R&D & REGULATORY AFFAIRS

NattoPharma's clinical program includes a variety of different studies into vitamin K2, primarily in cooperation with the University in Maastricht and VitaK BV. The outcome of an important short time study evaluating the optimal dosage of MenaQ7 is now being prepared. Other studies evaluating security have now commenced, and the final tests on the voluntaries are expected to be performed before Christmas. Supplementary results from the child study were finalised in the third quarter. The other program is on schedule.

 

In October, the first meeting to discuss preliminary results from a new diagnostic study at Rikshospitalet in Oslo took place. NattoPharma's analysis of the blood samples from 350 cardiovascular patients was presented. The results are both very promising and very interesting. These will now be further processed and complemented. Analysis from Rikshospitalet's other studies on bone health after lung- or heart transplantation are progressing well, and are expected to be finalised before the end of the year.  The main diagnostic study will be carried out by Rikshospitalet and is expected to be completed during 2008.

 

NattoPharma's EU approved patent, covering enrichment of food by adding vitamin K2 as a protection against depositing calcium in the arteries, is pursued in a number of European countries. The remaining patents acquired from VitaK BV are still in progress with the respective patent authorities in Europe and USA. Patent applications mailed in 2006 are now continued in the so called PCT area, which basically covers more than 130 countries.

 

The EU regulatory process for approving MenaQ7 as a food enrichment ingredient and as a dietary supplement is now in its final stages. The EFSA has no further questions to NattoPharma. The application is therefore expected to be finalised by the EFSA in the near future. The EFSA will publish an opinion on their web site prior to a final discussion taking place, which is the normal procedure within the EU commission and the member states. This will be the first official statement from EFSA regarding legal use of MenaQ7 as both a dietary supplement and functional food. The EU administrative process will then continue in order to have MenaQ7/Vitamin K2 listed as an approved vitamin, in accordance with official directives and regulations. Updated lists in which MenaQ7 is approved are expected to be published during the first half of 2008.

 

The preparation of NattoPharma's own health claims about MenaQ7, were completed in October in accordance with article 13.1 in the new EU regulations. Documented claims relating to bone and cardiovascular heath were forwarded through the Food Authorities in Holland. For vitamin K2, the FDA's approval process for Generally Recognized As Safe (GRAS) status is on schedule, and is expected to be available by the end of 2007.

 

SALES & MARKETING

In the 3rd quarter, NattoPharma has experienced strong revenue growth. This can be attributed to solid marketing efforts in USA bearing fruit, as well as a number of new contracts with customers in Europe.  There is growing market interest for MenaQ7, which has resulted in several new customer enquiries, especially in the US market. In addition, a number of our existing customers have increased the sales of their finished products which have a positive effect on our sales to these customers.

 

We continue to build a distribution network in Europe, and on October 25th a distribution agreement was signed with Gee Lawson Limited. Gee Lawson Limited operates in the UK market, and counts Boots as a major customer and distribution channel.  We are also focusing on strengthening our sales team, both in the dietary supplement market as well as the functional food segment. The significance of our R&D program and patents is increasing among food producers both in the US and in Europe, pending to the findings of the EU regulatory affairs (EFSA) as well as the FDA (GRAS). NattoPharma is expecting a commercial effect both in the EU market as well as the US market when these approvals have been attained.

 

On 5th November NattoPharma signed a partnership agreement with Ocean Nutrition, Canada, one of the largest producers of omega-3. On the same day, Ocean Nutrition launched their omega-3 product MEG-3 at Supply Side West in Las Vegas (one of the major food fairs in USA), which is now also available with MenaQ7. Ocean Nutrition will market MEG-3 including MenaQ7 as a food ingredient as well as a dietary supplement product.

 

FINANCIALS

 

As a result of the company applying for a share listing on the Oslo Axess market, a limited audit of the company's accounts has been carried out as per September 30th 2007. This means that a comparison of NattoPharma's results for the same period in 2006 for both the parent company as well as the consolidated group accounts was conducted. This comparison included financial results to December 31st 2006. For the sake of good order, the parent company's figures will be commented.

 

Total 2007 revenue to the end of Q3 is NOK 20.3m, which represents an increase of 357 % compared to the same period in 2006. This figure is higher than expected, which is due to a stronger market growth than expected. Q3 revenue is NOK 7.9m compared to NOK 2.9m for Q3 2006.

 

Total operating expenses to the end of the Q3 2007 equal NOK 20m. After finance costs of NOK 1m, a negative result before income tax of NOK 0.8m is shown, which is better than expected. This is due to changes in the accounting principals relating to the valuation of R&D, which as per September 30th 2007 is activated in the balance sheet as an intangible asset with NOK 3.2m. The company is of the opinion that these costs shall be activated in the balance sheet as they represent an intangible asset in accordance with IFRS and will be the basis for future economic development for the company and its product. As per 30th September 2007, a credit note of approximately NOK 0.5m was issued to customers in Norway resulting from quality problems with capsulation. In other words, this quality problem was not related to our product but to the production of the capsules. Accordingly, a claim for compensation will be presented to the producer. In Q3 2007, total operating costs are NOK 7.5m which gives an EBIT of NOK 0.4m and an EBT of NOK 0.5m after deduction of NOK 0.9m in finance costs. Corresponding figures for Q3 2006 show total operating costs of NOK 2.9m, an EBIT of NOK 0.08m and an EBT of NOK 0.06m - both positive figures. This confirms the rapid growth in 2007.

 

The company's balance sheet shows total equity of NOK 14.4m compared to NOK 4.8m to the end of Q3 2006. The equity ratio is equal to 43.5 % compared to 88.4 % for the same period in 2006 and 93.3 % as per 31st December 2006. This change results from the company having entered into a loan agreement for a bond loan equal to NOK 18.5m with Norsk Tillitsmann ASA in order to secure financing of the company's operations. The loan, which is for a period of 2 years with no instalments, has an interest rate equal to 10.4 %, payable semi annually in arrears. In addition, warrants are issued equal to 1,233,210 shares each with a face value of NOK 0.10 and an exercise price of NOK 15 per share. There is no compensation due for the warrants, and the exercise period is 2 years from the disbursement date. The cash position as per September 30th 2007 is NOK 19.7m. As per same date, a total number of 88 shareholders were registered.

 

The process of applying for a listing on Oslo Axess has started, and Orion Securities ASA has been appointed manager and will assist the company in the application process. An orientation to Oslo Stock Exchange was sent on 2nd October, a preliminary meeting took place 9th October. 2007 and the application for a listing on Oslo Axess was sent to Oslo Stock Exchange on 31st October 2007. A public offering will be carried out relating to the listing, and it is expected that the listing of the company's shares on Oslo Axess can take place by the end of December 2007.

OUTLOOK

The 2007 budgeted revenue of NOK 21m is as good as achieved. The expectations with respect to obtaining necessary EFSA approval from EU and a GRAS status from FDA, is high. This will further strengthen the company's market position, and create a platform for further growth.   

 

The strong growth that the company is experiencing is expected to continue in 2008.  Revenues are expected to reach between NOK 80 to 90m.

 

The company is comfortable with its financial position and is expecting a positive result before tax 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

P.O Box 2896 Solli

0230 Oslo, Norway

 

Phone: +47 2255 3630

Fax: +47 2255 3631