ArcticZymes Technologies — Interim / Quarterly Report 2014

Apr 29, 2014

INTERIM REPORT Q1 2014

FIRST QUARTER AND SUBSEQUENT EVENTS

• Woulgan® Biogel has received CE-mark as an advanced medical device for wound healing
• Signed beta-glucan supply agreement with the aquaculture feed leader Nutreco Skretting marking a re-entry into the animal health market
• Continued growth in end-user enzyme sales but revenue decline due to natural fluctuations in rSAP sales to OEM customers
• Strengthened equity and cash balance through share issue raising NOK 78 million at NOK 20 per share

NOK million	Q1 2014	Q1 2013	2013
Enzymes	3.2	4.5	15.8
Beta-Glucans	0.9	1.4	6.3
Sales revenues	4.1	5.9	22.1
Enzymes	-1.5	-1.0	-2.6
Beta-Glucans	-5.6	-5.1	-18.9
EBITDA	-7.1	-6.1	-21.5
Profit before tax	-7.6	-6.6	-22.9

The segment figures reflect that all costs are allocated to the two operating units

OUTLOOK

• Commercial strategy for Woulgan® Biogel to be reviewed based on market evaluation trial with international partner Smith & Nephew
• Limited launch of Woulgan® Biogel in addition to the market evaluation trial. Other beta-glucan sales set to increase in second half of the year due to feed agreement with Nutreco Skretting
• Gaining traction with several OEM partners within enzymes, and expecting broader adoption of the enzyme portfolio going forward

Beta-Glucans

FINANCIAL REVIEW, BETA-GLUCANS

NOK million	Q1 2014	Q1 2013	2013
Sales Revenue	0.9	1.4	6.3
Other income	0.0	0.3	1.2
Operating expenses	-6.5	-6.8	-26.4
EBITDA	-5.6	-5.1	-26.5
Depreciation & Amortization	-0.4	-0.3	-1.3
EBIT	-6.0	-5.4	-20.2

All corporate costs have been allocated

Biotec BetaGlucans reached a major milestone in April 2014, when its wound healing product Woulgan® Biogel received CE-mark as a medical device in class III, rule 13 under the EU Directive for Medical Devices. This is an advanced classification for medical devices with ancillary medicinal effects.

Woulgan® Biogel combines the primary wound healing effects of hydrogel components with the ancillary immunomodulating effects of Biotec BetaGlucans' proprietary soluble beta-glucan (SBG). SBG has been found to enhance the body's own wound healing capabilities.

The CE-mark was given by DNV Nemko Presafe as Notified Body in Norway, supported by the Medicines and Healthcare products Regulatory Authority (MHRA) in the UK as Competent Medical Authority. The development, production and commercial activities related to the Woulgan® Biogel product obtained ISO 13485 certification already in April 2013.

Biotec BetaGlucans and Smith & Nephew will now take Woulgan® Biogel into a market evaluation trial in a limited number of clinics in Europe. Smith & Nephew is the world's largest provider of wound care products. The trial is expected to run for some months and the outcome will be used to form the commercial strategy for the product and to clarify the basis for a potential long-term partnership. Smith & Nephew holds certain exclusive non-transferable rights until the end of this process. Woulgan® Biogel may have the potential to become a high volume product in the large wound healing market and the market evaluation will give important insight into how the Product is valued and can be used by professional users.

The initial indications will be diabetic ulcers, leg ulcers, pressure ulcers, and burns, although the product is also approved for use on other wounds like post-surgery wounds, trauma wounds, and abrasions. Earlier clinical testing of SBG on diabetic foot ulcers was accepted for publication in the Journal of Diabetes Investigation (http://onlinelibrary.wiley.com/doi/10.1111/jdi.12165/pdf) in January 2014. The results from this study showed a clear beneficial effect of SBG treatment.

The advanced classification means that Biotec BetaGlucans will be able to claim the ancillary medical effects in its labelling and marketing. From a market perspective, this offers a unique opportunity compared to other hydrogels available on the market.

Biotec BetaGlucans has set up a web-shop to make the product available also outside of the market evaluation trial, and is working towards key opinion leaders and other professionals in the wound healing market to promote the product and obtain input and feedback relevant for the commercialization of the product in the years to come.

Current sales in the Biotec BetaGlucans mainly reflect bulk sales of particulate beta-glucan to the nutritional supplement market, as sole supplier to NutraQ's (Sana Pharma) food grade beta-1,3/1,6 glucan NBG® . Sales revenue amounted to NOK 0.9 million in the first quarter 2014, compared to NOK 1.4 million in the first quarter 2013. The decline represents normal fluctuations in supply for this customer.

Other income reflects research grants, allocated "Skattefunn" and currency effects, and amounted to NOK 33,000 compared to NOK 345,000 in the first quarter 2013.

Operating expenses amounted to NOK 6.7 million compared to NOK 6.8 million in the first quarter 2013, reflecting a continued high activity level in the Woulgan® Biogel project.

The EBITDA-loss for the quarter thus widened to NOK 5.8 million from NOK 5.1 million in the same period last year, whereas the EBIT-loss widened to NOK 6.2 million from NOK 5.4 million.

In March 2014, Biotec BetaGlucans broadened the scope of its business with the signing of a supply agreement for beta-glucans to the Nutreco-owned aquaculture company Skretting AS. The betaglucans will mostly be used in fish and shrimp feed, with deliveries commencing in the second quarter of 2014.

Enzymes - ArcticZymes

FINANCIAL REVIEW, ENZYMES

NOK million	Q1 2014	Q1 2013	2013
Sales Revenue	3.2	4.5	15.8
Other income	1.2	1.1	5.1
Operating expenses	-5.9	-6.6	-23.5
EBITDA	-1.5	-1.0	-2.6
Depreciation & Amortization	-0.2	-0.3	-1.1
EBIT	-1.7	-1.2	-3.7

All corporate costs have been allocated

Sales revenue in ArcticZymes amounted to NOK 3.2 million in the first quarter 2014, down from NOK 4.5 million in the same quarter last year. The lower revenue mainly reflects normal fluctuations in orders from OEM customers. End-user sales continued to grow on both a year-on-year and quarteron-quarter basis.

Other income mainly relates to research grants, "Skattefunn" and currency gains, which increased to NOK 1.2 million from NOK 1.1 million in the first quarter last year.

Operating expenses were reduced to NOK 5.9 million in the first quarter from NOK 6.6 million in the first quarter 2013, primarily reflecting reduced external R&D.

Earnings before depreciation, amortization and taxes (EBITDA) were thus NOK -1.5 million in the first quarter 2014, compared to NOK -1.0 million in the first quarter 2013. EBIT was NOK -1.7 million, compared to NOK -1.2 million in the same period last year.

Over the past years, ArcticZymes has broadened its base of OEM customers in the kits and reagents market with agreements with global leaders like GE Healthcare Life Science and New England Biolabs as well as regional OEMs and distribution partners. In the first quarter 2014 the company signed new regional distribution agreements with Q-Bio, Kem-En-Tec, Elisabeth Pharma, and Techtum, among others. Commercial OEM opportunities across several segments are increasing for both the Cod-UNG enzyme and the DNase portfolio.

Furthermore, the company continues to reach an increasing number of research customers, and sales through direct sales channels, marketing campaigns, and the web-shop grew 25 percent year-on-year in the first quarter.

The company is working to broaden its product offering of marine enzymes, both through own R&D efforts to develop new ready-to-use enzyme kits and functionalized enzymes, and through participation in government-sponsored research projects such as 'NextZyme'. Sponsored by the Norwegian Research Council, this project aims to develop marine enzymes for the next generation and single-cell sequencing market. NextZyme is scheduled to start in the third quarter 2014 and will run for three years.

Biotec Pharmacon – Group Figures

Overall EBITDA was NOK -7.1 million in the first quarter 2014 (-6.1), whereas EBIT was NOK -7.7 million (-6.6). The decline is mainly explained by lower revenues.

Net financial income was NOK 0.1 million in the first quarter (0.1) and Profit before tax was NOK -7.6 million (-6.6).

The group had 34 employees at the end of the first quarter, compared to 33 employees at the end of 2013.

Balance Sheet, Cash Flow and Shareholder Matters

Total equity amounted to NOK 35.8 million at the end of the first quarter 2014 (58.5), compared to NOK 42.5 million at the end of 2013. The decline during the quarter reflects the losses in the period.

Total assets were NOK 45.8 million (68.8), and the equity ratio 78 percent (85). The company has no interest bearing debt.

Net cash flow from operating activities was NOK -10.6 million in the first quarter (-7.4), and net cash flow from investing activities NOK -1.9 million (-0.3). Net cash flow from financing activities was NOK 0 million in the quarter (43.2), with the high level in the first quarter last year reflecting share issues.

Change in cash and cash equivalents was NOK -11.9 million in the first quarter (35.5), generating a cash balance of NOK 21.8 million at the end of the quarter (44.9).

The average number of shares was 39,393,173 at the end of the first quarter 2014, unchanged from the end of 2013.

After the end of the quarter the company carried out a private placement of 3.9 million shares, corresponding to 9.9 percent of the total number of shares outstanding. The share issue was fully subscribed at NOK 20 per share, generating gross proceeds of NOK 78 million. The share issue will primarily be used to fund the planned commercialization of Woulgan® Biogel.

The share issue was approved by the Board pf Directors on 7th April under authorization given by the General Meeting held on 27th May 2013. The Board also resolved issuance of 43,000 new shares at NOK 13.96 per share and 100,000 shares at NOK 6,60 tied to exercising of employee stock options.

Following the private placement and issuance of option shares, the company has 43,436,173 shares outstanding, each with a par value of NOK 1.00.

INCOME STATEMENT - GROUP

	Q1
(Amounts in NOK 1.000 - exept EPS)	2014	2013	2013
Sales revenues	4 101	5 874	22 108
Cost of goods sold	-737	-519	-2 506
Personell expenses	-7 463	-7 535	-27 234
Depreciation and amortisation expenses	-639	-567	-2 306
Other income	1 217	1 487	6 350
Other expenses	-4 185	-5 386	-20 227
Operating profit	-7 706	-6 646	-23 815
Finanical income, net	145	86	926
Profit before tax	-7 561	-6 560	-22 889
Tax	0	0	0
Profit after tax for the period	-7 561	-6 560	-22 889
	0	0	0
Basic EPS (profit for the period)	-0,19	-0,19	-0,60
Diluted EPS (profit for the period)	-0,19	-0,19	-0,60

EXTENDED INCOME STATEMENT - GROUP

	Q1
(Amounts in NOK 1.000)	2014	2013	2013
Profit after tax for the period	-7 561	-6 560	-22 889
Other comprehensive income:
- Currency translation effect	0	0	-105
Net profit for the period	-7 561	-6 560	-22 994

BALANCE SHEET - GROUP

(Amounts in NOK 1.000)	2014-03-31	2013-03-31	2013-12-31
Non-current assets
Machinery and equipment	7 012	5 487	5 466
Intangible assets	5 399	6 029	5 622
Pension Scheme Fund	102	176	124
Financial assets	33	79	33
Total non-current assets	12 545	11 771	11 245
Current assets
Inventories	4 240	2 748	2 439
Trade receivables and other receivables	7 216	9 386	6 440
Cash and cash equivalents	21 754	44 905	33 656
Total current assets	33 210	57 039	42 535
Total assets	45 756	68 810	53 780
Equity
Share capital	39 493	39 393	39 393
Share premium capital	56 172	55 572	55 612
Other equity	-60 679	-37 600	-53 321
Minority interests	840	1 182	840
Total equity	35 826	58 547	42 524
Current liabilities
Trade-, short term-, and other payables	9 930	10 263	11 256
Total current liabilities	9 930	10 263	11 256
Total equity and liabilities	45 756	68 810	53 780

CHANGES IN EQUITY - GROUP

		Share		Minority	Other
(Amounts in NOK 1000)	Share capital		premium Own shares	interests	equity	Total equity
Balance at 2013-01-01	28 553	23 229	0	1 182	-31 055	21 909
Total comprehensive income/-loss for the period	0	0	0	0	-6 560	-6 560
Currency conversion difference	0	0	0	0	15	15
Transactions with shareholders:
Private placements - new equity	10 840	32 343	0	0	0	43 183
Total transactions with shareholders	10 840	32 343	0	0	0	43 183
Balance at 2013-03-31	39 393	55 572	0	1 182	-37 600	58 547
Balance at 2014-01-01	39 393	55 612	0	840	-53 321	42 524
Total comprehensive income/-loss for the period	0	0	0	0	-7 561	-7 561
Currency conversion difference	0	0	0	0	84	84
Transactions with shareholders:
Share issue	100	560	0	0	0	660
Employee stock option provision	0	0	0	0	120	120
Total transactions with shareholders	100	560	0	0	120	780
Balance at 2014-03-31	39 493	56 172	0	840	-60 679	35 826

CASH FLOW ANALYSIS - GROUP

	Q1
(Amounts in NOK 1.000)	2014	2013	2013
Cash flow from operating activities:
Profit after tax	-7 561	-6 560	-22 889
Adjustment:
Amortization	639	567	2 307
Depreciation stocks	0	0	46
Employee stock options	120	0	387
Prior period adjustment	0	0	0
Currency conversion difference	84	16	-105
Changes in working capital
Inventory	-1 802	-82	228
Account receivables and other receivables	-776	-1 232	1 713
Payables and other current liabilities	-1 326	-66	928
Net cash flow from operating activities	-10 622	-7 357	-17 385
Cash flow from investing activities:
Purchase of fixed assets	-1 962	0	-1 312
Investment in intangible assets	0	-315	-315
Change in long term receivables	22	14	66
Net cash flow from investing activities	-1 940	-301	-1 561
Cash flow from financing activities:
Cashflow from Private placement	660	43 184	43 259
Purchase of own shares	0	0	-177
Sale of own shares	0	0	141
Net cash flow from financing activities	660	43 184	43 223
Changes in cash and cash equivalents	-11 902	35 526	24 277
Cash and cash equivalents at the beginning of period	33 656	9 379	9 379
Cash and cash equivalents at end of period	21 754	44 905	33 656

Notes to the interim accounts for 1st quarter 2014

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 March 31 2014. 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 December 31 2013 (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. or benefit is recognized based upon the best estimate of the weighted average income tax rate expected for the full financial y ear.

The Group does not experience significant seasonal or cyclical variations in total sales during the financial year. Income tax expense Deferred tax asset is accounted at NOK 0 in the balance sheet.

The Group has adopted IFRS 13 "Fair Value Measurement" for the period started January 1 2013.

Note 2 - Analysis of operating revenue and -expenses, segment information

Income and expenses in the parent company are allocated to both segments according to a predefined key.

	Q1
(Amounts in NOK 1.000)	2014	2013	2013
Sales revenue:
Beta-Glucans	868	1 395	6 268
Enzymes	3 232	4 479	15 840
Group operating revenue	4 101	5 874	22 108
Other income:
Beta-Glucans	33	345	1 270
Enzymes	1 185	1 143	5 080
Group other income	1 217	1 488	6 350
Operating expenses:
Beta-Glucans	-6 475	-6 830	-26 450
Enzymes	-5 910	-6 610	-23 518
Group operating expenses before depreciation	-12 385	-13 440	-49 968
Operating profit (EBITDA):
Beta-Glucans	-5 574	-5 090	-18 912
Enzymes	-1 493	-988	-2 597
Group operating profit - EBITDA	-7 067	-6 078	-21 509
Depreciation:
Beta-Glucans	-402	-310	-1 250
Enzymes	-237	-257	-1 056
Group depreciation	-639	-567	-2 306
Operating profit (EBIT):
Beta-Glucans	-5 976	-5 400	-20 162
Enzymes	-1 730	-1 245	-3 653
Group operating profit - EBIT	-7 706	-6 646	-23 815

Note 3 - Share capital increase not registered

A share capital increase of NOK 100,000 has been taken into the accounts as payment has been received as of 31 March 2014, though the increase was not formally registered.

29 April 2014 Board of Directors Biotec Pharmacon ASA