Year-end Report 2012

JANUARY – DECEMBER 2012
- Net sales amounted to SEK 162.3 million (145.2)
- EBITDA was SEK -52.7 million (-20.1)
- Earnings per share totaled SEK -1.50 (-1.09) before dilution

OCTOBER – DECEMBER 2012
- Net sales amounted to SEK 36.9 million (41.6)
- EBITDA was SEK -25.5 million (-6.6)
- Earnings per share totaled SEK -0.53 (-0.33) before dilution

HIGHLIGHTS
Financial performance hurt by one-off items
- Net sales growth in 2012 amounted to 12%
- Major impact on gross margin from inventory writedowns of SEK 15.2 million

Key initiatives to improve profitability and operational efficiency
- Close-down of non-performing markets Czech Republic, Romania and Slovakia
- Improvements in supply chain and logistics to reduce inventory levels

Outlook 2013
- Focus on profitable growth 
- Leverage on implemented efficiencies

BUSINESS UPDATE
Bluefish net sales during 2012 amounted to SEK 162.3 million (145.2), corresponding to an increase of 12% compared to 2011. Net sales during the fourth quarter amounted to SEK 36.9 million (41.6), a decline by 11% compared to the same period last year. The company has continued to gain market share, resulting in increased volumes, however, declining prices for parts of the product portfolio in key markets have hampered growth in net sales. The decline in net sales during the fourth quarter primarily reflects price adjustments attributable to previous periods in the Danish market, but also a higher number of holidays in December compared to last year. Gross profit amounted to SEK 19.8 million (39.4) for the year 2012, corresponding to a margin of 12.2% (27.1%). The main reasons for the deterioration in gross margin are inventory writedowns and increased competition to some of the blockbuster segment of products resulting in lower prices in key markets.

Total inventory writedowns amounted to SEK 15.2 million (2.4) during 2012, whereof SEK 12.5 million (0.6) was charged to the fourth quarter. The writedown reflects expired goods, and goods with too short shelf life remaining to be able to sell, but also inventory addressing the markets where the company has discontinued its business, including Czech Republic, Romania and Slovakia. During 2012, Bluefish has evaluated different options available for the operations in these countries. However, after careful consideration, the company has decided to close down the activities in these markets as the risk-benefit analysis given the existing market conditions is seen as unfavourable.

Further, an improper conduct of business among Danish pharmacies have resulted in negative margins for some of the company’s products on the Danish market. This behavior among a handful of pharmacies in Denmark reached the attention of Danish media in November last year and the regulation for pharmacies’ returns and price adjustments of pharmaceuticals on the Danish market is now being investigated by local authorities. Meanwhile, the company has stopped accepting price adjustments from those pharmacies that have been identified to exploit the system.

As expected, operating costs increased at a considerably lower rate during 2012 compared to 2011. Total operating costs, excluding amortization and depreciation, amounted to SEK 72.5 million (59.4) for the full year 2012, which is an increase of 22% compared to 2011. Total operating costs, excluding amortization and depreciation during the fourth quarter amounted to SEK 21.0 million (17.2), equivalent to an increase of 22% compared to the same period last year.

Improved operational efficiencies
In the beginning of 2012, the company initiated a number of activities with the aim of improving the logistics functions in order to release capital tied-up in inventory. This has included switching to manufacturers with shorter leadtimes, and optimizing the storage, transportation and distribution of goods by implementing one central warehouse for all products addressing the European market. At the end of the year, inventory amounted to SEK 99.7 million, indicating a reduction of 24% compared to 30 June 2012 (130.7). This is equivalent to 272 days of sales as of 31 December compared to 384 as of 30 June. The decline in inventory has had a positive impact on the company’s cash flow, in particular during the fourth quarter. Cash flow from change in working capital during the fourth quarter amounted to SEK 22.7 million (-27.4), and cash flow from operating activities amounted to SEK 10.5 million (-34.8) during the same period.

Growing niche segment in product portfolio
The acquisition of BMM Pharma in September 2011 was part of Bluefish strategy to expand the product portfolio within the niche segment. The acquired portfolio has now been fully integrated into the company’s ongoing business. By the fourth quarter, the majority of the products had been re-launched and supply is now working satisfactorily for all products. The internal targets regarding financial performance of the products have been met, and we believe in continued growth in net sales in 2013 with above average margins. During 2012, Bluefish initiated a number of new own development projects. The pipeline now consists of nine (9) different products within various niche segments. The initial formulation development and bioequivalence studies are being finalized during 2013 and are, after regulatory approval, expected to reach the market in 2015. The average sales potential for the projects under development is approximately SEK 25 million per product, with an anticipated margin of 50%. In addition, the company has extended the product portfolio by entering into new license agreements for three new niche products on the Nordic market. All three have been submitted for registration. During the year, Bluefish also signed two new distribution agreement for the Nordic market. In total, the portfolio now consists of 80 products, whereof 51 have been launched.

Outlook
Market shares are expected to increase further in 2013, resulting in a continued growth in net sales. However, the company will prioritize profitability over growth in market share with increased focus on the niche products for which volumes are less volatile and which also enjoy higher margins. Following the operational efficiencies implemented during 2012, Bluefish expects an improvement in gross margins. Also, the existing organizational structure is well prepared for the expected increase in volumes during the year and operating costs should therefore increase only moderately.

For more information, contact

Karl Karlsson, President & CEO Bluefish Pharmaceuticals
Tel. 46 8 519 116 00
Email: karl.karlsson@bluefishpharma.com

Susanna Urdmark, CFO Bluefish Pharmaceuticals
Tel. 46 8 519 116 00
Email: susanna.urdmark@bluefishpharma.com

About Bluefish Pharmaceuticals
Bluefish has undergone significant international expansion since the company was founded in 2005. Bluefish focuses on the development, manufacture and sale of generic pharmaceuticals. The company conducts marketing operations in 19 European markets and has a technology center in Bangalore, India. The product portfolio consists of a total of 80 products and is growing.

www.bluefishpharma.com

About Us

Bluefish has undergone significant international expansion since the company was founded in 2005. Bluefish focuses on the development, manufacture and sale of generic pharmaceuticals. The company conducts marketing operations in a large number of European markets and is expanding into territories outside Europe. The product portfolio consists of a total of 80 products and is growing. The company is owned by its founder Karl Karlsson, together with a number of investment funds and private investors.

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