Biohit group half year financial report 2020

Biohit Oyj Half Year Financial Report 12 August 2020 at 9:30 am local time (EET) 

SUMMARY

January-June 2020

• Net sales EUR 3.0 million (EUR 5.0 million)

• Net sales decreased by 40 % compared to H1/2019
• Operative EBITDA EUR -1.0 million (EUR +0.4 million)
• Cash at the end of the period EUR 1.0 million (EUR 1.3 million 31 December 2019)
• Fair value of Genetic Analysis AS investment EUR 0.8 million (EUR 3.7 million 31 December 2019)
• Net sales from international operations 95.6 % (95.5 %) of total net sales
• Equity ratio 81.0 % (83.9 % 31 December 2019)

BIOHIT GROUP KEY FIGURES

* In 2017 we capitalized the patent regarding divestment of Biohit Healthcare (Hefei) Co. Ltd. which is depreciated EUR 1.5 million annually until end of 2021.

PRESIDENT AND CEO SEMI KORPELA:

COVID-19 PANDEMIC IMPACTED VERY NEGATIVELY ON THE BUSINESS

At the beginning of the year 2020, Biohit had positive growth outlook towards all key markets. COVID-19 started to impact on Biohit’s business in China, Middle-East, Europe and other markets when the healthcare sector focus was shifted to COVID-19 diagnostics instead of gastrointestinal diagnostics. As a result of this, Biohit product sales decreased significantly. Also Gastroscopies were put on hold in several European countries which also had a negative impact on Biohit’s Net Sales.

Our Net Sales decreased by 40 % during the first half of the year 2020 due to reasons mentioned above. Net Sales decreased in almost all key markets. During the review period Operative EBITDA adjusted for items affecting comparability decreased significantly to EUR -1.0 million (EUR +0.4 million). We reached EUR 0.5 million savings in fixed costs which mitigated the decreased Net Sales and also decreased Gross Margin (-%) impact on EBITDA. Our cash at the end of the period remained on a good level EUR 1.0 million (EUR 1.3 million) due to the company’s effective working capital management.

The COVID-19 pandemic created an extra challenge on the Genetic Analysis AS financing round. Comprehensive income for the period was very negatively impacted by the fair value change in the investment in Genetic Analysis AS EUR -2.9 million. GA’s share subscription price which is used as an input value in Biohit’s balance sheet valuation decreased due to the pandemic. The fair value change had no impact on the cash flow.

Despite the pandemic we made international distribution agreements for different product groups. We signed an agreement over the distribution of GastroPanel® QuickTest with Concile GmbH in Germany. In Algeria, Hydra pharm s.a.r.l is our new QuickTest distributor. An important achievement during the review period was the new manufacture and licensing agreement with Melon OOO regarding local GastroPanel® production in Russia. Melon OOO is Biohit’s long term diagnostics distributor in Russia and the local production enables better utilization of Russia’s Ministry of Health recommendation for early detection of gastrointestinal diseases. Business in Russia grew significantly compared to the previous year despite the COVID-19 impact.

The development of the GastroPanel® Quick Test - intended as the first-line diagnostic test for dyspeptic patients and reflux symptoms - has been advanced by extending the specimen types studied to finger-prick blood specimens and examining the usability of the test platform under point-of-care settings. However, a clinical study was suspended due to the COVID-19 pandemic. The study’s timetable is dependent on the development of the pandemic and the study can proceed safely when patients entering the hospital have no risk of COVID-19 infection. Our target is to apply CE mark during 2020.

Europe and Middle-East markets have slowly started to recover but the demand is not yet back to pre-pandemic levels. China has also started to recover step by step but the threat of the next pandemic wave and people’s general unwillingness to use healthcare services due to risk of infection slows down the market recovery.

Even though the year 2020 is challenging due to the COVID-19 pandemic, we are confident about the future. Impact of the COVID-19 pandemic to our product sales is temporary and demand will return post-pandemic. We take constant actions with our cost structure to mitigate the pandemic’s impact on 2020 EBITDA. Biohit has also a strong balance sheet and sufficient financial funds to overcome the situation.

OUTLOOK FOR 2020

We decreased our outlook in the beginning of June (4 June 2020) relating to coronavirus. Biohit latest outlook on 2020:

Biohit expects the 2020 Net Sales to decrease in comparison with 2019 (previous year EUR 10.1 million).

REPORTING

Biohit's product portfolio consists of diagnostic tests, analysis systems, products binding carcinogenic acetaldehyde into a harmless compound, 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-June

ALTERNATIVE PERFORMANCE MEASURES

 Bridge calculation of operative EBITDA

BALANCE SHEET

On the 30 June 2020, the balance sheet totalled EUR 11.8 million (EUR 17.4 million 31 December 2019). At the end of the reporting period, our equity ratio stood at 81.0 % (83.9 % 31 December 2019).

                                                                             
FINANCING AND OPERATIONAL CONTINUITY

Our financing position is sufficient to overcome coronavirus impact on our business, for continuing critical R&D projects and taking the necessary actions towards strengthening an international distributor network. On the 30 of June 2020 company’s financial assets totalled EUR 5.0 million (EUR 5.6 million 31 December 2019) which does not include Genetic Analysis AS shares.

The company has managed to keep its working capital on a good level and the management believes that working capital and company’s other financial assets will cover the operations for the next 12 months and the company is not dependent on external financing to be able to guarantee the continuity of its operations. Cash flow from operating activities was EUR -0.2 million during the review period. According to company’s management company’s ability to continue its operations is good and there are no indications towards events or circumstances that alone or together might give a significant reason to doubt the organisation’s ability to continue its operations. 

RESEARCH AND DEVELOPMENT AND CLINICAL STUDIES

R&D operations focus on innovations, as well as product development and improved usability. Biohit also employs external experts and subcontractors in its R&D operations. Development expenditure has not been capitalised. Research and development expenditure excluding depreciation and amortization during the reporting period amounted to EUR 0.5 million (EUR 0.6 million).

The development of the GastroPanel® Quick Test designed for the primary diagnosis of dyspepsia and reflux symptoms has progressed. The results of a multi-center clinical trial are available from one of the hospitals, where the patients’ plasma samples were examined by the GastroPanel® Quick Test and the results compared with the ELISA-based GastroPanel® reference test. Subsequently, the external clinical validation studies have been extended to different sample types, including finger prick samples as well as to testing of the applicability of the platform in real-life point-of-care sampling settings. However the clinical trial was discontinued due to the COVID-19 pandemic. The continuation of the trial is pending on the future development of the pandemic. The trial can be safely continued only when the patients entering the hospital have no risk of COVID-19 infection. Our target is to apply CE mark during 2020.

The development of the fecal immunochemical test (ColonView-ELISA) designed for the screening and primary detection of colorectal cancer and its precursors has continued during 2020.

The first analysis of the patient data from a clinical validation study on the unified GastroPanel® test jointly conducted by the Oulu University Hospital Gastrocenter and Department of Internal Medicine has been completed. This clinical validation study was focused on patients with type 1 diabetes mellitus (DM1) and autoimmune thyroid disease (AITD), who are known to have a markedly increased risk of contracting also autoimmune-type atrophic gastritis (gastric mucosal atrophy and dysfunction).

COMMUNITY RESPONSIVENESS, PATIENT SAFETY AND DISEASE PREVENTION

As a result of substantial investments taking community responsiveness as well as due to the innovation- and patenting strategy of Biohit Oyj:n (www.biohithealthcare.com / About Us /History: Aggressive Innovation and Patenting Strategy – the Way to Success and National Well-Being),   the company has launched a wide variety of products based on several Finnish innovations. For a major unmet global need, the company offers the following innovations that enhance patient safety and contribute to the primary prevention: GastroPanel, ColonView-FIT and Acetium-products.

The globally unique GastroPanel & GastroSoft (www.biohithealathcare.com /Links: e.g., GastroPanel innovation) (www.biohithealthcare.com/additional-information) is a blood test for the primary diagnosis of dyspepsia and reflux symptoms as well as a test that provides significant added information and contributes to savings of the life-time health care costs in the screening of gastric- and esophageal cancer risks (www.gastropanel.com). Screening of the gastric- and esophageal cancer- as well as other risks by GastroPanel test  would lead to savings of up to € 800 million in the life-time health care costs of 10 age groups (65-74-year-old) in Finland, according to the screening model designed by the Nordic Healthcare Group (NHG)(https://www.gastropanel.com/decision-makers/screening-model).

In the primary diagnosis of upper abdominal symptoms, of which up to 50 % can be of intestinal origin (particularly in the elderly people), it is advisable to use also immunochemical Co­lonView-FIT-test to detect fecal occult blood. Invented by the founder of Biohit Oyj in the early 1980’s, the principle of the fecal immunochemical test for human hemoglobin has subsequently been adopted in worldwide use (www.biohithealthcare.com/additional-information). Despite this fact, the current care guidelines in Finland updated in 2019 and entitled: ”Dyspepsia and reflux symptoms”, does not consider reasonable the testing of fecal occult blood in the primary diagnosis for symptomatic patients. The Biohit ColonView-FIT, measuring both hemoglobin and hemoglobin-haptoglobin complex, is more sensitive in the primary diagnostics and also the test-of-choice for colorectal cancer screening. The test is diagnosing intestinal cancer precursors (adenomas and polyps), thus helping to guide in time for colonoscopy and for further necessary examinations and treatment (www.colonview.fi). Acetium-capsules bind, in acid-free stomach (due to atrophic gastritis or PPI-medication), carcinogenic acetaldehyde, which is a risk factor of stomach- and esophageal cancer. Accordingly,  Acetium-capsules can reduce the risk of gastric- and esophageal cancer associated with acid-free stomach (www.biohithealthcare.com /Links: State of the art GastroPanel and Acetium innovations for the unmet need). Acetium-capsules can also prevent the headache attacks in distinct types of migraine: (https://news.cision.com/biohit-oyj/r/two-clinical-trials-with-acetium--capsule-for-prevention-of-migraine-type-headache-have-been-conclud,c2907382). Acetium lozenge helps quit smoking and possibly also stop alcohol abuse as well as promote oral health by eliminating smoke- and alcohol-derived acetaldehyde in the saliva (patent granted to this invention in 60 countries) (www.acetium.com) (www.biohithealthcare.com/additional-information).

INVESTMENTS

Gross investments during the H1/2020 reporting period totalled EUR 0.0 million (EUR 0.0 million).

PERSONNEL

During the review period, the Biohit Group employed on average 44 (46) people, of whom 35 (38) were employed by the parent company and 9 (8) by the subsidiaries.

SHORT-TERM RISKS AND UNCERTAINTY FACTORS

Biohit’s key risks are related to prolongation of coronavirus (SARS-CoV-2) pandemic, the success of the selection and development of new market areas and distribution channels, product registrations and personnel recruitment. Significant short-term risks are associated with the normalization of Biohit’s product demand, success of product registration and successful selection of correct distribution channels. The recent increase in uncertainty factors associated with international politics may have an unfavourable 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 and for product sales to begin. The distributor is responsible for the registration process.

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. The investment portfolio is subject to interest rate risk, which is managed by adjusting the duration of the portfolio. The rise of one percentage point in interest rates would have a negative impact of EUR 0.1 million on the fair value of the investment portfolio. In addition general instability in the financial markets impacts negatively on the value of the investment portfolio.

The Group’s investment in unlisted shares of Norwegian Genetic Analysis AS is subject to changes in the terms of transactions involving the company’s shares that take place between third parties. A negative change of 30 % in the valuation of Genetic Analysis AS shares, would have a negative pre-tax impact of EUR 0.2 million on the Group comprehensive income. Investment in Genetic Analysis AS is also subject to changes in euro/NOK foreign exchange rate. In addition Genetic Analysis AS is still dependent on securing external financing in its operations. Genetic Analysis AS valuation changes have no effect on company’s cash flow.

The value of  Biohit’s patent capitalized in 2017 regarding divestment of Biohit Healthcare (Hefei) Co. Ltd. is 2.3 million euros in this half year financial report. Impairment testing will be performed whenever there is an indication of impairment. An impairment test was conducted in conjunction with the 2020 half year financial report. No impairment was recognised based on the impairment test. There is uncertainty concerning the future cash flows used for impairment testing. The uncertainty relates to locally produced GastroPanel® product sales in China markets:

• Decrease in demand for GastroPanel® by 20 % and impact on the value of patents -0.4 million euros

• Decrease in demand for GastroPanel® by 40 % and impact on the value of patents -0.8 million euros

Prolongation of COVID-19 pandemic can increase bad debt risk among Biohit’s international distribution network.  

Biohit’s customer base is widely diversified, with the exception of GastroPanel® sales in China, which currently represents a major single business for Biohit. For this reason, the company is dependent on the continuation of this business relationship in China. 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.

MAIN EVENTS IN THE FIRST HALF OF THE YEAR (H1)
12.3.2020: Population-based screening by Biohit GastroPanel® biomarkers practically eliminates the risk of gastric cancer during a long-term follow-up

A significant confirmatory evidence to the previous studies on GastroPanel^® biomarkers as predictors of GC was provided by a recently published population-based screening study from the Republic of Karachaevo-Cherkessia (Russian Federation). In this longitudinal cohort study from the Department of Therapy, Medical Institute (North Caucasus State Academy for Humanities and Technologies, Cherkessk), Prof Kotelevets and his associates used a case-control setting by prospectively following-up two groups of subjects (2 220 patients in both groups) for 7 years to monitor for the development of incident GC in these two groups.https://news.cision.com/biohit-oyj/r/population-based-screening-by-biohit-gastropanel--biomarkers-practically-eliminates-the-risk-of-gast,c3057345

Already by the year 2006, the Finnish GastroPanel-innovation had been approved and adopted in use in several countries (www.biohithealthcare.com /Links: Dear Colleague 2006, in the subheading: ”GastroPanel’s global evaluations, approvals and extension of use”).

In the above review of 2006, an explanation is also given why Finland is the only country in the world where the national current care guidelines ”Dyspepsia and reflux symptoms” specifically states that blood biomarker testing (GastroPanel) is not recommended in the primary diagnosis of dyspepsia and reflux symptoms. This is the case despite the fact that GastroPanel detects, in addition to Helicobacter, also among other things, atrophic gastritis with associated gastric cancer- and other risks (www.biohithealthcare.com/additional-information). These national guidelines ignore GastroPanel and do not recognize the prior errors and incurred damages, and continue recommending as Helicobacter tests the 13C urea breath test (UBT) and stool antigen test (SAT) that do not detect atrophic gastritis, with associated cancer and other severe risks. Despite this even the updated (2019) current care guidelines in Finland fail to issue a warning of e.g. these severe shortcomings which endangers patient safety (www.biohithealthcare.com /Links: e.g., GastroPanel innovation).

Because of this and due to the severe problems associated with endangered patient safety, unnecessary costs for society and long-term negative effects on Biohit Oyj, the company has continued taken necessary actions during the review period.     

15.4.2020: Does an undiagnosed atrophic gastritis (acid-free stomach) increase the risk of coronavirus infection, its complications and mortality particularly among elderly people?

Advanced age as such is not the only risk factor,  but also the patient’s comorbidity increases the risk of coronavirus infection. One such potential risk group consists of elderly people who have atrophic gastritis (atrophy of stomach mucosa). Screening of the increased risks associated with acid-free stomach is possible by using the unique GastroPanel^® blood test developed by Biohit Oyj, that detects, in addition to helicobacter infection, also atrophic gastritis (acid-free stomach) and the state of gastric acid output. (https://news.cision.com/biohit-oyj/r/does-an-undiagnosed-atrophic-gastritis--acid-free-stomach--increase-the-risk-of-coronavirus-infectio,c3087941)

The 2019 current care guidelines in Finland: ”Dyspepsia and reflux symptoms” ignore atrophic gastritis that evolves slowly during the years and increases steadily along with the advanced age, is asymptomatic and associated with gastric cancer and other risks. Similar as COVID-19, atrophic gastritis is not considered as a serious illness because it is in most cases asymptomatic, and the general public has not been adequately informed about its adverse effects on quality of life and its associated significantly increased risks of cancer and even premature death. Elderly people in particular and their relatives have the right to know in time whether they have atrophic gastritis, potentially leading to  dementia, anemia or  cancer, and possibly also increasing the risk of contracting fatal coronavirus infection.  

In Finland, there are 875 000 people aging 70 years and above, of whom possibly 10 – 20 % might delvelop during the years an undiagnosed, and in most cases asymptomatic atrophic gastritis, with an increased risk of gastric- and esophagedal cancer and other severe diseases. Without correct  Helicobacter diagnosis and/or timely diagnosed atrophic gastritis, patients can develop gastric- or esophageal cancer or Helicobacter-induced peptic ulcer and even die. Atrophic gastritis is the major reason for vitamin-B12 deficiency and related diseases, such as peripheral neuropathy, depression, dementia or Alzheimer’s disease. Atrophic gastritis can also cause calcium deficiency with resulting osteoporosis and bone fractures as well as iron deficiency and related diseases. Along with the aging population, vitamin-B12-, calcium and iron deficiency have become a major national disease burden. Atrophic gastritis that has remained undiagnosed by the UBT  and SAT tests, might also cause (particularly among elderly people) severe and even fatal gastrointestinal and respiratory infections, including Clostridium difficile, E. coli EHEC and pneumonia. Chronic high acid output in the stomach predisposes to esophageal reflux disease, that can be accompanied by ulcerative esophagitis, Barrett’s esophagus and lower esophageal cancer (www.biohithealthcare.com/additional-information).

The fact that the necessary recommendation for an early detection of atrophic gastritis and high acid output has still been ignored in the updated 2019 current care guidelines in Finland: ”Dyspepsia and reflux symptoms”, which, furthermore, specifically recommends not to use in the primary diagnosis the only test capable of timely diagnosing of these conditions, i.e., the serum biomarker test (GastroPanel), explains in most part, why eg. out of the roughly 1000 patients with annually diagnosed new gastric- and esophageal cancers, over 700 patients die of these diseases every year (roughly 2 patients in a day). For comparison, it is useful to keep in mind that since 21.2.2020 until today, coronavirus has caused 333 deaths in Finland, which is also equivalent to 2 deaths per day.    

Biohit Group’s Net Sales outlook for 2020 changed

The coronavirus (2019-nCoV) has impacted negatively on the demand of the company’s products globally and due to that Biohit Group’s Net Sales outlook for 2020 has changed.

Biohit’s new outlook for 2020 (4 June 2020):

Biohit expects the 2020 Net Sales to decrease in comparison with 2019 (previous year EUR 10.1 million).

Biohit Oyj’s Annual General Meeting 2020

Biohit takes the threat of the Corona virus extremely seriously. Based on the development of the Corona virus situation and the policy of the Finnish Government Biohit has decided to convene the Annual General Meeting at a later stage, when the Corona virus does not cause any risks for the health of the participants.  Annual general meeting is held until end of the September 2020.

MAJOR EVENTS AFTER THE CLOSE OF THE REVIEW PERIOD

6.8.2020: The usefulness of Biohit GastroPanel® biomarkers in diagnosis of atrophic gastritis confirmed in a multi-center study in France

A significant confirmatory evidence to the previous studies on GastroPanel® biomarkers in diagnosis of AG and related gastric pathologies was provided by a recently published multi-center study from France. This prospective multi-center study from a low-risk region of GC was conducted by the researches in the University Hospital of Nantes (Prof. Tamara Matysiak-Budnik and her team), but included also centers from other French cities. The authors enrolled a cohort of 344 patients (148 cases with AG, 196 controls without AG), who were tested with GastroPanel® and examined by gastroscopy and biopsies. (https://news.cision.com/biohit-oyj/r/the-usefulness-of-biohit-gastropanel--biomarkers-in-diagnosis-of-atrophic-gastritis-confirmed-in-a-m,c3164747)

ADMINISTRATION

Biohit Oyj's Management Team

The members of Biohit's Management Team are: CEO Semi Korpela, CFO Jukka Kainulainen, Production & Research and Development Director Minna Mäki, Sales and Marketing Director Ilari Patrakka and Quality and Regulatory Affairs Director Daniela Söderström.

SHARES AND SHAREHOLDERS

Biohit Oyj’s number of shares is 15,045,593 (15,045,593) of which 2,975,500 (2,975,500) are Series A shares and 12,070,093 (12,070,093) are Series B shares. The Series B shares are quoted on NASDAQ Helsinki in the Small cap/Healthcare group under the code BIOBV.

Shareholders

At the end of the reporting period on 30 June 2020, the company had 7,336 shareholders (6,946 on 30 June 2019). Private households held 63.4 % (63.4 %), companies 5.0 % (4.9 %) and public sector organisations 0.0 % (0.0%). Foreign ownership or nominee registrations accounted for 29.1 % (29.1 %) of shares. Other owners accounted for 2.5 % (2.7 %).

Further information on the shares, major shareholders and management shareholdings is available on the company's website.

ACCOUNTING PRINCIPLES

This half year financial 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 half year financial report as for its financial statements 2019 except 2020 implemented IFRS standard changes and interpretations. Changes in new IFRS standards and interpretations has no material impact in this half year financial report. The figures in the half year financial report have not been audited.

Alternative performance measures and items affecting comparability:

Biohit Group presents certain alternative performance measures to reflect the underlying business performance and to enhance comparability between financial periods according European Securities and Markets Authority, ESMA’s guidance. 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 between periods.

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:

CONSOLIDATED INCOME STATEMENT

* The fair value change of  Genetic Analysis was EUR -2.9 million. EUR -2.7 million was accounted in the comprehensive income for the period and remaining in the reduction of deferred tax liabilities on the balance sheet.

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

CONSOLIDATED BALANCE SHEET

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

Statement of changes in consolidated shareholders' equity on 30 June 2020

Statement of changes in consolidated shareholders' equity on 30 June 2019

RELATED PARTY TRANSACTIONS

Biohit Oyj sold EUR 0.5 million (EUR 2.0 million) worth of goods and services to Biohit Healthcare (Hefei) Co. Ltd during the review period. Biohit Healthcare (Hefei) Co. Ltd has significant influence in Biohit Oyj in accordance with IAS 28.

NEXT FINANCIAL REPORT AND 2021 FINANCIAL REPORTING

Biohit will publish a schedule for 2021 financial reporting and Annual General Meeting later this year.

Helsinki 12 August 2020

Biohit Oyj
Board of Directors

Additional information:
CEO Semi Korpela
tel. +358 9 773 861
investor.relations@biohit.fi
www.biohithealthcare.com

Biohit Oyj in brief

Biohit 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