Quarterly Report • May 6, 2015
Quarterly Report
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For more information, please contact:
Jim Van heusden, Chief Executive Officer +46 72 858 32 09
Christian Tange, Chief Financial Officer +46 73 712 14 30
| SEKm | 2015 Jan-Mar |
2014 Jan-Mar |
2014 Full-year |
|---|---|---|---|
| Condensed income statement | |||
| Change in fair value in portfolio companies | -252.7 | -6.1 | -310.4 |
| Net profit/loss | -275.1 | -18.4 | -375.8 |
| Condensed balance sheet | |||
| Cash, cash equivalents and short-term investments | 440.4 | 171.0 | 141.3 |
| Share information | |||
| Earnings per share, weighted average, before and | |||
| after dilution (SEK) | -5.2 | -0.4 | -7.7 |
| Net asset value per share (SEK) (Note 1) | 27.5 | 40.3 | 30.8 |
| Equity per share (SEK) (Note 1) | 26.7 | 40.2 | 31.0 |
| Share price, last trading day in the reporting period (SEK) | 11.5 | 26.3 | 13.3 |
| Portfolio information | |||
| Portfolio companies' net cash¹ | 67.6 | 74.6 | 55.0 |
| Investments in portfolio companies | 2.5 | 15.5 | 84.0 |
| Of which investments not affecting cash flow | - | - | 6.7 |
| Fair value of portfolio holdings | 1,277.0 | 1,738.9 | 1,502.2 |
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
Jim Van heusden, CEO
"We are now focusing on the portfolio companies that have the highest potential to generate attractive returns"
During my first two months as CEO at Karolinska Development I started to evaluate our portfolio assets in more detail and I continue to be impressed by the high-quality science. That said, I also see some challenges in translating that science into a real investment case for some of our portfolio companies, which is essential to generate superior returns on invested capital. As a consequence, we have taken and will need to take further difficult decisions in order to focus our resources on those companies that have the greatest potential to generate attractive returns to our shareholders.
One of the things I would like to improve is the transparency of the way we work. Together with my team we are fully committed to strengthen our corporate communication which should become evident in the months to come. We will provide more openness into our financial reporting. The valuation of our portfolio companies is a key financial metric in evaluating progress in our portfolio. We are looking into alternatives that are more transparent and less sensitive to incidental variations that have a high impact on valuation. We also need to strengthen our internal organizational structures and team, and are in the process of strengthening our portfolio companies on both the management and board level.
One of the priorities in our investment strategy is to attract new investments from experienced international life sciences investors. As such we are able to share the risks and gain access to other investors' network and expertise. We are currently in discussions with co-investors for a number of our portfolio companies. Besides fundraising, we are also exploring other options such as licensing, M&A or other creative solutions. An example of the latter is the sale of Axelar to Östersjöstiftelsen (The Foundation for Baltic and East European Studies) where the company can continue its development efforts and we retain potential upside via an earn-out agreement without requiring further investments from us. Unfortunately, we also need to let companies go where we don't see any further value despite extensive efforts in relation to financing, licensing and M&A to find a solution for them. This was the case for example for the opportunistic companies Pergamum, Umecrine Mood and NeoDynamics which we recently announced to write-off completely. While such outcomes in our portfolio are not satisfactory, we also realize this is a risk that all investors within this sector are faced with.
We are now focusing on the portfolio companies that have the highest potential to generate attractive returns. We look forward to the continued development in Aprea, as the company presented the first preliminary results from its Phase I/II clinical trial in ovarian cancer in April. Dilaforette is in final preparation to initiate their Phase II trial in sickle-cell disease where patients regularly suffer from painful crises that require intensive-care treatment. We will continue to report progress in our portfolio companies to the market, but need to point out that given the early stage nature of the companies we have invested in, we also need to have patience in order to be able to unlock their full value potential.
Jim Van heusden Chief Executive Officer
After the end of the subscription period Karolinska Development received requests 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. The two companies that applied for subscription were previously not shareholders in the company. In order to allow that allotment, the Board of Directors of Karolinska Development decided to extend the subscription period until January 15, 2015. With the SEK 100 million confirmed payment from CP Group, the rights issue of convertibles was 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.
Jim Van heusden was appointed CEO of Karolinska Development after Bruno Lucidi left the company. Prior to joining Karolinska Development, Jim founded his own company bioskills in 2013, providing an entrepreneurial approach towards fundraising and strategic advice for biotech companies and life science funds. From 2001 to 2013, he held various positions at Gimv focusing on investments in life sciences, and since 2007 as a partner, Jim has an excellent and proven track record in building successful companies. Prior to joining Gimv, he was working as a senior scientist at the department of Oncology at Janssen Pharmaceutical, a Johnson & Johnson company. Jim is a Belgian citizen and has a PhD in molecular and cellular biology from the University of Maastricht.
As a part of implementing the new strategy with an increased focus on the strategic portfolio the shares in Axelar was sold to Östersjöstiftelsen for an undisclosed up-front payment and earn-out payments. The sale had a marginal positive impact on the last published equity of Karolinska Development. The fair value of Karolinska Development's holding in Axelar was written off in 2014.
Under the terms of the agreement, Ergomed was appointed as the clinical development organization to conduct Dilaforette's multicentre, multinational, randomized Phase II study in sickle-cell disease (SCD) patients suffering from vaso-occlusive crises. The study is scheduled to start in Q2 2015. Ergomed will furthermore co-invest a proportion of its revenues from the clinical and regulatory activities of the trial in return for an equity stake in Dilaforette.
Dilaforette announced that the U.S. Food and Drug Administration (FDA) had granted Orphan Drug Designation for sevuparin for the treatment of patients with SCD. SCD is a disabling and potentially fatal disease with a large unmet medical need in both the developed and developing world. In the US, it estimated that close to 100,000 patients are diagnosed with this hereditary disease. SCD patients undergo on average one vaso-occlusive crisis per year. This acute complication is caused by sickle blood cells obstructing the blood flow to organs leading to ischemia and often severe pain. Long-term, SCD patients are at risk of organ damage and premature death. The orphan drug designation will significantly shorten future market approval processes and reinforce market exclusivity for a launched product in the U.S. and EU.
Dilaforette is a Swedish drug development company developing sevuparin, an innovative, proprietary polysaccharide drug, which has potential to restore blood flow and prevent further microvascular obstruction in both sickle cell disease and malaria patients. Sevuparin originates from research at the Karolinska Institute and Uppsala University. The drug development has involved world leading experts in the field of heparin from the Swedish pharmaceutical industry.
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.
Based on prominent research on the tumor suppressor protein p53 at Karolinska Institutet, Aprea was founded in 2003. The discoveries by the founders Professor Klas Wiman, Professor Galina Selivanova, Associate Professor Vladimir Bykov, Professor Staffan Strömblad, Wenjie Bao and Natalia Issaeva regarding the restoration of function of defective p53 led to the identification of the lead drug candidate APR-246 that is now in Phase I/II clinical development.
Holdings in Karolinska Development AB
Holdings in KDev Investment AB
Clanotech received orphan drug designation by the U.S. Food and Drug Administration (FDA) for its candidate drug CLT-28643 for the prevention of scarring after glaucoma surgery. The European Medicines Agency (EMA) has previously granted an orphan drug designation pertaining to the EU.
Aprea's Phase Ib/II PiSARRO trial investigates the safety and efficacy of APR-246 in combination with carboplatin and doxorubicin in patients with high grade serous ovarian cancer that have relapsed from primary treatment. The poster presented at the AACR Annual Meeting contained preliminary results for the first dosing cohort with three patients in the Phase Ib part of the study. The data on these patients indicated that APR-246 can be used in the intended combination regimen for the patient group and no new safety concerns were seen. Also, early indications of activity was observed with partial RECIST responses from all three patients.
Karolinska Development announced fair value decrease included in the first quarter results amounting to SEK -225.2 million mainly due to write-offs of three opportunistic portfolio companies. Pergamum value is written off with the amount of SEK 120.2 million, Umecrine Mood with the amount of SEK 58.9 million and NeoDynamics AB with the amount of SEK 9.7 million – all compared to the year-end 2014 valuations. Additional adjustments of fair value of the portfolio amount to SEK -36.4 million. The net change in portfolio fair value during the first quarter amounted to SEK -225.2 million.
1 The reported fair value of portfolio holdings includes financial assets to the amount of SEK 13.0, mainly constituting cash in holding companies. In the figures above this amount is not included.
2 Biosergen, Pergamum and Umecrine Mood are operating portfolio companies although the reported fair value of these holdings have been written off.
| 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 | Biosergen1 Systemic fungal infections NovaSAID Inflammatory pain Pergamum1 Skin infection |
Athera Biotechnologies Acute coronary syndrome |
BioArctic Neuroscience Alzheimer's Dilafor Protracted labor Dilaforette Malaria Forendo Pharma Hypogonadism Pergamum1 Infected eczema, external otitis, surgical adhesions, venous leg ulcers Umecrine Mood1 PMDD and severe PMS |
| Concept | Development | Product | Marketed | |
|---|---|---|---|---|
| Technology | Lipidor Topical drug delivery |
Promimic Implant surface Athera Biotechnologies Cardiovascular diagnostics Inhalation Sciences Respiratory precision dosing |
1 Biosergen, Pergamum and Umecrine Mood are operating portfolio companies although the reported fair value of these holdings have been written off.
During the first quarter 2015, the effect of the change in fair value of portfolio investments amounted to SEK -252.7m (SEK -6.1m).
During the first quarter 2015, the Investment Entity's operating loss amounted to SEK -266.0m (SEK -18.6m), a change of SEK -247.4m compared with the same period in 2014.
Following decisions to discontinue further investment in the opportunistic portfolio companies Pergamum AB, Umecrine Mood AB and NeoDynamics AB and after exploring several options, Karolinska Development has decided to fully write off these companies. Pergamum value is written off with the amount of SEK 120.2m, Umecrine Mood with the amount of SEK 58.9m and NeoDynamics AB with the amount of SEK 9.7m – all compared to the year-end 2014 valuations. Additional adjustments of fair value of the portfolio amount to SEK -36.4m.
The Investment Entity's loss before tax during the first quarter 2015 amounted to SEK -275.1m (SEK -18.4m).
Investments in portfolio companies during the first quarter 2015 amounted to SEK 27.5m (SEK 15.5m).
During the first quarter 2015 investments were made in KDev Investments' portfolio at SEK 27.5m (Aprea AB SEK 17.0m; Dilaforette Holding AB, SEK 8.7 as well as in Promimic AB, SEK 1.8m).
The Investment Entity's equity to total assets ratio was 79% (96%) on 31 March 2015 and equity amounted to SEK 1,416.4m (SEK 1,645.5m).
Cash, cash equivalents and short-term investments in the Investment Entity amounted to SEK 440.4m (SEK 141.3m), of which SEK 100.3m is provisionally allocated for anticipated follow-on investments in the KDev Investments portfolio. Total assets amounted to SEK 1,797.2m (SEK 1,710.4m).
During the first quarter 2015, the Parent Company's operating loss amounted to SEK -37.9m (SEK - 12.6m), a change of SEK -25.3m compared with the same period in 2014. During the first quarter 2015, impairment losses were recognized on the holdings in Lipidor AB SEK -11.1m , KDev Investments AB SEK -5.7m, Umecrine AB SEK -4.7m , share of result in KCIF Co-Investment Fund KB SEK -2.7, KDev Oncology AB SEK -0.2m, KCIF Fund Management AB SEK -0.2m and KD Incentive AB SEK -0.1m. Impairment losses during the first quarter 2015 totaled SEK -24.7m (SEK -0.7m).
The Parent Company's net loss during the first quarter 2015 amounted to SEK -165.4m (SEK - 11.9m).
* 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. Amounts in parenthesis refer to corresponding period in the prior year unless otherwise stated.
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 2014. For a detailed description of risks and uncertainties, see the annual report 2014.
The CEO hereby certifies that this interim 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, 6 May 2015
Jim Van heusden CEO
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 6 May 2015.
This interim report, together with additional information, is available on Karolinska Development's website, www.karolinskadevelopment.com.
For further information, please contact: Jim Van heusden, CEO +46 72 245 98 92 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 interim report has not been reviewed by the company´s auditors.
Note: This report is a translation of the Swedish interim report. In case of any discrepancies, the Swedish version shall prevail.
| SEK 000 Note |
2015 | 2014 | 2014 |
|---|---|---|---|
| Jan-Mar | Jan-Mar | Full-year | |
| Revenue | 992 | 1,249 | 5,030 |
| Other expenses | -4,499 | -3,668 | -16,447 |
| Personnel costs | -9,658 | -10,410 | -51,933 |
| Depreciation of tangible non-current assets | -53 | -53 | -212 |
| Change in fair value of shares in portfolio companies 2 |
-252,736 | -6,088 | -310,399 |
| Result from sale of shares in portfolio companies | - | 347 | 1,745 |
| Operating profit/loss | -265,954 | -18,623 | -372,216 |
| Financial net* 3 |
-9,123 | 253 | -3,599 |
| Profit/loss before tax | -275,077 | -18,370 | -375,815 |
| Deferred taxes | - | - | - |
| Current taxes | - | - | - |
| NET PROFIT/LOSS FOR THE PERIOD | -275,077 | -18,370 | -375,815 |
*Interest on convertible loans at 8 percent nominal interest rate.
| SEK Note |
2015 Jan-Mar |
2014 Jan-Mar |
2014 Full-year |
|---|---|---|---|
| Earnings per share, weighted average, before and after dilution |
-5.18 | -0.38 | -7.73 |
| Number of shares, weighted average | 53,140,273 | 48,287,132 | 48,606,243 |
| SEK 000 | Note | 2015 Jan-Mar |
2014 Jan-Mar |
2014 Full-year |
|---|---|---|---|---|
| Net/profit loss for the period | -275,077 | -18,370 | -375,815 | |
| Total comprehensive income for the period | -275,077 | -18,370 | -375,815 |
| SEK 000 Note |
31 Mar 2015 | 31 Mar 2014 | 31 Dec 2014 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Tangible non-current assets | 265 | 476 | 317 |
| Shares in portfolio companies at fair value through profit or loss | 1,276,974 | 1,738,878 | 1,502,186 |
| Loans receivable from portfolio companies | 36,097 | 6,823 | 12,062 |
| Other financial assets | 38,113 | 38,113 | 38,113 |
| Total non-current assets | 1,351,449 | 1,784,290 | 1,552,678 |
| Current assets | |||
| Receivables from portfolio companies | 1,042 | 564 | 895 |
| Other short-term receivables | 1,999 | 2,160 | 3,103 |
| Prepaid expenses and accrued income | 2,241 | 2,016 | 12,364 |
| Short-term investments, at fair value through profit or loss | 308,639 | 153,703 | 128,443 |
| Cash and cash equivalents | 131,803 | 17,310 | 12,885 |
| Total current assets | 445,724 | 175,753 | 157,690 |
| TOTAL ASSETS | 1,797,173 | 1,960,043 | 1,710,368 |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share capital | 26,692 | 24,266 | 26,692 |
| Share premium | 1,874,236 | 1,768,179 | 1,828,844 |
| Retained earnings | -484,546 | 147,540 | -209,992 |
| Total equity | 1,416,382 | 1,939,985 | 1,645,544 |
| Long-term liabilities | |||
| Convertible loan | 309,160 | - | 22,858 |
| Other financial liabilities | 11,686 | 9,895 | 11,686 |
| Total long-term liabilities | 320,846 | 9,895 | 34,544 |
| Current liabilities | |||
| Accounts payable | 24,439 | 1,354 | 4,668 |
| Liabilities to portfolio companies | 392 | 442 | 442 |
| Other current assets | 1,116 | 1,378 | 1,023 |
| Accrued expenses and prepaid income | 33,998 | 6,989 | 24,147 |
| Total current liabilities | 59,945 | 10,163 | 30,280 |
| Total liabilities | 380,791 | 20,058 | 64,824 |
| TOTAL EQUITY AND LIABILITIES | 1,797,173 | 1,960,043 | 1,710,368 |
| SEK 000 | Note Equity attributable to Parent Company's shareholders |
|||||
|---|---|---|---|---|---|---|
| Share capital | Share premium | Retained earnings | Total | |||
| Opening equity at 1 Jan 2015 | 26,692 | 1,828,844 | -209,992 | 1,645,544 | ||
| Net profit/loss for the period | -275,077 | -275,077 | ||||
| Total comprehensive income for the period | -275,077 | -275,077 | ||||
| Convertible loan - equity part | 49,528 | 49,528 | ||||
| Issue costs | -4,136 | -4,136 | ||||
| Effect of incentive programs | 523 | 523 | ||||
| Closing equity at 31 Mar 2015 | 26,692 | 1,874,236 | -484,546 | 1,416,382 | ||
| Openings equity at 1 Jan 2014 | 24,266 | 1,768,179 | 165,159 | 1,957,604 | ||
| Net profit/loss for the period | -18,370 | -18,370 | ||||
| Total comprehensive income for the period | -18,370 | -18,370 | ||||
| Share repurchase | 751 | 751 | ||||
| Closing equity at 31 Mar 2014 | 24,266 | 1,768,179 | 147,540 | 1,939,985 | ||
| Opening equity at 1 Jan 2014 | 24,266 | 1,768,179 | 165,159 | 1,957,604 | ||
| Net profit/loss for the year | -375,815 | -375,815 | ||||
| Total comprehensive income for the year | -375,815 | -375,815 | ||||
| Share issue | 2,426 | 60,665 | 63,091 | |||
| Effect of incentive programs | 664 | 664 | ||||
| Closing equity at 31 Dec 2014 | 26,692 | 1,828,844 | -209,992 | 1,645,544 |
| SEK 000 | Note | 2015 Jan-Mar |
2014 Jan-Mar |
|---|---|---|---|
| Operating activities | |||
| Operating profit/loss | -265,954 | -18,623 | |
| Adjustments for items not affecting cash flow | |||
| Depreciation | 53 | 53 | |
| Change in fair value | 2 | 252,736 | 6,088 |
| Result from sale of shares in portfolio companies | - | -347 | |
| Other items | 2,407 | - | |
| Proceeds from short-term investments | 168 | 252 | |
| Interest paid/received | 4 | 27 | |
| Cash flow from operating activities before changes in working capital and operating investments | -10,586 | -12,550 | |
| Cash flow from changes in working capital | |||
| Increase (-)/Decrease (+) in operating receivables | 1,510 | 262 | |
| Increase (+)/Decrease (-) in operating liabilities | 29,663 | -2,413 | |
| Operating investments | |||
| Proceeds from sale of shares in portfolio companies | - | 347 | |
| Acquisitions of share in portfolio companies | -27,525 | -15,509 | |
| Loans provided to portfolio companies | -26,058 | -929 | |
| Proceeds from sale of short-term investments¹ | - | 12,779 | |
| Investments in tangible non-current-assets | -179,780 | - | |
| Cash flow from operating activities | -212,776 | -18,013 | |
| Financing activities | |||
| Convertible debentures issue | 364,001 | - | |
| Issue costs | -32,307 | - | |
| Cash flow from financing activities | 331,694 | - | |
| Cash flow for the period | 118,918 | -18,013 | |
| Cash and cash equivalents at the beginning of the year | 12,885 | 35,323 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 131,803 | 17,310 |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 131,803 | 17,310 |
|---|---|---|
| Short-term investments, market value at closing date | 308,639 | 153,703 |
| CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS AT THE END OF THE PERIOD | 440,442 | 171,013 |
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 | 2015 | 2014 | 2014 |
|---|---|---|---|---|
| Jan-Mar | Jan-Mar | Full-year | ||
| Net sales | 992 | 1,249 | 5,030 | |
| Revenue | 992 | 1,249 | 5,030 | |
| Other expenses | -4,499 | -3,668 | -16,447 | |
| Personnel costs | -9,658 | -10,410 | -51,933 | |
| Depreciation of tangible non-current assets | -53 | -53 | -212 | |
| Impairment losses on shares in subsidiaries, joint ventures, associated companies and other | ||||
| long-term securities holdings | -24,684 | -69 | -14,911 | |
| Result from sale of shares in portfolio companies | - | 347 | 1,693 | |
| Operating profit/loss | -37,902 | -12,604 | -76,780 | |
| Financial net* | 3 | -9,123 | 711 | -1,350 |
| NET PROFIT/LOSS FOR THE PERIOD | -47,025 | -11,893 | -78,130 |
* Interest on convertible loans at 8 percent nominal interest rate.
| SEK 000 | Note | 2015 | 2014 | 2014 |
|---|---|---|---|---|
| Jan-Mar | Jan-Mar | Full-year | ||
| Net profit/loss for the period | -47,025 | -11,893 | -78,130 | |
| Total comprehensive income for the period | -47,025 | -11,893 | -78,130 |
| SEK 000 Note |
31 Mar 2015 | 31 Mar 2014 | 31 Dec 2014 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Tangible non-current assets | 265 | 476 | 317 |
| Shares in subsidiaries, joint ventures, associated companies and other long term-securities | |||
| holdings | 1,141,595 | 1,086,030 | 1,138,754 |
| Loans receivable from portfolio companies | 36,097 | 6,823 | 12,062 |
| Other financial assets | 33,771 | 32,596 | 33,493 |
| Total non-current assets | 1,211,728 | 1,125,925 | 1,184,626 |
| Current assets | |||
| Receivables from subsidiaries | 1,042 | 564 | 895 |
| Other receivables | 1,999 | 2,160 | 3,103 |
| Prepaid expenses and accrued income | 2,241 | 2,016 | 12,364 |
| Short-term investments | 308,639 | 153,703 | 128,443 |
| Cash and cash equivalents | 131,803 | 17,310 | 12,885 |
| Total current assets | 445,724 | 175,753 | 157,690 |
| TOTAL ASSETS | 1,657,452 | 1,301,678 | 1,342,316 |
| EQUITY AND LIABILITIES Equity |
|||
| Restricted equity | |||
| Share capital | 26,692 | 24,266 | 26,692 |
| Unrestricted equity | |||
| Share premium reserve | 1,884,310 | 1,778,253 | 1,838,918 |
| Accumulated losses | -580,195 | -502,501 | -502,588 |
| Net profit/loss for the period | -47,025 | -11,893 | -78,130 |
| Total equity | 1,283,782 | 1,288,125 | 1,284,892 |
| Long-term liabilities | |||
| Convertible loan | 309,160 | - | 22,858 |
| Pension obligations | 4,565 | 3,390 | 4,286 |
| Total long-term liabilities | 313,725 | 3,390 | 27,144 |
| Current liabilities | |||
| Accounts payable | 24,439 | 1,354 | 4,668 |
| Liabilities to subsidiaries | 392 | 442 | 442 |
| Other current liabilities | 1,116 | 1,378 | 1,023 |
| Accrued expenses and prepaid income | 33,998 | 6,989 | 24,147 |
| Total current liabilities | 59,945 | 10,163 | 30,280 |
| Total liabilities | 373,670 | 13,553 | 57,424 |
| TOTAL EQUITY AND LIABILITIES | 1,657,452 | 1,301,678 | 1,342,316 |
| SEK 000 | Note | 31 Mar 2015 | 31 Mar 2014 | 31 Dec 2014 |
|---|---|---|---|---|
| Pledged assets | 4,565 | 3,390 | 4,286 | |
| Credit commitment to portfolio company¹ | 8,000 | - | - | |
| Total | 12,565 | 3,390 | 4,286 |
¹Non-executed loan agreement with portfolio company, off-set in the balance sheet
| SEK 000 | Note | ||||
|---|---|---|---|---|---|
| Restricted equity | Unrestricted equity | ||||
| Share capital | Share premium | Accumulated | Net profit/loss | Total equity | |
| reserve | losses | for the period | |||
| Opening equity at Jan 1 2015 | 26,692 | 1,838,918 | -502,588 | -78,130 | 1,284,892 |
| Appropriation of loss Net profit/loss for the period |
-78,130 | 78,130 -47,025 |
-47,025 | ||
| Total | 26,692 | 1,838,918 | -580,718 | -47,025 | 1 237 867 |
| Convertible loan - equity part | 49,528 | 49,528 | |||
| Issue costs | -4,136 | -4,136 | |||
| Effect of incentive programs | 523 | 523 | |||
| Closing equity at 31 Mar 2015 | 26,692 | 1,884,310 | -580,195 | -47,025 | 1,283,782 |
| Opening equity at Jan 1 2014 | 24,266 | 1,778,253 | -550,566 | 47,314 | 1,299,267 |
| Appropriation of loss | 47,314 | -47,314 | |||
| Net profit/loss for the period | -11,893 | -11,893 | |||
| Total | 24,266 | 1,778,253 | -503,252 | -11,893 | 1,287,374 |
| Effect of incentive programs | 751 | 751 | |||
| Closing equity at 31 Mar 2014 | 24,266 | 1,778,253 | -502,501 | -11,893 | 1,288,125 |
| 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 | ||
| Effect of incentive programs | 664 | 664 | |||
| Closing equity at 31 Dec 2014 | 26,692 | 1,838,918 | -502,588 | -78,130 | 1,284,892 |
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.
No 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 | - | - | 1,276,974 | 1,276,974 |
| Loans receivable from portfolio companies | - | 36,097 | - | 36,097 |
| Other financial assets | - | - | 38,113 | 38,113 |
| Receivables from portfolio companies | - | 1,042 | - | 1,042 |
| Short-term investments, at fair value through profit of loss | 308,639 | - | - | 308,639 |
| Cash and cash equivalents | 131,803 | - | - | 131,803 |
| Total | 440,442 | 37,139 | 1,315,087 | 1,792,668 |
| Financial liabilities | ||||
| Convertible loan | - | 309,160 | - | 309,160 |
| Other financial liabilities | - | - | 11,686 | 11,686 |
| Accounts payable | - | 24,439 | - | 24,439 |
| Liabilities to portfolio companies | - | 392 | - | 392 |
| Total | - | 333,991 | 11,686 | 345,677 |
| SEK 000 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Financial assets | ||||
| Shares in portfolio companies, at fair value through profit or loss | - | - | 1,738,878 | 1,738,878 |
| Loans receivable from portfolio companies | - | 6,823 | - | 6,823 |
| Other financial assets | - | - | 38,113 | 38,113 |
| Receivables from portfolio companies | - | 564 | - | 564 |
| Short-term investments, at fair value through profit of loss | 153,703 | - | - | 153,703 |
| Cash and cash equivalents | 17,310 | - | - | 17,310 |
| Total | 171,013 | 7,387 | 1,776,991 | 1,955,391 |
| Financial liabilities | ||||
| Other financial liabilities | - | - | 9,895 | 9,895 |
| Accounts payable | - | 1,354 | - | 1,354 |
| Liabilities to portfolio companies | - | 442 | - | 442 |
| Total | - | 1,796 | 9,895 | 11,691 |
| SEK 000 | Shares in portfolio companies |
Other financial assets |
Other financial liabilities |
|---|---|---|---|
| At beginning of the year | 1,502,186 | 38,113 | 11,686 |
| Transfers to and from level 3 | - | - | - |
| Acquisitions | 27,524 | - | - |
| Disposals | - | - | - |
| Gains and losses recognized through profit or loss | -252,736 | - | - |
| Closing balance 31 March 2015 | 1,276,974 | 38,113 | 11,686 |
| Total unrealized gains and losses for the period in profit or loss | -252,736 | - | - |
| Gains and losses in profit or loss for the period for assets and liabilities included in the closing balance |
-252,736 | - | - |
There were no transfers between level 1 and 2 during the first quarter year 2015.
| 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 | 15,509 | - | - |
| Disposals | -8 | - | - |
| Gains and losses recognized through profit or loss | -6,088 | - | 458 |
| Closing balance 31 March 2015 | 1,738,878 | 38,113 | 9,896 |
| Total unrealized gains and losses for the period in profit or loss | -6,088 | - | -458 |
| Gains and losses in profit or loss for the period for assets and liabilities included in the closing balance |
-6,088 | - | -458 |
There were no transfers between level 1 and 2 during the first quarter 2015.
The Investment Entity 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% | March 31, 2015 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 | 1,373.9 | 96.9 | 1,277.0 | 1,192.4 | -84.5 |
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 Investment Entity's results.
The Investment Entity 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 the Investment Entity.
The Investment Entity has issued convertible debentures, so called compound financial instruments, in which the holder has right to convert into shares, the number of shares to be issued are not affected by changes in fair value of the shares.
The debt portion of the compound financial instrument is initially recognized at fair value for a similar debt without a conversion right into shares. The equity portion is initially recognized as the difference between the total fair value of compound financial instrument and the fair value of the debt portion. Directly attributable transaction costs are allocated to the debt respectively equity portion based on their initial recognized values.
Post-acquisition the debt portion of the compound financial instrument is valued to amortized costs based on the effective interest method. The equity portion of the compound financial instrument is not revalued postacquisition, except at conversion or redemption.
The Investment Entity issued convertible debentures with a nominal amount of 386 859 KSEK on 2 January 2015 which have a nominal interest rate of 8 percent. The convertible debentures will fall due for payment on 31 December 2019 at the nominal amount of 586 423 KSEK (provided that accrued interest is interest bearing), the convertibles grant a right to convert into shares at a conversion rate of 22 SEK per series B share. The value of the debt and equity part (conversion right) was determined on the date of issuance.
The convertible debentures is presented in the balance sheet as shown in the below table.
| KSEK | 31 Mar 2015 | 31 Mar 2014 |
|---|---|---|
| Nominal amount of convertible debentures issued on 2 January 2015 | 386,859 | - |
| Issue costs | -28,171 | - |
| Equity portion | -49,528 | - |
| Debt at issuance date 2 January 2015 | 309,160 | - |
| Accured interest costs | 10,011 | - |
| Paid interest | - | - |
| TOTAL | 319,171 | - |
Due to the short time span since the issue the market interest rate is substantially unchanged and therefore the fair value can be approximated as the book value.
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 Mar 2015 | 31 Mar 2014 | 31 Dec 2014 |
| Avaris AB (dormant) | Huddinge | 94,87% | 94,87% | 94,87% |
| HBV Theranostica AB (liquidated) | Stockholm | - | 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% | - |
| Limone AB (liquidated) | Solna | - | 100,00% | - |
| Pharmanest AB | Solna | 62,66% | 62,99% | 62,66% |
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.
Karolinska Development AB has entered into an agreement with a company related to the Chairman of the Board, OrfaCare Consulting GmbH, regarding consultations by the Chairman of the Board, Bo Jesper Hansen. The consultancy agreement is unrelated to his position as Chairman of the company. The agreement is valid from 1 March 2015 until the date of the Company´s Annual General Meeting 2016. The consultancy fee is marked based and amounted to 88 KSEK during the first quarter 2015.
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