O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u a l R e p o r t Annual Repor t 2019 – 2020 OUR TOMORROW STARTS TODAY About Opthea Opthea is committed to improving visual function in patients suffering with retinal eye diseases. We are developing a novel therapeutic called OPT-302, a VEGF-C/D ‘trap’, to be used in combination with existing standard of care anti-VEGF-A therapies. OPT-302 has the potential to address unmet medical needs in wet age-related macular degeneration (wet AMD) and diabetic macular edema (DME) patients, many of whom respond sub-optimally or become refractory to existing therapies for these debilitating diseases. We are advancing the clinical development of OPT-302 in wet AMD and DME into late stage clinical trials in support of future registration filings for marketing approval and commercialisation. Opthea has successfully completed a Phase 2b clinical trial investigating OPT-302 in combination with Lucentis® in treatment naïve wet AMD patients, and also a Phase 1b/2a clinical trial in combination with Eylea® in previously treated patients with persistent DME. Opthea is now currently well advanced with the planning of two pivotal global Phase 3 registrational trials of OPT-302, as a treatment for wet AMD. Opthea Limited (OPT) listed on the Australian Securities Exchange (ASX) in 1985. C O N T E N T S 2 6 Where we are today? Message from the Chairman and Chief Executive Officer Directors’ Report 10 27 Management Team 30 Financial Report IBC Corporate Information O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 1 In this report Opthea’s financial year 2019-20 report is another positive chapter of the story documenting the exciting progression of our lead therapeutic asset, OPT-302. It is a year that has seen the Company take significant steps towards achieving its vision to translate scientific breakthroughs through research and development into novel commercial products for the care and benefit of patients. The positive data reported in June 2020 from the recently completed Phase 2a DME trial in a second disease indication, builds upon our extensive prior clinical studies in wet AMD which demonstrated superiority in visual improvement with OPT-302 combination therapy compared to anti-VEGF-A monotherapy standard of care, and confirms our belief that OPT-302 has potential commercial applications in multiple eye disease indications. We are excited by the significant progress achieved with the OPT-302 clinical development program which has generated promising clinical data whilst also recognising that there is still much work to be done prior to commercialisation. That is why we have wasted no time planning for Phase 3 development. This report shares our achievements so far, but more importantly, it sheds light on our future plans and opportunities as we move our research and development activities into the final phase towards becoming a commercial business. 2 Where we are today? D M E Initiated Phase 1b/2a DME trial in 153 prior treated patients (Jan ‘18) Ph1b DME meets primary safety objective 3Q ‘18 (Jul ‘18) Ph2a DME open for enrolment (Jul ‘18) Ph2a DME first patient dosed (Jul ‘18) Positive data reported for Ph1b DME (Oct ‘18) Topline Data: Phase 2a DME meets primary endpoints (Jun ‘20) 2 0 1 8 2 0 1 9 2 0 2 0 1H’18 2H’18 1H’19 2H’19 1H’20 2H ’20 w e t A M D Initiated Phase 2b wet AMD trial in 366 treatment naive patients (Dec ‘17) Ph2b wAMD First patient dosed Israel and Europe (Mar ‘18) Final patient enrolment Ph2b wAMD (nov ‘18) Final patient visit Ph2b wAMD (May ‘19) Topline Data: Phase 2b wet AMD Ph2b wAMD meets primary endpoint (Aug ‘19) D M E Diabetic Macular Edema (DME) can cause severe vision loss and blindness in diabetics. Chronically elevated blood glucose levels in Type 1 and Type 2 diabetics can lead to inflammation, vascular dysfunction and hypoxia, causing upregulation of members of the VEGF family of growth factors, particularly VEGF-A and VEGF-C. Elevated levels of VEGF-A and VEGF-C can lead to fluid accumulation in the macula at the back of the eye and retinal thickening which affects vision. Existing standard of care treatments for DME are limited and include inhibitors of VEGF-A, steroids and laser therapy. Despite these treatments, many patients remain refractory and have sub-optimal response to therapy with persistent fluid and impaired vision. OPT-302 blocks the activity of VEGF-C and VeGF-D. used in combination with a VEGF-A inhibitor, OPT-302 has the potential to improve clinical outcomes in DME patients. / Leading complication and cause of new cases of blindness in diabetics. / Too much blood sugar (glucose) levels in diabetics damage blood vessels in the retina and as a result the supply of oxygen and nutrients is compromised. / Members of the VEGF family are upregulated and at high levels, can cause blood vessels to leak fluid and also result in the growth of abnormal blood vessels. / Blocking members of the VEGF family can help reduce the fluid leaking into the macula which is the part of the retina responsible for sharp central vision. / Symptoms of DME occur when inflammation and fluid accumulation leads to macular swelling and vision loss. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 3 P H A S E 2 A D M E T R I A L M E E T S P R I M A R Y E N D P O I N T Opthea met the primary safety and efficacy endpoints in its Phase 2a study of OPT-302 in patients with persistent, central involved DME despite previous treatment with anti-VEGF-A monotherapy, in June 2020. The OPT-302 plus Eylea® combination therapy was well tolerated and the totality of visual acuity and anatomical responses indicated OPT-302 clinical activity in DME. P H A S E 2 B W E T A M D T R I A L M E E T S P R I M A R Y E N D P O I N T Opthea met the primary endpoint in its Phase 2b study of OPT-302 in wet AMD in August 2019. The OPT-302 plus Lucentis® combination therapy demonstrated statistically significant vision benefit compared to Lucentis in treatment naive wet AMD patients at 24 weeks in a trial of 366 patients. Phase 3 wet AMD trial expected to commence Through calendar year 2021 2 0 2 1 2 0 2 2 2 0 2 3 2H ’20 1H’21 2H’21 1H’22 2H’22 1H’23 Phase 3 wet AMD Phase 3 wet AMD trials OPT-302 manufacturing and testing activities from Jan 2020 to June 2023 Plan to initiate 2 global trials Q1 2021 Patient recruitment and treatment through to 1H 2024 W E T A M D Wet AMD is the leading cause of blindness in the developed world in people aged over 50 years. The disease affects central vision and the ability to see fine detail, such as that required to read, distinguish faces and drive a car. Wet AMD is caused by the abnormal growth and leakage of blood vessels at the back of the eye, which causes degeneration of the retina and vision loss. The abnormal growth and leakiness of vessels can be stimulated by members of the vascular endothelial growth factor (VEGF) family of proteins, which includes VEGF-A, VEGF-C and VEGF-D. Elevated levels of these signals and their receptors are associated with retinal disease progression. Phase 3 Top-line data read-out expected in 1H 2023 Current treatments for wet AMD target VEGF-A. Whilst VEGF-A inhibitors represent a major advance in the management of the disease, many patients respond sub-optimally. OPT-302 is an inhibitor of VEGF-C and VEGF-D that is being developed for use in conjunction with VEGF-A inhibitors to improve vision outcomes in wet AMD and DME patients. / The leading cause of blindness in people >50 years. / Loss of vision in central visual field. / Abnormal vascular growth and leakage of fluid and protein from vessels at the back of the eye leads to swelling and damage to the retina. 4 Planning for tomorrow We recently successfully completed end-of-phase 2 meetings with the u.S. Food and Drug Administration (FDA), and Scientific Advice meetings with the European Medicines Agency (EMA), to obtain guidance on the Phase 3 clinical development plans of OPT-302 as a treatment for wet AMD. The outcome of the meetings supports the progression of OPT-302 into Phase 3 and pre-commercial development. The regulatory engagement conducted with the FDA and EMA covered key elements of the Phase 3 clinical studies and associated manufacturing processes for OPT-302 that we believe will support the submission of a Biologics License Application in the uS and Marketing Authorisation Application in Europe for the targeted wet AMD indication. The FDA and EMA agreed on key aspects of the proposed Phase 3 clinical trial designs, including the conduct of two concurrent, global, multicentre, randomised, sham-controlled studies evaluating OPT-302 in combination with ranibizumab (Lucentis®) (Study OPT-302-1004, referred to as ShORe) or aflibercept (Eylea®) (Study OPT-302-1005, referred to as COAST). Each trial will compare the clinical efficacy of OPT-302 administered in combination with a VEGF-A inhibitor on an every 4-week and every 8-week dosing regimen in order to understand the durability of OPT-302 treatment effect with less frequent dosing. In the Study of OPT-302 in combination with Ranibizumab (ShORe), treatment-naïve patients with wet AMD will be randomised to one of three treatment arms to receive standard of care 0.5 mg ranibizumab every four weeks in combination with either 2.0 mg OPT-302 on a standard every four weeks dosing regimen or 2.0 mg OPT-302 on an extended every eight weeks dosing regimen after three monthly initiating doses, or with sham injections every four weeks. In COAST, Combination OPT-302 with Aflibercept Study, treatment-naïve patients with wet AMD will be randomised to one of three treatment arms to receive standard of care 2.0 mg aflibercept on its every eight-week dosing regimen, after three monthly initiating doses, in combination with either 2.0 mg OPT-302 on a standard every four weeks dosing regimen or 2.0 mg OPT-302 on an extended every eight weeks dosing regimen after three monthly initiating doses, or with sham injections every four weeks. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 5 The primary endpoint for both trials is mean change in visual acuity from baseline to 52 weeks for OPT-302 and anti-VEGF-A combination therapy compared to anti-VEGF-A monotherapy, with the Company intending to submit Biologics License and Marketing Authorisation Applications with the FDA and EMA respectively following completion of this 12 month primary efficacy phase of the trials. Each patient will continue with a further 12 months of treatment to assess durability and extended safety over a two-year period. These two OPT-302 Phase 3 trials build upon and maintain key features for consistency with the Company’s positive Phase 2b clinical trial of OPT-302 in wet AMD, while evaluating the administration of OPT-302 combination therapy over a longer treatment period and in a greater number of patients. In addition, we designed the Phase 3 trials based on Phase 2b outcomes to maximise probability of success and commercial opportunity. Analysis of the Phase 2b trial demonstrated that OPT-302 combination therapy increased visual acuity by a further +5.7 letters over Lucentis monotherapy in wet AMD patients with minimally classic and occult lesions, representing the majority (~80%) of wet AMD patients. Based on these positive data, primary analysis of the primary endpoint of the Phase 3 trials will be first conducted in patients with minimally classic and occult lesions administered OPT-302 every 4 weeks, followed by analysis on the every 8 week dosing groups and total patient population. The study design provides the Company with several key assessment outcomes for OPT-302 combination therapy including benefit versus either Lucentis or Eylea, benefit in patients with minimally classic and occult lesions treated with OPT-302 either every four or eight weeks, and analysis of treatment effect in the entire wet AMD patient population. We believe this approach can achieve the highest probability of success for our Phase 3 program and commercialisation strategy. The valuable guidance received from the FDA and EMA provides clear direction and importantly, we believe there are now well-defined regulatory pathways in place to advance the Phase 3 program development of OPT-302 in the treatment of wet AMD in support of future registration filings for marketing approval and commercial launch in the u.S. and Europe. The planning for the pivotal Phase 3 studies is well advanced, including the manufacturing of OPT-302 drug product to be used in the trials. The planning for the pivotal Phase 3 studies is well advanced, including the manufacturing of OPT‑302 drug product to be used in the trials. 6 Message from the Chairman and Chief Executive Officer We are pleased to share our achievements over the past year and update you on our strategic goals and objectives for this current fiscal year. We are developing our Phase 3-ready product candidate, OPT-302, a biologic designed to inhibit VEGF-C and VEGF-D, to complement existing VEGF-A inhibitors for the treatment of ophthalmic diseases. Anti-VEGF-A therapies represent the standard of care for wet age-related macular degeneration, or wet AMD, and other retinal diseases; however, there remains a significant unmet medical need as many patients do not adequately respond to these treatments. As the only biologic inhibitor of VEGF-C and VEGF-D in clinical development, OPT-302 differs from standard of care therapies and when administered in combination with a VEGF-A inhibitor, is designed to achieve broader inhibition of the vascular endothelial growth factor, or VEGF, family and target a mechanism of clinical resistance to improve visual acuity. Our lead indication for OPT-302 combination therapy is wet AMD, a chronic, progressive disease and the leading cause of vision loss for individuals over the age of 50. In a 366-patient Phase 2b clinical trial for the treatment of wet AMD, OPT-302, in combination with a standard of care anti-VEGF-A therapy, ranibizumab (Lucentis), demonstrated a statistically significant superior mean gain in visual acuity over ranibizumab monotherapy at week 24. We intend to initiate two pivotal Phase 3 clinical trials in treatment-naive patients with wet AMD to evaluate the efficacy and safety of OPT-302 in combination with anti-VEGF-A therapy compared to anti-VEGF-A monotherapy in the first half of 2021. We expect to report topline data from these Phase 3 clinical trials in 2023. In addition to our clinical trials in wet AMD, we have observed evidence of improved clinical outcomes in a Phase 1b/2a clinical trial of OPT-302 in combination with another standard of care anti-VEGF-A therapy, aflibercept (Eylea), in patients with treatment-refractory diabetic macular edema, or DME. We retain worldwide rights to develop and commercialize OPT-302 for the treatment of wet AMD and DME and believe that the novel treatment mechanism of OPT-302 has the potential to provide therapeutic benefit for other progressive eye diseases. Wet AMD affects approximately one million people in the United States and 2.5 million people in Europe. Wet AMD is a rapidly progressing disease with loss of central vision developing over a period of weeks to months in which abnormal new blood vessels form in the back of the eye in a process called choroidal neovascularization. These newly formed vessels are highly permeable, leaking exudate leading to fluid accumulation and retinal lesion formation. This, in turn, adversely affects sensory cells in the retina and if left untreated, results in rapid loss of visual acuity. Wet AMD affects approximately one million people in the united States and 2.5 million people in Europe. The standard of care for wet AMD and other ocular neovascular diseases is the administration of monotherapies that primarily inhibit VEGF-A. These therapeutic agents, which include ranibizumab and aflibercept, prevent VEGF-A molecules from binding to, and activating, VEGF receptors and thereby inhibit the formation and permeability of blood vessels. Ranibizumab and aflibercept had combined annual worldwide sales of over $11.9 billion for the treatment of retinal diseases in 2019. As the risk of developing wet AMD increases with age, it is predicted that the overall aging of the population will result in a significant increase in the number of wet AMD cases, both in the united States and worldwide. Given the suboptimal clinical responses that many patients experience despite receiving standard of care treatments, we believe there is a significant and expanding market opportunity for novel therapies that can improve vision in patients with wet AMD. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 7 Geoffrey Kempler Chairman Opthea Limited Megan Baldwin, PhD CEO & Managing Director Opthea Limited During the financial year we raised A$50 million through a private placement to institutional investors and the R&D tax incentive of A$14.6 million was received in September 2019. We will use these funds to manufacture sufficient OPT‑302 drug product for pivotal Phase 3 clinical trials and commercial use in wet AMD, as well as completing plans, feasibility and start‑up activities to enable recruitment of patients to start in early calendar 2021. 8 Message from the Chairman and Chief Executive Officer (Cont.) We are well advanced in our planning to initiate two concurrent pivotal Phase 3 clinical trials for the treatment of treatment-naive patients with wet AMD. These double-masked, sham-controlled Phase 3 clinical trials will assess the efficacy and safety of 2.0 mg of OPT-302 in combination with anti-VEGF-A therapy for treatment-naive patients with wet AMD compared to a standard of care anti-VEGF-A monotherapy. We expect to initiate the Phase 3 trials in the first half of calendar 2021. We are also investigating the therapeutic potential of OPT-302 for DME. DME is a progressive eye disease and a complication of diabetic retinopathy, a condition caused by chronically elevated glucose levels in diabetics that damages the retina. DME can cause blurred vision, severe vision loss and blindness. Our clinical experience to date, which includes administration of over 1,800 doses of OPT‑302 to 399 patients with retinal disease, indicates that OPT‑302 intravitreal injections are well tolerated. Based on its mechanism of action and clinical results to date, we believe that OPT-302 also has the potential to deliver therapeutic benefit in DME patients. In our Phase 1b/2a clinical trial of OPT-302 in combination with aflibercept in patients with treatment-refractory DME, we observed evidence of improved clinical outcomes following OPT-302 combination therapy in this indication. Progressing our lead OPT-302 product candidate into late stage development for multiple retinal diseases such as wet AMD and DME, which represent potential multi-billion dollar market opportunities has been possible through the passion of our clinical investigators, the trust of the patients who participate in our trials, and the foresight and dedication of our executive and management teams. During the financial year we raised A$50 million through a private placement to institutional investors and the R&D tax incentive of A$14.6 million was received in September 2019. We will use these funds to support preparation for pivotal Phase 3 clinical trials as well as completing plans, feasibility and start-up activities to enable recruitment of patients to start in early calendar 2021. We are delighted with Dan Spiegelman’s recent appointment to the Opthea Board. Mr Spiegelman brings a wealth of industry knowledge and has relevant uS corporate governance, compliance and financial management experience, having held numerous executive and Board roles, including as Audit and Risk Committee Chair, with several uS public and private companies. Mr Spiegelman is an excellent addition to the Board as we prepare to expand our operations in the uS and internationally. We will continue to explore funding opportunities for the Company as we advance OPT-302 through its Phase 3 development. In addition, we are grateful for the support of our shareholders whose continued confidence has provided us with sufficient support and capital to enable successful execution of our clinical and commercial plans. We remain focused on further demonstrating, in our pivotal Phase 3 program, the potential of OPT-302 combination therapy as a novel treatment for wet AMD that could transform the therapeutic landscape and improve the care and outcomes of patients suffering vision loss and who may have limited treatment options. Thank you for your support and investment in Opthea. Geoffrey Kempler Chairman Opthea Limited Megan Baldwin, PhD CEO & Managing Director Opthea Limited O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 9 We are planning to initiate two concurrent pivotal Phase 3 clinical trials for the treatment of a treatment‑naive patients with wet AMD. Ranibizumab and aflibercept had combined annual worldwide sales of over US$11.9 billion for retinal diseases in 2019. G E O F F R E Y K E M P L E R B.Sc. Grad. Dipp. App. Soc. Psych Non‑Executive Director and Chairman Geoffrey Kempler was appointed as Opthea’s Chairman in November 2015 and is currently CEO and Executive Chairman of Alterity Therapeutics. Geoffrey brings extensive experience in investment, business development and the biotechnology industry. As a founder of Alterity Therapeutics, he has held both operational roles and been at the forefront of devising and implementing Alterity’s strategic and commercialisation plans. Geoffrey brings experience as Chairman of a dual‑ASX‑NASDAQ listed biotechnology company and strategic planning expertise to Opthea. 10 Directors’ Report The board of directors of Opthea Limited submits its report for the year ended 30 June 2020 for Opthea and its subsidiary I N F O R M A T I O N A B O U T T H E D I R E C T O R S The names of Opthea Limited’s (the Company or Opthea) directors in office during the financial year and until the date of this report are as follows: Geoffrey Kempler Non‑Executive Director and Chairman Megan Baldwin Managing Director and Chief Executive Officer Michael Sistenich Non‑Executive Director Lawrence Gozlan Non‑Executive Director The qualifications, experience and special responsibilities of the Company’s Directors are as follows. C O M P A N Y S E C R E T A R Y M I K E T O N R O E BSc(Hons) FCA MAICD Mike Tonroe, a fellow of the Institute of Chartered Accountants in England and Wales and member of the Australian Institute of Company Directors, was appointed as Chief Financial Officer and Company Secretary on 19 May 2014. Mike previously held CFO and senior executive and general management positions in a number of international and Australian companies. Mike is also the Company Secretary for Opthea’s subsidiary company, Vegenics Pty Ltd. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 11 M I C H A E L S I S T E N I C H MSc. Non‑Executive Director Michael Sistenich was appointed Non‑Executive Director of Opthea in November 2015 and is Chairman of the remuneration and audit & risk committees. Michael Sistenich has advised a wide range of global institutions, high net worth individuals and companies on healthcare investments over the past 20 years. He is a healthcare specialist in international investment management and investment banking, and led the Bell Potter team which advised the Company through the $17.4M capital raising in November 2014. Michael Sistenich is currently Chairman of the board of Enlitic Inc. and previously served as Director of International Equities and Head of Global Healthcare Investments at DWS Investments, Deutsche Bank Frankfurt. Michael has long standing capital market connections and experience in the global healthcare investment community. L A W R E N C E G O Z L A N B.Sc. (Hons) Non‑Executive Director Lawrence Gozlan was appointed as a director on 24 July 2020. Mr Gozlan, a leading biotechnology investor and advisor, is the Life Sciences Investment Manager at Jagen pty ltd, an international private investment organisation. Mr Gozlan is also the Chief Investment Officer and Founder of Scientia Capital, a specialised global investment fund focused exclusively in life sciences. Scientia was founded to provide high level expertise and to manage investments for high net worth individuals, family offices and institutional investors wanting exposure to the life sciences industry. Prior to this, Mr Gozlan was responsible for the largest biotechnology investment portfolio in Australia as the institutional biotechnology analyst at QIC (“the Queensland Investment Corporation”), an investment fund with over $60 billion under management. He previously worked as the senior biotechnology analyst in the equities team at Foster Stockbroking, and gained senior corporate finance experience advising life science companies at Deloitte. Mr Gozlan holds a Bachelor of Science with Honors in microbiology and immunology from the university of Melbourne. M E G A N B A L D W I N PhD, MAICD Managing Director and Chief Executive Officer Dr Megan Baldwin was appointed CEO and Managing Director in February 2014. Dr Baldwin brings over 20 years of experience focussing on angiogenesis and therapeutic strategies for cancer and ophthalmic indications. Dr Baldwin joined Opthea in 2008 and since then has held various positions, including Head of preclinical R&D and Chief executive Officer of Opthea Pty Ltd, formerly a 100% owned subsidiary of Opthea, developing OPT‑302 for the treatment of wet age‑related macular degeneration. prior to joining opthea, she was employed at Genentech (now Roche), the world leader in the field of angiogenesis‑based therapies for cancer and other diseases. Her experience included several years as a researcher in the group of leading angiogenesis expert Napoleone Ferrara, before moving to Genentech’s commercial division and having responsibility for corporate competitive intelligence activities. In these roles, she developed extensive commercial and scientific knowledge in the field of anti‑angiogenic and oncology drug development. She holds a PhD in Medicine from the university of Melbourne, having conducted her doctoral studies at the ludwig Institute for Cancer Research on the biology of VEGF‑C and VEGF‑D, is a member of the Australian Institute of Company Directors and a director of Ausbiotech. 12 Directors’ Report (Cont.) D I R E C T O R S H I P S O F O T H E R L I S T E D C O M P A N I E S Directorships of other listed companies held by directors in the three years immediately before the end of the financial year are as follows: Director Geoffrey Kempler Company Alterity Therapeutics Limited Period of directorship Since 1997 Lawrence Gozlan Alterity Therapeutics Since 2011 Limited Megan Baldwin Geoffrey Kempler Michael Sistenich Lawrence Gozlan D I R E C T O R S ’ I N T E R E S T S At the date of this report, the relevant interests of each director of the Company in the contributed equity of the Company are as follows: Options granted under LTIP and NED Plans Fully paid ordinary shares 987,723 7,000,000 900,960 3,500,000 520,178 2,500,000 1,877,357 – S H A R E O P T I O N S As at 30 June 2020 and the date of this report, details of opthea’s interests under option are as follows: Long Term Incentive and Non‑Executive Director Share and Option Plans During the 2016, 2018 and 2019 financial years the Company granted 18,919,000 options to purchase ordinary shares to directors and employees under the Long Term Incentive (LTIP) and Non‑Executive Director Share and Option (NED) Plans. No options were granted under these plans during the 2020 financial year. Grant date 7 March 2016 31 March 2016 23 August 2017 Expiry date 7 March 2021 1 January 2022 1 January 2023 Granted to Directors under the LTIP and NED plan Employees under the LTIP Employees under the LTIP 29 November 2018 29 November 2022 Directors under the LTIP and NED plan 3 April 2019 3 April 2023 Employees under the LTIP Exercise price $0.48 $0.48 $1.16 $0.855 $0.855 Number of options granted 7,000,000 2,575,000 500,000 6,000,000 2,844,000 18,919,000 the Remuneration Report section of this report contains details on the terms and conditions of the options granted under the Company’s LTIP and NED Plans. D I V I D E N D S No cash dividends have been paid, declared or recommended during or since the end of the financial year by the Company. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 13 P R I N C I P A L A C T I V I T I E S Financial Position The principal activity of Opthea Limited is to develop and commercialise therapies primarily for eye disease. Opthea’s lead asset, opt‑302, is a soluble form of VeGFR‑3 in clinical development as a novel therapy for wet age‑related macular degeneration (wet AMD) and diabetic macular edema (DME). Wet AMD and DME are leading causes of blindness in the elderly and diabetic populations respectively, and are increasing in prevalence worldwide. Opthea’s principal activities in 2019‑20 included the completion of a Phase 2a clinical trial in DME patients. In addition, Opthea conducted a number of activities to support our clinical development programs in wAMD and DME, including clinical data analysis and manufacturing of OPT‑302 for use in Phase 3 clinical trials. The Group’s statement of financial position includes the following key balances: / Consolidated cash balances as at 30 June 2020 amounted to $62,020,382 (2019: $21,534,919); / Receivables of $8,817,514 (2019: $14,932,759) include the opthea Group’s expected refund of R&D tax incentives for the year to June 2020 of $8,533,123 (2019: $14,636,973); / The Group has a net current asset surplus of $64,397,697 (2019: $30,376,200); and / the net tangible asset backing per share as at 30 June 2020 was $0.24 (2019: $0.12); Opthea’s share price was $2.36 (2019: $0.67). Opthea’s development activities are based on an extensive intellectual property portfolio covering key targets (Vascular Endothelial Growth Factors VEGF‑C, VEGF‑D and VEGF Receptor‑3) for the treatment of diseases associated with blood and lymphatic vessel growth (angiogenesis and lymphangiogenesis respectively), as well as vascular leakage. Angiogenesis and vascular leakage are key hallmarks of several eye diseases, including wet AMD and DME. O P E R A T I N G A N D F I N A N C I A L R E V I E W Financial performance The consolidated results of Opthea and its subsidiary (the Group) for the year reflect the Group’s investment in advancing its OPT‑302 ophthalmology program. A summary of the results is as follows: / The major expenditure of the Group has been in relation to R&D, in particular costs associated with the phase 2b and Phase1b/2a clinical trials of OPT‑302 for wet AMD and DME; / Direct R&D expenditure amounted to $17,954,073 (2019: $31,347,891). Including personnel costs and other R&D support costs which are included in administrative costs, total expenditure in R&D amounted to $19,616,375 (2019: $33,679,391); / opthea received an R&D tax incentive payment during the year of $14,636,973 (2019: $12,017,247); and / The consolidated net loss of the Group for the year was $16,529,281 after an income tax benefit of $8,533,123 (2019: loss of $20,910,061 after an income tax benefit of $14,636,973). Opthea: Company Overview Wet (neovascular) age‑related macular degeneration (wet AMD) and diabetic macular edema (DME) are the leading causes of visual impairment in the elderly and diabetic populations respectively. Globally, progressive vision loss associated with wet AMD and DME contributes to significant healthcare and economic costs and greatly impacts patient independence and quality of life. Current treatment options for wet AMD and DME patients are limited and work sub‑optimally in the majority of patients. With the prevalence of both diseases on the rise given the aging population and rising incidence of diabetes worldwide, there remains a significant market opportunity for novel therapies that can improve vision in patients with these diseases. OPT‑302 is a novel therapeutic being developed by Opthea to improve vision in patients with eye diseases that affect the back‑of‑the‑eye or retina. This lead therapeutic candidate has been investigated in two large Phase 2 clinical trials to determine if OPT‑302 improves visual acuity in patients receiving standard of care therapy for wet AMD and DME. Opthea has made significant advances in the progress of these studies over the past 12 months and we are preparing for Phase 3 clinical trials. In August 2019, we reported results of the Phase 2b clinical trial in wet AMD demonstrating superior vision gains in patients receiving OPT‑302 + ranibizumab (anti‑VEGF‑A) combination therapy compared to ranibuzumab alone. In June 2020, we also reported the Phase 2a clinical trial in DME had met its primary end points. Wet AMD and DME Represent Large Commercial Opportunities for Novel Therapies Both wet AMD and DME are associated with vascular dysfunction and fluid accumulation at the back of the eye in a region of the central retina or ‘macula’ that is needed for sharp, central vision. Vessel growth and vascular leakage are primarily driven by members of the vascular endothelial growth factor (VEGF) family, which comprises 5 members including VEGF‑A, VEGF‑B, VEGF‑C, 14 Directors’ Report (Cont.) VEGF‑D and placenta growth factor (PlGF). Elevated levels of these signals and their receptors are associated with retinal disease progression. Current treatments for wet AMD and DME share a common mechanism of action by inhibiting VEGF‑A. VEGF‑A inhibitors approved for the treatment of these diseases include Lucentis (ranibizumab) and Eylea (aflibercept) which together generated revenues in excess of 11 billion uSD in 2019. Despite the widespread use and extraordinary commercial success of this class of therapies for retinal disease, many patients respond sub‑optimally. As such, there remains a very large commercial opportunity for novel therapies that can address the unmet medical need in patients that experience sub‑optimal gains in visual acuity and/or persistent retinal fluid despite regular administration of existing treatments. OPT‑302: Opthea’s Approach to Address the Unmet Medical Need for Patients with Retinal Disease Approved therapies for wet AMD and DME block the activity of VEGF‑A, but not VEGF‑C and VEGF‑D which also stimulate blood vessel growth and vascular leakage and are implicated in the progression of retinal diseases. OPT‑302 is a fusion protein that binds and neutralises the activity of VEGF‑C and VEGF‑D and is being developed by Opthea as a complementary medicine to be used in conjunction with VEGF‑A inhibitors for the treatment of wet AMD and DME. By combining administration of OPT‑302 with a VEGF‑A inhibitor, complete blockade of important signalling pathways that contribute to the pathophysiology of retinal diseases can be achieved, which may improve visual acuity and retinal swelling in patients. Furthermore, as both VEGF‑C and VEGF‑D can be upregulated to compensate for VEGF‑A inhibition, OPT‑302 may block mechanisms of resistance to existing therapies, which may then result in improved and more durable clinical responses. With a scarcity of novel combination therapies in development that may offer improved outcomes for retinal disease patients, Opthea’s OPT‑302 is a promising drug candidate with large commercial potential that has demonstrated improved visual acuity outcomes in patients when administered in combination with a VEGF‑A inhibitor in a randomized, controlled, double‑masked Phase 2b clinical study. As such, the commercial potential is substantial, as OPT‑302 has the potential to be combined with currently available VEGF‑A inhibitors or next generation anti‑VEGF‑A agents. Operational update Over the past 12 months, Opthea has continued to progress its clinical development program investigating OPT‑302 as a combination therapy in two distinct retinal diseases: Wet (neovascular) AMD: Opthea reported top‑line data from the Company’s randomised, controlled Phase 2b clinical trial investigating OPT‑302 administered in combination with the VEGF‑A inhibitor Lucentis compared to Lucentis alone. Persistent, central‑involved DME: Opthea reported outcomes from a Phase 2a randomised, controlled dose expansion trial of OPT‑302 administered in combination with Eylea. Opthea is fully funded through the remaining Phase 2b trial close‑out activities and completion of the ongoing Phase 2a study in diabetic macular edema. The strong cash position of the company follows a successful capital raising completed in December 2019: a $50m private placement supported by Australian and uK institutional investors. In addition, in September 2019, Opthea received a A$14.6 million research and development (R&D) tax credit from the Australian taxation office. To facilitate the progression of Opthea’s clinical development program, Opthea has entered into research and development contracts with various third parties, including a global contract research organisation (CRo) to provide services for the conduct of clinical trials. These activities and forecast expenditure in note 25(ii) were anticipated and are consistent with use‑of‑funds disclosures to shareholders in support of the April 2017 and December 2019 fund raisings. Phase 2b wet AMD clinical trial Opthea’s Phase 2b wet AMD clinical trial is a randomized, controlled, double‑masked study investigating OPT‑302 + Lucentis compared to Lucentis alone in 366 wet AMD patients. patients were recruited across 113 trial sites in the uS, Israel and europe (including the united Kingdom, France, poland, Hungary, Spain, latvia, Italy and Czech Republic). All patients recruited to the study were newly diagnosed treatment naïve patients who have not received prior therapy for wet AMD. Patients were assigned to one of three treatment groups and received either Lucentis alone, or OPT‑302 (low dose, 0.5 mg) in combination with Lucentis or OPT‑302 (high dose, 2.0 mg) in combination with Lucentis. Agents are administered on a monthly basis for six months via intravitreal (ocular) injection. The primary endpoint of the study was the assessment of visual acuity at the completion of the dosing period (week 24) compared to baseline. In addition, several secondary outcome measures were also assessed including anatomical parameters of the wet AMD lesion using imaging techniques such as optical coherence tomography and fluorescein angiography. Patient recruitment into the trial was completed in under 12 months and a number of months ahead of projected timelines, reflecting the commitment of both patients and clinical investigators to advance promising new treatments for this debilitating disease. The final patient completed their clinical visit in the Phase 2b study on 15 May 2019 and topline results of the study, reporting that the trial met the primary endpoint, were announced on 7 August 2019. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 15 Results of the Phase 2b trial of OPT‑302 in Wet AMD Results of the Phase 1b/2a DME clinical trial On 7 August 2019 the Company announced positive results from its Phase 2b clinical trial of OPT‑302. The prospective, randomized, controlled clinical trial which consisted of 366 treatment‑naïve patients with wet AMD, demonstrated that the combination of OPT‑302 (2.0 mg) with Lucentis®, met the pre‑specified primary endpoint of superiority in mean visual acuity gain at 24 weeks compared to Lucentis monotherapy. Patients receiving the combination of OPT‑302 (2.0 mg) and Lucentis gained a mean of 14.2 letters of vision on the Early treatment of Diabetic Retinopathy Study (etDRS) standardized eye chart at 24 weeks, compared to 10.8 letters for patients receiving Lucentis monotherapy, an improvement of 3.4 letters (p=0.0107). Low dose OPT‑302 (0.5 mg) combined with Lucentis had similar effects to Lucentis monotherapy (mean visual acuity gain of 9.4 letters at 24 weeks). In addition, OPT‑302 (2.0 mg) combination therapy showed improvements across multiple secondary endpoints of functional measures in support of the primary outcome, including a higher proportion of patients with stable vision (defined as ≤ 15 letter loss) and also for those gaining ≥10 and ≥15 letters of visual acuity, compared to lucentis. OPT‑302 intravitreal injections were well tolerated, with the safety profile of either dose of OPT‑302 combination therapy comparable to Lucentis monotherapy in line with previous studies. The Independent Data and Safety Monitoring Board (DSMB) confirmed that no new safety risks were identified in patients administered OPT‑302 in combination with Lucentis compared to those patients administered Lucentis alone. Baseline disease and imaging characteristics were well balanced between treatment groups. OPT‑302 also showed encouraging results in multiple prospective secondary efficacy endpoints, consistent with findings from the previous first‑in‑human Phase 1/2a trial in wet AMD patients. 45.0% of patients receiving high dose OPT‑302 + Lucentis therapy gained 15 or more letters from baseline to week 24, compared to 40.5% of patients receiving Lucentis monotherapy. The difference in the proportion of patients gaining 10 or more letters was even greater with 70% of patients gaining two or more lines of vision (≥10 letters) in the opt‑302 (2.0 mg) combination group compared to 57.8% for Lucentis alone (an increase of 12.2%). A high proportion of patients (99.2%) achieved stable vision at week 24 in the OPT‑302 (2.0 mg) combination group (defined as ≤ 15 letter loss from baseline) compared to 96.6% in the Lucentis monotherapy group. Retinal thickness was normalized consistently across all treatment groups by week 24. In the OPT‑302 (2.0 mg) combination arm, mean CST was reduced from 414 µm at baseline to 266 µm at week 24, a reduction of 147 µm. Similarly, mean CST was reduced by a mean of 134 µm to 278 µm from baseline to week 24 following Lucentis monotherapy. Opthea’s Phase 1b/2a trial in patients with diabetic macular edema (DME) marked the expansion of the company’s clinical development program for OPT‑302 into a second ocular indication. The primary safety objective of the Phase 1b dose escalation study of OPT‑302 administered in combination with Eylea via sequential intravitreal injection on a monthly basis for three months was met in July 2018. this marked a considerable safety milestone for OPT‑302, with a favourable safety profile having been demonstrated in combination with two standard of care anti‑VEGF‑A therapies, Lucentis (in wet AMD) and Eylea (in DME). Subsequently, in October 2018 Opthea reported positive three‑month data from the 9 patients enrolled in the Phase 1b dose escalation study. Vision improvement and reductions in retinal swelling were observed following conversion to OPT‑302 combination treatment in this group of patients with persistent DME, with a clear dose‑response relationship of gains in visual acuity with ascending OPT‑302 dose levels. Clinical trial sites in the uS, Australia, Israel and latvia recruited patients into the Phase 2a randomized, controlled dose expansion trial. Enrolment of 108 eligible patients for this trial completed in January 2020, with treatment allocated in a 2:1 ratio to either OPT‑302 (2 mg) with Eylea (2 mg) or Eylea (2 mg) monotherapy. The primary objectives of the Phase 2a study were to evaluate the (i) safety/tolerability and (ii) efficacy of OPT‑302 by determination of clinical response rate, defined as the proportion of patients receiving combination opt‑302 and eylea achieving a ≥5 letter gain in visual acuity (VA) at week 12 compared to baseline. Secondary outcome measures including evaluation of changes in mean VA and anatomical parameters such as central subfield thickness (CST) and retinal swelling were also investigated. primary endpoints of the trial were reported in June 2020, with the primary end point of response with OPT‑302 and Eylea achieved: 52.8% of refractory DME patients gained at least 5 letters of visual acuity at week 12 following OPT‑302 combination therapy. The co‑primary endpoint was also met: OPT‑302 combination therapy was well tolerated and with a similar safety profile to Eylea. Intellectual property Opthea owns a patent family covering the OPT‑302 molecule, and uses thereof, extending out to February 2034. This patent has been filed in 19 jurisdictions and has already granted in the united States, europe (validated in 38 countries), Japan, Australia, New Zealand, Malaysia, Singapore, Mexico, South Africa, Colombia and Russia. the patent application has been accepted for grant in Canada and Israel, and is currently pending in China, Brazil, India, South Korea, Indonesia and the Philippines. the united States patent, which granted in August 2017, includes broad claims to the OPT‑302 molecule, and analogues thereof, and their use to treat disorders involving neovascularisation, including eye diseases such as wet AMD and DMe. In the united States, Opthea has another granted patent relating to soluble 16 Directors’ Report (Cont.) VeGFR‑3 molecules which includes composition of matter claims to soluble VeGFR‑3 molecules (such as opt‑302) and extends out to November 2026. the ultimate impact on financial markets and the global economy and the effectiveness of actions taken in Australia, the united States and other countries to contain and treat the disease. Investor relations Over the past 12 months, Opthea has continued to raise the profile of the company’s technology to both the international and local investment community. The Company regularly presents and meets with global institutional and retail investors through investor meetings and forums. Opthea attended the 38th Annual J.p. Morgan Conference in San Francisco in January 2020. The conference attracts investors as well as pharmaceutical and biotechnology executives from around the world and is one of the industry’s largest healthcare investment conferences. Several presentations were also made to the clinical ophthalmology community, with Opthea being invited to present at the Ophthalmology Innovation Summit (OIS) associated with the American Academy of Ophthalmology meeting in Chicago. An update on Opthea’s wet AMD and DME clinical trial results was also made recently at the Ophthalmology Innovation Summit at the American Society Retinal Specialists (oIS@ASRS) meeting in July 2020. opthea hosted a Key opinion leader Symposium on wet AMD and DME on 6 August 2020 in which the Company’s clinical trial data with OPT‑302 was discussed and an overview provided of the future clinical development path and commercial opportunity for OPT‑302 in retinal diseases. Further data presentations are planned over the next 12 months. S I G N I F I C A N T C H A N G E S I N T H E S T A T E O F A F F A I R S In the opinion of the directors, there were no significant changes in the state of affairs of the Company that occurred during the financial year under review. I M P A C T O F C O V I D ‑ 1 9 We are closely monitoring how the COVID‑19 situation is affecting our employees, business, preclinical studies and clinical trials. In response to the COVID‑19 pandemic, all of our employees have transitioned to working remotely and travel has been restricted. Although operations to date have not been materially affected by the COVID‑19 pandemic, at this time, there is significant uncertainty relating to the trajectory of the pandemic. The impact of related responses and disruptions caused by the COVID‑19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing future clinical trials and the Company incurring unforeseen costs as a result of disruptions in clinical supply or clinical trial delays. The impact of COVID‑19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in Australia, the united States and other countries, business closures or business disruptions, F U T U R E D E V E L O P M E N T S Opthea continues to advance the clinical development of OPT‑302 to key commercial milestones through the completion of the Phase 2a clinical trial with OPT‑302 in persistent DME patients, as well as manufacturing and regulatory engagement for a Phase 3 wet AMD study. Specifically, the key objectives of the Company over the next 12 months are to: wet AMD: / Publish outcomes of the Phase 2b wet AMD trial in a peer reviewed journal; / Manufacture sufficient clinical grade OPT‑302 for Phase 3 clinical trials; and / Develop plans to advance OPT‑302 into Phase 3 clinical trials for the treatment of wet AMD and initiate patient recruitment into those studies. DME: / Prepare and complete the Phase 1b/2a DME clinical study report; / Publish outcomes of the 1b/2a DME trial in a peer reviewed journal; and / Prepare clinical development plans to advance OPT‑302 for the treatment of DME. Corporate: / Ensure the global investment and pharmaceutical/ biotechnology community is aware of the commercial potential inherent in OPT‑302; and / Plan for various and all opportunities to advance further development of OPT‑302 through investment out‑reach and engagement with pharmaceutical/biotechnology companies in the sector. S I G N I F I C A N T E V E N T S A F T E R B A L A N C E D A T E On 21 August 2020, the Company announced it had completed end‑of‑phase 2 meetings with the uS Food and Drug Administration and a Scientific Advice meeting with the European Medicines Agency to obtain guidance on the Company’s Phase 3 clinical development plans. The outcome of the meetings support the progression of OPT‑302 into Phase 3 and pre‑commercial development. The Company announced on 24 August 2020, it is planning to conduct a potential initial public offering of American Depository Shares (ADSs) in the u.S. representing opthea’s ordinary shares, O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 17 which will remain listed on the ASX, and concurrent listing of the ADSs on Nasdaq. Any offering and listing of ADSs on Nasdaq would be intended to support Opthea’s product development activities, including its previously announced Phase 3 trials of OPT‑302 for the treatment of wet AMD. Except for the above, there were no other significant events after 30 June 2020 to report. E N V I R O N M E N T A L R E G U L A T I O N S The Company is not subject to significant environmental regulations. I N D E M N I F I C A T I O N A N D I N S U R A N C E During the financial year ended 30 June 2020, the Company indemnified its directors, the company secretary and executive officers in respect of any acts or omissions giving rise to a liability D I R E C T O R S ’ M E E T I N G S to another person (other than the Company or a related party) unless the liability arose out of conduct involving a lack of good faith. In addition, the Company indemnified the directors, the company secretary and executive officers against any liability incurred by them in their capacity as directors, company secretary or executive officers in successfully defending civil or criminal proceedings in relation to the Company. No monetary restriction was placed on this indemnity. The Company has insured its directors, the company secretary and executive officers for the financial year ended 30 June 2020. under the Company’s Directors’ and officers’ liabilities Insurance Policy, the Company shall not release to any third party or otherwise publish details of the nature of the liabilities insured by the policy or the amount of the premium. Accordingly, the Company relies on section 300(9) of the Corporations Act 2001 to exempt it from the requirement to disclose the nature of the liability insured against and the premium amount of the relevant policy. The number of meetings of directors and meetings of committees of the board held during the year are set out below. Attendance by the directors at these meetings as relevant to each of them is as shown. It is the Company’s practice to invite all directors to committee meetings irrespective of whether they are members. Number of meetings held: Number of meetings attended: Geoffrey Kempler Michael Sistenich Megan Baldwin Committee membership Directors’ meetings Meetings of committees Audit & Risk Nomination Remuneration 10 10 10 10 6 6 6 6 3 3 3 3 1 1 1 1 During the year, the Company had Audit and Risk, Remuneration and nomination committees. Members acting on the committees of the board during the year were: Audit & Risk Nomination Remuneration Michael Sistenich (Chairman) Michael Sistenich (Chairman) Michael Sistenich (Chairman) Geoffrey Kempler Geoffrey Kempler Geoffrey Kempler A U D I T O R ’ S I N D E P E N D E N C E D E C L A R A T I O N P R O C E E D I N G S O N B E H A L F O F T H E C O M P A N Y The directors have obtained a declaration of independence from Deloitte Touche Tohmatsu, the Company’s auditors, which is set out on page 25 and forms part of the directors’ report for the financial year ended 30 June 2020. There were no persons applying for leave under section 237 of the Corporations Act 2001 to bring, or intervene in, proceedings on behalf of the Company. 18 Directors’ Report (Cont.) R E M U N E R A T I O N R E P O R T – A U D I T E D This remuneration report, which forms part of the directors’ report, sets out information about the remuneration of Opthea Limited’s key management personnel for the financial year ended 30 June 2020. the term ‘key management personnel’ refers to those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including any director (whether executive or otherwise) of the Group. Key management personnel The directors and other key management personnel of the Group during or since the end of the financial year were: Non‑executive directors Geoffrey Kempler Chairman, Non‑executive director Michael Sistenich Non‑executive director Lawrence Gozlan (appointed 24 July 2020) Non‑executive director Executive officers Megan Baldwin Mike Tonroe Chief Executive Officer and Managing Director Chief Financial Officer and Company Secretary Except as noted, the named persons held their current position for the whole of the financial year and since the end of the financial year. Principles of compensation Compensation packages include a mix of fixed and variable compensation and long‑term performance based incentives. Diversity The directors consider annually if the diversity of the Company’s personnel is appropriate. During the three years ended 30 June 2020, a third of the directors and 56% of employees were female. Fixed compensation The level of fixed remuneration is set to provide a base level of compensation which is both appropriate to the position and is competitive in the market. The remuneration committee accesses external advice independent of management if required. Fixed compensation comprises salary and superannuation and is reviewed every 12 months by the remuneration committee. No external advice has been sought during either 2020 or 2019 Performance linked compensation Short Term Incentives (STI): The objective of STI is to link the achievement of the Company’s operational targets with the remuneration received by the executives charged with meeting those targets. The total potential STI available is set at a level that provides sufficient incentive to the executive to achieve the operational targets at a cost to the Company that is reasonable in the circumstances. Actual STI payments in the form of cash bonuses to key management personnel (KMP) depend on the extent to which specific targets set at the beginning of the financial year (or shortly thereafter) are met. The targets consist of a number of Key Performance Indicators (KPIs) covering corporate objectives and individual measures of performance. Individual KPIs are linked to the Company’s development plans. On an annual basis, after consideration of performance against KPIs, the remuneration committee determines the amount, if any, of the STI to be paid to KMP. Payments of the STI bonus are made in the following reporting period. The remuneration committee considered the STI payment for the 2020 financial year in August 2020. Based on the achievement of operational objectives in the financial year, the remuneration committee has determined there will be $164,211 STI bonus paid to KMP for the 2020 financial year (2019: $189,091). Long term incentive plan (LTIP): The objective of the LTIP is to reward KMP in a manner that aligns this element of compensation with the creation of shareholder wealth. LTIP grants are made to KMP and employees who are able to influence the generation of shareholder wealth and have a direct impact on the Company’s performance and development. Option vesting conditions are based on continued service to the Company by the KMP. The Company implemented an LTIP to attract, retain and motivate eligible employees, essential to the continued growth and development of the Company. The LTIP was approved by shareholders at the Company’s 2014 AGM. The limit of the Company’s share capital to be granted under the LTIP was increased to 10% at the 2016 EGM. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 19 Consequences of performance on shareholder wealth In considering the Company’s performance and benefits for shareholder wealth, the remuneration committee have regard to operational contributions and the following indices in respect of the current and previous four financial years. Revenue including finance income 808,405 914,840 1,143,822 573,421 765,274 Loss before tax Tax benefit Loss after tax (25,062,404) (35,547,034) (28,919,488) (9,360,808) (8,100,978) 8,533,123 14,636,973 12,017,248 3,167,912 1,569,204 (16,529,281) (20,910,061) (16,902,240) (6,192,896) (6,531,774) 2020 $ 2019 $ 2018 $ 2017 $ 2016 $ Basic loss per share ntA backing per share @ 30 June opthea share price @ 30 June 2020 $ (0.06) 0.24 2.36 2019 $ (0.09) 0.12 0.67 2018 $ (0.08) 0.19 0.53 2017 $ (0.04) 0.27 0.75 2016 $ (0.04) 0.10 0.50 Change in share price is one of the financial performance targets considered in setting STI. Service contracts Dr Megan Baldwin, CEO and Managing Director, is employed under an ongoing contract that commenced on 24 February 2014. under the terms of the present contract (including any subsequent board approvals relating to fixed remuneration) Megan: / Receives fixed remuneration of $440,000 per annum from 1 November 2018. / May resign from her position and thus terminate this contract by giving three months’ notice. On resignation, any unvested LTI options or conditional rights will be forfeited. The Company may terminate this employment agreement by providing: / 3 months’ notice; or / Payment in lieu of the notice period (as detailed above) based on the fixed component of Megan’s remuneration. On termination notice by the Company, any LTIP options that have vested or that will vest during the notice period will be released. Options granted that have not yet vested will be forfeited. The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, Megan is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. On termination with cause, any unvested options will immediately be forfeited. Mike Tonroe, Chief Financial Officer and Company Secretary, has an ongoing contract. The Company may terminate the employment agreement by providing three months’ notice or providing payment in lieu of the notice period (based on the fixed component of remuneration). The Company may terminate Mike Tonroe’s contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the executive is only entitled to that portion of remuneration that is fixed and only up to the date of termination. 20 Directors’ Report (Cont.) Non‑executive directors The base non‑executive director fee for Chairman is $90,405 per annum and $60,000 per annum for other non‑executive directors. Base fees cover all main board activities and membership of all board committees. Non‑executive directors are not provided with retirement benefits apart from statutory superannuation. The Company implemented a non‑executive director share and option plan (NED Plan) following its approval at the 2014 AGM. Approval of further grant of options to non‑executive directors under the neD plan was made at the 2018 AGM. under the NED Plan, present and future non‑executive directors may: / elect to receive newly issued ordinary shares (Shares) or options to acquire newly issued Shares in lieu of receiving some or all of their entitlement to their director’s existing cash remuneration (in accordance with article 61.8 of the Company’s constitution); / be awarded newly issued Shares or options to acquire newly issued Shares in lieu of additional cash remuneration in respect of services provided to the Company which in the opinion of the Board are outside the scope of the ordinary duties of the relevant director (in accordance with article 61.5 of the Company’s constitution); and/or / otherwise be awarded newly issued Shares or options to acquire newly issued Shares as part of the directors’ remuneration in addition to any existing cash remuneration paid to directors (if any). Advantages of the NED Plan are that it: / assists the Company in preserving its cash for use towards advancing the Company’s lead molecule, OPT‑302, through Phase 2 clinical studies; / gives non‑executive directors an opportunity to demonstrate their commitment and support for the Company through sacrificing some or all of their director’s fees for Shares or options in Opthea; and / provides the Company with further flexibility in the design of the directors’ remuneration packages and in turn assists the Company with retaining existing directors and attracting new additional directors with the relevant experience and expertise, in both cases to further advance the prospects of the Company. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 21 Directors’ and executive officers remuneration Details of the nature and amount of each major element of remuneration of each director and key management personnel of the Company are: Short Term Post Employ‑ ment Salary & Fees $ Cash bonus 1 $ Super‑ annuation $ Long Term Long Service Leave $ Term‑ ination benefits Term‑ ination Pay $ Non‑Executive directors: Geoffrey Kempler 2020 90,405 2019 90,405 Michael Sistenich 2020 60,000 2019 60,000 Lawrence Gozlan2 2020 2019 – – Sub‑total Non‑executive directors 2020 2019 150,405 150,405 Executive directors: – – – – – – – – Megan Baldwin 2020 440,000 100,000 2019 413,500 126,750 8,589 8,589 5,700 5,700 – – 14,289 14,289 51,300 51,324 Other Key Management Personnel: Mike Tonroe 2020 256,844 2019 249,363 64,211 62,341 30,500 29,612 Totals 2020 847,249 164,211 96,089 2019 813,268 189,091 95,225 – – – – – – – – – – – – – – – – – – – – – – – – – – – – Share‑ based payment Options $ Total $ 125,452 224,446 175,798 274,792 125,452 191,152 175,798 241,498 – – – – 250,904 415,598 351,596 516,290 250,905 842,205 351,597 943,171 117,516 469,071 49,113 390,429 619,325 1,726,874 752,306 1,849,890 Total perform‑ ance related % 56% 64% 66% 73% – – 60% 68% 42% 51% 39% 29% 45% 51% 1 Bonuses are paid in the financial year following the year in which they are earned. 2 lawrence Gozlan was appointed as a non‑executive director on 24 July 2020. Mr Gozlan’s annual director fee is $60,000 plus superannuation. Equity instruments All options refer to options over ordinary shares of Opthea Limited which are exercisable on a one‑for‑one basis under the Long Term Incentive (LTIP) and Non‑executive share and options (NED) plans. 22 Directors’ Report (Cont.) Options over equity instruments granted as compensation Details of options over ordinary shares in the Company that were granted as compensation to KMP during the reporting period and details of options that vested during the reporting period are as follows: Name Megan Baldwin Geoffrey Kempler Michael Sistenich Mike Tonroe During the financial year Number of options granted Number of options vested 1 – – – – 3,000,000 1,500,000 1,500,000 600,000 1 options that vested during the financial year were originally granted in the year ended 30 June 2019. All options expire on the earlier of their expiry date or termination of the individual’s employment. Option vesting is conditional on the individual being employed or in office. The options are exercisable up to three years after they vest. Exercise of options granted as compensation During the reporting period, no shares were issued to KMP on the exercise of options previously granted as compensation. Details of options affecting current and future remuneration Details of vesting profiles of the options held by each KMP of the Company are: Megan Baldwin Geoffrey Kempler Michael Sistenich Mike Tonroe Grant date % vested % forfeited 1 Number of options 1,320,000 1,320,000 1,360,000 7 March 2016 7 March 2016 7 March 2016 3,000,000 29 November 2018 660,000 660,000 680,000 7 March 2016 7 March 2016 7 March 2016 1,500,000 29 November 2018 330,000 330,000 340,000 7 March 2016 7 March 2016 7 March 2016 1,500,000 29 November 2018 264,000 264,000 272,000 600,000 31 March 2016 31 March 2016 31 March 2016 3 April 2019 Financial years in which grant vests 1 July 2015 1 July 2016 1 July 2017 1 July 2019 1 July 2015 1 July 2016 1 July 2017 1 July 2019 1 July 2015 1 July 2016 1 July 2017 1 July 2019 1 July 2016 1 July 2017 1 July 2018 1 July 2019 Vesting Conditions Continued service Continued service Continued service Continued service 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 1 The percentage forfeited in the year represents the reduction from the maximum number of options available to vest due to vesting criteria not being achieved. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 23 Options over equity instruments The movement during the reporting period by number of rights and options over ordinary shares in Opthea Limited held directly, indirectly or beneficially, by each KMP, including their related parties, is as follows: Number of options: Held at 1 July Granted as compen‑ sation Options exercised Lapsed Forfeited Megan Baldwin 2020 7,000,000 – 2019 4,000,000 3,000,000 Geoffrey Kempler 2020 3,500,000 – 2019 2,000,000 1,500,000 Michael Sistenich 2020 2,500,000 – 2019 1,000,000 1,500,000 Other executives Mike Tonroe 2020 1,400,000 – 2019 800,000 600,000 Total 2020 14,400,000 – 2019 7,800,000 6,600,000 – – – – – – – – – – – – – – – – – – – – Held at 30 June Vested during the year Vested and exercisable 7,000,000 3,000,000 7,000,000 7,000,000 – 4,000,000 3,500,000 1,500,000 3,500,000 3,500,000 – 2,000,000 2,500,000 1,500,000 2,500,000 2,500,000 – 1,000,000 1,400,000 600,000 1,400,000 1,400,000 272,000 800,000 – – – – – – – – – 14,400,000 6,600,000 14,400,000 – 14,400,000 272,000 7,800,000 24 Directors’ Report (Cont.) K E Y M A N A G E M E N T P E R S O N N E L T R A N S A C T I O N S Movements in shares The movement during the reporting period in the number of ordinary shares in Opthea Limited held, directly, indirectly or beneficially, by each KMP including their related parties is as follows: Number of Ordinary Shares: Non‑executive directors Geoffrey Kempler Michael Sistenich Executives Megan Baldwin Mike Tonroe Total 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Balance at beginning of period 1 July 900,960 615,246 520,178 520,178 987,723 1,643,223 – – 2,408,861 2,778,647 Granted as remuneration On Exercise of Quoted Options Purchased in the year Sold during the year Balance at end of period 30 June 900,960 900,960 520,178 520,178 987,723 987,723 – – 2,408,861 – – – – – – – – – – – 285,714 – – – 11,500 – – – 297,214 – – – – – – – – – – – – – – – (667,000) – – – (667,000) 2,408,861 This report has been signed in accordance with a resolution of the directors made pursuant to S.298 (2) of the Corporations Act 2001 on 28 August 2020. For and on behalf of the board: Megan Baldwin CEO & Managing Director Opthea Limited Melbourne 28 August 2020 O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 25 Declaration of Independence Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2, Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au The Board of Directors Opthea Limited Suite 0403, Level 4 650 Chapel Street South Yarra, VIC 3141 28 August 2020 Dear Board Members Auditor’s Independence Declaration to Opthea Limited In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Opthea Limited. As lead audit partner for the audit of the financial statements of Opthea Limited for the financial year ended 30 June 2020, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours faithfully DELOITTE TOUCHE TOHMATSU Vincent Snijders Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network 26 O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 27 Management Team R I C H A R D C H A D W I C K P H D Head of Intellectual Property Richard Chadwick, who joined opthea in February 2008, is qualified as both a European and Australian patent attorney. Richard joined opthea from FB Rice & Co, where he had been working for five years in the Biotechnology Group. prior to that, Richard had 10 years’ experience in intellectual property in the uK. this included working as an in‑house attorney at Dow Corning Limited and five years working as an in‑house attorney at unilever. M I K E T O N R O E B S C ( H o n S ) , F C A , M A I C D Chief Financial Officer and Company Secretary Mike Tonroe is a fellow of the Institute of Chartered Accountants in England and Wales and was appointed Chief Financial Officer and Company Secretary in May 2014. Mike is accountable directly to the board, through the chair, on all matters to do with the proper functioning of Opthea’s board. Prior to joining Opthea, Mike was the Chief Financial Officer and Company Secretary at the Australian Synchrotron in Melbourne. Mike has over 20 years’ experience of financial management in board‑level positions for private and listed companies in Australia, uK, the uS and Canada. Mike holds a Graduate Degree in Business Studies from Buckingham university and is a member of the Australian Institute of Company Directors. Mike is also the Company Secretary of the Company’s subsidiary, Vegenics Pty Ltd. M E G A N B A L D W I N P H D , M A I C D Chief Executive Officer and Managing Director Dr Megan Baldwin was appointed CEO and Managing Director of Opthea in February 2014. Dr Baldwin has over 20 years of experience focusing on angiogenesis and therapeutic strategies for ophthalmic and cancer indications. Since joining Opthea in 2008, she has held various positions, including Head of Preclinical R&D and Chief executive officer of Opthea Pty Ltd, the 100% owned subsidiary of Opthea, developing OPT‑302 for the treatment of wet age‑related macular degeneration. Prior to joining Opthea, Dr Baldwin was employed at Genentech (now Roche), the world leader in the field of angiogenesis‑based therapies for cancer and other diseases. Her experience included several years as a researcher in the group of leading angiogenesis expert Napoleone Ferrara, before moving to Genentech’s commercial division and having responsibility for corporate competitive intelligence activities. In these roles, she developed extensive commercial and scientific knowledge in the field of anti‑angiogenic and oncology drug development. Megan holds a PhD in Medicine from the university of Melbourne, having conducted her doctoral studies at the ludwig Institute for Cancer Research. Dr Baldwin is on the board of Ausbiotech and is a member of the Australian Institute of Company Directors. 28 Management Team (Cont.) M I K E G E R O M E T T A P H D Head of CMC Development I A N L E I T C H P H D Director – Clinical Research C L A R E P R I C E B p H A R M Director of Clinical Development Mike Gerometta has been Head of Chemistry, Manufacturing & Controls (CMC) Development for Opthea since 2008 with responsibilities encompassing outsourcing of Opthea’s biopharmaceutical research and cGMP manufacturing activities. Mike has over 30 years’ experience in the Australian biotechnology industry, working with numerous Contract Manufacturing Organisations overseas and locally in all facets of translational CMC from concept through to Phase 2 studies. In this time, he has successfully guided the manufacture of six biologics through to the clinic, including oversight of four nonclinical programs, as well as associated global regulatory interactions. Previously as Chief Operating Officer of Q‑Gen, the manufacturing facility of the Queensland Institute of Medical Research, he restructured the service business to align with QIMR’s strategic objectives. Mike has also directed the development of numerous in vitro diagnostic products through to the market over 19 years at Agen Biomedical, ultimately as Research and product Development Director. Mike was awarded his PhD in biotechnology from the Queensland university of technology and has a degree in chemistry from the university of Technology in Sydney. Ian Leitch has been Director of Clinical Research of opthea since September 2011. He has over 20 years of research and management experience from drug discovery through clinical development in biotechnology/pharmaceutical companies. Clare Price was appointed Director of Clinical Development at opthea in July 2016. Clare has over 20 years of clinical and drug development experience starting her career in the main R&D function of SmithKline Beecham in the uK. She spent over eight years in various clinical roles within the company with responsibility for the design, management and execution of clinical studies from Phase 1 to 3 across a number a therapeutic areas. For the remaining three years Clare formed part of the project management group of the newly merged GlaxoSmithKline, responsible for the project management of full drug development programs from molecule inception through non‑clinical and clinical studies, regulatory aspects and commercialisation. Clare has held senior clinical roles in two ASX‑listed biotechnology companies, firstly Acrux, and then Starpharma. Over her nine years at Starpharma she implemented and delivered successful Phase 2 and 3 clinical programmes, including extensive regulatory interaction and negotiation, leading to the successful commercialisation of the lead candidate product. Clare is a registered pharmacist, with a degree in Pharmacy, from the university of Bath in the uK. For the five years prior to joining Opthea, he was a member of the Medical Sciences group at Amgen Inc in Thousand Oaks, California, involved in the development of novel therapeutics in Amgen’s oncology pipeline. In his role as Senior Manager in the Early Development Oncology Therapeutic Area, he had responsibility for the oversight, design, management and execution of Phase 1 – 2 clinical studies in oncology. Prior to joining Amgen, he spent eight years at Miravant Medical Technologies in Santa Barbara, California. He held positions of increasing responsibility, including Senior Program Manager for Cardiovascular Research and Clinical Study Director for Ophthalmology. At Miravant, he managed preclinical efficacy studies, developed relationships with Key Opinion Leaders and designed Phase 1 – 2 clinical studies in a collaboration with the cardiovascular device company Guidant Inc. He previously held the position of nHMRC Senior Research officer at the university of newcastle and was based at the John Hunter Hospital in Australia. He received his BSc (Hons), PhD from the Department of Pharmacology, Faculty of Medicine, at Monash university and completed part of the doctoral studies at the university of California, Santa Barbara. O p t h e a O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 29 A N N E T T E L E A H Y Director – Clinical Research Annette Leahy commenced at Opthea in August 2017 as Director of Clinical Research. Annette has 20 years clinical research experience including operational and project management roles across biotechnology, pharmaceutical, and CRo industries. Prior to joining Opthea Annette held senior operational roles at Swisse and Novotech successfully building clinical trial teams and departments. Annette also has 12 years project management experience including leading a global influenza clinical trials program under a uS government contract at Biota, managing early phase clinical studies in a Phase 1 unit at Nucleus Network and managing European clinical projects while living in the uK and working for Mitsubishi Tanabe Pharma Europe. Annette has a Bachelor of Health Information Management from la trobe university. 3030 Financial Report C O N T E N T S 31 ConSolIDAteD StAteMent oF pRoFIt oR loSS AnD otHeR CoMpReHenSIVe InCoMe FoR tHe YeAR enDeD 30 June 2020 32 CONSOLIDATED STATEMENT OF FInAnCIAl poSItIon At 30 June 2020 33 CONSOLIDATED STATEMENT OF CHAnGeS In eQuItY FoR tHe YeAR enDeD 30 June 2020 34 CONSOLIDATED STATEMENT OF CASH FloWS FoR tHe YeAR enDeD 30 June 2020 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 62 DIReCtoRS’ DeClARAtIon FoR tHe YeAR enDeD 30 June 2020 63 InDepenDent AuDItoR’S RepoRt 67 ASX ADDItIonAl InFoRMAtIon O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 31 Consolidated Statement of Profit or Loss and Other Comprehensive Income For the year ended 30 June 2020 Revenue Other income Research and development expenses Patent expenses Intellectual property costs Administrative expenses Occupancy expenses Net foreign exchange gain/(loss) Loss before income tax Income tax benefit Loss for the year Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Fair value gains on investments in financial assets Other comprehensive income for the period, net of tax Total comprehensive loss for the year Loss for the year is attributable to: Owners of the Company Total comprehensive loss for the year is attributable to: Owners of the Company Loss per share attributable to the owners of the Company: – Basic and diluted loss per share (cents) Note 7 8 9 10 10 2020 $ 87,075 783,830 2019 $ 159,064 836,821 (17,954,073) (31,347,891) (429,229) (114,046) (161,148) (112,795) (7,001,507) (5,174,755) (33,846) (108,904) (400,608) 362,574 (25,062,404) (35,547,034) 11 8,533,123 14,636,973 (16,529,281) (20,910,061) 58,840 58,840 259,864 259,864 (16,470,441) (20,650,197) 21 (16,529,281) (20,910,061) (16,529,281) (20,910,061) (16,470,441) (20,650,197) (16,470,441) (20,650,197) 12 (6.34) (8.98) The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. 32 Consolidated Statement of Financial Position At 30 June 2020 Assets Current assets Cash and cash equivalents Current tax receivable Receivables Prepayments Total current assets Non‑current assets Investments in financial assets Plant and equipment Right‑of‑use asset Total non‑current assets Total assets Liabilities Current liabilities Payables Lease liabilities Other financial liabilities Provisions Total current liabilities Non‑current liabilities Lease liabilities Provisions Total non‑current liabilities Total liabilities Net assets Equity Contributed equity Accumulated losses Reserves Total equity Note 2020 $ 2019 $ 13 11 14 15 16 17 16 18 16 19 62,020,382 21,534,919 8,533,123 14,636,973 284,391 478,632 295,786 424,603 71,316,528 36,892,281 289,980 37,180 243,510 570,670 714,118 54,063 – 768,181 71,887,198 37,660,462 5,895,034 5,951,942 145,043 237,820 – 25,592 640,934 538,547 6,918,831 6,516,081 120,033 40,197 160,230 – 24,844 24,844 7,079,061 6,540,925 64,808,137 31,119,537 20 21 21 162,102,553 113,021,993 (102,589,341) (86,060,060) 5,294,925 4,157,604 64,808,137 31,119,537 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 33 Consolidated Statement of Changes in Equity For the year ended 30 June 2020 Contributed equity $ Options reserve $ Share‑based payments reserve $ Fair value of investments reserve $ Accumulated losses $ Total equity $ 98,403,149 1,989,067 2,452,838 477,391 (65,149,999) 38,172,446 – – – 967,511 – – 259,864 – 259,864 – (20,910,061) (20,910,061) 259,864 (20,910,061) 17,522,249 – – – – – 967,511 – – 12,629,777 3,420,349 737,255 (86,060,060) 31,119,537 3,420,349 737,255 (86,060,060) 31,119,537 – – – 58,840 – 58,840 – (16,529,281) (16,529,281) 58,840 (16,529,281) (16,470,441) As at 1 July 2018 Fair value gains on investments in financial assets* Loss for the year* Total comprehensive income and expense for the period Recognition of share‑based payment Transfer from option reserve on exercise of options Issue of ordinary shares on the exercise of options Balance at 30 June 2019 As at 1 July 2019 Fair value gains on investments in financial assets* Loss for the year* Total comprehensive income and expense for the period Recognition of share‑based payment Issue of ordinary shares on the exercise of options Note 21 21 20 20 21 21 20 – – – – – – – – 1,989,067 (1,989,067) 12,629,777 113,021,993 113,021,993 – – – – 420,000 – – – – – – – – – Issue of ordinary shares 20 48,660,560 Balance at 30 June 2020 162,102,553 * Amounts are after tax. The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes. – 1,078,481 – – – – – – 1,078,481 – – 420,000 48,660,560 4,498,830 796,095 (102,589,341) 64,808,137 34 Consolidated Statement of Cash Flows For the year ended 30 June 2020 Cash flows from operating activities Interest received Royalty and licence income received Grant income Payment of lease interest Payments to suppliers, employees and for research & development and intellectual property costs (inclusive of GST) Research and development tax incentive scheme credit received Net cash flows used in operating activities Cash flows from investing activities Cash received on disposal of financial asset Purchase of plant and equipment Net cash flows provided by investing activities Cash flows from financing activities Payment of lease liabilities Net proceeds on issue of shares Cash received for ordinary shares issued on exercise of options Net cash flows provided by financing activities Net increase/(decrease) in cash and cash equivalents Effects of exchange rate changes on the balance of cash held in foreign currencies Cash and cash equivalents at beginning of year Cash and cash equivalents at the end of the year Note 2020 $ 2019 $ 742,014 138,916 62,500 (7,680) 817,314 170,750 77,745 – (24,354,991) (37,268,212) 14,636,973 12,017,247 24 (8,782,268) (24,185,156) 482,978 339,046 (7,238) (18,070) 475,740 320,976 16 (100,189) 48,660,560 – – 420,000 12,629,777 48,980,371 12,629,777 40,673,843 (11,234,403) (188,380) 259,092 21,534,919 32,510,230 13 62,020,382 21,534,919 The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 35 Notes to the Consolidated Financial Statements 1 . R E P O R T I N G E N T I T Y Opthea Limited (the Company) is a listed public company incorporated in Australia. The address of its registered office and principal place of business is: Suite 0403, Level 4, 650 Chapel Street, South Yarra, VIC 3141, Australia. these consolidated financial statements comprise the Company and its subsidiary (together referred to as the Group). The Group’s principal activity is the development of new drugs for the treatment of eye diseases. 2 . B A S I S O F A C C O U N T I N G These financial statements are general purpose financial statements which have been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and Interpretations, and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group. For the purposes of preparing the consolidated financial statements, the Company is a for‑profit entity. Compliance with Australian Accounting Standards ensures that the financial statements and notes of the Company and the Group comply with International Financial Reporting Standards (IFRS). The financial statements were authorised for issue by the directors on 28 August 2020. 3 . S U M M A R Y O F A C C O U N T I N G P O L I C I E S The consolidated financial statements have been prepared using the significant accounting policies and measurement bases summarised below. Basis of measurement The consolidated financial statements have been prepared on a historical cost basis, except for the investments classified as financial assets, which have been measured at fair value. All amounts are presented in Australian dollars. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiary. Control is achieved when the Company: / Has power over the investee; / Is exposed, or has rights, to variable returns from its involvement with the investee; and / Has the ability to use its power to affect its returns. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Foreign currency translation i. Functional and presentation currency Both the functional and presentation currency of the Group is Australian dollars ($). ii. Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. Non‑monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non‑monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Financial assets and liabilities Recognition and derecognition of financial assets Purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade date, i.e., the date that the Group commits to purchase the asset. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or when the entity transfers substantially all the risks and rewards of the financial assets. If the entity neither retains nor transfers substantially all of the risks and rewards, it derecognises the asset if it has transferred control of the assets. When financial assets are recognised initially, they are measured at fair value, plus directly attributable transaction costs. Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short‑term deposits with an original maturity 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. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above. 36 3 . S U M M A R Y O F A C C O U N T I N G P O L I C I E S (CONT.) Other receivables Payables Other receivables generally comprise bank interest receivable, other receivables from external parties and Goods and Services Tax (GST) credits receivable, and are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. The amounts are usually received within 30 to 60 days of recognition. Payables are carried at amortised cost and due to their short‑term nature, they are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The Group measures the loss allowance for receivables at an amount equal to lifetime expected credit losses (ECL). The ECL on receivables are estimated under the simplified approach as permitted under AASB 9 “Financial Instruments.” This uses a provision matrix by reference to past experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors and general economic conditions of the industry in which the debtors operate. The Group writes off a receivable when there is information indicating that the debtor is in severe financial difficulty and there is no realistic prospect of recovery. Investments Investments in financial assets comprise of the Group’s non‑current investments in listed companies. On initial recognition, the Group may make an irrevocable election (on an instrument‑by‑instrument basis) to designate investments in equity instruments as fair value through other comprehensive income (FVTOCI). Designation at FVTOCI is not permitted if the equity instrument is held for trading. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains or losses arising from changes in the fair value recognised in other comprehensive income and accumulated in the fair value of investments reserve. The fair values of investments in financial assets that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the reporting date. The cumulative gain or loss is not reclassified to profit or loss on disposal of the equity instruments. Dividends on these investments in equity instruments are recognised in profit or loss in accordance with Australian Accounting Standards. Finance income Almost all of the Group’s finance income is earned on short‑term bank deposits, and as such, finance income is recognised when the Group’s right to receive the payment is established. The amounts are unsecured and are usually paid within 30 days of recognition. Other financial liabilities Other financial liabilities in the Consolidated Statement of Financial Position represent the year end marked‑to‑market value of forward rate foreign exchange contracts to purchase uS dollars (Contracts). these Contracts are used to settle uS dollar denominated payables and expire within one year. The foreign exchange loss on recognition of the Contracts is included in ‘net foreign exchange gain/(loss)’ in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Plant and equipment Plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated on a straight‑line basis over their useful economic lives as follows: / Equipment and furniture – 3 to 10 years; and / Leasehold improvements – 8 years or the term of the lease if shorter. The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. An item of plant and equipment is derecognised upon disposal or when no further economic benefits are expected from its use or disposal. Leases The Group assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group applies a single recognition and measurement approach for all leases, except for short‑term leases and leases of low‑value assets. The Group recognises lease liabilities to make lease payments and right‑of‑use assets representing the right to use the underlying assets. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 37 3 . S U M M A R Y O F A C C O U N T I N G P O L I C I E S (CONT.) Right‑of‑use assets Provisions and employee benefits Right‑of‑use assets are recognised at the commencement date of the lease (that is the date the underlying asset is available for use). Right‑of‑use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right‑of‑use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right‑of‑use assets are depreciated on a straight‑line basis over the shorter of the lease terms and the estimated useful lives of the assets. Lease liabilities Lease liabilities are recognised at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in‑substance fixed payments) less any lease incentives receivable. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. The incremental borrowing rate is determined using market yields on bonds with similar terms to maturity. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate). Leases of low‑value assets For short‑term leases (lease term of 12 months or less) and leases of low‑value assets (such as photo copiers and telephones), the Group has opted to recognise a lease expense on a straight‑line basis as permitted by IFRS 16. this expense is presented within “administrative expenses” in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Research and development costs Research costs are expensed as incurred. An intangible asset arising from the development expenditure on an internal project will only be recognised when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. As of 30 June 2020, the Group is in the research phase and has not capitalised any development costs to date. i. Wages, salaries, annual leave and sick leave Liabilities for wages and salaries, including non‑monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in current provisions in respect of employees’ services up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled. Expenses for non‑accumulating sick leave are recognised when the leave is taken and are measured at the rate paid or payable. ii. Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures, and periods of service. Expected future payments are discounted using market yields at the reporting date on bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows. Share‑based payment transactions The Group provides benefits to directors and employees (including key management personnel) of the Group in the form of share‑based payments, whereby employees render services in exchange for shares or rights over shares (equity‑settled transactions). The cost of these equity‑settled transactions with employees is measured by reference to the fair value at the date at which they are granted. Binomial models are used to value the options issued. The cost of the equity‑settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The charge to profit or loss for the period is the cumulative amount less the amounts already charged in previous periods. There is a corresponding credit to equity. until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 38 3 . S U M M A R Y O F A C C O U N T I N G P O L I C I E S (CONT.) Revenue recognition License revenue in connection with licensing of the Group’s intellectual property (including patents) to customers is recognised as a right to use the Group’s intellectual property as it exists at the point in time in which the license is granted. This is because the contracts for the license 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 the rights. Although the Group is entitled to sales‑based royalties from the eventual sales of goods and services to third parties using the intellectual property licensed, these royalty arrangements do not in 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 licenses of intellectual property: / up‑front license fees – these are fixed amounts and are recognised at the point in time when the Group transfers the intellectual property to the customer. / Sales‑based royalties – these are variable consideration amounts promised in exchange for the license of intellectual property and are recognised when the sales to third parties occur given the performance obligation to transfer the intellectual property to the customer is already satisfied. During the years ended 30 June 2020 and 2019, the Group’s only revenue related to sales‑based royalties. Income tax Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. Research and development tax incentive the Research and Development (R&D) tax Incentive Scheme is an Australian Federal Government program under which eligible companies with annual aggregated revenue of less than A$20 million can receive cash amounts equal to 43.5% of eligible research and development expenditures from the Australian taxation office (Ato). the R&D tax Incentive Scheme incentive relates to eligible expenditure incurred in Australia and, under certain circumstances, overseas on the development of the Group’s lead candidate, opt‑302. the R&D tax incentive is applied annually to eligible expenditure incurred during the Group’s financial year following annual application to AusIndustry, an Australian governmental agency, and subsequent filing of its Income tax Return with the Ato after the financial year end. the Group estimates the amount of R&D tax incentive after the completion of the financial year based on eligible Australia and overseas expenditures incurred during that year. the Group has presented incentives in respect of the R&D tax Incentive Scheme within income tax benefit in the Statement of Profit or Loss and Other Comprehensive Income by analogising with AASB 112 “Income Taxes”. Deferred tax Deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences except when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets (or credits) and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except when the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit or taxable profit or loss. The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date. Income taxes relating to items recognised directly in equity are recognised directly in equity and not in profit or loss. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 39 3 . S U M M A R Y O F A C C O U N T I N G P O L I C I E S (CONT.) Tax consolidation legislation Tax consolidation is a system adopted by the ATO that treats a group of entities as a single entity for tax purposes. Opthea Limited and its 100% owned subsidiary formed a tax consolidated group effective July 1, 2003. the head entity, opthea limited, and its controlled entity, Vegenics Pty Ltd, are current members of the tax consolidated group and account for their own current and deferred tax amounts. Members of the tax consolidated group have adopted the “separate taxpayer within group” method to allocate the current and deferred tax amounts to each entity within the Group. This method requires adjustments for transactions and events occurring within the tax consolidated group that do not give rise to a tax consequence for the Group or that have a different tax consequence at the level of the Group. The head entity, which is the parent entity, in assuming the net unused tax losses and unused relevant tax credits, has recognised reductions to investments in subsidiaries and where the amount of tax losses assumed is in excess of the carrying value of the investment, the parent has recognised the difference as a distribution from subsidiary in profit or loss. Other taxes Revenues, expenses, assets and liabilities are recognised net of the amount of GST except: / when the GST incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and / receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis and the GST component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority is classified as part of operating cash flows. Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the taxation authority. Comparatives Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosure. 4 . C R I T I C A L A C C O U N T I N G J U D G E M E N T S A N D K E Y S O U R C E S O F E S T I M A T I O N U N C E R T A I N T Y In applying the Group’s accounting policies, management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below: 4.1 Critical judgements in applying accounting policies Research and development costs The majority of Opthea’s expenditure is incurred as a result of clinical trials for opt‑302. During the years ended 30 June 2019 and 2020, Opthea progressed Phase 2b wet age‑related macular degeneration (wet AMD) and Phase 1b/2a diabetic macular edema (DME) trials. A key measure of Opthea’s performance is the level of expenditure incurred on the research of OPT‑302. Judgment is required in relation to: / the classification of expenses in the income statement between research and development costs and operating expenses; and / whether costs relate to R&D, and consequently if they meet the capitalisation criteria under AASB 138 “Intangible Assets.” The directors have determined that the Group is still in a research phase and accordingly, no development costs have been capitalised as of 30 June 2020 (2019: nil). Taxation Research and development tax incentive the Research and Development (R&D) tax Incentive Scheme is an Australian Federal Government program under which eligible companies can receive cash refunds of 43.5% of eligible R&D expenditure. Judgments are required as to the R&D tax incentive refundable offset eligibility in respect of: / the Group’s ability to make claims and its continued compliance under the scheme; / R&D and other supporting costs previously approved by Australian tax authorities; / estimated amounts, timing and geographical location of future costs related to the projects for which applications have been approved to date; and / assessment of whether expenditure on projects for which approval has been given by Australian tax authorities relate to Australian or overseas expenditure. 40 4 . C R I T I C A L A C C O U N T I N G J U D G E M E N T S A N D K E Y S O U R C E S O F E S T I M A T I O N U N C E R T A I N T Y S (CONT.) 4.2 Key sources of estimation uncertainty Share‑based payment transactions The Group measures the cost of equity‑settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Fair values are determined internally using Binomial models. The related assumptions are detailed in note 28. The accounting estimates and assumptions relating to equity‑settled share‑based payments have no impact on the carrying amounts of assets and liabilities in future reporting periods but may impact expenses and equity. Should one or more of the assumptions and estimates used in estimating the fair value of share‑based payments change, this could have a material impact on the amounts recognised in equity and employee‑related expenses. 5 . A P P L I C A T I O N O F N E W A N D R E V I S E D A C C O U N T I N G S T A N D A R D S New and amended Accounting Standards that are effective for the current year The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current year. New and revised Standards and amendments thereof and Interpretations effective for the current year that are relevant to the Group include: / AASB 16 Leases; / AASB 2018‑1 Amendments to Australian Accounting Standards – Annual Improvements 2015–2017 Cycle; and / Interpretation 23 uncertainty over Income tax treatments and AASB 2017‑4 Amendments to Australian Accounting Standards – uncertainty over Income tax treatments. For the years ended 30 June 2020 and 2019, the Group has recognised an R&D tax incentive receivable of $8.5 million and $14.6 million respectively within the Consolidated Statement of Financial Position, with a corresponding amount recognised within income tax benefit within the Consolidated Statement of Profit or Loss and Other Comprehensive Income. the R&D tax incentive receivable as at 30 June 2020 is based on the legislation as currently enacted as at 30 June 2020. Any proposed changes to the legislation, such as rate changes to the eligibility requirements, may have a retrospective impact if the legislation is passed in its currently proposed form. Investment tax credits such as the R&D tax incentive are outside of the scope of AASB 112 “Income Taxes” and AASB 120 “Accounting for Government Grants and Disclosure of Government Assistance.” Based on the guidance in AASB 108 “Accounting Policies, Changes in Accounting Estimates and Errors,” companies need to make an accounting policy choice on how to present these incentives, which in practice is done by either analogising with AASB 112 or with AASB 120. In the Group’s opinion, the R&D tax incentive should be presented by analogising to AASB 112 because the nature of the incentive is considered to be more closely aligned to income taxes, based on the following considerations: / the R&D tax incentive is considered an income tax offset which will be offset against the Group’s tax obligation if and when the Group returns to a net tax payable position. In addition, whilst the Group is currently eligible to receive cash payments under the scheme since its consolidated revenue is currently below $20 million, if and when the Group generates revenue in excess of $20 million the R&D tax incentive will become non‑refundable and can only be offset against any future income tax payable by the Group. / The ATO, which is the tax authority in Australia, manages the annual claims process as the R&D tax incentive is included in the Group’s annual income tax return. / the Ato is also responsible for making the R&D tax incentive cash payment if a company is eligible for a cash refund under the program, oversees compliance with the requirements of the R&D tax incentive scheme and performs pre‑issuance reviews. Income tax The Group’s accounting policy for taxation requires judgments as to the differences between tax and accounting treatments of income and costs recognised in the Consolidated Statement of profit or loss and other Comprehensive Income. Judgment is also required in assessing whether deferred tax assets and liabilities are recognised in the statement of financial position and if accumulated income tax losses can be used to offset potential future tax profits. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 41 5 . A P P L I C A T I O N O F N E W A N D R E V I S E D A C C O U N T I N G S T A N D A R D S (CONT.) Lease incentives (e.g. rent‑free period) are recognised as part of the measurement of the right‑of‑use assets and lease liabilities whereas under AASB 117 they resulted in the recognition of a lease incentive, amortised as a reduction of rental expenses generally on a straight‑line basis. under AASB 16, right‑of‑use assets are tested for impairment in accordance with AASB 136 Impairment of Assets. For short‑term leases (lease term of 12 months or less) and leases of low‑value assets (such as photo copier and telephones), the Group has opted to recognise a lease expense on a straight‑line basis as permitted by AASB 16. This expense is presented within ‘administrative expenses’ in profit or loss. Financial impact of the initial application of AASB 16 The Group’s previous lease for Opthea’s office premises expired on 14 July 2019: the adoption of AASB 16 did not have a material impact on the Group’s results on the date of transition. Following the renewal of the leased office premises on 15 July 2019, the Group recognised a right‑of‑use asset of $365,264 and a corresponding lease liability of $365,264 in respect of this lease during the year ended 30 June 2020. the impact on profit or loss in the year ended 30 June 2020 was to decrease occupancy expenses by $110,800; increase depreciation by $121,754; and increase finance interest expense by $7,680. under AASB 117, all lease payments on operating leases are presented as part of cash flows from operating activities. During the year ended 30 June 2020, the impact of the changes under AASB 16 reduced the cash used in operating activities by $100,189 and decreased net cash generated from financing activities by the same amount. Other pronouncements adopted for the first time in the current year In the current year, the Group has applied a number of amendments to Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are effective for an annual period that begins on or after 1 July 2019. their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. AASB 16 Leases In the current year, the Group has adopted AASB 16 Leases, which is effective for annual periods that begin on or after 1 January 2019. AASB 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right‑of‑use asset and a lease liability at commencement for all leases, except for short‑term leases and leases of low value assets. Details of these new requirements are described in note 3. The date of initial application of AASB 16 for the Group is 1 July 2019. the Group has applied AASB 16 using the cumulative catch‑up approach which: / requires the Group to recognise the cumulative effect of initially applying AASB 16 as an adjustment to the opening balance of retained earnings at the date of initial application; and / does not permit restatement of comparatives, which continue to be presented under AASB 117 Leases and Interpretation 4 Determining whether an Arrangement Contains a Lease. The Group has made use of the practical expedient available on transition to AASB 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with AASB 117 and Interpretation 4 will continue to be applied to those leases entered or changed before 1 July 2019. The change in definition of a lease mainly relates to the concept of control. AASB 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. This is in contrast to the focus on ‘risks and rewards’ in AASB 117 and Interpretation 4. Impact on lease accounting Former operating leases AASB 16 changes how the Group accounts for leases previously classified as operating leases. under AASB 117, operating lease payments were recognised as an expense in profit or loss on a straight line basis over the lease term. Applying AASB 16, for all leases (except as noted below), the Group: / Recognises right‑of‑use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of the future lease payments; / Recognises depreciation of right‑of‑use assets and interest on lease liabilities in profit or loss; and / Separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated statement of cash flows. 42 5 . A P P L I C A T I O N O F N E W A N D R E V I S E D A C C O U N T I N G S T A N D A R D S (CONT.) New and revised Australian Accounting Standards and Interpretations on issue but not yet effective At the date of authorisation of the financial statements, the Group has not applied the following new and revised Australian Accounting Standards, Interpretations and amendments that have been issued but are not yet effective: Standard/amendment AASB 17 Insurance Contracts – amendment to AASB 17 AASB 2015‑10 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and AASB 2017‑5 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections Effective for annual reporting periods beginning on or after 1 January 2023 1 January 2022 (Editorial corrections in AASB 2017‑5 apply from 1 January 2018) AASB 2018‑6 Amendments to Australian Accounting Standards – Definition of a Business 1 January 2020 AASB 2018‑7 Amendments to Australian Accounting Standards – Definition of Material 1 January 2020 AASB 2019‑1 Amendments to Australian Accounting Standards – References to the Conceptual Framework AASB 2019‑3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform AASB 2019‑5 Amendments to Australian Accounting Standards – Disclosure of the effect of new IFRS Standards not Yet Issued in Australia AASB 2020‑1 Amendments to Australian Accounting Standards – Classification of Liabilities as Current or Non‑Current AASB 2020‑3 Amendments to Australian Accounting Standards – Annual Improvements 2018‑2020 and Other Amendments AASB 2020‑4 Amendments to Australian Accounting Standards – CoVID‑19‑Related Rent Concessions 1 January 2020 1 January 2020 1 January 2020 1 January 2022 1 January 2022 1 June 2020 In addition, at the date of authorisation of the financial statements the following IASB Standards and IFRS Interpretations Committee Interpretations were on issue but not yet effective, but for which Australian equivalent Standards and Interpretations have not yet been issued: extension of the temporary exemption from Applying IFRS 9 (Amendments to IFRS 4) Defers the application of IFRS 9 to 1 January 2023 (eligible insurers only) The new and revised Accounting Standards, Interpretations and amendments listed above are not expected to have a material impact on the amounts recognised or disclosures included in the Group’s financial statements. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 43 6 . S E G M E N T I N F O R M A T I O N The Group operates in one industry and one geographical area, those being the biotechnology and healthcare industry and Australia, respectively. The Group is focused primarily on developing a novel therapy for the treatment of highly prevalent and progressive retinal diseases. The chief executive officer regularly reviews entity wide information that is compliant with Australian Accounting Standards. There is only one segment for segment reporting purposes, and the information reviewed by the chief executive officer for the purpose of resources allocation and performance assessment is the same as the information presented in the consolidated financial statements. The Group’s only revenue stream in the current financial year is royalty income generated from licenses granted in respect of the Group’s intellectual property that are unrelated to the Group’s core business and the development of OPT‑302 and that are not under development. These licenses are primarily used by third‑party licensees for research purposes. All of the royalty income of $87,075 (2019: $159,064) was generated from customers based outside Australia. The Group does not have any major customers. All property, plant and equipment is located in Australia. 7 . R E V E N U E Sales based royalties Total revenue 8 . O T H E R I N C O M E Finance income Grant income Other Total other income 9 . R E S E A R C H A N D D E V E L O P M E N T E X P E N S E S Research project costs 1 Total research and development expenses 1 The research project costs relate to the research programs in respect to the treatment of eye diseases by OPT‑302. 2020 $ 87,075 87,075 2019 $ 159,064 159,064 2020 $ 721,330 62,500 – 2019 $ 755,776 77,745 3,300 783,830 836,821 2020 $ 2019 $ 17,954,073 31,347,891 17,954,073 31,347,891 44 1 0 . E X P E N S E S (a) Administrative expenses Employee benefits expenses: Salaries and fees Cash bonuses Superannuation Share‑based payments expense Total employee benefits expense Other expenses: Insurance Investor relations costs Audit and accounting Travel expenses Payroll tax Legal fees Advisory fees Other expenses Total other expenses Depreciation of: Equipment and furniture Leasehold improvements Right‑of‑use asset Total depreciation expense Loss on disposal of non‑current assets 2020 $ 2019 $ 2,124,792 2,020,795 288,811 210,383 1,078,481 414,423 217,592 967,511 3,702,467 3,620,321 500,953 379,255 330,318 66,420 201,172 555,622 620,745 498,680 377,181 411,181 138,156 84,103 87,247 22,464 – 401,009 3,153,165 1,521,341 21,754 513 121,754 144,021 19,898 13,195 – 33,093 1,854 – Total administrative expenses 7,001,507 5,174,755 (b) Occupancy expenses Operating lease rentals Short term and low value lease expenses Lease incidental costs Total occupancy expense – 78,883 2,239 31,607 – 30,021 33,846 108,904 Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 45 1 1 . I N C O M E T A X (a) Income tax benefit The major components of income tax benefit are: Statement of Profit or Loss and Other Comprehensive Income Current tax Current income tax credit Deferred tax In respect of the current year 2020 $ 2019 $ 8,533,123 14,636,973 8,533,123 14,636,973 – – Total income tax benefit recognised in the Statement of Comprehensive Income 8,533,123 14,636,973 (b) Current tax receivable Research and Development Tax Incentive Credit receivable 8,533,123 14,636,973 (c) Numerical reconciliation between aggregate income tax benefit recognised in the Statement of Profit of Loss and Other Comprehensive Income and benefit calculated per the statutory income tax rate A reconciliation between income tax benefit and the product of accounting loss before income tax multiplied by the Group’s applicable income tax rate is as follows: Accounting loss before tax At the Company’s statutory income tax rate of 27.5% R&D tax incentive on eligible expenses non‑deductible R&D expenditure Other non‑deductible expenses – share‑based payment expense Other tax‑deductible expenditure Amount of temporary differences and carried forward tax losses not recognised 2020 $ 2019 $ (25,062,404) (35,547,034) 6,892,161 9,775,434 8,533,123 14,636,973 (5,394,503) (9,261,833) (296,582) (266,066) 243,756 304,828 (1,444,832) (552,363) Income tax benefit reported in the Statement of Profit or Loss and Other Comprehensive Income 8,533,123 14,636,973 46 1 1 . I N C O M E T A X (CONT.) (d) Recognised deferred tax assets and liabilities in statement of financial position Deferred income tax at 30 June relates to the following: Deferred tax liabilities: Interest and royalty income receivable (future assessable income) Deferred tax assets related to temporary differences: Accrued expenses and other liabilities Employee provisions Other miscellaneous items Less: temporary differences not recognised Net deferred tax recognised in the statement of financial position 2020 $ 2019 $ (103,135) (103,135) (56,114) (56,114) 441,162 187,311 546,964 151,821 154,933 276,942 1,175,437 583,696 (1,072,302) (527,582) – – (e) Unrecognised temporary differences Temporary differences with respect to deferred tax assets associated with intellectual property and other miscellaneous items which have a low probability of realisation are unrecognised. These amounted to $1,072,302 at year end (2019: $527,582). (f) Carry forward unrecognised tax losses The Group had income tax losses of $17,287,687 and capital losses of $877,704 at year end (2019: income tax losses of $15,819,190 and capital losses of $877,704) for which no deferred tax asset is recognised on the statement of financial position as they are currently not considered probable of realisation. These tax losses are available indefinitely for offset against future assessable income subject to continuing to meet relevant statutory tests. (g) Franking credit balance The franking account balance at the end of the financial year at 30% is $330,630 (2019: $330,630), which represents the amount of franking credits available for the subsequent financial year. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 47 1 2 . E A R N I N G S P E R S H A R E The following reflects the income used in the basic and diluted earnings per share computations: (a) Earnings used in calculating earnings per share Net loss attributable to ordinary equity holders of the parent (b) Weighted average number of shares 2020 $ 2019 $ (16,529,281) (20,910,061) Weighted average number of ordinary shares on issue for basic earnings per share 260,795,745 232,795,371 Effect of dilution: Share options – – Weighted average number of ordinary shares adjusted for the effect of dilution 260,795,745 232,795,371 Loss per share (basic and diluted in cents) 6.34 8.98 There have been no other transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of this financial report. Diluted earnings per share is calculated as net loss divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. Options granted under the Long Term Incentive (LTIP) and Non‑Executive Director Share and Option (NED Plan) plans would generally be included in the calculation due to the conditions of the issuance being satisfied. As the Group is in a loss position, the options are anti‑dilutive and, accordingly, the basic loss per share is the same as the diluted loss per share. A total number of 18,044,000 options outstanding 30 June 2020 were anti‑dilutive and were therefore excluded from the weighted average number of ordinary shares for the purpose of diluted earnings per share. These options related to the following option plans: NED Plan LTIP All 18,044,000 outstanding options at 30 June 2020 were exercisable as of that date (2019: 9,905,000). 1 3 . C U R R E N T A S S E T S – C A S H A N D C A S H E Q U I V A L E N T S Cash at bank and in hand Short‑term deposits Total cash and cash equivalents 2020 $ 2019 $ 6,000,000 6,000,000 12,044,000 12,919,000 18,044,000 18,919,000 2020 $ 2019 $ 3,020,382 1,034,919 59,000,000 20,500,000 62,020,382 21,534,919 Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of cash and cash equivalents represent fair value. Short term‑deposits are with two major Australian banks and are made for varying periods of between 30 and 90 days, depending on the immediate cash requirements of the Group, and earn interest at a fixed rate for the respective short‑term deposit periods. At year end, the average rate was 1.01% (2019: 2.36%). 48 1 4 . C U R R E N T A S S E T S – R E C E I V A B L E S Interest receivable GST receivable 1 Royalties receivable 1 Total current receivables 2020 $ 81,478 152,866 50,047 2019 $ 102,162 91,736 101,888 284,391 295,786 1 the GSt and Royalties receivables are non‑interest bearing. there were no receivables with a material expected credit loss recorded during the financial year (2019: nil). 1 5 . N O N ‑ C U R R E N T A S S E T S – I N V E S T M E N T S I N F I N A N C I A L A S S E T S Listed Australian shares – at fair value 1 Details of listed Australian shares Listed investments 2020 Non‑current investments: Antisense Therapeutics Ltd Optiscan Imaging Limited Total listed investments 2019 Non‑current investments: Antisense Therapeutics Ltd Optiscan Imaging Limited Total listed investments 2020 $ 2019 $ 289,980 714,118 Ownership interest Fair value at 30 June 2 Disposal in the financial year 3 Fair value gain/(loss) recognised in OCI 4 Opening fair value – 1.73% 1.24% 1.76% – (482,978) 249,399 233,579 289,980 289,980 – (190,559) 480,539 (482,978) 58,840 714,118 233,579 (339,047) 317,860 254,766 480,539 – (57,996) 538,535 714,118 (339,047) 259,864 793,301 1 These financial assets are investments in equity instruments and are not held for trading, they are held for medium to long‑term strategic purposes. Accordingly, the Group has elected to designate these investments in equity instruments as at FVTOCI as recognising short‑term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s strategy of holding these investments for long‑term purposes and realising their performance potential in the long run. 2 The fair value represents the share (bid) price at year end and does not include any capital gains tax or selling costs that may be applicable on the disposal of these investments. These non‑current investments in listed shares consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate. 3 During the year ended 30 June 2019, 49% of the Group’s investment in Antisense therapeutics ltd (Anp) was sold for net proceeds of $339,047. As a result, $214,046 of the previously unrealised net fair value gains recorded in the fair value of investments reserve was realised at this date. Subsequently, during the year ended 30 June 2020, the Group disposed of its remaining investment in Anp for net proceeds of $482,978. As a result, $249,399 of the previously unrealised net fair value gains recorded in the fair value of investments reserve was realised at this date. In accordance with the Group’s accounting policy, the realised gain remains within the fair value of investments reserve. The fair value of the investment in ANP at the disposal date was A$482,978. The Group disposed of the investment in line with its Treasury and Investments Policy. 4 A fair value increase of $58,840 (2019: $259,864) in the carrying value of investments has been made through other comprehensive income in the year due to a net increase in their market value in the year. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 49 1 6 . R I G H T ‑ O F ‑ U S E A S S E T S Right of use asset the Group has a three‑year lease contract for its head office premises in Melbourne, Australia which commenced on 15 July 2019. the agreement does not contain any extension options. the carrying amount of the lease at 30 June 2020 is as follows: Right‑of‑use Asset Cost opening balance as at 1 July Additions Right‑of‑use Asset Depreciation opening balance as at 1 July Charge for the period Net carrying amount at 30 June Lease liabilities Lease liabilities are as indicated below. 2020 $ 2019 $ – 365,264 365,264 – (121,754) (121,754) 243,510 – – – – – – – At the commencement date of the lease of its office premises, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term ending on 14 July 2022, using an incremental borrowing rate of 3% Carrying amount at 1 July New lease Payments Carrying amount at 30 June Maturity analysis: Year 1 Year 2 Less: unearned interest Analysed into: Current portion Non‑current portion Amounts recognised in profit or loss: Depreciation expense on right‑of‑use asset Lease finance costs Expense relating to leases of low value assets the Group did not have any short‑term leases during the year ended 30 June 2020. 2020 $ – 365,264 (100,189) 265,076 152,723 127,713 280,436 (15,360) 265,076 145,043 120,033 265,076 121,754 7,680 9,669 139,103 2019 $ – – – – – – – – – – – – – – – – 50 1 7 . C U R R E N T L I A B I L I T I E S – P A Y A B L E S Creditors (unsecured) 1 pAYG tax liability Total current payables 1 Creditors are non‑interest bearing and are normally settled on 30 day terms. 1 8 . C U R R E N T L I A B I L I T I E S – P R O V I S I O N S Annual leave Long service leave Total current provisions 1 9 . N O N ‑ C U R R E N T L I A B I L I T I E S – P R O V I S I O N S Long service leave 2 0 . C O N T R I B U T E D E Q U I T Y (a) Ordinary shares Issued and fully paid at 30 June Movement in ordinary shares: Opening balance Issue of shares in a private placement Issue of shares on exercise of options granted under the LTIP Issue of shares on exercise of quoted options Transfer from option reserve Ordinary shares on issue: Opening balance Issue of shares in a private placement Issue of shares on exercise of options granted under the LTIP Issue of shares on exercise of quoted options Fully paid ordinary shares carry one vote per share and carry the right to dividends. 2020 $ 2019 $ 5,838,114 5,895,925 56,919 56,017 5,895,033 5,951,942 2020 $ 403,479 237,455 2019 $ 320,132 218,415 640,934 538,547 2020 $ 40,197 2019 $ 24,844 2020 $ 2019 $ 162,102,553 113,021,993 113,021,993 98,403,149 48,660,560 420,000 – – – – 12,629,777 1,989,067 162,102,553 113,021,993 No: No: 249,414,839 202,637,888 18,867,930 875,000 – – – 46,776,951 269,157,769 249,414,839 Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 51 2 0 . C O N T R I B U T E D E Q U I T Y (CONT.) Issued capital at 30 June 2020 amounted to $162,102,553 (269,157,769 fully paid ordinary shares) net of share issue costs and tax. During the year ended 30 June 2020 the Company issued 18,867,930 ordinary shares in a private placement for net proceeds of $48,660,560. At 30 June 2020, the company had no quoted options on issue, all options had been exercised or expired by 25 november 2018. The fair value of the options at their issue date of $1,989,067, originally recognised in the options reserve (note 21), was transferred to contributed equity during the year ended 30 June 2019. Options granted to directors and employees The company has two share based‑payment schemes, the Long Term Incentive Plan (LTIP) and Non‑Executive Director Share and Option Plan. Options to subscribe for the Company’s shares have been granted under these plans to certain employees and directors. the company granted 8,844,000 options over ordinary shares under these plans during the year ended 30 June 2019 (note 28). These options had a weighted average fair value at their grant date of $0.22 per option. During the year 875,000 options granted under the ltIp were exercised for $420,000. no options were granted under the plans during the year ended 30 June 2020. (b) Capital management The Group is not subject to any externally imposed capital requirements. When managing share capital, management’s objective is to ensure the entity continues as a going concern as well as to provide benefits to shareholders and for other stakeholders. In order to maintain or achieve an appropriate capital structure, the Company may issue new shares or reduce its share capital, subject to the provisions of the Company’s constitution. the Group only commits to significant R&D expenditure when this is fully funded either by existing funds or further equity raises. 2 1 . A C C U M U L A T E D L O S S E S A N D R E S E R V E S (a) Movements in accumulated losses were as follows: Balance at 1 July Net loss for the period Balance at 30 June (b) R eserves Fair value of investments reserve (i) Share‑based payments reserve (ii) Option reserve (iii) Total reserves (i) Movement in fair value of investments reserve: Opening balance Fair value gains on investments in financial assets Closing balance (ii) Movement in share‑based payments reserve: Opening balance Share based payments expense Closing balance (iii) Movement in option reserve: Opening balance Transferred to contributed equity Closing balance 2020 $ 2019 $ (86,060,060) (65,149,999) (16,529,281) (20,910,061) (102,589,341) (86,060,060) 796,095 737,255 4,498,830 3,420,349 – – 5,294,925 4,157,604 737,255 58,840 796,095 477,391 259,864 737,255 3,420,349 2,452,838 1,078,481 967,511 4,498,830 3,420,349 – – – 1,989,067 (1,989,067) – 52 2 1 . A C C U M U L A T E D L O S S E S A N D R E S E R V E S (CONT.) (c) Nature and purpose of reserves Fair value of investments reserve This reserve records fair value changes on listed investments. Share‑based payment reserve This reserve is used to record the value of equity benefits provided to executives and employees as part of their remuneration. Option reserve On 25 November 2014 the company issued options to purchase 49,726,672 ordinary shares with an exercise price of $0.27 expiring on 25 November 2018. The fair value of the options at their issue date of $1,989,067 was recognised in the option reserve. The same amount, $1,989,067, was transferred to contributed equity on 25 November 2018 following the exercise and expiry of all quoted options. the balance on the option reserve at 30 June 2020 was nil (2019: nil). 2 2 . F I N A N C I A L R I S K M A N A G E M E N T O B J E C T I V E S A N D P O L I C I E S The Group’s principal financial assets comprise cash, receivables, short‑term deposits and investments in listed shares. The Group manages its exposure to key financial risks, including interest rate and currency risk in accordance with the Group’s financial risk management practices. The objective is to support the delivery of the Group’s financial targets whilst protecting future financial security. The Group’s other various financial assets and liabilities, such as receivables and payables, arise directly from its operations. The main risks arising from the Group’s financial assets and liabilities are interest rate risk, foreign currency risk, equity securities price risk and liquidity risk. The Group uses different methods to measure and manage different types of risks to which it is exposed. These include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rates and foreign exchange rates. Liquidity risk is monitored through future rolling cash flow forecasts. The board reviews and agrees policies for managing each of these risks as summarised below. Risk exposures and responses The Group has investigated the main financial risk areas which could impact on its financial assets and determined the impact on post tax (losses) or profits for a range of sensitivities. These can be seen in the post tax (loss)/profit impact for each risk area. For each risk area, the equity impact relates solely to reserve movements and excludes movements in accumulated losses as the impact of these can be seen within the post tax (loss)/profit impact. (i) Interest rate risk The Group’s exposure to market interest rates relates primarily to the short‑term deposits. The deposits are held with two of Australia’s largest banks. The objective of managing interest rate risk is to minimise the Group’s exposure to fluctuations in interest rates that might impact its interest income and cash flow. To manage interest rate risk, the Group invests the majority of its cash in short‑term deposits for varying periods of between 30 days and 90 days, depending on the short and long‑term cash requirements of the Group which is determined based on the Group’s cash flow forecast. This consideration also takes into account the costs associated with recalling a term deposit should early access to cash and cash equivalents be required. Cash is not locked into long‑term deposits at fixed rates so as to mitigate the risk of earning interest below the current floating rate. The Group does not have any borrowings (2019: nil). Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 53 2 2 . F I N A N C I A L R I S K M A N A G E M E N T O B J E C T I V E S A N D P O L I C I E S (CONT.) the following sensitivity analysis (an annual effect) is based on the interest rate risk exposures at 30 June 2020. At 30 June 2020, if interest rates moved, with all variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the following table: Judgements of reasonably possible movements + 0.50% (50 basis points) (2019: + 0.50%) – 0.50% (50 basis points) (2019: – 0.50%) Post tax (loss)/profit impact 2020 $ 2019 $ 206,700 71,903 (206,700) (71,903) Cost of investment 2020 $ – – 2019 $ – – the post tax figures include an offset for unrecognised tax losses (bringing the tax effect to nil) for the year ended 30 June 2020 (2019: Nil). Significant assumptions used in the interest rate sensitivity analysis include: / The reasonably possible movement of 0.5% was calculated by taking the interest rates as at balance date, moving these by plus and minus 0.5% and then re‑calculating the interest on term deposits with the ‘new‑interest‑rate’. / The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months from balance date. (ii) Price risk The Group’s investment in listed shares is exposed to equity securities price risk and as such their fair values are exposed to fluctuations as a result of changes in market prices. Equity price risk is the risk that the fair value of equities will decrease as a result of share price movements. The Group’s equity investments are publicly traded on the ASX and are designated and accounted for as investments in financial assets. The investments in listed shares are not held for short‑term trading. Their values are reviewed regularly by management and the board. The strategy for realising any part of these investments is determined based on the liquidity of the respective stocks, potential off‑market acquirers and likely developments in their values based on publicly available information. At 30 June 2020, had the share price moved with all other variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the table below: Judgements of reasonably possible movements Change in variables 10% increase in listed share price 10% decrease in listed share price (iii) Foreign currency risk Impact of loss after tax 2020 $ Impact on equity after tax 2020 $ Impact of loss after tax 2019 $ Impact on equity after tax 2019 $ 20,299 20,299 49,988 49,988 (20,299) (20,299) (49,988) (49,988) As a result of services provided by non‑related entities in the united States, Canada, united Kingdom and europe, part of the Group’s financial assets and liabilities are affected by movements in the exchange rate. The Group does not enter into any hedging transactions. 54 2 2 . F I N A N C I A L R I S K M A N A G E M E N T O B J E C T I V E S A N D P O L I C I E S (CONT.) At the reporting date, the Group has the following exposure to foreign currencies: 2020 Financial assets Cash Receivables Financial liabilities Payables Other financial liabilities Net exposure 2019 Financial assets Cash Receivables Financial liabilities Payables Other financial liabilities Net exposure Consolidated USD 2020 $ 61,680 37,547 EURO 2020 $ – – GBP 2020 $ – – (4,878,718) (14,887) (34,144) (237,820) – – (5,017,313) (14,887) (34,144) USD 2019 $ 551,719 101,888 (5,109,497) (25,592) (4,481,482) Consolidated EURO 2019 $ GBP 2019 $ – – – – – – – CAD 2020 $ – – – – – CAD 2019 $ – – (51,269) (4,351) – – (51,269) (4,351) the following sensitivity is based on the foreign currency risk exposures in existence at 30 June 2020. At 30 June 2020, had the Australian dollar moved with all other variables held constant, post tax (loss) profit and equity would have been affected as illustrated in the table below: Judgements of reasonably possible movements Consolidated AuD/uSD +10% (2019: +10%) AuD/uSD –10% Post tax (loss)/profit impact Cost of investment 2020 $ 2019 $ 2020 $ 2019 $ 319,284 285,185 (390,235) (348,560) – – the reasonably possible movements at 30 June 2020 are higher than at 30 June 2019 due mainly to the higher net exposure to the uS dollar. there was minimum or insignificant exposure to the GBp, euro and CAD during the current financial year. Significant assumptions used in the foreign currency exposure sensitivity analysis include: The reasonably possible movement of 10% was calculated by taking the currency spot rates as at balance date, moving these by 10% and then re‑converting the currencies into AuD with the ‘new‑spot‑rate’. this methodology reflects the translation methodology undertaken by the Group. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 55 2 2 . F I N A N C I A L R I S K M A N A G E M E N T O B J E C T I V E S A N D P O L I C I E S (CONT.) The net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next twelve months from balance date. Management believes the balance date risk exposures are representative of the risk exposure inherent in the financial instruments. (iv) Credit risk Credit risk is associated with those financial assets of the Group which comprise cash and cash equivalents, receivables and listed investments. The Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these investments. Credit risk is considered minimal as the Group transacts with reputable recognised Australian banks. (v) Liquidity risk Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. The Group has minimal liquidity risk because of the high balances of cash and cash equivalents; however the Group manages liquidity risk by maintaining adequate reserves and by monitoring forecast and actual cash flows and by matching the maturity profiles of financial assets and liabilities. The financial liabilities of the Group relate to trade payables that are all expected to be paid within 12 months. The Group’s objective is to maintain an appropriate cash asset balance to fund its operations. (vi) Fair value The Group has investments in listed equities which are calculated using the quoted prices in an active market and are considered level 1 fair value measurements. The Group does not have any derivative investments where the fair value is estimated using inputs other than quoted prices that are observable for the asset or liability, either directly (as prices) or indirectly (i.e. derived from prices). The Group also does not hold any financial instruments where fair value measurement uses observable inputs that require significant adjustments based on observable inputs to estimate its value. Details of the fair value of the investment in financial assets are disclosed in note 15 of the financial statements. the fair value of financial assets and financial liabilities in the consolidated statement of financial position at 30 June 2020 and 2019 is the same as their carrying amounts. The methods for estimating fair value are also outlined in the relevant notes to the financial statements. 2 3 . R E L A T E D P A R T Y D I S C L O S U R E S (a) S ubsidiaries The consolidated financial statements include the financial statements of Opthea Limited and the subsidiary in the following table: Name of company Vegenics Pty Ltd 1 Parent entity % equity interest 2020 % 100 2019 % 100 1 Opthea Limited is the ultimate parent entity. Vegenics Pty Ltd is incorporated in Australia and has the same financial year as Opthea Limited. (b) Transactions with related parties Balances and transactions between the Company and its subsidiary, a related party of the Company, have been eliminated on consolidation and are not disclosed in this note. 56 2 4 . C A S H F L O W S T A T E M E N T R E C O N C I L I A T I O N (a) Reconciliation to cash at the end of the year Cash at bank and in hand (note 13) (b) Reconciliation of net loss after tax to net cash flows from operations Net loss for the year Adjustments for: Income tax benefit recognised in profit or loss Depreciation of non‑current assets Net loss on disposal of non‑current assets Depreciation of right‑of‑use asset Share‑based payments Net exchange differences Changes in: Payables Receivables Prepayments Provisions Net cash flows used in operating activities before tax R&D tax incentive received Net cash flows used in operating activities (c) Reconciliation of borrowings arising from financing activities Balance at 1 July Non‑cash addition 1 Payment of lease liabilities Balance at 30 June 2020 $ 2019 $ 62,020,382 21,534,919 62,020,382 21,534,919 (16,529,281) (20,910,061) (8,533,123) (14,636,973) 22,267 1,854 121,754 33,093 – – 1,078,481 967,511 400,608 (259,092) (6,908,159) (13,895,461) (56,907) (1,427,978) 11,395 97,946 (54,029) (132,346) 117,740 65,497 (23,419,241) (36,202,403) 14,636,973 12,017,247 (8,782,268) (24,185,156) – 365,265 (100,189) 265,076 – – – – 1 non‑cash addition represents the new lease on the Company’s office premises in Melbourne, Australia that commenced on 15 July 2019. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 57 2 5 . C O M M I T M E N T S (i) Lease commitments – Group as lessee Lease commitments are in respect of low value leases which have not been recognised in the Statement of Financial Position. These leases are expensed on a straight‑line basis over the term of the lease. Within one year After one year but not more than five years 2020 $ 6,540 16,895 23,435 2019 $ 7,029 – 7,029 (ii) Research projects and license commitments The Group has entered into research and development contracts and intellectual property license agreements with various third parties in respect of services for the Phase 2a DME clinical trial and the clinical grade manufacture of OPT‑302. Expenditure commitments relating to these and intellectual property license agreements are payable as follows: Within one year After one year but not more than five years After more than five years 2020 $ 2019 $ 11,139,196 7,776,947 427,248 109,061 85,446 128,169 11,675,505 7,990,562 2 6 . C O N T I N G E N C I E S The Group is party to various research agreements with respect to which a commitment to pay is contingent on the achievement of research milestones. Assuming all milestones are achieved within the timeframes stipulated in the contracts, those which could become payable in less than one year total $382,790 (2019: $364,563) and those which could become payable in more than one year total $16,749,885 (2019: $16,363,559). under these license/collaboration agreements, payments are to be made only if certain research and clinical development milestones are achieved and royalties may become payable on any eventual sales of products developed under these agreements. the group had a bank guarantee outstanding at 30 June 2020 in respect of a rental deposit for its office premises of $57,281 (2019: $43,841). 2 7 . K E Y M A N A G E M E N T P E R S O N N E L (a) Compensation of Key Management Personnel Short‑term employee benefits Post employment benefits Share‑based payments expense Total compensation 2020 $ 2019 $ 1,011,460 1,002,359 96,089 619,325 95,225 752,306 1,726,874 1,849,890 Details of the key management personnel are included within the Remuneration Report section of the Directors’ Report. 58 2 7 . K E Y M A N A G E M E N T P E R S O N N E L (CONT.) (b) Other transactions and balances with director and key management personnel and their related parties There were no director and key management personnel related party transactions during the current or prior financial year. 2 8 . S H A R E ‑ B A S E D P A Y M E N T S (a) Recognised share based payment expenses The expense recognised for share‑based payments during the year is shown in the table below: Expense arising from equity‑settled share‑based payment transactions: Director and employee services received 2020 $ 2019 $ 1,078,481 967,511 (b) Non‑executive director and employee share option plans During the 2015 financial year, the Group introduced an ownership‑based compensation scheme for non‑executive directors, executives and senior employees, the Long Term Incentive Plan (LTIP) and Non‑Executive Directors Share and Option Plan (NED Plan). In accordance with the terms of the plans, as approved by shareholders at the 2014 annual general meeting, eligible non‑executive directors, executives and senior employees with the Group may be granted options to purchase ordinary shares. Each employee share option converts into one ordinary share of Opthea Limited on exercise. No amounts are paid or payable by the recipient on receipt of the option. The options carry neither rights to dividends nor voting rights and are not transferable. Options may be exercised at any time from the date of vesting to the date of their expiry. The number of options granted is subject to approval by the board and rewards executives and senior employees to the extent of the Group’s and the individual’s achievement judged against both qualitative and quantitative criteria as determined by the board on a case by case basis. The vesting condition of options granted under the LTIP and NED Plan is continuous service. Options/Rights series LTIP – director Grant date 7 March 2016 ltIp – director FY2019 29 November 2018 LTIP – employees 31 March 2016 ltIp – employees FY2018 23 August 2017 ltIp – employees FY2019 NED Plan 3 April 2019 7 March 2016 neD plan FY2019 29 November 2018 Grant date fair value Exercise price $0.19 $0.20 $0.24 $0.33 $0.26 $0.19 $0.20 $0.48 $0.855 $0.48 $1.16 $0.855 $0.48 $0.855 Expiry date 7 March 2021 Vesting date 30 June 2016 29 November 2022 29 November 2019 1 January 2022 1 January 2023 3 April 2023 7 March 2021 1 January 2017 30 June 2018 3 April 2020 30 June 2016 29 November 2022 29 November 2019 There has been no alteration of the terms and conditions of the above share‑based payment arrangements since the grant date. (c) Fair value of share options granted Where relevant, the expected life used in the model has been adjusted based on management’s best estimate for the effects of non‑transferability, exercise restrictions (including the probability of meeting market conditions attached to the option), and behavioural considerations. Expected volatility is based on the historical share price volatility over the past 4 or 5 years. Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 59 2 8 . S H A R E ‑ B A S E D P A Y M E N T S (CONT.) Grant date share price $0.38 $0.57 $0.70 $0.43 $0.67 $0.38 $0.57 Exercise price Fair value per option Expected volatility Option life Dividend yield $0.48 $0.855 $0.48 $1.16 $0.855 $0.48 $0.855 $0.19 $0.20 $0.24 $0.32 $0.26 $0.19 $0.20 65% 58% 65% 66% 57% 65% 58% 5 years 4 years 5 years 5 years 4 years 5 years 4 years 0% 0% 0% 0% 0% 0% 0% Risk free interest rate 2.09% 2.04% 2.09% 2.09% 2.04% 2.09% 2.04% Model used Binomial Binomial Binomial Binomial Binomial Binomial Binomial LTIP – director ltIp – director FY2019 LTIP – employees ltIp – employees FY2018 ltIp – employees FY2019 NED Plan neD plan FY2019 (d) Movements in share options during the year The following reconciles the share options outstanding at the beginning and end of the year: Balance at beginning of year Granted during the year: 30 June 2020 30 June 2019 Weighted average exercise price $ Number of options and rights Weighted average exercise price $ Number of options and rights 18,919,000 0.67 10,075,000 0.46 To employees and directors under the LTIP and NED Plan – – 8,844,000 0.855 Exercised during the year Expired during the year Balance at end of year Exercisable at end of year (875,000) – 18,044,000 18,044,000 0.48 – – – 0.68 18,919,000 0.68 9,905,000 – – 0.67 0.50 The share options outstanding at the end of the year had a weighted average exercise price of $0.68 (2019: $0.67) and a weighted average remaining contractual life of 626 days (2019: 716 days). 2 9 . N E T T A N G I B L E A S S E T B A C K I N G Net tangible asset backing per ordinary security 2020 $ 0.24 2019 $ 0.12 60 3 0 . A U D I T O R S ’ R E M U N E R A T I O N The auditor of Opthea Limited is Deloitte Touche Tohmatsu. Amounts received or due and receivable by Deloitte (Australia) and related network firms for: Audit or review of the financial report of the entity and any other entity in the consolidated group 615,000 84,565 Other services in relation to the consolidated group – – 615,000 84,565 2020 $ 2019 $ 3 1 . E V E N T S A F T E R T H E B A L A N C E S H E E T D A T E on 21 August 2020, the Company announced it had completed end‑of‑phase 2 meetings with the uS Food and Drug Administration and a Scientific Advice meeting with the European Medicines Agency to obtain guidance on the Company’s Phase 3 clinical development plans. The outcome of the meetings support the progression of OPT‑302 into Phase 3 and pre‑commercial development. The Company announced on 24 August 2020, it is planning to conduct a potential initial public offering of American Depository Shares (ADSs) in the u.S. representing opthea’s ordinary shares, which will remain listed on the ASX, and concurrent listing of the ADSs on Nasdaq. Any offering and listing of ADSs on Nasdaq would be intended to support Opthea’s product development activities, including its previously announced Phase 3 trials of OPT‑302 for the treatment of wet AMD. Except for the above events, no other matters or circumstances have arisen since the end of the reporting period, which significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years. 3 2 . P A R E N T E N T I T Y I N F O R M A T I O N The accounting policies of the parent entity, which have been applied in determining the financial information shown below, are the same as those applied in the consolidated financial statements. Refer to note 3 for significant accounting policies relating to the Group. (a) Financial position Current assets Non‑current assets Total assets Current liabilities Non‑current liabilities Total liabilities Net assets Issued capital Accumulated losses Option reserve Employee equity benefits reserve Fair value of investments reserve Total shareholders’ equity 2020 $ 2019 $ 71,126,092 36,279,568 570,670 768,181 71,696,762 37,047,749 (6,767,222) (6,368,040) (160,229) (24,844) (6,927,451) (6,392,884) 64,769,311 30,654,865 162,102,553 113,021,993 (102,628,167) (86,524,732) – – 4,498,830 3,420,349 796,095 737,255 64,769,311 30,654,865 Notes to the Consolidated Financial Statements (Cont.) O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 61 3 2 . P A R E N T E N T I T Y I N F O R M A T I O N (CONT.) (b) Financial performance Loss of the parent entity Other comprehensive income Total comprehensive loss of the parent entity Year ended 30 June 2020 $ Year ended 30 June 2019 $ (16,103,435) (20,820,825) 58,840 259,864 (16,044,595) (20,560,961) (c) Parent entity contractual commitments for acquisition of property, plant and equipment The parent entity does not have any contractual commitments for the acquisition of property, plant and equipment for the year ended 30 June 2020 (2019: nil). (d) Parent entity contingent liabilities The Company is party to various research agreements with respect to which a commitment to pay is contingent on the achievement of research milestones. Assuming all milestones are achieved within the timeframes stipulated in the contracts, those which could become payable in less than one year total $382,790 (2019: $364,563) and those which could become payable in more than one year total $1,492,880 (2019: $1,421,797). under these license/collaboration agreements, payments are to be made only if certain research and clinical development milestones are achieved and royalties may become payable on any eventual sales of products developed under these agreements. the parent entity had a bank guarantee outstanding at 30 June 2020 in respect of a rental deposit for its office premises of $57,281 (2019: $43,841). 62 Directors’ Declaration for the year ended 30 June 2020 In accordance with a resolution of the directors of Opthea Limited, we state that: 1. In the opinion of the directors: (a) the financial report and the notes thereto are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards, Corporations Regulations 2001, and International Financial Reporting Standards (IFRS) as disclosed in note 3 of the financial statements; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the financial year ended 30 June 2020. Signed in accordance with a resolution of the directors made pursuant to S.295(5) of the Corporations Act 2001. On behalf of the directors: Megan Baldwin CEO & Managing Director Opthea Limited Melbourne 28 August 2020 Geoffrey Kempler Chairman Opthea Limited O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 63 Independent Auditor’s Report Deloitte Touche Tohmatsu ABN 74 490 121 060 Tower 2, Brookfield Place 123 St Georges Terrace Perth WA 6000 GPO Box A46 Perth WA 6837 Australia Tel: +61 8 9365 7000 Fax: +61 8 9365 7001 www.deloitte.com.au Independent Auditor’s Report to the members of Opthea Limited Report on the Audit of the Financial Report Opinion We have audited the financial report of Opthea Limited (the “Company”) and its subsidiary (the “Group”), which comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and the directors’ declaration. In our opinion the accompanying financial report ofthe Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We gconducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to directors of the Company, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network 64 Independent Auditor’s Report (Cont.) Key Audit Matter Research & Development Tax Incentive The Group operates in the biotechnology market and is in the clinical research stage of developing a molecule asset, OPT-302, for eye diseases. The Group claims Research & Development tax incentives (“R&D tax incentives”) provided by the Australian Government as disclosed in Note 4.1. For the year ended 30 June 2020, the Group has recognised an R&D tax incentive receivable of $8.5 million within the consolidated statement of financial position, with a corresponding amount recognised within income tax benefit within the consolidated statement of profit or loss and other comprehensive income. Management exercises significant judgement in respect of R&D tax incentives claimed by the Group including: Determing the accounting policy used in accounting for the R&D tax incentive. Assessing the eligibility of R&D activities and costs attributed to those eligible R&D activities against the rules and regulations governing the R&D tax incentive. Determing the estimated amounts, timing and geographical location of future costs related to the projects for which R&D incentive applications have been approved to date. How the scope of our audit responded to the Key Audit Matter Our procedures included, but were not limited to: Assessing the design and implementation of key controls in relation to R&D expenditure and the preparation and review of the R&D tax incentive calculation. Assessing the accounting policy adopted by the Group to account for the R&D tax incentive. In conjunction with our R&D tax specialists we: Obtained an understanding of the rules and regulations governing R&D tax incentives and the basis used by the Group to recognise the incentive. Held meetings with the Group’s external R&D tax advisors to understand the process for the preparation and review of the R&D tax incentive submissions. Reviewed management’s documentation addressing how the Group’s R&D activities satisfy the eligibility criteria outlined in the rules and regulations governing the R&D tax incentives. On a sample basis, tested R&D expenses to supporting documentation. Tested on a sample basis, management’s apportionment of costs to these R&D activities and whether the underlying methodology used for the apportionment is consistent with the rules and regulations governing the tax incentive. Assessed management’s R&D project forecasts for eligible activities, including assessing the estimated amounts, timing and geographical location of future costs. We also assessed the appropriateness of the disclosures in Note 3, 4.1 and 11 to the financial statements. Other Information 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 report and our auditor’s report thereon. Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated. O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 65 If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible 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 Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is 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 the Australian Auditing Standards 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 this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as intentional omissions, involve collusion, fraud may misrepresentations, or the override of internal control. forgery, Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion. 66 Independent Auditor’s Report (Cont.) We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate thrests or related safeguards applied. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial report of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included in pages 18 to 24 of the Directors’ Report for the year ended 30 June 2020. In our opinion, the Remuneration Report of Opthea Limited for the year ended 30 June 2020 complies with section 300A of the Corporations Act 2001. Responsibilities The directors of Opthea Limited are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. DELOITTE TOUCHE TOHMATSU Vincent Snijders Partner Chartered Accountants Perth, 28 August 2020 O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u A l R e p o R t 67 ASX Additional Information 1 . D I S T R I B U T I O N O F E Q U I T Y S E C U R I T I E S the number of shareholders, by size of holding, of quoted fully paid ordinary shares as at 24 July 2020 is as follows: Category 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and Over Total Fully paid ordinary shares No. of holders No. of shares 2,859 1,521,817 2,680 6,933,272 722 734 5,524,301 19,548,347 103 235,630,032 7,098 269,157,769 Number of shareholders holding less than a marketable parcel of shares 349 41,971 2 . T W E N T Y L A R G E S T S H A R E H O L D E R S the names of the 20 largest holders of quoted fully paid ordinary shares and their respective holdings at 24 July 2020 are: Rank Name No. of shares % interest 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 CItICoRp noMIneeS ptY lIMIteD HSBC CuStoDY noMIneeS (AuStRAlIA) lIMIteD‑GSCo eCA J p MoRGAn noMIneeS AuStRAlIA ptY lIMIteD JAGen ptY ltD ARMADA tRADInG ptY lIMIteD HSBC CuStoDY noMIneeS (AuStRAlIA) lIMIteD NATIONAL NOMINEES LIMITED Bnp pARIBAS noMS ptY ltDuBS noMIneeS ptY ltD HSBC CuStoDY noMIneeS (AuStRAlIA) lIMIteD – A/C 2 CS tHIRD noMIneeS ptY lIMIteD MRS MARGARet lYnette HARVeY CS FouRtH noMIneeS ptY lIMIteD ll FAMIlY noMIneeS ptY ltD JuSt GRoup InVeStMent ptY ltD MontoYA ptY lIMIteD MeRRIll lYnCH (AuStRAlIA) noMIneeS ptY lIMIteD Bnp pARIBAS noMIneeS ptY ltD SAnDHuRSt tRuSteeS ltD 20 lGl tRuSteeS lIMIteD Totals: Top 20 holders of ordinary fully paid shares Total remaining holders balance 53,144,712 29,682,673 24,030,161 13,520,540 13,332,031 13,180,132 10,706,431 9,821,245 8,146,658 7,741,513 6,851,786 4,000,000 2,737,539 2,150,538 2,123,239 1,877,357 1,555,260 1,315,451 1,227,991 1,219,693 19.74% 11.03% 8.93% 5.02% 4.95% 4.90% 3.98% 3.65% 3.03% 2.88% 2.55% 1.49% 1.02% 0.80% 0.79% 0.70% 0.58% 0.49% 0.46% 0.45% 208,364,950 60,792,819 77.41% 22.59% 68 ASX Additional Information (Cont.) 3 . S U B S T A N T I A L S H A R E H O L D E R S the following information is current at 24 July 2020 based on information extracted from the substantial shareholding notices given to the Company by shareholders who hold relevant interests in more than 5 per cent of the Company’s voting shares: Name Regal Funds Management pty ltd Baker Brothers Life Sciences LP Jagen pty ltd Bank of America Corporation and its related bodies corporate KiFin Limited No. of shares 28,726,324 26,526,759 18,202,068 16,349,997 16,275,227 4 . V O T I N G R I G H T S Clauses 44 to 53 of the Company’s Constitution stipulate the voting rights of members. In summary, but without prejudice to the provisions of the Constitution, every member present in person or by representative, proxy or attorney shall have one vote for each ordinary share held by the member. The Company’s shares are quoted on the Australian Securities Exchange Limited (ASX code: OPT). Corporate Information C O M P A N Y Opthea Limited ABn 32 006 340 567 D I R E C T O R S Geoffrey Kempler B.Sc. Grad. Dipp. App. Soc. Psych (Chairman) Megan Baldwin PhD MAICD (Managing Director and Chief Executive Officer) Michael Sistenich MSc. Lawrence Gozlan B.Sc. (Hons) C O M P A N Y S E C R E T A R Y Mike Tonroe BSc(Hons) FCA MAICD R E G I S T E R E D O F F I C E Level 4, 650 Chapel Street, South Yarra, Victoria 3141 Principal Administrative Office Level 4, 650 Chapel Street, South Yarra, Victoria 3141 www.opthea.com Telephone: +61 (3) 9826 0399 B A N K E R S Commonwealth Bank of Australia Melbourne, Victoria A U D I T O R S Deloitte Touche Tohmatsu 550 Bourke Street, Melbourne, Victoria 3000 S O L I C I T O R S Gilbert and Tobin 101 Collins Street, Melbourne, Victoria 3000 S H A R E R E G I S T E R Computershare Investor Services Pty Ltd Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067 Telephone: +61 (3) 9415 4000 or 1300 850 505 (within Australia) S T O C K E X C H A N G E L I S T I N G Opthea Limited’s shares are quoted on the Australian Securities Exchange Limited ASX (code: OPT). www.colliercreative.com.au #OPT0019 O p t h e a | 2 0 1 9 - 2 0 2 0 A n n u a l R e p o r t opthea.com