Interim Report January-June 2008
MORE DISTRIBUTION AGREEMENTS IN PLACE AND CONTINUED MARKET LAUNCH OF NEW PRODUCTS
Q2, 2008, SEK thousand
• Net sales 37 (4)
• Operating earnings – 4,864 (-2,199)
• Net profit/loss for the period -3,547 (-1,716)
• Earnings per share -0.35 (-0.20)
• Cash flow from current operations -5,538 (-2,879)
• Cash flow for the period 3,535 (-6,693)
The Group was formed in Q3 2007 and therefore no comparative figures are presented for the Group. Q2 is reported instead for the Parent Company.
April 1 - June 30, 2008
• Genovis entered into distribution agreements with distributors in the European market: Stratech Scientific Ltd for the UK and Irish market and Teknokroma for the Spanish and Portuguese market.
• Genovis entered into a cooperation agreement with Japanese firm Magnabeat Inc.
• The Genovis new share issue was oversubscribed, with 98 percent of offered shares subscribed through exercise of subscription rights.
• Genovis implemented conversion to one class of shares and the new short name for the share is GENO.
• Genovis has issued 187,000 warrants for subscription by the CEO, senior executives, and other employees on equal terms.
Comments from the CEO – Continued Focus on Distributors
Sarah Fredriksson, CEO and President says:
At the end of the first quarter we signed agreements with distributors in Sweden, Denmark, and South Korea. During the second quarter Genovis continued to establish sales channels in Europe through agreements with distributors in the United Kingdom, Ireland, Spain, and Portugal. Our objective is to have an additional four or five agreements ready with distributors in Asia and Europe and at least one distributor in the United States during 2008; in other words, a total of about ten distributors in place during the year.
Each distributor markets the products locally through its own sales channels directly to customers, while we work simultaneously with comprehensive marketing campaigns for various industry-specific venues. In May Genovis presented R&D projects and products within RNA interference at the RNAi World Congress in Boston, Massachusetts, USA. It was a fantastic opportunity for Genovis to show our technology at a forum of leading researchers, Nobel-price winners, potential partners, customers, and opinion-makers. The number of spontaneous inquiries from various research groups about testing our technology more than doubled during the second quarter, which is a promising development.
It will take time before a new distributor generates revenues for Genovis. Sales via distributors probably will not contribute to cash flow until the second half of 2009. From Genovis' side, the sales process begins with training sales representatives and product specialists at the respective distributors. New customers usually want to test the products on a small scale first, followed by an evaluation and decision-making process before making a purchase. Genovis' objective to achieve a positive cash flow by the latter portion of 2008 remains unchanged, and is primarily based on revenues from collaboration with partners in some of our projects within the frame of developing our technology platform, in combination with budgeted direct sales to customers. Our ability to use our technology and synergistic effects with different partners is a strength that allows us to spread the risk and improve cash flow via new business concepts based on our technology platform. Genovis will not commercialize business concepts under its own management, in which particles can be used in new applications such as drug delivery and diagnostics completely; rather, revenues will be generated through R&D partnerships, licensing, and OEM products. We may also apply this business model to some of the products that we have already launched, in order to cost-effectively achieve a larger market share with early revenues. By focusing on what we do best and choosing a business model based on the premises for each product, we will continue working toward our objectives for 2008.
Outlook
The Board of Directors has the explicit aim of achieving positive earnings and cash flow during the fourth quarter of 2008, based on revenues from collaborations with partners, within the frame of developing our technology platform, as well as direct sales to customers.
Operations
Second Quarter 2008
Genovis products are based on the company's patented NIMT® technology platform, which uses nanometer-sized particles and their technical advantages as tools in biomedical research and diagnostics.
During the second quarter Genovis continued to work toward becoming a leading supplier of nanoparticles in biomedical applications for the global Life Science market. Genovis mainly focuses on customers who work with advanced research in pharmaceutical companies or within the academic research community. Efforts to establish sales, training, and support teams have continued throughout the quarter. Genovis has continued the work initiated during the first quarter to establish sales channels via new distributors in Europe and also marketed the technology at various industry-specific conferences and scientific meetings.
The Genovis product portfolio consists of nano-sized particles, a group of proteins, and the know-how to use them as effective research tools. Today Genovis market products in three different areas of application: imaging, biomolecule delivery, and antibody tools.
All Genovis products for imaging and delivery are based on the superparamagnetic nanoparticles NIMT®FeODots. Genovis' considerable experience with superparamagnetic nanoparticles resulted in a collaboration with Magnabeat in Japan during the second quarter. Magnabeat produces and develops heat-responsive magnetic nanoparticles and applications for the separation of biological molecules. If successful, this partnership will benefit both Genovis and Magnabeat commercially and provide good opportunities for Genovis to become established on the Japanese market.
Areas of Application
Imaging
Imaging, a market segment undergoing strong growth, is used by researchers for in vivo and ex vivo studies. In order to see what happens in a cell and to be able to follow the cell inside an animal model, the cell must be marked in some way. One method is to introduce magnetic nanoparticles into the cell, NIMT® FeOlabel, and then follow the cell using magnetic resonance imaging (MRI).
The objective is for customers to be able to use Genovis products from the first tests in test tubes to more advanced experiments in animal models (in vivo).
Biomolecule Delivery
There is a large market for technologies that deliver molecules (e.g., DNA or genes) into cells. One such technology is NIMT®FeOfection, which offers high efficiency and low toxicity compared with rival products.
RNAi is another field undergoing dramatic growth, where researchers are interested in technologies to silence gene activity in order to treat conditions such as viral infections, cardiovascular diseases, cancer, and metabolic diseases in the future. With its high efficiency and low toxicity, Genovis' NIMT®FeOfection is also extremely suitable for these studies.
Antibody Tools
FabRICATOR®is a genetically modified enzyme that cleaves antibodies into two parts, a Fab fragment and an Fc fragment. Unlike other technologies on the market, FabRICATOR cleaves all antibodies in a very short time in exactly the same place, and each antibody is only cleaved once.
FabRICATOR is also sold as a kit that allows customers to cleave and isolate pure Fab fragments in less than one hour, unlike other methods which may take up to twenty-four hours to achieve the same results.
Geographic Markets
The market for the products Genovis develops and markets is currently estimated at about USD 900 million. The North American market is the largest (about 40%), followed by the European market (35 %), while the Asian market (25 %) is the fastest growing geographic market.
During the first half of the year Genovis entered into four distribution agreements for its products in the areas of biomolecule delivery, imaging, and antibody tools. Sales representatives have been trained and sales in the new markets have begun. Genovis expects the inflow of orders to improve during the third and fourth quarters.
North America
Genovis is represented through its subsidiary Genovis Inc. and will expand operations with local distributors.
Europe
Nordic Biolabs is a leading supplier of products for medical research, diagnostics, microbiology, and transfusion drugs, and represents more than 40 strong suppliers and brands. Its customers are labs in hospitals, universities, and the pharmaceutical and biotech industries. Nordic Biolabs has initiated sales to customers.
Stratech Scientific Ltd, with headquarters in Suffolk, UK, is an efficient company that has delivered competitive, high-quality, reliable products to research laboratories in the UK and the rest of Europe for 25 years. Stratech will initiate sales to customers during the third quarter.
Teknokroma is an international enterprise with 30 years of experience of chromatography and a product portfolio consisting of more than 40,000 products. With a team of highly qualified chemists, pharmacists, and technicians, Teknokroma will begin sales during the third quarter.
Asia
Di Biotech Ltd in Korea, a spin-off from Pharmacia Biotech Korea, was founded in 2007 and is a groundbreaking market leader in the Korean life science market. The company works closely with its customers, with a focus on three research areas: genomics, molecule interaction, and cell imaging. The company has initiated intensive efforts with customers and Genovis expects an increase in orders during quarters three and four.
Product Launch
During the second quarter Genovis launched the NIMT®FeOfection|TESTKIT, which contains all transfection reagents and the NIMT® Booster. Customers may choose from NIMT®FeOfection|YELLOW, PINK, or PURPLE, which provides them with the opportunity to determine the most appropriate reagent for their special application or cell line. During the third quarter Genovis will launch two new products, IgGZero and FcDocker. There will also be one product launch in the fourth quarter.
Sales
Second Quarter
Net sales during the second quarter amounted to SEK 37,000 (4,000). During the quarter two distribution agreements were signed, one with a distributor in the UK/Ireland and one with a distributor in Spain. Genovis has held training courses for the distributors in both the UK and in Spain/Portugal. The distributors will initiate sales of Genovis products during the third quarter and have therefore not yet generated any revenues for the company during the second quarter. The company's revenues were primarily generated from its own sales of nanoparticles and proteins.
Net Result
Second Quarter
The operating loss during the second quarter of the year was SEK 4,864,000 (loss: 2,199,000). The increased operating expenses are mainly attributable to increased personnel costs.
Depreciation and amortization during the second quarter amounted to SEK 258,000 (121,000) including SEK 155,000 (121,000) for tangible assets and SEK 103,000 (0) for intangible assets.
Loss after financial items was SEK 4,882,000 (loss: 2,206,000). Deferred tax during the quarter totaled SEK 1,335,000 (490,000)
Cash Flow and Financial Position
Second Quarter
Cash flow from operating activities was SEK –5,538,000 (loss: 2,879,000). Cash flow from change in working capital was SEK -1,541,000 (loss: 1,247,000). At the end of the period cash and cash equivalents amounted to SEK 4,408,000.
The Group's net investments during the period totaled SEK 6,000 (586,000). Net investments included SEK 6,000 (134,000) for tangible assets and SEK 0 (452, 000) for intangible assets.
January – June
Cash flow from operating activities was SEK –9,800,000 (loss: 6,614,000). Cash flow from change in working capital totaled SEK -427,000 (loss: 2,209,000).
The Group's net investments during the period totaled SEK 6,000 (4,611). Net investments included SEK 6,000 (642,000) for tangible assets and SEK 0 (3, 969,000) for intangible assets.
Organization and Personnel
Genovis' Lund division is responsible for centrally coordinated functions in the business and finance areas, as well as production, research and development, and customer and sales support. The CEO and COO have overall responsibility for the group's business.
Genovis Inc. USA is responsible for sales in the US market.
The number of employees in the company has been constant during the second quarter. At the end of the period the Group had twelve employees, eleven in the parent company and one in the US, compared with ten persons in the parent during the same period last year.
Significant Events after the End of the Period
No events of significance to the company occurred after the end of the period.
Other Information
Risks and Uncertainties
Genovis' business risks include the risk that anticipated revenue might not materialize and difficulties in retaining skilled personnel. Genovis' general view of the financial risks that could affect operations have not changed since the description published in the most recent annual report. For a detailed overview of the company's financial risks please refer to page 41 of Genovis' 2007 annual report.
Warrents
Genovis has issud 187,000 warrants for subscription by the CEO, senior executives, and other employees on equal terms. The warrants may be exercised for subscription of shares between February 28, 2012 and May 31, 2012. When all warrants are fully exercised the company's share capital will increase by a total of SEK 74,800 through the issue of 187,000 shares, with a par value of SEK 0.40. If the warrants are fully exercised the new shares will constitute 1.7 % of capital and votes.