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BioInvent Financial Statement 1 January - 31 December 2005 16 FEBRUARY 2006BioInvent Financial Statement1 January – 31 December 2005q Development projects: o The Company’s first clinical project, a phase I/IIa study of the drug candidate BI-201, was started in June. The results from the study carried out on HIV-infected individuals are expected to be reported in the second quarter of 2006. o Strong pre-clinical data confirming that BI-201 minimises the risk of the development of resistance. Finalized studies show that the drug candidate did not allow the development of resistance after inhibiting the virus for 50 weeks. o A drug candidate (BI-204) was selected in September within the atherosclerosis project. BI-204 has significantly reduced the amount of harmful plaque in several animal models. Preparations for the toxicology programme are under way. o The TB-402 drug candidate for the prevention of thrombosis and TB-403 for the treatment of cancer are progressing rapidly towards the clinical phase. Toxicology tests are in progress for TB-402 and are being prepared for TB-403. q Research projects: o The collaboration within osteoarthritis will change. The rights to the target proteins will be returned to Cartela. q Patent and licensing situation: o Improved patent protection for the Company’s core technology, the n-CoDeR antibody library. A US patent was granted in January 2006. o European and US patents granted in May and June respectively for the target protein, angiomotin. The project represents a new and promising way to inhibit the blood supply to tumours. o In June BioInvent entered into a licensing agreement with Cambridge Antibody Technology (CAT) giving BioInvent the right to use CAT’s phage display technology. q Financial situation: o An issue of new shares with preferential rights was successfully implemented in December. The issue, which was secured to 100 per cent, raised SEK 146.2 million for BioInvent after deducting issue costs. o Net revenues for January-December 2005: SEK 28.2 million (58.7). o Cash flow from current operations and investment activities for January – December 2005: SEK -125.9 million (-93.7). Current investments together with cash and bank at the end of the period: SEK 195.3 million (175.0). o Loss after tax for January – December 2005 amounted to SEK -139.9 million (-92.5) and the loss after tax per share was SEK -4.41 (-3.14). BioInvent is a research-based pharmaceutical company that focuses on developing antibody drugs. The Company is currently running innovative drug projects within the areas of HIV infection, thrombosis, cancer and atherosclerosis. Comments by the CEOIn December BioInvent completed an issue of shares with preferential rights. This strengthened our balance sheet by SEK 146 million after deducting issue costs. The issue should be seen as offensive and will be used primarily to move our development projects further forward in the value chain.Over the past year our project portfolio has grown at a rapid pace. Clinical studies were started in June for our BI-201 product candidate for the treatment of HIV/AIDS. The results from this study are expected to be reported in the second quarter this year. Our two joint products with ThromboGenics, one to prevent blood clot formation in connection with several medical conditions, and the other to block angiogenesis in tumours, are advancing towards clinical phases. Also in 2005 we selected a product candidate (BI-204) for the atherosclerosis project. With four projects in development phases, we have established a strong foundation from which to expand our clinical project portfolio.It is important for BioInvent to have strong patent protection for our technology and products. In 2005 we had several successes in this area. Our n-CoDeR antibody library was granted an important US patent and our cancer project against the angiomotin target protein was granted patents both in Europe and the US. In June BioInvent signed a licensing agreement with Cambridge Antibody Technology, which gives BioInvent the right to use the company’s phage display technology in combination with n-CoDeR. All in all, 2005 was a year in which we strengthened our intellectual property and improved our potential to exploit it commercially. Development projectsBioInvent is currently running four projects in the development phase, one of which has reached the clinical phase. The development phase commences when a product candidate has been selected based on in vitro tests and tests on animals. In the development phase the safety profile of the product candidate is tested in animal models, before testing safety and efficacy of the product candidate in several clinical phases. HIV-infection/AIDS (BI-201)Clinical phase I/IIa studies of the product candidate, BI-201, were started in June. The primary objective is to study the safety of the drug candidate BI-201, how well it is tolerated and its pharmacokinetic properties. Another important objective of these tests is to study the effects of BI-201 on the level of the virus in the patients’ blood and thereby get an initial indication of how effective BI-201 may be. The studies cover 36 HIV infected individuals who have not yet received any other form of treatment. The studies are being carried out at the Chelsea & Westminster Hospital in London and we expect the results to be presented during the second quarter of 2006. BI-201 is aimed at the Tat protein that is vital for HIV’s ability to replicate itself and spread to new cells. BI-201 has in several pre-clinical tests carried out at the Karolinska Institute and the Swedish Institute for Infectious Disease Control (Smittskyddsinstitutet, SMI), proved to effectively prevent the spread of the virus between human cells in vitro and to inhibit viruses with different Tat sequences in a similar way. Extended and finalized resistance tests carried out at the same institution have shown that BI-201 retained its efficacy and no development of resistance was identified after 50 weeks. Another recently launched drug against HIV was tested under the same conditions. Resistance to this drug developed after six weeks, which is in line with previous experiences. Thrombosis (TB-402)A drug candidate (TB-402) has been chosen for toxicology and clinical studies. The drug candidate is a human antibody aimed at Factor VIII. BioInvent’s partner, ThromboGenics, has developed a human antibody against Factor VIII. The anti-Factor VIII lead candidate has shown a beneficial partial inhibition of the blood coagulation Factor VIII, even when applied in excess dosage. Extensive testing in several animal models has shown that TB-402 strongly reduces the risk of thrombosis without increasing the risk of spontaneous bleeding. Toxicology studies and the manufacture of materials for the clinical programme are under way. Clinical phase I studies on healthy volunteers are planned and these will be followed by a phase IIa programme on patients who have undergone hip surgery. In addition to being a serious complication in connection with surgical procedures as knee and hip surgery, blood clot formation in connection with certain types of heart arrhythmia is a growing problem. The project is developed within the framework of the alliance with ThromboGenics. Cancer (TB-403) A product candidate (TB-403) has been selected and has undergone extensive pre-clinical studies. Several in vitro and in vivo studies have demonstrated good specificity for the relevant target protein and inhibition of PIGF-associated angiogenesis. Development of the cell line that will be used in the production of TB-403 is completed. Production of material for the toxicology programme is in progress. The PIGF growth factor is produced by tumours and is specifically expressed in cancer and chronic inflammatory conditions. It affects the formation of new vessels in tissue that is under stress. Unlike VEGF, which is targeted by the drug Avastin, PIGF does not seem to affect normal, physiological angiogenesis. This characteristic is important because it means that the inhibition of PIGF is not expected to cause any significant side effects, but will still have the desired effect on various diseases. The project is developed within the framework of the alliance with ThromboGenics. Atherosclerosis (BI-204)A product candidate (BI-204) was selected in the third quarter for toxicology and clinical studies. BI-204 is aimed at oxidised forms of the bad LDL cholesterol. Strong links have been shown between oxidized forms of certain lipoproteins and the inflammatory processes that lead to plaque formation in the vessel walls. In several animal tests, BI-204 has been shown to reduce inflammatory processes and, in a number of animal models, it has been able to reduce plaque formation very significantly. The results also show a considerable reduction in the size of existing plaques in animals treated with BI-204. Development of the cell line to be used in the production of BI-204 is in progress. The next stage is the production of material for the toxicology programme. Research projectsProprietary projectsBioInvent has during 2005 been running four proprietary research projects, i.e. the stage prior to the selection of the product candidate for safety tests in animal models and clinical trials. Three of these have the treatment of cancer as the primary indication. One of the projects is a second angiogenesis project (anti-angiomotin) where the Company has acquired the target protein from a research team at Karolinska Institutet. During the year BioInvent received promising data from animal models showing that the Company’s antibodies are able to block unwanted vessel formation. The effects of the antibodies on tumour growth and harmful vessel growth in the eye are currently being studied. BioInvent has two additional projects in the cancer field where antibodies have been produced through internal research work in cooperation with an academic partner. These antibodies have shown promising in vitro results. The target proteins for these antibodies have been identified and patent applications to protect the discoveries have been submitted. The next stage for BioInvent is to test these antibodies in relevant animal models. In a project to find a treatment for osteoarthritis, the Company has produced antibodies against a couple of cell surface molecules (integrins) that are expressed specifically in articular cartilage. During the year antibody leads have been tested in animal models and human tissue cultures. After reviewing the project, the company has decided to change the collaboration and return the rights to the target proteins to Cartela. The parties have initiated negotiations concerning a licence agreement to replace the previous agreement. The negotiations may result in Cartela acquiring the right to further develop the antibodies that BioInvent has developed during the course of the cooperation. UCB In 2002 BioInvent initiated a research and development partnership with UCB for the development and commercialisation of antibody drugs within the cancer field. Five projects are in progress under the agreement. BioInvent has delivered a number of antibodies for all of the projects. UCB is responsible for all of the animal testing, the continued clinical development, as well as commercialisation of the products that may result from the partnership. If product development is successful, BioInvent will receive milestone payments and royalties on future sales. A smaller milestone payment has been paid to BioInvent in connection with the start of animal testing with the first antibody developed. Patents and licensingIn January 2006 the US Patent Office granted a patent covering BioInvent’s antibody library n-CoDeR. The issued patent covers methods for preparation of n-CoDeR as well as methods for preparing the separate antibody components included in the library. BioInvent has already obtained corresponding patents in Europe, Japan and Australia. In August 2004 Maxygen Inc. and Novozymes A/S filed oppositions with the European Patent Office against the European patent.BioInvent’s own portfolio of granted patents was increased in May when a key European patent was granted relating to the target protein angiomotin within one of the Company’s cancer project. A corresponding US patent was granted in June. In June BioInvent entered into a licensing agreement with Cambridge Antibody Technology (CAT), a UK antibody company. The agreement gives BioInvent and its partners the right to use CAT’s phage-based antibody technology. In December cell line development technology rights were acquired from Lonza Biologics, UK. The license comprises cell lines and the associated technology (GS Gene Expression System) for optimal productivity in the cultivation of antibody-producing cells. The technology supplements BioInvent's own technology. These rights covers both clinical and commercial product. Under the license BioInvent will pay royalties following successful product development. This royalty is considered reasonable with the regard to expected increase of productivity. OrganisationAs of 31 December, BioInvent had 96 (98) employees. 79 (81) of these work in research and development. Revenues and resultNet revenues for the January – December period amounted to SEK 28.2 million (58.7). The corresponding amount for the October – December period was SEK 8.5 million (18.4). In accordance with the strategy a larger proportion of the development capacity is gradually used for the Company’s proprietary drug projects. This results in reduced possibilities for revenues from development assignments. These revenues are also expected to fluctuate. The Company’s total costs for the January – December period amounted to SEK 170.5 million (156.8). Operating costs are divided between external costs of SEK 81.1 million (65.9), personnel costs of SEK 69.1 million (69.9) and depreciation of SEK 20.3 million (21.0). The increase in external costs is mainly explained by the milestone payments made in June within the HIV project. Also, external costs for clinical trials increased as the Company’s projects were moved forward in the value chain. Research and development costs for January – December amounted to SEK 142.4 million (126.1). The research and development costs have increased for the same reason as the external costs. Depreciation according to plan lowered the operating result for the period by SEK 20.3 million (21.0), of which depreciation of intangible fixed assets amounts to SEK 9.0 million (8.6). The loss after tax for January – December amounted to SEK -139.9 million (-92.5). The increased loss is related to lower revenues and increased external costs. The loss after tax for October – December amounted to SEK -31.6 million (-23.9). The net financial items, January – December, amounted to SEK 2.5 million (5.5). The reduction is the result of average lower liquid funds and lower market interest. The loss per share after tax, January – December, amounted to SEK -4.41 (-3.14). Financial position and cash flowAs of 31 December 2005, the Group’s current investments together with cash and bank amounted to SEK 195.3 million (175.0). The cash flow from current operations and investment activities for January – December amounted to SEK -125.9 million (-93.7). The cash flow from current operations and investment activities for October - December amounted to SEK -32.0 million (-24.7). The decline in the cash flow is due to the increased losses and investments. The increase in losses and investments will not fully impact the cash flow because of fluctuation in working capital. Following the issue of 17,685,333 shares with preferential rights implemented at the end of 2005, the Company’s share capital was increased by SEK 8.8 million to reach SEK 23.6 million. The issue raised SEK 146.2 million for BioInvent after deducting issue costs. The number of shares after the completed share issue was 47,160,889. The shareholders’ equity amounted to SEK 219.0 million at the end of the period. The equity/assets ratio at the end of the period was 82.2 (89.2) per cent. Shareholders’ equity per share amounted to SEK 4.64 SEK (7.22). The Group had no interest-bearing liabilities. Investments Investments in tangible fixed assets amounted to SEK 3.9 million (0.2). The Group’s investments in intangible fixed assets amounted to SEK 19.5 million (5.4) and relate to technology licences acquired externally. The parent companyNet revenues for January – December amounted to SEK 28.2 million (58.7). The loss after tax amounted to SEK -139.8 million (-92.5). The cash flow from current operations and investment activities amounted to SEK -125.8 million (-93.7). Warrant programmeAt the end of the period, there were outstanding warrants equivalent to 312,000 shares after recalculation to take into account the implemented new share issue. The warrant programme was issued in April 2003 and is aimed at senior executives and key individuals, not in possession of large holdings of shares. So far, 219,440 warrants have been acquired by the employees at market terms. The remaining 92,560 warrants are reserved for future recruitments. The subscription period for the warrants is 1 January – 30 April 2007 and the subscription price is SEK 22 after recalculation to take into account the implemented new share issue. The warrant programme could provide a maximum dilution of 0.7 per cent. Nominating committeeThe Annual General Meeting on 16 May 2005 voted in favour of appointing a Nominating Committee consisting of the Chairman of the Board as the convenor, and a representative for each of the Company’s three largest shareholders as of 31 August 2005. The Nominating Committee is tasked with preparing proposals to present to the AGM regarding election of the Chairman of the Meeting, Chairman of the Board and other Board members, Board remuneration, shared among the Chairman, other Board members and possible compensation for committee work and, where applicable, election of auditors and auditor’s fees. The following individuals have been appointed to the Nominating Committee: Björn Ogenstam (Stiftelsen Industrifonden), Roy Berg (Stena-koncernen), Björn Franzon, (Fjärde AP-fonden) and Per-Olof Mårtensson (Chairman of the Board). Accounting principlesThis consolidated interim report has been prepared in accordance with IAS 34 Interim Reporting, which is in accordance with the stipulations in the Swedish Financial Accounting Standards Council’s recommendation RR 31 Consolidated Interim Reports. BioInvent International AB started applying the International Financial Reporting Standards (IFRS) from 1 January 2005 in accordance with an EU decree. The transition to IFRS from the previous accounting principles has taken place according to IFRS 1. The most significant impact on the Group of the transition to IFRS is related to reporting of financial instruments. From 2005, the Company is applying IAS 32 and 39 on financial instruments and the comparative figures for 2004 have, in compliance with the transition rules, not been re-stated. The application of IAS 32 upon its introduction on 1 January 2005, is not expected to have any impact on the shareholders’ equity. The effects on the shareholders’ equity on 1 January 2005 of the application of IAS 39 were minimal, SEK 22k. A more detailed account is provided in BioInvent’s 2004 annual report. The parent company’s accounts have been prepared taking into consideration RR 32, Accounting for Legal Entities. Annual General Meeting, dividend proposal and upcoming financial reports The Annual General Meeting will be held on Monday 24 April 2006 at 4 p.m., at Ideon, Lund. Notice to attend will be announced in the Swedish press in Post-och Inrikes Tidningar, Sydsvenska Dagbladet and Dagens Industri, and will be posted on the Company’s website. The annual report will be distributed to all shareholders that have not declined this service. Shareholders wishing to attend the AGM must be registered in the shareholders’ register kept by the Swedish Securities Register Centre (VPC AB) no later than Tuesday 18 April 2006 and must inform BioInvent of their intention to attend no later than 4 p.m. on Tuesday 18 April 2006 by sending a letter to: Sölvegatan 41, SE-223 70 Lund, attn: Marie Serwe, or by fax to +46 (0)46 211 08 06, or by phone +46 (0)46 286 85 50, or by e-mail to marie.serwe@bioinvent.com. Shareholders must include their name, personal/company registration number, shareholding, telephone number and the name of any assistants that will be attending.In order to participate in the AGM, shareholders with nominee-registered shares must request that their shares be temporarily owner-registered in the VPC AB shareholders’ register. Such registration must be completed no later than Tuesday 18 April 2006 and the nominee must be informed of this well in advance of this date. The Board of Directors and President & CEO do not propose the payment of any dividend for the 2005 business year.BioInvent will present the following financial reports:Annual report Available on the website at the end of March 2006Interim reports 12 April, 13 July, 12 October 2006Financial statement for 2006 15 February 2007Consolidated income statement in brief (SEK thousands)
* The outstanding warrants lead to no dilution of earnings per share as a redemption to shares would lead to an improvement of earnings per share.
Consolidated balance sheet in brief (SEK thousands)
Change in shareholders’ equity for the Group (SEK thousands)
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