ArcticZymes Technologies — Interim / Quarterly Report 2010

Aug 9, 2010

BIOTEC PHARMACON

2nd QUARTER REPORT 2010

• Initial feedback from a recently finalized animal study on diabetic mice indicates an effect of SBG (soluble beta-glucan) in wounds supporting the conclusion that the phase III failure was due to product instability in PE-containers
• Launch of the first SBG-wound healing product as a medical device seems feasible but no definite decision has been taken so far
• Good growth in revenues and profit for Marine Biochemicals
• Recombinant SAP launched by Marine Biochemicals is expected to quickly replace native SAP and further increase revenues and profit
• Group obtained a NOK 10 million new line of credit supporting its solid balance sheet

(NOKm)	Q2-10	Q2-09	H1-10	H1-09	2009
Marine Biochemicals	6.0	4.5	10.1	7.9	17.6
Beta-Glucans	1.3	0.5	3.1	3.5	6.5
Revenues	7.3	5.0	13.2	11.4	24.1
Marine Biochemicals	3.1	2.4	4.6	3.9	8.4
Beta-Glucans	-6.4	-18.2	-18.4	-30.9	-71.1
Corporate and unallocated	-2.0	-3.3	-3.9	-6.2	-19.4
EBITDA	-5.3	-19.1	-17.7	-33.2	-82.1
Profit before tax	-5.8	-18.7	-18.6	-31.8	-81.2

Note: Figures restated to reflect divestment of Immunocorp Consumer Health in Q4 2009

OUTLOOK

Beta-Glucans:

• Further analysis of the results from the animal study are expected to give clear indication as to the various product compositions' effect on wound healing and may lead to new IP
• Additional results from the animal and cell model studies will contribute to the basis of making the strategic decision as to which product application that will be the main priority short term

Marine Biochemicals:

• Growth in revenues is expected to continue. The conversion to recombinant SAP will increase profitability
• The co-operation with the University of Tromsø is expected to lead to new promising product candidates.

Financial position:

• The company is debt free and has NOK 26 million in cash. Funding should be sufficient to re-establish a platform for further Beta-Glucan development and continued growth of the Marine Biochemicals business
• Completion of phase III clinical trial costs and significant workforce reductions in the parent company take the cash burn in the parent company down to less than NOK 3 mill per month

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Beta-Glucans

Biotec Pharmacon's Beta-Glucan development activities are concentrated on products for treatment of immune related diseases using the bioactive compound SBG (soluble beta- 1,3/1,6-glucan). The clinical development programs have been focused on treatment of chronic ulcer, immunotherapy of cancer in combination with monoclonal antibodies, and treatment of inflammatory bowel disease (IBD).

FINANCIAL REVIEW, BETA-GLUCANS

(NOKm)	Q2-10	Q2-09	H1-10	H1-09	2009
Revenue	1.3	0.5	3.1	3.5	6.5
Other operating expenses (net)	-7.7	-18.7	-21.5	-34.4	-77.6
EBITDA	-6.4	-18.2	-18.4	-30.9	-71.1
Depreciation	0.6	-0.6	-1.2	-1.3	-2.7
EBIT	-7.0	-18.8	-19.6	-32.2	-73.8

Net operating expenses in the Beta-Glucan segment for the first quarter 2010 reflect the remaining cost related to the finalization of the phase III studies. From the second quarter 2010 the total cost base in this segment has been reduced to less than NOK 3.0 million per month, including overhead.

As earlier announced, an unexpected interaction occurred between the active compound SBG and the polyethylene containers used in the SBG phase III studies. The reaction led to a fragmentation of SBG, which changed the homogeneity and the immunomodulatory activity of the product. The interaction of the SBG product with the polyethylene containers apparently led to a slow fragmentation of the product during storage, where the first signs are observed after 9 months and the effect is significantly present after 12 months of storage, as observed in an ongoing stability study. This support the hypothesis that earlier phase II studies gave satisfactory outcomes, since the product entered into these studies immediately after production. Present data shows that the contact with polyethylene leads to a change in the SBG substance inducing a signal molecule profile that could slow down the wound healing process.

Preliminary results from a recently finalised study in diabetic mice have confirmed that SBG stored in polycarbonate containers still retain its wound healing capability, whereas the corresponding SBG in polyethylene-ampoules from the phase III studies, had lost activity. In the same study alternative formulations of SBG were tested with very promising results.

The company is currently running several stability protocols to ensure it will be able to fully stabilize SBG in a suitable container also in combination with an appropriate gel-stabilizing agent. In parallel, the company is investigating whether any of the findings can be developed into new IP.

The wound healing market is dominated by products registered as medical devices, not pharmaceutical products. The company is investigating the opportunity for a SBG-based medical device as a first wound healing product. This alternative may give the company the opportunity to launch a commercial product earlier than otherwise possible and gain industrial experience with the substance.

A number of potential partners remain interested in participating in a renewed product development program in this area, and initial contacts have been taken to clarify on which basis such co-operations could be formalized. However, it is important to give such processes the necessary time as they will result in long term agreements which to a great extent will determine the value of the company.

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Marine Biochemicals

The subsidiary Biotec Marine Biochemicals AS (BMB) has experienced a strong growth in sales, primarily to the research market. This increased demand was much related to the launch of two new products and a strong demand for testing Cod UNG.

We also see an increased interest in testing out our products for use in commercial test kits under development by diagnostic partners. This is a result from our increased marketing effort combined with the strong reputation that we have built in the research market over many years. As we enter into a product development process with our partners, we will have to wait for their commercial launch before our actual sales from such applications are emerging. Thus the company sees a prospect of a long term sales growth after an initial lag time.

FINANCIAL REVIEW, MARINE BIOCHEMICALS

(NOKm)	O2-10	O2-09	H1-10	H1-09	2009
Revenue	6.0	4.5	10.1	7.9	17.6
Other operating expenses (net)	-2.9	-2.1	-5.5	-4.0	-9.2
EBITDA	3.1	2.4	4.6	3.9	8.4
Depreciation	-0.1	-0.0	0.1	0.0	-0.1
EBIT	3.0	2.4	4.5	3.9	8.3

Revenue in Marine Biochemicals amounted to NOK 6.0 million in the second quarter, an increase of 33 percent from the second quarter 2009 with an EBITDA margin of 51 percent for Q2. Half year sales are increased by 27 percent with a total EBITDA margin of 45 percent. The sales growth is obtained through orders for the new recombinant SAP product while the old native SAP still selling at the level of 2009. The new product is expected to substitute the native product during the next 9-15 months and the manufacturing of the native enzyme will then be terminated. The recombinant SAP product was launched by our worldwide distributor in May 2010 and is expected to open new sales opportunities for SAP. Our HL-dsDNase enzyme is showing a very promising uptake by the market after the launch in Q1. It is already in the final approval stages by a number of international companies and their initial projections indicate a substantial market potential for this product.

The company aims to broaden its portfolio of new enzymes, based on its rights to commercialize output from an ongoing marine bioprospecting program (Sfi-MABCENT). A new microorganism research project in Svalbard is also expected to result in new enzymes with potential for industrial production. Partnership with the University of Tromsø remains a priority in order to optimize resources mutually.

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Biotec Pharmacon – Group Figures

Overall EBITDA was NOK -5.3 million in the second quarter 2010, compared to NOK -19.1 million in the second quarter 2009. For the first half year of 2010, EBITDA was NOK -17.7 million compared to NOK -33.2 previous year.

EBIT was NOK -6.0 million in the second quarter (-19.8), and net financial items a positive NOK 0.2 million (1.1).

Profit before tax for continued operations was NOK -5.8 million in the second quarter 2010 and -18,6 million in first half year 2010, compared to NOK -18.7 million and -31.8 million the year before. As explained above, the improved results reflect the finalisation of the clinical phase III study and good results from marine biochemicals.

Balance Sheet, Cash Flow and Shareholder Matters

Total equity was NOK 43.5 million at 30 June 2010, which was a decline of NOK 5.3 million from the end of first quarter and NOK 17.6 million during the first half year. The decline reflects the net losses in the period. The equity ratio improved from 75 percent to 82 percent during the second quarter.

The total number of outstanding shares was 23,637,910 at 30 June 2010, which was unchanged from 31 December 2009. The total number of options by end of second quarter was 1,305,500. 92,000 options were cancelled during the quarter. Biotec Pharmacon holds no own shares.

Net cash flow from operating activities was a negative NOK 10.5 million in the second quarter 2010, compared to a negative NOK 26.7 million in the second quarter 2009. Cash and cash equivalents declined by NOK 11.6 million during the second quarter to NOK 26.0 million.

The company is debt free and has obtained a new credit facility of NOK 10 million that has not been drawn on, supporting its strong balance sheet.

The accounts for second quarter 2010 are attached this interim report.

For further information, please contact:

Svein W. F. Lien – CEO: +47 92289323
Arvid Vangen – VP Finance: +47 95038794

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BIOTEC PHARMACON

Biotec Pharmacon ASA Group - Second quarter accounts 2010

INCOME STATEMENT

Amounts in NOK 1.000

	2Q 2010	2Q 2009	Jan. - June 2010	Jan. - June 2009
Sales revenues	7 335	5 029	13 162	11 394
Cost of goods sold	-759	-588	-1 020	-981
Personell expenses	-5 447	-6 299	-13 458	-14 779
Depreciation and amortisation expenses	-698	-713	-1 376	-1 427
Other income	674	1 541	1 456	5 392
Other expenses	-7 080	-18 808	-17 794	-34 179
Operating profit	-5 975	-19 839	-19 032	-34 580
Financial income, net	177	1 118	397	2 805
Profit before tax	-5 799	-18 721	-18 634	-31 775
Tax	0	0	0	0
Profit after tax, continued operations	-5 799	-18 721	-18 634	-31 775
Profit after tax and discontinued operation	-15	-1 903	-27	-4 981
Profit after tax for the period	-5 814	-20 624	-18 661	-36 755
Basic EPS (profit for the period)	-0,25	-0,87	-0,79	-1,55
Diluted EPS (profit for the period)	-0,25	-0,87	-0,79	-1,55

EXTENDED INCOME STATEMENT

Amounts in NOK 1.000

	2Q 2010	2Q 2009	Jan. - June 2010	Jan. - June 2009
Profit after tax for the period	-5 814	-20 624	-18 661	-36 755
Extended profit:
Adjustment financial assets available for sale	0	0	0	0
Translation differences	0	-440	0	-556
Extended profit after tax for the period	0	-440	0	-556
Net profit for the period	-5 814	-21 064	-18 661	-37 311

BALANCE SHEET

Amounts in NOK 1.000

	30.06.2010	30.06.2009	31.12.2009
Non-current assets
Machinery and equipment	7 562	8 782	7 696
Intangible assets	1 314	36 872	1 373
Financial assets available for sale	329	329	329
Other financial assets	2 169	1 737	2 051
Total non-current assets	11 373	47 719	11 449
Current assets
Inventories	3 195	6 480	3 613
Trade receivables and other receivables	12 422	11 564	27 492
Cash and cash equivalents	25 987	79 782	49 647
Total current assets	41 605	97 826	80 752
Total assets	52 978	145 545	92 201
Equity
Share capital	23 638	23 638	23 638
Other equity	19 829	99 514	37 516
Total equity	43 467	123 152	61 154
Current liabilities
Trade-, short term-, and other payables	9 511	22 393	31 047
Total current liabilities	9 511	22 393	31 047
Total equity and liabilities	52 978	145 545	92 201

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CHANGES IN EQUITY

Amounts in NOK 1.000	2Q 2010	2Q 2009	Jan. - June 2010	Jan. - June 2009	Year 2009
As of beginning of period	48 711	143 587	61 154	159 273	159 273
Net profit for the period	-5 814	-20 624	-18 661	-36 755	-99 372
Adjustment financial assets available for sale	0	0	0	0	0
Purchase own shares	0	0	0	0	-327
Sale own shares	0	0	0	0	274
Employee share options	569	626	974	1 190	2 682
Translation differences	0	-437	0	-556	-1 377
As of end of period	43 467	123 152	43 467	123 152	61 154

CASH FLOW ANALYSIS

Amounts in NOK 1.000	2Q 2010	2Q 2009	Jan. - June 2010	Jan. - June 2009	Year 2009
Cash flow from operating activities
Profit after tax	-5 814	-20 624	-18 661	-36 755	-99 372
Adjustment:
Tax	0	0	0	0	35 523
Depreciation	698	766	1 376	1 535	2 984
Employee stock options	569	626	974	1 190	2 682
Unrealized disagio (agio)	0	0	0	0	-80
Profit by sale of fixed assets	-83	0	-83	0	-57
Profit/loss by sale of subsidiaries	0	0	0	0	-16 196
Changes in working capital
Inventory	501	353	418	24	593
Account receivables and other receivables	-87	-233	15 070	-2 709	-19 686
Payables and other current liabilities	-6 296	-7 603	-21 536	-6 370	4 610
Net cash flow from operating activities	-10 512	-26 715	-22 442	-43 086	-89 000
Cash flow from investing activities
Purchase of fixed assets	-1 316	-350	-1 380	-350	-1 254
Sale of fixed assets	280	0	280	0	260
Sale of subsidiary	0	0	0	0	16 787
Purchase of investments in shares and other in	0	-1 667	0	-1 667	-1 667
Change in long term receivables	-68	464	-118	497	-14
Net cash flow from investing activities	-1 104	-1 553	-1 218	-1 520	14 111
Cash flow from financing activities
Purchase of own shares	0	0	0	0	-327
Sale of own shares	0	0	0	0	274
Net cash flow from financing activities	0	0	0	0	-53
Changes in cash and cash equivalents	-11 616	-28 268	-23 661	-44 606	-74 942
Cash and cash equivalents at the beginning of j	37 604	108 148	49 647	124 589	124 589
Currency conversion difference	0	-98	0	-202	0
Cash and cash equivalents at end of perioc	25 987	79 782	25 987	79 782	49 647

• Discontinued operation for consumer health, included in 2Q 2009 and Jan-June 2009-figures

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Notes to the interim accounts for Q2 2010

Note 1 - Basis of preparation of financial statements

These financial statements are the unaudited interim consolidated financial statements (hereafter "the Interim Financial Statements") of Biotec Pharmacon ASA and its subsidiaries (hereafter "the Group") for the period ended 30 June 2010. The Interim Financial Statements are prepared in accordance with the International Accounting Standard 34 (IAS 34). These Interim Financial Statements should be read in conjunction with the Consolidated Financial Statements for the year ended 31 December 2009 (hereafter "the Annual Financial Statements"), as they provide an update of previously reported information.

The accounting policies used in the Interim Financial Statements are consistent with those used in the Annual Financial Statements. The presentation of the Interim Financial Statements is consistent with the Annual Financial Statements. Where necessary, the comparatives have been reclassified or extended from the previously reported Interim Financial Statements to take into account any presentational changes made in the Annual Financial Statements or in these Interim Financial Statements.

The Group does not experience significant seasonal or cyclical variations in total sales during the financial year. Income tax expense or benefit is recognized based upon the best estimate of the weighted average income tax

Note 2 - Discontinued operation consumer health

The subsidiary company Immunocorp Consumer Health AS was sold as of 30.12.2009 together with patents and trade marks associated to the consumer health business. The accounts for previous periodies are regrouped according to IFRS 5, now presenting operating profit and loss including profit related to the sale of consumer

Profit after tax, discontinued operation consumer health:

	2Q 2010	2Q 2009	Year 2009
Profit from operations before tax	-27	-4 981	-8 460
Profit from sale of business as of 30.12.09	0	0	16 196
Tax	0	0	4 815
Profit after tax for discontinued operation consu	-27	-4 981	12 551

Cashflow discontinued operation consumer health:

Cashflow operations	-27	-5 161	-24 452
Cashflow investing activities	0	0	16 787
Cashflow financing activities	0	0	0
Cashflow	-27	-5 161	-7 665

Note 3 - Analysis of operating revenue and -expenses, segment information

Amounts in NOK 1,000	2Q 2010	2Q 2009	Jan. - June 2010	Jan. - June 2009
Sales revenue:
Beta-Glucans	1 341	535	3 105	3 462
Marine Biochemicals	5 994	4 494	10 057	7 932
Group operating revenue	7 335	5 029	13 162	11 394
Operating expenses:
Beta-Glucans	-8 021	-20 345	-22 334	-39 840
Marine Biochemicals	-3 232	-2 012	-5 997	-3 920
Corporate & non-allocated costs	-2 034	-3 338	-3 942	-6 178
Group operating expenses before depreciation	-13 287	-25 695	-32 273	-49 939
Other income:
Beta-Glucans	298	1 659	875	5 456
Marine Biochemicals	294	-119	498	-64
Corporate & non-allocated costs	83	0	83	0
Group other income	674	1 541	1 456	5 392
Operating profit (EBITDA):
Beta-Glucans	-6 382	-18 150	-18 354	-30 923
Marine Biochemicals	3 056	2 363	4 559	3 948
Corporate & non-allocated costs	-1 952	-3 338	-3 860	-6 178
Group operating profit before depreciation	-5 278	-19 126	-17 655	-33 153
Depreciation:
Beta-Glucans	-632	-650	-1 222	-1 302
Marine Biochemicals	-55	0	-110	0
Corporate & non-allocated costs	-11	-62	-45	-125
Group depreciation	-698	-713	-1 376	-1 427
Operating profit (EBIT):
Beta-Glucans	-7 014	-18 801	-19 576	-32 225
Marine Biochemicals	3 002	2 363	4 449	3 948
Corporate & non-allocated costs	-1 963	-3 401	-3 904	-6 303
Group operating profit	-5 975	-19 839	-19 032	-34 580

1. august 2010

Board of Directors

Biotec Pharmacon ASA