BIOHIT GROUP FINANCIAL STATEMENT RELEASE 2013

Biohit Oyj Financial Statement Release 2013, on 27 February 2014 at 9:30 AM (EET)

SUMMARY

January-December 2013:

• Net sales grew by 69% compared with 2012
• Net sales were EUR 3.5 million (EUR 2.0 million in 1-12/2012)
• Operating result was EUR -5.9 million (EUR -4.6 million)
• Operating result excluding extraordinary items was EUR -4.5 million (EUR -4.6 million)
• Profit before taxes was EUR -5.9 million (EUR -3.7 million), which includes a non-recurring expense due to the stock option programme (EUR 1.3 million) as well as other non-recurring items (EUR 0.1 million)
• Earnings per share were EUR -0.43 (EUR -0.27)
• International operations accounted for 88% of net sales (84%)
• The equity ratio was 79.3% (88.7%)

October-December 2013:

• Net sales increased by 15% on the corresponding period of 2012
• Net sales were EUR 0.8 million (EUR 0.7 million in 10-12/2012)
• Operating result was EUR -1.5 million (EUR -1.2 million)
• Profit before taxes was EUR -1.6 million (EUR -0.8 million)
• Earnings per share were EUR -0.11 (EUR -0.06)
• International operations accounted for 84% of net sales (80%)

SEMI KORPELA, PRESIDENT & CEO:

“In 2013, Biohit’s net sales saw year-on-year growth of 69%. The most important market area was China. Operations focused on commercializing products, building distribution channels and deepening cooperation with distributors, particularly in Asia and Europe. During the review year, we expanded our product range and carried out two major corporate transactions that bolstered our operational capabilities in Europe and China.

During the last quarter, Biohit acquired the rights to UFT300, a very rapid quick test for the diagnosis of Helicobacter pylori infection. We also ventured into a new business area when we partnered up with a closed diagnostic system supplier: in November, we signed a licensing agreement with an analyser manufacturer Randox, granting Randox worldwide licensing rights to the distribution of GastroPanel as part of its systems. In late 2013, we made an agreement with Dynex Technologies Inc. for the distribution of analysers. Biohit’s product range will now include the Dynex automated ELISA analyser, which will improve the availability of GastroPanel. Towards the end of the year, we published a substantial number of research protocols on our internet site and also started a clinical research on smoking cessation.

We took major steps forwards in 2013. At the very beginning of the year, Biohit signed a distribution agreement with a Chinese company GrandPharma Ltd. for marketing and distribution of Acetium in China. This agreement gives GrandPharma exclusive rights to utilise Biohit's intellectual property rights and know-how in the production and distribution of the Acetium capsule in China.

We also carried out two significant corporate transactions, the first of them in Europe. In April, Biohit and an Italian company Euroclone S.p.A. agreed on a transaction whereby Euroclone Gastro S.r.l. became a subsidiary of Biohit, Biohit Healthcare S.r.l., strengthening Biohit’s diagnostics distribution in Italy. The Italian subsidiary also supports the development of our distribution in Germany and in the Mediterranean region. The second major corporate arrangement bolstered Biohit’s strategic position in China. We made a diagnostics distribution agreement with Hefei Medicine in April. We strengthened this new partnership in June by signing an agreement to set up a joint venture in China.

We also launched a new rapid fingertip test for celiac disease. Our new celiac test is simple, fast and reliable. Biohit strengthened its international diagnostics distribution network by signing agreements with companies such as Yumgiskor (Kazakhstan) and Medikal Sistemler (Turkey). We also signed several other distribution agreements. In Finland, we firmed up our cooperation with Tamro Oyj in the distribution of the Acetium product family. The new Acetium lozenge for smokers was launched for sale at pharmacies in Finland during the second quarter.

Biohit has decided to suspend its research on the treatment of Helicobacter pylori infection, thereby freeing up resources for more promising research projects. In our product development, we have continued to develop new diagnostics products, improve our existing tests, and increase cost-effectiveness. We started a project to standardize the GastroPanel test kit in order to improve user-friendliness and cut manufacturing costs, we intend to ensure uniformity in the reaction conditions and solutions of the GastroPanel tests. With capital investments, we are boosting the efficiency of diagnostics production in Helsinki to increase competitiveness.

Thanks to Biohit’s strong balance sheet, we are well poised to build up our business operations and harness the great potential of our products. At the end of 2013, our company’s equity ratio was 79.3% (88.7%) and short term financial assets amounted to EUR 15.7 million."

CONSOLIDATED KEY FIGURES

REPORTING

Biohit's product portfolio consists of GastroPanel (Pepsinogen I, Pepsinogen II, Gastrin-17 and H.Pylori), the acetaldehyde-binding Acetium products, diagnostic quick tests and monoclonal antibodies. Due to the small sales volume of other products such as liquid handling products, instruments and software in relation to total sales, all business is reported under a single segment.

NET SALES AND RESULT

October-December 2013

In the review period, that is, the fourth quarter, net sales were up 15% on the corresponding period in 2012, and amounted to EUR 0.8 million (EUR 0.7 million).

Fourth-quarter operating result was EUR -1.5 million (EUR -1.2 million). Profit before taxes was EUR -1.6 million (EUR -0.8 million). Earnings per share were EUR -0.11 (EUR -0.06).

January-December 2013

Net sales in the January-December period amounted to EUR 3.5 million (EUR 2.0 million), representing year-on-year growth of 69%. International operations accounted for 88% (84%) of net sales.

Operating result was EUR -5.9 million (EUR -4.6 million).  Profit before taxes was EUR -5.9 million (EUR -3.7 million), which includes a non-recurring expense due to the stock option programme (EUR 1.3 million). Operating result excluding extraordinary items was EUR -4.5 million (EUR -4.6 million). Earnings per share were EUR -0.43 (EUR -0.27).

Consolidated net sales and operating result

The impact of currency exchange rates

In 2013, exchange rates did not have a significant influence, EUR 0.0 million (EUR 0.0 million in 2012).

BALANCE SHEET

On 31 December 2013, the balance sheet total was EUR 28.3 million (EUR 40.0 million) and the equity ratio was 79.3% (88.7%).
 

FINANCING

The company has a good financial position, which allows investments in building an international distributor network as well as the development and commercialization of new products.

At the end of the financial year, the company's short term financial assets totalled EUR 15.7 million. In addition, the company has EUR 1.0 million in long-term investments that will be held to maturity, and EUR 6.8 million in receivables in an escrow account following a business transaction concluded at the end of 2011, which will be released on 31 March 2014 if no claims are made regarding the transaction.
 

RESEARCH AND DEVELOPMENT

Research and development has focused on further development, improvement and commercialization of innovations and products. Biohit also uses external experts and subcontractors in its R&D operations. Development expenditure has not been capitalised. Research and development expenditure during the reporting period amounted to EUR 0.3 million (EUR 0.3 million).
 

INVESTMENTS

Gross investments during the reporting period totalled EUR 0.6 million (EUR 0.3 million).
 

PERSONNEL

During the financial year, the average number of personnel employed by the Group was 47 (35 in 2012) of whom 38 (29) were employed by the parent company and 9 (6) by its subsidiaries. At the end of the year, the Group employed 47 (35) personnel, of whom 38 (29) were employed by the parent company and 9 (6) by the subsidiaries.
 

SHORT-TERM RISKS AND UNCERTAINTY FACTORS

Biohit’s key risks have to do with investments required for business growth. These risk factors include success in clinical trials, selection and development of distribution channels, employee recruitment, registration processes and product pricing, as well as risks related to political decision-making affecting the progress of screening programmes. Significant short-term risks are associated with selection of new market areas, timing of expansion into these markets, and market reception of products.

Lengths of product registration processes vary by market area and have an impact on favourable business development. It is challenging to accurately assess the time required to complete all registrations in the main markets and to begin generating net sales.

When investing in liquid assets, objective is to gain a return on investment with a minimum risk of equity loss. Investment portfolio consists of deposits, money market investments and corporate loans. A fundamental aspect in portfolio management is sufficient diversification across different asset classes, investment instruments and counterparties. Biohit conducts its investment activities with at least two partners.

The company has a wide and diverse customer base.  The company is not significantly dependent on individual customers or project deliveries. The exception to this is GastroPanel sales in China, which is currently particularly significant to Biohit. Most of the company’s business is conducted in euro, and the indirect effects of currency exchange rate fluctuations are considered minor.
 

OUTLOOK FOR 2014

Net sales development is influenced by numerous product registrations that Biohit has in progress in several markets with its new distributors and licensing partners. Completion of product registrations is also impacted by external factors. In addition, negotiations to start up major screening projects are ongoing; however, their progress is influenced by various political risks.

Biohit’s cost structure is significantly affected by the company’s substantial outlays on different kinds of research to obtain more evidence for the efficacy of its diagnostic tests in different clinical set-ups and population-based screenings.  For instance, effectiveness of Acetium products for new clinical indications will be assessed with double blind studies with virtual control groups. At the same time, the GastroPanel test kit will be standardized. This means that Biohit will ensure uniformity in the reaction conditions and solutions of the GastroPanel tests in order to improve user-friendliness and cut manufacturing costs. Investments will be made to increase product efficiency in order to improve competitiveness. Additional outlays will be required for these strategically important new projects in 2014.

We are strongly committed to carrying out measures that are vital for ensuring the company’s future profitability. We intend to grow in order to become profitable. We expect that net sales will increase in 2014.

The company has decided to make further strong investments in developing its long-term profit potential. The company does not make any forecasts about when the result of its continuing operations will turn to positive. (Previously: Under the current outlook, the company expects earnings to turn positive during 2014.)

MAIN EVENTS OF THE REPORTING PERIOD

Preparations for Biohit’s joint venture in China progressing as planned

Biohit Oyj and its Chinese partner Anhui Wisdom-win Investment Co, Ltd. have received a certificate of approval from the Chinese authorities. This certificate is required for China-registered joint ventures involving foreign investments. The joint venture is now registered under the name Biohit Healthcare (Hefei) Co, Ltd. It is domiciled in the city of Hefei, Anhui province. Applications for official permits to start production are in progress and are expected to be completed by the end of 2014.
 

Biohit acquired rights to a quick test for Helicobacter pylori infection

Biohit Oyj acquired the rights to the UFT300 quick test for diagnosing Helicobacter pylori infection. Under the agreement, the developer of the test, an Italian company Advanced Biomedical Systems S.r.l. (ABS), surrendered its patent and distribution rights to the test. The purchase price was EUR 350,000 and the new test was introduced into Biohit’s range during the fourth quarter of 2013.
 

Biohit’s Acetium distribution restructured in Canada

Biohit Oyj honed its distribution channel strategy for Canada and signed a distribution agreement for Acetium products with the Canadian company Medical Futures Inc. The agreement entered into force immediately and replaced the previous distribution agreement in Canada. With this agreement, Medical Futures Inc. gained exclusive rights to distribution of Acetium capsules and lozenges in Canada.
 

Clinical research

GastroPanel screening results completed, Kazakhstan 2012-2013

Biohit Oyj and the Medical Centre of the President’s Affairs Administration of the Republic of Kazakhstan carried out a screening study in 2012-2013. The final results were completed. A scientific report on the study was published in a widely distributed international cancer journal: Anticancer Research, 2013;33(10). The authors concluded that in countries like Kazakhstan where the annual incidence of gastric cancer is alarmingly high, the GastroPanel test developed by Biohit Oyj should be the cost-effective diagnostic tool for large-scale, population-based screening of gastric cancer.

GastroPanel and Acetium – for prevention and saving on costs

Importantly, by using the safe and cost-effective GastroPanel® examination one can avoid the potentially serious medical problems listed here.

The 13C urea breath test (UBT), stool antigen test and antibody tests, which have been still widely used for the diagnosis of H. pylori infection or screening, do not detect atrophic gastritis which is caused by H. pylori infection or an autoimmune disease. The diagnosis of in most cases asymptomatic atrophic gastritis is important because of the associated risks, including gastric cancer and oesophageal cancer as well as malabsorption of vitamin B12, iron, magnesium, calcium and some drugs. Calcium deficiency may cause osteoporosis, and vitamin B12 deficiency may cause Alzheimer’s disease, dementia, depression and polyneuropathy, as well as high homocysteine content in the body. The latter in turn is thought to be an independent risk factor for atherosclerosis, heart attacks and strokes.

The absorption of dipyridamole, some iron products and antifungals (fluconazole, itraconazole), thyroxine and atazanavir is considerably impaired in a non-acidic stomach. Atrophic gastritis in the gastric corpus and PPI therapy cause aclorhydria of the stomach. The risk of pneumonias and, in senior citizens, even the risk of fatal intestinal infections (such as giardiasis, malaria, Clostridium difficile and E. coli EHEC) has been shown to increase significantly in a non-acidic stomach. H. pylori gastritis may also develop into antral atrophic gastritis, which increases the risk of peptic ulcer disease and gastric cancer. If both antrum and corpus mucosa are atrophic, this condition is the highest risk for gastric cancer known to date. Furthermore, none of the aforementioned three H. pylori tests provides any information on excessive gastric acid secretion, which in patients with gastro-oesophageal reflux disease may cause complications, like ulcerative oesophagitis and Barrett’s oesophagus, which may lead to oesophageal cancer. In addition, the UBT and stool antigen test may give up to 50 % false negative results if the patient has a) atrophic gastritis, b) MALT lymphoma, c) bleeding peptic ulcer disease, or d) if the patient is currently receiving antibiotics or PPIs.

GastroPanel seeks to identify those with asymptomatic or chronic stomach complaints whose anacidic stomachs generate carcinogenic acetaldehyde, putting them at greater risk of gastric and oesophageal cancer. Acetium capsules are recommended – in addition to appropriate treatment – for use after the consumption of food or alcohol by those who:

1. have an anacidic or low-acid stomach caused by atrophic gastritis resulting from Helicobacter pylori infection or an autoimmune disease, which can be diagnosed with GastroPanel (estimated 500 million people worldwide),
2. have a long-term need to use medications that reduce gastric acid (HCl) secretion (PPI medication and H2 blockers); approximately 5–10% of the Western population use these occasionally or regularly, and the number of users in Finland is estimated at more than 500,000,
3. have an untreated chronic Helicobacter pylori infection, which can be diagnosed with GastroPanel (conservative estimate: more than 500 million people worldwide),
4. have undergone stomach reduction surgery (more than one million people worldwide).
 

GastroPanel and Acetium innovations are a unique combination for the prevention of gastric and oesophageal cancer

GastroPanel can diagnose atrophic gastritis and thereby ensure that those at higher risk of gastric and oesophageal cancer can be monitored in time.  Atrophic gastritis of the corpus, which rarely heals, leads to a permanently low-acid or anacidic stomach. Mouth and food microbes are able to live in an anacidic stomach and produce acetaldehyde from alcohol and the sugars contained in food.  In October 2009, the WHO categorised acetaldehyde as a Group I carcinogen. This group also includes asbestos, formaldehyde and benzene.

Standardised ethical and legislative principles govern all Group I carcinogens; regardless of their source, all possible methods should be used to reduce exposure to these carcinogens (www.acetium.fi/test-your-acetaldehyde-exposure).  Protected by granted and pending patents, Acetium capsules are the only known way of eliminating carcinogenic acetaldehyde in the stomach, and thereby potentially preventing gastric and oesophageal cancer.
 

Study Protocols 

Towards the end of the year, we started publishing a significant number of our study protocols on our Internet site for the use of researchers (www.biohithealthcare.com/scientific/study-protocols). We also started clinical research on smoking cessation (http://www.biohithealthcare.com/investors/stock-exchange-releases: Biohit Oyj to start a clinical intervention trial with Acetium® lozenge aimed at smoking cessation.)

In our product development, we have continued to develop new diagnostics products, improve our existing tests, and increase cost-effectiveness. The Barretos Cancer Hospital in Brazil is starting a clinical research project to compare the ColonView test developed by Biohit as another alternative for the colorectal cancer screening programme that will begin in 2015.
 

Administration

Biohit’s financial information and Annual General Meeting in 2014

Biohit will release its financial statement for 2013 on Thursday, 27 February 2014, at 9:30 AM. Biohit Oyj’s Annual General Meeting is planned to be held on Monday, 14 April 2014 at 3 PM in Helsinki. The Annual General Meeting will be convened later by the company’s Board of Directors. The company will publish three interim reports in 2014: interim report for January-March 2014 (Q1) on Thursday, 8 May, interim report for January-June 2014 (Q2) on Thursday, 21 August, and interim report for January-September 2014 (Q3) on Thursday, 23 October.
 

Biohit Oyj’s option schemes I 2013 and II 2013 – terms update and Management Team option arrangement

On 15 October 2013, Biohit Oyj’s Board of Directors decided to distribute a total of 60,000 option rights in class I 2013A from option scheme I 2013 to the members of the Management Team, with the exception of the CEO, as follows: Hendolin Panu, 12,000, Mattila Jaana, 12,000, Mickels Anu, 12,000, Paloheimo Lea, 12,000 and Syrjänen Kari, 12,000. The share subscription period with these option rights begins on 1 June 2014 and ends on 31 May 2019.

In addition, the Board of Directors has decided to amend the terms of both option scheme I 2013 and II 2013 such that EUR 0.17 of the subscription price will be recorded in the company’s share capital. Correspondingly, the subscription price shall be at least EUR 0.17.
 

Biohit Oyj: option scheme I 2013 – option arrangement for International Sales Management

On 16 October 2013, Biohit Oyj’s Board of Directors decided to distribute options under the I 2013 option scheme as follows: 10,000 option rights in class I 2013B to Johnson Graham, 5,000 option rights in class 2013C to Campolunghi Antonella and 5,000 option rights in class 2013C to Patrakka Ilari.

The share subscription period with option rights 2013B begins on 1 June 2015 and ends on 31 May 2019. The share subscription period with option rights 2013C begins on 1 June 2016 and ends on 31 May 2019.

MAJOR EVENTS AFTER THE CLOSE OF THE PERIOD

Distributor agreement updates and new business areas

Biohit Oyj has signed a distribution agreement with Avantis to strengthen sales and marketing of GastroPanel. The agreement covers exclusive sales rights to the distribution of GastroPanel in Ukraine and Moldova. For the distribution of Acetium products, Biohit Oyj has made the following agreements: NovaMedLine (Belarus) and Biofem (Ghana and Nigeria) as well as Medical Futures Inc., which started as the Canadian distributor of Acetium in January. In Finland, Biohit and Tamro amended their agreement concerning the Acetium lozenge, whereby sales of the product were launched on the Biohit Shop online in January 2014, in addition to pharmacy sales. Biohit has strengthened its own retail sales in its online shop, which sells not only Acetium lozenges, but also GastroPanel gift cards. In the future, the online shop will also make international deliveries, and the product range will be expanded with monoclonal antibodies used by laboratory customers.
 

Registration of Biohit’s Acetium delayed in Mexico

Registration of the Acetium capsule in Mexico has been delayed. The delay is due to the official requirements, which are in part stricter than those of the European Union, and the extension of registration to also cover the Acetium lozenge due to the expansion of the distribution agreement made with ProGalénika.
 

Two patents for Biohit for binding acetaldehyde in foodstuffs: United States and Japan

Biohit Oyj has been granted a US patent (application US2010239663A1) that is valid until 21 May 2026. The patent comprises a composition and method for binding acetaldehyde present in the stomach. A Japanese patent (JP4691312B2) for the same method and preparation for binding acetaldehyde from the saliva and in the stomach and large intestine is in force until 29 October 2020. The patented invention comprises a composition including an acetaldehyde-binding substance. This innovation is intended to reduce the concentration of harmful acetaldehyde in the mouth, pharynx, oesophagus, stomach as well as the small and large intestine, and thereby reduce the risk of cancer in these parts of the body.
 

Indian patent for prediction of gastric condition

Biohit Oyj has been granted an Indian patent (no. 258567) that is valid until 4 March 2024. An anacidic stomach caused by atrophic gastritis is the best-known risk factor for gastric and oesophageal cancer. The patented method enables detection of a normal gastric mucosa and antrum atrophic, corpus atrophic and non-atrophic gastritis.
 

Suspension of the research on the eviction of Helicobacter pylori

Biohit’s clinical study on the ability of BioAcetium to help treat Helicobacter pylori infection did not produce clear-cut results. A decision has been made to suspend the BioAcetium study until further notice while Biohit prioritises other clinical studies. The most essential reason for suspending the clinical study is the increased resistance of helicobacter strains to different therapies. The resistance to treatment by H. pylori strains varies geographically, which means that the treatment results in one country are not directly applicable elsewhere.
 

ADMINISTRATION

Annual General Meeting

The Annual General Meeting (AGM) held on 8 April 2013 decided to pay a dividend of EUR 0.4964 for each series A share and EUR 0.4998 for each series B share for the 2012 financial year, to a total of EUR 6.8 million, and a capital repayment of EUR 0.237 for each series A and B share, to a total of EUR 3.2 million. The AGM also decided that the parent company’s loss for the financial year be transferred to retained earnings/losses.

The AGM decided that the number of members of the Board of Directors would be five (5) and re-elected the following members to the Board until the end of the next AGM: Professor Osmo Suovaniemi, Professor Mikko Salaspuro, Commercial Counsellor Eero Lehti and Seppo Luode, MSc (Engineering), as well as President and CEO Franco Aiolfi as a new member.

The AGM appointed authorised public accountants Ernst & Young Oy as the company’s auditor, with APA Erkka Talvinko as chief auditor.

Biohit Oyj’s Management Team

The members of Biohit’s Management Team are: Semi Korpela, President and CEO, Jaana Mattila, CFO, Lea Paloheimo, Director of Business Development and Quality, Panu Hendolin, Head of Research and Development, Anu Mickels, Sales and Marketing Director, and Kari Syrjänen, Chief Medical Director.
 

SHARE TURNOVER AND PRICE DEVELOPMENT

Biohit Oyj's shares are divided into series A and series B shares. There are 2,975,500 series A shares and 10,835,093 series B shares, totalling 13,810,593 shares. Series A shares confer 20 votes per share and series B shares 1 vote per share. In terms of dividends, series B shares receive dividends that are 2 (two) percentage points higher than series A shares in relation to the nominal values. The total market capitalisation (assuming that the market capitalisation for series A and B shares is equal) at the end of the period was EUR 104.4 million (EUR 54.5 million on 31 December 2012).

Biohit Oyj's series B shares are quoted on NASDAQ OMX Helsinki in the Small cap/Healthcare group under the code BIOBV.
 

Shareholders

At the end of the review period on 31 December 2013, the company had 6,126 shareholders (4,734 on 31 December 2012). Private households held 77.6% (70.1%), companies 20.6% (27.8%) and public sector organisations 0.0% (1.5%). Foreign ownership or nominee registrations accounted for 1.7% (0.6%) of shares.

Further information on the shares, major shareholders and the management’s shareholdings is available on the company’s website at www.biohit.fi/investors.
 

ACCOUNTING PRINCIPLES

This interim report has been prepared in accordance with the IAS 34 standard.

All business operations are presented as one segment. Biohit Oyj has applied the same accounting principles in preparing this interim report as for its 2012 financial statements. The IFRS standards that came into effect in 2013 did not have a material impact on the accounting principles.

All the figures in the interim report have been rounded up or down, due to which the sums of individual figures may deviate from the totals shown.

The figures in this interim report have not been audited.
 

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

*) Includes EUR 6.8 million in receivables from a business transaction; these funds are in an escrow account. The funds will be released from the escrow account on 31 March 2014, provided no claims concerning the transaction are made.

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

Statement of changes in consolidated shareholders’ equity on 31 December 2013

Statement of changes in consolidated shareholders’ equity on 31 December 2012

CASH FLOW STATEMENT

RELATED PARTY TRANSACTIONS

There have been no noticeable changes in related party transactions during the review period.

COLLATERAL, CONTINGENT LIABILITIES AND OTHER COMMITMENTS

NEXT FINANCIAL REPORT

The interim report for January - March 2014 (Q1) will be published on Thursday, 8 May 2014 at 9:30 AM local time.

Helsinki, 26 February 2014

Biohit Oyj
Board of Directors

Additional information:

CEO Semi Korpela, Biohit Oyj
tel. +358 9 773 861
investor.relations@biohit.fi
www.biohithealthcare.com

Biohit in brief

Biohit Oyj is a globally operating Finnish biotechnology company. Biohit’s mission is “Innovating for Health” – we produce innovative products and services to promote research and early diagnosis. Biohit is headquartered in Helsinki, Finland, and has subsidiaries in Italy and the UK. Biohit's Series B share (BIOBV) is quoted on NASDAQ OMX Helsinki in the Small cap/Healthcare group. www.biohithealthcare.com