Interim Report 4th Quarter 2007 NattoPharma ASA
STRONG FOCUS ON R&D: Two clinical studies were completed according to plan this quarter. The previously announced "dose -response" stydy in adults showed very interesting results as even very low doses of vitamin K2 have a strong influence on the body's abilitty to optimize calcium binding. The second study, which is being carried out as part of a PhD project indicates that vitamin K2 supplements can increase the probability of improved bone health in children. The result of these studies documents the importance of NattoPharmas' commitment to invest in R&D as a basis for further growth.
REGULATORY AFFAIRS: "Self Affirmed" GRAS approval from FDA (US Food & Drug Administration) in USA was granted in January 2008. NattoPharma still expects that a final approval from EFSA for MenaQ7 will be granted at the end of Q1 2008.
FUNCTIONAL FOOD: In December 2007, NattoPharma signed a new 10 years strategic agreement with Sumitomo Corp. The most important agreements signed during the quarter were distribution agreements with Cederroth International AB which covers the Nordic region including Iceland, GeeLawson in UK and Ocean Nutrition in Canada.
STRONG GROWTH: 4th quarter revenue was NOK 22.4m compared to NOK 7.5m for the same period in 2006, which represents a growth rate of 199 %. EBIT equals NOK -6.2m (NOK -4.9m). The quarterly result reflects higher costs and resource usage incurred in connection with the application and subsequent floatation on the Oslo Axess of Oslo Stock Exchange.
R&D & REGULATORY AFFAIRS
Two clinical studies were completed as planned during the quarter. The "dose- response" study in adults was completed and the results delivered to NattoPharma at the start of December 2007. The study shows that there is a dose dependent effect of vitamin K2 in activating calcium-binding proteins. It is particularly interesting with effect on these proteins with very low doses. This means that the addition of small doses of NattoPharma's product MenaQ7 for example in food products can have positive biological effects. The results also provide NattoPharma with important information about dose levels which will be used in further studies.
The second study has been carried out in 6-10 year old children in the Netherlands. Previous nutritional studies and publications have suggested that children do not receive enough vitamin K, and especially in rapidly growing age group. NattoPharma's study shows that when the children receive vitamin K2 supplements, there is increased biological activity in the calcium-binding protein osteocalcin in the bone marrow. Such activation is a requirement for better bone health. The study is also part of Dr Marieke van Summeren's PhD thesis. Dr van Summeren has identified a relationship between bone condition and the usage of vitamin K2. Among children (6-18 years) who do not receive vitamin K2 supplements, Dr Summeren has shown that there is a significantly increased level of biologically inactive protein when compared to adults, which as a result leads to less conducive bone health. It is therefore important that Nattopharma's studies show that vitamin K2 supplements can activate osteocalcin thereby increasing the long terms chances of better bone health.
Other clinical studies are on schedule with two new human studies having commenced at the start of 2008.
On the 5th November the European Food Safety Authority (EFSA) announced long delays in the processing of applications. This has impacted the final stage of NattoPharma's application. Final approval is expected at the end of Q1/2008.
Work with additional EU regulatory issues has led to NattoPharma's health claims regarding MenaQ7/vitamin K2 being published on an official list in the Netherlands. This means that we can allow our customers in the EU to promote the positive effects on bone and heart health for products containing MenaQ7/vitaminK2. NattoPharma has also collated information on these claims, which can be submitted to EFSA upon request.
The first phase of our GRAS (Generally Regarded As Safe) filing to the US Food & Drug Administration (FDA) is now complete. NattoPharma can now claim "Self Affirmed" GRAS status for the use of MenaQ7vitamin K2 in food.
SALES AND MARKETING
In December 2007 NattoPharma signed a new strategic partnership agreement with Sumitomo Corp, pursuant to which NattoPharma is granted the exclusive right to sell, market and carry out research on Sumitomo's natural vitamin K2. This exclusivity is now global with the exception of some parts of South East Asia, where NattoPharma has non-exclusive rights. The former agreement previously covered the EU and USA. The company is very satisfied with this strategic partnership, which has great importance for our relationship with international companies in the food and supplement sectors.
The interest in the product MenaQ7 is increasing, which has generated vast enquiries from a variety of companies, especially in the European market. There is a positive trend in information requests concerning the product MenaQ7, which amongst other things has resulted in the contracts with GeeLawson in the UK and Cederroth International AB in Sweden. The latter will launch its own MenaQ7 product in the Nordic region (including Island) in addition to a number of European countries through its distribution channels.
The US is also experiencing a high level of activity. And an important partnership with Ocean Nutrition in Canada has commenced, which represents a significant future opportunity for NattoPharma.
NattoPharma achieved a sales result for 2007 that was higher than the planned budget. Throughout the year, NattoPharma has signed agreements with a number of companies which means that we now have coverage in large parts of Europe, including better coverage in Eastern Europe. Participation in major exhibitions and trade shows such as VitaFood (EU), Supply Side West (US) and Supply Side East (US) have resulted in an increased network of contacts which is expected to have a positive revenue effect.
The sales and marketing function will be strengthened by two additional headcounts during Q1/2008. We continue to establish our international network and to promote the product MenaQ7 in the market in expectation of the EFSA approval.
GRAS approval in the US is expected to have a positive effect on the company's ability to achieve the expected sales goals for 2008 and lay the foundations for future revenue growth in the years to come.
FINANCIALS
The company was listed on Oslo Axess on 30th January 2008, after having carried out a share capital increase amounting to NOK 136,792.40 through the issue of 1,367,924 shares each with a par value of NOK 0.10 on 4th January 2008. Subscription price per share was NOK 12 which in total generated NOK 16,415,088 in new equity capital before deduction of emission costs. The total new capital was divided between NOK 136,792.40 in new share capital and NOK 16,278,295.60 in share premium reserve. After the share capital increase, the company's new share capital is equal to NOK 2,044,522.40.
The company has one subsidiary, NattoPharma UK Limited, which was not active in 2007 and has no accounts. Therefore group numbers are presented in this report.
As of the end of Q4/2007 the company recorded a turnover of NOK 22.4m which represents a growth rate of 199% compared to the same period in 2006. The turnover is slightly higher than budgeted, which is the result of good activity level in the market, most notably in the USA. The turnover numbers for Q4/2007 are NOK 2.1m compared to NOK 3.0m in Q4/2006.
Total operating costs as of the end of Q4/2007 were NOK 28.6m, which after financing costs of NOK 1.9m leads to a negative result before tax of NOK 8.0m. The negative result is is higher than expected, and among other things, is due to increased costs in connection with the listing on Oslo Axess, the application for GRAS approval in the US and the continued funding of our research activities.
The basis for recording of intangible assets on the balance sheet is in accordance with IFRS, and is based on purchase of technology and IPR from an external supplier. Patent purchased in December 2006, approved by EU spring 2007, completion of technology and IPR by the end of Q3 and finalization of report by December 2007 by Vitak BV is the basis for the entering of intangible assets in the balance sheet.
All other studies are considered as research or exploration towards new application areas for our product, hence all costs not related to the above studies in 2007 will subsequently be charged as an expense in the profit and loss accounts. As this intangible value will form a large part of the future economic development of the company, this will be subject to depreciation.
In Q1/2008, the company will file a claim for compensation against the secondary manufacturer (capsulating of product) with respect to a 2007 credit note issued to our customers in Norway in connection with a quality issue. Consequently, gross margins are lower than expected. For Q4/2007 operating costs were NOK 8.5m, which results in a negative EBIT of NOK 6.4m and a negative EBT of NOK 7.0m after NOK 0.6m in financing costs. Corresponding numbers for the same period in 2006 were operating costs of NOK 5.0m, negative EBIT of NOK 2.0m and a negative EBT of NOK 2.0m.
The company's balance sheet shows total equity of NOK 9.6m compared to NOK 13.0m at end Q4/2006. The company's equity ratio is 30% compared to 92.9% at the end of Q4/2006. This change results from a bond loan of NOK 18.5m, established through Norsk Tillitsmann ASA in order to secure financing of future operations of the company, and a combined loss of NOK 11.5m. The loan, which has a duration period of 2 years with no installments, has a nominal annual interest of 10.4% payable semi-annually in arrears. As part of the loan, the bond holders were offered warrants free of any charge for the issuance of 1,233,210 shares each with a par value of NOK0.10 and with a subscription price equal to NOK 15 per share. The exercise period is two years from the date of the issuance of the bond. As per December 31st 2007, the company's cash balance was NOK 17.2m., and the the registered number of shareholders was 108. On 18th January 2008 the company resolved to repurchase bonds equal to NOK 3.0m, which will be recorded as itself owning the bonds until final repayment of the loan as per July 10. 2009.
Based on a share option agreement signed in 2006, Eng AS resolved December 17th 2007 to exercise its right to purchase 300,000 shares, each with a par value of NOK 0.10 and with an agreed subscription price equal to NOK 3.916 per share. The share option agreement was based on a resolution made by the general meeting held April 18th 2006, which was renewed in the general meeting held 22nd June 2007. The exercise of the option contributed NOK 1,174,800 in new equity capital of which NOK 30,000 is recorded as new share capital and NOK 1,144,800 is added to the share premium reserve. The share issue is recorded in the balance sheet as "Resolved, and paid in, not registered share issue/capital" as per December 31st 2007.
OUTLOOK
NattoPharma is experiencing a very high interest level in its products on the global market, both from the food and supplement markets. Furthermore, there is an increased interest from the international research community towards the work being carried out as part of the R&D program of NattoPharma. In 2008 it will be a key element for the company to further expand its distribution network, both in Europe as well as the additional markets in which NattoPharma has exclusivity.
Assuming that EFSA approval is granted as planned at the end of Q1/2008, the company still predicts a 2008 turnover of between NOK 80-90m.
NattoPharma will continue to increase the number of studies, both independently and in close cooperation with potential customers and other research organizations.
The company is satisfied with its current financial situation and predicts a positive operating result in 2008.
For further information, please contact:
Morten Sundstø, Phone +47 9506 1860
IR and Communication
Stein Westbye, Phone +47 9075 6410
CEO
NattoPharma ASA
Lysaker Torg 5
P.O Box 397
1326 Lysaker
Phone: +47 2255 3630
Fax: +47 2255 3631
www.nattopharma.com