Opthea Ltd — Management Reports 2008

Sep 10, 2008

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new
horizons
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september 2008

a new direction

developing biological therapeutics for cancer & other serious diseases

contact

Level 1, 10 Wallace Ave Toorak, Vic 3142, Australia T +61 3 9826 0399 F +61 3 9824 0083

www.circadian.com.au

the Circadian team

from the CEO

Dear Shareholders

to the new Circadian.

I am honoured to have taken over as CEO of the company following the retirement of Circadian’s founder, Leon Serry, after his 24 years at the helm. Under Leon’s leadership, Circadian successfully spun out four companies and brought signifi cant wealth to many shareholders. Leon left Circadian in a strong fi nancial position, and this together with the company’s signifi cant IP portfolio provides a tremendous base for Circadian’s future growth as a drug development company.

As you may know, Circadian has undergone a signifi cant and positive transition in its business in the last few months.

We have moved from being a biotechnology investor and incubator of early stage technologies to a developer of therapeutics for cancer and other serious diseases.

Our new strategy is to focus on the outstanding commercial potential of our wholly owned subsidiary company Vegenics Limited which owns worldwide intellectual property rights to three of the most exciting new targets for the treatment of cancer, Vascular Endothelial Growth Factors (VEGF) C, D and the VEGFR-3 receptor.

I would like to take a moment to briefl y lay out the reasons why I believe Circadian is, simply put, one of, if not the most promising biotechnology company in Australia. In a nutshell, Circadian possesses all of the key attributes that industry executives and analysts consider the pillars of commercial success. These are: a strong intellectual property position, a promising product pipeline, commercial partnerships with other industry leaders, outstanding people to manage the company’s assets and, fi nally, suffi cient fi nancial resources to exploit our assets.

• Intellectual property. Under our Vegenics subsidiary, Circadian has assembled the world’s most comprehensive intellectual property portfolio relating to VEGF-C, VEGF-D and VEGFR-3. The value of these targets is highlighted by the success of Genentech’s multi-billion dollar anti-cancer drug Avastin® which is an antibody therapy against the closely related protein VEGF-A.

• Product pipeline. Circadian is currently developing three different biological drugs designed to block these

from the CEO (continued)

proteins. The most advanced, VGX-100, is currently in manufacturing scale-up with the objective to begin human clinical trials in 2010.

• Partnerships. Circadian has commercial partnerships with two highly prominent biotechnology companies, ImClone Systems Inc, a NASDAQ listed company and Ark Therapeutics Group plc, an LSE listed company, which is a world leader in gene therapy technology. Both of these companies are developing products under license from Circadian’s subsidiary Vegenics. We stand to receive substantial revenues on the future development and sales of these products.

• Outstanding management. I am very pleased that in the short time since my appointment, we have been able to recruit world class executives to support our commercial strategy. Our new staff and Product Development Review Group have past experience with some of the most respected companies in the industry including Glaxo SmithKline, Sanofi -Aventis, Schering, Amgen and others.

• Financial resources. While world fi nancial markets are in some uncertainty, Circadian has a clean balance sheet with over $57 million in cash and listed investments ($44 million and $13 million respectively, equating to approximately $1.25 per share).

Some of you may be asking why Circadian is changing its business model at this time. The fundamental reason is shareholder returns. Under our Vegenics subsidiary, now wholly owned by Circadian, we have assembled a product portfolio and intellectual property rights that we believe are of substantial value and worthy of much greater investment than would have been possible under our previous method of operation. It is our desire to provide shareholders with the appropriate return on investment

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from these valuable assets. This is only achievable if we sharpen the focus of our activities.

means to achieve their successful commercialisation. So Circadian is changing its business model, but not its philosophy – to develop important scientifi c discoveries that we are able to identify to improve human health and for the benefi t of our shareholders. Thank you for your support.

Our underlying competitive advantage built up over the past 24 years remains the same. Circadian will continue to identify revolutionary medical research and to utilise creative and rational

What is anti-angiogenesis therapy for cancer?

and approved for use in this disease as well as for breast and lung cancers. Annual sales of Avastin® exceed US$6 billion.

Perhaps the biggest breakthrough in the history of cancer treatment is the discovery that tumour growth can be blocked by cutting off their blood supply. Tumours cannot grow beyond a minute size (0.2 mm), without the development of new blood vessels to support their need for oxygen and nutrients, a process called “angiogenesis.” It turns out that tumours themselves actively secrete potent factors that stimulate angiogenesis. Realising this, the American doctor Judah Folkman proposed a new class of anticancer therapies that would “starve” tumours by inhibiting angiogenesis. The most successful of these drugs to-date is Avastin®, developed by Genentech. Avastin® was shown to significantly extend the lives of colon cancer patients

A major advantage of angiogenesis inhibitors is that their side-effects are generally far less severe than for classical chemotherapy drugs. Despite Avastin®‘s success, there is enormous scope for the development of additional and improved drugs in the class. Circadian is in a strong position to lead the race for discovery of these next-generation drugs. Avastin® is an inhibitor of the protein Vascular Endothelial Growth Factor (VEGF-A). Circadian controls a dominant intellectual property position over the closely related proteins VEGF-C and VEGF-D, which are promising targets for anti-angiogenesis therapy in their own right.

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Anti-angiogenesis treatment of a tumour. Blocking the pro-angiogenic factors secreted by the tumour inhibits the growth of new blood vessels, starving the tumour.

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snapshot of recent milestones
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8 June 2008 – Launch of Circadian Product Development Review Group. Circadian has recruited some of the most respected people in Australian biotechnology to assist in the development of its product pipeline.

The group is chaired by former Amgen executive Errol Malta. Past roles of the members have included positions with Amgen, Glaxo SmithKline, Aventis, Schering, Affymax and Maxygen. The members have a collective experience in developing over 150 drug candidates.

30 June 2008 – Prestigious publication confi rms role of Circadian target for cancer therapy.

A publication by Circadian’s collaborators has appeared in Nature , the world’s most respected scientifi c journal, demonstrating the importance of the protein VEGFR-3 in directing the formation of blood supply to tumours. The fi ndings provide strong support for the potential of VEGFR-3, whose commercial rights are owned by Vegenics, as a target for new cancer therapies.

13 August 2008 – Vegenics granted key strategic patent in the United States covering angiogenesis inhibitors. The patent which grants exclusive rights to VEGF-D and to the use of VEGF-D antibodies in all therapeutic indications and diagnostic applications, provides a major commercial advantage to Vegenics. It ensures that only Vegenics can commercialise VEGF-D antibodies for therapeutic applications in the United States, the world’s largest pharmaceutical market.

14 August 2008 - Circadian completes acquisition of 100% of Vegenics. Circadian completed the acquisition of its former partially owned subsidiary Vegenics, giving it complete ownership and control of rights to Vegenics’ extensive product pipeline and intellectual property.

Our business is to develop new biological therapeutic agents which can inhibit angiogenesis, primarily as novel anti-cancer agents and other diseases where angiogenesis is a key component.

Strategy:

• Develop therapeutics to proof of effi cacy in Phase II trials

• Subsequent clinical development with partners – large pharmaceutical and/or biotechnology companies

• Identify opportunities for earlier partnerships if appropriate

• Selectively exploit/ commercialise parts of the portfolio which are not in the angiogenesis area at earlier stages (e.g. similar to the Ark Therapeutics partnership)

• Objective is to mitigate development risk and use of

product pipeline

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discovery development clinical phase 1 clinical phase 2 clinical phase 3 indication
Trinam ®
Graft patency in dialysis
(Ark - licensee)
VEGFR3 Abs Selected tissue tumours – Head &
(ImClone - licensee) Neck cancers likely fi rst target
VGX-100
Selected tissue tumours – Prostate
(In-house)
VGX-200 series Selected tissue tumours –
(In-house) colorectal & certain lung diseases
VGX-300 Selected tissue tumours (lung),
(In-house) eye diseases
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New CEO Robert Klupacs

“It’s an exciting stage for us as a company, and I’m confi dent that we will be successful.”

Robert Klupacs was appointed in March 2008 as the new CEO of Circadian Technologies. As an entrepreneur Robert has been successful in commercialising technology and has established a number of early stage companies in the biotechnology sector both in Australia and in Singapore. This together with his experience as a patent attorney and expertise in intellectual property give him an ideal background to lead the successful commercialisation of Circadian’s promising product pipeline and extensive intellectual property portfolio.

Robert, who has been an executive of Circadian for 3 years, is the person primarily responsible for the creation of Vegenics, Circadian’s 100%-owned subsidiary. In doing so, he struck deals with a number of different companies and research institutes to acquire the rights to over 800 granted or pending patents. This established Vegenics in a dominant intellectual property position over several of the most promising targets for cancer drugs: the proteins VEGF-C, VEGF-D and VEGFR-3.

Since taking the reins at Circadian, he has guided a significant shift in its business model and corporate strategy. Moving from Circadian’s long-time model as an incubator of early-stage technologies and biotech investor, Robert has rapidly transformed the company into a developer of drugs for cancer, focused on the Vegenics technology assets.

“The reasons for our new strategy are several-fold. The old Circadian model was highly effective and led to the launch of several companies and creation of substantial wealth for many shareholders. However, it was more appropriate for an era of Australian biotechnology where most of our competitive advantage was in early-stage, academic discoveries. The industry is more mature now, and so we see the greatest opportunity for us in the development of pharmaceutical products that are at a more advanced phase in the value chain. In order to exploit these opportunities, we are transforming Circadian into an internationallycompetitive developer of biological proteins and antibodies primarily for cancer therapy. It’s an exciting stage for us as a company, and I’m confi dent that we will be successful.”

Prior to joining Circadian, Robert was founder and CEO of ES Cell International, a leader in the development of embryonic stem cell technology. From 1999-2001 he was Chief Operating Officer of the Monash Institute of Reproduction and Development, where he founded six start-up companies. From 1988 until 1999 he was employed by Amrad Corporation Limited (since acquired by CSL), where he was Director of Intellectual Property and a member of the executive team.

Outside of the office Robert is kept busy raising two young children together with his wife Diana, a jewellery designer.