Vistin Pharma — Interim / Quarterly Report 2017

Oct 27, 2017

VISTIN PHARMA ASA THIRD QUARTER 2017 RESULTS PUBLISHED 27 October 2017

CONTENTS

Vistin Pharma in brief2	Risks and uncertainties 7
Overview 3	Outlook 8
Financial review 5	Share information 8
Operational review6	Condensed Interim Financial Statements 9
Market developments 6

Vistin Pharma in brief

Vistin Pharma is a Norwegian pharmaceutical company producing Active Pharmaceutical Ingredients (APIs) and solid dosage forms for the global pharmaceutical industry.

The Group was established in 2015 when Vistin Pharma AS, a wholly owned subsidiary of Vistin Pharma ASA, acquired the metformin and opioids business and tablet production assets from Weifa AS.

On 2 October 2017, Vistin Pharma sold its opioids and CMO business to TPI Enterprises Limited. Following the sale, Vistin Pharma is a pure play metformin producer, with a strong position in the global metformin market and with significant growth ambitions. Metformin is used as the first line treatment of diabetes 2, a

disease which is expected to grow by 50 per cent towards 2030, and affect more than 500 million people. The global market for metformin is expected to grow by four to five percent per annum and Vistin Pharma is attractively positioned to capture part of this growth.

The Company's head office is located in Oslo, Norway. The shares of Vistin Pharma ASA have been listed on Oslo Axess since August 2015.

Overview

Third quarter highlights

• Revenue growth of 22% and continued strong demand for metformin
• Revenue of NOK 46.7 million for the quarter vs. NOK 38.3 million in Q3 2016
• Sales volumes up 32% when compared to Q3 2016
• Production running at full capacity
• Capacity expansion expected on track
• Expected to be competed in 2019
• Expansion required to meet growth forecasts from existing and new customers
• Detailed engineering phase completed and key components to be ordered in Q4
• Opioids and CMO: Successful completion of sale to TPI Enterprises Limited
• Preliminary purchase consideration of NOK 159.6 million received on 2 October (including NOK 16.0 million in escrow)
• Expected net cash effect of NOK 140 150 million (before transaction costs)
• Financials: Dividend of NOK 7 per share proposed by the Board
• EGM on 2 November to approve an additional dividend of NOK 7 per share (NOK 119.4m) following the sale of the Opioids and CMO business
• EBITDA from continuing operations of NOK 4.3 million for Q3
• Cash balance at 30 September of NOK 33.5 million, and no interest-bearing debt
• Cash balance at the date of this report is NOK 197.7 million, excluding amount in escrow of NOK 16.0 million

Key figures

Key financial information for continuing operations for Vistin Pharma ASA

(NOK 1 000)	Q3 2017		Q3 2016 YTD 2017 YTD2016		FY 2016
Total revenue and income	46 725	39 329	144 225	140 791	173 261
EBITDA	4 265	5 149	21 806	26 726	24 020
Adj. EBITDA*	4 265	5 149	12 996	26 726	25 720
Profit/(loss) from continuing operations	5 616	3 063	12 268	18 652	15 941
Earnings per share for continuing operations (NOK): diluted	0,33	0,18	0,72	1,09	0,93
Total Assets	272 355	271 043	272 355	271 043	279 517
Cash & cash equivalents	33 524	72 709	33 524	72 709	89 440

Historical quarterly performance:

*Adjustments:

• (1) Q2 2017: EBITDA reduced by NOK 8.8 million for net effect of insurance proceeds of NOK 10.8 million
• (2) Q4 2016: EBITDA increased by NOK 1.7 million for one-off costs relating to a reactor failure at the metformin plant
• (3) Q4 2015: EBITDA in Q4 2015 reduced by NOK 8.7 million for settlement received in connection with the acquisition of Weifa AS

Financial review

Vistin Pharma ASA (Group)

Profit and loss

Vistin Pharma had total revenues and other income from continuing operations of NOK 46.7 million in the third quarter 2017, compared to NOK 39.3 million in the third quarter 2016.

EBITDA from continuing operations came to NOK 4.3 million for the third quarter, compared to NOK 5.2 million for the same quarter last year.

Depreciation and amortisation were NOK 0.7 million for the third quarter, compared to NOK 0.5 million for the third quarter of 2016.

Net financial gain was NOK 3.8 million, compared to a net loss of NOK 0.6 million in the same quarter of 2016. The financial gain for the quarter primarily relates to unrealised foreign exchange gains relating to EUR hedging contracts for 2017 and 2018.

Vistin Pharma had an income tax expense of NOK 1.8 million in the third quarter, compared to NOK 1.0 million in the corresponding quarter of 2016.

Net loss from discontinued operations was NOK 2.4 million for the third quarter, compared to a gain of NOK 1.2 million for the third quarter 2016.

Net profit for the quarter was NOK 3.2 million, corresponding to earnings per share of NOK 0.19, compared to net profit of NOK 4.3 million and earnings per share of NOK 0.25, respectively for the same quarter 2016.

Cash Flow

Net cash flow from operating activities in the third quarter was negative NOK 16.9 million, as a result of a net increase in working capital of NOK 17.1 million. Net cash flow from operating activities in the third quarter last year was a positive NOK 18.0 million.

Net decrease in cash and cash equivalents amounted to NOK 26.2 million, after equipment purchases of NOK 9.2 million. In the same quarter last year, there was a net increase in cash and cash equivalents of NOK 17.0 million.

Financial position

Vistin Pharma had total assets of NOK 272.4 million as of 30 September 2017. Cash and cash equivalents amounted to NOK 33.5 million. The figures as of 30 September 2016 were NOK 271.0 million and NOK 72.7 million, respectively.

Total equity as of 30 September 2017 was NOK 182.2 million, compared to NOK 194.4 million as of 30 September 2016. This corresponds to an equity ratio of 66.9 percent (71.7 percent).

Vistin Pharma had no interest-bearing debt as of 30 September 2017.

Following the sale of the opioids and CMO business, the Board has proposed an additional dividend of NOK 7.00 per share (NOK 119.4 million) to be approved by an extraordinary general meeting ("EGM") to be held on 2 November 2017. The dividend will be paid as a repayment of paid-in capital (share premium).

Operational review

Following Vistin Pharma's sale of its opioids and CMO business on 2 October 2017, the Group has only one business segment, which is the sale and production of metformin active pharmaceutical ingredients (API) and the sale of metformin tablets.

Total revenue in the third quarter was NOK 46.7 million, compared to NOK 38.3 million in the same quarter of 2016.

Metformin API volumes sold for the quarter were 31.6 percent higher than in the corresponding quarter 2016. Market prices are stable.

The Company is experiencing a strong underlying demand from key customers. Key drivers for future growth are the number of diabetes patients treated with metformin containing products, and as a result continued volume growth from existing multinational customers, market expansion in Japan, and market penetration in the USA.

Vistin Pharma is producing approximately 3,100MT of metformin HCl annually at its manufacturing plant at Fikkjebakke, Norway, which is currently the plant's maximum capacity. To secure the production capacity needed to meet the expected future long-term demand for metformin HCl, from both existing and potentially new customers, the Company will increase the production capacity by an additional 3,000MT, by installing a second production line. The new production line is expected to be ready for commercial production in 2019. Test production is scheduled for the first

Market developments

Metformin tablets are the most widely prescribed diabetes medication in the world. Approximately 90 per cent of people with diabetes are affected by Type 2 Diabetes (hereinafter T2D). T2D usually occurs in adults, but is increasingly prevalent amongst children and adolescents. The growth in T2D is associated with aging populations, economic development, increasing urbanisation, less healthy diets and reduced physical activity. While a human body suffering from T2D is still able to produce insulin, it becomes resistant so that the insulin is ineffective. Over time, insulin levels may half of 2019. The detailed engineering work has been completed, reconfirming the approximately NOK 120 million capex estimate. Key components will be ordered in the fourth quarter of 2017 and early 2018.

The capacity expansion will be financed through existing cash reserves, cash generation and debt.

In parallel, the Company is working on stretching the current capacity by approximately 300 - 400MT through an efficiency program. The objective is to ensure that Vistin Pharma can meet the expected increase in demand from existing customers until the new 3,000MT capacity is available. At the same time, the Company is focusing on securing volumes from new customer by the time the new line is fully operational.

With the new 3,000MT production capacity installed, the Company expects to grow its current share of the growing global metformin market significantly.

Discontinued operations

Discontinued operations consists of the opioids and CMO business sold to TPI Enterprises subsequent to quarter end. Revenues and other income for the third quarter from discontinued operations were NOK 49.9 million, compared to NOK 48.9 million in the third quarter of 2016.

subsequently become insufficient. Both the insulin resistance and the deficiency lead to high blood glucose levels. According to the International Diabetes Federation (IDF), more than 415 million people are estimated to be living with this condition. This number is expected to increase to 642 million by 2040, with the largest increase in developing economies. Metformin has limited side effects, a long-term safety profile, and is an affordable treatment alternative. Therefore, Metformin is the preferred first line treatment for T2D patients. Metformin is expected to maintain its position as the Gold Standard treatment in the foreseeable future. The global finished product sales of metformin are estimated to increase from USD 2.9 billion in 2015 to approximately USD 4.3 billion in 2025. The market is thus expected to grow by four to five per cent per annum in the coming years. The most significant driver of this growth is an increasing T2D prevalence (source: GlobalData, 2016).

The API market is highly competitive, with manufacturers mainly located in India and China. Approximately 65 per cent of the total volume of metformin API is currently produced in India. Many producers of metformin are operating multipurpose facilities, and there is an underlying unused capacity among the metformin producers that can absorb the growing demand for metformin. According to Vistin Pharma's estimates, the Group currently controls about eight percent of the global metformin market with its annual manufacturing capacity of 3,100MT.

Vistin Pharma is focusing on customers that sell patented products, as well as large professional generic players.

Events after the reporting period

On 2 October, Vistin Pharma announced that the Company had successfully completed the sale of its opioids and CMO business to TPI Enterprises Limited ("TPI").

TPI has paid provisional cash consideration of NOK 159.6 million, which will be adjusted for changes in inventory between the time of signing the Sales and Purchase Agreement and the completion date. The transaction is expected to have a positive net cash effect of NOK 140 – 150 million, before any transaction costs.

As a result of the significant proceeds received from the sale of these activities, the Board has called for an EGM to be held on 2 November, to approve an additional dividend of NOK 7.00 per share (NOK 119.4 million).

Risks and uncertainties

As a pharmaceutical manufacturing company, Vistin Pharma is exposed to several types of risks. Fluctuations in the price and availability of raw materials and the development in foreign exchange (USD and EUR) are among the most prominent. Therefore, risk management is a priority area for the Group. Approximately twothirds of the EUR currency exposure (cash inflow) for 2017 and 2018 has been hedged at an average EUR/NOK rate of 9.17 and 9.28, respectively.

In addition, risk related to regulatory changes and environmental issues concerning emission levels and emission permits represent central risk factors to the Group.

For further information, please refer to the Annual Report for 2016, available on the Group's website www.vistin.com.

Outlook

The metformin business is expected to continue to grow. Diabetes is one of the largest global health emergencies of the 21st century, and metformin is expected to remain the gold standard treatment of type 2 diabetes for the foreseeable future. To meet the expected growth in demand for metformin globally, the Company will increase the current production capacity by another 3,000MT, a doubling from the current capacity. The expansion will be financed through existing cash reserves, cash generation and debt, and will be completed in 2019.

Share information

The Company had 17 054 935 issued shares on 30 September 2017. The 20 largest shareholders control 71.3 percent of the total number of outstanding shares.

Largest shareholders at 19 October 2017

NAME	SHAREHOLDING	% SHARE
STATE STREET BANK	2 348 717	13,77 %
STRATA MARINE & OFFSHORE*	1 965 943	11,53 %
STOREBRAND VEKST	1 245 828	7,30 %
MP PENSJON	877 870	5,15 %
SKANDINAVISKE ENSKILDA	839 352	4,92 %
HOLMEN SPESIALFOND	800 000	4,69 %
NORDEA	599 489	3,52 %
FERNCLIFF LISTED DAI*	582 282	3,41 %
TVENGE TORSTEIN INGVALD	510 000	2,99 %
SPETALEN ØYSTEIN STRAY*	323 650	1,90 %
HANDELSBANKEN	270 000	1,58 %
DUKAT AS	256 621	1,50 %
DEUTSCHE BANK	250 635	1,47 %
SOLAN CAPITAL AS	225 910	1,32 %
UCITS FUND AKTIA NORDIC MICRO CAP	220 581	1,29 %
NORDBY KJELL ERIK**	200 000	1,17 %
GRANT INVEST AS	184 407	1,08 %
STAAVI TOM RAGNAR PRESTEGÅRD	155 000	0,91 %
MALISE AS	151 750	0,89 %
CAMACA AS	150 000	0,88 %
Total 20 largest shareholders	12 158 035	71,3%
Other shareholders	4 896 900	28,7%
Total number of shares	17 054 935	100,0%

* Board members of Vistin Pharma, or companies controlled by Board members ** Executive management

Consolidated Statement of Comprehensive Income

(NOK 1 000)				Note Q3 2017 Q3 2016 YTD 2017 YTD2016 FY 2016
Revenue		46 725		38 265 135 415	139 367	170 513
Other income		-	1 063	8 810	1 424	2 748
Total revenue and income	2	46 725		39 329 144 225	140 791	173 261
Cost of materials		15 283	13 099	45 676	46 842 62 299
Payroll expenses		13 328	12 040	39 031	35 594 45 129
Other operating expenses		13 848	9 041	37 712	31 629 41 814
Depreciation, amortisation and impairment		655	492	1 886	1 438	2 086
Operating profit/(loss)		3 610	4 657	19 920	25 288 21 934
Finance income		3 780	-	3 780	-	176
Finance costs		-	573	7 558	419	991
Profit/(loss) before tax from continuing operations		7 390	4 084	16 142	24 869 21 119
Income tax expense		1 774	1 021	3 874	6 217	5 178
Profit/(loss) for the period from continuing operations		5 616	3 063	12 268	18 652 15 941
Profit/(loss) for the period from discontinued operations	3	(2 424) 1 207		382	2 044	(3 022)
Profit/(loss) for the period		3 192	4 270	12 650	20 695 12 919
Total comprehensive income for the period		3 192	4 270	12 650	20 695 12 919
Earnings per share (NOK): basic		0,19	0,25	0,74	1,21	0,76
Earnings per share (NOK): diluted		0,19	0,25	0,74	1,21	0,76
Earnings per share for continuing operation (NOK): basic		0,33	0,18	0,72	1,09	0,93
Earnings per share for continuing operations (NOK): diluted		0,33	0,18	0,72	1,09	0,93

Consolidated Statement of Financial Position

(NOK 1 000)	Note 30.09.2017 30.09.2016 31.12.2016
ASSETS
Non-current assets
Property, plant & equipment	57 434	46 202	53 552
Total non-current assets	57 434	46 202	53 552
Current assets
Inventory	24 025	86 711	79 316
Trade receivables	64 264	57 005	45 365
Other receivables	9 721	8 416	11 844
Cash & cash equivalents	6 33 524	72 709	89 440
Assets held for sale	83 386	-	-
Total current assets	214 921	224 841	225 965
Total Assets	272 355	271 043	279 517
EQUITY AND LIABILITIES
Equity
Share capital	4 17 055	17 055	17 055
Share premium	120 459	137 514	137 514
Retained earnings	44 692	39 818	32 042
Total equity	182 205	194 386	186 610
Non-current liabilities
Deferred tax liabilities	3 996	6 950	2
Other long-term liabilities	13 711	10 332	12 288
Total non-current liabilities	17 708	17 282	12 290
Current liabilities
Trade payables	36 297	29 729	37 459
Tax Payables	-	-	4 221
Other current liabilities	36 145	29 646	38 937
Total current liabilities	72 442	59 375	80 617
Total liabilities	90 150	76 657	92 907
Total Equity and Liabilities	272 355	271 044	279 517

Statement of Changes in Equity

		Share	Share	Retained
(NOK 1 000)	Note	capital	premium		earnings Total equity
Equity as at 01.01.2016		17 055	147 747	19 122	183 924
Total comprehensive income		-	-	20 695	20 695
Dividend paid		-	(10 233)	-	(10 233)
Equity as at 30.09.2016		17 055	137 514	39 817	194 386
Equity as at 31.12.2016		17 055	137 514	32 041	186 610
Total comprehensive income		-	-	12 650	12 650
Dividend paid	7	-	(17 055)	-	(17 055)
Equity as at 30.09.2017		17 055	120 459	44 692	182 206

Cash Flow Statement

(NOK 1 000)	Note	Q3 2017		Q3 2016 YTD 2017 YTD 2016		FY 2016
Cash flow from operating activities
Net profit/(loss) before income tax from continuing operations		7 390	4 084	16 142	24 869	21 119
Net profit/(loss) before income tax from discontinued operations	3	(3 190)	1 609	502	2 725	(4 030)
Net profit/(loss) before income tax		4 200	5 693	16 644	27 594	17 089
Income tax paid		-	-	(4 221)	(4 915)	(4 915)
Depreciation, amortisation and impairment		1 305	1 052	3 711	2 943	4 053
Unrealised foreign currency (gains)/losses		(5 349)	661	2 393	(778)	(966)
Changes in working capital:
Changes in trade receivables and trade creditors		(14 423)	15 866	(20 061)	(707)	18 663
Changes in inventory		(3 153)	(555)	(15 979)	6 001	13 396
Changes in other accruals		471	(4 739)	(1 642)	(1 369)	6 639
Net cash flow from operating activities		(16 949)	17 977	(19 154)	28 768	53 959
Cash flow from investing activities
Purchase of equipment		(9 235)	(979)	(19 709)		(7 814) (16 274)
Net cash flow from investing activities		(9 235)	(979)	(19 709)		(7 814) (16 274)
Cash flow from financing activities
Dividend paid	7	-	-	(17 055)	(10 233)	(10 233)
Net cash flow from financing activities		-	-	(17 055)	(10 233) (10 233)
Net change in cash and cash equivalents		(26 184)	16 998	(55 916)	10 720	27 451
Cash and cash equivalents beginning period		59 708	55 710	89 440	61 989	61 989
Cash and cash equivalents end period		33 525	72 708	33 524	72 709	89 440

Notes to the Condensed Interim Financial Statement

1. Basis of presentation

The financial information is prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" ("IAS 34"). This financial information should be read together with the financial statements for the year ended 31 December 2016, prepared in accordance with International Financial Reporting Standards ("IFRS"). The presentation of the Interim Financial Statements is consistent with the Annual Financial Statements. The figures are unaudited.

The preparation of the Interim Financial Statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities and disclosure of contingent liabilities at the date of the Interim Financial Statements. If in the future such estimates and assumptions, which are based on management's best judgment at the date of the Interim Financial Statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.

2. Segment reporting

Following the sale of Vistin Pharma's opioids and CMO business, the Group only has one operating segment, which is the sale and production of metformin products, and no segment information is presented in these interim financial statements.

3. Discontinued operations reporting

On 2 October 2017, Vistin Pharma announced that the Company had completed the sale of its opioids and CMO business (collectively, the "Business") to TPI Enterprises Limited ("TPI"). The transaction was completed through a demerger of the Business from Vistin Pharma's subsidiary Vistin Pharma AS to a newly established wholly-owned subsidiary of Vistin Pharma, TPI Norway AS ("TPIN"), and a sale of the shares in TPIN to TPI. The results of the Business are presented below:

(NOK 1 000)	Q3 2017	Q3 2016	YTD 2017	YTD 2016	2016
Revenue	46 576	48 908	153 892	160 339	221 512
Other income	3 296	-	5 390	-	-
Total operating income	49 872	48 908	159 282	160 339	221 512
Cost of materials	25 711	21 032	76 607	70 320	100 899
Payroll expenses	19 305	19 297	57 394	60 148	87 738
Other operating expenses	7 395	6 411	22 953	25 641	34 938
Depreciation, amortisation and impairment	650	560	1 825	1 505	1 967
Total operating expenses	53 061	47 299	158 780	157 614	225 542
Profit/(loss) before tax from discontinued operations	(3 190)	1 609	502	2 725	(4 030)
Income tax expense	(765)	402	120	681	(1 007)
Profit/(loss) for the period from discontinued operations	(2 424)	1 207	382	2 044	(3 022)

The major classes of assets and liabilities of the Business classified as held for sale as at 30 September are, as follows:

(NOK 1 000)	30.09.2017
Assets
Property, plant & equipment	12 117
Inventory	71 269
Assets held for sale	83 386

The net cash flows incurred by the Business are, as follows:

(NOK 1 000)	Q3 2017	Q3 2016	YTD 2017	YTD 2016	FY 2016
Net cash flow from operating activities	(2 203)	(1 037)	(15 925)	5 860	11 734
Net cash flow from investing activities	(281)	(848)	(3 066)	(3 510)	(3 566)
Net cash flow from financing activities	-	-	-	-	-
Net cash ( outflow ) inflow	(2 484)	(1 885)	(18 991)	2 350	8 168
Earnings per share for discontinued operation (NOK): basic	(0,14)	0,07	0,02	0,12	(0,18)
Earnings per share for discontinued operations (NOK): diluted	(0,14)	0,07	0,02	0,12	(0,18)

4. Share capital

Note 4: Issued shares and share capital

	Number of shares	Share capital
	(1 000)	(NOK 1 000)
At 01.01.2016	17 055	17 055
At 30 September 2016	17 055	17 055
At 31 December 2016	17 055	17 055
At 30 September 2017	17 055	17 055

5. Interest-bearing debt

Vistin Pharma ASA had no interest bearing debt as of 30 September 2017 (30.09.16: 0)

6. Cash and cash equivalents

(NOK 1 000)	30.09.2017	30.09.2016	31.12.2016
Cash at bank	33 524	72 709	89 440
Cash and cash equivalents	33 524	72 709	89 440

The Group has a restricted bank account of NOK 3.0 million relating to employees withholding taxes.

7. Dividend

On 7 June 2017, Vistin Pharma ASA paid a total dividend of NOK 17,055 million for 2016 (NOK 1.00 per share). The dividend was approved by the Annual General Meeting held on 24 May, and was distributed as a repayment of paid-in capital (share premium).

Following the sale of the opioids and CMO business, the Board has proposed an additional dividend of NOK 7.00 per share (NOK 119.4 million) to be approved by an extraordinary general meeting to be held on 2 November 2017. The dividend will be paid as a repayment of paid-in capital (share premium).