Interim Report January 1 - September 30, 2001

ARTIMPLANT INTERIM REPORT January 1-September 30, 2001 · Preparations for the launch of the augmentation device for cruciate ligament operations, Artelontm Augmentation Device ACL (Artelon ACL), proceeded as planned. During the third quarter, eight training and information meetings (referred to as "key opinion leader education," or KOLED) were conducted and yielded results in the form of significant interest in the product. · The board of directors and company management decided to grant licenses to industry partners for the Company's three highest-priority products: Artelon ACL, Spacer and sternum sutures. · Permission has been granted to start an accelerated rehabilitation study of augmentation operations on the patellar tendon using Artelon ACL. In October 2001, operations on eight of the 10 patients in the study had been completed. Another accelerated rehabilitation study with hamstring tendon augmentation on 10 patients should begin in Finland in December 2001. The goal is to show that patients can be rehabilitated faster with retained knee stability. · Consolidated income for January-September totaled SEK 16.2 million (SEK 16.5 million one year earlier). The loss after taxes was SEK 37.3 million (SEK 12.2 million loss). The loss per share was SEK 4.03 (SEK 1.32 loss). Financial information: Announcement of 2001 accounts February 20, 2002 Three-month report May 3, 2002 Six-month report August 21, 2002 Nine-month report November 6, 2002 Interim reports are made available at Artimplant's web site, www.artimplant.se, at the same time as they are distributed to the media. For additional information, please contact: Anders Cedronius, Chief Executive Officer, phone +46 (0)31 746-5600, anders.cedronius@artimplant.se Lars Erik Nygren, Chief Financial Officer, phone +46 (0)31 746-5600, lars.erik.nygren@artimplant.se Ulf Åkerblom, Director Corporate Communications, phone +46 (0)709 675- 999, ulf.akerblom@artimplant.se Artimplant Artimplant specializes in biodegradable materials for use in orthopedic surgery. Artimplant is active in the research and development, manufacturing and marketing of biologically degradable implants with the goal of recreating active lives for patients. The biodegradable material the Company has developed is based on a new technology that is opening new markets in the field of orthopedic surgery as well as other specialized fields where there are significant medical needs. Artelontm Augmentation Device ACL, Artimplant's first product, has received CE approval, so after many years of development efforts, Artimplant is entering a marketing phase. Artimplant has already developed and patented several different degradable ligament implants, now undergoing clinical trials. The Company is focusing on three high-priority areas for this degradable material: an augmentation device for anterior cruciate ligament reconstruction, hand surgery and augmentation sutures. Artimplant is listed on the OM Stockholm Exchange's O list. ARTIMPLANT'S EARNINGS, JANUARY-SEPTEMBER 2001 Consolidated net sales for the period January-September 2001 totaled SEK 16.2 million (SEK 16.5 million for the same period the preceding year). The operating loss for the period was SEK 40.6 million (SEK 16.7 million loss). The loss after tax totaled SEK 37.3 million (SEK 12.2 million loss). Goodwill for Gothenburg Medical Center (GMC) totaled SEK 11.7 million at September 30 and is being amortized over a period of 20 years. The parent company's net sales of SEK 0.5 million consisted primarily of compensation from Mölnlycke Health Care. Sales and the operating loss were as planned. Net sales by the subsidiary GMC for January-September 2001 reached SEK 17.0 million (SEK 15.5 million). Operating profit for the January- September period equaled SEK 0.1 million (SEK 0.3 million). AN OUTLINE OF ARTIMPLANT'S PROJECT PORTFOLIO At Artimplant, the product development process consists of six phases. Evaluate whether or not an Currently about a 1. Idea idea is feasible as a project dozen projects 2. Definition Identify and define the Sternum sutures clinical, technical and commercial demands on a design 3. Development Specify requirements and design 4. Verification Verify requirements and design 5. Validation Validate, adapt for use Artelon ACL (The as a product and register product has CE the product for the market approval and is moving up to the product management phase) Spacer 6. Product Follow-up and fine-tuning management Clinical studies take place during the verification and validation phases. AN OUTLINE OF ARTIMPLANT'S CLINICAL PROGRAM Artelon ACL 2001 2002 2003 Study Pilot Extended Q3 Four-year results Q2 Five-year 22 patients results Q2 Multicenter I Two-year results Q2 Three-year patellar tendon, 201 results Q2 patients Multicenter II One-year results Q2 Two-year hamstring tendon, 101 results Q2 patients Accelerated rehab, Start Q3 One-year results Q4 Two-year pilot, patellar tendon, results Q4 10 patients SPACER 2001 2002 2003 Study Pilot One-year Two-year Three-year 15 patients results Q3 results Q3 results Q3 Multicenter I Start Q3 Completed three-year, (op) Q2 108 patients STERNUM SUTURES 2001 2002 2003 Study Pilot Start Q4 Completed 20 patients (op) Q1 Multicenter I Start Q3 Nordic/EU region BUSINESS ACTIVITIES: Licensing to industrial partners In the third quarter, the board of directors and Company management refined the Company's business strategy for the next few years, which resulted in a decision to license to industry partners the Company's three highest-priority products: Artelon ACL, Spacer and sternum sutures. The goal is to have concluded license agreements for Artelon ACL and Spacer by year-end 2002 and for sternum sutures by year-end 2003. While working out the Company's business plan, and having made careful analyses mainly of European and U.S. markets, the board of directors and Company management concluded that a small development company like Artimplant would benefit more by seeking a major partner with whom to collaborate on the distribution and marketing of the company's products. This postpones the decision as to whether or not the Company will establish its own sales organization in the Nordic region. This change shifts the focus of the organization to business development and negotiations with potential partners. In the fourth quarter, several of the world's biggest firms in medical technology have been contacted, and discussions have begun on business collaboration. The goal is for two of Artimplant's high-priority products, Artelon ACL and Spacer, to be under license in 2002. The business concept and vision are not affected by this refinement of the Company's strategy. The emphasis remains as follows. · Artimplant will establish a leading position in degradable materials and products, primarily in orthopedic surgery. · Artimplant will concentrate on developing and producing new, innovative products. · Artimplant will maintain a well-balanced mix of early- and late- stage projects in research and development. During the next few years, Artimplant expects to secure CE approval of additional products made from the Company's patented polyurethane urea (PUUR) compound for use in orthopedics and hand surgery. The Company's project portfolio currently contains more than 10 project ideas now being evaluated for future advancement to the definition phase (see the previous table). Artelontm Augmentation Device ACL An essential part of the roll-out of Artelon ACL is a comprehensive KOLED program for training selected orthopedic surgeons in Europe. During the third quarter, Artimplant arranged eight training and information meetings in the Nordic countries, Italy and England. More than 50 leading European knee surgeons have participated in the program. The product has attracted interest partly because of its potential to shorten rehabilitation time after operations on anterior cruciate ligament injuries. Results and data are expected from studies under way. An interesting observation by several doctors was that the need for augmentation can be greater among elderly patients, as their own tendons, used for the autografts, are of poorer quality. Artimplant expects to receive the first orders for Artelon ACL during November-December 2001. Another seven KOLED seminars are planned for the fourth quarter of 2001. Artelon ACL is made of a patented polyurethane urea that is spun and then woven into a band that is operated onto the knee to augment an injured anterior cruciate ligament. A ruptured anterior cruciate ligament in the knee is the most common ligament injury and often leads to lifelong suffering for the injured person as well as significant costs to society. Artimplant's first product to receive CE approval is an augmentation implant used in the reconstruction of an injured ACL. The product is designed to reinforce the tissue taken from the patient (the autograft). The global market potential is estimated at SEK 10-15 billion. Thus far, Artimplant has initiated four clinical studies with this application. 1. A pilot study began in the autumn of 1997 with 22 patients. Some of the patellar (knee-cap) tendon in these patients was augmented using Artimplant's implant. 2. The first randomized multi-center study began in the spring of 1999 with 201 patients. Half of the group was operated on in the same manner as in the pilot study, and half of the group received patellar (knee-cap) tendon without augmentation. This study was structured to comply with the U.S. Food and Drug Administration's recommendations for long-term follow-up on anterior cruciate ligament injuries (follow-up at least 24 months after operation). 3. A second randomized multicenter study, comprising 101 patients, began in the spring of 2000 at centers in Sweden and Finland. Half of that group received tendons from the rear of the thigh (hamstring) augmented with Artimplant's implants, and half of the group received hamstring without augmentation. 4. An accelerated rehabilitation study has begun with 10 patients who will be operated on using patellar tendon augmented with our ACL device. Eight of the patients have been operated on to date. The two remaining patients will have their operations before the end of 2001. The goal is to show that patients can be rehabilitated faster with retained knee stability. The first three series of operations have been completed. The pilot study has already yielded three-year data. The first multicenter study obtained data from 201 patients through ongoing internal reports and has 12-month data on all patients in the study. The second multicenter study has six-month data from all the patients. Three-year follow-up data from the pilot study under way on Artelon ACL show that all patients' knees are stable, that Artimplant's degradable material Artelontm is biocompatible and that connective tissue vascularizes and grows into the material. SPACER In hand surgery, Artimplant is conducting a pilot study involving 15 patients suffering from arthritis at the base of the thumb. This condition causes increasing pain and inhibits gripping strength. Thumb- base arthritis is one of the most common injuries of wear and tear on the ligaments of the hand and primarily strikes women over the age of 40. Its prevalence in the West is estimated at 10 percent of the population over the age of 55, and no satisfactory method of treatment is available. The market potential is estimated at more than SEK 5 billion. The results show that patients had enhanced gripping strength and reduced pain as early as six months after the operation. A multicenter study on spacer implants for the treatment of thumb-base arthritis will begin in the fourth quarter of 2001 or the first quarter of 2002. STERNUM SUTURES A new project began aimed at developing products to be used as augmentation sutures. Augmentation sutures are used in orthopedic surgery and other specialized fields of surgery. Clinical studies using augmentation sutures made of degradable material developed and produced by Artimplant are scheduled to start in the fourth quarter of 2001. Several areas of application have been defined, one of which- augmentation sutures for thoracic surgery-is estimated to have a market potential in Europe and the United States of SEK 2.5 billion. INVESTMENTS AND FINANCIAL POSITION Investments for January-September 2001 amounted to SEK 32.4 million (SEK 25.5 million), including SEK 28.6 million (SEK 20.1 million) for intangible assets. At the end of the period, liquid funds totaled SEK 86.6 million (SEK 148.9 million). HUMAN RESOURCES At September 30, 2001, the number of employees was 70 (60), including 33 (33) employed by the subsidiary GMC. At that time, the number of consultants associated with the Company was 10 (11). PATENTS At September 30, 2001, Artimplant had obtained five patents in Sweden, four of which had also gained international approval. Applications for an additional six patents have been submitted. In addition, six more patent applications are being prepared and are scheduled to be submitted in 2001. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/11/07/20011107BIT00110/bit0002.doc The Full Report http://www.waymaker.net/bitonline/2001/11/07/20011107BIT00110/bit0002.pdf The Full Report