Year-End Report January ̶ December 2008
Financial Information
Consolidated net sales were SEK 380 thousand for the year and SEK 105 thousand for the fourth quarter.
Consolidated earnings totaled SEK –25,420 thousand for the year and SEK –11,449 thousand for the fourth quarter.
Earnings per share for the period amounted to SEK –2.65.
Cash and cash equivalents at the end of the period totaled SEK 176 thousand.
Fourth Quarter Highlights
•Genovis launched two new Antibody Engineering products: IgGZERO™ and FcDOCKER™. The two new products strengthened Genovis and doubled its Antibody Engineering product area, a market undergoing strong growth.
•Genovis entered into a distribution agreement with Innovative Biotech Pte Ltd in Singapore for exclusive rights to sell and market Genovis' products in Singapore.
•Genovis was granted a position for an industry-based doctoral student by the Swedish Research Council, which means one more person working with in vivo studies in which Genovis nanostructures serve as contrast media. The project is a collaborative effort with the Department of Radiophysics at Lund University Hospital.
Full Year 2008
•Genovis carried out a new issue of shares to build marketing and sales channels. The new share issue was oversubscribed at 98 percent with preferential rights.
•Genovis launched a new product, NIMT®FabRICATOR Kit, the most effective tool in the market for antibody fragmentation and isolation of pure Fab fragments. The product is a combination of a unique enzyme and nanostructures that Genovis developed in-house.
•Genovis entered into distribution agreements with:
Nordic Biolabs for exclusive rights to sell and market Genovis' products on the Swedish and Danish markets.
DI Biotech for exclusive rights to sell and market Genovis' products on the Korean market.
Stratech Scientific Ltd. for exclusive rights to sell and market Genovis' products in the British and Irish markets.
Teknokroma for exclusive rights to sell and market Genovis' products on the Spanish and Portuguese markets.
Biolegio for exclusive rights to sell and market Genovis' products in the Netherlands and Belgium, as well as nonexclusive rights for Germany.
•Genovis initiated collaboration with Japanese company Magnabeat Inc., which opens commercial opportunities in Japan.
•Genovis implemented conversion to one class of shares and issued warrants to which the CEO,senior executives and other employees subscribed on equal terms.
Significant Events after the End of the Period
Genovis carried out an issue of new shares, which was 90.5% subscribed, of which about 79.5% was subscribed by existing shareholders, with preferential rights. The rest of the shares were subscribed without preferential rights within the frame of the highest amount of the issuing. The issue provides Genovis with about SEK 9 million after issue expenses. The number of shares increased from 10,886,233 to 14,172,066.
Genovis expanded its operations in the United States with a local distributor, Finnzymes Inc. The Company reorganized and transferred all logistics and marketing activities in the United States to Finnzymes Inc.
Comments from the CEO
In 2008 we developed three unique products in our Antibody Engineering protein portfolio, two of which were launched during the fourth quarter. We have introduced the products at scientific conferences and received a favorable response from both the pharmaceutical industry and academia. The introductory market launch has been a requirement to be able to present an attractive customer base to those parties that have shown interest in acquiring the protein portfolio. The protein portfolio is now ready to be sold. Introductory negotiations are in progress and the process initiated during the period is expected to be completed during the second quarter of 2009.
The liquidity of the company is considered satisfactory for Genovis operations in 2009, inclusive of continuing investment in those very interesting application areas for our nanoparticles we have defined as priority areas. This assessment has taken into account the effects of the cost-savings programme we have decided to execute and the liquid from the divestment of our protein products. The authorization we were granted at the extraordinary General Meeting on 17th December 2008, to issue an additional 5 443 116 new shares, gives us the flexibility to increase our liquidity if needed.
The result for the period is according to plan. The turnover for 2008 reflects a period dominated by the need to link distributors to Genovis. Our newly established distributorships are expected to contribute to the turnover in a higher degree during 2009. We are very pleased to have entered a distribution agreement with Finnzymes for the US market. The fact that we have now transferred logistics and marketing to Finnzymes means that the Genovis trademark should get a wider recognition in the US, and as a consequence Chris Wilkins has left his position as President. The remaining operation in Genovis Inc. is primarily focused on strategic business development, and is handled by Terry Mollan, who is Chairman Genovis Inc.
To Genovis, the business model and the competitive strength is built on innovative capability. The strength in a creative organization becomes visible once we have a tool box plentiful of components and projects ready to be geared up to strengthen our business vision. The financial crisis force us however to set priorities among the projects, but the current turbulence also generates new business opportunities. I look forward to capture them in an optimal way.
Sarah Fredriksson, CEO
Sales
Net sales during the quarter were SEK 105 thousand (SEK 251 thousand). Net sales for the year were SEK 380 thousand (SEK 256 thousand). The items net sales and raw materials and consumables for the Group in Q3 were adjusted due to an incorrect classification; this adjustment has no effect on the results.
Net Result
The operating loss during the fourth quarter was SEK 11,449 thousand (loss: 4,025 thousand) and loss for the year was SEK 25,420 thousand (loss: 12,056 thousand). The operating loss has been charged with an one-off measure write-down of the intellectual property assets amounting to SEK 5,942 thousand. The increased operating expenses are mainly attributable to increased personnel and consultant expenses. During the fourth quarter, Genovis initiated a cost-cutting program that will continue in 2009 and is expected to achieve full impact during the third quarter. The cost savings measures comprise SEK 6 million in total, and are mainly pertaining to payroll and consultant costs.
Against the background of changes in corporate taxation as of the year 2009, the current financial situation and the increased insecurity regarding when to use fiscal deficits, a review of the postponed pre-paid tax was performed in Q4. In connection with this, the result of the period has been charged with taxes of SEK 5,523 thousand and with SEK 1, 577 thousands for the full year.
Cash Flow and Financial Position
Fourth Quarter
During the fourth quarter cash flow from operating activities was SEK –3,223 thousand (–2,499 thousand). Cash flow from change in working capital totaled SEK -1,942 thousand (-1,137 thousand).
January ̶ December
Cash flow from operating activities for the year was SEK –16,761 thousand (–12,448 thousand). Cash flow from change in working capital totaled SEK 1,681 thousand (-393 thousand). Shareholder's equity at yearend was SEK 6,677 thousand (19,399 thousand).
Investments
Investments in tangible assets during the year amounted to SEK 6 thousand (1,015 thousand), while investments in intangible assets totaled SEK 922 thousand (4,415 thousand).
Operations
Genovis markets nanoparticles that are designed to handle different predetermined applications and procedures, and also provides particles directly as commissioned by the customer. Genovis delivers several products in two product areas, nanostructures and proteins. All products that Genovis launched are used by researchers at pharmaceutical companies, biotech companies or in the academic research community.
Genovis' Nanostructures
Genovis designs and produces nanostructures that can be used as small carriers to deliver various molecules to cells. Since its inception in 1999, the Company has developed nanostructures under the NIMT® (NanoInduced-MagneticTransfer) brand. The nanostructures and the technology that uses them have mainly been developed to deliver biological molecules such as new genes (DNA molecules) and RNA molecules. RNA molecules are substances from the body that researchers currently use for purposes such as developing new cancer drugs. The Company's goal for 2009 is to transform its experiences from delivering siRNA to cells in a laboratory environment into delivering siRNA in vivo. The RNAi market, which includes siRNA, is a relatively immature market which in 2006 amounted to about USD 447 million worldwide, with an annual growth rate of about 19%. Intensive research is also underway involving the use of RNAi as a medication; this market is expected to reach USD 580 million in the United States in 2012.
Genovis' nanostructures also work well as contrast media thanks to their magnetic properties. By offering customers nanostructures that can be used as carriers of molecules such as siRNA, which can simultaneously be tracked by magnetic resonance imaging (MRI), Genovis' nanostructures have a unique competitive advantage. Today Genovis is working on two in vivo imaging projects in cooperation with Lund University. One project involves development of nanostructures for use in diagnostics (medical imaging) of extremely small tumors that can rapidly occur in lymph glands among patients with breast cancer. The project recently received funds from the Swedish Research Council to finance an industrial doctoral student for four years. The other project involves nanoparticles as carriers of small molecules to cells in the brain. Genovis also supports several customer projects in which the customer either uses Genovis' products for medical imaging or to track stem cells. The preclinical market for imaging, which Genovis is initially targeting in the United States and which represents about 45% of the market, is expected to grow to USD 600 million by 2010/2011.
Genovis' Proteins
Antibodies that can recognize a detail on the cell membrane are often used to create targeted medications and nanostructures. Sometimes only part of the antibody can be used. Antibody Engineering involves fragmentation and division of antibodies, and requires various tools. In the spring of 2007 Genovis had the opportunity to acquire the patent rights for such a tool. In 2008 the Company expanded this patent portfolio and now has four different products in Antibody Engineering in addition to the Company's line of products of nanostructures. During the fourth quarter Genovis began working on selling the protein portfolio and expects the process to be completed during the second quarter of 2009.
Product Launches
During the first quarter of 2008 Genovis launched its new FabRICATOR®Kit, a combination of a unique enzyme and nanostructures that Genovis developed in-house. The FabRICATOR®Kit cleaves and isolates pure Fab fragments in 30 minutes with perfect final results – unlike current methods, which can take as much as twenty-four hours to achieve the same results. With the launch of the new Genovis product the market has gained a new method that is both better and faster than any other method available on the market today.
During the fourth quarter IgGZERO™ was launched. This unique protein can wash away antibody molecules from primary cells and specifically cleave the sugar molecules that naturally exist on antibodies. Removing the sugar molecules can improve the performance of the antibody in various applications. Also launched this quarter was FcDOCKER™, which binds specifically to the antibody. This protein is very useful in the antibody production process. Using FcDOCKER™ entails a gentler production process than competing methods and offers great technical and economic advantage.
Geographic Markets and Market Strategy
Genovis sells to dealers and distributors, who in turn conduct marketing campaigns in different regional markets. The distributors have a good understanding of the business opportunities for Genovis' nanostructures in each region. The Company currently has distributors who cover twelve countries and are geographically scattered from North America to Europe and beyond to the Far East. Sales also take place to some extent directly to end customers in countries where Genovis does not have distributors. Revenues are currently mainly generated from sales of nanoparticles and proteins as consumables, though they are also generated by consulting services combined with the sale of nanoparticles for applications that do not fall within Genovis' standard line of products.
One of the objectives for 2009 is to begin generating revenues through OEM sales or the sale of licenses, where either Genovis is responsible for production of nanostructures which are then sold under a partner's brand, or the partner assumes responsibility even for this portion. In the latter case, revenues can involve both advance payment and royalties per unit sold. In both cases, the counterparty would be responsible for all marketing and sales and the Company has decided to work according to this model for the next two to three years.
With respect to sales of custom-made particles mainly for in-vivo studies and imaging, the Company will continue to handle production and delivery to customers or resellers in the future.
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, marketing, customer support and sales support. The CEO and COO have overall responsibility for the group's business. Genovis Inc. mainly focuses on strategic business development.
On December 31, 2008, the number of employees in the Group was ten, including ten at the Parent Company and no employees in the United States, compared with eleven people at the Parent Company and one in the United States during the same period last year. The Chairman of the Board of Genovis Inc. is paid a consulting fee when working on projects.
Patents
Genovis' nanostructures and their applications are described in several patent applications. The first application has been approved in Australia and in the EU and is being processed in several other countries. Follow-up patent applications are undergoing international review. In May 2007, Genovis acquired intellectual property rights for several proteins and applications in preclinical research, where these proteins have unique competitive advantages. The protein patent portfolio includes patents approved in the United States, selected European countries and Japan. There are also patent applications in the final phase of the international review process, which means that the Company's patent portfolio will expand significantly over the next few years. Genovis owns all patent rights to its technology and products and has also registered several brands internationally.
Related Party Transactions
The Parent Company's sales to the subsidiary amounted to SEK 115 thousand. Purchases from the subsidiary totaled SEK 339 thousand. Internal pricing within the Group is based on the sales price to external customers with a deduction for a reasonable profit to the subsidiary.
Genovis Share and Ownership
The Genovis Share
The Genovis share is traded on First North, part of the OMX Nordic Exchange, under the short name GENO B in trading blocks of 200 shares Mangold Fondkommission is the Company's Certified Adviser and liquidity guarantor.
The number of shares at the beginning of the period was 8,708,987 and the number of outstanding shares at yearend was 10,886,233. All shares have a par value of SEK 0.40.