INVION LIMITED — Board/Management Information 2011

Dec 12, 2011

12 December 2011

Dear Shareholder

I do not need to tell you that the last few months have been momentous for your company. An Extraordinary General Meeting (EGM) was called by a group of shareholders desirous of change at both the Board level and the executive management level. Prior to this meeting which was held on 4 November 2011 the previous Executive Chair, the Managing Director, the Chief Financial Officer all resigned from the company and the Board. The Company Secretary also resigned before the EGM. At the EGM shareholders elected Helen Cameron, Warren Brown and Ralph Craven as new directors.

Also a number of new directors had been appointed by the then Board prior to the EGM and the period between the EGM and the Annual General Meeting(AGM) saw 10 directors on the Board of your company. Prior to the AGM held on 29 November 2011 five directors resigned leaving five directors now serving on the board of CBio Limited. These directors are Dr Terje Kalland, Dr Thomas Lonngren, Ms Helen Cameron, Mr Warren Brown and Dr Ralph Craven. At the first board meeting after the AGM I was elected as Chair of the board.

We now have a five person board which is committed to the company and its shareholders. Ms Helen Cameron has been appointed as Interim Managing Director of the company for a three month period while the board considers the many opportunities opening up for CBio Limited. When the Board has confirmed the activities of the company early in the New Year the search for a new CEO will begin. We already have a number of potential candidates who have made contact with the Board. This is very encouraging.

As you are well aware CBio has conducted a Phase IIa RA trial using XToll injected subcutaneously. There is much activity in the RA drug development space. New candidates some of which can be taken orally are now in the later stages of testing. There has been debate about the interpretation of the results of CBio’s XToll Phase IIa RA trial. The enclosed newsletter highlights some of the discussion points that shareholders have raised following the trial.

We are very proud of the respect our scientists hold in the small drug development arena. The Board has appointed Dr Daina Vangas to the position of Chief Scientific Officer to guide the science in CBio as we enter this next phase of our development. A brief profile of Daina is included in the newsletter.

CBio Limited has had a long relationship with Novo Nordisk (NN). The Option Agreement between CBio and NN is still on foot and we await notice from NN regarding their desire to enter into negotiations with your company concerning a licensing agreement for the further development of XToll. In the meantime your Board is positioning CBio to take advantage of opportunities being presented to us to participate in the development of new drugs. Included in the newsletter is an article on Lupus. The possibility that XToll or one of its variants may be beneficial in the treatment of Lupus is being addressed by the Board.

I will endeavor to keep shareholders abreast of developments within CBio when I can. Commercially sensitive matters are always difficult to share at an early stage but everyone in CBio is determined to keep shareholders informed about what is happening in your company. May I take this opportunity to wish all of our shareholders the compliments of the season.

Everyone at CBio wishes you safe travels over the Christmas and New Year holiday period.

Yours faithfully

Dr Ralph Craven Chairman

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In recent weeks the company has been made aware of queries of shareholders relating to the development program for XToll and the rheumatoid arthritis clinical trial. We take this opportunity to respond.

Why didn’t the company dose higher in the IIa RA clinical trial? Would that not have improved the result?

There are two important points to be made. First, a higher dose arm was not possible at the time of the commencement of the IIa RA trial, as at the time drug formulation and stability studies limited the upper concentration of the drug. There are also regulatory restrictions to increasing dose-ranges too rapidly, without detailed studies to confirm safety. Significant work has been put into formulation and characterisation studies since the commencement of the RA trial. XToll is now able to be concentrated to 200mg/mL with good stability over a limited period, however continued formulation refinement is required. This process of continued improvement is standard in biological drug development. Second, at the doses tested, XToll has exhibited good tolerability and safety but, so far, insufficient efficacy in the treatment of rheumatoid arthritis. To suggest that a higher dose may be equally well tolerated and show good efficacy is a scientifically unsubstantiated speculation. The effects at higher doses, particularly over 12 weeks of treatment, are unknown.

Didn’t any patients do well on the trial? Why doesn’t the company release that information?

To ensure accuracy and scientific credibility, clinical trial data must be assessed by the statistical analysis plan that is submitted before the data is unblinded. The statistical analysis plan for the IIa RA trial had input from scientific, clinical and regulatory experts. The plan is thorough and has been wellregarded. It would be misleading to release non-statistically substantiated information.

What about the week 24 data? Did the number of ACR70s increase over time? Was the percentage of patients with at least an ACR20 at 24 weeks higher than the 42% response rate at week 12?

Yes, the number of ACR70s increased over time, however that does not mean there was an increase in ACR20s between 12 and 24 weeks.

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WHAT IS IL-6?

Interleukin 6 (IL-6) is a cytokine, or chemical messenger in the body, that is secreted by T lymphocytes and macrophages to stimulate an immune response in cases of illness or injury. In people with rheumatoid arthritis (RA) and other autoimmune diseases, excessive levels of IL-6 are produced, particularly in the thin tissue layer covering the joint. It is thought that high IL-6 levels lead to a range of complications in patients including anaemia, fatigue, depression, mood disorders, weight changes, increased risk of cardiovascular disease and osteoporosis.

would not necessarily have led to a different outcome for the trial.

For ethical reasons, any patient that did not achieve at least an ACR20 response at week 12 was classed as a ‘nonresponder’ and immediately transferred to a ‘rescue arm’ and placed on active drug. From this point, those patients are no longer part of the randomised ‘placebo-controlled’ section of the trial, and therefore their ACR20/50/70 response rates cannot be used. It is important to note that a patient who achieves an ACR70 response is also counted as an ACR50 and ACR20 responder – because if they experience at least a 70% improvement in symptoms, they have by definition also achieved at least a 50% and 20% improvement as well. The increase in the percentage of ACR70 responders in the blinded 75mg group after week 12 indicates that the patients who did respond did continue to have improvements in their disease activity – that is they did not feel only 20% or 50% better, but at least 70% better.

What is a biomarker?

A biomarker is an objective, biological measure that is used to assess health or make a diagnosis of disease. Biomarkers can be chemical, physical or biological, and they can help in early diagnosis, disease prevention, drug target identification,and drug response. TNF-alpha and IL-6 are examples of biomarkers of rheumatoid arthritis. In CBio’s IIa RA trial, blood serum levels of pro-inflammatory IL-6 were significantly reduced in those patients that received the 75mg dose of XToll. Circulating IL-6 levels are elevated in RA patients, however in the 75mg group, IL-6 levels approached the normal range reported for healthy subjects.

Why didn’t the company embark on the IND process before starting the IIa trial? Would that have led to a better outcome for the trial?

The Investigational New Drug (IND) process is a consultative process with the US Food and Drug Administration (FDA). In an IND, the FDA assess if an investigational drug has sufficient safety data, and in later development efficacy data as well, for it to be trialled in humans in the US. The FDA will advise what additional data and/or development steps may be required prior to the approval of a US-based trial. An IND is not required to perform clinical trials in any other country and indeed all countries have their own regulatory requirements. Embarking on an IND before commencing the IIa trial

How did CBio design its rheumatoid arthritis clinical trial?

There are clinical, scientific and ethical considerations that must be addressed in the design of any clinical trial. The FDA has guidance documents on trial design for many diseases, including RA. These guidances are designed to lead a company through the usual development pathway for drugs, so that all of the requirements for approval are met prior to submitting a drug for marketing approval. The FDA guidances also help a company consider what trials need to be performed to enable the drug to be used in the widest population as possible; i.e. to give the drug a broad labelling claim. CBio utilised the FDA guidance on RA trials in the design of the IIa trial. CBio also enlisted expert scientific, clinical and regulatory advice in its clinical trial design and clinical development program. CBio’s phase IIa RA clinical trial was a randomised, double-blind, placebo-controlled trial. For ethical and clinical reasons, patients on the trial were on a stable dose of the ‘gold standard’ RA treatment - methotrexate or MTX - for the duration of the trial.

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CBio is an Australian company with a global focus Innovation in the treatment of autoimmune and inflammatory diseases
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Has XToll already been tested in Lupus?

projects included drug development work, enhancement of the intellectual property portfolio, commencement of regulatory processes, studies into the mechanism of action (MOA) and preclinical studies into variants of XToll. A lupus clinical trial is not a small undertaking. The preclinical lupus animal studies, which are the precursor to clinical development in an indication, were run concurrently with the IIa RA study.

XToll has been tested in a lupus-like pre-clinical animal model. The results of this study were presented to the 2010 American College of Rheumatology conference and have been accepted for publication in the Oxford Journals ‘Nephrology Dialysis Transplantation’ journal. In summary the results of this study were: increased survival in XToll treated mice, significantly reduced signs of clinical inflammation in organs, improvement in cellular markers of inflammation, and significantly reduced clinical, biochemical and histological signs of lupus nephritis – the major cause of mortality in humans. It should be noted that animal models are artificially induced states that mimic certain aspects of the human disease and do not have the same root cause. Efficacy in an animal model does not necessarily guarantee effectiveness in humans.

In the above graph, why does it appear that the ACR20 response drops off after week 12?

Why didn’t the company run a lupus clinical trial in parallel with the RA trial?

The percentage response rate is always calculated via: ‘responders’ divided by ‘starters’, times 100. The reason the percentage of responding patients drops after week 12 is because the total number of blinded patients drops after week 12 - yet the response rate continues to be calculated on the starting number of patients. In this trial 53, 52 and 50 patients started on 75mg, 25mg and placebo respectively. By week 16 there were 19, 17 and 15 blinded patients on trial.

In 2009, the company agreed with shareholders that in order to realise the value of the XToll asset it must complete the IIa RA trial, finalise the clinical trial report and conclude a commercial transaction. Since that time the strategy of the company has been to complete a prioritised set of projects that could be carried out in parallel with the IIa RA trial, and that would add the greatest value to the XToll asset, by the time of any commercial discussions. These prioritised

CBio staff profile: Dr Daina Vanags, Chief Scientific Officer

Dr Vanags graduated with a BSc (Hons I) and PhD in Pharmacology from the University of Adelaide before undertaking postdoctoral appointments in Clinical Pharmacology at Oxford University, UK, and in Toxicology at the Karolinska Institute, Sweden. She has over 20 years experience in Clinical and Experimental Pharmacology, with 15 publications in peer-reviewed journals in the field of inflammation. Daina joined CBio in 2004 as a Clinical Scientist, working on clinical biomarker development and the management of early phase IIa clinical studies (in RA, psoriasis and MS). In 2007 Daina was promoted to Project Leader Clinical and Regulatory Affairs, responsible for all CBio’s pre-clinical and toxicology operations. In 2008 she was promoted to Head of Clinical Development and was responsible for the overall management of CBio’s phase II clinical trials, specialist assays relevant to clinical trials and preclinical studies. In December 2011, Daina

was promoted to Chief Scientific Officer. As CSO, Daina is responsible for the management and coordination of CBio’s research and development activities including clinical development, intellectual property, assay development, chemistry manufacturing and controls and quality control.

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CBio is focussed on developing new generation products for the treatment of autoimmune and inflammatory diseases A vision to improve patient lives
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Rheumatoid Arthritis: Global Treatment Trends
Since their emergence in the market Biological Disease Modifying Anti-Rheumatic Drugs (bDMARDS) have
revolutionised the treatment of RA throughout the world. bDMARDS help to treat pain, reduce symptoms,
and slow the progression of joint damage. The leading biological DMARDs for the treatment of RA have
been the tumor necrosis factor TNF inhibitors (or anti-TNF therapies). Until now, anti-TNFs have been the
mainstay of early management of RA with 86% of patients receiving these products. However,
rheumatologists predict that TNF use is set to change and estimate that first-line use of anti-TNFs will fall to
64% by 2015 in the face of higher usage of drugs that work by other mechanisms of action. Indeed, 2010
saw a general decline in the use of anti-TNFs across treatment lines. This provides an indication of the future
direction of the rheumatoid arthritis market suggesting that physicians will introduce drug therapies that act
via other mechanisms of action earlier at an earlier stage of the disease. Rheumatologists predict that by
2015, more patients will be prescribed products that work by alternative mechanisms and they anticipate
earlier usage of non-TNF biologics at first-line going forward, predicting a rise from 14% of first-line RA
patients to potentially 36% in 2015. In all countries, across all lines of therapy research shows that
rheumatologists believe that TNF inhibitors will be used in fewer RA patients in 2015. The US market
appears to offer the biggest opportunity for therapies that do not act on TNF targets. This is promising for
companies developing therapies with novel mechanisms of action.
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Lupus: Disease and Market Information

Lupus is a chronic, potentially life-threatening disease in which the body's immune system attacks healthy tissue causing debilitating joint pain, organ damage and skin rashes. The Lupus Foundation of America estimates that at least 5 million people worldwide have a form of lupus. Systemic lupus erythematosus (SLE) accounts for approximately 70 percent of all cases of lupus and in approximately half of these cases, a major organ such as the heart, lungs, kidneys or brain, will be affected. About 5% of children born to individuals with lupus will develop the illness, and it is believed that between 10-15 percent of people with lupus will die prematurely due to complications of the disease. The mainstay treatment for lupus is the steroid prednisone, which has serious side effects, and doctors and patient advocates say patients are desperate for new medicines. GlobalData estimate the SLE lupus market to be worth $350 million in 2009 with a projected compound annual growth rate of 6% and projected market value to exceed $2.5 billion in 2017. Products for lupus in the developmental pipeline are strong and pipeline molecules have a distinct advantage over the currently used off- label marketed drugs in that they are primarily first-in-class molecules, as in the case of XToll. In March 2011 the FDA approved the first new drug for lupus in more than 50 years – a reflection of the complexity of the disease and also a clear indication of a major unmet clinical need. Analysts expect the new drug, Benlysta, to reach blockbuster status, with sales eventually topping $1 billion a year.

CBio Limited, PO Box 8104, Sunnybank QLD 4109, Australia T +61 7 3841 4844 F + 61 7 3841 8189 E investor@cbio.com.au W www.cbio.com.au