PYC THERAPEUTICS LIMITED — Capital/Financing Update 2012

Oct 15, 2012

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Market Announcements Platform Australian Securities Exchange Sydney NSW 2000

PHYLOGICA CONVERTING NOTE PLACEMENT TO RAISE $1.6 MILLION

PERTH, AUSTRALIA: October 16, 2012 – Phylogica Ltd (ASX: PYC, XETRA: PH7), an Australian peptide drug discovery company, announced today that it has agreed to raise $1.6 million of new capital through a placement of 16,000 unlisted converting notes each with an issue price of $100 (“Converting Notes”). The key highlights of the offering are:

• New capital of $1.6 million provides Phylogica with the balance sheet security to finalise anticipated R&D collaborations from a strong negotiating position

• New shares to be issued at up to 5.3 cents[1] per share, being a 104% premium to the recent market price[2] , thus seeking to minimise dilution of existing shareholders at the current market price

• Participation in the Converting Note transaction by the Company's largest shareholder, the Hockings Family, demonstrates confidence in both the management team and the Company's value proposition

The issue of the Converting Notes is subject to shareholder approval, which will be sought at the Company’s annual general meeting on 22 November 2012. The proposed Converting Note holders comprise Phylogica’s largest shareholder, the Hockings Family; other long-term shareholders; Directors, including Dr Wilson, Dr Watt and Mr Woolf; the Chief Operating Officer, Dr Hopkins, and some new investors.

Each Converting Note will convert into a variable number of Phylogica fully paid ordinary shares and potentially PYCOA options on the same terms as the existing PYCOA options listed on ASX. There is no obligation on the Company to redeem the Converting Notes for cash. The number of shares to be issued on the conversion of the Converting Notes will depend on the prevailing Phylogica share price leading into the date that the shares are issued, which is expected to be on or around 25 November 2013, and also whether the Company has achieved its objectives of signing new drug discovery alliances and revenue generation.

The Phylogica management team, whose bonuses were waived in FY2012, have agreed to be issued Incentive Options, subject to approval of shareholders at the annual general meeting, that are only exercisable if:

1 The issue price of the shares issued on conversion of the Converting Notes may be less than 5.3 cents per share depending upon the prevailing Phylogica share price leading into the date that the shares are issued and also whether the Company has achieved its objectives of signing new drug discovery alliances and revenue generation. The shares issued on the conversion of the Converting Notes will be issued at a discount to the market price of shares leading into the conversion date, however, this may still be at a premium to the current share price.

2 the share price close on 15 October 2012 of 2.6 cents

PO Box 8207, Subiaco East, Western Australia 6008 Tel: +61 8 9384 3284 Fax: +61 8 9284 3801 www.phylogica.com ABN 48 098 391 961

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• the daily volume weighted average price of shares over the 5 trading days preceding and not including the conversion date of the Converting Notes is at least 10 cents; and

• if the Company has either i) entered into three or more binding research and development collaborations on similar financial terms to the Company’s existing agreement with Janssen Biotech; or ii) entered into three or more binding research and development collaborations which in aggregate provide the Company a financial outcome equal to or greater than having entered into three binding research and development collaborations on similar financial terms to the Company’s existing agreement with Janssen Biotech.

The Converting Note structure provides the Company with the benefit of receiving new capital shortly after the date of the annual general meeting while not needing to determine the number of shares and, if applicable, PYCOA options to be issued for that capital, until a date in the future when the share price has had the opportunity to increase from its current level and the Company has had the opportunity to achieve its stated goals.

The number of shares to be issued on the conversion of Converting Notes is determined by the following formula and will be calculated on the conversion date of the Converting Notes:

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Where:

A is the number of shares to be issued B is the aggregate value of Converting Notes C is the Issue Price per share

The Issue Price per share will be the lesser of:

• $0.053; and

• the price determined by applying the Specified Discount (see below) to the average of the daily volume weighted average price of shares over the 30 trading days preceding and not including the conversion date of the Converting Notes.

The Specified Discount will be:

• 40% if the Company has not entered into any binding research and development collaborations on similar financial terms to the Company’s existing agreement with Janssen Biotech;

• 35% if the Company has entered into one binding research and development collaboration on similar financial terms to the Company’s existing agreement with Janssen Biotech or any number of binding research and development collaborations, which in aggregate provide the Company an equivalent financial outcome;

PO Box 8207, Subiaco East, Western Australia 6008 Tel: +61 8 9384 3284 Fax: +61 8 9284 3801 www.phylogica.com ABN 48 098 391 961

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• 30% if the Company has either i) entered into two binding research and development collaborations on similar financial terms to the Company’s existing agreement with Janssen Biotech; or ii) entered into two or more binding research and development collaborations which in aggregate provide the Company a financial outcome equal to or greater than having entered into two binding research and development collaborations on similar financial terms to the Company’s existing agreement with Janssen Biotech; or

• 25% if the Company has either i) entered into three or more binding research and development collaborations on similar financial terms to the Company’s existing agreement with Janssen Biotech; or ii) entered into three or more binding research and development collaborations which in aggregate provide the Company a financial outcome equal to or greater than having entered into three binding research and development collaborations on similar financial terms to the Company’s existing agreement with Janssen Biotech,

in the period commencing on the date that the Converting Notes are issued and concluding on the conversion date of the Converting Note, which is expected to be on or about 25 November 2013.

The maximum Issue Price per share will be 5.3 cents, which is a premium of 104% to the closing price of the Company’s shares on 15 October 2012, while the minimum issue price per share will be determined by how many binding new drug discovery alliances the Company has entered into as specified above, together with the market price of shares leading into the conversion date of the Converting Notes. Given the maximum Issue Price per share and the Specified Discount structure, the shares issued on the conversion of the Converting Notes will be issued at a discount to the market price of shares leading into the conversion date, however, this may still be at a premium to the current share price.

In addition to the shares, the Converting Note holders may be entitled to new PYCOA options in a ratio to the number of shares issued to them on the conversion date. If, the average of the daily volume weighted average price of Phylogica’s shares over the five trading days up to but excluding the day of the annual general meeting is:

• below 3.3 cents, the Converting Note holders will be issued two PYCOA options for every three shares issued to the Converting Note holders on the conversion date;

• equal to or above 3.3 cents but below 4 cents, the Converting Note holders will be issued one PYCOA option for every two shares issued to the Converting Note holders on the conversion date; and

• equal to or above 4 cents, the Converting Note holders will not receive any PYCOA options.

The conversion date is expected to be on or about 25 November 2013. However, the conversion date can be brought forward to an earlier date in relation to a potential or actual change of control, upon a winding up event or by agreement between the Company and a Converting Note holder.

PO Box 8207, Subiaco East, Western Australia 6008 Tel: +61 8 9384 3284 Fax: +61 8 9284 3801 www.phylogica.com ABN 48 098 391 961

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Dr Paul Watt, Phylogica’s CEO, commented on the financing: “We are delighted to have a mechanism to raise new capital, subject to shareholder approval, using an instrument that provides the opportunity of issuing the shares in the future at a premium to today’s share price. We are confident in achieving our goals over the next 12 months and we anticipate the share price will appreciate to reflect the added value of these achievements. We are grateful for the support of the Hockings Family and the other investors participating in this financing, who similarly have confidence in the management’s ability to execute on its strategy. This is a critical time for Phylogica to strengthen its balance sheet as we look to close several new deals and see our existing partnerships progress to the next stage.”

-ends-

For further information, please contact:

Nick Woolf CFO & VP, Corporate Development Tel: +61 417 986 005 nwoolf@phylogica.com

Rudi Michelson Monsoon Communications Tel + 61 3 9620 3333

About Phylogica

Phylogica Limited (ASX: PYC) is a biotechnology company based in Perth, Australia, and Oxford, UK, with a world-class drug discovery platform harnessing the rich biodiversity of nature to discover novel peptide therapeutics. The Company was incorporated in 2001 as a spin out from the Telethon Institute for Child Health Research (Perth, Australia) and the Fox Chase Cancer Centre (Philadelphia, USA). The Company’s drug discovery platform is based on its proprietary Phylomer[®] libraries of natural peptides, which have been optimised by evolutionary selection to have stable drug-like structures. Phylogica offers fully integrated drug discovery services to the pharmaceutical industry utilising its Phylomer[®] libraries and proprietary screening technologies. Its current partners include Roche, MedImmune (the worldwide biologics arm of AstraZeneca), Pfizer and Janssen (the pharmaceutical arm of Johnson & Johnson).

About Phylomer[®] Peptides

Phylomer peptides are derived from biodiverse natural sequences, which have been selected by evolution to form stable structures, which can bind tightly, and specifically to disease associated target proteins, both inside and outside cells. Suitable targets for blockade by Phylomers include protein interactions that promote multiple diseases, such as infectious diseases, cancer, autoimmunity and heart disease. Phylomer peptides can have drug-like properties, including specificity, potency and thermal stability, and are capable of being produced by synthetic or recombinant manufacturing processes. Phylomer peptides are also readily formulated for administration by a number of means, including parenteral or intranasal delivery approaches.

PO Box 8207, Subiaco East, Western Australia 6008 Tel: +61 8 9384 3284 Fax: +61 8 9284 3801 www.phylogica.com ABN 48 098 391 961