Phosphagenics : 2016 July 29 Phosphagenics Newsletter

Welcome to the fourth instalment of the Phosphagenics shareholder newsletter. Our last shareholder update was provided in conjunction with our Annual General Meeting in May, where I provided shareholders with an overall update on the business, either in person (for those able to attend) or via the associated ASX release. I intend to provide shareholder updates and Newsletters on a regular basis (typically quarterly). The next shareholder update should be in line with our regular quarterly update schedule towards the end of October.

Since the last newsletter, I am pleased to report the business has really delivered increased value through new partnerships and clinical progress:

• The Company signed multiple agreements with a leading Japanese company. At the time of signing it was not possible to provide the name of the company to the Market but we are now pleased to announce that it is "Terumo Corporation", a leading Japanese healthcare company with a rapidly growing footprint in the international healthcare space. These agreements cover the options to license the TPM®/Oxymorphone and TPM®/Oxycodone patch, plus an R&D alliance for up to four other TPM® based products.

• We expanded the existing license with Themis Medicare Limited for its TPM®/Diclofenac gel, to include an additional 16 geographical markets.

• In Animal Health we reported the results of a second pig study - this time in grower/finisher pigs - designed to assess the commercial value of TPM® as a feed additive in the pig production market.

• We also launched a study in dairy cattle, a separate long- term study to assess the potential for TPM® to enhance milk quality and conception rates in dairy cattle; targeted for completion during the final quarter of 2017.

I have highlighted on multiple occasions that my business strategy for Phosphagenics is to:

1. assess: assess the portfolio, people and growth opportunity;

2. refine: streamline the Company and resources to focus on the most valuable products and technologies with the highest likelihood of commercialisation; and

3. partner and commercialise: actively seek and productively approach potential collaboration partners (both existing and new) so as to accelerate and optimise the future development of existing and new TPM® based assets as well as facilitate non-organic growth.

The milestones achieved within the Human Health business over the past few months prove our ability to execute the third phase of this process. I believe that our ability to achieve agreements with two international healthcare companies provides positive validation of our technology and strategic approach.

Partnerships, such as those signed since our last update, are valuable to Phosphagenics and Phosphagenics' shareholders for multiple reasons: potential upfront/milestone payments; external non-dilutive funding of project R&D; reduced drain on our cash reserves; and access to external expertise. Most importantly, these partnerships provide confirmation and validation that our technology and our assets are attractive to large biotechnology and pharmaceutical companies.

I believe that no matter how strong a company's primary technology is, an essential second component of any "partner and commercialise" strategy (as I mentioned at the AGM) involves the assessment of external "non-organic growth" opportunities that can be brought in by way of in-licensing, merger and acquisition. We continue to assess opportunities on a regular basis. Our targeted systematic approach gives us a clear criteria to evaluate opportunities that can deliver improved and sustainable growth for Phosphagenics. We continue to seek out these opportunities, especially as the Company's TPM® assets progress through development and are partnered.

We have also continued to investigate areas in the animal health and nutrition market where we believe TPM® has a strong likelihood of commercialisation. We are focused on two distinct opportunities: (i) the ability of TPM® to improve feed utilisation (as measured by "feed conversion ratio" or FCR) and (ii) the ability of TPM® to improve milk quality and fertility in dairy cattle. The first of our Animal Health studies reported earlier this year demonstrate that TPM® treatment could statistically improve FCR in young pigs. Our second study, where treatment was isolated to older (grower/finisher) pigs, indicated that they did not seem to benefit from treatment with TPM® (at doses 5 to 30 ppm) in the same way. Together these studies appear to support the concept that TPM® as a feed additive can potentially promote better wellbeing and growth, but the benefits may be more noticeable in younger or smaller animals. The next study is planned in poultry (broilers) and is expected to commence in the second half of 2016.

In parallel, during the second quarter of this year, we also initiated a study to investigate the potential of TPM® to improve milk quality and fertility in dairy cattle. The success of this study relies on a different value proposition to the FCR studies being undertaken in pigs and poultry.

Recently I have received a number of notes from shareholders anxious to hear updates on our ongoing legal matters; the ProPhase and Mylan arbitrations. As reported in our last update, the formal hearings in this arbitration were completed in the first quarter of 2016, with a decision expected within three to six months. We are now obviously nearing the end of that window and are hopeful for an imminent decision - although the timing of delivery is entirely at the discretion of the Arbitrator. We will provide shareholders with an update as soon as there is news to report.

Our arbitration against Mylan, in relation to TPM®/Daptomycin continues to progress. We asserted in our arbitration notices that Mylan/Agila Specialties breached several provisions under our agreements. Despite the arbitration proceedings, Phosphagenics' existing commercial agreement with Mylan remains in full force and effect pending the Arbitrator's decision. We remain confident that Phosphagenics has a strong claim and a favourable outcome should deliver a financial benefit in the form of a damages payment, in addition to the revenues that may flow to Phosphagenics from the existing agreement.

Phosphagenics' full year accounts were released at the end of February 2016 and showed revenue of $2.19m (2014: $2.05m). The Company reported a net loss after tax of $20.12m (2014:

$8.94m) which included a $7.84m impairment to the value of intangible assets. The cash position as at 31 December 2015 was $12.40m (2014: $20.68m). In addition to this, Phosphagenics received $2.4 million associated with the R&D tax rebate on 29 March 2016. An additional R&D tax rebate will be submitted in Q4 2016.

Phosphagenics' half year accounts will be released in August 2016.

Our active portfolio of businesses and products now includes:

• TPM®/Diclofenac Gel Commercialised (partnership expanded from 1 to 17 countries)

• TPM®/Oxycodone Patch Phase 2a trial results announced - Japan Partnership option signed

• TPM®/Oxymorphone Patch Reformulation ongoing - Japan Partnership option signed

• TPM®/Daptomycin Injectable Partnered (late phase development/Arbitration pending)

• TPM®/Tretinoin Gel Partner being sought

• TPM®/Propofol Injectable Partnered, Global

• TPM®/other delivery forms New candidates partnered, others under investigation

  Animal Health & Nutrition:

• TPM® Pig Feed efficiency Weaner + grower/finisher studies completed and reported

• TPM® Dairy Cattle Mastitis treatment Study initiated (1st site) 2Q 2016

• TPM® Poultry Feed efficiency Trialling to initiate in 2H 2016

  Production & Personal Care:

• Vital ET® Commercialised and partner relaunch planning underway

• TPM® non-GMP Commercialised - Production efficiency and margin improved

• BioElixia® Brand Negotiation for purchase ongoing (subject to arbitration)

PHOSPHAGENICS NEWS I JULY 2016

Over the past 12 -18 months we focused on developing data packages suitable to support and expand partnerships around our key assets. In the past 6 - 9 months, we worked to use this data to build relationships, and over the past quarter or so we have observed the fruits of this effort.

In this quarter we have made significant progress in building and expanding business relationships within the Human Health business. We announced two partnership agreements with one of Japan's largest healthcare companies, Terumo Corporation, covering several of Phosphagenics' existing and new products. Terumo is a leading Japanese healthcare company with a rapidly growing footprint in the international pharmaceutical space. Within these agreements are two different types of partnerships: (i) option agreements for both our opioid patches and (ii) R&D alliance agreements covering multiple other TPM®

-based (non-patch) assets.

Under the terms of the "Option Agreements -"Phosphagenics has received about $200,000 in the form of upfront option payments to maintain 6-month exclusivity and sponsorship of a US-based Scientific Advisory Board on opioids. Terumo will also conduct additional market research to confirm the development path and commercial opportunity for the products in Japan. If either or both options are exercised, and the companies enter into an exclusive license agreement, Phosphagenics expects to receive a licensing fee, payments upon the achievement of certain milestones, and royalties on commercial sales of the TPM®/opioid patches in Japan.

As part of the "R&D Alliance Agreement", the companies have agreed to collaborate on the global development of three additional pharmaceutical products leveraging Phosphagenics' proprietary TPM® technology, for the treatment of pain. Under the terms of this agreement, the two companies will jointly conduct an initial development program of about 24 months.

Terumo will lead and fully finance the development of our TPM®/Propofol injectable, building on the prototype already developed at Phosphagenics. Phosphagenics will lead the development of two additional novel TPM®-containing pharmaceutical products. Terumo will pay for all development costs, which are anticipated to be in excess of $1 million for the full 24-month period. In addition, upon the meeting of certain pre-defined success criteria, Phosphagenics would be entitled to success fees up to $1.5 million.

Upon meeting these success criteria, the two companies will also have the option to enter into a global development and licensing agreement for each of the three products. This agreement already establishes that Phosphagenics would retain marketing rights to Australia and New Zealand, Terumo would retain marketing rights to Japan, and the companies would equally share in all licensing fees and revenues gained from commercialisation of these three products in the rest of the world.

The option agreement with the TPM®/Oxycodone patch is particularly pleasing as it reinforces the message we provided to you in our last shareholder update: that the PHN study announced earlier this year not meeting its primary endpoint did not deter potential partners and that the strong positives associated with the patches' performance and the encouraging result from the 'post-hoc subpopulation analysis' continue to position it as a valuable and attractive opportunity to potential partners. We are jointly investigating options for a second study to build further efficacy data for this patch.

In support of the option agreement with the TPM®/Oxymorphone patch, the reformulation program with Tesa Labtec continues to progress well with the formulation of up to three new TPM®/ Oxymorphone patch candidates on-track to go into stability testing in 3Q 2016.

As we mentioned in the last update, the advantages that TPM® has added to daptomycin encouraged the Human Health business to move forward and investigate a number of other injectable candidates. This work is progressing well and has now gained further momentum with the recent announcement of the R&D alliance with Terumo around the development of a TPM®/Propofol injectable formulation. Formulation feasibility work on a number of potential candidates is ongoing.

We were also very pleased to announce that our Indian partner Themis Medicare will expand their license with TPM®/Diclofenac gel from 1 country (India) to 17 countries. In addition to a one- time payment of USD $30,000 for exclusivity to these territories, Phosphagenics will also receive a double-digit royalty on net sales of the product in addition to increased sales of TPM® for inclusion into the product. In addition, Themis has also modified its agreement with Novartis India from exclusive to non-exclusive allowing for Themis to potentially expand to other partners inside India itself. All this bodes well for Phosphagenics' future

potential royalty revenue and also increased revenue from the direct sales of TPM® itself.

.

PHOSPHAGENICS NEWS I JULY 2016

Building on the momentum of our recent partnering successes, our Human Health Business Development is focused on delivering further value in the following four key areas:

• Further expanding the opportunity for TPM®/Diclofenac gel. With the current data set available, our main targets for quick regulatory approval and launch are additional emerging markets, including Russia, as well as other parts of Eastern Europe, Asia, Africa, and Latin America.

• Developing partnerships (similar to those now found for the pain portfolio) to support other indications such as dermatology, the other key opportunity for TPM®.

• Expanding our partnerships around TPM®/injectable products (we already have two global agreements - TPM®/Daptomycin and TPM®/Propofol), we will be looking for further partnerships to leverage TPM® in the injectable space.

• Finally, as alluded to above, we also continue to look for additional external "non-organic growth" opportunities that can be brought in by way of in-licensing, merger and acquisition.

We are pleased to say that our publication strategy is on track and progressing well.

This too has benefited from our focus on reviewing all data, assessing what gaps need to be filled and preparing for partners. Although the actual process to publication can be long, since May 2015, we have submitted five manuscripts for publication,

one of which has been published in the Journal of Pharmaceutical Sciences, one is in the last phase of acceptance for publishing in Drug Delivery and Translational Research and a further three have been submitted and are awaiting feedback from each of the relevant journals, which will be disclosed once we are able to report on the progress of publication status.

These publications cover a combination of early and recent work and have been selected as the first group because they collectively begin to shape a foundation on which the more advanced work (especially clinical work) can refer. A table of these is included below.

The drafting of the next two manuscripts, in relation to our Phase 2 study of PHN and the Phase 1 oxymorphone patch study, has started. The drafts of these have also been useful in focusing business development discussions.

PHOSPHAGENICS NEWS I JULY 2016