Simris Alg year-end report January-December 2022

Q4, OCTOBER-DECEMBER 2022

• Net revenue decreased by 89% to SEK 318k (2 977k) following a pause in production to upgrade the Hammenhög production facility.
• Personnel & other external costs increased by 81% to SEK -5 506k (-3 046k) due to increased investments in capability and including staff Cyano Biotech.
• EBITDA declined by 90% to SEK -6 064k (-3 186k).
• EBIT/ Operating result declined by 147% to SEK -9 631k (-3 907k).

JANUARY - DECEMBER 2022

• Net revenue declined by 34% to SEK 4 080k (6 137k).
• Personnel & other external costs decreased by 16,5% to SEK -17 909k (-21 450k).
• EBITDA improved by 22% to SEK -18 005k (-23 125).
• EBIT/ Operating result improved by 15% to SEK -24 657k (-28 928k).

KEY EVENTS ANNOUNCED IN Q4

• No significant events were announced during the quarter.

KEY EVENTS AFTER Q4

• On 10^th January 2023, Simris confirmed the launch of a new Omega-3 product eligible for sales in EU for the first time.
• On 24^th January 2023, Simris announced an increase of €0,5m in the funding facility provided by The Brand Laboratories, taking the full value of the facility to €1,5m. The increase in the funding facility is contingent upon approval by Shareholders at an EGM called for 6^th March 2023.
• Simris announced its proposal to change the name of the business from Simris Alg AB to Simris Group AB, on 31^st January 2023. This is contingent upon approval by Shareholders at an EGM called for 6^th March 2023.
• On 1^st February 2023, Simris issues a notice for an Extraordinary General Meeting to be held on 6^th March 2023.

CHAIRMANS WORDS

The reason Simris acquired Cyano Biotech was because it offered a transformational opportunity.

With the capabilities acquired, especially in the ADC space, there is a very real opportunity for Simris to generate large revenues in the near term - revenues that would be unlikely for us to ever achieve as simply a microalgae grower. For that reason, and in the context of cold weather and high energy costs (the least profitable time to grow microalgae is winter) at the tail end of Q3 we took the decision to empty our PBR's in Hammenhög and spend four to five months on much-needed maintenance, upgrades, improved biosecurity etc., to better position our production for the future.

The Board made it clear to Julian, as CEO, that his absolute focus needs to be on driving Cyano Biotech revenue, adding further value to the science and the signing the first licensing agreements as that is where the biggest rewards will come from.

My confidence in this strategy is supported by my offer to fund the business through this transformation, and I am most satisfied with the progress to date. Good news cannot be far away now.

CEO UPDATE

As mentioned in my letter to Shareholders last August, our vision for Simris is to build a global business selling products based upon compounds extracted from microalgae and cyanobacteria and sold across multiple industry verticals. Over the past nine months we have taken many steps to enable this vision to become a reality. The current proposal to rename the Company as Simris Group AB draws a clear line between our past, as an Omega 3 pure-play, and our future as a science-based, vertically integrated company. The acquisition of Cyano Biotech was a significant strategic investment that enables us to begin making this vision into a reality. I am highly encouraged by the progress we have made in further developing the science and towards the signing of licensing agreements that will be transformative for the business.  

The graphic below is the blueprint of the business that we aim to build. The time frame to implement such an industry defining blueprint is more than ten years. As CEO, it is my objective to ensure that Simris plays a leading role in a future microalgae-based industry producing products, and materials for products, in a drastically more sustainable way than current industry. As an example, one microorganism contains multiple compounds that can be used in a multitude of industry sectors. The Simris Group will leverage this and provide Operating Companies with a pipeline of novel compounds and materials or sale in different industry sectors.

Prior to our acquisition of Cyano Biotech was already operating two different models, namely Nutritional Supplements (B2C) and Biomass for Food Ingredients (B2B). The acquisition of Cyano-Biotech not only brought us a highly experienced in-house R&D capability and a library of novel compounds that can be developed for different verticals in the future, but also two further business models. The first, and most lucrative is a biopharmaceutical business within the field of Antibody Drug Conjugate (ADC) medicines. The second is a small operation providing Standards and Reagents to external laboratories testing for the presence of cyanobacterial toxins in water samples.

The Board and I are aligned on our vision and excited at the number of opportunities. However, we cannot work on all fronts at the same time. The Board made it clear that our strategic priorities for Q4 were (1) developing our technology and sales proposition for our ADC* payloads; (2) preparing for the launch of our new Omega-3 product, (3) enhancing our production facility ahead of the 2023 growing season, and in that order.

CYANO BIOTECH (SIMRIS BIOPHARMACEUTICALS):

I am extremely pleased with the progress we have made on our ADC platform. Our science team have made a significant advance in our main technology platform, and we anticipate submitting a new patent application shortly. Following our attendance at the World ADC conference we have been in discussion with drug development companies and contract development and manufacturing organisations (CDMO) that expressed strong interest in our patented technology. Encouraging discussions are ongoing and give us the belief that we will be able to secure our first license deal(s) within the next 12 months.

Such license agreements would typically entail:

1. An upfront licence fee to reserve the exclusive right to develop an ADC with our payload towards a specific target on one or more cancer cell lines. Such fees can be worth millions of dollars.
2. Payments during the development of the product made upon reaching key milestones e.g., at the end of the pre-clinical stage, at the end of each stage of clinical trial and when the medicine gains regulatory clearance. The value tends to be greater for each phase of clinical trial passed and again valued in millions of dollars.
3. Royalty fees from commercial sale of the ADC carrying one of our payloads.

It is not unusual for the total value of such license deals to be worth tens or even hundreds of millions of dollars should the development deliver a commercial product to market.

Production of payloads for at least the next 18-24 months will continue to be made from our Berlin facilities. Later, new GMP compliant production will be required to provide drug development companies with sufficient volume of payload through human clinical trials. The location of this production facility will ideally be where there is a low cost, sustainable energy source and access to strong academic/ scientific talent.

To exploit the potential in the business and to be ready to support drug development companies through pre-clinical trials we are investing in growing the Berlin team. One new person will join the team in February with several further recruitments planned during H1. We anticipate that each new appointment will be offset by additional revenue generated.

SIMRIS NUTRACEUTICALS:

I was delighted that we were able to meet our goal to launch our new Omega-3 product in Sweden before the end of 2022. Sales in January were completely in line with our expectations, so we remain confident in the potential in our restructured Nutritional Supplements business.

Most Omega-3 products are sold in single use plastic or glass jars. Simris has taken a sustainable approach to this product category. By providing our capsules only in pouches that can then be used to refill an attractive, reusable Simris glass storage jar we drastically reduce the amount of packaging wasted. For example, for each person to have taken a daily-dose of our previous capsules over a 12-months period, the packaging alone would have weighed over 2kg. With our new Omega-3 product the packaging weighs less than 300g, and most of that is in the re-useable storage jar. Even the fuel used for transportation of packaging components and final product is reduced. We remain committed to minimising the impact our operations have on the environment and will continue to invest in finding sustainable solutions to achieve this.

The sales plan for our products in Sweden is to sell directly to consumers from our e-commerce platform as well as through national pharmacy chains. The largest pharmacy chain in Sweden, Apoteket AB, has confirmed an online listing from May and discussions with other pharmacy chains are ongoing.

Our US launch was delayed slightly due to late delivery of packaging components and unexpected logistical complications. These are now resolved and assuming the products clear customs quickly we will be able to launch on Amazon before the end of February.

Once a clear revenue pattern is established, the broader plan is to add other innovative microalgae and cyanobacterial inspired products, as well as to launch in key European markets during H2.

ENHANCED BIOSECURITY & QUALITY:

The extraordinarily high electricity prices combined with the relatively slow growth rates normally experienced during the winter months, would have substantially reduced the profit margins possible from growing biomass. Rather than to risk growing at a loss, we decided to empty our complete system of glass photobioreactors (PBRs) and take the opportunity to further upgrade our production facility. Accordingly, the team in Hammenhög have used this time to dismantle and clean large sections of the glass photobioreactor system, install and test new cleaning and sterilisation equipment, as well as develop and trial new protocols. We have also invested in new LED lighting for our smaller PBRs enabling us to stabilise conditions to produce a more consistent quality of product at increased growth rates. We intend to invest in similar lighting for our larger PBRs should the data from spring growth in the smaller PBRs confirm our expectation for stable quality and higher yields.

FOOD INGREDIENTS FOR B2B:

Existing customers remain interested in buying the unrefined biomass from our production of Phaeodactylum tricornutum. The sales potential is however, still held back somewhat due to this strain of algae not being approved as a novel food by the European Foods Standard Agency. We therefore anticipate modest sales during the year.

Based upon the progress made during our ADC platform, our Omega-3 relaunch and the upgrades to the Hammenhög production facility, we paused the development work around our Fucoxanthin oleoresin product intended for B2B sale. The project is at an advanced stage with the next step being to complete stability trials that will provide us with data confirming that the product is stable for a period of 24 months. Our target customers require samples of the final product for analysis and with an accelerated stability trial we would be able to provide them with samples 4-6 months from the start of the trial.

As our immediate priorities remain in the higher value, higher margin Biopharmaceutical and Food Supplement businesses, this project is likely not restart before H2.

OTHER ACTIVITIES OF NOTE:

Our Chief Science Officer (CSO) for non-ADC activities (Dr Heike Enke), now directs our research collaboration with Malmö University. The work programme for 2023 will centre around characterising the cosmetic anti-aging activities of compounds already identified from within the library of 5,000 novel compounds held at our Berlin, Cyano Biotech laboratories. Our intention is to protect under patent any lead compounds showing significant anti-aging properties. Customers would be required to enter into a license agreement to be able to include such compounds in their products.

We are encouraged by the discussions we are having with water authorities in Europe as well as major environmental agencies in the US & Canada in regard to the cyanobacterial Standards & Reagents business we acquired with Cyano Biotech. We can see clear potential to reach new customers, enter new markets and develop new products. Taken together this would significantly increase the volume and revenue of this product line to make a meaningful contribution to the coming fiscal year.    

SUMMARY:

The Simris vision is to build an global business selling products based upon compounds extracted from microalgae and cyanobacteria and sold across multiple industry verticals. We made real progress towards this vision in 2022.

• We gained an R&D facility with one of the world's largest cyanobacterial libraries and >5,000 novel compounds. This library provides us with the opportunity to develop and sell products across many industries.
• We have entered the high-value, high-margin Biopharma space with our ADC platform and are encouraged by the ongoing discussions with major international players in this field.
• Our new Omega-3 product was launched in Sweden, and we will soon launch in the US. With plans to broaden both range and distribution we are confident that our Nutritional Supplements business will develop strongly during the coming year.

Combined with the other activities I have described and with the engagement of a fantastic team based in Berlin & Hammenhög, I believe that 2023 will be a year of immense progress for Simris.

The report is published on Simris Algs website:
https://simrisalg.se/sv/investerare/finansiella-rapporter/

For more information contact:
Julian Read
CEO Simris Alg AB
Email: IR@simris.com
Mobile: +46767888212
www.simrisalg.se

This information is information that Simris Alg AB is obliged to make public according to the EU's market abuse regulation. This information was provided by the above contact person for publication on 2023-02-15 at 08:00 AM CET.

ABOUT SIMRIS ALG AB (PUBL):
Simris Alg is a biologics company identifying high value, natural, biologically active compounds found in microalgae and cyanobacteria to extract for applications in skincare, nutrition, and biopharmaceuticals. The company sustainably grows microalgae and cyanobacteria at industrial scale within its photobioreactor facility whereby conditions are optimized for production of these high-value compounds.

Simris Alg's shares are traded on the Nasdaq First North Growth Market with the short name SIMRIS and ISIN code SE0008091664. Certified Adviser is Amudova AB, telephone: 08-546 017 58, email: info@amudova.se.