Interim report January-September 2013

JANUARY – SEPTEMBER 2013
- Net sales amounted to SEK 131.9 million (125.5)
- EBITDA was SEK -17.1 million (-27.3)
- Earnings per share totaled SEK -0.54 (-0.94) before dilution

JULY – SEPTEMBER 2013
- Net sales amounted to SEK 42.0 million (44.7)
- EBITDA was SEK -7.0 million (-7.1)
- Earnings per share totaled SEK -0.18 (-0.24) before dilution

HIGHLIGHTS
Positive results from bioequivalence study
- Important milestone for Bluefish proprietary formulation development function
- Anticipating initial launch early 2016

Continued improvement in gross margin and inventory efficiency
- Gross profit during the first nine months increased by 36% compared to last year
- Inventory declined to SEK 80.9 million compared to SEK 99.7 million at the beginning of the year

Outlook 2013
- Moderate improvement in net sales 
- Stable gross margin and operating costs

BUSINESS UPDATE
During the first nine months of 2013, the company has emphasized the priority to improve profitability and to raise gross margins. As a consequence, certain low-margin contracts have been terminated, which have resulted in slower top line growth and also some oneoff expenses related to inventory writedowns. Apart from the continuous efforts of gaining market share in selected EU markets, Bluefish has also initiated a number of other activities to increase revenues in the short- to mid-term. There are ongoing discussions with potential local partners for a number of EU markets, which would increase the company’s market share in these regions. In particular, the negotiations regarding the French retail market are in advanced stages. By entering into partnerships with local companies that also assume the inventory risk, Bluefish creates opportunities for continued growth with limited effects on cash flow. Further, applying this growth strategy outside Europe, Bluefish is evaluating different options for launching the existing product portfolio through distribution agreements with local companies in RoW markets, including the regions of Middle East, Africa and Latin America. A few agreements have already been entered into, with the aim of delivering results already during 2014.

The company’s long-term ambition is to balance the product portfolio with more niche and unique molecules, which is believed to offer more stable sales growth at attractive margins. The effort within our own formulation development activities is expected to be an important contributor to the diversification of the product portfolio. A critical milestone was reached in October when positive results were presented from the bioequivalence study for one of the company’s own formulation projects. An additional bioequivalence study for a different development project is planned for the fourth quarter.

Bluefish net sales during the first nine months of 2013 amounted to SEK 131.9 million (125.5), corresponding to an increase of 5% compared to the same period in 2012. Net sales during the third quarter amounted to SEK 42.0 million (44.7), indicating an decline of 6% compared to the same period last year. Meanwhile, the gross margin during the first nine months have improved significantly. Since 1 January 2013, Bluefish applies a new accounting principle for distribution costs. Prior to 1 January 2013, distribution costs were included in COGS, whereas they are now included in Selling expenses. Reflecting the new accounting principle, gross profit, excluding distribution costs, amounted to SEK 46.4 million (34.2) for the first nine months of 2013, corresponding to a margin of 35.2% (27.3). For the third quarter, gross profit, excluding distribution costs, amounted to SEK 14.1 million (12.3) corresponding to a gross margin of 33.6% (27.5).

During the first nine months of the year, operating costs remained at a similar level compared to the same period last year. Total operating costs, excluding amortization and depreciation, but including distribution costs amounted to SEK 63.5 million (61.5) for the first nine months, indicating an increase of 3% compared to the first nine months of 2012. During the third quarter, total operating costs, excluding amortization and depreciation, but including distribution costs amounted to SEK 20.9 million (19.4), corresponding to an increase of 8% compared to the same period last year. The increase during the third quarter is partly explained by currencies but also due to increased Selling expenses in prioritized markets. During the first nine months of 2013, EBITDA amounted to SEK -17.1 million compared to SEK -27.3 in the same period 2012. During the third quarter, EBITDA amounted to SEK -7.0 million (-7.1). Currencies have reduced EBITDA with SEK 1.7 million (0.6) and with SEK 0.9 (0.8) million for the first nine months and third quarter, respectively.

During the third quarter 2013, inventory continued to decline. As per 30 September 2013, inventory amounted to SEK 80.9 million, compared to SEK 84.8 million as of 30 June 2013. At the current inventory level, volumes cover approximately 250 days of sales. For the remainder of the year, the company expects inventory levels to remain stable in absolute terms.

Improved cash flow
The further decline in inventory has, together with an increase in current liabilities which are associated with reserves for sales deductions, had a positive impact on the company’s cash flow. Cash flow from change in working capital during the first nine months amounted to SEK 32.9 million (-18.0) and to SEK 11.6 million (-8.9) during the third quarter. Together with the improved profitability compared to last year, the difference in cash flow from operating activities has been significant during the first nine months of 2013. Cash flow from operating activities amounted to SEK 16.1 million (-50.3) during the period, indicating an improvement of SEK 66.4 million compared to last year. Apart from an improved operational efficiency, during the third quarter, Bluefish completed three directed new share issues, which in total provided the company with approximately SEK 41 million.

Outlook
The company expects a moderate improvement in net sales during the fourth quarter of 2013. We anticipate a gross margin in line with the first nine months of the year and that the inventory level will be stable. Operating costs are expected to remain at current levels.

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 in a large number of European markets and has a technology center in Bangalore, India. The product portfolio consists of a total of 80 products and is growing.

www.bluefishpharma.com