Vistin Pharma — Interim / Quarterly Report 2017

Feb 27, 2018

VISTIN PHARMA ASA FOURTH QUARTER 2017 RESULTS PUBLISHED 27 February 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 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 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

Fourth quarter highlights

• 28 % revenue growth
• Revenue of NOK 41.6 million for the quarter vs. NOK 32.5 million in Q4 2016
• Sales volumes up 7% when compared to Q4 2016
• Production running at full capacity
• Capacity expansion postponed until supply agreements for sufficient expansion volume are achieved
• Investment postponement will reduce financial risk related to the expansion
• Detailed engineering phase is completed and key suppliers have been selected
• Expansion to be continued when contracts for additional volumes are secured
• Financials:
• Adj. EBITDA from continuing operations of negative NOK 1.6 million for Q4
• NOK 159.6 million received from the sale of CMO/opioids business, resulting in a net gain on sale of NOK 71.1 million
• Dividend of NOK 7 per share was paid during the quarter
• Cash balance at 31 December of NOK 85.3 million (including NOK 16.0 million in escrow), and no interest-bearing debt
• The Board will propose a dividend of NOK 17.1 million (NOK 1.00 per share) for 2017

Key figures

Key financial information for continuing operations for Vistin Pharma ASA

(NOK 1 000)	Q4 2017	Q4 2016	FY 2017	FY 2016
Total revenue and income	41 634	32 470	185 859	173 261
EBITDA	(5 085)	(2 706)	16 721	24 020
Adj. EBITDA*	(1 633)	(1 004)	11 363	25 720
Profit/(loss) from continuing operations	(6 692)	(2 710)	5 576	15 941
Earnings per share for continuing operations (NOK): diluted	(0,39)	(0,16)	0,33	0,93
Total Assets	228 742	279 517	228 742	279 517
Cash & cash equivalents	85 336	89 440	85 336	89 440
Interest-bearing debt	-	-	-	-

Historical quarterly performance:

*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
• (4) 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 41.6 million in the fourth quarter 2017, compared to NOK 32.5 million in the fourth quarter 2016.

EBITDA from continuing operations came to negative NOK 5.1 million for the fourth quarter, compared to negative NOK 2.7 million for the same quarter last year. The EBITDA for the quarter included NOK 3.5 million in one-off provisions relating to redundancies and a customer return from 2016.

Depreciation and amortisation were NOK 0.8 million for the fourth quarter, compared to NOK 0.6 million for the fourth quarter of 2016.

Net financial loss was NOK 2.9 million, compared to a net loss of NOK 0.4 million in the same quarter of 2016. The net financial loss for the quarter primarily relates to foreign exchange losses relating to EUR hedging contracts.

Vistin Pharma had an income tax expense of negative NOK 2.1 million in the fourth quarter, compared to negative NOK 1.0 million in the corresponding quarter of 2016.

Net gain from discontinued operations was NOK 64.6 million for the fourth quarter, compared to a loss of NOK 5.1 million for the fourth quarter 2016. The net gain for the quarter included a net gain on the sale of the CMO and opioids business of NOK 71.1 million.

Net profit for the quarter was NOK 57.9 million, corresponding to earnings per share of NOK 3.39, compared to net loss of NOK 7.8 million and earnings per share of negative NOK 0.46, respectively for the same quarter in 2016.

Cash Flow

Net cash flow from operating activities in the fourth quarter was positive NOK 27.0 million. Net cash flow from operating activities in the fourth quarter last year was a positive NOK 25.2 million.

Net cash flow from investing activities was positive NOK 144.2 million, and included net proceeds from the sale of the CMO and opioids business of NOK 158.6 million. Net cash flow from investing activities in the same quarter last year was negative NOK 8.5 million.

Net increase in cash and cash equivalents amounted to NOK 51.8 million, after a dividend payment NOK 119.4 million. In the same quarter last year, there was a net increase in cash and cash equivalents of NOK 16.7 million.

Financial position

Vistin Pharma had total assets of NOK 228.7 million as of 31 December 2017. Cash and cash equivalents amounted to NOK 85.3 million. The figures as of 31 December 2016 were NOK 279.5 million and NOK 89.4 million, respectively.

Total equity as of 31 December 2017 was NOK 120.3 million, compared to NOK 186.6 million as of 31 December 2016. This corresponds to an equity ratio of 52.6 percent (66.8 percent).

Vistin Pharma had no interest-bearing debt as of 31 December 2017.

The Board paid an additional dividend of NOK 7.00 per share (NOK 119.4 million) in November 2017, following the sale of the CMO and opioids business.

The Board will propose a dividend of NOK 17.1 million (NOK 1.00 per share) for 2017.

Operational review

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

Total sales revenue and other income in the fourth quarter was NOK 41.6 million, compared to NOK 32.5 million in the same quarter of 2016.

Metformin API volumes sold for the quarter were 7 per cent higher than in the corresponding quarter of 2016. 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 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 securely in place.

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.

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. 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.

Events after the reporting period

On 30 January, Vistin Pharma announced that the Company has decided to postpone the construction of the new NOK 120 million production line at the Company's dedicated metformin production plant at Fikkjebakke.

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 and environmental issues concerning emission

levels and emission permits represent central risk factors to the Group.

Vistin Pharma has received a notice of warranty claims from TPI Enterprise Limited related to the sale of the CMO and opioids business. The Company has made a provision of NOK 1 million in relation to these claims. The provision is based on an evaluation of the claims received, but the final outcome of these warranty claims is uncertain.

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

Outlook

Diabetes is one of the largest global health emergencies 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 December 2017. The 20 largest shareholders control 66 percent of the total number of outstanding shares.

Largest shareholders as of 20 February 2018

NAME	SHAREHOLDING	% SHARE
STATE STREET BANK	2 348 717	13,77 %
STRATA MARINE & OFFSHORE*	1 965 943	11,53 %
STOREBRAND VEKST	965 410	5,66 %
MP PENSJON	877 870	5,15 %
HOLMEN SPESIALFOND	840 000	4,93 %
SKANDINAVISKE ENSKILDA	839 352	4,92 %
FERNCLIFF LISTED DAI*	582 282	3,41 %
TVENGE TORSTEIN INGVALD	510 000	2,99 %
SPETALEN ØYSTEIN STRAY*	323 650	1,90 %
DEUTSCHE BANK	250 635	1,47 %
HANDELSBANKEN	222 139	1,30 %
DANSKE BANK	202 423	1,19 %
NORDBY KJELL ERIK**	200 000	1,17 %
GRANT INVEST AS	184 407	1,08 %
STAAVI TOM RAGNAR PRESTEGÅRD	170 000	1,00 %
FRATERNITAS A/S	162 500	0,95 %
DØSKELAND BØRGE	155 000	0,91 %
MALISE AS	151 750	0,89 %
LUCELLUM AS	150 000	0,88 %
CAMACA AS	150 000	0,88 %
Total 20 largest shareholders	11 252 078	66,0%
Other shareholders	5 802 857	34,0%
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 Q4 2017 Q4 2016 FY 2017 FY 2016
Revenue		41 276	31 146 176 691		170 513
Other income		358		1 324 9 168	2 748
Total revenue and income	2	41 634	32 470 185 859		173 261
Cost of materials		16 665	15 456 62 341		62 299
Payroll expenses		17 344		9 535 56 375	45 129
Other operating expenses		12 710	10 185 50 422		41 814
Depreciation, amortisation and impairment		816		648 2 702	2 086
Operating profit/(loss)			(5 901) (3 354) 14 019		21 934
Finance income		107		177 4 692	176
Finance costs		2 989		572 11 351	991
Profit/(loss) before tax from continuing operations			(8 782) (3 749) 7 360		21 119
Income tax expense			(2 090) (1 039) 1 784		5 178
Profit/(loss) for the period from continuing operations			(6 692) (2 710) 5 576		15 941
Profit/(loss) for the period from discontinued operations	3	64 567	(5 066) 64 948		(3 022)
Profit/(loss) for the period		57 874	(7 776) 70 524		12 919
Other comprehensive income:
Actuarial losses on defined benefit plan		535	-	535	-
Income tax effect		(123)	-	(123)	-
Total comprehensive income for the period		57 462	(7 776) 70 112		12 919
Earnings per share (NOK): basic		3,39	(0,46)	4,14	0,76
Earnings per share (NOK): diluted		3,39	(0,46)	4,14	0,76
Earnings per share for continuing operation (NOK): basic		(0,39)	(0,16)	0,33	0,93
Earnings per share for continuing operations (NOK): diluted		(0,39)	(0,16)	0,33	0,93

Consolidated Statement of Financial Position

(NOK 1 000)			Note 31.12.2017 31.12.2016
ASSETS
Non-current assets
Property, plant & equipment		70 216	53 552
Total non-current assets		70 216	53 552
Current assets
Inventory		22 655	79 316
Trade receivables		30 003	45 365
Other receivables		19 418	11 844
Deferred tax assets		1 117	-
Cash & cash equivalents	6	85 336	89 440
Total current assets		158 529	225 965
Total Assets		228 742	279 517
EQUITY AND LIABILITIES
Equity
Share capital	4	17 055	17 055
Share premium		1 074	137 514
Retained earnings		102 152	32 042
Total equity		120 281	186 610
Non-current liabilities
Deferred tax liabilities		-	2
Other long-term liabilities		14 736	12 288
Total non-current liabilities		14 736	12 290
Current liabilities
Trade payables		48 790	37 459
Tax Payables		-	4 221
Other current liabilities		44 935	38 937
Total current liabilities		93 726	80 617
Total liabilities		108 462	92 907
Total Equity and Liabilities		228 742	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		-	-	12 919	12 919
Dividend paid		-	(10 233)	-	(10 233)
Equity as at 31.12.2016		17 055	137 514	32 041	186 610
Equity as at 01.01.2017		17 055	137 514	32 041	186 610
Total comprehensive income		-	-	70 112	70 112
Dividend paid	7	-	(136 440)	-	(136 440)
Equity as at 31.12.2017		17 055	1 074	102 152	120 282

Cash Flow Statement

(NOK 1 000)	Note	Q4 2017	Q4 2016	FY 2017	FY 2016
Cash flow from operating activities
Net profit/(loss) before income tax from continuing operations		(8 782)	(3 749)	7 360	21 119
Net profit/(loss) before income tax from discontinued operations	3	61 543	(6 755)	62 045	(4 030)
Net profit/(loss) before income tax		52 760	(10 504)	69 405	17 089
Income tax paid		-	-	(4 221)	(4 915)
Gain on sale of subsidiary		(71 142)	-	(71 142)	-
Non-cash adjustment to reconcile profit before tax to cash flow:
Depreciation, amortisation and impairment		816	1 110	4 527	4 053
Unrealised foreign currency (gains)/losses		6 217	(188)	8 610	(966)
Changes in working capital:
Changes in trade receivables and trade creditors		46 754	19 370	26 693	18 663
Changes in inventory		6 799	7 395	(9 180)	13 396
Changes in other accruals and prepayments		(15 202)	8 008	(16 850)	6 639
Net cash flow from operating activities		27 003	25 192	7 842	53 959
Cash flow from investing activities
Net proceeds from sale of subsidiary		158 569	-	158 569	-
Purchase of equipment		(14 370)	(8 460)	(34 079)	(16 274)
Net cash flow from investing activities		144 199	(8 460)	124 490	(16 274)
Cash flow from financing activities
Dividend paid	7	(119 385)	-	(136 440)	(10 233)
Interest paid		-		-	-
Net cash flow from financing activities		(119 385)	-	(136 440)	(10 233)
Net change in cash and cash equivalents		51 817	16 732	(4 105)	27 451
Cash and cash equivalents beginning period		33 524	72 709	89 440	61 989
Cash and cash equivalents end period		85 336	89 441	85 335	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 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:

P&L - Discontinued operations
(NOK 1 000)	Q4 2017	Q4 2016	FY 2017	FY 2016
Revenue	(145)	61 173	153 747	221 512
Other income	71 142	-	76 532	-
Total operating income	70 998	61 173	230 279	221 512
Cost of materials	8 449	30 579	85 056	100 899
Payroll expenses	(610)	27 590	56 784	87 738
Other operating expenses	1 616	9 297	24 570	34 938
Depreciation, amortisation and impairment	-	462	1 825	1 967
Total operating expenses	9 455	67 928	168 234	225 542
Profit/(loss) before tax from discontinued operations	61 543	(6 755)	62 045	(4 030)
Income tax expense	(3 024)	(1 689)	(2 903)	(1 007)
Profit/(loss) for the period from discontinued operations	64 567	(5 066)	64 948	(3 022)

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

(NOK 1 000)	Q4 2017	Q4 2016	YTD 2017	YTD 2016	FY 2016
Net cash flow from operating activities	(2 857)	(5 874)	(18 782)	5 860	11 734
Net cash flow from investing activities	(152 871)	(55)	(3 066)	(3 510)	(3 566)
Net cash ( outflow ) inflow	(155 728)	(5 929)	(21 848)	2 350	8 168
Earnings per share for discontinued operation (NOK): basic	3,79	(0,30)	3,81	0,12	(0,18)
Earnings per share for discontinued operations (NOK): diluted	3,79	(0,30)	3,81	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 31 December 2016	17 055	17 055
At 31 December 2017	17 055	17 055

5. Interest-bearing debt

Vistin Pharma ASA had no interest-bearing debt as of 31 December 2017 (31.12.16: 0)

6. Cash and cash equivalents

(NOK 1 000)	31.12.2017	31.12.2016
Cash at bank	85 336	89 440
Cash and cash equivalents	85 336	89 440

The cash balance includes an amount of NOK 16.0 million in escrow 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).