Interim report for the first quarter, January-March 2001

INTERIM REPORT FOR THE FIRST QUARTER, JANUARY - MARCH 2001 * Turnover increased by 65 percent to SEK 71.4 (43.3) million. On a rolling 12-month basis turnover increased by 84 percent to SEK 265.3 (143.8) million. * Operating income for comparable units (excluding Ixion) was SEK 10.6 (6.9) million, corresponding to an operating margin of 14.9 (15.9) percent. Ixion's effect on operating income was SEK -6.0 (-) million. * Income after financial items was unchanged at SEK 8.5 (8.5) million. Q-Med is a rapidly growing and profitable biotechnology and medical device company that develops, produces and markets medical implants. All products are based on the company's patented technology for the production of NASHA - Non-Animal Stabilized Hyaluronic Acid. Q-Med's operations focus on four areas, Esthetics, Orthopedics, Uro-Gynecology, and Cell Therapy and Encapsulation. The products RESTYLANE, RESTYLANE Fine Lines and PERLANE are used for the filling out of lips and facial wrinkles and today account for the majority of sales. The development of MACROLANE for breast augmentation is ongoing. DUROLANE, Q-Med's product for the treatment of osteoarthritis in the knee-joint, is in the clinical documentation phase. DEFLUX is a product which has been approved in Europe for the treatment of vesicoureteral reflux (malformation of the urinary bladder) in children and stress urinary incontinence in women. Since July 2000 Q-Med has held a majority interest in the American biotechnology company Ixion Biotechnology, Inc., which carries out research within cell therapy for diabetes. Q-Med today has 220 employees, with just above 150 at the company's production facility and head office in Uppsala, 20 at Ixion and the remainder in wholly owned foreign subsidiaries. The Q-Med share has been listed on the O-list of the Stockholm Stock Exchange since December 1999. REVENUES Q-Med increased its sales by 65 percent during the first three months of 2001, to SEK 71.4 (43.3) million. Converted to a rolling 12 months, that is the period from April 2000 to March 2001, the turnover amounted to SEK 265.3 (143.8) million, an increase of 84 percent. Fluctuations in exchange rates have positively affected sales for the first three months by SEK 3.6 million compared with the same period the previous year. Due to seasonal swings within esthetics Q-Med's sales are traditionally weakest during the third quarter and to a certain extent during the first quarter as well. Launches of new products and some supply problems amplified the swings in sales during the year 2000. Net turnover Per business area Jan - Mar Jan - Apr - Mar Dec (SEK millions) 2001 2000 +/- % 2000 2000/2001 Esthetics 69.8 42.4 +65% 233.8 261.2 Uro-Gynecology 1.6 0.7 +129% 3.1 4.0 Other - 0.2 - 0.3 0.1 Total 71.4 43.3 +65% 237.2 265.3 Per geographical Jan - Mar Jan - Apr - area Dec Mar (SEK millions) 2001 2000 +/- % 2000 2000/200 1 Nordic countries 3.3 3.1 +6% 11.9 12.1 Rest of Europe 42.7 28.6 +49% 128.4 142.5 North and South 11.4 6.4 +78% 52.3 57.3 America Rest of world 14.0 5.2 +169% 44.6 53.4 Total 71.4 43.3 +65% 237.2 265.3 Esthetics · Sales of SEK 69.8 (42.4) million, an increase of 65 percent. · Final approval for clinical trial with RESTYLANE in USA was obtained from the ethical committee in January. Inclusion of the patients in the study is ongoing. The Esthetics business unit's sales development for the first quarter of 2001 compared with the same period in 2000 has been strengthened to a considerable extent by the launch of the new products PERLANE and RESTYLANE Fine Lines in March 2000. Demand is increasing in existing markets and operations are being established in new markets. Further distributors have been established during the first quarter in Jordan, Malaysia, Slovakia and South Africa. Q-Med's facial esthetic products are today sold in over 50 countries. In August 2000 Q-Med was informed by the FDA (Food and Drug Administration), the American regulatory authority, that the company's application to initiate clinical trials within facial esthetics with RESTYLANE had been approved. Final approval from the ethical committee was obtained in January 2001. Inclusion of the 130 patients who are to take part in the study is ongoing and is estimated to be complete before the end of June. It is estimated that an application for registration in USA will be submitted at the beginning of 2002. Net turnover Jan - Mar Jan - Apr - Mar Dec (SEK millions) 2001 2000 +/- % 2000 2000/2001 RESTYLANE 43.4 34.2 +27% 156.6 165.8 PERLANE 22.6 6.9 +228% 64.5 80.2 RESTYLANE F.L. 3.8 1.3 +192% 12.7 15.2 Total 69.8 42.4 +65% 233.8 261.2 Orthopedics · Patients have begun to be included in the effect study that will form the basis of the application for approval of DUROLANE in USA. An application for sales approval of DUROLANE in Europe, so-called CE- marking, was submitted to the Swedish Medical Products Agency at the beginning of October 2000. Q-Med anticipates that this approval will be obtained during the first half of 2001. Q-Med plans to sign a partnership agreement(s) during 2001 for the distribution of DUROLANE in both Europe and USA, and possibly Japan. An effect study will be carried out during the year which will focus on the effect of treatment with DUROLANE in comparison with a placebo (sodium chloride injection). The study will take place in USA, Sweden and Canada on 320 patients with 6 months' follow-up. These study results will, amongst other things, form the basis of Q-Med's application for the registration of the product in USA, which it is estimated will be able to be submitted at the beginning of 2002. Patients have begun to be included in the study and it is estimated that recruiting will be complete during the summer. Uro-Gynecology * Sales SEK 1.6 (0.7) million. * Preparations are ongoing for the inspection of the Uppsala facility by the FDA, the American regulatory authority. The aim is to certify DEFLUX in accordance with GMP requirements. In July 2000 Q-Med submitted an application in USA for the registration of DEFLUX for the treatment of vesicoureteral reflux (VUR) in children. The product has been given priority treatment by the FDA, the American regulatory authority, so-called "expedited review" status. At a meeting in Washington in October 2000 FDA's advisory panel, consisting of clinical experts, decided to recommend that the FDA approve the product. A precondition of approval is that Q-Med meets the FDA's quality requirements in accordance with GMP, Good Manufacturing Practice. The FDA will inspect the Uppsala facility in order to establish whether it can be certified in accordance with GMP. Today there is no approved endoscopic treatment for children with reflux in USA. Q-Med estimates that the market in USA will be worth approximately SEK 300 million per year. During the third and to a certain extent the fourth quarter as well in 2000 Q-Med had supply problems with DEFLUX. The production method has been upgraded and automated and will be introduced during 2001. Cell Therapy and Encapsulation * The work on implanting insulin-producing islet cells in dogs is proceeding according to plan. Work is being done at Ixion Biotechnology in preparation for the study with insulin-producing islet cells on dogs which will be carried out during the year. Culture of the cell lines which are to be implanted in the dogs suffering from diabetes is ongoing. It is estimated that the implantations will be carried out during the summer, after which there will be a follow-up period of six months. Work is also ongoing on the evaluation of NASHA as protection for the cells. EXPENSES AND INCOME * Gross margin 90 (89) percent. * Large investments in research and development, SEK 23.7 (9.3) million. * Operating income was SEK 4.6 (6.9) million. Ixion's share was SEK -6.0 (-) million. Q-Med's gross margin amounted to 90 (89) percent during the first three months of 2001, which was somewhat better than the corresponding period the previous year. Selling expenses increased as a result of continued international expansion and increased costs for the central market organizations for the Uro-Gynecology and Orthopedics business units. All subsidiaries apart from Ixion are sales companies. The costs for research and development increased by 155 percent compared with the same period the previous year and amounted to just over 33 (21) percent of the net turnover. Ixion is consolidated according to the purchase accounting method as from July 2000. Research and development costs in Ixion amounted to SEK 7.4 (-) million for the period. Furthermore, the increase in costs for research and development is due to an increased number of projects and increased costs for external studies and analyses of DUROLANE and RESTYLANE. There have also been additional costs for scaling up and developing the manufacturing process for all products compared to the previous year. Amortization and depreciation of SEK 2.7 (1.8) million, of which SEK 0.2 (0.2) million is comprised of goodwill, has been charged against income. The amortization of goodwill is recorded in the row for research costs. Other operating revenues and expenses consist primarily of the effects of exchange rates on accounts receivable and payable. Furthermore, other operating revenues also include research grants received within Ixion amounting to SEK 1.4 (-) million. Operating income for the first three months of 2001 amounted to SEK 4.6 (6.9) million, which gives an operating margin of 6.4 (15.9) percent. For comparable units (excluding Ixion 2001) operating income amounted to SEK 10.6 (6.9) million, which gives an operating margin of 14.9 (15.9) percent. Net financial income amounted to SEK 3.9 (1.6) million. This includes Ixion's net financial income of SEK 0.1 (-) million. Estimated tax costs for the period amounted to SEK -2.0 (0.1) million. Tax costs for the year 2000 were affected by loss carry-forward, mainly in the Parent Company where SEK 15 million was still unused of the loss carry-forward which arose in 1999, consisting of costs in connection with the new share issue and listing on the Stockholm Stock Exchange. A net sum of SEK -2.2 (-) million has been charged to the income for quarter one on account of Ixion. INVESTMENTS AND CASH FLOW * The construction work in Uppsala is proceeding according to plan. Investments in buildings amounted to SEK 8.2 (2.1) million during the first three months. At the beginning of 2001 the construction of new office and laboratory premises with an area of 11,000 sq.m. was begun. During the end of 1999 Q-Med acquired land adjacent to the exisiting facility for this purpose. It is estimated that occupancy of the new premises will be able to start during the first half of 2002. Until the new premises are complete some of Q-Med's personnel will be working in hired offices in Uppsala. In addition to the investment in the premises, which it is estimated amounts to approximately SEK 130 million, Q-Med will also invest in production equipment and laboratory-related equipment during the coming two years. Investments in equipment amounted to SEK 4.1 (2.1) million during the period, primarily consisting of furniture and computers for new employees. Q-Med's cash flow from operating activities amounted to SEK 0.0 (0.0) million for the period January - March 2001. The total cash flow was negative, SEK -12.5 (plus 10.3) million. The total cash flow for the comparable period in 2000 was affected by the fact that Q-Med's next largest owner, HealthCap, utilized outstanding subscription options during the first quarter of 2000, which generated liquid funds of SEK 28.0 million for Q-Med. Due to the fact that DEFLUX has received so-called expedited review status for its application for approval in USA, Q-Med is at present investing in a new quality system. The FDA, the American regulatory authority, will inspect the Uppsala facility to certify it in accordance with GMP (Good Manufacturing Practice) with regard to DEFLUX. SEK 18.2 million had been invested at March 31, 2001, including SEK 2.4 million during the first quarter of 2001. It is estimated that approximately a further SEK 6 million will be invested during the second quarter. PERSONNEL Q-Med continues to employ new employees and has thus far during the year primarily recruited within production and research and development. At March 31 the number of employees amounted to 218 (130), including 153 (100) in Sweden. At the end of 2000 the number of employees was 197. Recruiting during 2001 will be focused on production, research and development and on beginning to build up a market organization in USA. PROSPECTS FOR WHOLE OF 2001 UNCHANGED Sales 2001 should considerably exceed those for the year 2000. The gross margin should continue to be around 90 percent. The strong focus on new and existing products and markets will continue, which will mean that the costs for above all clinical trials will increase markedly. Research costs attributable to Ixion will also increase. The expansion will take place under continued profitability, even though the operating margin might drop temporarily. May 3, 2001 Uppsala, Sweden Q-Med AB (publ) Per Olof Wallström, President and CEO This report has not been the subject of scrutiny by the company's auditors. The same accounting principles and methods of calculation have been used in the drawing up of this interim report as in the latest Annual Report. The company's accounting and valuation principles are in accordance with the recommendations and pronouncements of the Swedish Financial Accounting Standards Council. The report for the period January - June 2001 will be submitted on August 22, 2001. Queries should be addressed to Per Olof Wallström, President and CEO, on +46(0)18-474 90 00 or +46(0)70-974 90 70. Appendices: Income statement, balance sheet, cash flow analysis, and key ratios for January - March 2001. Q-Med AB (publ), Seminariegatan 21, SE-752 28 Uppsala, Sweden. Corporate identity number 556258-6882. Tel: +46(0)18-474 90 00. Fax: +46(0)18-474 90 01. E-mail: info@q- med.com. Home page: www.q-med.com ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/05/03/20010503BIT00920/bit0001.doc http://www.waymaker.net/bitonline/2001/05/03/20010503BIT00920/bit0002.pdf