The Science and Business of

a2®

University of Auckland Bioscience Enterprise Forum

12 July 2013

Dr Andrew J ClarkeChief Scientific Officer

A2 Corporation Ltd.

Presentation Outline

•Introduction - A2 Corporation Ltd

•Timeline – A2 Corporation Ltd

•Commercial Biotech Partners

•What is a2™?

•Timeline and Highlights of Research

•Commercialising the Potential of a2™

•Consumer Response to a2™

Detailed scientific summaries and study references contained on www.betacasein.org and www.betacasein.net

Introduction - A2 Corporation Ltd

• A2 Corporation Limited (“A2C”) is a is building a global business based on unique intellectual property relating to a2™ branded dairy products and technology

• Listed on the NZAX with a current market capitalisation of c.NZ$340m and achieved FY12 sales of NZ$62.5m with a profit after tax of NZ$4.40 million

• a2™ brand dairy products have a differentiated and unique proposition that delivers a tangible consumer benefit aligned with the global consumer health trends

• Evidenced by strong customer testimonials and a growing body of science

• Unique, innovative and global dairy brand, positioned at a price premium

• A2C is one of the fastest growing regional FMCG businesses in dairy with a2™ branded milk in NZ, Australia and now the UK; yoghurt produced under licence in Australia; and plans to launch infant formula into China in the second half of 2013.

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Timeline - A2 Corporation Ltd

• August 2000 - Founded by Howard Paterson and Dr Corran McLachlan

• April 2003 – Limited launch of a2 branded milk in Australia in NZ

• April 2004 - Listed on the NZAX

• April 2007 – Australian JV with Freedom Nutritional Products (ASX:FNP)

• July 2010 – JV wholly owned by A2C, FNP becomes key A2C stakeholder.

• November 2011 – Formed JV with Robert Wiseman Dairies (UK)

• April 2012 –Agreement with Synlait to produce a2™nutritional products

• October 2012 – a2™fresh milk launched in UK, China State Farm appointed as exclusive distributor of a2™ infant formula for China

• December 2012 - Listed on the NZX

• February 2013 – Included on NZX 50 Index

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Recent Activity

Commercial Biotech Relationships

• Synlait (NZ) • LIC (NZ) • Analytica (NZ) • iProteome (NSW) • Elizabeth Macarthur Agricultural Institute (NSW) • Australian Proteome Analysis Facility (NSW) • AgResearch (NZ) • Weatherbys (UK) • LGC Laboratories (UK)• Van Haeringen Group (EU) • Texas A&M (USA)• UC Davis VGL (USA)• Neogen (USA)• CAIQ Test (China)

Detailed scientific summaries and study references contained on www.betacasein.org and www.betacasein.net

What is a2™?

• a2™ products are naturally produced from cow’s milk, not a product of genetic engineering

• Comparable in composition to conventional cow’s milk with the sole exception of the beta casein protein component

• a2™ dairy products contain only the A2 type the protein beta casein

• A2 is recognised as being the original or ancestor beta casein gene in modern cattle

• The difference in structure between the beta casein variants can lead to a difference in their breakdown during digestion

• Anecdotal and consumer reports link a2™ products with improved digestive comfort and other intolerance type symptoms relative to A1 beta casein containing milk

• There is a strong and growing body of science supporting the reported advantages of maximising A2 at the exclusion of A1.

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What Is A2 Beta-Casein?

• About 30% of the protein in cows' milk is beta-casein

• Transports essential minerals and nutrients such as calcium and phosphorous

• There are genetic variants of beta casein; A1 and A2, with minor variants either classed as A1 or A2-like.

• When digested beta casein can produce a range fragments with well characterized biological activity

Composition of solids in

milkComposition of milk casein

Figure from: MILK PROTEIN POLYMORPHISM: DETECTION AND DIFFUSION OF THE GENETIC VARIANTS IN BOS GENUS, Annali della Facoltà di Medicina Veterinaria, Vol. XIX, 1999.  Università degli Studi di Parma ]

A2 is the Original type of Bovine Beta Casein

• A2 is recognised as being the original or ancestor beta casein gene in modern cattle.

• Originally all domesticated cows produced milk containing only the A2 type of beta casein, owing to natural genetic mutation, a variant of the A2 protein appeared.

• Termed A1, it differs very slightly in composition from the original A2 protein and both types have since given rise to a number of minor related sub-variants, such as those termed A3, B and C.

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>100,000 yrs ago

taurus and indicus species evolve from bos genus

European bos taurus e.g. Holstein, Jersey, Guernsey (A1 and A2 in all breeds)

African bos taurus eg. Kuri (A2)

African bos indicus e.g. Africander (A2)

Asian bos indicus eg. Brahman (A2)

bos taurus

bos indicus

~5,000 yrs ago

Variant A1 evolves through natural mutation from beta casein A2 in bos taurus

Ancient bos (Auroch )

Breed Evolution and Beta Casein type

Figure adapted from information reported in:1. Advanced Dairy Chemistry: Volume 1 - Proteins, Second Edition, edited by P.F. Fox and P. L. H. McSweeney pp 424 & 4302. MILK PROTEIN POLYMORPHISM: DETECTION AND DIFFUSION OF THE GENETIC VARIANTS IN BOS GENUS, Annali della Facoltà di Medicina Veterinaria, Vol. XIX, 1999.  Università degli Studi di Parma3. Daniel G. Bradley, Ronan T. Loftus, Patrick Cunningham, David E. MacHugh (1998) ‘Genetics and domestic cattle Origins’ Evolutionary Anthropology V6;3 pp79-86

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Ser

Difference in Structure and Digestion of A2 vs. A1

a2 beta caseinprotein chain (209aa)

a1 beta caseinprotein chain (209aa)

Val Pro Phe Pro Gly Pro Ile

TyrPro Phe

ProGly Pro Ile

Amino Acid position 67

Amino Acid position 67

Asn Ser Leu Pro

TyrPro

PhePro Gly

ProIle

Pro Asn

Val Pro Phe Pro Gly Pro Ile Pro Leu Pro

digestion

digestion

A2 release BCM - 9

A1 releases BCM - 7

Reported as strong exorphin

AsnTyr

Tyr His

Adapted from: Gobbetti M, Stepaniak L, De Angelis M, Corsetti A, Di Cagno R. Latent bioactive peptides in milk proteins: proteolytic activation and significance in dairy processing. Crit Rev Food Sci Nutr. 2002;42(3):223-39. & Jinsmaa, Y & Yoshikawa, M. 1999. Enzymatic release of neocasomorphin and beta-casomorphin from bovine beta-casein. Peptides V20(8), pp 957-962.

Beta Casein of Other Species

• Human1, goat2 and sheep3 beta caseins are more comparable to A2 than A1 with respect to the amino acid that flanks their corresponding BCM-7 sequence

• It has been reported that human beta casomorphin 7 may be yielded in very low quantities (1-10% of theoretical yield) by the in vitro digestion of human beta casein4

• Bovine casomorphins are reported to have up to 10x the affinity to opioid receptors compared to the human equivalent, additionally bovine casomorphins have a significantly longer biological half-life than their human equivalents5

• Simply put, A1 containing bovine milk has potential to impart up to 10x or more BCM-7 bioactivity than an equivalent volume of other mammalian milks

1. embl accession X55739.12. embl accession AJ011019.33. embl accession X16482.14. Norris CS, Darragh A, Booth C, Boland MJ, Hill JP. 2003. Human milks release beta-casomorphin-7 during simulated digestion. Poster paper presented

at the 2003 International Dairy Federation Conference.5. Brantl V, Teschemacher L. 1994. Beta casomorphins and related peptides.Weinheim: VCH.

Timeline of Research around a2™

1994 – 2001: Epidemiological Studies• Link A2 with a lower risk of heart disease and type 1 diabetes• Undertaken and published by 3 groups from independent data across developed

countries• Hypotheses around mechanism derived from animal and BCM-7 centered studies 1980’s – current: Studies around BCM-7• Established as an exorphin with potential to interact with a range of cell and tissue

types. Including digestive, immune and neural.• Unique production from incomplete A1 digestion established with potential

transport mechanism into circulation and across the blood brain barrier reported.• Human studies reflect a wide ranging ability to metabolise BCM-7, with

compromised ability linked to negative physiological outcomes1995-2003 – Animal Studies• A1/A2 rodent feeding trials provide support to epidemiological relationship• BCM-7 studies report physiological responses in a range of exposed tissues

Detailed scientific summaries and study references contained on www.betacasein.org and www.betacasein.net

Dea

ths

per

100

,000

, 19

95

20

30

40

50

60

70

80

90

100

110

120

130

140

A1 be t a c a s e i n g / da y0 1 2 3 4

Reg r es s i on Equ at i on : i hd = 41 . 3012 6 + 22 . 66732* c as e i n

Source: NZ Medical Journal, 24 January 2003, Vol 116 No 1168

A1 β-casein supply (A1/capita) 1990 and ischaemic heart disease 1995, 20 countries

(r=0.76, (95% CI 0.48-0.90), p=< 0.0001. Dotted lines are the 95% confidence limits of the regression line)

(r=0.92 (95% CI 0.72 to 0.97) p <0.0001; dotted lines = 95% confidence limits of the regression line )

DM-1

Inc

iden

ce p

er 1

00,0

00 p

er y

ear

0

10

20

30

40

A1 be t a c a s e i n g / da y0 1 2 3

Reg r es s i on Equat i on : d i abe t es = - 4 . 173545 + 11 . 89631* c as e i n

Source: NZ Medical Journal, 24 January 2003, Vol 116 No 1168

Correlation of A1/capita (A1 -casein in the per capita milk and cream supply) with the incidence of diabetes mellitus Type 1 at age 0–14 years of age, 1990-94, 19 countries

BCM-7 Affects Components of an Allergic Response

• Food allergy may be confused with food intolerance, which is a non- immunological reaction that can be caused by enzyme deficiencies, pharmacological agents and naturally occurring substances (NICE Clinical Guidelines 2011)

• A2 is NOT for patients with Milk Protein Allergy

• BCM-7 is reported to:• Bind Mu opiate receptors• Trigger histamine release from mast cells• Trigger MPO product from colonic immune cells• Cause wheal and flare reactions on the skin of

healthy children• Adverse response to A1 consumption and subsequent

BCM-7 exposure is not an allergic reaction

• Research will characterise the putative relationship between A1 beta casein consumption and intolerance type symptoms.

References at www.betacasein.net and www.betacasein.org

17References at www.betacasein.net and www.betacasein.org

Presented by: Trivedi MS et al. International Conference on Food Science and Nutrition 2013 (London) RISE2012(NEU, Boston)

Recent research on neuronal and gut epithelial cells report that bovine BCM-7:

• Inhibits cysteine uptake and promotes oxidative stress

• Imparts changes to mRNA expression that contrasts with that of the hBCM-7

• Leads to changes in global methylation contrasting with control and hBCM-7

EFSA review on BCM-7 and Disease

• In 2009 EFSA released a report “Potential Health Impact of β-casomorphins and Related Peptides” that examined evidence for BCM-7 causing heart disease, diabetes or neurological conditions.

• The report served to appraise publically available data and concluded:

“Based on the present review of available scientific literature, a cause-effect relationship between the oral intake of BCM7 or related peptides and aetiology or course of any suggested non-communicable disease cannot be

established.”

• Simply put the lack of quantitative data, or that relating to the amount of BCM-7 an individual is exposed to, disallowed a cause-effect analysis.

• The report identified that A1 derived BCM-7 is an opioid with the potential to interact with a wide range of cells and tissues; including that involved with digestive and immune function.

• A2 Corporation agreed with the outcome which was aligned with the company’s disclosed and qualified position.

• Significant research around BCM-7 has been published since the 2009 EFSA review.

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Recent research on BCM-7

•Previously studies established that:

• Digestion of A1 but not A2 produces protein fragment beta casomorphin-7 (BCM-7) • BCM-7 binds opiate receptors and has the potential to interact with a range of

tissues• Precursor protein A1 is linked to a range of negative health outcomes

• Recent clinical trials report BCM-7 production to physiologically relevant levels in the gut of healthy adult humans. (Boutrou et al, 2013)

• A correlation between BCM-7 levels with delayed psychomotor function in formula fed human infants has been reported (Kost et al, 2009)

• Serum BCM-7 has also been linked to the compromise of breathing in infants fed A1 containing formula, potentially leading to SIDs (Wasilewska et al, 2011) .

• The activity of the enzyme DPPIV (DPP4) which breaks down BCM-7 has been reported to be highly variable, with low activity linked to above noted adverse outcomes in infants

• A mechanism by which BCM-7 leads to oxidative stress and cell dysfunction has subsequently been demonstrated (Trivedi et al, 2012).

Detailed scientific summaries and study references contained on www.betacasein.org and www.betacasein.net 20

Research Highlights

Though clinical trials are required to confirm links with health conditions, the following is established:

• A1 but not A2 beta casein may yield BCM-7 through incomplete digestion

• BCM-7 has the potential to bind opioid receptors expressed in cells throughout the body, including digestive, immune and neurological

• BCM-7 has been observed to be produced, absorbed and circulated in some humans, particularly infants

• Emerging research links BCM-7 to adverse effects on infant development and health, and intolerance type reactions in adults

• Recently a mechanism by which BCM-7 triggers oxidative stress in cells leading to changes in short and long term function was demonstrated

• The proportion and type of individual susceptible to BCM-7 exposure needs to be determined

Detailed scientific summaries and study references contained on www.betacasein.org and www.betacasein.net

Consumer Response to a2™

• “A rare instance of science playing catch up with consumer experienced benefits”

• I assumed I was lactose intolerant but when I drank a2 milk I was surprised that it didn't give me diarrhoea.

• A2 milk has made an incredible difference to our 2 year old son's bowel movements and also seems to reduced the amount of congestion…”

• Hi, we love A2 milk. My son has a dairy intolerance, but is fine on A2 milk.

• I am a big fan of A2 milk and find that if I drink any other milk or milk products I suffer from sinus problems.

• She said she no longer gets headaches or stomach pains and for some reason her sniffles have gone. THANK YOU VERY MUCH....

• Just to say 'thanks'. I normally can't tolerate milk as I feel bloated and sick. With the addition of the a2 protein, I am slowly starting to consume milk again and get my daily calcium hit.

• my son (soon to be formally diagnosed autistic) has benefited so much from drinking a2 milk. “Hi i have noticed a big difference with my sinuses since drinking a2 milk…

Commercialising a2™

• A2C’s core assets comprise intellectual property (IP)

• Patent rights across the supply chain; testing through to composition and use.

• Brands that include trade marks and trade names linked with established and growing equity

• Proprietary processes around operational aspects of a2™ production

• Know-how around the effective and compliant communications around a2™ to consumers, health care professionals and parties of consideration

Commercialising a2™ (2)

• A2C has adopted a business strategy around direct involvement• Historical model of licensing shown to be unsuitable

• Ownership or controlling stake in a2™ businesses shown to be effective

• Current Activities• Australia - business wholly owned

• NZ - single non-exclusive licensee

• UK – JV with RWD to market a2™ fresh milk

• China – Agreement to sell a2™ Infant Formula FOB to CSF for joint marketing

4.3

0.9

2.0

0.6 0.4

1.9

6.4

1.0

2.3

0.5 0.5

1.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

A2 Lactose Free Organic Plant Sterol Goatmilk Fresh Soy

% Market Share Sep-2011 Sep-2012

15.0%

(16.7%) 25.0%

(5.3%)

% Growth

15.4%

46.3%

Source: Aztec Scan Data : w/e 2/9/12

a2™ in Australia

% Share of Fresh Milk (Latest Quarter—by value)

25

a2™ brand milk is the fastest growing and largest brand in the Australian premium segment

Market for a2™ Products

• There is an increasing global consumer focus on health and wellbeing• This presents scope for innovation in mature and commoditised global dairy

markets

Global Health and Wellness Market

(US$bn)

462.9

625.9

FY06 FY11Source: SheSpot Consumer Survey (2012)

Consumer Trends

13%5%

12%9%

12%2%1%

4%2%4%

38%38%

41%43%45%

49%52%

56%66%

70%

0% 20% 40% 60% 80%

FrugalEnvironmentally friendly Buying to please others

Planned aheadInterested in promotions

Smarter choicesResponsible

Avoiding additivesHealth focused

Price consciousLess More

Source: Euromonitor 2011

Summary

A2C has successfully evolved from a start-up biotech firm to a dairy company with international operations

The a2™ proposition is based on a deep body of both definitive and emerging science

The potential benefits of a2™ are reported with consistency by consumers in current markets

There is an increasing consumer focus on health and wellbeing which strong favours a2TM branded dairy products

A2C has a strong suite of global intellectual property supported by a growing body of know-how and developing brand equity

A2C’s proven Australian dairy supply chain model provides a scalable technical & commercial template for other markets

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