Annual Report • Feb 18, 2015
Annual Report
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For more information, please contact:
Terje Kalland, Acting Chief Executive Officer +46 76 891 73 01
Christian Tange, Chief Financial Officer +46 73 712 14 30
| SEKm | 2014 | 2013 | 2014 | 2013 |
|---|---|---|---|---|
| Oct-Dec | Oct-Dec | Full-year | Full-year | |
| (restated) | (restated) | |||
| Condensed income statement | ||||
| Change in fair value in portfolio companies | -19.3 | -123.4 | -310.4 | -140.0 |
| Net profit/loss | -39.8 | -99.2 | -375.8 | -157.3 |
| Condensed balance sheet | ||||
| Cash, cash equivalents and short-term investments | 141.3 | 200.7 | ||
| Share information | ||||
| Earnings per share, weighted average, before and | ||||
| after dilution (SEK) | -0.80 | -2.05 | -7.73 | -3.25 |
| Net asset value per share (SEK) (Note 1) | 31.2 | 40.7 | ||
| Equity per share (SEK) (Note 1) | 31.0 | 40.5 | ||
| Share price, last trading day in the reporting period (SEK) | 13.3 | 30.9 | ||
| Portfolio information | ||||
| Portfolio companies' net cash¹ | 55.0 | 111.6 | ||
| Investments in portfolio companies | 27.5 | 88.2 | 84.0 | 266.2 |
| Of which investments not affecting cash flow | 0 | 64.3 | 6.7 | 68.1 |
| Fair value of portfolio holdings | 1,502.2 | 1,729.5 | ||
| ) Portfolio companies' net cash is comprised of sum of cash, cash equivalents and short-term investments less external loans ¹ |
) Portfolio companies' net cash is comprised of sum of cash, cash equivalents and short-term investments less external loans in portfolio companies regardless of Karolinska Development's ownership interest
Terje Kalland, Acting CEO
After a very eventful period for Karolinska Development, we are happy to announce the completion of the financing that enables the execution of the investment strategy that was presented in October. The financing took place in three steps, a private placement directed to CP Group, a rights issue of convertible bonds and a directed issue of convertible bonds to CP Group. In total, proceeds to Karolinska Development amounted to SEK 450 million before transaction costs. After the subscription period was extended in January to allow for allotment that nearly fully subscribed the rights issue of convertible bonds.
After the reporting period we announced that Karolinska Development's CEO Bruno Lucidi had left the company after his contract was terminated. It is of course unfortunate having to appoint at new CEO after such a short time after the previous appointment, but as the Board of Directors and Bruno Lucidi had differing opinions on the implementation of the company'sinvestment strategy, the Board of Directors concluded that the company's activities would be difficult to execute under these circumstances. As Acting CEO I will work together with the Board of Director, the company's management and staff to continue on the path we set out at the presentation of the new strategy during the fall, while the recruitment process of a new CEO is ongoing.
In the portfolio, Forendo Pharma announced during the fourth quarter that the company had closed a financing round for the clinical development of Forendo's candidate drug for the treatment of endometriosis. Karolinska Development invests in Forendo alongside a number of distinguished life science investors of which some have associations with large pharma companies. This is investment is a good example of Karolinska Developments strategy to syndicate ownership in the portfolio companies with other specialized investors in the sector. This broadens the access to capital and to key executives for the portfolio companies. Together with the license revenues from Forendo's agreement regarding fispemifene and the US pharmaceutical company Apricus Biosciences, the company has now secures financing through to proof-of-concept in endometriosis.
We are now focusing on applying this policy of co-investment across the whole portfolio. In the strategic portfolio we aim to syndicate the upcoming investment with other specialized investors in order to reach the value inflection points in the portfolio companies' projects that enables exits. In the opportunistic portfolio efforts are concentrated to agreements with industrial partners and to find external investors in these companies.
The clinical development in the portfolio is moving forward with an ongoing Phase I/II study in Aprea. The company announced during the first quarter 2015 that its candidate drug APR-246 has been granted orphan drug designation in Europe on the treatment of ovarian cancer. Dilaforette, after the end of 2014, and Clanotech, during the fourth quarter, were also granted European orphan drug designation for its product candidatesfor the treatment of sickle-cell disease and adjuvant treatment in connection with glaucoma surgery respectively. Dilaforette is now preparing to initiate a Phase II study with sevuparin in sickle-cell disease for the treatment of this life-long and periodically very painful disease.
OssDsign continues to expand its market launch in Europe of Craniomosaic – an implant for severe cranial injuries – that is now also marketed in Spain. During the 2014 fourth quarter we also announced that OssDsign's follow-up product Cranioplug had received marketing approval in the US. Athera initiated a Phase I study of PC-mAb during the fourth quarter for the treatment of cardiovascular disease. Later, Boehringer Ingelheim announced that it will not exercise the option rights to license Athera's candidate drug. Boehringer's announcement does not affect the current clinical trial and the project is co-financed through the EU 7th Framework Program. At the same time Athera is in the process of finding a partner or investor for the further development of PC-mAb.
Acting Chief Executive Officer
Karolinska Development invests in medical innovations that addresses unmet medical needs and develop them to the phase when the highest return on investments may be generated by IPO, trade sale of companies or licensing of projects.
Karolinska Development intends to finance its investments through capital injections from its shareholders, proceeds from trade sales of shares in its portfolio companies, and dividends from its portfolio companies.
Karolinska Development holds a number of portfolio companies at varying degrees of ownership in the form of subsidiaries, joint ventures, associates, as well as other long term securities holdings. The holdings are valued at fair value.
During the fourth quarter, Karolinska Development's Board and management announced a new and more focused strategy to optimize and unlock the value in the existing portfolio. Karolinska Development's Board and management are convinced this new strategy will put Karolinska Development in a stronger position to take advantage of the business opportunities that the portfolio companies offer.
During the fourth quarter 2014 and the first quarter 2015, Karolinska Development finalized a financing in three steps that in total generates proceeds of approximately SEK 450 million
Sino Biopharmaceutical, a company in the CP Group, subscribed shares of series B, amounting to SEK 63 million in a directed share issue. The issue is performed within the scope of the mandate to the Board decided at the company's 2014 Annual General Meeting and thus introduced a new large shareholder into the company.
The rights issue of convertibles was subscribed by 32 percent of the then existing shareholders. Additionally, CP Group, guaranteed an undertaking, to subscribe for 44 percent of the rights issue amount or SEK 100 million. During the first quarter 2015, the Board of Directors decided to extend the subscription period of the rights issue of convertibles to allow allotment of convertibles to two new investors, Paradigm Capital Value Fund SICAV och EMF Europäische Marketing und Finanzmanagement AG. Approximately 17 percent or SEK 39 million was subscribed by these two investors. Other subscriptions for convertibles without support of subscription rights corresponded to approximately 1 percent of the rights issue. Altogether, the rights issue with preferential rights for the company's shareholders is preliminary subscribed to approximately 94 percent.
During December 2014 a directed issue of convertibles to CP Group was completed under the same terms as the rights issue of convertibles, which generates proceeds to Karolinska Development of SEK 173 million.
Karolinska Development completed a private placement amounting to SEK 63 million to Sino Biopharmaceutical Limited, a member of the Thai Charoen Pokphand Group (CP Group). The subscription price in the private placement was SEK 13 per share, which was 4.4 percent lower than the share price at the closing of NASDAQ OMX Stockholm on November 4, 2014, the previous trading day, and 10.7 percent higher than the volume weighted average price during the period from October 8 to November 4, 2014. The subscription price was agreed upon after negotiations between Karolinska Development and the subscriber, based on the quoted market value of the share.
The Extraordinary General Meeting in Karolinska Development resolved to approve the Board of Director's decision (pending the general meeting's approval) that the company would raise convertible loans through a rights issue of convertible bonds and a directed issue of convertible bonds to CP Group with nominal amounts not exceeding approximately SEK 228m and SEK 173m respectively.
Karolinska Development announced that the rights issue with preferential rights for the company's shareholders is preliminary subscribed to approximately 77 percent. The rights issue of convertibles with preferential rights for the company's shareholders was preliminary subscribed for with support of subscription rights to approximately 32 percent. Additionally, CP Group, in accordance with their guarantee undertaking, subscribed for the full guarantee amount of SEK 100 million which corresponds to approximately 44 percent of the rights issue amount. In addition, applications to subscribe for convertibles without support of subscription rights corresponding to approximately 1 percent of the rights issue were received.
Bruno Lucidi, who previously assumed the role as CEO for KDev Oncology and the portfolio companies Aprea and Akinion Pharmaceutical, was appointed CEO at Karolinska Development.
Forendo Pharma's development programs are based on research conducted at Turku University, Oulu University and Åbo Akademi. The company is specialized in pharmaceutical development within tissue specific hormone mechanisms.
Clanotech is a Swedish biotech company active in ophthalmology and based on research conducted at Karolinska Institutet. Clanotech's lead candidate is an inhibitor of the α5β1-integrin receptor which is present in fibroblast and on vascular endothelial cells. α5β1-integrin is strongly up-regulated in fibroblast when switching to the fibrotic state and in scars after glaucoma surgery , which is the company's primary therapeutic focus.
The mission of OssDsign is advancing bone repair based on its innovative bioceramics technology platform. OssDsign has started sales in selected EU countries of lead product OssDsign® Craniomosaic, a next generation patient-specific implant for cranial repair. OssDsign was founded by researchers at the Karolinska University Hospital and Uppsala University.
Athera is a pharmaceutical company focused on development of drugs and diagnostics around antiinflammatory targets. The company's current programs were initiated in 2005 and are based on innovative research at Karolinska Institutet.
Forendo Pharma announced today that it has entered into a definitive agreement to out-license the US development and commercialization rights for fispemifene to Apricus Biosciences Inc. Under the terms of the agreement, Apricus will make a \$5 million upfront cash payment to Forendo, and will transfer approximately 3.6 million Apricus common shares, representing \$7.5 million in value based on the 360-day average market price of the Apricus stock. The agreement includes additional potential clinical and regulatory milestones payments to Forendo for up to \$45 million, including FDA approval, as well as commercial milestone payments totaling up to \$260 million based on achieving specified annual net sales of fispemifene levels up to \$1 billion in the US. Apricus will also pay tiered double-digit royalties based on net sales once the product is commercialized. Apricus will be responsible for the clinical development and costs of the program, as well as all future commercialization in the US. Apricus anticipates to commence a Phase IIb clinical trial during the first half of 2015 to confirm the optimal fispemifene doses to treat men with secondary hypogonadism, and provide proof-of-concept data to evaluate the antiestrogenic and anti-inflammatory effects on the lower urinary tract and prostate in aging men.
Forendo Pharma announced the successful closing of a EUR 12 million financing round. Novartis Venture Fund and MS Ventures will participate in the financing round, alongside the current major shareholders Karolinska Development, Novo Seeds and Finnvera.
Clanotech AB received orphan drug designation for its candidate drug CLT-28643 by the European Medicines Agency (EMA) for prevention of scarring post glaucoma filtration surgery. Clanotech's lead substance, an α5β1-integrin antagonist, has anti-angiogenic, anti-fibrotic and antiinflammatory properties that are expected to benefit the wound healing processes following glaucoma surgery. The orphan drug designation will significantly shorten a future market approval process and reinforce market exclusivity for a launched product.
OssDsign AB today that its bioceramic burr hole plug - Cranioplug - had received 510(k) clearance by the US Food and Drug Administration (FDA). In the 500,000 open brain surgeries carried out annually worldwide, burr holes and circular cuts between the burr holes are made to allow the surgeon to remove a piece of the skull - the bone flap - and thereby access the brain for the intended intervention. The bone flap is then re-anchored to the surrounding skull bone after the procedure is completed. Cranial fixation today uses metal-based devices that anchor the bone flap to the skull. These devices typically leave the burr hole open, to the cosmetic and psychological detriment of patients. Cranioplug, based on bone-like ceramic materials, in contrast to metal-based competitors, has the potential of integrating with surrounding bone.
Athera Biotechnologies AB announced that first dosing of healthy volunteers has been done in a Phase I study of its fully human antibody PC-mAb. Athera's fully human monoclonal antibody PCmAb is intended for the treatment of patients with cardiovascular disease, who are at an increased risk of secondary events and death. It is known from previous published studies that low plasma levels of endogenous antibodies against phosphorylcholine (anti-PC) are linked to poor prognosis in acute heart attack patients, as well as in patients with peripheral arterial disease undergoing vein graft surgery. The current Phase I study will include up to 48 healthy volunteers in a single ascending dose protocol with safety outcome measures.
Athera announced that Boehringer Ingelheim International GmbH would not exercise the option agreement to license Athera's cardiovascular antibody due to re-evaluation of Boehringer Ingelheim's R&D strategy. The ongoing clinical development program at Athera of the fully human antibody PC-mAb is not affected by the termination of the agreement. Athera's fully human monoclonal antibody PC-mAb is intended for the treatment of patients with cardiovascular disease, who are at an increased risk of secondary events and death. Boehringer Ingelheim's decision to terminate the option agreement was made as a consequence of a refocus in its corporate R&D strategy. Athera's ongoing Phase I study with PC-mAb continued as planned and the co-financing of future development costs through the EU FP7 program CARDIMMUN was not affected by Boehringer Ingelheim's decision.
After the end of the subscription period Karolinska Development received applications to subscribe for convertibles without subscription rights to an aggregate amount of SEK 39 million from Paradigm Capital Value Fund SICAV and EMF Europäische Marketing und Finanzmanagement AG, that were to previously not shareholders in the company. In order to allow for allotment, the Board of Directors of Karolinska Development decided to extend the subscription period of the rights issue of convertibles until January 15, 2015. The rights issue of convertibles was therefore subscribed to approximately 94 percent and amounted to nominally approximately SEK 214,0 million before transaction costs. Together with the directed issue of convertibles of the nominal amount of approximately SEK 172,9 million to CP Group, Karolinska Development generated proceeds of approximately SEK 386.9 million before transaction costs.
Karolinska Development announced that the company's CEO Bruno Lucidi left the company after the contract was terminated. He was replaced by Deputy CEO Terje Kalland until a new, permanent CEO is appointed. The Board of Directors recognized that the Board and Bruno Lucidi were of different opinions regarding the implementation of the company's strategy, which was the reason for Bruno Lucidi leaving the company. At the same time, Bruno Lucidi also left his roles as CEO for KDev Oncology AB and Karolinska Development's portfolio companies Aprea AB and Akinion Pharmaceuticals AB. It was also announced that the recruitment process for a permanent CEO had been initiated.
OssDsign keeps expanding the market for the company's cranial implant. The company announces that the first implant is now sold in Spain, with the aim to introduce the product in several other European countries.
| Clinical Development | |||||
|---|---|---|---|---|---|
| Preclinical | Phase I | Phase II/ Proof-of-concept |
Phase III/ Pivotal trial/ Registration |
Approved/ Marketed |
|
| Pharmaceuticals | Clanotech Glaucoma surgery Forendo Pharma Endometriosis Umecrine Cognition Hepatic encephalopathy |
Aprea Ovarian cancer Akinion Pharmaceuticals Acute myeloid leukemia Dilaforette Sickle-cell disease Pharmanest Pain at hysteroscopies |
Pharmanest Pain at IUD insertions |
||
| Concept | Development | Product | Marketed | |
|---|---|---|---|---|
| Technology | OssDsign Burr hole implant XSpray Microparticles Formulation technology |
OssDsign Cranial implants |
| Clinical Development | |||||||
|---|---|---|---|---|---|---|---|
| Preclinical | Phase I | Phase II/ Proof-of-concept |
Phase III/ Pivotal trial/ Registration |
Approved/ Marketed |
|||
| Pharmaceuticals | Biosergen Systemic fungal infections NovaSAID Inflammatory pain Pergamum Skin infection |
Athera Biotechnologies Acute coronary syndrome |
Axelar Non-small cell lung cancer BioArctic Neuroscience Alzheimer's Dilafor Protracted labor Dilaforette Malaria Forendo Pharma Hypogonadism Pergamum Infected eczema, external otitis, surgical adhesions, venous leg ulcers Umecrine Mood PMDD and severe PMS |
||||
| Concept | Development | Product | Marketed | |
|---|---|---|---|---|
| Technology | NeoDynamics Tumor ablation |
Lipidor Topical drug delivery NeoDynamics Fine needle biopsy |
Promimic Implant surface Athera Biotechnologies Cardiovascular diagnostics Inhalation Sciences Respiratory precision dosing |
During year 2014, the effect of the change in fair value of portfolio investments amounted to SEK -310.4m (SEK -140.0m).
During the fourth quarter, the effect of the change in fair value of portfolio investments amounted to SEK -19.3m (SEK -123.4m).
During the year period, the Investment Entity's operating loss amounted to SEK -372.2m (SEK - 198.7m), a change of SEK -173.5m compared with the same period in 2013.
During the year, several projects in the portfolio met development milestones, which had a positive effect on the fair values of these portfolio companies. At the same time a number of projects in the portfolio developed at a slower rate than previously projected, which resulted in negative changes in fair values. Operating loss during the year was affected by a change in fair value of the holdings by KDev Investments in Axelar AB amounting to SEK -220.7m due to the partnering progress not reaching expectations. The fair value change in Biosergen AS affected the operating loss by SEK -28.3m, due to lack of financing for future development. During the year, the fair value was affected positively by adjustments of the discount rates (WACC) (see 'Information on fair value measurement in level 3' in note 2).
Other expenses have decreased by SEK 8.8m year-over-year. Expenses for legal services, consultants and travel have decreased year-over-year, and the comparative period's operating result was charged with one-off expenses of SEK 3.5m related to the Rosetta transaction. During the period, personnel costs were charged with severance provisions for the former CEO, Torbjörn Bjerke, of SEK 7.2m, including pension and social security expenses and bonus reserve for management of SEK 8.5m including social security expenses.
The portion of the change in fair value affecting income related to portfolio holdings amounted to SEK -310.4m (SEK -140.0m) during the year.
During the fourth quarter, the Investment Entity's operating loss amounted to SEK -40.3m (SEK - 138.7m), a change of SEK 98.4m compared with the same period in 2013.
The portion of change in fair value affecting income related to portfolio holdings amounted to SEK -19.3m (SEK -123.4m) during the fourth quarter. During the quarter, personnel costs were charged with bonus reserve for management of SEK 8.5m including social security expenses.
The Investment Entity's loss before tax during the year amounted to SEK -375.8m (SEK -157.3m). The Investment Entity's loss before tax during the fourth quarter amounted to SEK -39.8m (SEK -99.2m).
Investments in portfolio companies during the year amounted to SEK 84.0m (SEK 266.2m).
During the year investments were made in KDev Investments' portfolio at SEK 47.2m (Dilaforette Holding AB, SEK 18.0m; Aprea AB SEK 6.4m; Dilafor AB, SEK 6.0m, Umecrine Mood AB, SEK 5.8m; NeoDynamics AB SEK 3.6m; Clanotech AB, SEK 2.9m; Pergamum AB, SEK 1.8m; Promimic AB, SEK 1.8m; and Inhalation Sciences Sweden AB, SEK 0.9m) as well as in Umecrine Cognition AB, SEK 15.0m; Pharmanest AB, SEK 7.7m; XSpray Microparticles AB, SEK 6.7m; KCIF Co-Investment Fund KB, SEK 3.8m; and Forendo Pharma Oy SEK 3.6m.
Investments in portfolio companies during the fourth quarter amounted to SEK 27.5m (SEK 88.2m).
During the fourth quarter investments were made in KDev Investments' portfolio at SEK 13.8m (Dilaforette Holding AB SEK 7.3m; NeoDynamics AB SEK 3.6m; Aprea AB, SEK 1.8m and Umecrine Mood AB, SEK 1.1m) as well as in Pharmanest AB SEK 3.6m; Forendo Pharma Oy SEK 3.6m; Umecrine Cognition AB, SEK 3.2m; XSpray Microparticles AB SEK 1.8m; and KCIF Co-Investment Fund KB SEK 1.5m.
* The Investment Entity refers to the Parent Company, Karolinska Development AB, and all subsidiaries, joint ventures, associated companies and other long-term securities holdings which are all recognized at fair value.
The Investment Entity's equity to total assets ratio was 96% (99%) on 31 December 2014 and equity amounted to SEK 1,645.5m (SEK 1,957.6m).
Cash, cash equivalents and short-term investments in the Investment Entity amounted to SEK 141.3m (SEK 200.7m), of which SEK 124.2m is provisionally allocated for anticipated follow-on investments in the KDev Investments portfolio. Total assets amounted to SEK 1.710.4m (SEK 1,979.6m).
Karolinska Development is an Investment Entity in accordance with IFRS 10 Consolidated Financial Statements. Karolinska Development has retroactively changed its accounting policy in accordance with IFRS 10 and IAS 8. Note 3 shows effects of the change in accounting policy for the comparative periods.
During 2014, the Parent Company's operating loss amounted to SEK -76.8m (SEK 47.3m), a change of SEK -124.1m compared with the same period in 2013. Operating profit for the comparative period includes a capital gain of SEK 123.7m on the sale of shares in KDev Investments AB to Rosetta. The operating result for the year was charged with write-downs of shares in portfolio companies of SEK -14.9m. Other expenses have decreased by SEK 8.9m year-over-year. Expenses for legal services, consultants and travel have decreased year-over-year, and the comparative period's operating result was charged with one-off expenses of SEK 3.5m related to the Rosetta transaction. During the period, personnel costs were charged with severance provisions for the former CEO, Torbjörn Bjerke, of SEK 7.2m, including pension and social security expenses and bonus reserve for management of SEK 8,5m including social security expenses.
During the fourth quarter, the Parent Company's operating loss amounted to SEK -21.4m (SEK - 17.4m), a change of SEK -4.0m compared with the same period in 2013. The operating result for the quarter was charged with write-downs of shares in portfolio companies of SEK -0.4m and personnel costs were charged with bonus reserve for the management of SEK 8.5m including social security.
The Parent Company's net loss during the year amounted to SEK -78.1m (SEK 47.3m). The Parent Company's net loss during the fourth quarter amounted to SEK -20.6m (SEK -16.2m).
The Board of Directors proposes that no dividend be paid to the shareholders for the financial year 2014.
Companies active in pharmaceutical development and medical technology at an early phase are, by their very nature, difficult to value, as lead times are very long and development risks are high. Due to the uncertainty and subjectivity in these assessments, the estimated value of the portfolio may deviate substantially from future generated value. This is largely due to sensitivities in the valuation calculations to movement of expected milestone or exit dates, costs of trials and similar assumptions, which are not necessarily accounted for in arriving at an actual deal value in negotiations with partners. Decisions about investment strategies may also have an impact on the valuations.
Risks and uncertainties are primarily associated with investments in portfolio companies and the development of projects in these companies. The operations of the portfolio companies consist of the development of early stage pharmaceutical projects. By their very nature such operations are distinguished by very high risk and uncertainty in terms of results.
Financial risks consist of investments in equity and loan instruments in portfolio companies as well as risks in the management of liquid assets.
Karolinska Development invests in companies deemed to generate considerable returns. Development of the portfolio companies' research projects will require capital contributions by their investors in order to capitalize on the value potential. The portfolio companies have no guarantees that required capital will be obtained to finance their projects on favourable terms, or that such capital may be obtained at all.
Long term financing of the portfolio companies capital requirements is provided by Karolinska Development investing alone or in syndication with other investors. Karolinska Development maintains a strategy to continuously invest in the portfolio companies in syndicate with other investors. However, Karolinska Development may deviate from investing its pro rata share in portfolio companies, which may have an impact on the valuations of portfolio companies. If portfolio companies are not successful in attracting other investors, Karolinska Development may choose to invest alone, which may also have an impact on the valuations of portfolio companies.
Priorities must be made to optimize returns. Portfolio companies may fail to achieve milestones or meet development milestones according to plan. In such case, Karolinska Development may decide to discontinue investing in a project. If so, the portfolio companies may have to limit their operations. Karolinska Developments shareholdings may also be diluted by other investors, and other investors may refrain from co–investing on equal terms. In the event that any of the above risks take place, it may have a negative impact on the portfolio companies operations and on the valuations of the portfolio companies. There is also a risk that Karolinska Development decides not to invest in the opportunistic portfolio. If projects lack co–investors which validate the valuations of the portfolio companies it may also have a negative impact on valuations.
Investments in portfolio companies during 2015 are expected to increase compared to the previous year as a consequence of several companies in the strategic portfolio currently undergoing value-critical activities, or intend to initiate such activities during the year. Several companies are expected to enter licence agreements with partners, receive non-dilutive grants such as EU contributions, and third party investments are expected to increase. In both the strategic and the opportunistic portfolio, the strategy to seek a higher degree of co–investors which may contribute to higher prospects of success.
Other than the above, no new risk areas have been identified since 31 December 2013. For a detailed description of risks and uncertainties, see the annual report 2013.
The CEO hereby certifies that this year-end report gives a true and fair view of the operations, financial position and results of operations of the Parent Company and the Investment Entity and describes the material risks and uncertainties faced by the company.
Solna, 18 February 2015
Terje Kalland CEO
Annual report 2014 10 April 2015 Interim report January-March 2015 6 May 2015 Annual General Meeting 20 May 2015 Interim report January-June 2015 26 August 2015 Interim report January-September 2015 25 November 2015
Karolinska Development is required by law to publish the information in this interim report. The information was published on 18 February 2015.
This interim report, together with additional information, is available on Karolinska Development's website, www.karolinskadevelopment.com.
For further information, please contact:
Terje Kalland, CEO +46 76 891 73 01
Christan Tange, CFO +46 73 712 14 30
See also www.karolinskadevelopment.com
Karolinska Development AB (publ) Tomtebodavägen 23A SE-171 65 Solna, Sweden
This year-end report has not been reviewed by the company´s auditors.
Note: This report is a translation of the Swedish year-end report. In case of any discrepancies, the Swedish version shall prevail.
| SEK 000 | Note | 2014 Oct-Dec |
2013 Oct-Dec (restated) |
2014 Full-year |
2013 Full-year (restated) |
|---|---|---|---|---|---|
| Revenue | 1,580 | 945 | 5,030 | 4 948 | |
| Other expenses | -4,768 | -5,474 | -16,447 | -25 292 | |
| Personnel costs | -17,782 | -10,653 | -51,933 | -38 290 | |
| Depreciation of tangible non-current assets | -53 | -107 | -212 | -114 | |
| Change in fair value of shares in portfolio companies | 2 | -19 301 | -123,377 | -310,399 | -139,996 |
| Result from sale of shares in portfolio companies | 9 | - | 1,745 | - | |
| Operating profit/loss | -40,315 | -138,666 | -372,216 | -198,744 | |
| Financial net | 514 | 39,476 | -3,599 | 41,429 | |
| Profit/loss before tax | -39,801 | -99,190 | -375,815 | -157,315 | |
| Deferred taxes | - | - | - | - | |
| Current taxes | - | - | - | - | |
| NET PROFIT/LOSS FOR THE PERIOD | -39,801 | -99,190 | -375,815 | -157,315 |
| SEK Note |
2014 Oct-Dec |
2013 Oct-Dec (restated) |
2014 Full-year |
2013 Full-year (restated) |
|---|---|---|---|---|
| Earnings per share, weighted average, before and after dilution |
-0.80 | -2.05 | -7.73 | -3.25 |
| Number of shares, weighted average | 49,553,169 | 48,287,132 | 48,606,243 | 48,350,016 |
| SEK 000 | Note | 2014 Oct-Dec |
2013 Oct-Dec (restated) |
2014 Full-year |
2013 Full-year (restated) |
|---|---|---|---|---|---|
| Net/profit loss for the period | -39,801 | -99,190 | -375,815 | -157,315 | |
| Total comprehensive income for the period | -39,801 | -99,190 | -375,815 | -157,315 |
| SEK 000 | Note | 31 Dec 2014 | 31 Dec 2013 (restated) |
31 Dec 2012 (restated) |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Tangible non-current assets | 317 | 529 | 9 | |
| Shares in portfolio companies at fair value through profit or loss | 2 | 1,502,186 | 1,729,465 | 1,827,190 |
| Loans receivable from portfolio companies | 12,062 | 5,894 | 12,856 | |
| Other financial assets | 2 | 38,113 | 38,113 | 8,907 |
| Total non-current assets | 1,552,678 | 1,774,001 | 1,848,962 | |
| Current assets | ||||
| Accounts receivable | - | 3 | 106 | |
| Receivables from portfolio companies | 895 | 254 | 563 | |
| Other short-term receivables | 3,103 | 3,225 | 2,476 | |
| Prepaid expenses and accrued income | 12,364 | 1,477 | 2,463 | |
| Short-term investments, at fair value through profit or loss | 128,443 | 165,334 | 174,160 | |
| Cash and cash equivalents | 12,885 | 35,323 | 108,680 | |
| Total current assets | 157,690 | 205,616 | 288,448 | |
| TOTAL ASSETS | 1,710,368 | 1,979,617 | 2,137,410 | |
| EQUITY AND LIABILITIES | ||||
| Equity | ||||
| Share capital | 26,692 | 24,266 | 24,266 | |
| Share premium | 1,828,844 | 1,768,179 | 1,768,179 | |
| Retained earnings | -209,992 | 165,159 | 323,060 | |
| Total equity | 1,645,544 | 1,957,604 | 2,115,505 | |
| Long-term liabilities | ||||
| Convertible loan | 6 | 22,858 | - | - |
| Other financial liabilities | 2 | 11,686 | 9,438 | 10,889 |
| Total long-term liabilities | 34,544 | 9,438 | 10,889 | |
| Current liabilities | ||||
| Accounts payable | 4,668 | 2,426 | 2,510 | |
| Liabilities to portfolio companies | 442 | 442 | 473 | |
| Other current assets | 1,023 | 1,593 | 1,512 | |
| Accrued expenses and prepaid income | 24,147 | 8,114 | 6,521 | |
| Total current liabilities | 30,280 | 12,575 | 11,016 | |
| Total liabilities | 64,824 | 22,013 | 21,905 | |
| TOTAL EQUITY AND LIABILITIES | 1,710,368 | 1,979,617 | 2,137,410 |
| SEK 000 | Note | Equity attributable to Parent Company's shareholders | |||||
|---|---|---|---|---|---|---|---|
| Share capital | Share premium | Retained earnings |
Total | Non controlling interest |
Total equity |
||
| Opening equity at 1 Jan 2014 | 24,266 | 1,768,179 | 165,159 | 1,957,604 | 1,957,604 | ||
| Net profit/loss for the year | -375,815 | -375,815 | -375,815 | ||||
| Total comprehensive income for the year | -375,815 | -375,815 | -375,815 | ||||
| Share issue | 2,426 | 60,665 | 63,091 | 63,091 | |||
| Effect of incentive programs | 664 | 664 | 664 | ||||
| Closing equity at 31 Dec 2014 | 26,692 | 1,828,844 | -209,992 | 1,645,544 | 1,645,544 | ||
| Opening equity at 1 Jan 2013 | 24,266 | 1,768,179 | 323,060 | 2,115,505 | 2,115,505 | ||
| Net profit/loss for the year | -157,315 | -157,315 | -157,315 | ||||
| Total comprehensive income for the year | -157,315 | -157,315 | -157,315 | ||||
| Effect of incentive programs | 1,897 | 1,897 | 1,897 | ||||
| Share repurchase | -2,483 | -2,483 | -2,483 | ||||
| Closing equity at 31 Dec 2013 (restated) | 24,266 | 1,768,179 | 165,159 | 1,957,604 | 1,957,604 | ||
| Openings equity at 1 Jan 2012 | 24,266 | 1,768,179 | -122,547 | 1,669,898 | 354,294 | 2,024,192 | |
| Effect of change of accounting policy to Investment Entity |
3 | 404,640 | 404,640 | -354,294 | 50,346 | ||
| Adjusted opening equity at 1 Jan 2012 | 24,266 | 1,768,179 | 282,093 | 2,074,538 | - | 2,074,538 | |
| Net profit/loss for the year | 43,210 | 43,210 | 43,210 | ||||
| Total comprehensive income for the year | 43,210 | 43,210 | 43,210 | ||||
| Share repurchase | -2,243 | -2,243 | -2,243 | ||||
| Closing equity at 31 Jan 2012 (restated) | 24,266 | 1,768,179 | 323,060 | 2,115,505 | - | 2,115,505 |
The number of shares as of 31 December 2014, amounts to 53,384,558, of which 1,503,098 are series A shares and 51,881,460 are series B shares. Series A shares carry ten votes per share and series B shares carry one vote per share. All shares have an equal right to the Company's assets in the case of liquidation and regarding profit distributions. All series B shares have been listed for trading on the main list of NASDAQ OMX since 15 April 2011.
The Group and the Parent Company are holding 244,285 treasury shares. This represents a total of SEK 122,143 of the share capital, and the consideration paid amounts to SEK 4,726,904.
During year 2014 a new share issue was made to Sino Biopharmaceutical Limited amounting to 4,853,141 shares of series B at the subscription price of SEK 13 per share.
Under 2014 har en riktad nyemission genomförts till Sino Biopharmaceutical Limited uppgående till 4 853 141 aktier av serie B till teckningspriset 13 SEK per aktie.
| SEK 000 Note |
2014 | 2013 |
|---|---|---|
| Full-year | Full-year | |
| (restated) | ||
| Operating activities | ||
| Operating profit/loss | -372 216 | -198 744 |
| Adjustments for items not affecting cash flow | ||
| Depreciation | 212 | 114 |
| Change in fair value 2 |
310 399 | 139 996 |
| Result from sale of shares in portfolio companies | -1 745 | - |
| Other items | 17 253¹ | 2 171 |
| Proceeds from short-term investments | 1 478 | 1 062 |
| Interest paid/received | 356 | 5 312 |
| Cash flow from operating activities before changes in working capital and operating investments | -44 263 | -50 089 |
| Cash flow from changes in working capital | ||
| Increase (-)/Decrease (+) in operating receivables | -12 175 | 1 116 |
| Increase (+)/Decrease (-) in operating liabilities | 1 117 | 2 575 |
| Operating investments | ||
| Proceeds from sale of shares in portfolio companies | 1 923 | 194 924 |
| Acquisitions of share in portfolio companies | -77 326 | -198 120 |
| Loans provided to portfolio companies | -15 712 | -27 750 |
| Proceeds from sale of short-term investments¹ | 38 049 | 7 105 |
| Investments in tangible non-current-assets | - | -635 |
| Cash flow from operating activities | -108 387 | -70 874 |
| Financing activities | ||
| Repurchased shares | - | -2 483 |
| Share issue | 63 091 | - |
| Convertible debentures issue | 22 858 | - |
| Cash flow from financing activities | 85 949 | -2 483 |
| Cash flow for the year | -22 438 | -73 357 |
| Cash and cash equivalents at the beginning of the year | 35 323 | 108 680 |
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | 12 885 | 35 323 |
¹ Adjustments for not cash flow affecting items related to severance pay, bonus to managent and cost for incentive programs
Supplemental disclosure¹
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | 12 885 | 35 323 |
|---|---|---|
| Short-term investments, market value at closing date | 128 443 | 165 334 |
| CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS AT THE END OF THE YEAR | 141 328 | 200 657 |
1) Surplus liquidity in the investment entity is invested in interest-bearing instruments and is recognized as short-term investments with a maturity exceeding three months. These investments are consequently not reported as cash and cash equivalents and are therefore included in the statements of cash flows from operating activities. The supplemental disclosure is presented to provide a total overview of the investment entity's available funds including cash, cash equivalents and short-term investments described here.
| SEK 000 | Note | 2014 | 2013 | 2014 | 2013 |
|---|---|---|---|---|---|
| Oct-Dec | Oct-Dec | Full-year | Full-year | ||
| Net sales | 1,580 | 1,567 | 5,030 | 4,948 | |
| Revenue | 1,580 | 1,567 | 5,030 | 4,948 | |
| Other expenses | -4,768 | -5,570 | -16,447 | -25,293 | |
| Personnel costs | -17,782 | -8,230 | -51,933 | -38,290 | |
| Depreciation of tangible non-current assets | -53 | -2 | -212 | -114 | |
| Impairment losses on shares in subsidiaries, joint ventures, | |||||
| associated companies and other long-term securities holdings | -388 | -5,131 | -14,911 | -24,701 | |
| Result from sale of shares in portfolio companies | 8 | - | 1,693 | 90,909 | |
| Operating profit/loss | -21,403 | -17,366 | -76,780 | 7,459 | |
| Financial net | 828 | 1,179 | -1,350 | 39,855 | |
| NET PROFIT/LOSS FOR THE PERIOD | -20,575 | -16,187 | -78,130 | 47,314 |
| SEK 000 | Note | 2014 | 2013 | 2014 | 2013 |
|---|---|---|---|---|---|
| Oct-Dec | Oct-Dec | Full-year | Full-year | ||
| Net profit/loss for the period | -20,575 | -16,187 | -78,130 | 47,314 | |
| Total comprehensive income for the period | -20,575 | -16,187 | -78,130 | 47,314 |
| ASSETS Non-current assets Tangible non-current assets 317 529 Shares in subsidiaries, joint ventures, associated companies and other long term-securities holdings 1,138,754 1,070,597 Loans receivable from portfolio companies 12,062 5,894 Other financial assets 33,493 32,522 Total non-current assets 1,184,626 1,109,542 Current assets Accounts receivable - 202 Receivables from subsidiaries 895 55 Other receivables 3,103 3,225 Prepaid expenses and accrued income 12,364 1,477 |
|---|
| Short-term investments 128,443 165,334 |
| Cash and cash equivalents 12,885 35,323 |
| Total current assets 157,690 205,616 |
| TOTAL ASSETS 1,342,316 1,315,158 |
| EQUITY AND LIABILITIES |
| Equity |
| Restricted equity |
| Share capital 26,692 24,266 |
| Unrestricted equity |
| Share premium reserve 1,838,918 1,778,253 |
| Accumulated losses -502,588 -550,566 |
| Net profit/loss for the year -78,130 47,314 |
| Total equity 1,284,892 1,299,267 |
| Long-term liabilities |
| Convertible loan 6 22,858 - |
| Pension obligations 4,286 3,315 |
| Total long-term liabilities 27,144 3,315 |
| Current liabilities |
| Accounts payable 4,668 2,426 |
| Liabilities to subsidiaries 442 442 |
| Other current liabilities 1,023 1,594 |
| Accrued expenses and prepaid income 24,147 8,114 |
| Total current liabilities 30,280 12,576 |
| Total liabilities 57,424 15,891 |
| TOTAL EQUITY AND LIABILITIES 1,342,316 1,315,158 |
| SEK 000 | Note | 31 Dec 2014 | 31 Dec 2013 |
|---|---|---|---|
| Pledged assets | 4,286 | 3,315 | |
| Total | 4,286 | 3,315 |
| SEK 000 | Note | |||||
|---|---|---|---|---|---|---|
| Restricted equity | Unrestricted equity | |||||
| Share capital | Share premium reserve |
Accumulated losses |
Net profit/loss for the period |
Total equity | ||
| Opening equity at 1 Jan 2014 | 24,266 | 1,778,253 | -550,566 | 47,314 | 1,299,267 | |
| Appropriation of profit | 47,314 | -47,314 | ||||
| Net profit/loss for the year | -78,130 | -78,130 | ||||
| Total | 24,266 | 1,778,253 | -503,252 | -78,130 | 1,221,137 | |
| Share issue | 2,426 | 60,665 | 63,091 | |||
| Issue costs | -10,148 | -10,148 | ||||
| Effect of incentive programs | 664 | 664 | ||||
| Closing equity at 31 Dec 2014 | 24,266 | 1,828,770 | -502,588 | -78,130 | 1,274,744 | |
| Opening equity at Jan 1 2013 | 24,266 | 1,778,253 | -397,269 | -152,711 | 1,252,539 | |
| Appropriation of loss | -152,711 | 152,711 | ||||
| Net profit/loss for the year | 47,314 | 47,314 | ||||
| Total | 24,266 | 1,778,253 | -549,980 | 47,314 | 1,299,853 | |
| Effect of incentive programs | 1,897 | 1,897 | ||||
| Share repurchase | -2,483 | -2,483 | ||||
| Closing equity at 31 Dec 2013 | 24,266 | 1,778,253 | -550,566 | 47,314 | 1,299,267 |
This report has been prepared in accordance with the International Accounting Standard (IAS) 34 Interim Financial Reporting and the Annual Accounts Act. The accounting policies applied to the Investment Entity and the Parent Company correspond, unless otherwise stated below, to the accounting policies and valuation methods used in the preparation of the most recent annual report.
Karolinska Development AB (publ), Corporate identity Number 556707-5048, is a limited liability company with its registered office in Solna, Sweden. Karolinska Development AB aims to create value for investors, patients and researchers by developing innovations from world-class science into products that can be sold or out-licensed with high returns. The business model is to select the most commercially attractive medical innovations, develop innovations to the stage where the greatest return on investment can be achieved, and commercialize the innovations through the sale of companies or out-licensing of products. At the end year 2014 the portfolio consisted of 21 portfolio companies, in which 15 pharmaceutical projects are in clinical development.
Karolinska Development AB ("Karolinska Development" or the "Company"), together with its subsidiaries, is an investment entity according to IFRS 10 Consolidated Financial Statements, which took effect for financial years beginning on 1 January 2014, with early adoption permitted. Pursuant to the rules for investment entities, Karolinska Development does not consolidate its wholly owned subsidiaries. Separate financial statements are instead prepared for Karolinska Development AB and its subsidiaries (the "Investment Entity" or the "Group"), where subsidiaries, joint ventures, associated companies and other financial investments are measured at fair value in the statement of financial position with changes in value in profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement. According to the Swedish Financial Reporting Board, these separate financial statements meet the requirements for consolidated financial statements according to the Annual Accounts Act. Karolinska Development has also adopted the other new and amended consolidation standards in the "package of five" as of 1 January 2014: IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12, Disclosure of Interests in Other Entities, IAS 27 Separate Financial Statements, and IAS 28 Investments in Associates and Joint Ventures. Karolinska Development has implemented the amended accounting policies retroactively in accordance with the transition rules of IFRS 10 Consolidated Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Note 3 shows the effects of the changed accounting principle on the comparative figures for 2013.
Other new or revised IFRS standards and interpretations by IFRIC have had no impact on the Investment Entity or, to the extent that these recommendations are applied to legal entities, on the Parent Company's income or financial position.
Portfolio companies: Companies owned fully or in part by Karolinska Development (subsidiaries, joint ventures, associated companies and other long-term securities holdings) which are active in pharmaceuticals, medtech, theranostics and formulation technology.
Fair value: The NASDAQ Stockholm regulations for issuers require companies listed on NASDAQ Stockholm to apply the International Financial Reporting Standards, IFRS, in their consolidated financial statements. The application of the standards allows groups of an investment company nature to apply so-called fair value in the calculation of the carrying amount of certain assets. These calculations are made on the basis of established principles and are not included in the opening accounts of the Group's legal entity, nor do they affect cash flows
Fair value is estimated according to the International Private Equity and Venture Capital Valuation Guidelines and adheres to the guidance of IFRS 13 Fair Value Measurement. Based on the valuation criteria provided by these rules, an assessment is made of each company to determine a valuation method. This takes into account whether the companies have recently been financed or involved with a transaction that includes an independent third party. If there is no valuation available based on a similar transaction, risk adjusted net present value (rNPV) calculations are made of the portfolio companies whose projects are suitable for this type of calculation. In other cases, Karolinska Development's total investment is used as the best estimation of fair value. In one other case, the valuation at the time of the last capital contribution is used.
Net asset value per share: Estimated fair value of the total portfolio, loans receivable from portfolio companies, shortterm investments, cash and cash equivalents, and financial assets less interest-bearing liabilities in relation to the number of shares outstanding on the closing date.
Equity per share: Equity on the closing date in relation to the number of shares outstanding on the closing date.
Interim period: The period from the beginning of the financial year through the closing date.
Reporting period: Current quarter.
The table below shows financial instruments measured at fair value based on the classification in the fair value hierarchy. The various levels are defined as follows:
Level 1- Fair value determined on the basis of observed (unadjusted) quoted prices in an active market for identical assets and liabilities
Level 2- Fair value determined based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3- Fair value determined based on valuation models where significant inputs are based on non‐observable data
The carrying amounts of financial assets and liabilities recorded at amortized cost approximate their fair value.
| SEK 000 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Financial assets | ||||
| Shares in portfolio companies, at fair value through profit or loss | - | - | 1,502,186 | 1,502,186 |
| Loans receivable from portfolio companies | - | 12,062 | - | 12,062 |
| Other financial assets | - | - | 38,113 | 38,113 |
| Receivables from portfolio companies | - | 895 | - | 895 |
| Short-term investments, at fair value through profit of loss | 128,443 | - | - | 128,443 |
| Cash and cash equivalents | 12,885 | - | - | 12,885 |
| Total | 141 328 | 12,957 | 1,540,299 | 1,694,584 |
| Financial liabilities | ||||
| Convertible loan | - | 22,858 | - | 22,858 |
| Other financial liabilities | - | - | 11,686 | 11,686 |
| Accounts payable | - | 4,668 | - | 4,668 |
| Liabilities to portfolio companies | - | 442 | - | 442 |
| Total | - | 27,968 | 11,686 | 39,654 |
| KSEK | Nivå 1 | Nivå 2 | Nivå 3 | Totalt |
|---|---|---|---|---|
| Finansiella tillgångar | ||||
| Andelar i portföljbolag, till verkligt värde via resultaträkningen | - | - | 1,729,465 | 1,729,465 |
| Lånefordringar portföljbolag | - | 5,894 | - | 5,894 |
| Övriga finansiella fordringar | - | - | 38,113 | 38,113 |
| Kundfordringar | - | 3 | - | 3 |
| Fordringar på portföljbolag | - | 254 | - | 254 |
| Kortfristiga placeringar, till verkligt värde via resultaträkningen | 165,334 | - | - | 165,334 |
| Likvida medel | 35,323 | - | - | 35 323 |
| Summa | 200,657 | 6,151 | 1,767,578 | 1,974,386 |
| Finansiella skulder | ||||
| Övriga finansiella skulder | - | - | 9,438 | 9,438 |
| Leverantörsskulder | - | 2,426 | - | 2,426 |
| Skulder till portföljbolag | - | 442 | - | 442 |
| Summa | - | 2,868 | 9,438 | 12,306 |
| SEK 000 | Shares in portfolio companies |
Other financial assets |
Other financial liabilities |
|---|---|---|---|
| At beginning of the year | 1,729,465 | 38,113 | 9,438 |
| Transfers to and from level 3 | - | - | - |
| Acquisitions | 83,984 | - | - |
| Disposals | -864 | - | - |
| Gains and losses recognized through profit or loss | -310,399 | - | 2,248 |
| Closing balance 31 December 2014 | 1,502,186 | 38,113 | 11,686 |
| Total unrealized gains and losses for the year in profit or loss | -310,399 | - | -2,248 |
| Gains and losses in profit or loss for the year for assets and liabilities included in the closing balance |
-310,399 | - | -2,248 |
There were no transfers between level 1 and 2 during year 2014.
| SEK 000 | Shares in portfolio companies |
Other financial assets |
Other financial liabilities |
|---|---|---|---|
| At beginning of the year | 1,827,190 | 8,907 | 10,889 |
| Transfers to and from level 3 | - | - | - |
| Acquisitions | 266,173 | 29,206 | - |
| Disposals | -223,902 | - | - |
| Gains and losses recognized through profit or loss | -139,996 | - | -1,451 |
| Closing balance 31 December 2013 | 1,729,465 | 38,113 | 9,438 |
| Total unrealized gains and losses for the year in profit or loss | -139,996 | - | 1,451 |
| Gains and losses in profit or loss for the year for assets and liabilities included in the closing balance |
-139,996 | - | 1,451 |
There were no transfers between level 1 and 2 during year 2013.
The Group recognizes transfers between levels in the fair value hierarchy on the date when an event or changes occur that give rise to the transfer.
The valuation of the company's portfolio is based on the International Private Equity and Venture Capital Valuation Guidelines (IPEV) and IFRS 13 Fair Value Measurement. Based on the valuation criteria provided by these rules, an assessment is made of each company to determine a valuation method. This takes into account whether the companies have recently been financed or involved with a transaction that includes an independent third party. If there is no valuation available based on a similar transaction, risk adjusted net present value (rNPV) calculations are made of the portfolio companies whose projects are suitable for this type of calculation. Present value calculations are made with discounted cash flows which comprise:
Estimates are made regarding product launch year and time of exit based on development plans. Drug licensing is usually assumed to be carried out after Phase II. For medical technology companies, an exit is usually assumed after launch of the product. Sales are then based on these estimated times together with the product's expected patent expiry, after which sales are assumed to decrease sharply.
Estimates are made of the cost of each phase of development based either on the companies' forecasts or according to industry standards.
To estimate the effect of changes in the discount rate on the portfolio valuation, WACC has been adjusted by –1 percent and +1 percent.
| WACC adjustment –1% | 31 December 2014 Biotech WACC: 11.90% Pharma WACC: 8.20% |
WACC adjustment +1% | |||
|---|---|---|---|---|---|
| SEKm | Fair value | Change | Fair value | Fair value | Change |
| Fair value difference for shares in portfolio |
|||||
| companies | 1,672.1 | 169.9 | 1,502.2 | 1,356.7 | -145.5 |
Current tax rates are used and exchange rates calculated according to historical averages.
A change in any of these assumptions affects the valuation and may if significant have a material effect on the Group's results.
The Group has a team responsible for the fair value measurements of the portfolio company holdings required for the financial reporting according to IPEV, including Level 3 fair values. All valuations in Level 3 are based on assumptions and judgments that management considers reasonable under current circumstances. This team reports directly to the Chief Financial Officer. Significant events that have occurred since the above-mentioned time of measurement have been taken into account in the measurement to the extent they would have affected the value on the closing date. Companies that have not been valued after transactions that have included third parties or present value calculations have been valued either at (i) net asset value or (ii) for early-stage development projects; the amount invested by Karolinska Development.
Karolinska Development has adopted IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests In Other Entities, IAS 27 (revised 2011), Separate Financial Statements and IAS 28, Investments in Associates and Joint Ventures, and has applied the transition guidance amendments to IFRS 10, 11 and 12, all effective 1 January 2013. Karolinska Development has early adopted the investment entity amendments to IFRS 10, IFRS 12 and IAS 27 (the "Amendments"), which are effective 1 January 2014, with early adoption permitted.
IFRS 10 Consolidated Financial Statements, including the Amendments, establish principles for the presentation and preparation of consolidated financial statements. It sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. It also sets out the accounting requirements for the preparation of consolidated financial statements. The amendments to IFRS 10 define an investment entity and introduce an exemption from the consolidation requirements for investment entities.
On adoption, Karolinska Development has determined that it meets the definition of an investment entity. As a result, Karolinska Development has amended its accounting policies with respect to its investments in subsidiaries. The subsidiaries, which were previously consolidated, are now measured at fair value through profit or loss. This change in accounting policy has been applied retroactively in accordance with the transition provisions of IFRS 10 and the Amendments to IFRS 10. The transition provisions require retroactive
application in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. However, they specify that an entity needs only to present the quantitative information required by paragraph 28(f) of IAS 8 for the annual period immediately preceding the date of initial application.
IFRS 12, Disclosure of Interests in Other Entities and the amendments to it require entities to disclose significant judgments and assumptions made in determining whether the entity controls, jointly controls, significantly influences or has some other interests in other entities. Entities will also be required to provide more disclosures around certain 'structured entities'. The Amendments also introduce new disclosure requirements related to investment entities. Adoption of the standard has impacted the Karolinska Development's level of disclosures in certain of the above noted areas.
IAS 27 (revised 2011), Consolidated and Separate Financial Statements, including the Amendments, prescribe the accounting and disclosure requirements when an entity prepares separate financial statements. The Amendments require an investment entity as defined in IFRS 10 to present separate financial statements as its only financial statements in cases where it measures all of its subsidiaries at fair value through profit or loss and to disclose that fact.
IFRS 11, Joint Arrangements and IAS 28 (revised 2011), Associates and Joint Ventures and related amendments have also been adopted early, although these standards have had no impact on Karolinska Developments' financial statements.
Karolinska Development has multiple unrelated investors and indirectly holds multiple investments.
Karolinska Development has been deemed to meet the definition of an investment entity as per IFRS 10 as the following conditions exist:
Shares in portfolio companies are categorized as financial assets/liabilities at fair value in the condensed balance sheet for the Investment Entity. These assets and liabilities are
recognized at estimated fair value on each closing date, while changes in fair value are recognized in the condensed income statement. Transaction costs are recognized through profit or loss in the condensed income statement.
The largest effects of the change in accounting policy are that:
The effects of the change in accounting policies on the Group's financial position, comprehensive income and cash flow for the three- and nine-month periods ended 30 September 2013 are reported in the following tables (see also the annual report 2013).
| SEK 000 | 2013 | Change in | 2013 | 2013 | Change in | 2013 |
|---|---|---|---|---|---|---|
| Oct-Dec | accounting | Oct-Dec | Full-year | accounting | Full-year | |
| (as | policy | (restated) | (as | policy | (restated) | |
| previously | previously | |||||
| reported) | reported) | |||||
| Revenue | 2,604 | -1,659 | 945 | 9,940 | -4,992 | 4,948 |
| Other external expenses | -10,325 | 4,851 | -5,474 | -53,772 | 28,480 | -25,292 |
| Personnel costs | -13,238 | 2,585 | -10,653 | -58,745 | 20,455 | -38,290 |
| Depreciation and amortization of tangible and intangible | ||||||
| non-current assets | -299 | 192 | -107 | -2,627 | 2,513 | -114 |
| Change in fair value of shares in portfolio companies | - | -123,377 | -123,377 | - | -139,996 | -139,996 |
| Change in fair value of shares in joint ventures and | ||||||
| associated companies | -128,684 | 128,684 | - | -153,711 | 153,711 | - |
| Change in fair value of other long-term securities | ||||||
| holdings | -3,387 | 3,387 | - | -2,289 | 2,289 | - |
| Result from sale of subsidiaries | 834 | -834 | - | 834 | -834 | - |
| Result from transaction with Rosetta Capital IV LP | - | - | - | 404,646 | -404,646 | - |
| Operating profit/loss | -152,495 | 13,829 | -138,666 | 144,276 | -343,020 | -198,744 |
| Financial net | 39,394 | 82 | 39,476 | 40,890 | 539 | 41,429 |
| Profit/loss before tax | -113,101 | 13,911 | -99,190 | 185,166 | -342,481 | -157,315 |
| Deferred taxes | - | - | - | 2,926 | -2,926 | - |
| Current taxes | - | - | - | - | - | - |
| NET PROFIT/LOSS FOR THE PERIOD | -113,101 | 13,911 | -99,190 | 188,092 | -345,407 | -157,315 |
| Attributable to: | ||||||
| Parent Company's shareholders | -111,519 | 12,329 | -99,190 | 197,163 | -354,478 | -157,315 |
| Non-controlling interest | -1,582 | 1,582 | - | -9,071 | 9,071 | - |
| TOTAL | -113,101 | 13,911 | -99,190 | 188,092 | -345,407 | -157,315 |
| SEK | 2013 Oct-Dec (as previously reported) |
Change in accounting policy |
2013 Oct-Dec (restated) |
2013 Full-year (as previously reported) |
Change in accounting policy |
2013 Full-year (restated) |
|---|---|---|---|---|---|---|
| Earnings per share attributable to Parent Company's shareholders, weighted average, before and after dilution |
-2.31 | 0.26 | -2.05 | 4.08 | -7.33 | -3.25 |
| Number of shares, weighted average | 48,287,132 | 48,287,132 | 48,350,016 | 48,350,016 |
| SEK 000 | 2013 Oct-Dec (as previously reported) |
Change in accounting policy |
2013 Oct-Dec (restated) |
2013 Full-year (as previously reported) |
Change in accounting policy |
2013 Full-year (restated) |
|---|---|---|---|---|---|---|
| Net profit/loss for the period | -113,101 | 13,911 | -99,190 | 188,092 | -345,407 | -157,315 |
| Total comprehensive income for the period Attributable to: |
-113,101 | 13,911 | -99,190 | 188,092 | -345,407 | -157,315 |
| Parent Company's shareholders | -111,519 | 12,329 | -99,190 | 197,163 | -354,478 | -157,315 |
| Non-controlling interest | -1,582 | 1,582 | - | -9,071 | 9,071 | - |
| TOTAL | -113,101 | 13,911 | -99,190 | 188,092 | -345,407 | -157,315 |
| SEK 000 | 31 Dec 2013 | Change in | 31 Dec 2013 | 31 Dec 2012 | Change in | 31 Dec 2012 |
|---|---|---|---|---|---|---|
| (as | accounting | (restated) | (as | accounting | (restated) | |
| previously reported) |
policy | previously reported) |
policy | |||
| ASSETS | ||||||
| Non-current assets | ||||||
| Intangible non-current assets | 8 340 | -8 340 | - | 9 864 | -9 864 | - |
| Tangible non-current assets | 529 | - | 529 | 4 985 | -4 976 | 9 |
| Shares in joint ventures and associated companies | 1 605 469 | -1 605 469 | - | 219 173 | -219 173 | - |
| Other long-term securities holdings | 24 568 | -24 568 | - | 26 949 | -26 949 | - |
| Shares in portfolio companies, at fair value through profit | ||||||
| or loss | - | 1 729 465 | 1 729 465 | - | 1 827 190 | 1 827 190 |
| Loans receivable from portfolio companies | 5 894 | - | 5 894 | 12 856 | - | 12 856 |
| Other financial assets | 38 113 | - | 38 113 | 8 907 | - | 8 907 |
| Total non-current assets | 1 682 913 | 91 088 | 1 774 001 | 282 734 | 1 566 228 | 1 848 962 |
| Current assets | ||||||
| Accounts receivable | 258 | -255 | 3 | 513 | -407 | 106 |
| Receivables from portfolio companies | - | 254 | 254 | - | 563 | 563 |
| Other short-term receivables | 3 803 | -578 | 3 225 | 3 955 | -1 479 | 2 476 |
| Prepaid expenses and accrued income | 1 767 | -290 | 1 477 | 4 578 | -2 115 | 2 463 |
| Short-term investments, at fair value through profit or | ||||||
| loss | 165 334 | - | 165 334 | 174 160 | - | 174 160 |
| Cash and cash equivalents | 41 639 | -6 316 | 35 323 | 117 033 | -8 353 | 108 680 |
| Total current assets | 212 801 | -7 185 | 205 616 | 300 239 | -11 791 | 288 448 |
| Assets which have been transferred to KDev Investments | ||||||
| Group | 1 632 025 | -1 632 025 | - | |||
| TOTAL ASSETS | 1 895 714 | 83 903 | 1 979 617 | 2 214 998 | -77 588 | 2 137 410 |
| EQUITY AND LIABILITIES | ||||||
| Equity | ||||||
| Share capital | 24 266 | - | 24 266 | 24 266 | - | 24 266 |
| Share premium | 1 768 179 | - | 1 768 179 | 1 768 179 | - | 1 768 179 |
| Retained earnings | 74 380 | 90 779 | 165 159 | -122 547 | 445 607 | 323 060 |
| Equity attributable to Parent Company's shareholders | 1 866 825 | 90 779 | 1 957 604 | 1 669 898 | 445 607 | 2 115 505 |
| Non-controlling interest | 3 514 | -3 514 | - | 354 294 | -354 294 | - |
| Total equity | 1 870 339 | 87 265 | 1 957 604 | 2 024 192 | 91 313 | 2 115 505 |
| Long-term liabilities | ||||||
| Other financial liabilities | 9 438 | - | 9 438 | 10 889 | - | 10 889 |
| Total long-term liabilities | 9 438 | - | 9 438 | 10 889 | - | 10 889 |
| Current liabilities | ||||||
| Accounts payable | 3 779 | -1 353 | 2 426 | 4 215 | -1 705 | 2 510 |
| Liabilities to portfolio companies | - | 442 | 442 | - | 473 | 473 |
| Other current liabilities | 2 636 | -1 043 | 1 593 | 2 775 | -1 263 | 1 512 |
| Accrued expenses and prepaid income | 9 522 | -1 408 | 8 114 | 8 166 | -1 645 | 6 521 |
| Total current liabilities | 15 937 | -3 362 | 12 575 | 15 156 | -4 140 | 11 016 |
| Liabilities attributable to assets which have been | ||||||
| transferred to KDev Investments Group | 164 761 | -164 761 | - | |||
| Total liabilities | 25 375 | -3 362 | 22 013 | 190 806 | -168 901 | 21 905 |
| TOTAL EQUITY AND LIABILITIES | 1 895 714 | 83 903 | 1 979 617 | 2 214 998 | -77 588 | 2 137 410 |
| 31 Dec 2012 | |||
|---|---|---|---|
| (as previously | Change in | 31 Dec 2012 | |
| SEK 000 | reported) | accounting | (restated) |
| ASSETS | |||
| Non-current assets | |||
| Intangible non-current assets | 9,864 | -9,864 | - |
| Tangible non-current assets | 4,985 | -4,976 | 9 |
| Shares in joint ventures and associated companies | 219,173 | -219,173 | - |
| Other long-term securities holdings | 26,949 | -26,949 | - |
| Shares in portfolio companies | - | 1,827,190 | 1,827,190 |
| Loans receivable from portfolio companies | 12,856 | - | 12,856 |
| Other financial assets | 8,907 | - | 8,907 |
| Total non-current assets | 282,734 | 1,566,228 | 1,848,962 |
| Current assets | |||
| Accounts receivable | 513 | -407 | 106 |
| Receivables from portfolio companies | - | 563 | 563 |
| Other short-term receivables | 3,955 | -1,479 | 2,476 |
| Prepaid expenses and accrued income | 4,578 | -2,115 | 2,463 |
| Short-term investments | 174,160 | - | 174,160 |
| Cash and cash equivalents | 117,033 | -8,353 | 108,680 |
| Total current assets | 300,239 | -11,791 | 288,448 |
| Assets transferred to KDev Investments Group | 1,632,025 | -1,632,025 | - |
| TOTAL ASSETS | 2,214,998 | -77,588 | 2,137,410 |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share capital | 24,266 | - | 24,266 |
| Share premium | 1,768,179 | - | 1,768,179 |
| Retained earnings | -122,547 | 445,607 | 323,060 |
| Equity attributable to Parent Company's shareholders | 1,669,898 | 445,607 | 2,115,505 |
| Non-controlling interests | 354,294 | -354,294 | - |
| Total equity | 2,024,192 | 91,313 | 2,115,505 |
| Long-term liabilities | |||
| Other financial liabilities | 10,889 | - | 10,889 |
| Total long-term liabilities | 10,889 | - | 10,889 |
| Current liabilities | |||
| Accounts payable | 4,215 | -1,705 | 2,510 |
| Liabilities to portfolio companies | - | 473 | 473 |
| Other current liabilities | 2,775 | -1,263 | 1,512 |
| Accrued expenses and prepaid income | 8,166 | -1,645 | 6,521 |
| Total current liabilities | 15,156 | -4,140 | 11,016 |
| Liabilities attributable to assets transferred to KDev Investments Group | 164,761 | -164,761 | - |
| Total liabilities | 190,806 | -168,901 | 21,905 |
| TOTAL EQUITY AND LIABILITIES | 2,214,998 | -77,588 | 2,137,410 |
| SEK 000 | 2013 | Change in | 2013 |
|---|---|---|---|
| Full-year | accounting | Full-year | |
| (as | policy | (restated) | |
| previously | |||
| reported) | |||
| Operating activities | |||
| Operating profit/loss | 144,276 | -343,020 | -198,744 |
| Adjustment for non-cash items | |||
| Adjustment for depreciation of amortization | 2,627 | -2 513 | 114 |
| Adjustment for changes in fair value | 156,000 | -16,004 | 139,996 |
| Result from transaction with Rosetta Capital IV LP | -404,646 | 404,646 | - |
| Other non-cash items | 2,171 | - | 2,171 |
| Realized changes in value of short-term investments | 1,062 | - | 1,062 |
| Interest paid | -70 | 65 | -5 |
| Interest received | 5,353 | -36 | 5,317 |
| Cash flow from operating activities before changes in working capital and operating investments | -93,227 | 43,138 | -50,089 |
| Cash flow from changes in working capital | |||
| Increase (-)/Decrease (+) in operating receivables | 8,421 | -7,305 | 1,116 |
| Increase (+)/Decrease (-) in operating liabilities | 2,779 | -204 | 2,575 |
| Operating investments | |||
| Investments in intangible non-current assets | -879 | 879 | - |
| Investments in tangible non-current assets | -1,018 | 383 | -635 |
| Sale of tangible non-current assets | 4,000 | -4,000 | - |
| Sale of subsidiaries | 4,031 | -4,031 | - |
| Acquired/divested cash and cash equivalents in subsidiaries | -2 548 | 2,548 | - |
| Investments in shares in portfolio companies | - | -198,120 | -198,120 |
| Investments in shares in joint ventures and associated companies | -176 330 | 176,330 | - |
| Investments in other long-term securities holdings | -8 | 8 | - |
| Cash and cash equivalents which have been transferred to KDev Investments Group | -51 723 | 51 723 | - |
| Change in short-term investments | 7,105 | - | 7,105 |
| Sale of share in portfolio companies | 190,893 | 4,031 | 194,924 |
| Loans provided to portfolio companies | -27,750 | - | -27,750 |
| Cash flow from operating activities | -136,254 | 65,380 | -70,874 |
| Financing activities | |||
| Share of subsidiary issue for non-controlling interest | 3,757 | -3,757 | - |
| Share repurchase | -2,483 | - | -2,483 |
| Cash flow from financing activities | 1,274 | -3,757 | -2,483 |
| Cash flow for the year | -134,980 | 61,623 | -73 357 |
| Cash and cash equivalents at beginning of the year | 176,619 | -67,939 | 108 680 |
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | 41 639 | -6,316 | 35,323 |
Karolinska Development is an investment entity according to IFRS 10. Subsidiaries are not consolidated in the Investment Entity's financial statements. The table below indicates all unconsolidated subsidiaries. Ownership interests include indirect ownership through portfolio companies. The ownership interest corresponds to formal voting rights through participating interests.
| Total holding | ||||
|---|---|---|---|---|
| Name | Registerad office | 31 Dec 2014 | 31 Dec 2013 | 31 Dec 2012 |
| Avaris AB (dormant) | Huddinge | 94,87% | 94,87% | 94,87% |
| HBV Theranostica AB (liquidated) | Stockholm | - | 100,00% | 100,00% |
| KCIF Fund Management AB | Solna | 37,50% | 37,50% | 37,50% |
| KD Incentive AB | Solna | 100,00% | 100,00% | 100,00% |
| KDev Oncology AB | Solna | 100,00% | 100,00% | 100,00% |
| Gligene AB (liquidated) | Solna | - | 100,00% | 34,65% |
| Limone AB (liquidated) | Solna | - | 100,00% | 100,00% |
| Pharmanest AB | Solna | 62,66% | 62,99% | 60,24% |
In addition to the above named subsidiaries, Karolinska Development holds majority interests, though not controlling interests, in KDev Investments AB, Athera Biotechnologies AB, Lipidor AB, Umecrine Cognition AB and XSpray Microparticles AB.
Karolinska Development's ownership interests in these portfolio companies ranges from 50% up to nearly 90%. Karolinska Development has entered into shareholder agreements with other shareholders regarding these companies. The shareholder agreements ensure other investors or founders influence. Therefore, Karolinska Development is not considered to have controlling interest, even if its ownership interest formally exceeds 50%. Karolinska Development has concluded that in these situations the holdings should be accounted for as investments in associated companies or joint ventures, depending on the degree of influence.
On 14 May 2014, the Annual General Meeting adopted a new performance based share incentive program for employees where participants acquire shares ("Savings Shares") on the open market. Under certain conditions participants may receive, free of charge, a maximum of five Performance Shares and one Matching Share Right from the company for each Savings Share they purchase. Matching Share Rights and Performance Shares are allotted after three years. The maximum number of Performance Shares and Matching Share Rights is 761,350. The program comprises a maximum of fourteen participants.
Although there are no performance conditions for the Matching Share Rights, each participant must remain an employee during the vesting period. The Performance Shares have a target related to Karolinska Development's share price performance and a comparison between the so-called Start Price and End Price. The Start Price, measured as an average over ten trading days from 18 May 2014 through 28 May 2014, is SEK 24.45. The End Price is measured as the average over
ten trading days beginning on 2 May 2017. For an allotment, the share price must rise by a total of 30% above the Start Price. For a maximum allotment (five Performance Shares per Savings Share), the share price must rise by 75% above the Start Price. Within this band, allotments are made proportionately. Allotments are capped at 35 times the Start Price, after which the number of allotted Performance Shares is reduced. Participants will be compensated in cash for dividends paid during the period.
The company intends to cover social security contributions related to the program by acquiring and transferring a maximum of 182,000 of its own shares. As of 31 December 2014, 41 200 Savings Shares had been acquired. Repurchase of the company's own shares will not take place. The performance based share incentive program has not had any effect on the results or financial position of the Parent Company or the Investment Entity as of 31 December 2014.
Performance based share incentive program PSP 2014 II has not been implemented.
Issued convertibles have a nominal interest rate of 8% during the period January 1, 2015 – December 31 2019. Convertibles grant a right to convert into shares at a share price of 22 SEK.
No significant related party transactions have occurred since 31 December 2013. For a detailed description of related party transactions, see the 2013 annual report.
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