Chairman and Acting CEO Report

Recent Developments
We have made considerable progress in the clinic, and our lead compound ART621, a potential drug for the treatment of inflammatory diseases such as rheumatoid arthritis and psoriasis, is now in a Phase II clinical trial for psoriasis in Australia. We have also recently been granted an Investigational New Drug (IND) application with the U.S. Food and Drug Administration (FDA) and this means we can start a rheumatoid arthritis trial by the end of this year.

Both of these are very important steps, not only for the development of ART621 itself, but also for the development of Arana as a clinical stage company. With our strong development pipeline we look forward to conducting further international clinical trials in the coming years.

We have also been very active in further developing our commercial partnerships. Over the last year, we announced partnerships with major Japanese biotechnology company Kyowa Hakko Kirin (KHK) and Germany-based Greenovation. We have also successfully completed a second collaborative project with pharmaceutical partner CSL Limited, and completed the humanisation and optimisation of antibodies for Vegenics (a wholly owned subsidiary of Circadian Technologies Limited) cancer treatment programme.   

The partnership with KHK is particularly exciting. We are co-developing ART104 as a new anti-cancer drug for the large and important colorectal cancer market. The agreement involved an upfront payment by KHK to Arana with additional milestones and royalties. Combining both parties’ technologies improves the chances of the successful development of an effective anti-cancer drug. It also allows Arana to retain 50% ownership of the product while reducing the risk and cost of development.

Highlighting our focus on human health activities, during the year we sold Peptech Animal Health. By doing so we have an ongoing saving of annual losses estimated to be in the range $2.0 million to $3.0 million.

We recently announced the resignation of Dr John Chiplin as Chief Executive Officer. We thank John for his service and contribution to Arana. John led the company through a period of rapid change and significant progress, including the sale of Arana’s Domantis shareholding, the successful merger last year of Peptech with EvoGenix and the rationalisation and focusing of the technology portfolio. The Board is now focussed on finding the best available person to lead Arana in its next stage of development from the pool of external and internal candidates.

We have also made some changes to the Board over the year, reflecting how we, as a company, have changed since the merger and the focus on our technologies and pipeline in human therapeutics. Greg Bundy, Bill Bartlett and Phil Jennings have left Arana’s Board and we thank them for their contributions as directors. Phil Jennings continues to serve Arana as Chief Scientific Officer.

The Board has recently been strengthened with the appointment of Gordon Black. Gordon brings a wealth of experience, in particular through his connections in the biotechnology industry, and this experience will be particularly useful as we move into the next phase of growth for the company.

We are continuing the search for a permanent Chairman.

Financials
We are in an excellent financial position – a financial position that has become ever more important in light of current market conditions. At our September financial year end we had a cash balance of $181.6 million. This has been built up by making successful strategic investments and through the commercialisation of our technologies.

The financial result this year was a loss of $4.1 million, compared to a profit of $133.4 million in the previous year, and reflects our transition to a clinical stage biotechnology company with associated increased research and development costs, in particular clinical trial costs. Last year’s profit also included the profit from the sale of Arana’s shares in Domantis Limited of $136.1 million.

Outlook
The global economic environment is of course having an impact on Arana. We are however, in a fortunate position - in that we have the financial resources to weather this crisis. Our cash position is very strong. This means we will not be impacted by contracting equity and credit markets, unlike many other Australian companies. We have more than sufficient cash reserves and ongoing revenues to meet our research and development needs and this allows us to remain focussed on the areas we can control, in particular the development of our product pipeline and our technology capabilities.

Our industry is in the midst of a wave of unprecedented patent expiries at a time when there is an acknowledged scarcity of new products entering the market. Arana, with its strong financial resources, should not only weather the financial crisis but has the capabilities to be one of a number of leading innovative companies around the world with the potential to help bring new truly innovative products to the marketplace. 

We recently announced an on-market share buy-back. In making this decision, the Board considered all available capital management options and believes that the share buy-back is a prudent use of the company’s funds given the unprecedented economic conditions at this time.

Finally, we would like to thank all our employees for their support over the year. We have a first class team at Arana – a team that is focussed on developing world-class therapeutics and strong commercial outcomes. The year ahead offers significant commercial promise for Arana - we are at an exciting clinical stage, we have strong commercial partnerships and we are well funded to enable the delivery of commercial goals.

Robin Beaumont Chairman

Steffen Nock Acting Chief Executive Officer