Interim report january - september 2001

INTERIM REPORT JANUARY - SEPTEMBER 2001 Biacore continued the positive sales trend seen during the first half of the year. Sales increased by 29% in the third quarter. During the first three quarters of 2001, sales increased by 35%. Biacore continued its strategy of investing in marketing to support the introduction of two new systems for the pharmaceutical and biotechnology industries and in development to commercialize its unique SPR array chip technology. As a result of these investments, earnings per share in the third quarter fell by 9% to SEK 1.07 (1.17). Earnings per share for the first nine months of 2001 increased by 6% to SEK 3.37 (3.19). Biacore®S51, the Company's first new high-performance system for lead optimization and certain specific ADME applications, was launched in the third quarter. Millennium Pharmaceuticals Inc. was the first customer for this system. Biacore also launched its new Biacore®C system. This system, which was developed with Boehringer Ingelheim Pharma, is used for quality control applications in manufacturing. Biacore®C extends further Biacore's product offering to the pharmaceutical and biotechnology industries. · A decision has been made to co-locate the Group Management and the Pharmaceutical/Biotechnology Industry Business Unit in Switzerland in order to support the continued build-up of this key Business Unit. This co-location is planned to take place in the third quarter 2002. Biacore's rapid sales increase during the first three quarters of the year could well serve as a strong argument for raising the forecast for the full-year 2001. However, in view of the current world political and economic uncertainties, we maintain the previous forecast: Full-year sales 2001 are expected to increase by more than 20%. January September July September - 2001 2000 Change 2001 2000 Change Sales, 368.7 273.5 35% 113. 88.1 29% SEK million 8 Operating 38.4 40.4 -5% 9.2 14.8 -38% income, SEK million Operating 10 15 8 17 margin, % Income after financial items, 50.2 46.1 9% 16.2 17.4 -7% SEK million Earnings 3.37 3.19 6% 1.07 1.17 -9% per share, SEK OPERATIONAL REVIEW JANUARY-SEPTEMBER 2001 Amounts stated in this report pertain to the Biacore Group, unless indicated otherwise. Figures in parentheses refer to the corresponding period 2000. Biacore's third quarter results reflect the key trends that have been seen in the Company's business through the first half of 2001. Sales continued to grow rapidly as both of Biacore's key customer groups - the pharmaceutical and biotechnology industries and the life science research market - continued to buy into the value that the Company's SPR technology can deliver. In the third quarter, Biacore's sales increased by 29% to SEK 113.8 million with demand being particularly strong from life science researchers working in the area of proteomics. Overall sales for the first three quarters of 2001 were up 35% to SEK 368.7 million. Excluding the impact of changes in exchange rates, sales increased by 24%. The driving force of Biacore's strong sales growth continues to be Biacore3000, a system that can perform an impressive range of molecular binding studies. Biacore3000 has played an important role in the Company's aggressive strategic move to become a value added technology supplier to the drug discovery industry. Biacore3000 is used for applications in the critical areas of drug discovery upstream of high-throughput screening (HTS). These include target identification and validation, and assay development for HTS. The system has also been well accepted by academic customers in Biacore's core basic life science research market where it is used to solve a wide range of biological research problems, increasingly in the field of proteomics. Sales were divided geographically as follows: January September July -September SEK million 2001 2000 Change 2001 2000 Change Americas 185.9 129.8 43% 57.1 40.6 41% Europe 87.5 92.6 -6% 24.9 32.5 -23% Asia-Pacific 95.3 51.1 86% 31.8 15.0 112% Sales during the third quarter were strong in the important American market where Biacore's life science customers in particular contributed to a 41% increase in third quarter sales. In Europe, sales fell in the third quarter by 23%, mainly due to a delay in funding. In Asia Pacific, Biacore's sales more than doubled in the third quarter, mainly due to a significant increase in sales to the pharmaceutical industry in Japan. The 82.2% gross margin achieved in the third quarter of 2001 was consistent with prior periods. Biacore continued its strategy of investing in its future growth. Total costs for marketing, administration and research and development increased by 40% to SEK 85.3 million (60.8) in the third quarter. This represents a slowdown in the growth seen during the first half of 2001. Marketing and sales costs rose by 41% compared with the third quarter last year, mainly as a result of the launch of two new systems, BiacoreS51 and Biacore®C. However, marketing and sales costs were lower in the third quarter than in the second quarter 2001. In total marketing and sales costs amounted to SEK 45.6 million (32.4) in the third quarter. R&D spending increased by 74% in the third quarter to SEK 22.8 million (13.1). This increase reflects the investment that was made in the Company's overall research efforts as well as the SEK 8.0 million that was spent to commercialize Biacore's unique SPR array chip technology. This technology will provide major throughput advantages and as a result will transform Biacore's product offering to both of its key customer groups. A total of SEK 21.6 million has been spent on SPR array chip technology during the period January-September 2001 (10.0). In the third quarter, administration expenses increased by 10% to SEK 16.9 million (15.3). Operating income for the third quarter amounted to SEK 9.2 million (14.8), a decrease of 38% as a result of the Company's much higher investment in research and development and marketing activities. The operating margin was 8% (17). Currency differences amounted to SEK 2.1 million (5.6) in 'Other income and expenses' and SEK 0.2 million (1.0) in 'Financial items'. The sale of one million shares in Axiom Biotechnologies Inc. for USD 3 million to Axiom resulted in a capital gain of SEK 4.6 million, which is included in financial items. The tax charge in the first three quarters was 33% (32) of income after financial items. Net income in the third quarter was SEK 10.6 million (11.5), giving a 9% decrease in diluted earnings per share to SEK 1.07 (1.17). CAPITAL EXPENDITURES During the first three quarters of 2001, capital expenditures totaled SEK 32.1 million (8.8). Approximately SEK 16 million related to buildings and construction-in-progress. PERSONNEL At the end of September 2001, Biacore had 280 (218) permanent employees. During 2001, the number of employees has increased by 3 people in the third quarter, by 28 in the second quarter and by 21 in the first quarter. CO-LOCATION OF GROUP MANAGEMENT/PHARMACEUTICAL & BIOTECHNOLOGY BUSINESS UNIT A decision has been made to co-locate the Group Management with the Pharmaceutical & Biotechnology Industry Business Unit in Switzerland. This co-location is designed to have positive effects on the continued build-up of this Business Unit, which is expected to contribute substantially to the Group's future sales growth. In addition, the co- location is expected to result in positive financial effects long-term for the Group. Uppsala will remain the base of the Company and the Group's center for R&D and manufacturing. Biacore expects to expand further these core activities in Uppsala. The co-location is planned to take place during the third quarter 2002. The Board has commissioned the President to begin negotiations with the unions, as required under Swedish law. BUSINESS UNIT REVIEW All of Biacore's three key business units made good progress during the third quarter with the Pharmaceutical/Biotechnology Business Unit in particular enjoying an important milestone with the introduction of not one but two new systems - BiacoreS51 and BiacoreC. Pharmaceutical/Biotechnology Business Unit Biacore's strategic focus on the drug discovery market is based on its confidence that its systems are able to overcome some of the key bottlenecks faced by the pharmaceutical and biotechnology industries in the development of new medicines. The success that Biacore has achieved over the last three years with this customer base has fully validated this strategy and as a result the Company is now seeking to build its market position further with the launch of two systems that have been designed to meet the clear market needs of the pharmaceutical and biotechnology industries. New High-Performance System Launched The first new system that Biacore introduced during the third quarter was BiacoreS51, the Company's initial new high-performance system. BiacoreS51 has been designed for lead optimization and certain specific ADME applications, two of the key problem areas faced by the drug discovery industry, particularly downstream of HTS. The new high- performance systems will complement the Biacore3000 system, which targets important applications such as target identification and validation upstream of HTS. BiacoreS51 is well suited to meet the needs of the pharmaceutical industry in the key areas which it is targeting. This is because it has been developed in collaboration with a number of major pharmaceutical partners such as SmithKline Beecham, Pharmacia Corporation and Millennium Pharmaceuticals who purchased the first system. The key benefits that BiacoreS51 brings are its high sensitivity, the high- quality data that it is able to generate and its high-throughput capabilities for the specific applications for which it has been designed. BiacoreC System Introduced for QC Applications The third quarter also saw the launch of the new BiacoreC system for rapid concentration analysis in drug development, manufacturing quality control (QC) and in-process control applications. BiacoreC is the first SPR-based system for QC applications, designed specifically for compliance with regulatory requirements and was developed in collaboration with Boehringer Ingelheim Pharma KG. As drug companies are increasingly faced with the pressure of bringing new products to market faster while at the same time still maintaining strict compliance with Good Laboratory (GLP)/Good Manufacturing Practice (GMP), the validation of analytical systems and procedures becomes a major rate-limiting step. BiacoreC was specifically developed with regulatory requirements in mind, and is expected to reduce the time for biomolecular analysis while meeting the highest demands for accuracy, sensitivity and reproducibility. BiacoreC combines the advantages of the Company's non-label Surface Plasmon Resonance (SPR) technology with advanced instrumentation and software to offer an unparalleled level of performance and reliability. BiacoreC Control Software is designed to support the GLP/GMP regulated working processes with built-in validation features in order to comply with worldwide regulations. Biacore Acquires Cell-Based Assay Technology In the third quarter, Biacore acquired from Axiom Biotechnologies Inc. an exclusive license to all of Axiom's proprietary fluorescent cell- based assay technology, with the exception of flow cytometry-based applications, for a price of USD 5 million. Biacore's decision to acquire this exclusive license results from its desire to drive the commercialization of this important technology, which is complementary to Biacore's own molecular-based SPR assay systems. A new cell-based assay system, which is being licensed from Axiom, is designed to complement the recently launched Biacore®S51. It is expected that, together, these two systems can provide detailed information on the biological activity of potential drug candidates in a competitive timeframe and to a depth and quality superior to existing analytical instrumentation, allowing critical Go / No Go decisions on the development of drug candidates to be made with much greater confidence. Biacore expects the new cell-based assay system to be launched at the end of 2002. SPR Array Chip Technology - A Transforming Technology The key to Biacore achieving its aggressive medium term growth ambitions is its unique SPR array chip technology. This technology represents a major breakthrough as it has the potential to increase 1,000 fold the number of binding assays that can be performed per day. It is this dramatic increase in throughput that Biacore expects will allow it to become a major player in the proteomics field that is rapidly becoming one of the most important areas of life science research. The third quarter has seen further progress in Biacore's collaboration with Millennium Pharmaceuticals to commercialize its SPR array chip technology for proteomics and drug discovery applications. Biacore is confident that the successful development of its new SPR array chip technology will provide the pharmaceutical industry with a unique tool to both explore protein function and to evaluate the vast number of proteins identified from genomic research as potential therapeutic targets. Higher Investment to Continue Biacore's confidence in the substantial commercial potential of its unique SPR array chip technology has led the Company to invest significantly in this technology in order to bring it to the market as rapidly as possible. In the year 2001, Biacore is on track to spend in the region of SEK 30 million on commercializing its SPR array chip technology. This level of spending is in line with plans and is in addition to the Company's on- going level of R&D spending. The Company expects this level of investment to enable it to launch the first SPR array based systems in 2004. Life Science Business Unit The benefits of Biacore's unique SPR array chip technology will also be of major importance for the customers of the Company's core Life Science Business Unit, particularly those focusing on proteomics research, an area were Biacore's current systems are increasingly being used. Biacore continued its life science marketing activities in the proteomics area in the third quarter, focusing on the benefits of using SPR technology to study protein-protein interactions and for ligand fishing, two key areas of proteomics research. The third quarter also saw the Life Science Business Unit continue its major marketing campaign highlighting the benefits of SPR technology as a key tool for cancer research. The life science research business unit was also active in the third quarter planning the re-launch of BiacoreX, a semi-automated system for the accurate kinetic characterization of individual samples, to the academic researchers, particularly in the United States. Food Business Unit The third quarter was a busy period for the Company's Food Business Unit. The success of the EC FoodSense project has acted as an important catalyst in increasing the recognition of the potential uses of Biacore's SPR technology in the area of food analysis. The third quarter saw Biacore continue to increase its range of food analysis kits with the launch of Qflextm Kit Streptomycin. This kit is designed to allow the rapid reliable automated analysis of residues of this important animal health antibiotic in samples of milk, meat and honey. FACING THE FUTURE WITH CONFIDENCE Biacore is confident about its future prospects based on: · the growth that it expects from its Pharmaceutical/Biotechnology Business Unit through both its present products and the new systems that it has recently launched · the growth prospects for the Company's Life Science Business Unit as a result of its technology's ability to provide valuable data in the rapidly growing field of proteomics · the significant opportunity that exists for its SPR technology to gain acceptance as a routine analytical/screening tool for the food industry · the potential of the Company's new high-throughput SPR array chip technology which will allow Biacore to become a significant player in the proteomics revolution · the Company's strong financial position, its broad patent portfolio and the determination and experience of the Biacore management team. ACCOUNTING PRINCIPLES This interim report has been prepared in accordance with the Swedish Financial Accounting Standards Council's recommendation No. 20 (RR 20), Interim Financial Reporting. QUARTERLY SALES VARIATIONS Biacore's total sales during the period 1998-2000 were divided between the quarters as follows: Quarter 1 22% Quarter 3 18% Quarter 2 22% Quarter 4 38% OUTLOOK FOR THE FULL-YEAR 2001 Biacore's rapid sales increase during the first three quarters of the year could well serve as a strong argument for raising the forecast for the full-year 2001. However, in view of the current world political and economic uncertainties, we maintain the previous forecast: Full-year sales are expected to increase by more than 20%. Uppsala, Sweden, October 18, 2001 BIACORE INTERNATIONAL AB (publ) Ulf Jönsson President This interim report has not been subject to examination by the Company's auditors. FINANCIAL INFORMATION Biacore's Year-end Report 2001 will be published on Thursday, February 21, 2002. Biacore is the global market leader in Surface Plasmon Resonance (SPR) based biosensor technology with its own operations in the U.S., across Europe, Japan, Australia and New Zealand. A strong patent portfolio protects Biacore's technology. Target groups consist primarily of medical and life science research laboratories and pharmaceutical and biotechnology companies all over the world. Biacore focuses on drug discovery as its prime area for future growth. Based in Uppsala, Sweden, the Company is listed on the Stockholm Stock Exchange and Nasdaq in the U.S. This press release contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 which, by their nature, involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. For further information, please contact: Dr Ulf Jönsson, President, Phone +46 18 67 57 52 or +46 703 24 80 88 Lars-Olov Forslund, CFO, Phone +46 18 67 57 08 or +46 708 76 56 73 Jan Isoz, Investor Relations, Phone +46 708 10 31 17 More information on Biacore is available at the Company's website: www.biacore.com (SSE: BCOR; Nasdaq: BCOR; Reuters: BCOR.N) [REMOVED GRAPHICS] ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/18/20011018BIT00170/bit0002.doc http://www.waymaker.net/bitonline/2001/10/18/20011018BIT00170/bit0002.pdf