ArcticZymes Technologies — Interim / Quarterly Report 2014

Feb 16, 2015

INTERIM REPORT Q4 AND FULL YEAR 2014

FOURTH QUARTER HIGHLIGHTS

• Group revenues almost doubled in the 4 th quarter and increased by 50 percent for the year, while Group EBITDA marginally improved.
• Evaluation study for Woulgan® Biogel progresses with several new study centers included in Germany and UK. Expected to be completed at the end of 1 st quarter 2015.
• ArcticZymes certified according to ISO 9001:2008 for product development, sales and marketing, manufacturing and distribution of rSAP and Cod UNG.
• Solid financial head room with cash balance exceeding ⁸⁸ mnok at the end of 4th quarter.

NOK million	Q4 2014	Q4 2013	2014	2013
Enzymes	4.3	4.0	16,3	15.8
Beta-glucans	5.7	1.4	16.8	6.3
Sales revenues	10.0	5.3	33.0	22.1
Enzymes	-1.1	-0.5	-3.8	-2.6
Beta-glucans	-4.7	-5.8	-17.4	-18.9
EBITDA	-5.8	-6.3	-21.2	-21.5
Profit before tax	-5.8	-6.7	-22.0	-22.9

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

Beta-glucans - Biotec BetaGlucans

FINANCIAL REVIEW, BETA-GLUCANS

NOK million	Q4 2014	Q4 2013	2014	2013
Sales revenue	5.7	1.4	16.8	6.3
Cost of goods sold	-4.0	-0.3	-10.1	-1.6
Gross profit	1.7	1.1	6.7	4.7
Other income	1.1	0.2	1.6	1.3
Personnel expenses	-4.8	-3.9	-15.2	-14.0
Other operating expenses	-2.7	-3.2	-10.5	-10.8
EBITDA	-4.7	-5.8	-17.4	-18.9
Depreciation & Amortization	-0.3	-0.3	-1.5	-1.3
EBIT	-5.0	-6.1	-18.9	-20.2

All corporate costs have been allocated

Sales of beta-glucans' showed a growth of NOK 4.3 million compared to the 4 th quarter 2013, primarily reflecting sales of feed ingredient beta-glucans to the aquaculture market. Sales revenue amounted to NOK 5.7 million in the 4 th quarter 2014, compared to NOK 1.4 million in the 4 th quarter 2013. The increase in cost of goods sold reflects the sales increase of feed ingredient products with lower margin. The increase in personnel expenses is primarily due to hiring of new employees. EBITDA for the quarter was a loss of NOK 4.7 million compared to a loss of NOK 5.8 million in the same period last year.

In November last year, Biotec informed the market of a delay in the evaluation study conducted by Smith & Nephew in UK and Germany. At the end of the 4 th quarter, a total of 10 sites in Germany and 8 sites in UK had agreed to take part in the study. This is deemed sufficient to recruit enough patients for reliable results. Biotec expects the study to be finalized according to the revised plan, by the end of the 1 st quarter 2015.

Some preliminary results from the evaluation study published at "Wounds UK" in December showed that patients experienced improved healing during the treatment period as well as less pain and improved comfort compared to previous therapies. It was also reported that Woulgan® Biogel was easily applied to the wounds and had no side effects.

Biotec and Smith & Nephew continue the process to clarify the basis for a long-term agreement while the evaluation study is being completed. As the exclusivity agreement with Smith & Nephew has expired, strengthening the Company's strategic position is in focus, and parallel and attractive routes to commercialize Woulgan® Biogel are being pursued. With the strong preliminary test results for Woulgan® Biogel, the Company is confident that the product can obtain a strong market position in the advanced wound care market. However, being a novel advanced product, Woulgan® Biogel will require a clear focus and a strong priority by any partner(s) to obtain a high market penetration and receive the market position the product deserves. This focus and priority is key when selecting the market channels going forward.

The Company has also started to evaluate the strategy for Woulgan® Biogel in the US market. The regulatory positioning will be key to the success in this important market, as it forms the basis for the reimbursement level and thus the pricing. So far it is clear that alternative "predicate devices" exist, meaning that it is likely the Woulgan® Biogel product can be introduced into USA but more time is needed to consider whether other routes would be more favorable.

Biotec BetaGlucans has conducted a survey among Norwegian healthcare professionals (HCP) in parallel with the evaluation study performed by Smith & Nephew. This survey included 55 patients that were mainly treated for chronic and hard to heal wounds. The results are promising as the majority of the patient cases showed positive progressions and the HCP's satisfaction with Woulgan was high.

Woulgan® Biogel has received a lot of attention and interest from key opinion leaders and relevant health institutions in Norway. The Company therefore decided to launch Woulgan® Biogel in Norway at the annual wound healing conference (NIFS) in Oslo/Fornebu on February 6 th . This is a limited launch as the objective is to start commercial activities towards the most relevant segments, and at the same time being prepared for a hand-over to a long-term partner. A limited launch in Norway will therefore have no impact on the partner process.

Biotec BetaGlucans has been granted a three years financial support from the Norwegian Research Council to develop new formats of wound management products. Two new products, a spray and a dressing with SBG, are currently in early development phases.

To secure a continued growth in sale of beta-glucans to the aquaculture and the dietary supplement sector, Biotec BetaGlucans has strengthened the staff with a scientific product manager. The Company has in the 4 th quarter filed applications for new trademarks for products to these market segments and is currently working to secure new leads within the feed sector. NutraQ, currently the exclusive customer on dietary supplement beta-glucan, has increased their sales activity within the B2B segment of their beta-glucan business. The strengthened effort in this segment is likely to increase the revenues for 2015. NutraQ's exclusivity expires in January 2016.

Enzymes - ArcticZymes

NOK million	Q4 2014	Q4 2013	2014	2013
Sales Revenue	4.3	4.0	16.3	15.8
Cost of goods sold	-0.1	-0.1	-0.9	-0.9
Gross profit	4.2	3.9	15.3	14.9
Other income	0.9	1.3	4.1	5.1
Personnel expenses	-3.8	-3.7	-13.9	-13.2
Other operating expenses	-2.4	-2.0	-9.3	-9.4
EBITDA	-1.1	-0.5	-3.8	-2.6
Depreciation and Amortization	-0.2	-0.3	-0.9	-1.1
EBIT	-1.3	-0.8	-4.8	-3.7

FINANCIAL REVIEW, ENZYMES

All corporate costs have been allocated

Sales of enzymes reached NOK 4.4 million in the 4 th quarter 2014, up from NOK 4.0 million in the same quarter last year, mainly reflecting higher volumes to large OEM customers.

Other income relating to research grants, declined to NOK 0.9 million from NOK 1.3 million in the 4 th quarter last year, while operating expenses increased to NOK 2.4 million versus NOK 2.0 million in the same period last year.

At EBITDA level, enzymes incurred a loss of NOK 1.1 million in the 4 th quarter 2014, compared to a loss of NOK 0.5 million in the 4 th quarter 2013.

From January 1st , Jethro Holter took over as Managing Director of ArcticZymes. He holds a BSc in Biochemistry and a PhD in Molecular Genetics, and comes from a position in global Business Development at Thermo Fisher.

ArcticZymes continues to broaden its base of OEM customers in the kits and reagents market. Its B2B strategy resulted in new product introductions by two of our largest B2B customers in the 4th quarter.

ArcticZymes continued to see growth in its three top products; rSAP, Cod UNG, and the DNase product portfolio. The products are integrated in DNA sequencing, diagnostic, genomic DNA sample preparation for OEM customers.

During 2014, the Company initiated some discussions with potential Chinese customers and in the 4 th quarter ArcticZymes signed two letters of intent (LOI) with leading Chinese commercial companies to support our product portfolio in the end user segment of the Chinese market, and small initial orders were received. ArcticZymes also started a product assessment process with the largest biotechnology company in China. China represents a new interesting opportunity, as there are more than 300 diagnostic organizations and a significant number of academic research institutes that employ molecular techniques in the laboratories routine workflow.

ArcticZymes end user business continues to grow at an annual rate of 40%, although from a low starting point. This market can be a catalyst for ArcticZymes in identifying future OEM and B2B customers, in addition to identifying research trends, and future market requirements.

At the end of 4th quarter, ArcticZymes received confirmation by Det Norske Veritas (DNV) of certification according to ISO 9001:2008 for product development, sales and marketing, manufacturing and distribution of rSAP and Cod UNG. The certificate is valid for three years. This is an important milestone for the company in supporting customers going forward. ArcticZymes plan to include all other products in the scope by November 2015.

ArcticZymes is continuing its development of new enzymes and applications through the Norwegian Research Council founded projects "MarFunk" and "NextZyme". With ArcticZymes exclusive access to selected Bioprospecting activities at the Arctic University of Tromsø and close collaboration with the largest companies in the life science industry, ArcticZymes aims to expand the product portfolio and enter into new technology markets.

Biotec Pharmacon – Group Figures

Overall EBITDA was NOK -5.8 million in the 4 th quarter 2014, an improvement from NOK -6.3 million in the same period last year, whereas EBIT improved to NOK -6.3 million from NOK -6.9 million in the 3 rd quarter 2013. The improvement is mainly explained by strong sales in 4 th quarter.

Net financial income amounted to NOK 0.5 million in the 4th quarter, generating a loss before tax of NOK 5.8 million compared to a loss of NOK 6.7 million in the 4 th quarter 2013.

For the full year of 2014, sales revenues amounted to NOK 33.0 million. The EBITDA was a loss of NOK 21.2 million, and the EBIT was a loss of NOK 23.6 million. Net financial income was NOK 1.6 million, generating a loss before tax of NOK 22.0 million.

The Company recognized no income tax in 2014.

The Group had 37 employees at the end of 2014, compared to 33 employees at the end of 2013.

Balance Sheet, Cash Flow and Shareholder matters

Total equity amounted to NOK 98.9 million compared to NOK 42.5 million in the same period last year.

Biotec Pharmacon ASA raised gross proceeds of NOK 78 million in April through a fully subscribed private placement of NOK 3.9 million shares at NOK 20 per share. The issue corresponded to 9.9 percent of the total number of shares outstanding, with proceeds primarily to be used for the commercialization of Woulgan® Biogel.

Employees called 115.000 options during the 4 th quarter 2014, raising a total of NOK 0.9 million in new equity.

Total number of outstanding shares was 43.623.373 at the end of the 4th quarter. The current number of outstanding employee share options is 676.050. 16.250 options was issued during the 4 th quarter and a total of 203.250 options was issued in 2014

Total assets was NOK 111.1 million at the end of 2014, up from NOK 53.8 million at the end of 2013. The company has no interest-bearing debt.

Net cash flow from operating activities was NOK 1.3 million in the 4 th quarter 2014 and NOK -21.2 million for the full year 2014. The operating cash flow reflects reduced working capital of NOK 6.3 million in the 4 th quarter and an increase of NOK 2.3 million for the full year 2014, due both to increased receivables and lower payables.

Net cash flow from investing activities was NOK -0.5 million in the 4 th quarter and NOK -1.9 million for the full year 2014. Net cash flow from financing activities was NOK 0.8 million in the 4 th quarter and NOK 77.7 million for the full year 2014.

Changes in cash and cash equivalents were NOK 1.6 million in the 4 th quarter and NOK 54.7 million for the full year 2014. This generated a cash balance of NOK 88.3 million at the end of the quarter, compared to NOK 33.7 million at the end of 2013.

Risk factors

Biotec Pharmacon's business is exposed to a number of different risk factors that may affect parts or all of the company's activities. There are no substantial changes in the risk factors compared to the descriptions in Annual Report for 2013.

Outlook

Biotec BetaGlucans develops and manufactures novel immune modulating products, focusing on CEmarked Woulgan® Biogel containing the proprietary substance SBG®, an ancillary medical substance proven to heal wounds faster. Woulgan® Biogel is a CE-marked medical device, class III, rule 13, approved for a range of wound conditions.

The Board of Directors is positive to the commercial opportunity for Woulgan® Biogel, as an approved product with favourable documentation addressing a large market in need of new products. The evaluation study currently carried out by Smith & Nephew at several sites in UK and Germany is expected to be completed by the end of the 1st quarter 2015. Following the completion of the study, Biotec Pharmacon expects to enter into agreement(s) with distribution partner(s). The main focus is to enter into agreement(s) with partner(s) securing the full commercial potential of Woulgan® Biogel.

ArcticZymes develops, produces and sells enzymes of marine origin used in molecular DNA technologies and diagnostics. Growth markets with rapid technological development are creating a strong demand for new and improved enzymes. Further broadening the interaction with the largest companies in the molecular research and diagnostic industry will be the main driver to create growth for ArcticZymes going forward.

INCOME STATEMENT - THE GROUP

	Q 4		Jan.-Dec.
(Amounts in NOK 1000 - evept EPS)	2014	2013	2014	2013
Sales revenues	10 032	5 3 1 2	33 026	22 108
Cost of goods sold	$-4120$	-386	$-11039$	$-2506$
Personell expenses	$-8579$	$-7552$	$-29010$	$-27234$
Depreciation and amortization expenses	$-565$	$-625$	$-2464$	$-2306$
Other income	2046	1526	5659	6 3 5 0
Other expenses	$-5133$	$-5173$	$-19805$	-20 227
		0
Operating profit	$-6320$	$-6898$	$-23634$	$-23815$
Finanical income, net	546	241	1641	926
Profit before tax	$-5774$	$-6657$	$-21993$	$-22889$
Tax	0	0	0	o
Profit after tax for the period	$-5774$	$-6657$	$-21993$	$-22889$
Basic EPS (profit for the period)	$-0.13$	$-0.19$	$-0.52$	$-0,60$
Diluted EPS (profit for the period)	$-0.13$	$-0.19$	$-0,52$	$-0,60$

OTHER COMPREHENSIVE INCOME - THE GROUP

	Q 4		Jan.-Dec.
[Amounts in NOK 1000]	2014	2013	2014	2013
Profit after tax for the period Other comprehensive income:	$-5774$	-6.657	$-21993$	$-22889$
- Currency translation effect	32		53	$-105$
Total comprehensive income	$-5742$	$-6655$	$-21940$	$-22994$

BALANCE SHEET - THE GROUP

(Amounts in NOK 1000)	2014-12-31	2013-12-31
Non-current assets
Machinery and equipment	5359	5.466
Intangible assets	5 1 9 0	5622
Financial assets available for sale	33	33
Other financial assets	120	124
Total non-current assets	10702	11 245
Current assets
Inventories	4 3 9 2	2439
Trade receivables and other receivables	7752	6440
Cash and cash equivalents	88 283	33 656
Total current assets	100 428	42 535
Total assets	111 130	53780
Equity
Share capital	43 623	39 393
Share premium capital	129 085	55 612
Other equity	$-74277$	-53 321
Non-controlling interests	437	840
Total equity	98 868	42 5 24
Current liabilities
Trade-, short term-, and other payables	12 26 2	11 256
Total current liabilities	12 26 2	11 256
Total equity and liabilities	111 130	53780

		Share			Other
(Amounts in NOK 1000)	Share capital	premium	capital Own shares	Minority interests	reserves	Total equity
Balance at 2012-12-31	28 5 53	23 29 2	0	1 1 8 2	$-31118$	21 909
Total comprehensive income/-loss for the period	0	0	0	$-342$	$-22547$	$-22889$
Currency conversion difference	$\Omega$	0	0	$\Omega$	$-106$	$-106$
Transactions with shareholders:
Private placements - new equity	9500	28 4 4 4	0	0	0	37944
Subsequent offering - new equity	1 3 4 0	3975	o	o	n	5315
Employee stock option provision	0	0	0	0	387	387
Purchase of own shares	0	o	$-23$	0	$-154$	$-177$
Sale of own shares	$\Omega$	٥	23		118	141
Total transactions with shareholders	10 840	32 419	$\Omega$	o	351	43 611
Balance at 2013-12-31	39 393	55711	0	840	$-53420$	42 524
Total comprehensive income/-loss for the period	0	0	0	$-403$	$-21.590$	$-21993$
Currency conversion difference	0	$\Omega$	0	0	53	53
Transactions with shareholders:
Private placements - new equity	4 2 3 0	73 513	0	0	0	77743
Employee stock option provision	0	٥	$\mathbf{0}$	o	581	581
Purchase of own shares	0	o	$-14$	o	$-182$	$-196$
Sale of own shares	0	0	14	0	142	156
Total transactions with shareholders	4 2 3 0	73 513	o	o	541	78 284
Balance at 2014-12-31	43 623	129 224	0	437	$-74416$	98 868

	Q 4		Jan.-Dec.
(Amounts in NOK 1000)	2014	2013	2014	2013
Cash flow from operating activities: Profit after tax	$-5774$	$-6657$	$-21993$	$-22889$
Adjustment: Amortization	565	626	2 4 6 4	2 3 0 7
Depreciation stocks for sale	o	13	o	46
Emplovee stock options	212	387	581	387
Profit from sale of fixed assets	$-45$	o	$-45$	$\Omega$
Currency conversion difference	32	$\overline{2}$	53	$-105$
Changes in working capital
Inventory	$-803$	236	$-1954$	228
Account receivables and other receivables	3 4 3 2	1732	$-1312$	1713
Payables and other current liabilities	3651	2764	1 0 0 6	928
Net cash flow from operating activities	1 2 7 0	$-897$	$-21200$	$-17385$
Cash flow from investing activities:
Purchase of fixed assets.	$-88$	$-896$	$-1538$	$-1312$
Invested in intangible assets	$-387$	o	$-387$	$-315$
Sale of fixed assets	45	0	45	$\Omega$
Change in long term receivables	$-51$	25	3	66
Net cash flow from investing activities	$-481$	$-871$	$-1877$	$-1561$
Cash flow from financing activities:
Cashflow from share issues.	867	$\Omega$	77 743	43 259
Purchase of own shares	$-195$	$-177$	$-195$	$-177$
Sale of own shares	156	141	156	141
Net cash flow from financing activities	828	$-36$	77 704	43 223
Changes in cash and cash equivalents	1617	$-1804$	54 627	24 277
Cash and cash equivalents at the beginning of period	86 666	35 460	33 656	9379
Cash and cash equivalents at end of period	88 283	33 656	88 283	33 656

Notes to the interim accounts for 4th 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 December 31 2014. The
Interim Financial Statements are prepared in accordance with the International Accounting Standar 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 Financi 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.

Income tax expense or benefit is recognized based upon the best estimate of the weighted average income tax rate expected for the full financial year. 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.

	Q4		Jan.-Dec.
(Amounts in NOK 1000)	2014	2013	2014	2013
Sales revenue:
Beta-Glucans	5700	1.355	16773	6.268
Enzymes	4 3 2 2	3957	16 25 2	15 840
Group operating revenue	10 022	5312	33 025	22 108
Other income:
Beta-Glucans	1 141	246	1594	1 270
Enzymes	903	1 2 8 0	4 0 6 5	5 0 8 0
Group other income	2044	1526	5659	6 3 5 0
Operating expenses:
Beta-Glucans	$-11491$	$-7.388$	$-35722$	$-26450$
Enzymes	$-6341$	$-5724$	$-24133$	$-23518$
Group operating expenses before amortization	$-17832$	$-13112$	$-59855$	-49 968
Operating profit (EBITDA):
Beta-Glucans	$-4650$	$-5786$	$-17355$	$-18912$
Enzymes	$-1105$	$-487$	$-3815$	$-2.597$
Group operating profit - EBITDA	$-5755$	-6 273	-21 170	$-21509$
Amortization:
Beta-Glucans	$-330$	$-333$	$-1520$	$-1250$
Enzymes	$-235$	$-292$	$-944$	$-1056$
Group amortization	$-565$	-625	$-2464$	$-2306$
Operating profit (EBIT):
Beta-Glucans	$-4980$	$-6119$	$-18875$	$-20162$
Enzymes	$-1340$	$-779$	$-4759$	$-3653$
Group operating profit - EBIT	$-6320$	$-6898$	$-23634$	$-23815$

Oslo, February 16, 2015

The Board of Directors of Biotec Pharmacon ASA

Erik Thorsen
Chairman

Olav Flaten
Director

Inger Rydin Director

Gunnar Rørstad

Kjersti Grimsrud
_Director

Gerd Nilsen
Director ample .......
, employee representative Svein W. F. Lien
CEO