1997 Year End Report

1997 Year End Report -The Board of Directors has decided, subject to the approval of the Annual General Meeting to be held on March 12, 1998, to implement a new share issue, with preferential rights for shareholders, in an amount of MSEK 57. Work is proceeding according to plan regarding the listing of the company on the Stockholm Stock Exchange "O List." -During the year, the company changed its name from Medisan Pharmaceuticals AB to BioPhausia AB. -The dextran operation, with the exception of the RescueFlow® and Perfadex® development projects, was sold. Payment received for the divested operations amounted to MSEK 37. Possible future proceeds from the sale amount to MSEK 18. -BioPhausia is now a streamlined research and development company whose business concept is to provide established pharmaceuticals companies with innovative new drugs based on the company's network of experts and other contacts, primarily in the field of connective-tissue biology. -A loss of MSEK 65.1 (loss: 29.5) was posted for 1997, of which MSEK 28 is attributable to reported losses and expenses in connection with restructuring. -Research and development costs amounted to MSEK 36.2 (25.5). -An interim analysis of the ongoing clinical studies of Krillase® supports the assumptions made regarding its clinical effects. -An agreement concerning the rights to a new principle for facilitating cytotoxic treatment of solid tumors, BP-O4, was signed during the year. New orientation and restructuring The company has sold its dextran operation in order to focus on its research portfolio and also as a result of the weak sales and earnings trend for products based on clinical dextran. The Annual General Meeting held in May 1997 approved a decision to change the name of the company to BioPhausia. The dextran operation, excluding the gynecological product Hyskon®, was sold to Pharmalink Basläkemedel for MSEK 20, with the possibility of supplementary payments amounting to MSEK 18 during 1998 and 1999. The takeover date for the new owner was October 1. Hyskon® was sold to Cooper Surgical, Inc. for MSEK 17. Research and development Total investment in research and development during 1997 amounted to MSEK 36.2, which was an increase of MSEK 10.7 compared with 1996. During the year, two formal meetings were held with the FDA relating to RescueFlow®. The first meeting produced no significant result, while the second meeting led to an offer from the FDA to cooperate actively in the development of an analytical procedure to shed further light on the risks and benefits associated with the product. This work is proceeding. The next stage is a quality evaluation of data from a Brazilian study. If the evaluation is favorable, data from this study may be added before the new analysis is implemented. In parallel with the work described above, preparations were under way to apply for registration of RescueFlow® in Europe. The application was submitted to the Medical Products Agency on January 12, 1998. The procedure followed is known as mutual recognition, whereby, after the product has been approved in Sweden, the Swedish report is used to support applications in other EU countries. Phase III studies of Krillase® progressed during the year according to plan at the university clinics in Freiburg, Amsterdam and Cardiff. By year-end, nearly two thirds of the patients had been included in the studies. An interim analysis was prepared based on data from one third of the planned number of patients. The results support the earlier assumptions regarding the differences in clinical effects between Krillase® and the other products included in the study. Accordingly, no expansion of the clinical program will be needed prior to registration. Details of the final result are expected to be available during the third quarter of 1998. Work on the hyaluronidase project is proceeding according to plan. Cooperation with the University of California in San Francisco has been intensified. Negotiations are under way regarding the rights to their human hyaluronidase, both for traumatic swelling and for other indications. An agreement was signed during the year concerning the rights to a new treatment principle for facilitating cytotoxic treatment procedures. The project, designated BP-O4, is based on a substance that reduces the pressure in tumors. A patent is pending on the principle, which is based on detailed knowledge of the functioning and biology of connective tissue. The principle has also been confirmed in a series of animal studies. Preparatory work for clinical studies has begun. Additional staff were assigned to the clinical research department during the year. The dextran operation prior to divestment The company's own sales of products based on clinical dextran continued until September 30, 1997. Sales during this nine-month period amounted to MSEK 63.6. This was a decrease of 4% compared with the corresponding period of 1996. The gross margin for the first nine months was 30%, an increase of three percent compared with the same period of 1996. Gross profit for the full year 1997 was MSEK 20.3 (28%). Earnings and financial position The company as a whole posted a loss of MSEK 65.1. Of this figure, MSEK 23 was attributable to the reported loss incurred as a result of the divestments, and MSEK 5 to restructuring costs. The supplementary payment of MSEK 18 that may be received was not taken into account. Since, during a transitional period, the BioPhausia Group will be formally responsible for deliveries of dextran raw material to Pharmalink and Cooper Surgical, customer receivables and accounts payable for dextran, as at December 31, 1997, are included in the year-end report. After following up on its conditional loan for the Krillase® project during 1997, the Industry Fund paid out SEK 8 million. The total undertaking, amounting to MSEK 20, was thereby fulfilled. Shareholders' equity was strengthened by MSEK 70 as a result of the new share issues implemented in January 1997 and the susbcription of options in December 1997. At year-end, interest-bearing debts amounted to MSEK 43.5 (63.5) and net debt to MSEK 4.2. The number of employees at January 1, 1998 was 24 (24), of whom three (3) are employed at Medisan Pharmaceuticals in the U.S. Annual General Meeting, dividend and proposed new share issue The loss for the year was covered by a transfer from legal reserves. Against the background of the commercial potential that exists in the company's project portfolio, particularly in the areas of wound, tumor and trauma treatment, the Board of Directors has decided, subject to the approval of the Annual General Meeting to be held on March 12, 1998, to implement a new share issue, with preferential rights for shareholders, in an amount of MSEK 57. Shareholders in BioPhausia are entitled to subscribe one new share for each existing share at a price of SEK 13 per share. The prospectus is expected to be published on March 20, 1998. The subscription period is expected to extend from March 25 to April 8, 1998. The size of the new share issue should be seen, among other factors, against the background of the increased certainty of the Krillase® project, as indicated by the recent interim analysis, and the resulting potential for licensing agreements. Notice of the Annual General Meeting on March 12, 1998 will be given via advertisements in the daily newspapers, after which notifications to attend should be sent to BioPhausia in accordance with the instructions given in the notice. Consolidated Income Statement (SEK 000´s) 1997 1996 Net sales 72 432 85 898 Cost of gods sold -52 163 -58 587 Gross profit 20 269 27 311 Selling expenses -18 406 -16 671 Administrative -9 218 -11 267 expenses R&D expenses -36 242 -25 452 Items affecting -3 538 -3 449 comparability* Exchange profit 6 350 5 838 Exchange loss -2 953 -5 184 Operating loss -68 190 -25 425 Interest expense -2 125 -3 244 Loss before taxes -70 315 -28 669 Taxes 5 174 -876 Minority share - 8 Net loss -65 141 -25 537 * Refers to loss at divestment of part of the operation, 23 008 thousand SEK, and costs related to restructuring, 4 928 thousand SEK. Consolidated Balance Sheet (SEK 000´s) 1997-12-31 1996-12-31 Fixed assets 49 232 91 084 Other current assets 3 432 5 072 Inventories 939 12 621 Accounts receivables 28 778 19 680 Ready assets 39 281 6 062 Total assets 121 662 134 519 Equity 42 527 37 833 Minority share - 98 Deferred tax - 4 217 liability Interest bearing 43 500 63 495 liability Operating loss 35 635 28 876 Total equity and 121 662 134 519 liabilities Key ratios June 30 1997 June 30 1996 Earnings per share after neg. neg. tax, SEK Shareholders´ equity per 9.6 12.2 share, SEK* Net liabilities, MSEK 4.2 57.4 Equity ratio, % 35.0 28.1 Uppsala, February 23, 1998. Stellan Lind President