Biohit Group Financial Statement Release 2017

Biohit Oyj Financial Statement Release, 28 February 2018 at 9:30 am local time (EET)

SUMMARY

January-December 2017

• Net sales grew by 9.6 % compared to 2016
• Net sales EUR 9.0 million (EUR 8.2 million)
• EBITDA EUR 7.9. million (EUR -3.0 million)
• Operative EBITDA EUR -0.4 million (EUR -1.9 million)
• Operating profit EUR 6.4 million (EUR -3.4 million)
• The profit for the reporting period was EUR 6.1 million (EUR -3.3 million)
• Net sales from international operations 95.7 % (92.2 %) of total net sales
• Equity ratio 91.3 % (83.0 %)

July-December 2017

• Net sales grew by 12.0 % compared to H2/2016
• Net sales EUR 4.9 million (EUR 4.4 million)
• EBITDA EUR 0.3 million (EUR -1.1 million)
• Operative EBITDA EUR 0.3 million (EUR -0.7 million)
• Operating profit EUR -1.0 million (EUR -1.3 million)
• The loss for the reporting period was EUR -1.1 million (EUR -1.2 million)
• Net sales from international operations 96.2 % (93.7 %) of total net sales
• Equity ratio 91.3 % (83.0 %)

Biohit Group presents certain alternative performance measures (APM) to reflect the underlying business performance and to enhance comparability between financial periods. Alternative performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS. Definitions and reconciliation of key figures are presented in the financial section of the release.

PRESIDENT & CEO SEMI KORPELA:

In 2017, we further improved our sales and financial result. We developed our products and made progress in our research projects. Our EBITDA adjusted for items affecting comparability was EUR -0.4 million (EUR -1.9 million), which represents an improvement of EUR 1.6 million on the comparison period. Our free cash flow in the 2017 financial period amounted to EUR 0.6 million (EUR -2.5 million). Our financing position was strengthened by the cash sum from the divestment of our joint venture, which amounted EUR 1.5 million after tax and change in foreign exchange rates. Our Chinese business developed favourably in 2017, and we expect the outlook to remain good. Biohit is well positioned to continue growing in 2018.

Expansion of our distribution network continued and we advanced in product registrations

We continued to expand our distributor network by making new agreements and rearranging existing agreements. We made the following agreements in 2017 concerning the distribution of Biohit's diagnostic products: Mast Diagnostics will sell our diagnostic tests in France and Eastern Medical Co. will sell them in Vietnam. Cherubino Ltd was appointed as distributor for Malta, and Labquality S.C.C. will be the distributor in Ecuador. Afric Phar was appointed as distributor of Biohit's celiac quick test and the ColonView® test in Morocco. In Sri Lanka, the GastroPanel® and ColonView tests will be distributed by IconnHealthCare Pvt Ltd. In the review period, Hefny Pharma received the exclusive right to sell Acetium in Egypt. In China, Chinmax Medical Systems Inc. will be responsible for distributing the lozenge. In addition, a non-exclusive agreement was signed in December with R-Kioski for the distribution of the Acetium lozenge in Finland to help smokers to give up smoking. In Greece, an exclusive distribution agreement covering the same product was signed with Pharmathen Hellas S.A.

GastroPanel was granted sales licence in our strategically important market areas in Mexico and Iran during the review period. The ColonView quick test was approved for sale in Panama and Serbia. The registration of Acetium was completed in Vietnam and the shipments were initiated under the product name Athetium.

During 2017 a price approval decision on the three GastroPanel tests (pepsinogen l, pepsinogen II, gastrin-17) was issued in two Chinese provinces. The price approval decision has already been issued in 22 provinces. Price approval is a pre-requisite for reimbursability of GastroPanel and start of sales.

We made changes to our operations in China

We completed the divestment of our Chinese joint venture, which turned our operating profit for 2017 into the positive. Now that the divested company is in full Chinese ownership, it will be able to make significant investments in increasing its production capacity, and it will gain easier access to national health care and screening programmes. In accordance with the existing agreement, we will continue to deliver raw materials required for manufacturing and we will receive a royalty payment based on the net sales of products.

We prepared new products for the market

Acetium® lozenge is a safe and effective product that helps smokers to give up without consuming addictive nicotine or incurring any of the potential side-effects of medicinal intervention methods. The Acetium lozenge is used while smoking, and it effectively removes carcinogenic acetaldehyde that dissolves in saliva during smoking. We will launch the new product in 2018.

The new GastroPanel® quick test, intended for point-of-care testing (POCT), can be conducted using a fingertip blood sample during a primary care appointment. The GastroPanel® quick test will be available in Europe as soon as the performance and clinical testing required for the CE mark have been completed.

Important new results in our research projects

In 2017, the 20-year follow-up results were published for a unique screening study, conducted between 1994 and 1996, on the risk of gastric cancer (known as the Kotka-Vantaa screening study) in two leading journals in the field (Acta Oncologica and Gut).  The follow-up results show that long-term mortality due to gastric cancer significantly decreased among people who had been screened.  In the second publication of the same study, a significant finding was published showing that if an infection of Helicobacter pylori was detected in the stomach in conjunction with the screening (1994–1996), it significantly reduced the risk of oesophageal cancer but increased the risk of gastric cancer over the 20-year monitoring period.

The effectiveness of the Acetium® lozenge in helping smokers to give up was verified in an extensive clinic trial

The results of Biohit's first study focusing on giving up smoking were published in 2016. Based on the promising results, Biohit repeated the study with a larger number of trial patients. The new study on the effectiveness of Acetium lozenges for helping people to give up smoking was completed in spring 2017, and it confirmed the previous result showing that the Acetium lozenge is an effective and entirely nicotine-free method of helping people to give up smoking. The likelihood of people giving up smoking with the help of Acetium lozenges was 50% higher than with the placebo.

BIOHIT GROUP KEY FIGURES

REPORTING

Biohit's product portfolio consists of diagnostic tests, analysis systems, acetaldehyde binding products, monoclonal antibodies, as well as service laboratory operations. The entire product and service portfolio is reported under a single segment.

NET SALES AND RESULT

January-December

Net sales grew by 9.6 % from the previous year.

The operating profit was EUR 6.4 million (EUR -3.4 million). The profit of the review period was EUR 6.1 million (loss EUR -3.3 million). Operative EBITDA was EUR -0.4 million (EUR -1.9 million).

Consolidated net sales and operating profit

ALTERNATIVE PERFORMANCE MEASURES

Bridge calculation of operative EBITDA

Calculation of free cash flow (FCF)

BALANCE SHEET

On the 31 December 2017, the balance sheet totalled EUR 18.9 million (EUR 13.0 million 31 Dec 2016). At the end of the reporting period, our equity ratio stood at 91.3 % (83.0 %).

                                                                               
FINANCING AND OPERATIONAL CONTINUITY

Biohit Oyj has a moderate financing position, which allows for the necessary actions towards creating an international distributor network as well as the development and commercialization of new products. On 31 December 2017 company’s financial assets totalled EUR 5.6 million (EUR 4.5 million).

Despite significant financial investments the company has managed to keep its working capital on a good level and the management states that working capital will cover the operations for at least the next 12 months and the company is not depended on external financing to be able to guarantee the continuity of its operations. Company’s management assessment is that company’s ability to continue its operations is good and there are no indications towards events or circumstances that alone or together might give any reason to doubt the organisation’s ability to continue its operations. 

RESEARCH AND DEVELOPMENT

R&D operations focus on innovations, as well as product development and further improved usability. Biohit also employs external experts and subcontractors in its R&D operations. Development expenditure has not been capitalised. Research and development expenditure during the 1-12/2017 reporting period amounted to EUR 1.2 million (EUR 1.9 million), of which the second half-year accounted for EUR 0.5 million (EUR 0.8 million).

The main focus was in smoking cessation study and preparing the new product for the market. We also continued development of the GastroPanel® quick test and made a progress in the performance and clinical testing and software development that are required before starting the sales. We are further developing the ColonView-FIT concept for colon cancer diagnosis and possible screening projects in Finland and abroad.

CLINICAL RESEARCH

Clinical studies progressed and new studies were started

Prompted by the promising results of the first smoking intervention study published in 2016, a confirmatory study testing Acetium® lozenge in a similar setting was reproduced with a larger sample size, completed in spring 2017. L-cysteine slowly released from Acetium® lozenge effectively binds carcinogenic acetaldehyde derived from the cigarette smoke, to build up an compound, that is excreted via gastroentestinal tract. Also this large study with 2000 smokers confirmed the previous results in that Acetium-lozenge is an effective and completely nicotine-free method to help quit smoking. The likelihood to stop smoking with Acetium-lozenge was 50% higher than in the subjects who received placebo.

During 2017, we also concluded an international study in Brazil, comparing different screening tests of colorectal cancer since 2014. This study is similar in design to a previously (2015) published comparison study, where the sensitivity and specificity of Biohit ColonView®-FIT test (specific to human blood) was compared with the conventional guaiac-based test in detecting fecal occult blood.  The interim results of the Brazilian study were reported in the DDW (Digestive Disease Week) congress of 2017 in the US. At this writing (February 2018), the research group is finishing the study report on the final results.  

During 2017, both the two randomized clinical trials on migraine- and cluster headache patients continued. The progress of these two studies is delayed because of the slow speed of enrollment of the eligible patients as reported before. This trial has attracted considerable interest among the migraine patients and their physicians, because new effective medications for prevention of migraine attacks are urgently needed. Partly due to this reason, the company decided to conclude the migraine trial despite the fact that the originally planned cohort of 200 patients remains incomplete by 40 patients. Because of this, we decided to contract with two new research centers in Estonia, together agreed the enrollment of 160 eligible patients. When a similar study design as used in Finland is being reproduced, it will be possible to pool the results of these separate trials.  

Another trial started in two clinics in Italy in 2016  has continued throughout the year 2017, testing the efficacy of Acetium® capsules in the treatment and prevention of the disease process of atrophic gastritis during a long-term follow-up.

As a direct continuation to the previous studies using Biohit GastroPanel® test, we started in autumn 2017 a new study focused on two special groups of high-risk patients. These include patients with Type 1 Diabetes Mellitus (DM1) and those with autoimmune thyroid disease (AITD), both known to be at particularly high risk of contracting autoimmune type of atrophic gastritis.  In addition to establishing the magnitude of this risk, it is important to assess how the clinical monitoring of these patients is best organised. Also this study is conducted in collaboration with the Gastrocenter and Department of Internal Medicine at Oulu University in Finland, where all consenting DM1- and AITD-patients are enrolled on the occasion of their regular ambulatory visits, and subjected to  GastroPanel test. All those with GastroPanel results implicating atrophic gastritis will be invited for diagnostic gastroscopy, disclosing the prevalence of mucosal atrophy in these high-risk patients.

In 2017, we also reported the first results of a study ongoing in Romania, evaluating the performance of Biohit Celiac Disease quick test (CDQT) in diagnosis of celiac disease (CD) in pediatric patients. The results confirm the previously disclosed (unpublished) results of a Dutch research group, implicating that Biohit CDQT is a  highly sensitive and specific test in confirming the diagnosis of a clinically suspected incident (new) CD in children.

INVESTMENTS

Gross investments during the 1-12/2017 reporting period totalled EUR 0.2 million (EUR 0.1 million). Key investments in the period were related to regular manufacturing equipment.

PERSONNEL

During the review period, the Biohit Group employed 51 (53 in 2016) people on average. 41 (44) of whom were employed by the parent company and 10 (9) by the subsidiaries. At the end of the year 2017, the Group employed 51 (49) personnel, of whom 42 (40) were employed by the parent company and 9 (9) by the subsidiaries.

SHORT-TERM RISKS AND UNCERTAINTY FACTORS

Biohit’s key risks are related to the investments required for business growth and adequacy of economic resources these require in the medium term. Other risks are involved in areas such as the success of clinical trials, the selection and development of new market areas and distribution channels, registration processes, product pricing, and political decision-making affecting the progress of screening programs. Significant short-term risks are associated with the successful selection of new market areas, the timing of expansion into selected markets and product success in these markets. The recent increase in uncertainty factors associated with international politics may have an unfavorable impact on the company's business.

The duration of the product registration process is different in each market area. For this reason, it is not possible to accurately assess the time taken for the authorities to handle registrations in these areas and for product sales to begin. Negative registration decisions are also possible.

When investing liquid assets, the objective is to gain a return on investment with a minimum risk of equity loss. The 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.

Biohit’s operation’s customer base is widely diversified, with the exception of GastroPanel® sales in China, which currently represents a major single business for Biohit. Due to this reason, the company is dependent on the continuation of this business relationship. Otherwise, the company is not significantly dependent on individual customers or project deliveries. Most of the company’s business is conducted in euro, and the indirect effects of currency exchange rate fluctuations are considered insignificant.

OUTLOOK FOR 2018

Biohit is going to launch the new Acetium-product for the smoking cessation in 2018. Biohit has several product registrations ongoing together with its distributors and license partners in a number of different markets, which is affecting net sales development. A number of such registrations are expected to be completed in 2018

China's operations continue to be an important focus area in Biohit's business in 2018. In addition to on going GastroPanel screening research, Biohit's Chinese partner Biohit HealthCare (Hefei) Co. Ltd has begun the commercial manufacture and sale of the GastroPanel product in China, raw materials supplied by Biohit. At the same time, sales of GastroPanel kits manufactured in Finland are expected to continue to grow in the Chinese market.

Revenue is expected to increase during 2018.The company does not estimate when the comparable profit will turn profitable.

BOARD’S PROPOSAL FOR DISTRIBUTIONS OF PROFIT

The parent company's distributable funds (unrestricted equity) on 31 December 2017 are
EUR 12 650 376.26 of which the period net profit is EUR 6 741 893.94. The Board of Directors proposes to the Annual General Meeting that no dividend be paid for the fiscal year.

MAIN EVENTS IN THE SECOND HALF OF THE YEAR (H2)

The results of the large-scale confirmatory smoking intervention study have been published

The results of our second, large-scale smoking intervention study have been piblished in Anticancer Research- journal. This randomized, double-blind trial comprising almost 2000 smokers was completed in May 2017. This new study confirmed the previous results of a preliminary study in that Acetium® lozenge is a new effective method with no side effects in assisting the smokers to quit.

Biohit GastroPanel® predicted accurately the risk of gastric cancer in a cohort of over 12.000 subjects followed-up for 12 years in China

In that study, the authors evaluated the value of four GastroPanel biomarkers:  pepsinogen I (PGI), pepsinogen II (PGII), Helicobacter pylori (HP) antibody, gastrin-17 (G-17) and the PGI/PGII ratio, as predictors of gastric cancer risk at baseline and during the follow-up. This population-basewd cohort comprised over 12.000 subjects who were followed-up prospectively for almost 12 years by a serial testing with blood samples and endoscopies as a part of an ongoing population-based screening in North China.

A meta-analysis from an independent research group from Italy confirmed the accuracy of   Biohit GastroPanel® test in diagnosis of atrophic gastritis

The authors conclude that the biomarker panel including pepsinogen I and II, gastrin-17 and H. pylori antibodues (GastroPanel) is a reliable method to diagnose atrophic gastritis. The use of GastroPanel is recommended as a screening test to detect the patients with atrophic gastritis at increased risk for contracting gastric cancer.

An important patent granted to Biohit Acetium® capsule in Japan

Biohit Acetium kapsule was granted in July 21, 2017 an patent in Japan, valid until May 22, 2027 (Patent No: 6178657). The Patent is entitled: “Composition and method for binding acetaldehyde in stomach.” and it covers comprehensively all the fields of application of the Biohit Acetium capsule, as well as its eventual future modifications in composition, dosage and indications for use.

Biohit Oyj B-shares Subscribed with Stock Options I 2013

A total number of 110 000 new Biohit Oyj B-shares have been subscribed for with stock options I 2013 between 5 May 2017 and 12 October 2017. These shares have been entered into the trade register on November 6, 2017, as of which date the new shares will establish equal shareholder rights with the company's existing B-shares.

Quit smoking, nicotine free: R-kioski to distribute Acetium® lozenge in Finland

Biohit Oyj and R-kioski Oy have signed an agreement for the distribution of the smoking cessation product, Acetium lozenge in Finland. The contract is a non-exclusive distribution agreement. Launch date for the product will be announced later.

EVENTS AFTER THE CLOSE OF THE REVIEW PERIOD

Biohit Oyj’s comments on its Chinese distributor’s announcement

Biohit Oyj’s distributor, a wholly Chinese owned Biohit HealthCare (Hefei) Co. Ltd has announced that it will expand its GastroPanel production capacity and that it will bring GastroPanel onto new technology platforms and instruments. The announced investment to increase the production capacity is substantial, approximately 38.4 million euros. As a result of the investment, the production capacity can be increased to produce 75 million tests yearly. Biohit Oyj will supply the needed raw materials and receives net sales based royalty payments in accordance with the distribution agreement existing between the parties. At this moment, Biohit Oyj cannot estimate the impact of this Chinese investment on Biohit Oyj’s later results.

Quit smoking without nicotine: Pharmathen Hellas S.A. to distribute Acetium® lozenge in Greece

Biohit Oyj and Pharmathen Hellas S.A. have signed an agreement for the distribution of the smoking cessation product Acetium lozenge in Greece. The contract has been signed for three years with a continuation option. The first deliveries of the product will be in early 2018.

Dow BioMedica to distribute Biohit GastroPanel® in Korea

Biohit Oyj and Dow BioMedica have signed an agreement for the distribution of Biohit GastroPanel in Korea. The contract has been signed for four years with a continuation option. The registration will start during the 1st quarter of 2018.

Changes to Biohit Oyj’s Management Team

Biohit Oyj CFO Niklas Nordström joined another company.

Biohit GastroPanel® test helps reducing unnecessary gastroscopies in pre-operative evaluation of the patients referred for bariatric surgery

A careful pre-operative evaluation is necessary for all patients to assess the status of their stomach, usually done by gastroscopy and biopsies. A recently published study from Tartu University Hospital (Estonia) shows that almost one third of these pre-operative gastroscopies can be replaced by non-invasive biomarker testing with GastroPanel.

Based on the results of this study, and as determined from the previously established data on the prevalence of Helicobacter pylori infection and atrophic gastritis, we can estimate that in Western countries, up to 80% of gastroscopies could be replaced by GastroPanel in the primary diagnosis of dyspeptic patients. This could significantly reduce these examinations that are felt uncomfortable by the patients and lead to substantial savings in healthcare costs.

New product registrations in Philippines and in Sri Lanka

Sales permit was granted for several Biohit quick tests in Philippines. Biohit UFT300 quick test was registered in Sri Lanka.

Montebello to distribute Biohit products in Norway

Biohit Oyj and Montebello Diagnostics AS have signed an agreement for the distribution of Biohit diagnostic products in Norway. The contract has been signed for three years with a continuation option.

ADMINISTRATION

Biohit's financial reporting and Annual General Meeting in 2018

Biohit Oyj’s Annual General Meeting has been planned to be held at 5.00 pm on Wednesday 25 April 2018 in Helsinki. The Board of Directors will call the General Meeting at a later date. In 2018 the company will publish the half-year report for period January - June 2018 (H1) at 9:30 am on Wednesday 22 August 2018.

Biohit Oyj's Management Team

The members of Biohit's Management Team are: CEO Semi Korpela, Research & Development, Production and Business Development Director Lea Paloheimo, Sales and Marketing Director Ilari Patrakka, Quality and Regulatory Affairs Director Daniela Söderström and Chief Medical Director Kari Syrjänen.

SHARES AND SHAREHOLDERS

The number of Biohit Oyj’s shares is 14 886 843 (14 698 533), of which 2 975 500 (2 975 500) are Series A shares and 11 911 343 (11 723 033) are Series B shares. The Series B shares are quoted on NASDAQ Helsinki in the Small cap/Healthcare group under the code BIOBV.

Supposing that the market capitalisation for series A and B shares is equal, the total market capitalisation at the end of the period was EUR 56.1 million (EUR 88.9 million on 31 December 2016).

Shareholders

At the end of the reporting period on 31 December 2017, the company had 6,660 shareholders (6  402 on 31 December 2016). Private households held 77.2% (76.2%). companies 19.1% (19.3%) and public sector organisations 0.0% (0.0%). Foreign ownership or nominee registrations accounted for 3.6% (4.4%) of shares.

Further information on the shares, major shareholders and management shareholdings is available on the company's website at www.biohithealthcare.com/investors .

ACCOUNTING PRINCIPLES

This financial statement release has been prepared in accordance with the requirements of the IAS 34 Interim Financial Reporting standard. Biohit Oyj has applied the same accounting principles in preparing this financial statement release as for its financial statements 2016.

Biohit Oyj has changed the presentation of profit and loss statement for fiscal 2017. The company has decided to present expences by nature instead of presenting expences by function of the business. The management expects the accounting principle change to offer investors a better view on the operative performance of the business.

The new quidance regarding alternative performance measures (APM) by the European Securities and Markets Authority, ESMA, came into effect in 2016. Biohit Group presents certain alternative performance measures to reflect the underlying business performance and to enhance comparability between financial periods. Alternative performance measures should not be considered in isolation as a substitute for measures of performance in accordance with IFRS. Operative performance measures have been adjusted for certain non-operative items or non-cash valuation items that affect comparability berween periods. Items affecting comparability and the alternative performance measures applied by Biohit Oyj are defined as follows:

Items affecting comparability:

Certain items that are not related to the underlying business or non-cash valuation items that have material effect on the profit and loss for the period are adjusted as items affecting comparability. These items can arise for example from:

- Impairment of assets

- Sale or acquisition of asset or business

- Share based payment expences in accordance with IFRS 2

Additionally Biohit Oyj presents the following alternative performance measures:

The figures in the financial statement release have not been audited.

CONSOLIDATED INCOME STATEMENT

Earnings per share calculated from earnings attributable to equity holders of the parent company

 STATEMENT OF CHANGES IN EQUITY

Consolidated statement of changes in equity on 31 December 2017

Consolidated statement of changes in equity on 31 December 2016

RELATED PARTY TRANSACTIONS

During the first half of 2017 Biohit Oyj reduced its ownership in its joint venture at Biohit Healthcare Hefei Ltd and its result was not consolidated with Biohit Oyj's result as from 1 June 2017. By 31 May, Biohit Oyj sold Biohit HealthCare Hefei goods and services worth EUR 1.3 million. During 2016 sales to the joint venture totaled EUR 3.6 million EUR.

Biohit Oyj B-shares subscribed with stock options I and II 2013 during the 1-12/2017 reporting period

A total number of 188 310 new Biohit Oyj B-shares have been subscribed for with stock options I 2013 B during 2017. The share subscription price was 2.2766 per share. The entire subscription price of EUR 428 706.55 is credited to the reserve for invested non-restricted equity.

NEXT FINANCIAL REPORT

The half-year report for January - June 2018 (H1) will be published at 9:30 am local time (EEST) on Wednesday 22 August 2018.

Helsinki, 28 February 2018

Biohit Oyj
Board of Directors

Additional information:
CEO Semi Korpela
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 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 Series B share (BIOBV) is quoted on Nasdaq Helsinki in the Small cap/Healthcare group. www.biohithealthcare.com