Interim report January-March 2013

- Net sales amounted to SEK 46.0 million (42.2)
- EBITDA was SEK -1.5 million (-6.8)
- Earnings per share totaled SEK -0.13 (-0.29) before dilution

HIGHLIGHTS
Significant improvement in profitability
- Gross margin increased by 5 percentage points
- Operating costs reduced by 7%

Positive cash flow from decline in inventory
- Improvements in supply chain and logistics has reduced inventory levels
- Cash flow from operating activities amounted to SEK 16 million

Outlook 2013
- Focus on profitable growth 
- Leverage on implemented efficiencies

BUSINESS UPDATE
In the beginning of 2012, the company initiated a number of activities with the aim of improving the efficiency of supply chain and logistics functions in order to release capital tied-up in inventory as well as improve the turnover in inventory. In addition, since last year, a particular emphasis has been on improving gross margins both for products on the market as well as those in the pipeline. This has included switching to manufacturers with shorter leadtimes as well as better COGS, and optimizing the storage, transportation and distribution of goods by implementing one central warehouse for all products addressing the European market. By the end of the first quarter 2013, the implementation of these initiatives had been finalized. Last year’s focus on efficiency combined with additional marketing efforts are now beginning to have a positive impact on profitability. As a result, the company saw a significant improvement in gross margins as well as a continued reduction in inventory during the first quarter 2013. Still, the full potential of the expected cost savings and reduction in inventory has not yet been reached.

Bluefish net sales during the first quarter 2013 amounted to SEK 46.0 million (42.2), corresponding to an increase of 9% compared to the same period in 2012. Net sales during the first quarter has been generated with above-average margins. This, together with the implemented efficiencies, have resulted in a significant improvement in gross margins. Gross margin in Q1 2013 was five (5) percentage points higher than in the first quarter 2012. Compared to the full year 2012, the gross margin increased by 18.8 percentage points in Q1 2013.

Historically, Bluefish has included the cost for distribution of products in gross profit. However, the pharmaceutical industry in general typically consider distribution as an operating activity and therefore includes these costs in selling and marketing expenses. To facilitate calculation of efficiency measures and perform industry benchmark analyses, starting 1 January 2013, the company has changed the accounting principle regarding the accounting of distribution costs. These are now included in Selling expenses. Reflecting the new accounting principle, gross profit, excluding distribution costs, amounted to SEK 18.1 million (14.5) for the first quarter 2013, corresponding to a margin of 39.3% (34.3). Applying the new principle to the full year 2012 had implied a gross margin of 20.5%. During the first quarter, operating costs declined compared to the same period last year. Total operating costs, excluding amortization and depreciation, but including distribution costs amounted to SEK 19.8 million (21.3) for the first quarter, indicating a reduction of 7% compared to the first quarter 2012.

The significant improvement in gross profit together with a tight cost control has resulted in a materially better profitability. During the first quarter, EBITDA amounted to SEK -1.5 million compared to SEK -6.8 in the first quarter 2012 and SEK -52.7 million for the full year 2012. Improved inventory turnover
During the first quarter 2013, inventory declined even further. As per 31 March 2013, inventory amounted to SEK 92.5 million, compared to SEK 99.7 million as of 31 December 2012. With volumes covering almost 300 days of sales, inventory turnover is still not satisfactory. However, compared to the first quarter in 2012, the number of days of sales has been reduced by approximately 25%. The further decline in inventory has had a positive impact on the company’s cash flow. Cash flow from change in working capital during the first quarter amounted to SEK 17.8 million (2.1), and cash flow from operating activities amounted to SEK 16.0 million (-5.9) during the same period.

Bluefish introduces a new asthma inhaler
During the first quarter 2013, Bluefish launched Relanio Elpenhaler in Sweden. Relanio is an innovative powder inhaler with the generic substances fluticasone and salmeterol and is indicated for the treatment of adult asthma and COPD (chronic obstructive pulmonary disease). Relanio is a patent protected product, which is administered through an innovative inhaler. Although the active substances are generic, as an innovative device, Relanio is not substitutable at pharmacies. As such, the launch of Relanio follows a more traditional market introduction pattern, including meeting with prescribing physicians and pharmaceutical council committees.

Outlook
In addition to ongoing efficiencies, the company continues the efforts to gradually balance the product portfolio with more niche and unique molecules that offer stable sales with higher margins. We have seen good progress within our own development projects, where a few products are now in the final stages of formulation development and preparation for scale-up and bioequivalent studies have begun. Following the operational efficiencies implemented during 2012, Bluefish expects an improvement in gross margins. Also, the existing organizational structure is well prepared for the expected increase in volumes during the year and operating costs should therefore increase only moderately.

For more information, contact

Karl Karlsson, President & CEO Bluefish Pharmaceuticals
Tel. 46 8 519 116 00
Email: karl.karlsson@bluefishpharma.com

Susanna Urdmark, CFO Bluefish Pharmaceuticals
Tel. 46 8 519 116 00
Email: susanna.urdmark@bluefishpharma.com

About Bluefish Pharmaceuticals
Bluefish has undergone significant international expansion since the company was founded in 2005. Bluefish focuses on the development, manufacture and sale of generic pharmaceuticals. The company conducts marketing operations mainly within the EU and has a technology center in Bangalore, India. The product portfolio consists of a total of 80 products and is growing.

www.bluefishpharma.com