Quarterly Report • May 10, 2016
Quarterly Report
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Karolinska Development AB (Nasdaq Stockholm: KDEV) is a Nordic life sciences investment company. The company focuses on identifying medical innovation and investing in the creation and growth of companies developing these assets into differentiated products that will make a difference to patients' lives and provide an attractive return on investment to its shareholders.
Karolinska Development has access to world-class medical innovations at leading universities and research institutes in the Nordic region, including the Karolinska Institutet. The Company aims to build companies around innovative products and technologies, supported by experienced management teams and advisers, and cofunded by specialist international life science investors, to provide the greatest chance of success.
Karolinska Development's portfolio comprises 11 companies focusing on the development of innovative treatment for life-threatening or serious debilitating diseases.
The Company is led by a team of investment professionals with strong investment backgrounds, experienced company builders and entrepreneurs, with access to a strong global network.
Karolinska Development has made good progress during 2016 building on the foundation established in 2015 and is now well positioned to create future value through its focused portfolio and through new investments.
OssDsign AB appointed Simon Cartmell as Chairman to the Board of Directors (April 2016).
"I am very pleased with the progress that Karolinska Development has made in the first quarter of 2016 based on the foundation established in 2015. As a Nordic investment company, our strategy is to build on this foundation and create value for patients and shareholders through two key areas: our existing portfolio and new investments. We also anticipate that certain of our current earn-out agreements may deliver additional future value to our shareholders.
"Already in 2016 we have seen some exciting progress with our portfolio, a key highlight being Aprea's SEK 437 million financing, the largest ever completed by a Karolinska Development portfolio company and more broadly by any private life science company in Sweden in more than a decade. This financing involved a syndicate of leading international life sciences investors highlighting the global potential and value of the innovation that exists within our portfolio and originating from Karolinska Institutet.
"In terms of new investments, we are looking more broadly across the Nordic region to identify new opportunities, including more mature opportunities, where value can be generated and returns may be realised much more quickly.
"Karolinska Development has a portfolio of exciting prospects that are funded to deliver key value-generating milestones over the coming years, and an investment strategy designed to deliver further value from the most promising life science opportunities across the Nordic region. I look forward to providing further updates as we execute on our strategy."
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
Citigate Dewe Rogerson
David Dible/Mark Swallow/Pip Batty
+44 20 7638 9571
Karolinska Development has already made significant progress in 2016 based on the foundation established in 2015. As a result, the Nordic investment company is well positioned to execute its strategy focused on building future value for patients and shareholders through two key areas: its existing portfolio and new investments.
Karolinska Development's portfolio comprised 11 companies at the end of March 2016. These companies are developing highly differentiated and commercially attractive products that have the potential to deliver both compelling clinical and health economic benefits.
Karolinska Development aims to ensure that its portfolio companies are financed to the next value inflection point by proactively syndicating deals with experienced international life sciences investors. An important recent example is the SEK 437 million financing of Aprea, which involved a syndicate of leading life sciences investors from the US, Canada and Sweden.
Working with investor syndicates enables Karolinska Development to spread and share its investment risks, which is crucial in the life sciences space where development is capital intensive and timelines are long. Furthermore, it provides recognition by other investors both of the capabilities and competence of the Karolinska Development investment team, and of the innovation and potential value of the companies around which they are formed.
These relationships with new investors also benefit our portfolio companies by increasing access to new capital and expertise to support their development.
Syndication therefore provides more opportunities for Karolinska Development to generate greater returns while at the same time allowing the risk profile of the overall portfolio to be better managed.
Karolinska Development also retains an economic interest in several divested companies, including Axelar AB, Athera Biotechnologies AB, Pharmanest AB, XSpray Microparticles AB and Oncopeptides AB and expects that over time some of these companies could deliver additional value to shareholders.
Karolinska Development's investment strategy aims to capitalize on the best opportunities based on worldclass medical innovation across the entire Nordic region, including more mature investments where returns may be realised more quickly than from early stage companies.
Karolinska Development's ability to identify, access and manage new deals was considerably enhanced during the first quarter with Viktor Drvota, MD PhD starting as Chief Investment Officer, following his appointment in December 2015. Dr Drvota is an experienced life science investor and joined Karolinska Development from SEB Venture Capital, where he was Head of Life Science since 2002. He has established a strong track record in identifying investment opportunities in the life sciences sector (biotech and medtech) in the Nordic region, building companies and fundraising. He led the SEK 93 million OssDsign financing in November 2015.
The addition of Dr Drvota to the team means that Karolinska Development can now call on a strong combination of local and international networks and expertise as it executes its investment strategy. This provides an opportunity to build truly international investor syndicates and intensify focus on the Nordic region as a source of future market-leading companies. In addition, the future success of such companies will serve to attract additional funding into the region; attract experienced leadership teams and board members to portfolio companies; and support entrepreneurs to develop their innovations into commercial propositions.
In March, Aprea AB announced it raised SEK 437 million in a Series B financing from a syndicate of specialist international life science investors led by Versant Ventures and 5AM Ventures (both US), and including Sectoral Asset Management (Canada), and HealthCap (Sweden) as local lead. The funds raised are to advance the clinical development of APR-246 in ovarian cancer, to explore its use in other cancer indications and to build a presence in the US. The fundraising is the largest ever completed by a Karolinska Development portfolio company and more broadly by any private life science company in Sweden in over a decade.
Umecrine Cognition AB completed a private financing round that will support the first phase of clinical development of its lead drug candidate GR3027 for hepatic encephalopathy in liver disease patients. New investors, Fort Knox Förvaring AB, Partnerinvest Övre Norrland AB and Norrlandsfonden join Karolinska Development in this financing round. The first patients have already been enrolled into the Phase I clinical trial.
In February, Dilaforette AB signed an agreement with Arabian Gulf University (AGU) to support the Phase II proof of concept study with sevuparin in SCD patients. AGU will provide up to USD 1.2 million in non-dilutive funding for the study and assist with patient recruitment. In return AGU will receive royalties on future product revenues which are capped at twice the financial support it provides to the Phase 2 proof of concept study. The study is currently enrolling patients at several clinical sites in Europe and the Middle East.
In January, Promimic announced that its strategic partner Sistema de Implante Nacional had initiated the launch of the first dental implant coated with HAnano Surface.
Further, in March, Promimic and Danco Anodizing entered a strategic partnership whereby Danco will invest in a production line for the HAnano Surface process. Danco will be the preferred process partner for Promimic for the USA and China medical implant market as preparations for commercialisation of its novel technology accelerates.
OssDsign received CE mark approval for Cranioplug, an innovative device for cranial fixation. Furthermore, in April, OssDsign appointed Simon Cartmell as Chairman of the Board. The appointment strengthens the organization ahead of the US launch of its novel regenerative facial and cranial implants, expected in 2017. Mr Cartmell is an experienced entrepreneur in the life sciences industry and a Non-Executive Director/Chairman of a number European medical device companies. He was previously the CEO and architect behind the commercial success of Apatech, a British medtech firm that developed ACTIFUSE, a novel bone void filler used to treat bone defects resulting from orthopaedic and spine surgery or traumatic injury. Apatech was acquired by Baxter International in March 2010 for USD 330 million.
A total of 33,677 shares were sold in Inhalation Sciences Sweden, a KDev Investments portfolio company, to a syndicate of Swedish investors led by Stockholms Affärsänglar for SEK 1.0 million. The divestment was part of an agreement signed in 2015 where a group of investors led by Stockholms Affärsänglar and Almi Invest invested a total of SEK 7.0 million in Inhalation Sciences Sweden in order to further support the sales of the company's services and products. The amount of shares divested amounts to 9.1% of KDev Investment's shareholding and after the divestment KDev Investments' total shareholding is reduced to 55.1%.
Karolinska Development has established a strong foundation and is now making good progress on executing its strategy. The firm has a portfolio of exciting prospects that are funded to deliver key value-generating milestones over the coming years, an investment strategy designed to generate further value from the most promising life science opportunities across the Nordic region, and key people in place with the necessary international experience and capabilities to drive its strategy forward.
Project APR-246
Primary indication Ovarian cancer
Development Phase Phase I/II
Holding in company 19%*
Other investors Versant Ventures (US), 5AM Ventures (US), HealthCap (Sweden) Sectoral Asset Management (Canada), KCIF Co-Investment Fund KB
Origin Karolinska Institutet
More information aprea.com
* Includes indirect holdings through KDev Investments and KCIF Co-Investment Fund
Aprea is a Swedish biotech company focusing on discovery and development of novel anticancer compounds targeting the tumor suppressor protein p53. De-activation of p53 results in uncontrolled growth of the cell leading to cancer. Mutations of the p53 gene occur in around 50% of tumors and restoring its normal function represents a very attractive approach for treating a broad range of cancers including those resistant to cancer chemotherapeutics.
Aprea's exciting lead drug candidate APR-246, a first-in-class anti-cancer compound that targets and reactivates the tumor suppressor protein p53, inducing programmed cell death in many human cancer cells.
APR-246 is currently undergoing a Phase Ib/II clinical study investigating its safety and efficacy in combination with chemotherapy in second-line treatment of patients with high grade serous ovarian. Preliminary data presented in October 2015 at the European Society of Gynaecological Oncology congress (ESGO) demonstrated encouraging activity in patients with partially platinum sensitive as well as fully platinum sensitive ovarian cancer.
At cut-off, all patients treated in the study had stable disease or better according to the Response Evaluation Criteria In Solid Tumors (RECIST) criteria. In addition, 13 out of 14 patients had a GCIG CA125 (tumor antigen biomarker) response after three treatment cycles.
The Phase Ib/II trial is a two-part randomized, controlled study investigating the safety and antitumor activity of APR-246 administered in combination with carboplatin and pegylated doxorubicin, compared with carboplatin and pegylated doxorubicin alone. This element of the study is due to start in H1 2016.
The primary endpoint of this Phase II study will be Progression Free Survival (PFS).
The market potential in ovarian cancer is substantial. There are around 225,000 women living with ovarian cancer in the seven major markets, with 67,000 new patients diagnosed each year. Of those diagnosed annually, approximately 20,000 have stage III-IV, recurrent disease with mutated p53. This is the primary target population for APR-246. The overall ovarian cancer pharmaceutical market is expected by analysts to grow by more than 13% annually to 2020, reaching a total market value of USD 2.3 billion.
SEK 437 million raised from syndicate of leading international life science investors (March 2016).
Project Sevuparin Primary indication Sickle cell disease (SCD)
Development Phase Phase II
Holding in company 64%*
Other investors The Foundation for Baltic and East European Studies, Praktikerinvest
Origin Karolinska Institutet, Uppsala Univesity
More information Dilaforette.se
* Includes indirect holdings through KDev Investments
Dilaforette, a Swedish drug development company, is developing sevuparin, an innovative, disease-modifying drug which has the potential to become the best-in-class treatment for sickle cell disease (SCD).
Sevuparin's anti-adhesive mechanism means it has the potential to prevent and resolve the microvascular obstructions experienced by SCD patients. These obstructions cause the severe pain experienced by patients during Vaso-Occlusive Crises (VOCs) and result in high morbidity through organ damage as well the risk of premature death.
Preclinical data show that that sevuparin can have rapid and clinically relevant effects on the microvascular obstructions. In October, Dilaforette announced that the first patient had been enrolled in a multi-center, doubleblind, placebo-controlled Phase II study of sevapurin in hospitalized SCD patients experiencing VOC.
The results from this study are expected in H2 2016. The trial is targeting 70 evaluable patients who will have been randomized to receive either an intravenous infusion of sevuparin or placebo on top of standard pain medication. This proof-of-concept study is designed to demonstrate reduced time to resolution of VOC, defined as freedom from parenteral opioid use and readiness for discharge from hospital. Secondary end-points include pharmacokinetics and safety.
The study is taking place in Europe and the Middle East under a co-development deal with Ergomed, which will co-invest a proportion of its revenues from the clinical and regulatory activities of this trial in return for an equity stake in Dilaforette.
Dilaforette's aim is to develop a presentation of sevuparin that could be self-administered by SCD patients in a timely manner to prevent VOCs developing.
SCD is an orphan disease with approximately 100,000 patients in the US and 35,000 patients in Europe. In addition to this, there is a large patient pool in the Middle East, India, South America and Africa. The average number of VOCs per patient seeking hospital care is in the order of one VOC per year. The commercial impact of a SCD treatment that reduces hospital stay and the use of opioid analgesics is expected to be substantial. A label expansion to include also the preventive treatment would expand the market size significantly.
Clinical collaboration agreement with Arabian Gulf University (Bahrain) for Phase II clinical development of sevuparin for SCD (February 2016).
SCD Phase II proof-of-concept results (H2 2016).
Project Craniomosaic, Cranioplug
Primary indication Cranio implants
Development Phase Marketed
Holding in company 29%*
Other investors SEB Venture Capital Fouriertransform
Origin Karolinska Univesity Hospital, Uppsala University
More information
ossdsign.com @ossdsign
* Includes indirect holdings through KCIF Co-Investment Fund
OssDsign is a pioneer in Orphan Medtech, an evolving segment within the medtech market. OssDsign commercializes novel cranial and facial implants, based on its proprietary technology platform, which possess a combination of biological, mechanical and aesthetic features that are combined for its clinical uses.
The use of traditional cranio-facial implant materials results in high complication rates and also carry the lifetime risk of skin penetration and infection. OSSDSIGN® Cranial and OSSDSIGN® Facial are implants custom-made for the individual patient. What makes OssDsign's products different are their biological features, which result in better blood flow, improved healing of the soft tissues covering the implants as well as improved bone formation over time. Enhanced healing means a better implant solution for patients and cost savings for hospitals. The OssDsign's technology platform combines a proprietary bioceramic formulation with a reinforcing titanium skeleton based on state-of-the-art computer-aided design, 3D printing and moulding techniques.
In April, OssDsign appointed Simon Cartmell as Chairman of the Board. The appointment strengthens the organization ahead of the US launch of its novel regenerative facial and cranial implants, expected in 2017. Mr Cartmell is an experienced entrepreneur in the life sciences industry and a Non-Executive Director/Chairman of a number European medical device companies. He was previously the CEO and architect behind the commercial success of Apatech, a British medtech firm that developed ACTIFUSE, a novel bone void filler used to treat bone defects resulting from orthopaedic and spine surgery or traumatic injury. Apatech was acquired by Baxter International in March 2010 for USD 330 million.
The market for biomaterials products in orthopaedics was estimated at EUR 1.5 billion in 2013. The market for OssDsign´s lead product in cranioplasty alone is expected to amount to approximately EUR 100 million in 2017. OssDsign pursues a focused business strategy on a well-defined patient population. The advantages are that the targeted procedures are carried out in a limited number of easily identifiable hospitals around the world. The indications are relatively price insensitive and on many markets easy to access from a regulatory perspective. OSSDSIGN® Cranial and OSSDSIGN® Facial are now commercially available in Germany, the UK and the Nordic countries and under regulatory preparation and review in key markets outside of Europe, such as the US.
Project HAnano Surface
Primary indication Implant surface
Development Phase Marketed
Holding in company 32%*
Other investors ALMI Invest K-Svets Venture
Origin Chalmers University of Technology
More information Promimic.com
* Includes indirect holdings through KDev Investments
Promimic is a biomaterials company that develops and markets a unique coating for implants called HAnano Surface, which accelerates bone integration and increases the anchoring strength of implants. HAnano Surface's key advantage is that it can convert any implant to a material that resembles human bone and thereby create an improved osteo-conductive interface between human tissue and the implant.
The HAnano Surface is nanometer thin, which helps preserve the micro-structure of the implant and reduces the risk of cracks in the coating. Furthermore, the coating improves the hydrophilicity of the implant, which increases the possibility for bone cells to attach to the surface. The HAnano Surface has been evaluated in both in vitro and in vivo studies, which have shown that it can reduce healing times. The coating process is easy to implement in the industrial scale production of implants.
Promimic entered into a strategic development and licensing agreement with Sistema de Implante Nacional (S.I.N), a leading provider of dental implants in Brazil, in 2015. The collaboration includes an extensive development program of both pre-clinical and clinical studies. In January 2016, Promimic announced that S.I.N had launched the first product using Promimic's technology.
Promimic also signed a strategic agreement with Amendia Inc. (US) in 2015 that will allow Amendia to develop HAnano Surface technology for use with its patient-focused spinal implants.
The implant industry is a large, high-growth market which delivers high profit margins. The competition amongst implant manufacturers is fierce and each market segment is dominated by four to eight global companies. The strategies of many of these companies rely on in-licensing new technologies in order to differentiate their products and strengthen their market position. Promimic has a business model designed to meet these needs. It is centered on out-licensing its HAnano Surface technology to leading implant manufacturers so that they can incorporate it into their products.
Further license agreements with major manufacturers.
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.
| SEKm | 2016 Jan-Mar |
2015 Jan-Mar |
2015 Full-year |
|---|---|---|---|
| (restated) | |||
| Condensed income statement | |||
| Change in fair value in portfolio companies | -82.3 | -228.6 | -976.5 |
| Net profit/loss | -100.1 | -250.9 | -1054.7 |
| Condensed balance sheet | |||
| Cash, cash equivalents and short-term investments | 287.6 | 440.4 | 297.2 |
| Share information | |||
| Earnings per share, weighted average, before and | |||
| after dilution (SEK) | -1.9 | -4.7 | -19.8 |
| Net asset value per share (SEK) (Note 1) | 2.9 | 20.6 | 4.7 |
| Equity per share (SEK) (Note 1) | 2.8 | 19.8 | 4.7 |
| Share price, last trading day in the reporting period (SEK) | 8.25 | 11.5 | 13.0 |
| Portfolio information | |||
| Investments in portfolio companies | 7.6 | 27.5 | 130.8 |
| Of which investments not affecting cash flow | 0.4 | - | 6.7 |
| Fair value of portfolio holdings | 193.2 | 912.4 | 267.7 |
During the first quarter 2016 the Investment Entity's operating loss amounted to SEK -90.1m (SEK -241.8m), of which the effect of the change in fair value of portfolio investments amounted to SEK -82.3m (SEK -228.6m). The effect of the change in fair value of portfolio investments is mainly due to Fair Value in Akinion Pharmaceutical AB being reduced to SEK 0.0 as a consequence of Akinion Pharmaceutical AB having halted further development of its lead product candidate AKN-028.
The result of changes in fair value of portfolio companies amounts to SEK -82.3m:
SEK 7.6m were invested in portfolio companies during the first quarter 2016 making change in Fair Value amount to SEK -74.7m.
The Investment Entity's loss before tax during the first quarter 2016 amounted to SEK -100.1m (SEK -250.9m).
Investments in portfolio companies by Karolinska Development during January – March 2016 amounted to SEK 7.6m. External specialized life science investors invested SEK 380.7m in the portfolio companies. Karolinska Development's investments amounted to:
The Investment Entity's equity to total assets ratio was 28% (40%) on 31 March 2016 and equity amounted to SEK 148.3m (SEK 247.9m). Cash, cash equivalents and short-term investments in the Investment Entity amounted to SEK 287.6m (SEK 297.2m), of which SEK 43.0m is provisionally allocated for anticipated followon investments in the KDev Investments portfolio. Total assets amounted to SEK 523.9m (SEK 614.5m).
The Parent Company refers to Karolinska Development AB.
During the first quarter 2016, the Parent Company's operating loss amounted to SEK -82.8m (SEK -193.3m), a change of SEK 110.5m compared with the same period in 2015. Impairment losses were recognized on the holdings in KDev Investments AB SEK -74.3m, KCIF Co-Investment Fund KB SEK 0.5m (SEK 0.0m), share of result in KCIF Co-Investment Fund KB SEK -1.2m (SEK 2.7m). The impairment losses in total amounted to SEK -73.8m (SEK -180.1m) and is mainly due to write offs on shares in KDev Investment AB's portfolio company Akinion Pharmaceutical AB.
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 in these assessments and the subjectivity in the inputs, 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. Financing strategy decisions can have an effect on 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 the form of equity and debt 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 favorable terms, or that such capital may be obtained at all.
Karolinska Development maintains a strategy to continuously invest in the portfolio companies in syndicate with other investors. If portfolio companies are not successful in attracting other investors, Karolinska Development may choose to invest alone. If Karolinska Development chooses not to invest in the portfolio companies, investments may be made solely by other investors, which may have a negative 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 cases, investors may decide to discontinue investing in a project. If so, the portfolio companies may have to limit their operations. Karolinska Development's shareholdings may also be diluted by other investors, and other investors may refrain from co–investing on equal terms.
Investments in existing portfolio companies during 2016 are expected to decrease compared to the previous year as a consequence of several companies being fully financed until next value inflection point and due to Karolinska Developments strategy of investing in syndication with other investors. Several companies are expected to enter license agreements with partners, receive non-dilutive grants such as EU contributions, and third party investments are expected to increase.
Investments in new portfolio companies are expected to increase during 2016.
Other than the above, no new risk areas have been identified since 31 December 2015. For a detailed description of risks and uncertainties, see the annual report 2015.
This report has not been reviewed by the Company's auditors.
Solna, 10 May 2016
Jim Van Heusden CEO
Annual General Meeting 25 May 2016 Interim report January-June 2016 31 August 2016 Interim report January-September 2016 23 November 2016
Karolinska Development is required by law to publish the information in this interim report. The information was published on 10 May 2016 at 08:00 AM (CET).
This interim report, together with additional information, is available on Karolinska Development's website: www.karolinskadevelopment.com
Jim Van heusden, CEO +46 72 858 32 09
Christan Tange, CFO +46 73 712 14 30
Citigate Dewe Rogerson David Dible/Mark Swallow/Pip Batty +44 20 7638 9571 [email protected]
Karolinska Development AB (publ) Tomtebodavägen 23A SE-171 65 Solna, Sweden
Note: This report is a translation of the Swedish interim report. In case of any discrepancies, the Swedish version shall prevail.
| SEK 000 | Note | 2016 Jan-Mar |
2015 Jan-Mar |
2015 Full-year |
|---|---|---|---|---|
| (restated) | ||||
| Revenue | 608 | 992 | 2,942 | |
| Other external expenses | -3,430 | -4,499 | -15,363 | |
| Personnel costs | -4,942 | -9,658 | -31,167 | |
| Depreciation of tangible non-current assets | -53 | -53 | -212 | |
| Change in fair value of shares in portfolio companies | 2 | -82,252 | -228,579 | -976,488 |
| Result from sale of shares in portfolio companies | - | - | - | |
| Operating profit/loss | -90,069 | -241,797 | -1,020,288 | |
| Financial net | -10,030 | -9,123 | -34,385 | |
| Profit/loss before tax | -100,099 | -250,920 | -1,054,673 | |
| Taxes | - | - | - | |
| NET PROFIT/LOSS FOR THE PERIOD | -100,099 | -250,920 | -1,054,673 |
| SEK | Note | 2016 Jan-Mar |
2015 Jan-Mar |
2015 Full-year |
|---|---|---|---|---|
| (restated) | ||||
| Earnings per share, weighted average, before and after | ||||
| dilution | -1.88 | -4.72 | -19.84 | |
| Number of shares, weighted average | 53,151,328 | 53,140,273 | 53,151,328 |
| SEK 000 | Note | 2016 Jan- Mar |
2015 Jan-Mar |
2015 Full-year |
|---|---|---|---|---|
| (restated) | ||||
| Net/profit loss for the period | -100,099 | -250,920 | -1,054,673 | |
| Total comprehensive income/loss for the period | -100,099 | -250,920 | -1,054,673 |
| SEK 000 | Note | 31 Mar 2016 |
31 Mar 2015 (restated) |
31 Dec 2015 |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Tangible non-current assets Shares in portfolio companies at fair value through profit or |
53 | 265 | 106 | |
| loss | 2 | 193,152 | 912,399 | 267,651 |
| Loans receivable from portfolio companies | 923 | 36,097 | 914 | |
| Other financial assets | 38,113 | 38,113 | 38,113 | |
| Total non-current assets | 232,241 | 986,874 | 306,784 | |
| Current assets | ||||
| Receivables from portfolio companies | 1,157 | 1,042 | 3,549 | |
| Other current receivables | 1,615 | 1,999 | 5,995 | |
| Prepaid expenses and accrued income | 1,286 | 2,241 | 897 | |
| Short-term investments, at fair value through profit or loss | 277,745 | 308,639 | 277,646 | |
| Cash and cash equivalents | 9,834 | 131,803 | 19,589 | |
| Total current assets | 291,637 | 445,724 | 307,676 | |
| TOTAL ASSETS | 523,878 | 1,432,598 | 614,460 | |
| EQUITY AND LIABILITIES Equity |
||||
| Share capital | 26,725 | 26,692 | 26,725 | |
| Share premium | 1,874,236 | 1,874,236 | 1,874,236 | |
| Retained earnings | -1,752,693 | -849,121 | -1,653,080 | |
| Total equity | 148,268 | 1,051,807 | 247,881 | |
| Long-term liabilities | ||||
| Convertible loan | 3 | 360,513 | 319,171 | 349,205 |
| Other financial liabilities | 4,798 | 11,686 | 5,439 | |
| Total long-term liabilities | 365,311 | 330,857 | 354,644 | |
| Current liabilities | ||||
| Accounts payable | 1,232 | 24,439 | 1,444 | |
| Liabilities to portfolio companies | 513 | 392 | 513 | |
| Other current liabilities | 498 | 1,116 | 4,425 | |
| Accrued expenses and prepaid income | 8,056 | 23,987 | 5,553 | |
| Total current liabilities | 10,299 | 49,934 | 11,935 | |
| Total liabilities | 375,610 | 380,791 | 366,579 | |
| TOTAL EQUITY AND LIABILITIES | 523,878 | 1,432,598 | 614,460 |
| SEK 000 | Note Equity attributable to Investment Entity´s shareholders |
||||||
|---|---|---|---|---|---|---|---|
| Share capital | Share | Retained | Total | ||||
| premium | earnings | ||||||
| Opening equity at 1 Jan 2016 | 26,725 | 1,874,236 | -1,653,080 | 247,881 | |||
| Net profit/loss for the period | -100,099 | -100,099 | |||||
| Total comprehensive income for the period | -100,099 | -100,099 | |||||
| Effect of incentive programs | 486 | 486 | |||||
| Closing equity at 31 Dec 2015 | 26,725 | 1,874,236 | -1,752,693 | 148,268 | |||
| Opening equity at 1 Jan 2015 | |||||||
| (restated) | 26,692 | 1,828,844 | -598,724 | 1,256,812 | |||
| Net profit/loss for the period | -250,920 | -250,920 | |||||
| Total comprehensive income for the period | -250,920 | -250,920 | |||||
| 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 | -849,121 | 1,051,807 | |||
| Opening equity at 1 Jan 2015 (restated) |
26,692 | 1,828,844 | -598,724 | 1,256,812 | |||
| Net profit/loss for the year | -1,054,673 | -1,054,673 | |||||
| Total comprehensive income for the year | -1,054,673 | -1,054,673 | |||||
| Convertible loan - equity part | 49,528 | 49,528 | |||||
| Issue costs | -4,136 | -4,136 | |||||
| Effect of incentive programs | 317 | 317 | |||||
| Share issue | 33 | 0 | 33 | ||||
| Closing equity at 31 Dec 2014 | 26,725 | 1,874,236 | -1,653,080 | 247,881 |
| SEK 000 | Note | 2016 Jan-Mar |
2015 Jan-Mar |
|---|---|---|---|
| (restated) | |||
| Operating activities | |||
| Operating profit/loss | -90,069 | -241,797 | |
| Adjustments for items not affecting cash flow | |||
| Depreciation | 53 | 53 | |
| Change in fair value | 2 | 82,252 | 228,579 |
| Result from sale of shares in portfolio companies | - | - | |
| Other items | 638 | 2,407 | |
| Proceeds from short-term investments Interest paid/received |
91 -1 |
168 4 |
|
| Cash flow from operating activities before changes in working capital and operating investments |
-7,036 | -10,586 | |
| Cash flow from changes in working capital | |||
| Increase (-)/Decrease (+) in operating receivables | 6,226 | 1,510 | |
| Increase (+)/Decrease (-) in operating liabilities | -1,640 | 29,663 | |
| Operating investments | |||
| Proceeds from sale of shares in portfolio companies | - | - | |
| Acquisitions of shares in portfolio companies | -7,200 | -27,525 | |
| Loans provided to portfolio companies | - | -26,058 | |
| Investments in short-term investments¹ | -106 | -179,780 | |
| Cash flow from operating activities | -9,756 | -212,776 | |
| Financing activities | |||
| Share issue | - | - | |
| Convertible debentures issue | - | 364,001 | |
| Issue costs | - | -32,307 | |
| Cash flow from financing activities | 0 | 331,694 | |
| Cash flow for the period | -9,756 | 118,918 | |
| Cash and cash equivalents at the beginning of the year | 19,589 | 12,885 | |
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 9,833 | 131,803 | |
| Supplemental disclosure¹ | |||
| CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD | 9,833 | 131,803 | |
| Short-term investments, market value at closing date | 277,745 | 308,639 |
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS AT THE END OF THE PERIOD 287,578 440,442
¹Surplus 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 statement of cash flows from operating activities. The supplemental disclosure is presented to provide a total overview of the Investment Entity's available fund including cash, cash equivalents and shortterm investments described here.
| SEK 000 | Note | 2016 Jan-Mar |
2015 Jan-Mar (restated) |
2015 Full-year (restated) |
|---|---|---|---|---|
| Net sales | 608 | 992 | 2,942 | |
| Revenue | 608 | 992 | 2,942 | |
| Other expenses | -3,430 | -4,499 | -15,363 | |
| Personnel costs | -4,941 | -9,658 | -31,167 | |
| 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 Result from sale of shares in portfolio companies |
-75,006 - |
-180,096 - |
-795,470 - |
|
| Operating profit/loss | -82,822 | -193,314 | -839,270 | |
| Financial net | -10,672 | -9,123 | -44,233 | |
| NET PROFIT/LOSS FOR THE PERIOD | -93,494 | -202,437 | -883,503 |
| SEK 000 | Note | 2016 Jan-Mar |
2015 Jan-Mar |
2015 Full-year |
|---|---|---|---|---|
| Net profit/loss for the period | -93,494 | -202,437 | -883,503 | |
| Total comprehensive income/loss for the period | -93,494 | -202,437 | -883,503 |
| SEK 000 | Note | 31 Mar 2016 | 31 Mar 2015 (restated) |
31 Dec 2015 |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Tangible non-current assets | 53 | 265 | 106 | |
| Shares in subsidiaries, joint ventures, associated companies and other long term-securities holdings |
161,388 | 773,539 | 229,513 | |
| Loans receivable from portfolio companies | 28,732 | 36,097 | 27,523 | |
| Other financial assets | 33,311 | 33,771 | 33,386 | |
| Total non-current assets | 223,484 | 843,672 | 290,528 | |
| Current assets | ||||
| Receivables from portfolio companies | 1,157 | 1,042 | 3,549 | |
| Other current receivables | 1,614 | 1,999 | 5,995 | |
| Prepaid expenses and accrued income | 2,561 | 2,241 | 2,500 | |
| Short-term investments | 277,745 | 308,639 | 277,646 | |
| Cash and cash equivalents | 9,834 | 131,803 | 19,589 | |
| Total current assets | 292,911 | 445,724 | 309,279 | |
| TOTAL ASSETS | 516,395 | 1,289,396 | 599,807 | |
| EQUITY AND LIABILITIES Equity Restricted equity |
||||
| Share capital | 26,725 | 26,692 | 26,725 | |
| Unrestricted equity | ||||
| Share premium reserve | 1,884,310 | 1,884,310 | 1,884,310 | |
| Accumulated losses | -1,676,062 | -792,839 | -793,045 | |
| Net profit/loss for the period | -93,494 | -202,437 | -883,503 | |
| Total equity | 141,479 | 915,726 | 234,487 | |
| Long-term liabilities | ||||
| Convertible loan | 3 | 360,514 | 309,160 | 349,205 |
| Pension obligations | 4,106 | 4,565 | 4,180 | |
| Total long-term liabilities | 364,620 | 313,725 | 353,385 | |
| Current liabilities | ||||
| Accounts payable | 1,232 | 24,439 | 1,444 | |
| Liabilities to portfolio companies | 513 | 392 | 513 | |
| Other current liabilities | 497 | 1,116 | 4,425 | |
| Accrued expenses and prepaid income | 8,054 | 33,998 | 5,553 | |
| Total current liabilities | 10,296 | 59,945 | 11,935 | |
| Total liabilities | 374,916 | 373,670 | 365,320 | |
| TOTAL EQUITY AND LIABILITIES | 516,395 | 1,289,396 | 599,807 |
| SEK 000 | Note | 31 Mar 2016 | 31 Mar 2015 | 31 Dec 2015 |
|---|---|---|---|---|
| Pledged assets | 4,105 | 4,565 | 4,180 | |
| Credit commitment to portfolio company | - | 8,000 | - | |
| Total | 4,105 | 12,565 | 4,180 |
| SEK 000 | Not | |||||
|---|---|---|---|---|---|---|
| e | Restricte | Unrestricted equity | ||||
| d equity | ||||||
| Share | Share | Accumu | Net | Total equity | ||
| capital | premium reserve |
lated losses |
profit/loss for the |
|||
| period | ||||||
| Opening equity at 1 Jan 2015 | 26,725 | 1,884,310 | -793,045 | -883,503 | 234,487 | |
| Appropriation of loss | -883,503 | 883,503 | ||||
| Net profit/loss for the period | -93,494 | -93,494 | ||||
| Total | 26,725 | 1,884,310 | -1,676,548 | -93,494 | 140,993 | |
| Effect of incentive programs | 486 | 486 | ||||
| Closing equity at 31 Mar 2016 | 26,725 | 1,884,310 | -1,676,062 | -93,494 | 141,479 | |
| Opening equity at 1 Jan 2015 | ||||||
| (restated) | 26,692 | 1,838,918 | -502,588 | -290,774 | 1,072,248 | |
| Appropriation of loss | -290,774 | 290,774 | ||||
| Net profit/loss for the period | -202,437 | -202,437 | ||||
| Total | 26,692 | 1,838 ,918 | -793,362 | -202,437 | 869,811 | |
| 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 (restated) |
26,692 | 1,884,310 | -792,839 | -202,437 | 915,726 | |
| Opening equity at 1 Jan 2015 (restated) |
26,692 | 1,838,918 | -502,588 | -290,774 | 1,072,248 | |
| Appropriation of profit | -290,774 | 290,774 | ||||
| Net profit/loss for the year | -883,503 | -883,503 | ||||
| Total | 26,692 | 1,838,918 | -793,362 | -883,503 | 188,745 | |
| Share issue | 49,528 | 49,528 | ||||
| Issue costs | -4,136 | -4,136 | ||||
| Effect of incentive programs | 317 | 317 | ||||
| Share issue | 33 | 0 | 33 | |||
| Closing equity at 31 Dec 2014 | 26,725 | 1,884,310 | -793,045 | -883,503 | 234,487 |
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) ("Karolinska Development," "Investment Entity" or the "Company") obtains funds from several independent investors/shareholders by issuing shares and interest-bearing instruments. The Company invests the proceeds in portfolio companies that develop medical innovations, as described below, and whose sole purpose is to generate a return through capital appreciation and investment income. These temporary investments, which are not investment entities, are designated "portfolio companies" below. The Company, with 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 investing in portfolio companies that develop 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 innovations through the sale of portfolio companies or out-licensing of products. Future deal flow will be sourced via an amended agreement with Karolinska Institutet Innovations AB, through an extended network of contracts at research institutions across the Nordic region, and through relationships with other specialist life sciences investors.
No changes in accounting principles and information during the first quarter.
No new or revised IFRS standards or recommendations from IFRS Interpretations Committee has had impact on the Investment Entity or on that part were these recommendations should be practiced on the income statement or balance of the mother company.
Portfolio companies: Companies where Karolinska Development has made investments (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.
Karolinska Development applies the accounting principles of fair value 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, short-term 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.
Following a review of the Company's approach to estimating fair values of its portfolio investments the company implemented new policies for estimating level 3 fair values per June 30, 2015.
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
| SEK 000 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Financial assets | ||||
| Shares in portfolio companies, at fair value | ||||
| through profit or loss | - | - | 193,152 | 193,152 |
| Loans receivable from portfolio companies | - | 923 | - | 923 |
| Other financial assets | - | - | 38,113 | 38,113 |
| Receivables from portfolio companies | - | 1,157 | - | 1,157 |
| Cash, cash equivalents and short-term | ||||
| investments | 287,579 | - | - | 287,579 |
| Total | 287,579 | 2,080 | 231,265 | 520,924 |
| Financial liabilities | ||||
| Other financial liabilities | - | - | 4,798 | 4,798 |
| Accounts payable | - | 1,232 | - | 1,232 |
| Liabilities to portfolio companies | - | 513 | - | 513 |
| Total | - | 1,745 | 4,798 | 6,543 |
| SEK 000 | Level 1 | Level 2 | Level 3 | Total |
|---|---|---|---|---|
| Financial assets | ||||
| Shares in portfolio companies, at fair value | ||||
| through profit or loss | - | - | 912,399 | 912,399 |
| Loans receivable from portfolio companies | - | 36,097 | - | 36,097 |
| Other financial assets | - | - | 38,113 | 38,113 |
| Receivables from portfolio companies | - | 1,042 | - | 1,042 |
| Cash, cash equivalents and short-term | ||||
| investments | 440,442 | - | - | 440,442 |
| Total | 440,442 | 37,139 | 950,512 | 1,428,093 |
| Financial liabilities | ||||
| Other financial liabilities | - | - | 11,686 | 11,686 |
| Accounts payable | - | 24,439 | - | 24,439 |
| Liabilities to portfolio companies | - | 392 | - | 392 |
| Total | - | 24,831 | 11,686 | 36,517 |
| SEK 000 | Shares in portfolio companies |
Other financial assets |
Other financial liabilities |
|---|---|---|---|
| At beginning of the year | 267,651 | 38,113 | 4,798 |
| Acquisitions | 7,639 | - | - |
| Disposals | - | - | - |
| Gains and losses recognized through profit or loss | -82,252 | - | 0 |
| Closing balance 31 Dec 2015 | 193,038 | 38,113 | 4,798 |
| Total unrealized gains and losses for the period in profit or | |||
| loss | -82,252 | - | 0 |
| Gains and losses in profit or loss for the period for assets and liabilities included in the closing balance |
-82,252 | - | 0 |
| SEK 000 | Shares in portfolio companies |
Other financial assets |
Other financial liabilities |
|---|---|---|---|
| At beginning of the year | 1,113,454 | 38,113 | 11,686 |
| Acquisitions | 27,524 | - | - |
| Disposals | - | - | - |
| Gains and losses recognized through profit or loss | -228,579 | - | - |
| Closing balance 31 Dec 2014 | 912,399 | 38,113 | 11,686 |
| Total unrealized gains and losses for the period in profit or | |||
| loss | -228,579 | - | - |
| Gains and losses in profit or loss for the period for assets and liabilities included in the closing balance |
-228,579 | - | - |
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.
In the table below, "Total Fair Value" is the aggregated proceeds that would be received by Karolinska Development and KDev Investments if the shares in their portfolio companies were sold in an orderly transaction between market participants at the measurement date. The Fair Value does not reflect the future potential value of the shares in the portfolio companies when they have unlocked their full value potential by achieving significant milestones e.g. positive clinical proof-of-concept data. The calculation of the Fair Value is based on IFRS13 standards of deciding and reporting fair value and the International Private Equity and Venture Capital Valuation Guidelines (IPEV Valuation Guidelines) decided by the IPEV board that represent the current best practice, on the valuation of private equity investments.
"Potential distribution to Rosetta Capital" is the amount that KDev Investments according to the investment agreement between Karolinska Development and Rosetta Capital is obligated to distribute to Rosetta Capital from the proceeds received by KDev Investments (KDev Investments Fair Value). The distribution to Rosetta Capital will only happen when KDev Investments distribute dividends. If Rosetta Capital has not received 2.5 times the amount invested in KDev Investments by Rosetta Capital by 7 March 2018, then Rosetta Capital may require within 60 days that Karolinska Development acquires Rosetta's shares in KDev Investments. The price payable for the KDev Investment shares is the fair market value of the shares, although capped at 10 % of the market capitalization of the Karolinska Development at the time of the purchase, Karolinska Development can decide whether to pay the purchase price in cash or in the form of Karolinska Development shares.
"Net Fair Value after potential distribution to Rosetta Capital" is the net aggregated proceeds that Karolinska Development will receive after KDev Investments' distribution of proceeds to Rosetta Capital.
| SEKm | 2016-03-31 | 2015-03-31 | 2015-12-31 |
|---|---|---|---|
| Karolinska Development Fair Value | 134 | 822 | 134 |
| KDev Investments Fair Value | 343 | 455 | 458 |
| Total Fair Value | 477 | 1,277 | 592 |
| Potential distribution to Rosetta Capital of fair value of KDev Invesments |
284 | 365 | 324 |
| Net Fair Value after potential distribution to Rosetta Capital | 193 | 912 | 268 |
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, discounted cash flow models (DCF) may be used. DCFs of the Underlying Business considers all of the cash flows of a portfolio company that are then discounted with an appropriate rate and also risk adjusted to take the developments risks in pharmaceutical development into consideration. The revenue streams are approximated from epidemiological data on the intended therapeutic indication, and a number of assumptions such as for example pricing per patient and year, market share and market exclusivity (from IPR and regulatory market protection). As described in the IPEV Valuation Guidelines the inputs into the DCF models are constructed with a high level of subjectivity. Hence, this method is only suitable for late stage assets, either pharmaceutical companies with lead projects in late stage (Phase III) development or technology projects with an established market presence where the revenues can be projected with a higher degree of confidence than in products in earlier stages of development, As of December 31, 2015 there are currently no portfolio companies valued by DCF.
Companies with an established sales revenue stream may be valued by sales multiples. The multiples should be derived from current market-based multiples with comparable companies. As with valuation with DCF, this method require that the portfolio company is mature in its market presence and that the sales forecasts can be made with sufficient certainty. Furthermore, as this method only considers revenue streams, the IPEV Valuation Guidelines stipulates that non-operating assets or liabilities need to be taken into account when applying this method. As of December 31, 2015 there are currently no portfolio companies valued by multiples.
Early stage companies, defined as pharmaceutical assets prior to Phase III development and technology assets prior to establishing targeted and sustainable sales revenues, that have recently not been financed by a transaction involving a third party investor (as defined in 2,2) are valued by the price of recent investment corresponding to the last post-money valuation completed for that company. Companies in such early stages of development typically show a relatively flat value increase through the financing rounds as the company completed its preclinical and early clinical milestones. It is therefore not expected to see any significant value uplift during this period and the post-money valuation, despite not being validated by an external investor, is considered a good approximation of the fair value.
Such situations occur when Karolinska Development alone or with another investors that have previously also participating in preceding investment rounds reinvest in portfolio companies. Should a new investor join an investment round, the valuation method will fall under a higher valuation priority (described in 2,2), although the actual metric – post-money valuation is the same as if only existing owners would participate.
Should Karolinska Development opt out of an investment round with no intention to participate at later rounds the price of recent investment (without Karolinska Development) may still be a valid valuation method, granting that these circumstances lead to disproportionate post-money valuation because of the loss of negotiation power over the pricing (and Karolinska Development's ownership may be drastically diluted). However, as the unwillingness to invest from Karolinska Development also likely mirror a lower perceived value compared to previous post-money valuations, a lowering of value is often a good indication of fair value in such cases.
As the share price of the internal financing rounds are decided by the existing investor's caution is taken to ensure that the share price is not artificially inflated. At each quarterly fair value assessment the post-money valuation by internal investment rounds are benchmarked against portfolio company progress (met or failed milestones for example), comparable values for peer companies, bids from external investors (eg, term sheets, LOIs) and other applicable valuation methods to ensure that the post-money valuation is at an appropriate level to be considered fair value.
The cautious approach is particularly true if an investment round with existing owners succeeds an investment rounds that included a then third party investor. An uplift in fair value may be merited if e,g, milestones have been met during the time between investments but high increases may not be considered in the fair value. To mitigate, the amount invested into the portfolio company since the post-money valuation from the transaction
involving third party investors should be added, while additional uplifts in post-money valuation may not be included in fair value until the value is validated by third party investor yet again.
Net asset value, defined as a portfolio company's assets minus its liabilities, is used for portfolio companies without current operations. This typically occurs in companies considered financial assets as a consequence of discontinued development projects or withdrawn products. In essence, these companies are valued by its liquidation value.
Karolinska Development 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.
| SEK 000 | 31 Mar 2016 | 31 Mar 2015 | 31 Dec 2015 |
|---|---|---|---|
| Nominal amount of convertible debentures issued on 2 January 2015 | 386,859 | 386,859 | 386,859 |
| Issue costs | -28,171 | -28,171 | -28,171 |
| Equity portion | -49,528 | -49,528 | -49,528 |
| Debt at issuance date 2 January 2015 | 309,160 | 309,160 | 309,160 |
| Accrued interest costs | 51,354 | 10,011 | 40,045 |
| Paid interest | - | - | - |
| TOTAL | 360,514 | 319,171 | 349,205 |
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 2016 | 31 Mar 2015 | 31 Dec 2015 | |
| Avaris AB (in liquidation) | Huddinge | 94.87% | 94.87% | 94.87% | |
| 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% | |
| Pharmanest AB | Solna | - | 60.24% | - |
In addition to the above named subsidiaries, Karolinska Development holds majority interests, though not controlling interests, in KDev Investments AB, Lipidor AB and Umecrine Cognition AB.
Karolinska Development's ownership interests in these portfolio companies ranges from 38% 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, after extension, until the date of the Company´s Annual General Meeting 2017. The consultancy fee is market based and amounted to 264 KSEK (88 KSEK) during the first quarter 2016.
Karolinska Development's management and Board, in consultation with the auditors, have decided on a revision how Rosetta Capital's preference shares in KDev Investments (KDI) is taken into consideration when estimating the fair value of Karolinska Development's investments in KDI.
Rosetta Capital owns 7.8% of the common shares as well as xx% preference shares in KDI, which has a portfolio of 7 companies as of December 31, 2015.
The preference shares give Rosetta Capital preferential rights to dividends which in prior periods has been described in the Notes (Note 20 in the 2014 annual report).
The error has been corrected during the second quarter 2015 and reduces the fair value of Karolinska Development's share in KDI.
| KSEK | 2015 Jan-Mar (as previously reported) |
Effect of changes in presentation of Net Fair Value |
2015 Jan-Mar (restated) |
|---|---|---|---|
| Revenue | 992 | 992 | |
| Other expenses | -4,499 | -4,499 | |
| Personnel costs | -9,658 | -9,658 | |
| Depreciation of tangible non-current assets | -53 | -53 | |
| Change in fair value of shares in portfolio companies | -252,736 | 24,157 | -228,579 |
| Result from sale of subsidiaries | - | 0 | |
| Operating profit/loss | -265,954 | 24,157 | -241,797 |
| Financial net | -9,123 | - | -9,123 |
| Profit/loss before tax | -275,077 | 24,157 | -250,920 |
| Current taxes | - | - | - |
| NET PROFIT/LOSS FOR THE PERIOD | -275,077 | 24,157 | -250,920 |
Effect of changes in presentation of Net Fair Value on earnings per share for comparative figures 2015 for the Investment Entity
| SEK | 2015 Jan-Mar (as previously reported) |
Effect of changes in presentation of Net Fair Value |
2015 Jan-Mar (restated) |
|---|---|---|---|
| Earnings per share attributable to Parent Company's shareholders, weighted average, before and after dilution |
-5.18 | 0.45 | -4.72 |
| Number of shares, weighted average | 53,140,273 | 53,140,273 |
| KSEK | 2015 Jan-Mar (as previously reported) |
Effect of changes in presentation of Net Fair Value |
2015 Jan-Mar (restated) |
|---|---|---|---|
| Net profit/loss for the period | -275,077 | 24,157 | -250,920 |
| Total comprehensive income for the period | -275,077 | 24,157 | -250,920 |
| SEK 000 | 2015-03-31 (as previously reported) |
Effect of changes in presentation of Net Fair Value |
2015-03-31 (restated) |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Tangible non-current assets | 265 | 265 | |
| Shares in portfolio companies, at fair value through profit or loss |
1,276,974 | -364,575 | 912,399 |
| Loans receivable from portfolio companies | 36,097 | 36,097 | |
| Other financial assets | 38,113 | 38,113 | |
| Total non-current assets | 1,351,449 | -364,575 | 986,874 |
| Current assets | |||
| Accounts receivable | - | 0 | |
| Receivables from portfolio companies | 1,042 | 1,042 | |
| Other current receivables | 1,999 | 1,999 | |
| Prepaid expenses and accrued income | 2,241 | 2,241 | |
| Short-term investments, at fair value through profit or loss |
308,639 | 308,639 | |
| Cash and cash equivalents | 131,803 | 131,803 | |
| Total current assets | 445,724 | 0 | 445,724 |
| TOTAL ASSETS | 1 797,173 | -364,575 | 1,432,598 |
| EQUITY AND LIABILITIES Equity Share capital |
26,692 | 26,692 | |
| Share premium | 1,874,236 | 1,874,236 | |
| Retained earnings | -484,546 | -364,575 | -849,121 |
| Total equity | 1,416,382 | -364,575 | 1,051,807 |
| Long-term liabilities | |||
| Convertible debentures | 319,171 | 319,171 | |
| Other financial liabilities | 11,686 | 11,686 | |
| Total long-term liabilities | 330,857 | 0 | 330,857 |
| Current liabilities | |||
| Accounts payable | 24,439 | 24,439 | |
| Liabilities to portfolio companies | 392 | 392 | |
| Other current liabilities | 1,116 | 1,116 | |
| Accrued expenses and prepaid income | 23,987 | 23,987 | |
| Total current liabilities | 49,934 | 0 | 49,934 |
| Total liabilities | 380,791 | 0 | 380,791 |
| TOTAL EQUITY AND LIABILITIES | 1,797,173 | -364,575 | 1,432,598 |
| SEK 000 | 2015 Jan-Mar (as previously reported) |
Effect of changes in presentation of Net Fair Value |
2015 Jan-Mar (restated) |
|---|---|---|---|
| Operating activities | |||
| Operating profit/loss | -265,954 | 24,157 | -241,797 |
| Adjustment for non-cash items | |||
| Adjustment for depreciation of amortization | 53 | 53 | |
| Adjustment for changes in fair value Result from sale of shares in portfolio companies |
252,736 - |
-24,157 | 228,579 0 |
| Other items | 2,407 | 2,407 | |
| Realized changes in value of short-term investments |
168 | 168 | |
| Interest paid/received | 4 | 4 | |
| Cash flow from operating activities before changes | |||
| in working capital and operating investments | -10,586 | 0 | -10,586 |
| Cash flow from changes in working capital Increase (-)/Decrease (+) in operating |
|||
| receivables | 1,510 | 1,510 | |
| Increase (+)/Decrease (-) in operating liabilities | 29,663 | 29,663 | |
| Operating investments | |||
| Investments in shares in portfolio companies | -27,525 | -27,525 | |
| Divestments of shares in portfolio companies | -26,058 | -26,058 | |
| Loans provided to portfolio companies | - | 0 | |
| Change in short-term investments | -179,780 | -179,780 | |
| Cash flow from operating activities | -212,776 | 0 | -212,776 |
| Financing activities | |||
| Share issue | 364,001 | 364,001 | |
| Convertible debentures issue | -32,307 | -32,307 | |
| Cash flow from financing activities | 331,694 | 331,694 | |
| Cash flow for the year | 118,918 | 118,918 | |
| Cash and cash equivalents at beginning of the year |
12,885 | 12,885 | |
| CASH AND CASH EQUIVALENTS AT | |||
| THE END OF THE YEAR | 131,803 | 0 | 131,803 |
| SEK 000 | 2015 Jan-Mar (as previously reported) |
Effect of changes of presentation of Net Fair Value |
2015 Jan-Mar (restated) |
|---|---|---|---|
| Net sales | 992 | 992 | |
| Revenue | 992 | 0 | 992 |
| Other expenses | -4,499 | -4,499 | |
| Personnel costs | -9,658 | -9,658 | |
| Depreciation of tangible non-current assets | -53 | -53 | |
| Impairment losses on shares in subsidiaries, joint ventures, associated companies and other long-term securities holdings |
-24,684 | -155,412 | -180,096 |
| Operating profit/loss | -37,902 | -155,412 | -193,314 |
| Financial net | -9,123 | -9,123 | |
| NET PROFIT/LOSS FOR THE PERIOD | -47,025 | -155,412 | -202,437 |
Effect of changes in presentation of Net Fair Value of comprehensive income for comparative figures 2014 for the parent company
| SEK 000 | 2015 Jan-Mar (as previously reported) |
Effect of changes of presentation of Net Fair Value |
2015 Jan-Mar (restated) |
|---|---|---|---|
| Net profit/loss for the period | -47,025 | -155,412 | -202,437 |
| Total comprehensive income for the period | -47,025 | -155,412 | -202,437 |
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