UPPSALA, Sweden, April 23, 2002 (PRIMEZONE) -- Q-Med:
Continued strong growth. Sales increased by 59 percent to SEK 113.7 (71.4) million. For a rolling 12 months sales increased by 59 percent to SEK 422.5 (265.3) million. Operating income amounted to SEK 12.9 (4.6) million. Adjusted for a one-time payment for the granting of exclusive negotiating rights operating income amounted to SEK -8.8 (4.6) million. Increased investments in new products and markets entailed a minor operating loss for the first quarter of SEK -1.9 (10.6) million, excluding Ixion and the one-time payment. Good growth within the Esthetics business unit. Sales rose by 51 percent. Successful launch of DEFLUX(R) in the USA.
The DUROLANE(R) study showed a high degree of safety but non- significant effect results compared with sodium chloride. A deeper analysis, however, showed positive results within subgroups.
Q-Med in Sweden is a rapidly growing and profitable biotechnology/medical device company that develops, produces and markets medical implants. All products are based on the company's patented technology for the production of NASHA -- Non-Animal Stabilized Hyaluronic Acid. Q-Med's operations focus on the four areas of Esthetics, Orthopedics, Uro-Gynecology, and Cell Therapy and Encapsulation. The products RESTYLANE, RESTYLANE Fine Lines and PERLANE are used for the filling out of lips and facial wrinkles and today account for the majority of sales. Development of MACROLANE for body contouring, for example breast augmentation is ongoing. DUROLANE, Q-Med's product for the treatment of osteoarthritis of the knee joint, has been approved in Europe since May 2001. DEFLUX is a product, which has been approved in Europe and the U.S.A. for the treatment of vesicoureteral reflux (malformation of the urinary bladder) in children. ZUIDEX for the treatment of stress urinary incontinence in women is estimated to be available in Europe in the middle of 2002. Since July 2000, Q-Med has owned a majority interest in the American biotechnology company Ixion Biotechnology, Inc., with research within both cell therapies for diabetes and oxalate control. Q-Med today has approximately 300 employees, with 210 at the company's production facility and head office in Uppsala, 20 at Ixion and the remainder in wholly owned foreign sales companies. The Q-Med share was first listed on the O-list of the Stockholm Stock Exchange in December 1999..
REVENUES
Q-Med in general
Sales amounted to SEK 113.7 (71.4) million, an increase of 59 percent.
Spanish subsidiary opened in Madrid.
Q-Med in Uppsala, Sweden, increased its sales by 59 percent during the first three months of 2002, to SEK 113.7 (71.4) million. Translated to a rolling 12 months, that is to say the period April 2001 to March 2002, turnover amounted to SEK 422.5 (265.3) million, an increase of 59 percent. Fluctuations in exchange rates have affected sales for the first three months positively by SEK 3.0 million compared with the same period the previous year.
Q-Med's strategy is to sell its products via its own subsidiaries in countries with great market potential or where it is important to have the company's own presence for other strategic reasons. Spain has 40 million inhabitants and is an important center for fashion and beauty and thereby belongs to this category. Previously Q-Med's products have been sold with limited success via a Spanish distributor. In order to take advantage of the full potential of the Spanish market, Q-Med therefore opened a subsidiary of its own in March 2002 with the head office in Madrid. Q-Med's products are at present sold in 61 countries.
Net turnover per geographical area
Jan - Mar Jan - Dec April-Mar
SEK millions 2002 2001 +/- % 2001 2001/2002
Nordic countries 3.5 3.3 6 16.1 16.3
Rest of Europe 63.1 42.7 48 201.8 222.2
North and 17.5 11.4 54 65.4 71.5
South America
Rest of the 29.6 14.0 111 96.9 112.5
world
Total 113.7 71.4 59 380.2 422.5
Esthetics business unit
Sales amounted to SEK 105.5 (69.8) million, an increase of 51 percent.
Operating income SEK 28.4 (21.3) million, operating margin 26.9 (30.5) percent.
Start of pilot study with MACROLANE(R) approved by Swedish Medical Products Agency.
Net turnover and operating income Esthetics
Jan - Mar Jan - Dec April - Mar
SEK millions 2002 2001 +/- % 2001 2001/2002
Net turnover 105.5 69.8 51 371.2 406.9
Operating 28.4 21.3 33 122.1 129.2
Income
Operating 26.9 30.5 32.9 31.8
margin, %
Sales growth amounted to 51 percent. Growth during the period was above all strong in Asia, with an increase of over 100%. Continued sales successes in Japan and South Korea are the primary reasons for the increase. During the period a new distributor has been established in Pakistan. The somewhat lower operating margin for the period is due to costs for the clinical trials which were begun during 2001 and which are still ongoing. These include the studies with RESTYLANE in the U.S.A. and RESTYLANE in Japan, as well as with PERLANE which is being compared with Hylaform in Canada.
The clinical study on RESTYLANE which was initiated in July 2001 in the U.S.A. is proceeding according to plan. In the study Q-Med's product RESTYLANE is being compared with the competing product Zyplast, which is based on collagen. The results from the study will form the basis of the application for registration in the U.S.A., which it is estimated will be submitted in the middle of 2002.
Within the area of Esthetics Q-Med is working on the development of a new product, MACROLANE, for the augmentation of different parts of the body. The first area where a clinical investigation will be performed is breast augmentation. In February the protocol for this investigation was approved by the Medical Products Agency and it is estimated that they will begin as soon as approval has been obtained from the ethics committee. The results will form the basis of the continued clinical Studies, which will constitute the basis of an application for registration.
Orthopedics business unit
Negotiating agreement signed with a large international company for the distribution of Q-Med's orthopedic products. DUROLANE showed a high level of safety in a clinical study but not a statistically significant treatment effect compared with sodium chloride solution. Deepened analysis of the above study showed results in DUROLANE's favor among a subgroup of patients. Sales of DUROLANE initiated via own subsidiaries in Europe.
Net turnover and operating income Orthopedics
Jan - Mar Jan - Dec Apr - Mar
SEK millions 2002 2001 +/-% 2001 2000
Net turnover 0.5 0.0 0.0 0.5
Operating 9.6 -3.8 -28.3 -22.5
income
The one-time revenue that Q-Med received for exclusive negotiating rights (see below) amounted to SEK 21.7 million. Adjusted for this one-time revenue operating income amounted to SEK -12.1 million. Income is affected mainly by costs for the marketing organization which has been built up from the second quarter of 2001 and for the clinical program for DUROLANE.
At the end of January 2002 Q-Med signed an exclusive negotiating agreement with a major international company regarding among all the distribution of DUROLANE. The agreement gives the opposite party exclusive rights to discussions with Q-Med concerning a possible distribution agreement for DUROLANE and other future products within the Orthopedics area worldwide. Owing to the results from the completed clinical study for DUROLANE (see below), Q-Med is negotiating with regard to possible continued cooperation under the new premises. The discussions regarding this matter are expected to be completed during the summer.
The recently performed study where DUROLANE was compared with sodium chloride for the treatment of osteoarthritis of the knee joint comprised 347 patients who were followed up during six months at 18 clinics in Sweden, Canada and the U.S.A.. The study showed a high level of safety when DUROLANE was used at all clinics but it did not, however, show a statistically significant effect of treatment with DUROLANE compared with sodium chloride solution after 6 months if all clinics were taken into account. It was therefore decided that a deeper analysis of the study should be performed so as to find, if possible, the cause of the results in question.
When the results were more carefully scrutinized, relatively large differences were seen between different clinics. In the light of this, an analysis was carried out of a subgroup of just under half of the patients (163 patients) who had been treated and followed up at clinics that had a patient dropout rate of less than 30%. At these clinics, that is where most of the patients completed the study, the results were in DUROLANE's favor. Just under half of the patients in this subgroup showed marked, although not statistically significant , improvement of their osteoarthritis problems, this being most pronounced after 6 weeks. Among the osteoarthritis patients whose disease is isolated to just the knee (215 patients), very clear differences were seen compared to sodium chloride, at 6 weeks here as well (p0.05)*.
In another recently completed DUROLANE study in Uppsala it could be shown that the product is present in the joint in effective amounts for 8 weeks, which is considerably longer than other hyaluronic acid products. The extended knowledge concerning DUROLANE from these two studies forms the basis of the plan to get the FDA (Food and Drug Administration) to accept approval of DUROLANE for effect after 6 weeks.
At the start of the first study it was considered that a reasonable presence of DUROLANE in the joint was 24 weeks (6 months) based on experience from other tissue, hence the original design of the study. Q-Med is continuing for the time being to introduce DUROLANE in the markets where it is approved today. Significant sales are expected to come after the new concept gains recognition. The clinical study on osteoarthritis of the hip which was initiated in Sweden at the end of 2001 is proceeding according to plan, with positive indications, and an extended study for arthritis of the hip is planned to form the basis of registration of the product for this indication.
* p-value: the probability of obtaining the observed result, or an even more positive result, under the assumption that the treatments are equally effective.
Uro-Gynecology business unit
Sales amounted to SEK 7.7 (1.6) million, an increase of 381 percent.
Successful launch of DEFLUX in the U.S.A.
The injection device IMPLACER(TM) approved in Europe in April 2002.
Net turnover and operating income Uro-Gynecology
Jan - Mar Jan - Dec Apr - Mar
SEK millions 2002 2001 +/-% 2001 2001/02
Net turnover 7.7 1.6 381 9.0 15.1
Operating -16.7 -5.7 -193 -32.4 -43.4
income
The launch of DEFLUX in the U.S.A. has been very successful and sales are completely in line with Q-Med's expectations. The development of sales of DEFLUX has also been very good in Europe. Net sales for the business unit, and for the product DEFLUX, amounted to SEK 7.7 (1.6) million for the period. Operating income, which during the period amounted to SEK -16.7 (-5.7) million, have been affected by costs for the organization in the U.S.A. and the higher production and development costs for increasing the production capacity of DEFLUX, ZUIDEX and IMPLACER. During January the recruitment of four specialist salespersons for DEFLUX in the U.S.A. was completed. The work of introducing DEFLUX at important key centers have been begun.
Q-Med's product for the treatment of stress urinary incontinence using a cystoscope has been approved in Europe since 1999. In order to be able to take this treatment from the operating theater to outpatient clinics and thereby be able to offer more women help, Q-Med has developed a new product, ZUIDEX IMPLACER, which enables injection without needing to use a cystoscope. Using IMPLACER the treatment with ZUIDEX can also be performed at outpatient clinics. In this way the treatment will become more generally available than today and a much larger number of patients can thereby be treated. A pilot study with ZUIDEX administered with IMPLACER is being carried out at present. In April 2002 the injection device IMPLACER was approved in Europe, which means that the multi-center study which has been planned for Europe can start. In the study 150 patients will be treated at 15 clinics in 5 countries. The study will be ongoing for 12 months. Q-Med anticipates that as from the middle of 2002 the product will be initially introduced in Europe via the company's own subsidiaries. A multi-center study is also planned to start in the U.S.A. during 2002 as the basis for an application for registration in the U.S.A.
Cell Therapy and Encapsulation
Ixion received a research grant of USD 99,000 for research within diabetes.
Net turnover and operating income Cell Therapy and Encapsulation
Jan - Mar Jan - Dec Apr - Mar
SEK millions 2002 2001 +/-% 2001 2001/2002
Operating -8.4 -7.2 -17 -37.7 -38.9
income
Within the business unit research is ongoing to develop techniques to encapsulate cells and therapeutic substances. Q-Med's majority owned subsidiary Ixion Biotechnology Inc. carries out research within two areas, Diabetes and Oxalate. A large part of the explorative research within the stem cell area will be carried out in cooperation with institutions at universities, which in turn is expected to lower the costs for Ixion. Operating income for the Cell Therapy and Encapsulation business unit is at the same level as for the previous year. A certain reallocation has been made between the projects, and consequently resources have been steered over from stem cell research to the project regarding oxalate.
Within the area of Diabetes, research is being carried out into implanted insulin-producing cells. Furthermore, investigations are being done into how these cells can be protected by means of NASHA against surrounding cells and tissue. It is estimated that studies on humans can be started on a small scale at the end of 2002 or the beginning of 2003.
In order to enable continued studies the optimal source for the extraction of stem cells will be evaluated. Ixion received a research grant of U.S. $99,000 in March from NIH, The National Institutes of Health, in the U.S.A. for this research, to investigate the possibility of making use of stem cells from bone marrow from adults.
Ixion's other area of research is within oxalate research. Oxalate is a substance that is to be found in certain foods and is also produced in the body. An excess of oxalate plays an important role for a number of diseases, such as chronic kidney stones, cystic fibrosis and primary hyperoxaluria. The first product which the company is focusing on is for the treatment of primary hyperoxaluria and during 2002 it is planned to carry out phase 1 and 2 studies to show that Ixion's product is safe and can lead to reduced levels of oxalate. These results will then form the basis of clinical effect trials and of an application for registration for a so-called "orphan drug" with the FDA, the American regulatory authority. As soon as there is sufficient experience of its use the wider and more commercially interesting uses will be documented.
EXPENSES AND INCOME
The gross margin was 86.8 (89.5) percent.
Large investments were made in research and development, SEK 39.0 (23.7) million.
Operating income was SEK 12.9 (4.6) million.
One-time revenue of SEK 21.7 (0.0) million for exclusive negotiating rights.
Q-Med's gross margin amounted to 86.8 (89.5) percent during January -- March 2002. Q-Med has had a lower production volume than usual during the period due to the production of the low-volume product DEFLUX. This has affected the gross margin negatively. However, for the whole year the gross margin is expected to be approximately 90 percent.
Selling expenses increased during the period by 79 percent and amounted to SEK 58.5 (32.7) million, which corresponds to 51 percent of the turnover. Within Esthetics selling expenses amount to 40 percent of the turnover. It is the investments within the Orthopedics and Uro-Gynecology business units, and for the latter primarily the introduction in the U.S.A., which is the cause of the higher sales costs for the period compared with the previous year.
The costs for research and development rose by 65% compared with the same period the previous year and amounted to 34 (33) percent of the net turnover. Research and development costs in Ixion amounted to SEK 7.5 (7.4) million for the period January - March. Excluding Ixion's costs research and development costs increased from 23 to 28 percent of the turnover, or an increase by approximately SEK 15 million. The increase in costs is due to the approximately 10 clinical trials which are ongoing, and the associated registration work.
Amortization and depreciation of SEK 5.2 (2.7) million, of which SEK 1.7 (0.2) million is comprised of goodwill, has been charged against income. The amortization of goodwill is recorded in the rows for research costs or selling expenses, depending on their nature and origin. Among other operating revenues is recorded the revenue of SEK 21.7 (0.0) million, which Q-Med received from a possible partner for sales and distribution of DUROLANE. Otherwise, other operating revenues and expenses consist primarily of the effects of exchange rates on accounts receivable and payable. Furthermore, other operating revenues include research grants received within Ixion and these amounted to SEK 0.6 (1.4) million.
Operating income for the first quarter of 2002 amounted to SEK 12.9 (4.6) million, which gives an operating margin of 11.3 (6.4) percent.
Operating income adjusted for the one-time revenue amounted to SEK -8.8 (4.6) million, which means that Q-Med reports negative operating income excluding Ixion for the quarter: SEK -1.9 (10.6) million. Net financial income amounted to SEK 0.0 (3.9) million for the period.
Estimated tax costs amounted to SEK -4.1 (-2.0) million. A net sum of SEK -2.4 (-2.2) million has been charged against income on account of Ixion.
INVESTMENTS AND CASH FLOW
The construction work in Uppsala is proceeding according to plan.
The construction of new office and laboratory premises with an area of 11,000 m2 was begun at the beginning of 2001 and occupancy of parts the premises will occur at the beginning of May 2002. During the period SEK 37.9 (8.2) million was invested in buildings. The total investment in the property is estimated to amount to approximately SEK 130 million, of, which SEK 64.1 million was invested during 2001. Investments in machinery and equipment amounted to SEK 2.9 (4.1) million during the period.
The supplementary purchase sum of SEK 5.8 million previously recorded and entered as a liability was paid for the shares in Nuova ICT. As of the beginning of the year Q-Med Italy and Nuova ICT have merged and been renamed Q-Med ICT S.r.l. Q-Med's cash flow from operating activities was SEK 26.2 (0.0) million for the period January - March 2002 while investments during the same period amounted to a total of SEK -60.8 million. The total cash flow was negative, SEK -34.4 (-12.5) million.
PARENT COMPANY
The net turnover for the Parent Company Q-Med AB was SEK 75.4 (53.7) million for the first quarter. Income after financial items amounted to SEK 19.0 (17.9) million.
PERSONNEL
Q-Med continues to employ new employees and recruited 44 employees to the Parent Company during January - March, primarily within production and research and development but also within marketing. At March 31, the number of employees amounted to 310 (218), including 211 (153) in Sweden. During 2002 recruitment within production and research and development will continue as well as the building up of a market organization in the U.S.A. and the expansion of the subsidiaries' sales and marketing personnel.
PROSPECTS FOR WHOLE OF 2002 UNCHANGED
Continued strong growth is expected for 2002 as a consequence, amongst other things, of contributions from the two business units, Orthopedics and Uro-Gynecology. The gross margin will continue to be about 90 percent. The investments in new products and markets will continue and this means that the costs for above all clinical trials will increase.
The expansion will take place with continued profitability.
This report has not been the subject of scrutiny by the company's auditors. The same accounting principles and methods of calculation have been used in the drawing up of this interim report as in the latest Annual Report. The company's accounting and valuation principles are in accordance with the recommendations and pronouncements of the Swedish Financial Accounting Standards Council.
The report for the period January-June 2002 will be submitted on August 22, 2002.
Appendices: Income statement, balance sheet, statement of changes in financial position, and key ratios for January - March 2002.
The full text report with all financial; tables can be found at the following URLs:
www.waymaker.net/bitonline/2002/04/23/20020423BIT00750/wkr0001.doc
www.waymaker.net/bitonline/2002/04/23/20020423BIT00750/wkr0002.pdf
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