Vistin Pharma — Interim / Quarterly Report 2018

Apr 26, 2018

VISTIN PHARMA ASA FIRST QUARTER 2018 RESULTS PUBLISHED 26 April 2018

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 7

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 CMO and opioids business to TPI Enterprises Limited. Following the sale, Vistin Pharma is now a pure play metformin producer, with a strong position in the global metformin market and clear ambitions for growth. Metformin is used as the first-line treatment of diabetes 2, a

disease which is expected to grow by 50 per cent toward 2030, affecting more than 500 million people. The global market for metformin is expected to grow by four to five per cent 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

First quarter highlights

• 22 % revenue growth
• Revenue of NOK 52.8 million for the quarter vs. NOK 43.4 million in Q1 2017
• Sales volumes up 9% when compared to Q1 2017
• Production running at full capacity
• Establishing Energy Trading as a new business area
• Hired experienced team to be lead by leading oil market analyst Torbjørn Kjus
• Successfully completed NOK 300m private placement
• Financials:
• EBITDA from continuing operations of NOK 6.3 million for Q1
• Cash balance at 31 March of NOK 59.4 million (including NOK 16.0 million in escrow), and no interest-bearing debt
• A new business area (Energy Trading) is being established, and as a result no dividend will be proposed for 2017

Key figures

Key financial information for continuing operations for Vistin Pharma ASA

(NOK 1 000)	Q1 2018	Q1 2017	FY 2017
Total revenue and income	52 803	43 419	185 859
EBITDA	6 344	5 190	16 721
Adj. EBITDA*	6 344	5 190	11 363
Profit/(loss) from continuing operations	5 979	2 950	5 452
Earnings per share for continuing operations (NOK): diluted	0,35	0,17	0,32
Total Assets	216 968	273 495	231 749
Cash & cash equivalents	59 385	66 085	85 336
Interest-bearing debt	-	-	-

Historical quarterly performance:

*Adj. EBITDA continuing operations (NOK million)

*Adjustments:

• (1) Q4 2017: EBITDA increased by NOK 3.5 million for provision for redundancies and provision for customer returns relating to 2016
• (2) Q2 2017: EBITDA reduced by NOK 8.8 million for net effect of insurance proceeds of NOK 10.8 million
• (3) Q4 2016: EBITDA increased by NOK 1.7 million for one-off costs relating to a reactor failure at the metformin plant

Financial review

Vistin Pharma ASA (Group)

Profit and loss

Vistin Pharma had total revenues and other income from continuing operations of NOK 52.8 million in the first quarter 2018, compared to NOK 43.4 million in the first quarter 2017.

EBITDA from continuing operations came to NOK 6.3 million for the first quarter, compared to NOK 5.2 million for the same quarter last year.

Depreciation and amortisation were NOK 1.2 million for the first quarter, compared to NOK 0.6 million for the first quarter of 2017.

Net financial gain was NOK 2.7 million, compared to a net loss of NOK 0.7 million in the same quarter of 2017. The net financial gain for the quarter primarily relates to a net unrealised foreign exchange gain from EUR hedging contracts oustanding.

Vistin Pharma had an income tax expense of negative NOK 1.8 million in the first quarter, compared to NOK 0.9 million in the corresponding quarter of 2017.

Net loss from discontinued operations was NOK 0.1 million for the first quarter, compared to a profit of NOK 1.0 million for the first quarter 2017.

Net profit for the quarter was NOK 5.8 million, corresponding to earnings per share of NOK 0.34, compared to net profit of NOK 3.9 million and earnings per share of NOK 0.23, respectively for the same quarter in 2017.

Cash Flow

Net cash flow from operating activities in the first quarter was negative NOK 14.7 million. The negative cash flow from operating activities is mainly due to a large increase in trade receivables in the first quarter, as a result of high sales, as well as a reduction in trade payables. Net cash flow from operating activities in the first quarter last year was a negative NOK 18.5 million.

Net cash flow from investing activities was negative NOK 11.2 million. This is principally made up of capital expenditure and advisory fees paid in relation to the sale of the CMO and opioids business. Net cash flow from investing activities in the same quarter last year was negative NOK 4.8 million.

Net decrease in cash and cash equivalents amounted to NOK 26.0 million. In the same quarter last year, there was a net decrease in cash and cash equivalents of NOK 23.4 million.

Financial position

Vistin Pharma had total assets of NOK 217.0 million as of 31 March 2018. Cash and cash equivalents amounted to NOK 59.4 million. The figures as of 31 March 2017 were NOK 273.5 million and NOK 66.1 million, respectively.

Total equity as of 31 March 2018 was NOK 126.0 million, compared to NOK 190.5 million as of 31 March 2017. This corresponds to an equity ratio of 58.1 percent (69.7 percent).

Vistin Pharma had no interest-bearing debt as of 31 March 2018.

Vistin Pharma is establishing Energy Trading as a new business area, and has successfully completed a private placement of NOK 300 million to fund the new business. As a result of this new initiativ, the Board of Directors will not propose a dividend to be paid for 2017, as announced in the fourth quarter 2017 interim report published on 27 February 2018.

Operational review

Following the sale of its opioids and CMO business on 2 October 2017, Vistin Pharma has only one operating business segment, the sale and production of metformin-active pharmaceutical ingredients (APIs) and the sale of metformin tablets.

Total sales revenue and other income in the first quarter was NOK 52.8 million, compared to NOK 43.4 million in the same quarter of 2017.

Metformin API volumes sold for the quarter were 9 per cent higher than in the corresponding quarter of 2017. Market prices were stable.

There is a strong underlying demand for metformin globally. However, the majority of Vistin Pharma's key customers are pharmaceutical companies that sell new and innovative metformin products, and the demand for the Company's metformin will therefore be dependent on the performance of these products in the market. Key drivers for future growth are the number of diabetes patients treated with metformin-containing products, and continued growth in sales volume from existing multinational customers, as well as expansion into new markets (e.g. the USA).

Vistin Pharma is producing approximately 3,100MT of metformin HCl annually at its manufacturing plant at Fikkjebakke, Norway, which is the plant's current maximum capacity. The Company will work to stretch the current capacity by approximately 300 - 400MT through an efficiency program.

The Company had planned to invest in expanding the capacity of the manufacturing plant by an additional 3,000MT. However, on January 30, 2018, Vistin Pharma announced the decision to postpone the execution of the new NOK 120 million production line. Revised estimates indicate that it will take longer to fill the new production line than was first anticipated. Therefore, in order to reduce the financial risk related to the investment, the Company will postpone new construction until sales contracts for a larger part of the new production volume are secure.

The Company's objective is to ensure that Vistin Pharma can meet the increasing demand from existing customers and secure volumes from new customers, which would allow the Company to re-start the 3,000MT metformin expansion project.

The detailed engineering work for the new production line is already complete, and key suppliers have been selected. When sufficient volumes are secured to continue the expansion work, the Company will be able to have the 3,000MT production capacity installed within approximately 18 months.

Vistin Pharma will install a fully automated packaging line in Q4 2018, at an estimated investment cost of NOK 20 million. This new line was originally part of the expansion project.

New business area

Following the sale of the opioids and tablet business in October 2017, the Company has become a pure play global metformin supplier with solid growth prospects. However, the Board of Directors has recognised the lack of scale of the current business structure as a listed company and initiated a strategic evaluation of the industrial and value creation opportunities. Following this evaluation, the Company announced on 16 March that it had entered into agreements with Torbjørn Kjus and Kenneth Tveter for the possible development of a new business area within energy trading.

On 22 March, Vistin Pharma announced the successful completion of a private placement, raising NOK 300 million in gross proceeds through the allocation of 26,785,715 new shares at a price of NOK 11.20 per share. The private placement took place through an accelerated bookbuilding process after close of market on 22 March. The net proceeds from the private placement will be used to fund the establishment of the energy trading business and trading activities within this area. The private placement will be followed by a subsequent offering of up to 4.5 million shares at a price of NOK 11.20, which will result in gross proceeds of up to NOK 50 million.

The engagements of Torbjørn Kjus and Kenneth Tveter, the completion of the private placement, and the subsequent offering are

Market developments

Metformin is the most widely prescribed diabetes medication in the world. Approximately 90 per cent of those who have diabetes are diagnosed with Type 2 Diabetes (hereinafter referred to as 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, poorer 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 less effective. Over time, as the disease progresses, insulin levels may become insufficient. Both insulin resistance and 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 countries with developing economies. Metformin has limited side effects, a long-term safety profile, and is an affordable treatment alternative, making it the preferred first-line treatment option for T2D patients. Metformin is expected to maintain its position as the Gold Standard treatment in the foreseeable future. subject to approval by the annual general meeting to be held on 8 May. Further details can be found in the stock exchange announcement on 22 March.

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 combination products, as well as large professional generic players.

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 prioritised area for the Group. Approximately 60 percent of the EUR currency exposure (cash inflow) for 2018 has been hedged at an average EUR/NOK rate of 9.28.

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

Under the terms of the sales contract with TPI Enterprises ("TPI") for the sale of the CMO and opioids business, Vistin Pharma has provided customary warranties to the buyer, generally limited to 25% of the sales price, and a with general warranty period expiring in March 2019. An extended warranty period of 5 years from closing of the transaction applies for environmental matters, limited to NOK 20 million. In November 2017, Vistin Pharma received a notice of warranty claims from TPI related to the sale of the CMO and opioids business. Vistin Pharma has rejected these claims in their entirety, but has also in accordance with general accepted accounting

principles taken a provision of NOK 1 million with respect thereto. While Vistin Pharma will vigorously defend its position in the matter, there can be no assurance about the final outcome of a legal process concerning the claims, if any.

For further information, please refer to Vistin Pharma's 2017 Annual Report, available on the Group's website www.vistin.com.

Outlook

Diabetes is one of the largest global health crises of the 21st century, and the metformin business is expected continue to grow as it remains the gold-standard treatment of type 2 diabetes for the foreseeable future. The majority of Vistin Pharma's key customers are pharmaceutical companies that sell new and innovative metformin products, and the demand for the Company's metformin will be partially dependent on the market performance of these products.

Share information

The Company had 17 054 935 issued shares on 31 March 2017. The 20 largest shareholders control 62 percent of the total number of outstanding shares.

Largest shareholders as of 19 April 2018

NAME	% SHARE
STATE STREET BANK	2 348 717	13,77 %
STRATA MARINE & OFFSHORE*	1 965 943	11,53 %
HOLMEN SPESIALFOND	840 000	4,93 %
SKANDINAVISKE ENSKILDA	839 352	4,92 %
STOREBRAND VEKST	811 514	4,76 %
FERNCLIFF LISTED DAI*	582 282	3,41 %
TVENGE TORSTEIN INGVALD	510 000	2,99 %
MP PENSJON	402 870	2,36 %
SPETALEN ØYSTEIN STRAY*	323 650	1,90 %
DEUTSCHE BANK	250 635	1,47 %
STAAVI TOM RAGNAR PRESTEGÅRD	210 000	1,23 %
NORDBY KJELL ERIK**	200 000	1,17 %
SOLAN CAPITAL AS	184 912	1,08 %
GRANT INVEST AS	184 407	1,08 %
FRATERNITAS A/S	162 500	0,95 %
MALISE AS	151 750	0,89 %
CAMACA AS	150 000	0,88 %
DØSKELAND BØRGE	148 901	0,87 %
ENGER OLE*	141 471	0,83 %
DANSKE INVEST NORGE	137 559	0,81 %
Total 20 largest shareholders	10 546 463	61,8%
Other shareholders	6 508 472	38,2%
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 Q1 2018 Q1 2017 FY 2017
Revenue		52 582	43 419	176 691
Other income		221	-	9 168
Total revenue and income	2	52 803	43 419	185 859
Cost of materials		19 071	13 962	62 341
Payroll expenses		16 146	12 472	58 191
Other operating expenses Depreciation, amortisation and impairment		11 241 1 248	11 795 609	48 606 2 702
Operating profit/(loss)		5 096	4 580	14 019
Finance income		4 191	-	107
Finance costs		1 523	698	6 766
Profit/(loss) before tax from continuing operations		7 765	3 882	7 360
Income tax expense		1 786	932	1 908
Profit/(loss) for the period from continuing operations		5 979	2 950	5 452
Profit/(loss) for the period from discontinued operations	3	(141)	950	64 948
Profit/(loss) for the period		5 838	3 901	70 400
Other comprehensive income:
Actuarial losses on defined benefit plan		-	-	535
Income tax effect		-	-	(123)
Total comprehensive income for the period		5 838	3 901	69 988
Earnings per share (NOK): basic		0,34	0,23	4,13
Earnings per share (NOK): diluted		0,34	0,23	4,13
Earnings per share for continuing operation (NOK): basic		0,35	0,17	0,32
Earnings per share for continuing operations (NOK): diluted		0,35	0,17	0,32

Consolidated Statement of Financial Position

(NOK 1 000)	Note 31.03.2018 31.03.2017 31.12.2017
ASSETS
Non-current assets
Property, plant & equipment	73 241	57 206	71 686
Total non-current assets	73 241	57 206	71 686
Current assets
Inventory	19 593	84 191	22 655
Trade receivables	44 342	58 540	30 003
Other receivables	18 383	7 471	20 042
Deferred tax assets	2 027	-	2 027
Cash & cash equivalents	6 59 385	66 085	85 336
Total current assets	143 730	216 287	160 063
Total Assets	216 968	273 495	231 749
EQUITY AND LIABILITIES
Equity
Share capital	4 17 055	17 055	17 055
Share premium	1 074	137 514	1 074
Retained earnings	107 867	35 942	102 028
Total equity	125 996	190 511	120 157
Non-current liabilities
Deferred tax liabilities	1 744	1 234	-
Other long-term liabilities	15 135	12 763	14 736
Total non-current liabilities	16 879	13 997	14 736
Current liabilities
Trade payables	37 882	26 714	48 790
Tax Payables	(1 537)	(330)	1 032
Other current liabilities	37 749	42 603	47 032
Total current liabilities	74 094	68 987	96 854
Total liabilities	90 972	82 984	111 590
Total Equity and Liabilities	216 968	273 495	231 749

Statement of Changes in Equity

(NOK 1 000)	Note	Share capital	Share premium	Retained	earnings Total equity
Equity as at 01.01.2017		17 055	137 514	32 041	186 610
Total comprehensive income		-	-	3 901	3 901
Equity as at 31.03.2017		17 055	137 514	35 942	190 511
Equity as at 01.01.2018		17 055	1 074	102 028	120 157
Total comprehensive income		-	-	5 838	5 838
Equity as at 31.03.2018		17 055	1 074	107 866	125 995

Cash Flow Statement

(NOK 1 000)	Note	Q1 2018	Q1 2017	FY 2017
Cash flow from operating activities
Net profit/(loss) before income tax from continuing operations		7 765	3 882	7 360
Net profit/(loss) before income tax from discontinued operations	3	(183)	1 251	62 045
Net profit/(loss) before income tax		7 582	5 133	69 405
Adjustments to reconcile profit before tax to net cash flow:
Income tax paid		(2 570)	(4 551)	(4 221)
Gain on sale of subsidiary		-	-	(71 142)
Non-cash adjustment to reconcile profit before tax to cash flow:
Depreciation, amortisation and impairment		1 248	1 176	4 527
Unrealised foreign currency (gains)/losses		(3 292)	262	8 610
Changes in working capital:
Changes in trade receivables and trade creditors		(20 088)	(23 919)	21 534
Changes in inventory		3 062	(4 875)	(9 858)
Changes in other accruals and prepayments		(664)	8 249	(9 348)
Net cash flow from operating activities		(14 722)	(18 525)	9 508
Cash flow from investing activities
Net proceeds from sale of subsidiary		(6 959)	-	158 374
Purchase of equipment and intangibles		(4 272)	(4 830)	(35 550)
Interest received		-	-	107
Net cash flow from investing activities		(11 231)	(4 830)	122 931
Cash flow from financing activities
Dividend paid	7	-	-	(136 440)
Interest paid		-	-	(106)
Net cash flow from financing activities		-	-	(136 546)
Net change in cash and cash equivalents		(25 952)	(23 355)	(4 104)
Cash and cash equivalents beginning period		85 336	89 440	89 440
Cash and cash equivalents end period		59 385	66 085	85 336

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 2017, 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 CMO and opioids 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 CMO and opioids 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)	Q1 2018	Q1 2017	FY 2017
Revenue	-	53 776	153 747
Other income	-	73	76 532
Total operating income	-	53 849	230 279
Cost of materials	39	24 679	85 056
Payroll expenses	61	19 322	56 784
Other operating expenses	84	8 030	24 570
Depreciation, amortisation and impairment		567	1 825
Total operating expenses	183	52 598	168 234
Profit/(loss) before tax from discontinued operations	(183)	1 251	62 045
Income tax expense	(42)	300	(2 903)
Profit/(loss) for the period from discontinued operations	(141)	950	64 948

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

(NOK 1 000)	Q1 2018	Q1 2017	FY 2017
Net cash flow from operating activities	-	(8 348)	(18 782)
Net cash flow from investing activities	-	(478)	(3 066)
Net cash flow from financing activities	-	-	-
Net cash flow	-	(8 826)	(21 848)
Earnings per share for discontinued operation (NOK): basic	-0,01	0,06	3,81
Earnings per share for discontinued operations (NOK): diluted	-0,01	0,06	3,81

4. Share capital

	Number of shares (1 000)	Share capital (NOK 1 000)
At 1 January 2016	17 055	17 055
At 31 March 2017	17 055	17 055
At 1 January 2018	17 055	17 055
At 31 March 2018	17 055	17 055

5. Interest-bearing debt

Vistin Pharma ASA had no interest-bearing debt as of 31 March 2018 (31.03.17: 0)

6. Cash and cash equivalents

(NOK 1 000)	31.03.2018	31.03.2017	31.12.2017
Cash at bank	43 432	63 085	69 383
Restricted cash	15 953	3 000	15 953
Cash and cash equivalents	59 385	66 085	85 336

The cash balance at 31 March 2018 includes an amount of NOK 16.0 million in escrow (restricted cash) relating to the sale of the CMO and opioids business.

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 Company paid an additional dividend of NOK 7.00 per share (NOK 119.4 million) on 10 November 2017. The dividend was distributed as a repayment of paid-in capital (share premium).

Following the establishment of an Energy Trading business, to be approved by the annual general meeting, no dividend will be proposed for 2017.