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BioGaia

Quarterly Report Oct 23, 2008

3013_10-q_2008-10-23_308bedf3-5327-4308-b6cd-464440e6bc20.pdf

Quarterly Report

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Press Release, 23 October, 2008 (11 pages) BioGaia AB Interim Report 1 January – 30 September 2008

(Figures in brackets refer to the same period of last year)

  • Net sales amounted to SEK 106.0 million (74.6), an increase of SEK 31.4 million (42%) compared to the same period of last year.
  • Operating profit was SEK 18.4 million (3.3), an improvement of SEK 15.1 million compared to the same period of last year.
  • Profit before tax was SEK 20.1 million (4.4), an improvement of SEK 15.7 million compared to the same period of last year.
  • Profit after tax was SEK 31.1 million (4.4), an improvement of SEK 26.7 million over the same period of last year. Profit for the period includes a tax benefit of SEK 11 million pertaining to a change in the deferred tax asset.
  • Earnings per share were SEK 1.81 (0.25).
  • The period's cash flow from operating activities before change in working capital was SEK 23.3 million (8.5). Total cash flow for the period was SEK 15.7 million (4.9). Cash and cash equivalents at 30 September 2008 totalled SEK 58.8 million (44.6).

Key events in the third quarter of 2008

  • Extended agreement with Ferring for the sale of BioGaia's Probiotic drops and tablets in 10 countries in Latin America.
  • Agreement with AllergyCare AG for the sale of BioGaia's Probiotic drops and tablets in Switzerland.
  • Global license agreement with Nestlé Nutrition regarding the right to use Reuteri in dairy products in infant and follow on formulas.
  • License agreement with Kavli regarding the right to use Reuteri in dairy products in Norway.
  • Nestlé launches "Boost Kid Essentials" in the US with BioGaia's Probiotic straw.

Key events after the end of the third quarter

BioGaia invests in LifeTop Cap in new subsidiary.

"Our long-term focus on research and product development has given us unique products with very positive clinical results. That there is a demand for these products in the market is visible in our robust sales growth with healthy gross margins and net margins of around 20%. We are not noticing any negative effects of the financial crisis or market downturn, as our products are sold primarily via pharmacies and belong to a segment that is generally not as cycle-sensitive as many others. We therefore look forward to continued strong growth.

The company has a very solid financial position with no loans, net cash of SEK 59 million and an equity/assets ratio of 87 %", says Managing Director Peter Rothschild.

Latest press releases from BioGaia:
2008-10-08 BioGaia invests in LifeTop Cap in new subsidiary
2008-09-17 Nestlé launches "Boost Kid Essentials" in the US with BioGaia's Probiotic straw
2008-09-08 Q-Mejerierna launches yoghurt drink with BioGaia's probiotic

For additional information contact Peter Rothschild, Managing Director, telephone: +46 8 -555 293 00 Jan Annwall, Deputy Managing Director, telephone: +46 8 - 555 293 00

------------------------------------------------------------------------------------------------------------------------------- BioGaia is a biotechnology company that develops, markets and sells probiotic products with documented health benefits. The products are primarily based on the lactic acid bacterium Lactobacillus reuteri (Reuteri), which has probiotic, health-enhancing effects. The class B share of the Parent Company BioGaia AB is quoted on the Small Cap list of the Nasdaq OMX Nordic Exchange Stockholm. www.biogaia.com

BioGaia AB (publ)

Interim report

1 January – 30 September 2008

Figures in brackets refer to the same period of last year.

The Board of Directors and the Managing Director of BioGaia AB (publ) hereby present the interim report for the period 1 January – 30 September 2008.

BioGaia AB

The company

BioGaia is a biotechnology company that develops, markets and sells probiotic products with documented health benefits. The products are primarily based on the lactic acid bacterium Lactobacillus reuteri (Reuteri) which has health-enhancing effects. BioGaia has also developed unique delivery systems, such as probiotic-containing straws and caps, that make it possible to create probiotic products with a long shelf life.

BioGaia has 39 employees, of whom 16 are based in Stockholm, 16 in Lund, 3 in Raleigh, USA, and 4 in Hiroshima, Japan.

The class B share of the Parent Company BioGaia AB is quoted on the Small Cap list of the OMX Nordic Exchange Stockholm.

Business model

BioGaia's revenue is derived mainly from the sale of finished products, but also from license rights for the use of Reuteri cultures in customers' own products (such as baby formula and dairy products).

The finished probiotic products consist of tablets, drops and oral health products (chewing gum and lozenges), as well as probiotic-containing straws and caps. BioGaia's products are sold through nutrition, food, natural health and pharmaceutical companies in some 40 countries worldwide. In Sweden, BioGaia's products are sold under the brands Semper Magdroppar and Gum PerioBalance chewing gum in pharmacies, as well as Semper whole grain cereal and infant formula with active culture and Probiomax gut health tablets in grocery stores. BioGaia holds patents for the use of Reuteri and certain delivery systems in all major

The BioGaia brand

markets.

BioGaia's licensees add Reuteri culture to their products and sell these under their own brand names. On these products, the BioGaia brand is shown in the package as the licensor/patent holder.

The majority of BioGaia's consumer products are sold to distributors, which then sell the products under their own brand names. For these products, the BioGaia brand is shown on the consumer package since BioGaia is the manufacturer. At the end of 2005 BioGaia launched its own consumer brand and today has many distributors in a large number of countries that sell finished products under the BioGaia brand. One central part of BioGaia's strategy is to increase the share of sales consisting of BioGaia-branded products.

Research and clinical studies

BioGaia's research is focused on selection of different probiotics for gut health, the immune system and oral health. Extensive clinical studies have shown that BioGaia's various probiotic products:

  • stimulate the human immune system,
  • protect against GI tract and respiratory tract infections,
  • alleviate the side effects of antibiotic
  • treatment,
  • reduce the level of H. pylori infection,
  • relieve infantile colic,
  • reduce gum inflammation, plaque and the risk for dental caries,

  • reduce the risk of infection in pre-term infants.

KEY EVENTS IN THE THIRD QUARTER

Launches during the third quarter

  • Recalcine, BioGaia's Probiotic drops and tablets in Chile
  • Q-mejerierna, yoghurt drink with Reuteri in Norway
  • Nestlé, the nutritional beverage "Boost Kid Essentials" for children with BioGaia's Probiotic straw
  • EwoPharma, BioGaia's Probiotic drops and tablets in Slovenia

The length of time between contract and launch varies between countries due to differing amounts of time needed for the registration process. The products are normally registered as dietary supplements and in certain cases as pharmaceuticals.

Agreement with Forest terminated

Forest Laboratories has previously had the right to sell BioGaia's Probiotic drops in the UK and Ireland. Due to unsatisfactory sales performance, the agreement has been terminated and BioGaia has received compensation for lost sales during the quarter. BioGaia is working to find new distributors for these markets.

Extended distribution agreement with Ferring

In July BioGaia extended its agreement with Ferring Pharmaceuticals and covers thereby essentially all of Latin America. The agreement gives Ferring exclusive rights to sell BioGaia's Probiotic tablets and drops in 10 additional countries: Colombia, Costa Rica, Nicaragua, Panama, the Dominican Republic, Guatemala, Honduras, Cuba, El Salvador and Trinidad-Tobago. The products will be sold under the BioGaia brand.

Agreement with AllergyCare AG

In July BioGaia signed a distribution agreement with the Swiss-based pharmaceutical company AllergyCare AG. The agreement gives AllergyCare exclusive rights to sell BioGaia's Probiotic drops and tablets in Switzerland and Liechtenstein. The products will be sold under the BioGaia brand.

Agreement with Nestlé Nutrition

In August BioGaia AB signed a global license agreement with Nestlé Nutrition, giving Nestlé the right to use Lactobacillus reuteri in infant and follow on formulas.

BioGaia's patented probiotic, Lactobacillus reuteri, is already used in formula products in some European and Asian countries. The new agreement with Nestlé will cover the world market, excluding Japan, and Korea. The first product is planned to be launched during 2009.

Agreement with Kavli Holding A/S, Norway

BioGaia has signed an exclusive license agreement with Kavli Holding AS in Norway. The agreement gives Kavli the right to use BioGaia's patented Lactobacillus reuteri in dairy products in Norway.

In September Kavli's subsidiary Q-Mejerierna launched BioQ yoghurt drink on the Norwegian market.

KEY EVENTS AFTER THE END OF THE QUARTER

BioGaia invests in LIfeTop Cap in new subsidiary

BioGaia has decided to intensify the work on its patented LifeTop Cap technology through the newly formed subsidiary CapAble AB.

CapAble, based in Stockholm, will work primarily with marketing and sales of LifeTop Cap, and in collaboration with BERICAP, will be responsible for further development of a full range of products in this area. Manufacturing will be handled by Bericap SA and BioGaia's 50%-owned associated company TwoPac AB.

BioGaia's former Marketing Director Staffan Pålsson owns just under 10% of the company and is its Managing Director.

EARLIER EVENTS IN 2008

Launches in the first half of the year

  • Ferring, BioGaia's Probiotic drops in Jordan and Mexico
  • Delta Medical, BioGaia's Probiotic drops in Ukraine
  • Ewopharma, BioGaia's Probiotic drops and tablets in Hungary and Bulgaria
  • Ewopharma, BioGaia's Probiotic tablets in the Czech Republic
  • Sunstar Probiotic lozenges in the UK
  • Semper Infant formula with Reuteri in Sweden

Global agreement with Sunstar

Sunstar Suisse SA had since earlier an option for a distribution agreement covering a large number of countries. At the beginning of January 2008, Sunstar exercised this option and signed an additional agreement with BioGaia that gives Sunstar exclusive rights to distribute BioGaia's probiotic oral health products in more than 100 countries.

The products will be sold under Sunstar's GUM PerioBalance brand. The agreement also includes possibilities for joint development of new oral products. The launch will be carried out within a 2-year period. One of the first launches will take place in the USA during 2008.

Sunstar already distributes BioGaia's oral health products in Germany, France, Italy, Spain, Sweden and Norway.

BioGaia continues its Japanese venture

The sales of BioGaia's Probiotic drops and drinks with BioGaia's Probiotic straw that were started in 2007 are continuing in 2008. Efforts to adapt the products and marketing to the Japanese market are in progress. This venture is part of BioGaia's long-term focus on its own brand. The cost of the Japanese venture during the nine-month period was SEK 7.3 million (6.2), which is higher than anticipated. The net cost on a full-year basis is expected to be lower than in the prior year.

New agreement with Ferring

In February BioGaia signed a new agreement with Ferring Pharmaceuticals in Switzerland, giving Ferring exclusive rights to sell BioGaia's Probiotic drops in Australia, New Zealand and Israel, and BioGaia's Probiotic tablets in Brazil, Egypt, Greece, Iran, Jordan, Canada, Lebanon, Mexico, Saudi Arabia and Syria.

The drops have been launched in Spain, Portugal, the Czech Republic, Canada, Jordan and Mexico. Ferring also has exclusive rights to sell BioGaia's Probiotic drops in Brazil, Egypt, Greece, Iran, Lebanon, Saudi Arabia and Syria.

Agreement with NeoCare

In April BioGaia signed an agreement with the Belgium pharmaceutical company NeoCare, giving NeoCare the right to sell BioGaia's Probiotic drops and tablets in Belgium and Luxembourg. The products will be sold under BioGaia's brand.

Agreement with BERICAP

In April BioGaia entered into a global collaborative agreement with Bericap Sarl, a subsidiary of the German Bericap Group, one of the world's largest manufacturers of plastic caps and other packaging closures. Under the agreement, the two companies will collaborate in development, manufacturing, marketing and sales of BioGaia's patented beverage cap, LifeTop Cap, which has been developed to protect sensitive ingredients such as probiotics from the effects of moisture, heat and light in PET bottles.

The Bericap Group will market LifeTop Cap to its customers worldwide, manufacture the plastic details and develop new varieties for different bottle types. BioGaia will sell and market the product and, through its 50%-owned company Two Pac, handle the ingredients and manufacture the aluminium blister that protects the ingredients and is placed in the LifeTop Cap.

Agreement with Verman for Russia

In June BioGaia signed an additional collaborative agreement with BioGaia's Finnish partner, Verman OY, for the Russian market. Under the agreement, Verman has been granted a non-exclusive right to distribute and sell BioGaia's Probiotic tablets and drops on the Russian market under Verman's own Rela brand. Today Rela is the top-selling probiotic brand in the Finnish pharmacy market. In autumn 2008 Verman is opening its own office in Moscow from which it manages the Russian business activities.

Annual General Meeting of BioGaia

The Annual General Meeting of BioGaia AB on 22 April 2008 unanimously passed the following resolutions, among others: - that no dividend would be paid to the shareholders

  • re-election of Board members Jan Annwall, Stefan Elving, Thomas Flinck, David Dangoor, Inger Holmström and Paula Zeilon

  • election of Jörgen Thorball

  • re-election of David Dangoor as Board Chairman

  • regarding principles for remuneration and other terms of employment for senior executives in accordance with the Board's proposal

  • regarding the Nominating Committee in accordance with the proposal in the notice of AGM.

FINANCIAL PERFORMANCE DURING JANUARY – SEPTEMBER 2008

The Group's net sales amounted to SEK 106.0 million (74.6), an increase of 42% compared to the same period of last year. Sales of BioGaia's Probiotic drops in Europe accounted for most of the period's sales growth.

Gross profit reached SEK 71.2 million, an improvement of SEK 21.7 million over the same period of last year.

Selling expenses rose by SEK 3.8 million compared to the same period of last year, which is mainly explained by higher personnel costs and increased costs for the registration of new products.

The period's R&D expenses amounted to SEK 16.2 million (13.3), which is equal to 18% (19%) of total operating expenses. The higher R&D expenses are due to an increased level of activity in clinical studies that began during the period. The amortisation component of R&D expenses amounted to SEK 2.3 million (2.6). Investments in capitalised development expenses totalled SEK 0 million (0).

Operating profit was SEK 18.4 million (3.3), an improvement of SEK 15.1 million compared to the same period of last year.

Profit after tax was SEK 31.1 million (4.4), an improvement of SEK 26.7 million compared to the same period of last year.

The Group pays no tax due to the existence of a cumulative loss carryforward. The total loss carryforward in the Group at 31 December 2007 was SEK 123.1 million, of which SEK 113.1 million was attributable to the Swedish companies.

At 30 September 2008 BioGaia recognised a deferred tax asset of SEK 20.0 million, resulting in a tax benefit of SEK 11.0 million in the income statement. In connection with future reports, the company will decide whether or not to recognise additional deferred tax assets.

The Group's cash and cash equivalents at 30 September 2008 totalled SEK 58.8 million (44.6).

Cash flow for the period was SEK 15.7 million (4.9), an improvement of SEK 10.8 million compared to the same period of last year.

In the first nine months of 2008 the company paid a conditional shareholder contribution of SEK 2.0 million to the associated company TwoPac AB.

Cash flow from operating activities before change in working capital was SEK 23.3 million (8.5), which is SEK 14.8 million better than for the same period of last year. The increase in working capital was SEK 3.8 million and is mainly attributable to inventories.

Consolidated equity amounted to SEK 126.4 million (79.7). The Group's equity/assets ratio was 87% (84%).

Capital expenditure on property, plant and equipment totalled SEK 1.9 million (1.6).

The Parent Company reported net sales of SEK 105.8 million (75.2) and a profit after net financial items of SEK 20.3 million (10.4).

Financial performance in the third quarter of 2008

Third quarter net sales amounted to SEK 33.6 million, up by SEK 10.2 million over the same period of last year. Compared to the second quarter, sales declined by SEK 2.8 million.

Operating profit for the third quarter was SEK 5.8 million, an increase of SEK 5.1 million over the same period of last year. Compared to the second quarter, operating profit rose by SEK 0.7 million as a result of higher gross margins for the period that are partly attributable to two lump sum payments totalling SEK 4.2 million and somewhat lower operating expenses.

Profit after tax for the third quarter was SEK 9.0 million, an improvement of SEK 7.9 million compared to the same period of last year. Profit for the period includes a tax benefit of SEK 2.5 million.

Third quarter cash flow was SEK 10.7 million.

EMPLOYEES

The total number of employees in the Group at 30 September 2008 was 39 (37).

SIGNIFICANT RISKS AND UNCERTAINTIES; GROUP AND PARENT COMPANY

No major changes in significant risks and uncertainties took place during the period.

The business model shoosen in Japan is associated with increased cost risk. Although the market has shown a strong interest in these products, relatively large volumes are needed to achieve adequate profitability.

The shares in the associated company (TwoPac AB) and the receivable from the associated company amounted to a total of SEK 11.8 million. TwoPac AB's primary operations are development of equipment and manufacturing of BioGaia's Probiotic drops and straws and LifeTop Cap on behalf of BioGaia. BioGaia's assessment is that the cash flow from TwoPac will generate good profitability, for which reason no impairment loss was recognised on the balance sheet date. Should the investment in Two Pac fail in full or in part, BioGaia may be forced to recognise an impairment loss on all or parts of the holding in and receivables from the associated company.

BioGaia's capitalised development expenditure amounts to SEK 5.9 million, of which SEK 1.9 million refers to the LifeTop Cap project. BioGaia has one sales agreement for LifeTop Cap and has received inquiries from a number of potential customers. BioGaia has also signed a collaborative agreement with Bericap (see above), one of the world's largest manufacturers of plastic caps. BioGaia's assessment is that the cash flow from LifeTop Cap will generate good profitability, for which reason no impairment loss has been recognised. Should this investment fail in full or in part, BioGaia may be forced to recognise an impairment loss on all or parts of the project. BioGaia is now investing further in LifeTop Cap through the formation of a new subsidiary (see above).

FUTURE OUTLOOK

BioGaia's goal is to create strong value growth and a good return for the shareholders. This will be achieved through a greater emphasis on the BioGaia brand, increased sales to both existing and new customers and a controlled cost level.

In the remainder of 2008 and during 2009 BioGaia expects the tablets, drops and oral health products to be launched in a large number of countries.

In view of the Company's strong portfolio of an increased number of innovative products partly under the company's own brand, successful clinical trials and growing distribution network covering a large share of the key markets, BioGaia's future outlook is bright.

CONSOLIDATED INCOME STATEMENTS

(Amounts in SEK 000s) Jan-Sept Jan-Sept July-Sept July-Sept Jan-Dec
2008 2007 2008 2007 2007
Net sales 106,006 74,551 33,558 23,388 106,580
Cost of goods sold -34,794 -25,080 -10,131 -8,095 -35,122
Gross profit 71,212 49,471 23,427 15,293 71,458
Other operating income 440 765 202 328 1,691
Selling expenses -30,922 -27,109 -11,020 -8,917 -37,739
Administrative expenses -5,979 -5,630 -1,549 -1,663 -7,487
Research and development expenses -16,235 -13,272 -5,528 -4,256 -17,938
Share in profit/loss of associated company -160 -960 250 -120 -1,103
Operating profit 18,356 3,265 5,782 665 8,882
Financial income and expenses 1,740 1,119 685 433 1,807
Profit before tax 20,096 4,384 6,467 1,098 10,689
Tax expense for the period 11,000 - 2,500 - 8,970
PROFIT FOR THE PERIOD 31,096 4,384 8,967 1,098 19,659
Earnings per share
Basic earnings per share (average number
of shares), SEK
1.81 0.25 0.52 0.06 1.14
Diluted earnings per share, SEK 1.81 0.25 0.52 0.06 1.14
Number of shares, thousands 17,208 17,208 17,208 17,208 17,208
Average number of shares, thousands
Average number of shares after dilution,
17,208 17,208 17,208 17,208 17,208
thousands 17,208 17,208 17,208 17,208 17,208
CONSOLIDATED BALANCE SHEETS 30 Sept 31 Dec 30 Sept
(Amounts in SEK 000s) 2008 2007 2007
ASSETS
Intangible assets 5,863 8,199 8,829
Tangible assets 3,719 2,617 2,443
Shares in associated company
Long-term receivables from associated
7,425 5,585 4,728
company 4,400 4,400 5,400
Deferred tax asset 20,000 9,000 -
Other long-term receivables
Current assets excl. cash and cash
41 27 17
equivalents 44,757 37,968 28,529
Cash and cash equivalents 58,800 42,977 44,633
TOTAL ASSETS 145,005 110,773 94,579
EQUITY AND LIABILITIES
Shareholders' equity 126,353 94,910 79,693
Interest-free current liabilities 18,652 15,863 14,886
TOTAL EQUITY AND LIABILITIES 145,005 110,773 94,579
CONSOLIDATED CASH FLOW
STATEMENTS Jan-Sept Jan-Sept July-Sept July-Sept Jan-Dec
(Amounts in SEK 000s) 2008 2007 2008 2007 2007
Operating activities
Operating profit 18,356 3,265 5,782 665 8,882
Depreciation/amortisation
Capital gains/losses on the sale of fixed
assets
3,122
7
3,151
-
1,043
-
1,061
-
3,979
-
Share in profit/loss of associated company 160 960 -250 120 1,103
Other non-cash items -83 -36 -113 -3 -12
Interest received and paid 1,740 1,120 685 434 1,807
Cash flow from operating activities before
changes in working capital
23,302 8,460 7,147 2,277 15,759
Changes in working capital -3,762 -2,121 3,834 2,062 -10,671
Cash flow from operating activities 19,540 6,339 10,981 4,339 5,088
Cash flow from investing activities -3,881 -2,129 -300 -789 -2,516
Cash flow from financing activities - 686 - - 686
Cash flow for the period
Cash and cash equivalents at beginning of
15,659 4,896 10,681 3,550 3,258
period
Exchange differences in cash and
42,977 39,719 47,924 41,087 39,719
cash equivalents
Cash and cash equivalents at end of
164 18 195 -4 -
period 58,800 44,633 58,800 44,633 42,977

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Amounts in SEK 000s) Jan-Sept Jan-Sept Jan-Dec
2008 2007 2007
At beginning of period 94,910 74,530 74,530
The period's translation difference 347 93 35
Warrants in BioGaia AB - 686 686
Profit for the period 31,096 4,384 19,659
At end of period 126,353 79,693 94,910

SEGMENT REPORTING – GROUP

(Amounts in SEK 000s) Jan-Sept Jan-Sept Jan-Dec
Sales 2008 2007 2007
Europe 68,623 44,718 62,354
USA and Canada 7,184 5,734 7,736
Asia 19,999 17,056 25,895
Rest of world 10,200 7,043 10,595
106,006 74,551 106,580
PARENT COMPANY INCOME STATEMENTS Jan-Sept Jan-Sept Jan-Dec
2008 2007 2007
Net sales 105,755 75,237 107,034
Cost of goods sold -34,662 -25,932 -35,827
Gross profit 71,093 49,305 71,207
Selling expenses -31,837 -21,950 -39,565
Administrative expenses -5,979 -5,630 -7,488
Research and development expenses -16,286 -13,251 -17,784
Other operating income 440 765 1,691
Operating profit 17,431 9,239 8,061
Result from shares in associated company - - -1,103
Net financial items 2,832 1,177 2,086
Profit before tax 20,263 10,416 9,044
Tax expense for the period 11,000 - 9,000
PROFIT FOR THE PERIOD 31,263 10,416 18,044
PARENT COMPANY BALANCE SHEETS 30 Sept 31 Dec 30 Sept
2008 2007 2007
ASSETS
Intangible assets 5,863 8,199 8,829
Tangible assets 3,371 2,287 2,272
Shares in group companies 4,237 4,137 4,137
Shares in associated company 7,585 5,585 5,688
Long-term receivables from subsidiaries 1,930 1,325 6,831
Long-term receivables from associated company 4,400 4,400 5,400
Deferred tax asset 20,000 9,000 -
Current assets excl. cash and cash equivalents 41,994 36,392 27,725
Cash and cash equivalents 57,593 42,103 43,705
TOTAL ASSETS 146,973 113,428 104,587
EQUITY AND LIABILITIES
Shareholders' equity 126,171 94,908 87,280
Interest-free current liabilities 20,802 18,520 17,307
TOTAL EQUITY AND LIABILITIES 139,493 113,428 104,587

Pledged assets and contingent liabilities for the Parent Company

Floating charges 2,000 2,000 2,000
Guarantees None None None
PARENT COMPANY CASH FLOW STATEMENTS Jan-Sept Jan-Sept Jan-Dec
2008 2007 2007
Operating activities
Operating profit 17,431 9,239 8,061
Depreciation/amortisation 3,048 3,090 3,902
Capital gains/losses on the sale of fixed assets 7 - -
Provision for long-term receivable from subsidiary 1) 8,092 - 7,330
Other non-cash items -84 -39 -8
Interest received and paid 2,832 1,177 2,086
Cash flow from operating activities before changes
in working capital
31,326 13,467 21,371
Changes in working capital -3,320 -167 -9,373
Cash flow from operating activities 28,006 13,300 11,998
Cash flow from investing activities -12,600 -8,960 -9,229
Cash flow from financing activities - 686 686
Cash flow for the period 15,406 5,026 3,455
Cash and cash equivalents at beginning of period 42,103 38,640 38,640
Exchange differences in cash and cash equivalents 84 39 8
Cash and cash equivalents at end of period 57,593 43,705 42,103

1) Recognised net in investing activities at 31 December 2007

PARENT COMPANY STATEMENT OF CHANGES IN EQUITY

(Amounts in SEK 000s) Jan-Sept Jan-Sept Jan-Dec
2008 2007 2007
At beginning of period 94,908 76,178 76,178
New issue of warrants - 686 686
Profit for the period 31,263 10,416 18,044
At end of period 126,171 87,280 94,908
SEGMENT REPORTING – PARENT COMPANY Jan-Sept Jan-Sept Jan-Dec
(Amounts in SEK 000s) 2008 2007 2007
Europe 68,325 44,634 62,269
USA and Canada 7,184 5,587 7,544
Asia 20,046 17,973 26,626
Rest of world 10,200 7,043 10,595
105,755 75,237 107,034

RELATED PARTY TRANSACTIONS, GROUP AND PARENT COMPANY

(Amounts in SEK 000s)

The Group has a 50% holding in TwoPac AB, which is reported as an associated company.

The following transactions have taken place with TwoPac AB.

Jan-Sept Jan-Sept Jan-Dec
2008 2007 2007
Interest income 220 219 304
Shareholder contributions paid 2,000 500 500
Loan converted to shareholder contribution - - 1,000
Purchase of goods 6,036 1,087 2,259
Advance payments for future deliveries - 600 600
Purchase of machinery and equipment - 1,195 1,195

The closing balance at the end of the period was as follows:

Long-term receivables from TwoPac AB

30 Sept 30 Sept 31 Dec
2008 2007 2007
Long-term receivables from TwoPac AB 4,400 5,400 4,400
Current transactions with related parties
Current receivables from TwoPac AB 76 77 85
Current liabilities to TwoPac AB -1,520 -114 -
-1,444 -37 85
CONSOLIDATED KEY RATIOS 1) Jan-Sept Jan-Sept Jan-Dec
2008 2007 2007
Return on
- average shareholders' equity 28.1% 5.7% 23.2%
- average capital employed 18.2% 5.8% 12.7%
Capital employed, SEK 000s 126,353 79,693 94,910
Number of shares, thousands 17,208 17,208 17,208
Average number of shares, thousands 17,208 17,208 17,208
Number of outstanding warrants, thousands 129 129 129
Average number of outstanding warrants with
a dilutive effect, thousands
- - -
Average number of shares after dilution,
thousands
17,208 17,208 17,208
Basic earnings per share, SEK 1.81 0.25 1.14
Diluted earnings per share, SEK 1.81 0.25 1.14
Equity per share, SEK 7.34 4.63 5.52
Equity per share after dilution, SEK 7.34 4.63 5.52
Equity/assets ratio 87% 84% 86%
Average number of employees 38 37 37

1) The definitions of key ratios correspond to those in the annual report.

ACCOUNTING POLICIES

The consolidated financial statements have been prepared in compliance with the International Financial Reporting Standards (IFRS) established by the International Accounting Standards Board (IASB) and the interpretations published by the International Financial Reporting Interpretations Committee (IFRIC) that have been endorsed by the European Commission for application in the EU.

This interim report has been prepared for the Group in accordance with IAS 34, Interim Financial Reporting, and the Annual Accounts Act, and for the Parent Company in accordance with the Annual Accounts Act.

The Group and the Parent Company apply the same accounting and valuation principles as in the 2007 annual report.

NOMINATING COMMITTEE

In accordance with the decision of the AGM, the Nominating Committee has been formed and consists of Lars Hallén, the second largest shareholder, Board Chairman David Dangoor, the third largest shareholder, and Sven Zetterqvist, representing Livförsäkringsaktiebolaget Skandia, the fourth largest shareholder. The largest shareholder, Annwall & Rothschild Investment AB, has declined participation in the Nominating Committee. The Nominating Committée can be contacted on the following address: BioGaia AB, Box 3242, 103 64 Stockholm or by e-mail: [email protected].

FINANCIAL CALENDAR

12 February 2009 Year-end report 2008
22 April 2009 Interim report 1 January – 31 March 2009
22 April 2009 AGM, 4:00 p.m., Stockholm.
Shareholders who wish to have a matter addressed by the AGM must notify the
Board Chairman, BioGaia AB, Box 3242, 103 64 Stockholm or by e-mail
[email protected] by 1 March 2009 at the latest.

This interim report provides a true and fair picture of the business activities, financial position and results of operations of the Parent Company and the Group, and describes the significant risks and uncertainties to which the Parent Company and the Group companies are exposed.

Stockholm, 23 October 2008

David Dangoor Jan Annwall Stefan Elving Board Chairman Board member Board member

Board member Board member Board member

Thomas Flinck Inger Holmström Jörgen Thorball

Paula Zeilon Peter Rothschild

Board member Managing Director

The information in this interim report was submitted for publication on 23 October 2008, 8:30 a.m. CET.

This report has not been examined by the Company's independent auditors.

BioGaia AB Box 3242 SE-103 64 STOCKHOLM, Sweden Street address: Kungsbroplan 3A, Stockholm Telephone: +46 (0)8 555 293 00 www.biogaia.com Corp. identity no. 556380-8723

For additional information contact: Peter Rothschild, Managing Director, telephone: +46 (0)8 - 555 293 00, Jan Annwall, Deputy Managing Director, telephone: +46 (0)8 - 555 293 00

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