone. 24 Neuren Pharmaceuticals Limited Annual Report 2023CO 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 2. STRUCTURE THE BOARD TO BE EFFECTIVE AND 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 Interpersonal Skills Leadership Ethics and Integrity Contribution Crisis Management 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. Make decisions and take necessary actions in the best interest of the organisation, and represent the organisation favourably. Analyse 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. 25 Neuren Pharmaceuticals Limited Annual Report 2023CO 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 Board is highly engaged in the oversight and direction of the business. Six members served during the year to 31 December 2023, as set out in the table below. Details of the relevant skills, experience and expertise of each Board member are set out on page 22 of this report. Appointment Retirement Role Independent Committees Patrick Davies Appointment as director: 2018 Appointment as Chair: 2020 Non-executive chair Yes Member of Audit Committee and Remuneration Committee Trevor Scott 2002 Non-executive director Yes1 Dianne Angus 2018 Non-executive director Jenny Harry 2018 Non-executive director Jon Pilcher 2021 Joe Basile 2023 Chief Executive Officer and Managing Director Non-executive director Yes Yes No2 Yes Member of Audit Committee and Remuneration Committee Member of Audit Committee and Remuneration Committee Member of Audit Committee and Chair of Remuneration Committee Chair of Audit Committee and member of Remuneration Committee 1 2 Given the length of his tenure, in accordance with the Recommendations the Board has considered the nature of the relationships of Trevor Scott with management and substantial shareholders and has concluded that he remains independent. Jon Pilcher is not considered independent due to his executive role. There is a majority of independent directors in accordance with Recommendation 2.4. The chair is independent and the chair and chief executive officer roles are 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. PRINCIPLE 3. INSTIL A CULTURE OF ACTING L AWFULLY, ETHIC ALLY AND RESPONSIBLY In accordance with Recommendation 3.1, the Group has articulated its values, which are disclosed on the Company website – We are passionate about making a difference to the lives of patients and their families – We aim to earn the respect of everyone we deal with – We are determined and creative to break through barriers – We harness the power of collaboration and different perspectives – We recognise the importance of all stakeholders and endeavour to use financial resources efficiently The Board has established a Code of Conduct (Recommendation 3.2), 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 26 Neuren Pharmaceuticals Limited Annual Report 2023CO 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 – 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 Neuren is committed to the highest standards of conduct and ethical behaviour in all business activities. The Group’s Whistleblower Policy is available on the Company website (Recommendation 3.3). Any material breaches of the Whistleblower Policy are to be reported to the Board. The Group’s Anti-bribery and Corruption is available on the Company website (Recommendation 3.4). Any material breaches of the Anti-bribery and Corruption Policy are to be reported to the Board. 27 PRINCIPLE 4. SAFEGUARD INTEGRIT Y OF CORPOR ATE REPORTS The Board has an Audit Committee, which consists of only independent non-executive directors, has at least 3 members and is chaired by an independent director as suggested in Recommendation 4.1. The Committee met twice during 2023, 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. In accordance with Recommendation 4.2, the Board also, before it approves the entity’s financial statements for a financial period, receives a declaration in writing from the Chief Executive Officer and the Chief Financial Officer that the financial records of the company have been properly maintained and that the financial statements are in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ FRS) and present a true and fair view, in all material respects, of the Group’s financial position and performance and that this opinion is founded on a sound system of risk management and internal control that is operating effectively in all material respects with regard to business and financial reporting risks. The Board received those assurances for the annual financial statements on 29 February 2024. Neuren Pharmaceuticals Limited Annual Report 2023CO 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 For other periodic corporate reports released to the market that are not audited or reviewed by an external auditor, processes are in place to ensure that the reports are materially accurate, balanced and provide investors with appropriate information to make informed investment decisions (Recommendation 4.3). Reports are prepared by the Chief Financial Officer and reviewed by the Chief Executive Officer, or are prepared by the Chief Executive Officer and reviewed by the Board. The Board receives a declaration in writing from the Chief Financial Officer and Chief Executive Officer regarding those reports. 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, and the Board receives copies of all material market announcements promptly after they have been made (Recommendation 5.2). All investor or analyst presentations with new information are released on the ASX Market Announcements Platform ahead of such presentations, in accordance with Recommendation 5.3. PRINCIPLE 6. RESPECT THE RIGHTS OF SECURIT Y HOLDERS 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. 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 Chief Executive Officer interacts with institutional investors, private investors, analysts and media on an ad hoc basis, conducting meetings in person or by video/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 Annual Shareholders’ Meeting in 2023 was conducted as a hybrid meeting, with participation both in-person and by electronic means. All resolutions at the Company’s Annual Shareholders’ Meeting in 2023 were decided by a poll (Recommendation 6.4) In accordance with Recommendation 6.5, 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 2023. 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). 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. 28 Neuren Pharmaceuticals Limited Annual Report 2023CO 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 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, has at least three members and is chaired by an independent director as suggested in Recommendation 8.1. The Committee met once during 2023. 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 and/or a loan funded share plan. 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. The Group does not operate a short-term incentive plan, however discretionary bonuses may be approved to recognise exceptional achievement. Discretionary bonuses were approved in 2023, the amount of which took into account the value of the critical milestones achieved during the year in each of the three value drivers of the business. 29 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). PRINCIPLE 9. ADDITIONAL RECOMMENDATIONS Neuren is incorporated in New Zealand and ensures meetings of security holders are held at a reasonable place and time (Recommendation 9.2). 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 in person, as suggested in Recommendation 9.3. The Company’s constitution enables the Board to convene virtual shareholder meetings, with participation by electronic means. ENVIRONMENTAL AND SOCIAL IMPACT Neuren’s small workforce of 24 people all work from home and no office or other facility is maintained. The incremental environmental impact is therefore negligible. Pharmaceutical development for international markets necessarily requires some domestic and long-haul plane travel for some people. However, the improved technology and increased use of video meeting applications has enabled the frequency to be reduced. The necessity of any plane travel is always considered carefully before approval. Neuren’s work to develop treatments for serious neurodevelopmental disorders that have no approved medicines and have a devastating impact on families has a very high positive social impact, which is also highly motivating for Neuren’s workforce. Neuren works closely with the patient communities for each of the disorders and provides financial support to events organised by patient advocacy organisations. Neuren aims to provide a positive and productive work environment for its workforce. Working from home provides people with high flexibility and enables optimum work/life balance. The small size of the team facilitates opportunities to experience and take responsibility for a broader range of activities. Staff turnover was zero in 2023. Neuren Pharmaceuticals Limited Annual Report 2023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 2 3 Revenue from contracts with customers Other income Total income Research and development costs Corporate and administrative costs Loss on financial derivatives measured at fair value through profit or loss Profit before income tax Income tax Profit after income tax Other comprehensive income, 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 income attributable to Equity holders of the Company: Basic earnings per share Diluted earnings per share The notes on pages 34 to 50 form part of these consolidated financial statements. Note 2023 $’000 2022 $’000 4 4 6 7 7 231,925 14,553 8,138 240,063 (26,751) (5,946) (2,226) 205,140 (48,059) 157,081 (10) 157,071 157,081 157,071 $1.236 $1.201 2,480 17,033 (12,712) (3,437) (700) 184 – 184 2 186 184 186 $0.001 $0.001 30 Neuren Pharmaceuticals Limited Annual Report 2023C 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 2 3 ASSETS Current Assets: Cash and cash equivalents Short-term investments Trade and other receivables Total current assets Non-current assets: Property, plant and equipment Deferred tax asset Total non-current assets TOTAL ASSETS LIABILITIES AND EQUITY Current liabilities: Trade and other payables Derivative liabilities Income tax payable Total current liabilities Total liabilities EQUITY Share capital Share option reserve Currency translation reserve Accumulated surplus/(deficit) Total equity attributable to equity holders TOTAL LIABILITIES AND EQUITY Note 2023 $’000 2022 $’000 8 9 10 6 11 12 6 13 13 17,094 211,445 18,617 247,156 43 771 814 40,180 – 3,066 43,246 21 – 21 247,970 43,267 3,418 2,226 37,119 42,763 42,763 173,127 4,382 (10,690) 38,388 205,207 247,970 978 700 – 1,678 1,678 167,740 3,222 (10,680) (118,693) 41,589 43,267 The notes on pages 34 to 50 form part of these consolidated financial statements For and on behalf of the Board of Directors who authorised the issue of these consolidated financial statements on 29 February 2024. Patrick Davies Non-Executive Chair Joe Basile Director 31 Neuren Pharmaceuticals Limited Annual Report 2023C 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 2 3 Equity as at 1 January 2022 Reversal of share issue costs Share based payments Transactions with owners Profit after income tax Other comprehensive income Total Comprehensive income for the year Share Capital $’000 Share Option Reserve $’000 Currency Translation Reserve $’000 Accumulated Surplus/ (Deficit) $’000 Total Equity $’000 167,578 1,234 (10,682) (118,877) 39,253 162 – 162 – – – – 1,988 1,988 – – – – – – – 2 2 – – – 184 – 184 162 1,988 2,150 184 2 186 Equity as at 31 December 2022 167,740 3,222 (10,680) (118,693) 41,589 Share issue costs Loan funded shares converted Transfer on conversion of loan funded shares Share options exercised Transfer on exercise of options Share based payments Transactions with owners Profit after income tax Other comprehensive loss Total Comprehensive income for the year (18) 1,104 420 2,533 1,348 – 5,387 – – – – – (420) – (1,348) 2,928 1,160 – – – – – – – – – – – (10) (10) – – – – – – – (18) 1,104 – 2,533 – 2,928 6,547 157,081 157,081 – (10) 157,081 157,071 Equity as at 31 December 2023 173,127 4,382 (10,690) 38,388 205,207 The notes on pages 34 to 50 form part of these consolidated financial statements. 32 Neuren Pharmaceuticals Limited Annual Report 2023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 2 3 Cash flows from operating activities: Receipts from licence agreement Withholding tax paid Receipts from Australian R&D Tax Incentive Interest received GST refunded Payments for employees and directors Payments to other suppliers Net cash flow received from operating activities Cash flows from investing activities: Purchase of property, plant and equipment Transfer of funds to short-term investments Net cash flow (used in) investing activities Cash flows from financing activities: Proceeds from the issue of shares Payment of share issue expenses Net cash flow received from/(used in) financing activities Net (decrease)/increase 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 Share based payments expense Foreign exchange loss Loss on financial assets Changes in working capital: Trade and other receivables Trade and other payables Current and deferred taxes Note 2023 $’000 2022 $’000 13 221,004 15,921 (11,840) 882 4,360 272 – 1,393 188 252 (5,161) (2,814) (24,592) (11,341) 184,925 3,599 (40) (211,445) (211,485) 3,637 (18) 3,619 (22,941) (145) 40,180 17,094 (19) – (19) – (2) (2) 3,578 (181) 36,783 40,180 157,081 184 17 2,928 136 1,526 (15,551) 2,440 36,348 10 1,988 184 700 194 339 – Net cash received from operating activities 184,925 3,599 The notes on pages 34 to 50 form part of these consolidated financial statements. 33 Neuren Pharmaceuticals Limited Annual Report 2023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 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 2 3 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 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 HSBC 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 29 February 2024. Material Uncertainties – The Group’s licensing and research and development activities involve inherent risks. These risks include, among others: dependence on the sales made by licensees, 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; part of the Group’s business is based on novel and yet to be proven technology; the Group’s ability to sufficiently complete the clinical trials process; and technological developments by the Group’s competitors could render its products obsolete. – The Group’s revenue from licence agreements includes quarterly royalty income contingent on the amount of ongoing sales, whilst other milestone payments are contingent on future sales and events and will be intermittent. The business plan therefore may require expenditure in excess of revenue and in the future the Group 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 Group. 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES These general-purpose consolidated financial statements of the Group are for the year ended 31 December 2023 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) issued by the New Zealand Accounting Standards Board 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 External Reporting 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 2023 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 consolidated financial statements have been prepared under the historical cost convention as modified by certain policies below. Amounts are expressed in Australian Dollars and are rounded to the nearest thousand, except for earnings per share. Critical accounting estimates The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the Group to exercise its judgement in the process of applying the 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 19. 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 a profit after tax of $157.0 million for the year ending 31 December 2023 and had positive operating cash flows of $184.9 million for the year ended 31 December 2023. The Group had cash of $17.1 million and short-term investments (term deposits) of $211.5 million at 31 December 2023. 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 consolidated financial statements. The consolidated 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 There are no changes in accounting policies for the year ended 31 December 2023. 34 Neuren Pharmaceuticals Limited Annual Report 2023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 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) Standards, interpretations and amendments to published standards that are not yet effective At the date of authorisation of these consolidated financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group’s consolidated financial statements. (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. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. When necessary, amounts reported by subsidiaries have been adjusted to conform with the group’s accounting policies. (c) Foreign Currency Translation (i) Functional and Presentation Currency The functional currency of the Company and the presentation currency of the 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 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; – revenue 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 a separate component of 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. (d) Revenue NZ IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The five-step process is as follows: – identify the contract(s) with a customer; – identify the performance obligations in the contract(s); – determine the transaction price; – allocate the transaction price to the performance obligations in the contract(s); and – recognise revenue when (or as) the performance obligations are satisfied. Licence revenue Licence revenues in connection with licensing of the Group’s intellectual property to customers are recognised as a right to use the entity’s intellectual property as it exists at the point in time at which the licence is granted. This is because the contracts for the licence of intellectual property are distinct and do not require, nor does the customer reasonably expect, that the Group will undertake further activities that significantly affect the intellectual property to which the customer has rights. 35 Neuren Pharmaceuticals Limited Annual Report 2023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 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) Although the Group is entitled to sales-based royalties from sales of goods and services to third parties using the intellectual property transferred, these royalty arrangements do not of themselves indicate that the customer would reasonably expect the Group to undertake such activities, and no such activities are undertaken or contracted in practice. Accordingly, the promise to provide rights to the Group’s intellectual property is accounted for as a performance obligation satisfied at a point in time. The following consideration is received in exchange for licences of intellectual property: (i) Up-front payments – These are fixed amounts and are recognised at the point in time when the Group transfers the intellectual property to the customer. (ii) Milestone payments – This is variable consideration that is contingent on the customer reaching certain clinical, regulatory or commercial targets in relation to the intellectual property licenced. Variable consideration is estimated using the most likely amount method, variable consideration is constrained such that amounts are only recognised when it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration (that is, the customer meeting the conditions) is subsequently resolved. Milestone payments that are not in control of the Group, such as regulatory approvals, are not considered highly probable of being achieved until those approvals are received. (iii) Sales-based royalties – Licenses of intellectual property include royalties, which are variable consideration that are based on the sale of products that are produced using the intellectual property. The specific exception to the general requirements of estimating variable consideration for sales or usage-based royalties promised in a licence of intellectual property is applied. The exception requires such revenue to be recognised at the later of when (a) subsequent sales or usage occurs and (b) the performance obligation to which some or all of the sales-based or usage-based royalty has been allocated is satisfied (or partially satisfied). Grants Grant income is recognised in 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 as expenses and when there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Research and development tax incentives Other income from the Australian government Research and Development tax incentive (RDTI) program is recognised when there is reasonable assurance that the tax incentive will be received and all attached conditions will be complied with. The research and development activities and expenditure are assessed to determine eligibility under the RDTI program. When Group revenue exceeds the threshold of aggregated turnover of $20 million or more, a non-refundable tax offset can be claimed. This is recognised as a reduction in current tax liability. Interest income Interest income is recognised as it is earned using the effective interest method. (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. (f) Income tax The income tax expense or benefit 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, adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are realised 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 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 the temporary differences will reverse in the foreseeable future and 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. 36 Neuren Pharmaceuticals Limited Annual Report 2023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 2. SUMMARY OF MATERIAL ACCOUNTING POLICIES (CONTINUED) (g) 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. (h) 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. Cash and cash equivalents are held to meet currently forecast short-term cash commitments. (i) Short-term investments Short-term investments comprise short-term deposits, 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. When the Group is holding more short-term deposits than are required to meet currently forecast short-term cash commitments, these are held as short-term investments. (j) 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 assesses trade receivables on an individual basis, and uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses. (k) Employee benefits Wages and salaries, annual leave, long service leave and superannuation Liabilities for wages and salaries, bonuses, annual leave, long service leave and superannuation 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. Contributions are made by the Group to employee superannuation funds and are charged as expenses when the obligation to pay them arises. Share-based payments Neuren operates a loan funded share plan and share option plan. Both plans are accounted for as share options and the loan is not recognised as an asset. 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 the share option reserve 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. It recognises the impact of these revisions, 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. (l) Share issue costs Costs associated with the issue of new shares which are recognised in shareholders’ equity are treated as a reduction of the amount collected per share. (m) 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 Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. 37 Neuren Pharmaceuticals Limited Annual Report 2023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 2. SUMMARY OF MATERIAL ACCOUNTING Subsequent measurement of financial assets POLICIES (CONTINUED) Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. A financial liability is derecognised when it is extinguished, i.e. the obligation is discharged, cancelled or expired. 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 ‘Revenue from contracts with customers’, 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 company does not have any financial assets categorised as FVTPL or 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 cost or finance income, except for impairment of trade receivables which is presented within other expenses. 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 – 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, short- term investments and trade receivables fall into this category of financial instruments. Classification and measurement of financial liabilities The Group’s financial liabilities include trade and other payables and derivative financial liabilities. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs. Subsequently, trade and other payables are measured at amortised cost using the effective interest method. Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Gains or losses on derivative financial instruments are recognised in the profit or loss. 38 Neuren Pharmaceuticals Limited Annual Report 2023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 3. SEGMENT INFORMATION The segment reporting reflects the way information is reported internally to the chief operating decision maker. The Board of the Group has been identified as the chief operating decision maker. The Board assesses the financial performance and position of the group and makes strategic decisions. The Group has two reportable operating segments, commercial products and research and development. Reportable segment Principal activities Commercial products Milestone and royalty revenue from licence of intellectual property. Research & development Development of pharmaceutical products for the treatment of neurodevelopmental disorders. Commercial products Research & Development Corporate 2023 $’000 2022 $’000 2023 $’000 2022 $’000 2023 $’000 2022 $’000 Total 2023 $’000 Revenue Total segment revenue Research and development costs Interest income Other income Other expenses 231,925 231,925 14,553 14,553 – – – – (66) – – – (453) – – – (26,685) – – – (12,259) – – – – – – 5,687 2,451 (8,172) – – 231,925 231,925 – 391 2,089 (4,137) (26,751) 5,687 2,451 (8,172) Profit before income tax 231,858 14,100 (26,685) (12,259) (34) (1,657) 205,140 Income tax expense – – – – (48,059) – (48,059) Profit after income tax 231,858 14,100 (26,685) (12,259) (48,093) (1,657) 157,081 2022 $’000 14,553 14,553 (12,712) 391 2,089 (4,137) 184 – 184 All revenue from licences of intellectual property is from Acadia Pharmaceuticals Inc. (Acadia) and is from the United States. Assets and liabilities are not allocated to segments and are therefore not reported. 4. REVENUE Disaggregation of revenue from contracts with customers The Group derives revenue from the sale and transfer of goods and services at a point in time under the following major business activities: Revenue from contracts with customers Licences of intellectual property - up-front payments Licences of intellectual property - milestone payments Licences of intellectual property - royalty income 2023 $’000 2022 $’000 145,711 59,434 26,780 231,925 – 14,553 – 14,553 All revenue from licences of intellectual property is from the United States. The revenue from licences of intellectual property was earned by Neuren on the first commercial sale of DAYBUE by Acadia in the United States, and on signing the expanded worldwide licence agreement with Acadia. 39 Neuren Pharmaceuticals Limited Annual Report 2023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 4. REVENUE (CONTINUED) Neuren is eligible to receive quarterly royalty income, calculated as a percentage of net sales of DAYBUE in North America and is recognised in the period Acadia makes the sales of DAYBUE. Sales of DAYBUE commenced in April 2023. The royalty rate for annual sales of less than or equal to US$250 million is 10%. The royalty rate then increases to 12% for annual net sales greater than US$250 million but less than or equal to US$500 million. Other income Interest income Australian R&D tax incentive Net foreign currency gains Total other income 5. EXPENSES Profit/(loss) before income tax includes the following expenses: Remuneration of auditors Audit of financial statements (Grant Thornton New Zealand Audit Limited) Review of financial statements (Grant Thornton New Zealand Audit Limited) Total remuneration of auditors Employee benefits expense Short-term benefits Post-employment benefits Other employee benefits Share based payments Total employee benefits expenses Directors’ compensation Short-term benefits Post-employment benefits Share based payments Total Directors' compensation Other Consultants - share based payments 2023 $’000 2022 $’000 5,687 17 2,434 8,138 391 864 1,225 2,480 2023 $’000 2022 $’000 76 23 99 2,970 212 39 1,388 4,608 1,444 43 289 1,777 1,251 58 12 70 1,607 153 34 868 2,662 732 38 126 896 994 40 Neuren Pharmaceuticals Limited Annual Report 2023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 6. INCOME TA X Income tax expense Current tax expense Deferred tax benefit Adjustment1 Numerical reconciliation of income tax to prima facie tax receivable: Profit before income tax Tax at applicable rates 30.0% (2022: 25.0%)2 Research and development incentives Non-deductible share option expenses Other non-deductible expenses/(non-assessable income) Utilisation of previously unrecognised tax losses Change in tax rates Recognition of deferred tax asset for deductible temporary differences Adjustment1 Difference in overseas tax rates Income tax expense Current tax Current tax liabilities Opening balance Income tax Witholding tax credits 2023 $’000 2022 $’000 48,102 (771) 728 48,059 205,140 61,542 (324) 879 99 (13,905) (138) (689) 728 (133) 48,059 – 48,102 (10,983) 37,119 – – – – 184 46 281 497 122 (946) – – – – – – – – – 1 2 The adjustment to tax expense relates to the utilisation of a foreign income tax offset rather than previously unrecognised tax losses in relation to the prior year income tax return. The tax rate of the Group changed from the base rate of 25.0% to the full company tax rate of 30.0% effective 1 January 2023. Neuren is not a base rate entity for the year ended 31 December 2023 as its aggregated turnover for the year is greater than the aggregated turnover threshold of $50 million. 41 Neuren Pharmaceuticals Limited Annual Report 2023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 6. INCOME TA X (CONTINUED) Deferred tax 2023 Patents Capital raising costs Employee benefits Unrealised foreign exchange Interest receivable Other temporary differences Deferred tax not recognised Net deferred tax asset 2022 Patents Capital raising costs Employee benefits Unrealised foreign exchange Other temporary differences Deferred tax not recognised Net deferred tax asset Gross tax losses for which no deferred tax asset has been recognised (a) Opening balance $’000 Recognised in profit or loss $’000 Closing balance $’000 (183) (276) (92) (177) 51 (14) (691) 691 – (217) (403) (76) – (10) (706) 706 – (14) 77 (47) (491) 408 (13) (80) (691) (771) 34 127 (16) (177) 47 15 (15) – (197) (199) (139) (668) 459 (27) (771) – (771) (183) (276) (92) (177) 37 (691) 691 – 2023 $’000 2022 $’000 62,475 106,115 (a) Of these gross tax losses, $62.5 million (2022: $62.6 million) relate to New Zealand tax losses, which are unlikely to be utilised unless future taxable income is generated in New Zealand. The movement in New Zealand gross tax losses is due to the New Zealand tax losses being translated at the closing foreign exchange rate at each reporting date. All previously unrecognised Australian tax losses have been utilised for the year ended 31 December 2023. There are no franking credits or imputation credits available for use as at 31 December 2023 (2022: nil). 7. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit for the year attributable to the equity holders of the company by the weighted average number of ordinary shares on issue during the year excluding shares held as treasury stock. Diluted earnings per share is calculated by dividing the profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. Earnings after income tax attributable to equity holders (basic) - ($'000) Weighted average shares outstanding (basic) - (No.) Basic earnings per share Earnings after income tax attributable to equity holders (diluted) - ($'000) Weighted average shares outstanding (diluted) - (No.) Diluted earnings per share 42 2023 2022 157,081 127,069,512 $1.236 184 125,965,676 $0.001 157,081 130,768,487 $1.201 184 128,908,995 $0.001 Neuren Pharmaceuticals Limited Annual Report 2023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 8. C ASH AND C ASH EQUIVALENTS Cash Demand and short-term deposits 9. SHORT-TERM INVESTMENTS Short-term investments 2023 $’000 17,094 – 17,094 2023 $’000 211,445 2022 $’000 2,304 37,876 40,180 2022 $’000 – Following the receipt of the first commercial sale milestone payment and the upfront payment for the expansion of the partnership with Acadia Pharmaceuticals for trofinetide to a worldwide exclusive licence, Neuren is holding more funds than are required to meet currently forecast short-term cash commitments. As a result, the Company has classified short-term deposits as short-term investments. 10. TR ADE AND OTHER RECEIVABLES Royalty receivable Other receivables Interest receivables Prepayments Australian R&D tax incentive 2023 $’000 12,800 80 1,532 4,205 – 18,617 2022 $’000 – 17 207 1,977 865 3,066 The Group has not recognised any amounts receivable in relation to the R&D tax incentive for the year ended 31 December 2023, as a result of revenue exceeding the threshold of $20,000,000 in the financial year. As a result of exceeding this threshold, eligible R&D expenditure qualifies for a non-refundable tax offset and is recognised as a reduction in current tax liability. In 2022 the R&D tax incentive receivable was determined based on a combination of eligible domestic and international expenditure of $1,988,057 at a rate of 43.5 cents tax incentive rebate per eligible R&D dollar spent. This amount was received in cash during the financial year. The Group applies the 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 including historical experience, external indicators and forward-looking information to calculate the expected credit losses. 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 (2022: nil). 43 Neuren Pharmaceuticals Limited Annual Report 2023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. TR ADE AND OTHER PAYABLES Trade payables Accruals Employee benefits 2023 $’000 675 2,174 569 3,418 2022 $’000 258 267 453 978 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 goods or services received but not invoiced at each reporting date. 12. DERIVATIVES Current derivative liabilities Forward exchange contracts 13. SHARE C APITAL 2023 $’000 2022 $’000 2,226 700 Issued Share Capital Ordinary shares on issue at beginning of year Loan Funded Shares repaid and transferred to participant Shares issued on exercise of options Share issue expenses - issue costs 2023 Shares 2022 Shares 2023 $’000 2022 $’000 128,965,676 – 700,000 – 128,965,676 – – – 129,665,676 128,965,676 167,740 1,524 3,881 (18) 173,127 167,578 – – 162 167,740 At 31 December 2023 127,265,676 ordinary shares are quoted on the ASX, and 2,400,000 unquoted ordinary shares (31 December 2022: 3,000,000 ordinary shares) were held as treasury stock in respect of the Loan Funded Share Plan described 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 During the year ended 31 December 2023 $2.9 million (31 December 2022: $2.0 million) was recognised in share- based payments expense. 44 Neuren Pharmaceuticals Limited Annual Report 2023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. SHARE C APITAL (CONTINUED) 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”). 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 loan funded shares under the plan during the year ended 31 December 2023 are subject to the following vesting conditions: i. ii. 40% of the Loan Funded Shares shall vest on acceptance by the US Food and Drug Administration of the filing of a New Drug Application for Trofinetide; and 40% of the Loan Funded Shares shall vest when the Company determines to progress NNZ-2591 to a Phase 2b or Phase 3 clinical trial following a positive Phase 2 clinical trial outcome, or executes a partnering transaction for NNZ-2591; iii. 20% of the Loan Funded Shares shall vest when the Company executes a partnering transaction for trofinetide outside North America, or submits a Marketing Authorisation Application for trofinetide in the European Union, the United Kingdom, or Japan. Each of these vesting conditions shall be tested separately from the other vesting conditions. The first vesting condition (i) was met in September 2022 and the third vesting condition (iii) was met in July 2023. The estimated fair value of the shares has been determined using the Black-Scholes valuation model. The significant inputs into the model were the share price on date of valuation, the estimated future volatility of the share price, a dividend yield of 0%, an expected life of 5 years, and an annual risk-free interest rate of 0.4%. The estimated future volatility of the share price was derived by analysing the historic volatility of the share price during the relevant period. Movements in the number of Loan Funded Shares were as follows: Balance at 1 January Granted during the year Exercised during the year Balance at 31 December Vested and exercisable at 31 December 1 WAEP – weighted average exercise price 2023 Number ‘000 3,000 – (600) 2,400 1,200 2023 $ WAEP1 1.84 – 1.84 1.84 1.84 2022 Number ‘000 3,000 – – 3,000 1,200 2022 $ WAEP1 1.84 – – 1.84 1.84 45 Neuren Pharmaceuticals Limited Annual Report 2023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. SHARE C APITAL (CONTINUED) Options to acquire ordinary shares All options to acquire ordinary shares at 31 December 2023 vest subject to remaining an employee or consultant if and when the following non-market performance vesting conditions are met: 950,000 share options 500,000 share options 750,000 share options i. ii. on acceptance by the US Food and Drug Administration of the filing of a New Drug Application for trofinetide when the Company determines to progress NNZ-2591 to a Phase 2b or Phase 3 clinical trial following a positive Phase 2 clinical trial outcome, or executes a partnering transaction for NNZ-2591 iii. when the Company executes a partnering transaction for trofinetide outside North America, or submits a Marketing Authorisation Application for trofinetide in the European Union, the United Kingdom, or Japan – 40% – 60% 40% 60% 40% 20% 40% Each of these vesting conditions shall be tested separately from the other vesting conditions. The first vesting condition (i) was met in September 2022 and the third vesting condition (iii) was met in July 2023. The estimated fair value of the options to acquire ordinary shares has been determined using the Black-Scholes valuation model. The significant inputs into the model were the share price on date of valuation, the estimated future volatility of the share price, the risk-free interest rate, a dividend yield of 0% and an expected life of 2.75 years. The estimated future volatility of the share price was derived by analysing the historic volatility of the share price on a daily basis during the two years prior to the issue date, as this period is reflective of the anticipated volatility in the future. Movements in the number of Share Options were as follows: Balance at 1 January Granted during the year Exercised during the year Balance at 31 December Vested and exercisable at 31 December 1 WAEP – weighted average exercise price 2023 Number ‘000 2,200 – (700) 1,500 280 2023 $ WAEP1 3.59 – 3.62 3.57 3.46 2022 Number ‘000 – 2,200 – 2,200 200 2022 $ WAEP1 – 3.59 – 3.59 3.46 During the year ended 31 December 2023, no additional options to acquire ordinary shares were issued to employees and consultants. 14. 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 Neuren Pharmaceuticals Inc. Neuren Pharmaceuticals (Australia) Pty Ltd Date of incorporation 20-Aug-02 9-Nov-06 Principle activities Interest held Domicile Development services Dormant 100% 100% 100% USA AUS NZ Neuren Trustee Limited 29-May-13 Holds loan funded shares All subsidiaries have a reporting date of 31 December. 46 Neuren Pharmaceuticals Limited Annual Report 2023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 15. COMMITMENTS AND CONTINGENCIES (a) Legal claims The Group had no significant legal matter contingencies as at 31 December 2023 or at 31 December 2022. (b) Commitments The Group was not committed to the purchase of any property, plant or equipment or intangible assets as at 31 December 2023 (2022: nil). At 31 December 2023, the Group had commitments under product development contracts amounting to approximately $7.4 million, including approximately US$4.4 million and AU$0.4 million. At 31 December 2022, the Group had commitments under product development contracts amounting to approximately $6.0 million, comprising approximately US$3.9 million, GBP 0.1 million, EUR 0.1 million and AU $0.2 million. (c) Contingent liabilities The Group had no contingent liabilities at 31 December 2023 or at 31 December 2022. 16. REL ATED PART Y TR ANSACTIONS (a) Key Management Personnel The Key Management Personnel of the Group (KMP) include the directors of the Company and employees who reporting directly to the Managing Director. Compensation for KMP was as follows: Short-term benefits Post-employment benefits Other long-term benefits Share based payment compensation 2023 $’000 3,266 169 74 1,446 4,955 2022 $’000 1,682 112 34 837 2,665 (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. All amounts due between entities are payable on demand and bear no interest. 17. EVENTS AFTER REPORTING DATE As at the date of these consolidated financial statements authorised for issue, there are no events arising since 31 December 2023 that require disclosure. 47 Neuren Pharmaceuticals Limited Annual Report 2023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 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (a) Categories of financial instruments 2023 Financial assets Cash and cash equivalents Short-term investments Trade and other receivables Total financial assets Financial liabilities Trade and other payables Derivative financial instruments - forward exchange contracts 2022 Financial assets Cash and cash equivalents Trade and other receivables Total financial assets Financial liabilities Trade and other payables Derivative - financial liability Total financial liabilities At amortised cost At fair value through profit or loss Floating Interest Rate $’000 Non-Interest Bearing $’000 Non-Interest Bearing $’000 Total $’000 8 9 10 11 12 8 10 11 12 17,094 211,445 – 228,539 – – – 40,180 – 40,180 – – – – – 14,332 14,332 2,849 – 2,849 – 207 207 525 – 525 – – – – – 2,226 2,226 – – – – 700 700 17,094 211,445 14,332 242,871 2,849 2,226 5,075 40,180 207 40,387 525 700 1,225 At 31 December 2023, the carrying value of all financial instruments approximated their fair value. (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 the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk. 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 rate between the Australian dollar and the US dollar. The Group holds cash denominated in US dollars and Australian dollars and has material revenue and expenditure in each of these currencies. Where possible, the Group matches foreign currency income and foreign currency expenditure as a natural hedge, holding foreign currency cash to facilitate this natural hedge. When foreign currency expenditure exceeds foreign currency revenue and foreign currency cash, the group purchases foreign currency to meet anticipated requirements under spot and forward contracts. The Group does not designate formal hedges. 48 Neuren Pharmaceuticals Limited Annual Report 2023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 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) At 31 December 2023, there were three forward contracts to convert Australian dollars to US dollars outstanding. Adjustment of these financial instruments to fair value as measured at 31 December 2023 resulted in a loss of $2.2 million. This fair value measurement is categorised within Level 2 of the fair value hierarchy. A summary of the forward contracts outstanding at 31 December 2023 is as follows: Buy USD $'000 Sell AUD $'000 Weighted average exchange rate Term Buy US dollar / sell AU dollar 23,611 36,672 3 months or less 0.6439 During the year, the US dollar fluctuated against the Australian dollar. A net foreign exchange gain of $2.4 million is included in results for the year ended 31 December 2023 (2022: $1.2 million), this includes a $1.9 million gain on the milestone revenue from Acadia (2022: $1.4 million gain). The carrying amounts of US dollar denominated financial assets and liabilities are as follows: Assets US dollars Liabilities US dollars 2023 $’000 2022 $’000 168,688 2,104 2,760 803 An increase of 10% in the rate of the US dollar against the Australian dollar as at the reporting date would have decreased the consolidated profit after income tax by $18,418,196 (2022: $1,238,107). A decrease of 10% in the rate of the US dollar against the Australian dollar as at the reporting date would have increased the consolidated profit after income tax by $22,511,129 (2022: $1,514,242). An increase of 10% in the rate of the US dollar against the Australian dollar as at the reporting date would have decreased equity by $51,743 (2022: decrease of $12,419). A decrease of 10% in the rate of the US dollar against the Australian dollar as at the reporting date would have increased equity by $63,242 (2022: increase of $15,179). Interest rate risk The Group is exposed to changes in market interest rates as entities in the Group hold cash and cash equivalents and short-term investments. 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 2023 $’000 2022 $’000 59,858 4.79% 168,688 4.67% 38,076 3.58% 2,104 –% 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 5% change in average market interest rates would have changed reported profit after tax by approximately $537,400 (2022: $68,200). A 5% increase/decrease in the average market interest rates would have no impact on other components of equity. 49 Neuren Pharmaceuticals Limited Annual Report 2023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 18. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) Credit risk The Group incurs credit risk from transactions with financial institutions. The total credit risk on cash and cash equivalents and short-term investments, 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 and short-term are held and transacted with National Australia Bank, Commonwealth Bank, Westpac, Western Union and Primis bank. Liquidity risk The Group’s financial liabilities, comprising trade and other payables and derivatives, are generally repayable within 1 – 3 months. The maturity and availability of financial assets, comprising cash and cash equivalents, short-term investments and trade and other receivables, are monitored and managed to ensure financial liabilities can be repaid when due. Capital management The Group monitors capital including share capital, retained earnings and reserves and the cash and cash equivalents and short-term investments presented in the consolidated statement of financial position. The Group has no debt. The key objective of the Group when managing its capital is to safeguard its ability to continue as a going concern, so that the Group can sustain the future development of the research and development activities being performed by the Group. 19. CRITIC AL ACCOUNTING ESTIMATES AND ASSUMPTIONS 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 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 Group is subject to income taxes in Australia because it is domiciled in that country. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination may be uncertain. 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. The Group measures the fair value of loan funded shares and options to acquire ordinary shares with employees and consultants by reference to the fair value of the equity instruments at the date at which they are granted. The estimated fair value of the shares is determined using the Black-Scholes valuation model, taking into account the terms and conditions upon which the instruments were granted. Some judgements are made on the inputs into the valuation model, including the expected life and volatility. 50 Neuren Pharmaceuticals Limited Annual Report 2023I 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 Limited L4, Grant Thornton House 152 Fanshawe Street PO Box 1961 Auckland 1140 T +64 (09) 308 2570 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 30 to 50 which comprise the consolidated statement of financial position as at 31 December 2023, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including material accounting policy information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2023 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”) issued by the New Zealand Accounting Standards Board and International Financial Reporting Standards (“IFRS”). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (“ISAs (NZ)”) issued by the New Zealand Auditing 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 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) issued by the New Zealand Auditing and Assurance Standards Board and the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other than in our capacity as auditor we have no relationship with, or interests in, the Group. 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 year. We have determined that there are no key audit matters to communicate in our report. Information Other than the Consolidated Financial Statements and Auditor’s Report thereon The Directors are responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor’s report thereon. The annual report is expected to be made available to us after the date of this auditor’s report. Our opinion on the consolidated financial statements does not cover the other information and we do 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 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. Chartered Accountants and Business Advisers Member of Grant Thornton International Ltd. 51 Neuren Pharmaceuticals Limited Annual Report 2023When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Directors’ responsibilities for the Consolidated Financial Statements The Directors are responsible on behalf of the Company for the preparation and fair presentation of the consolidated financial statements in accordance with NZ IFRS, 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 Company 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 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 consolidated 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 and the Company’s shareholders, as a body, for our audit work, for this report or for the opinion we have formed. Grant Thornton New Zealand Audit Limited Ryan Campbell Partner Auckland 29th February 2024 Chartered Accountants and Business Advisers Member of Grant Thornton International Ltd. 52 Neuren Pharmaceuticals Limited Annual Report 2023 A D D I T I O N A L I N F O R M AT I O N BOARD AND COMMITTEE ATTENDANCE The table below shows the number of Board and Committee meetings each Director was eligible to attend and attended during the financial year ended 31 December 2023: Director Patrick Davies Dr Trevor Scott Dianne Angus Dr Jenny Harry Jonathan Pilcher Joe Basile Board Audit and Risk Remuneration Held (i) Attended Held (i) Attended Held (i) Attended 11 11 11 11 11 9 11 11 11 11 11 9 2 2 2 2 – 1 2 2 2 2 – 1 1 1 1 1 – 1 1 1 1 1 – 1 (i) Number of meetings held during the time the Director was a member of the Board or Committee 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 2023 are as follows: Director Trevor Scott Joe Basile Ordinary Shares Purchased/(Sold) Consideration Paid/(Received) Date of Transaction (1,175,000) ($15,275,000) 14 June 2023 5,000 $59,950 13 September 2023 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 (2022: $nil). 53 Neuren Pharmaceuticals Limited Annual Report 2023A 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 REMUNER ATION OF DIRECTORS 2023 Non–Executive Directors Patrick Davies Dr Trevor Scott Dianne Angus Dr Jenny Harry Joe Basile Executive Directors Jon Pilcher Total 2022 Non–Executive Directors Patrick Davies Dr Trevor Scott Dianne Angus Dr Jenny Harry Executive Directors Jonathan Pilcher Total Salary/fees $ Bonus $ Super– annuation $ Share based payments $ Total $ 125,000 75,000 67,720 67,720 60,124 395,564 – – – – – – 548,654 500,000 944,219 500,000 – – 7,280 7,280 2,376 16,935 26,346 43,280 – – – – – – 125,000 75,000 75,000 75,000 62,500 412,499 289,404 1,364,404 289,404 1,776,903 Salary/fees $ Bonus $ Super– annuation $ Share based payments $ Total $ 125,000 75,000 68,028 68,028 336,056 396,403 732,459 – – – – – – – – – 6,972 6,972 13,944 24,430 38,374 – – – – – 125,000 75,000 75,000 75,000 350,000 125,505 125,505 546,338 896,338 Loan Funded Shares Jon Pilcher has an interest in 1,500,000 Loan Funded Shares held by Neuren Trustee Limited. As detailed in Note 13 to the Financial Statements, the Loan Funded Shares are subject to vesting conditions and repayment of a loan amounting to $1.84 per share ($2,760,000) before they can be transferred to Jon. 54 Neuren Pharmaceuticals Limited Annual Report 2023A 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 EMPLOYEE REMUNER ATION The number of employees, not being directors of the Company, who received remuneration and benefits in their capacity as employees totalling NZ $100,000 or more during the year, shown in bands denominated in Australian dollars, was as follows: Excluding share based payments $150,000 – $159,999 $190,000 – $199,999 $200,000 – $209,999 $220,000 – $229,999 $240,000 – $249,999 $270,000 – $279,999 $280,000 – $289,999 $300,000 – $309,999 $480,000 – $489,999 $510,000 – $519,999 $640,000 – $649,999 Including share based payments $150,000 – $159,999 $190,000 – $199,999 $200,000 – $209,999 $220,000 – $229,999 $340,000 – $349,999 $360,000 – $369,999 $390,000 – $399,999 $400,000 – $409,999 $510,000 – $519,999 $590,000 – $599,999 $630,000 – $639,999 $640,000 – $649,999 $650,000 – $659,999 $1,200,000 – $1,209,999 2023 $’000 2022 $’000 – 1 1 1 – – 1 1 1 1 1 1 1 – – 2 1 – 1 – – – 2023 $’000 2022 $’000 – 1 1 1 – – – – 1 1 1 – 1 1 1 – – – 1 1 1 1 – – – 1 – – AUDITORS Grant Thornton New Zealand Audit Limited (‘Grant Thornton’) is the independent auditor of the Company. Audit fees in relation to the annual and interim financial statements were $98,963 (2022: $70,214). Grant Thornton did not receive any other fees in relation to other financial advice and services. No amounts were payable to an auditor by subsidiary companies in 2023 or 2022. 55 Neuren Pharmaceuticals Limited Annual Report 2023A 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 HELD BY DIRECTORS AS AT 22 MARCH 2024 Director Dr Trevor Scott Dianne Angus Patrick Davies Jenny Harry Jonathan Pilcher1 Joe Basile Interests in Ordinary Shares Interests in Loan Funded Shares Direct Indirect Indirect 27,106 2,387,678 30,000 – – – – 264,634 29,663 398,207 10,000 – – – – – 1,500,000 – 1 Jon Pilcher has an interest in 1.5 million Loan Funded Shares held by Neuren Trustee Limited. As detailed in Note 13 to the Financial Statements, the Loan Funded Shares are subject to vesting conditions and repayment of a loan amounting to $1.84 per share ($2,760,000) before they can be transferred to Jon. DIRECTORS OF SUBSIDIARY COMPANIES AT 31 DECEMBER 2023 Neuren Pharmaceuticals Inc. Neuren Pharmaceuticals (Australia) Pty Ltd Neuren Trustee Limited Jon Pilcher Larry Glass Dr Trevor Scott √ √ √ √ √ AUSTR ALIAN STOCK EXCHANGE DISCLOSURES Neuren Pharmaceuticals Limited is incorporated in New Zealand under the Companies Act 1993. The Company is not subject to Chapter 6, 6A, 6B and 6C of the Corporations Act, Australia, dealing with the acquisition of shares (such as substantial holdings and takeovers). Limitations on the acquisition of shares 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. (c) The New Zealand Overseas Investment Act 2005 and Overseas Investment Regulations 2005 (New Zealand) regulate certain investments in New Zealand by overseas interest. 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. 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, there were no on-market purchases of securities during the reporting period 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 22 March 2024. The number of ordinary shareholdings held in less than marketable parcels at 22 March 2024 was 406, holding 3,296 ordinary shares. 56 Neuren Pharmaceuticals Limited Annual Report 2023A 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 DISTRIBUTION OF SECURIT Y HOLDERS Listed 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 92,527,908 23,600,151 4,360,478 5,436,028 1,571,111 % 72.57 18.51 3.42 4.26 1.23 127,495,676 100.00 Number of holders 124 790 580 2,169 4,681 8,344 % 1.49 9.47 6.95 25.99 56.10 100.00 UNLISTED SECURITIES 2,250,000 Loan Funded Shares, held as treasury stock, with a weighted average exercise price of $1.84, with an expiry date of 13 July 2025. There are 3 holders of 100,001 and over. 2,120,000 Employee Share Scheme options, with a weighted average exercise price of $10.02, of which 970,000 have an expiry date of 3 February 2026, 450,000 have an expiry date of 8 July 2026 and 700,000 have an expiry date of 7 February 2029. There are 9 holders of 100,001 and over. T WENT Y L ARGEST HOLDERS OF QUOTED ORDINARY SHARES Number of ordinary shares % of issued share capital HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 1 J P MORGAN NOMINEES AUSTRALIA PTY LIMITED 2 CITICORP NOMINEES PTY LIMITED 3 NATIONAL NOMINEES LIMITED 4 CAMERON RICHARD PTY LTD 5 BNP PARIBAS NOMS PTY LTD 6 STUART ANDREW PTY LTD 7 ESSEX CASTLE LIMITED 8 SMITHLEY SUPER PTY LTD 9 10 LINWIERIK SUPER PTY LTD 11 SHARESIES AUSTRALIA NOMINEE PTY LIMITED 12 BNP PARIBAS NOMINEES PTY LTD 13 FIRST COLBYCO PTY LTD 13 MJHFT PTY LTD 14 BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM 15 DR ROBIN LANCE CONGREVE 16 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2 17 EMANCIPAYTE PTY LTD 18 NETWEALTH INVESTMENTS LIMITED 19 MR HE ZHAO 20 PFIZER INC Total Balance of share register Total ordinary shares quoted on ASX 22,507,287 12,099,419 11,687,108 4,166,698 4,123,084 3,584,206 2,633,787 2,387,678 1,870,000 1,761,385 1,435,555 796,367 750,000 750,000 745,279 671,637 499,399 470,756 421,309 405,000 404,072 74,170,026 53,325,650 127,495,676 17.65 9.49 9.17 3.27 3.23 2.81 2.07 1.87 1.47 1.38 1.13 0.62 0.59 0.59 0.58 0.53 0.39 0.37 0.33 0.32 0.32 58.17 41.83 100.00 SUBSTANTIAL SECURIT Y HOLDERS The following have filed substantial holding notifications based on the last notice lodged on the ASX: Milford Asset Management Limited 57 Number held Percentage 6,561,977 5.088% Neuren Pharmaceuticals Limited Annual Report 2023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 HSBC 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 www.neurenpharma.com 

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