ALLENEX AB ALLENEXAB (PUBL)
INTERIM REPORT JANUARY - SEPTEMBER 2015
For the July- September period
Net sales for the period were SEK 32.2 million (32.4).
Operating income (EBIT) for the period was SEK 5.1 million (7.3).
Operating margin for the period was 16 percent (22).
Earnings after tax for the period were SEK 3.6 million (6.4).
Earnings per share for the period, basic and diluted, were SEK 0.03 (0.05).
For the January- September period
Net sales for the period were SEK 99.8 million (94.5).
Operating income (EBIT) for the period was SEK 15.1 million (13.4).
Operating margin for the period was 15 percent (14).
Earnings after tax for the period were SEK 9.5 million (8.0).
Earnings per share for the period, basic and diluted, were SEK 0.08 (0.06).
Significant events in the third quarter and after the balance sheet date.
No significant events occurred in the third quarter or after the balance sheet date.
President and CEO Anders Karlsson' s comments on the third quarter 2015 :
'Sales and profitability continued to increase cumulatively for the year and we are seeing an im- provement in our operating margin, despite having to compare to a strong third quarter last year. For the first three quarters EBIT rose to 15 percent (14), while the corresponding figure for the third quarter was 16 percent (22). It is gratifying to see such strong performance in the U.S., where sales were up across the board for our key products. The extensive efforts we focused on the American market, initiated in 2014, are now bearing results in the form of increased sales. We now look for- ward with confidence to the launch of our new product QTYPE®, based on real-time PCR methodolo- gy. Our product concept was most recently presented at the end of September at the main HLA typing congress for the American market. Active sales of QTYPE®are expected to commence in early 2016.'
For more information please contact:
Anders Karlsson, CEO, tel: +46 (0) 70-918 00 10 or e-mail: anders.karlsson@allenex.se
Yvonne Axelsson, CFO, tel: +46 (0)8-508 939 72 or e-mail: yvonne.axelsson@allenex.se
GROUP OPERATIONS
Allenex is a Life science company that develops, manufactures, markets and sells products on the global market that facilitate safer transplantation of blood stem cells and organs. Allenex is listed on NASDAQ OMX Stockholm, Small Cap, (ticker: ALNX).
There are 56 employees in the Allenex group.
SALES
Net sales for third quarter were SEK 32.2 million (32.4), corre- sponding to a decrease of just under one percent compared to the same period last year. The assessment is that this discrep- ancy can be explained by the variability between different quar- ters both this year and last year.
North America continues to increase in importance for the group. The share of Allenex total sales for the quarter in North America was 29 percent, while the corresponding share for the third quarter 2014 was 22 percent. Growth in this region is primarily driven by new customers in the SBT segment. Sales in North America in the third quarter declined however by nine percent in local currency (USD) compared to the same period last year. This is partly an effect of customers' distribution of purchases over the year, and partly the effect of a strong third quarter in 2014. Accumulated for the year (Jan - Sept), North America maintained a positive development of nine percent in local currency compared to the same period last year.
Sales in Europe were down nine percent in local currency com- pared to the third quarter 2014, which was unusually strong. In France, sales continued to increase, in particular sales of tradi- tional SSP products, where the company's local representative is linked to a national tender process. Germany is showing a negative development for the period, falling by 16 percent compared to the same period in 2014. The transplantation scandal that came to light in 2012 continues to have a nega- tive impact on organ donations in the country. Between 2011 and 2014 the number of transplants in Germany using organs from deceased donors has decreased from 3 917 to 2 989, a reduction of 25 percent. At the same time, a consolidation of operations to larger laboratory groups and the transition to more automated technologies such as SSO and SBT is ongoing in Germany. Sales in the emerging markets of India and China for the quarter were lower than the same period last year.
Allenex products are distributed by direct sales through a pro- prietary sales organization in key markets such as the USA, Germany and in the Nordic region. They are also distributed via partnerships with local distributors in other markets. Registra- tion processes are ongoing for the company's products in a number of countries, with work underway to secure strong local sales/distribution partners in these markets. This has intensi- fied in that the competitors One Lambda and Life Technologies, which were acquired by Thermo Fischer in recent years, have now chosen to consolidate their operations to one distributor in certain markets.
CUSTOMER GROUPS
Allenex customers largely constitute laboratories active in transplantation diagnostics. Today, there are three different technologies on the market for HLA typing (SSP, SSO and SBT), where the most common typing technique globally, in terms of volume, is SSO. However, most laboratories use SSP typing, either as a primary or supplementary technique. The size of the laboratory and its level of automation determines to what ex- tent the respective methods are used. Today, the largest labor- atories mainly utilize automated solutions (SBT and SSO) as their primary technology, while smaller laboratories generally prefer SSP typing. Subsequently, the choice of typing technolo- gy is a key parameter for customer categorization. Further- more, in recent years two new further-developed technologies have been tested. These are Next Generation Sequencing (NGS), which primarily targets laboratories that conduct regis- ter typing, and Real-Time PCR (also called qPCR), which mainly used for typing deceased donors prior to an organ transplant. To date, these two technologies are used on a limited scale, however usage is expected to increase in the coming years. It is believed that NGS will primarily compete with SSO and SBT, while Real-Time PCR is expected to mainly compete with SSP and SSO.
Allenex is working to meet market demand for automated typing solutions, in part through proprietary product develop- ment, and in part through partnerships with other companies. Since mid-2011, Allenex is the exclusive global distributor of the HLA typing product SBT Resolver™, with the related soft- ware Assign-SBT™ from the Australian company Conexio Ge- nomics. SBT Resolver™ was introduced by Allenex in the se- cond half of 2011. This contract gives Allenex greater oppor- tunity to partner with larger, automated laboratories. Since
these laboratories to a large extent strive to use the same supplier for all HLA typing products, this contract will also facili- tate increased sales opportunities for Allenex SSP products.
SBT Resolver™ has been introduced to a large number of po- tential customers. Following an introductory demonstration, the laboratory usually conducts an independent comparison to the product currently in use. If the comparison favors Allenex, careful product validation is then carried out prior to fully con- verting to SBT Resolver™.
The validation process tends to be relatively long, usually tak- ing from 6 to 15 months. At the period end, 42 laboratories had converted, partially or fully, to SBT Resolver™ (23 in North American and 19 in Europa/Asia), with around 20 laboratories at the validation stage.
Abbott Laboratories recently sold the rights to its SBT portfolio to the Dutch company GenDx, which will take over the produc- tion and distribution of these products from the end of the year. It is believed that GenDx will thereby be able to strengthen its product portfolio in Europe by taking over current sales from Abbott. This also opens up opportunities for Allenex to convert certain centers to SBT Resolver™. At the same time, Allenex sees great opportunities in this supplier shift to further in- crease its market share for SBT Resolver™in the U.S., where GenDx's market penetration is low.
MARKET PERFORMANCE
Traditional SSP typing is still a key technology in the vast major- ity of HLA laboratories worldwide. Even though the technology has been around for 25 years, it still generates stable sales in most markets. The technology adapts easily to today's needs and this flexibility allows Allenex to continue to regard it as an important part of the company's product mix for the foreseea- ble future. Despite this, there are of course challenges to ad- dress, in particular from the more automated technologies such as SSO, SBT and real-time PCR.
Allenex initial strategy has been to introduce SBT Resolver™ to the largest and most automated HLA laboratories in the U.S. and Europe, to then, in a second phase, focus on converting mid-sized laboratories from competing products. A number of the largest laboratories have very high volumes as they con- duct tests for national or regional typing registers. Major regis- ter typing laboratories conduct HLA typing tests on more than 5 000 individuals per year and are very careful in their evalua- tion of new suppliers.
In the U.S., in particular, there are larger laboratories where SBT typing is used for clinical typing. In total, around 70 of the 200 HLA laboratories use SBT technology clinically, and of these, 23 laboratories (around 33 percent) have so far chosen Allenex as SBT supplier. Of the 70 laboratories that use SBT technology, around 10 - 15 of them type over 1 500 tissue samples each per year, with a few typing even more than that. These are the laboratories that Allenex has initially chosen to target, as they hold high value as reference customers, which is important in this segment. Among these large laboratories,
Allenex currently has four customers. In Europe, the trend is that larger laboratories or consortiums of laboratories are becoming more active. This is the case in Germany in particu- lar, where a few really large laboratories are taking a more extensive hold of the typing market. There, the demand is for automated solutions that can handle larger volumes, and dur- ing the year Allenex entered into an agreement with a large new German customer encompassing the delivery of reagents for SBT typing to this laboratory. This laboratory is one of the very largest in HLA typing in Europe, entailing not only an in- crease in volumes but also a well-reputed reference center for Allenex.
The distribution agreement between Conexio Genomics and Allenex subsidiary Olerup SSP AB runs through April 2018. In addition to the distribution of SBT Resolver™, the agreement with Conexio Genomics includes two new products for Next Generation Sequencing (NGS), reagents and software. Also included is Gamma Type™, a product for typing of the Gamma block, an area that has not previously been possible to analyze using traditional methods. The introduction of Gamma Type™ began during the first six months of 2015 and Allenex plans to successively introduce the NGS portfolio over the next two years. The new products will provide Allenex with further oppor- tunity to reinforce its leading position in the HLA typing market.
There is currently one actor in the real-time PCR segment, Linkage Bioscience. The company launched products for HLA typing on the American market almost five years ago. The com- pany's products are in use today at some thirty laboratories in the U.S., primarily for typing deceased donors. The product line is based on melt curve technology.
PRODUCT DEVELOPMENT
Today, Allenex SSP products have a strong market position in their field of technology. They are updated on an ongoing basis and the strategy is to offer as close to total solutions as possi- ble.
In 2014, active development began at Allenex on a completely new product group for HLA typing based on Real-Time PCR (q- PCR) methodology. The starting point for the development work is SSP technology, which is at the core of the Allenex product range today. The new product QTYPE®will primarily focus on low-resolution typing in conjunction with organ transplantation and typing that either requires ease of administration and expedient results, or where high-resolution typing is not a re- quirement, such as in a family-investigation prior to stem cell transplantation. Allenex new product is based on hydrolysis probes, commonly referred to as TAQMAN®technology, and differs from the existing products on the market. This technolo- gy has a number of significant advantages compared to melt curve technology.
QTYPE®will initially compete with traditional SSP typing, a sector where Allenex has products today, as well as with exist- ing real-time solutions, but also with SSO. In SSP, the company counts on being able to challenge other suppliers and win
market share. A great opportunity to win market share is also seen in SSO, where One Lambda is dominant today. When transplanting organs from deceased donors it is of great im- portance to be able to expediently carry out HLA typing to find an appropriate recipient. Real-Time PCR is a more automated method that provides faster results with a lesser proportion of manual work. Typing with QTYPE®will take around one hour compared to the up to three hours it takes to do traditional SSP typing. In this context, SSO typing is relatively slow, taking 5-7 hours to conduct. Besides organ transplantation, the method has applications in other types of conditions.
QTYPE®was introduced at the end of April at the European HLA congress, EFI, in Geneva. At the end of September QTYPE®was also presented at the American market at the corresponding HLA congress for the U.S. market, ASHI, in Savannah, Georgia. It is currently estimated that the new product will be ready for launch in the first quarter 2016.
Continuous product development is also ongoing at Allenex to maintain its position as market leader in SSP technology. Al- lenex continues to develop its current product line to ensure high performance in SSP typing. The company is also reviewing solutions adapted to laboratories looking for SSP technology with the possibility of increased automation that can be used as a complement to SSO and SBT technologies. In 2012, Allen- ex introduced Olerup SSP®Add-ons, a complement to the au- tomated technologies (SSO and SBT). In 2014, additional Ole- rup SSP®products were introduced with the aim of meeting customer needs for improved HLA typing with traditional SSP technology.
SIGNIFICANT EVENTS IN THE GROUP
Significant events in the first quarter
Allenex acquired all minority holdings in the group from SSP Primers AB for a consideration of SEK 20 million, as well as repayment of a loan of SEK 4 million. 2014 profit generated by Olerup SSP AB and Olerup International AB were transferred to Allenex.
Significant events in the second quarter
No significant events occurred in the second quarter.
Significant events in the third quarter
No significant events occurred in the third quarter.
Significant events after the balance sheet date
No significant events occurred after the balance sheet date.
FINANCIAL POSITION, CASH FLOW AND FINANCING
Consolidated operating income for the first nine months rose to SEK 15.1 million (13.4). The weakened Swedish krona has had a positive impact on revenues compared to last year as the majority of these are in EUR and USD. At the same time, the weak Swedish currency has had a negative impact on raw material and consumable costs as these are also mainly pur- chased in EUR and USD.
Unrealized currency gains are included in Other expenses, reducing these by SEK 2.0 million (3.8). Unrealized currency gains also boosted financial items by SEK 0.8 million (1.7). Already realized currency gains of SEK 0.9 million (0.6) are posted in Other expenses.
New product development expenses of SEK 10.0 million (1.0), were capitalized during the year, leaving a closing balance of SEK 12.8 million. The capitalization concerns the development QTYPE®a new product for HLA typing based on Real-Time PCR (qPCR) methodology.
The group's operations are financed by shareholders' equity and loans. Interest-bearing liabilities amounted to SEK 110.7 million (92.8). The consolidated equity/assets ratio was 58 percent (63). Consolidated equity was SEK 204.9 million (216.1), corresponding to SEK 1.70 per share (1.80). Equity decreased by SEK 20.0 million due to the acquisition of all minority holdings in the group, and increased as the accrued interest of SEK 1.0 million was waived. Cash and cash equiva- lents totaled SEK 2.9 million (8.8).
Cash flow from operating activities before changes in working capital for the first six months was SEK 13.3 million (8.9).
Unrealized currency gains of SEK 2.0 million are included in Adjustment for items not included in the cash flow. The Invest- ing activities post includes investments in capitalized assets of SEK 10.0 million. The Financing activities post includes the acquisition of minority holdings of SEK 20.0 million less a debt to SSP Primers of SEK 14.0 million, net SEK 6.0 million, as well as a new bank loan of SEK 10.0 million, amortization of a bank loan of SEK 4.5 million as well the repayment of a loan to SSP Primers of SEK 4.0 million.
According to an agreement with SSP Primers AB during the first quarter, Allenex acquired 9.0 percent of Olerup SSP AB, 1.9 percent of Absorber AB, 25.0 percent of Olerup International AB as well as 50.0 percent of Olerup Inc. USA. Under the terms of the agreement, SSP Primers has waived any further claims on Allenex and the other companies in the group, regarding accrued interest, among other things. 2014 profit in Olerup SSP AB and Olerup International was transferred to Allenex in full. The debt to SSP Primers AB will be paid in three install- ments of SEK 4.0 million (February 2016), SEK 5.0 million (February 2017) and SEK 5.0 million (February 2018). A fixed interest rate of 3 percent paid annually in arrears will be charged on the outstanding amount.
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