Innogenetics’ nine-month results: Bottom-line secured while legal action launched to ease top-line pressure
Gent (Belgium), November 16, 2005, 17h45 – Innogenetics today announced its results for the first nine months ending September 30, 2005*.
As announced earlier, significant income from HCV genotype licensing and royalties that had been budgeted for 2005 from Abbott Laboratories and Third Wave Technologies will not be realized until a favorable outcome of the legal action against those companies is achieved. Therefore, Innogenetics does not expect any further relevant license income in 2005. Additionally, this situation also pressurizes existing HCV sales by Innogenetics’ partner. Both elements have led to a decrease in product sales and overall revenues(1). The effect of these top-line results are offset by the profit on the sale of the Spanish non-Innogenetics activities, in line with the strategy to focus on high-margin products.
Frank Morich, CEO of Innogenetics, commented: “The legal action Innogenetics has taken in order to enforce its HCV patent portfolio should secure the license income and royalties we are entitled to, and should also ease the price pressure our distribution partner is currently facing. Despite this pressure on the top-line provided by external parties, the third quarter again witnessed a strong performance in the sales of products that Innogenetics is handling itself, and once again confirmed that our overall operating expenses are well controlled. The sale of our Spanish non-Innogenetics activities not only led to a profitable quarter, but also to a further rise in our cash position. The worldwide PCR license, which we obtained recently, is a crucial investment in order to capitalize on the full potential of the new technology platform we will be launching next year.” Third-quarter 2005 highlights (versus third quarter 2004) - Profit on sale of the Spanish non-Innogenetics activities: €9 million
- Net quarterly profit/loss: profit of €3.0 million versus loss of €5.2 million*
- Product sales decreased to €8.8 million versus €9.8 million*
o Sales by Innogenetics and affiliates increase by 13%
o Sales of Innogenetics products by partners decrease
- Overall revenues(1): 8.5% decrease to €10.4 million*
- Royalty and license income unchanged
- Grants jump to €0.9 million from €0.3 million
- Gross margin decreased from 57.6% to 55.2%*
- Operating expenses stable at €5.8 million*
- Completion of management team
- Legal actions in U.S. to enforce HCV patent portfolio
- Worldwide license for the use of Roche PCR technology (signed in early October 2005)
- Approval by all Ethics Committees of prolongation of ongoing Phase IIb trial (Study 918) of the hepatitis C E1 therapeutic vaccine First 9-month 2005 highlights (versus 9 months 2004) - Revenues(1) declined by 4% to €35.8 million*
- Gross margin decreased to 53.0% versus 59.5%*
- Net R&D expenses(2) lower, reaching €19.2 million versus €20.3 million*
- Operating expenses €1.7 million lower than last year*
- Cash position increased to €50.1 million versus €24.8 million Diagnostics operations: decreased revenues and decreased operating expenses* Nine-month diagnostics trade sales decreased from €31.5 million in 2004 to €29.3 million in 2005, and cumulative income from operations fell from €1.8 million in 2004 to a loss of €1.1 million. The EBITDA(3) reached €1.7 million in 2005 versus €4.9 million in 2004 for the nine-month periods. Revenues(1) decreased from €37.0 million in September 2004 to €33.9 million in September 2005, principally because of a one-time income from licenses in 2004. By contrast, Diagnostics operating expenses dropped by almost 7%, reaching only €15.0 million compared to €16 million in the same period in 2004. The decrease was due to net positive movements in administrative provisions. The strong financial position of Innogenetics allowed it to acquire a full worldwide PCR (polymerase chain reaction) license from Roche Diagnostics. This enables Innogenetics to fully integrate PCR technology in its next-generation diagnostics platform, to be launched next year, as well as in its complete range of molecular diagnostic tests. Therapeutics: sharp increase in revenues and strong decrease in R&D expenses Net R&D expenses for the Therapeutics programs declined during the first nine months of 2005 by approximately 11% from €13.8 million in 2004 to €12.2 million in 2005. This reflected the completion of several earlier clinical studies. Moreover, cumulative 9-month revenues(1) increased by almost 5-fold, up from €0.4 million in 2004 to €1.9 million in 2005, largely the result of income received from contract manufacturing. All ethics committees approved the extension of the second clinical Phase IIb trial (Study 918) of the hepatitis C E1 therapeutic vaccine. Non-product sales revenues: jump in R&D grant income During the third quarter of 2005, royalty income and license fees remained stable. Overall nine-month royalties were slightly down by €0.3 million, while license fees dipped from €2.7 million to €2.1 million. By contrast, nine-month grant income received for R&D work jumped to €2.7 million in 2005 versus only €1.5 million in 2004. Corresponding R&D contract income declined from €2.7 million to €2.0 million in the respective periods. Innogenetics filed complaints in the U.S. against Abbott Laboratories and Third Wave Technologies in order to enforce its HCV patent portfolio and the related licensing income and royalties. Innogenetics expects that these cases will be ruled upon within a period of no more than 12 months. Gross margin: up from the previous quarter The gross margin increased by 1.9% from 53.3% in the previous quarter to 55.2% in the third quarter, but was down by 2.4% when compared to the same quarter last year (57.6%). These changes were the result of several factors: a change in product mix, lower production, and more royalties to pay. Overall expenses under control Overall operating expenses were down by nearly 9% compared to the same nine-month period last year (€17.8 million versus €19.5 million). G&A expenses remained under control, falling by some 19% compared to the first nine months of 2004. Marketing & sales expenses slightly increased by 1.3% compared to the same nine-month period last year. Net result for the year As a result of the sale of the Spanish non-Innogenetics activities, which resulted in a profit of €9 million, the Company posted an overall net profit of €3.0 million in the third quarter 2005 versus a loss of €5.2 million in 2004. For the first nine months of 2005, the sale of the Spanish affiliate sharply decreased net losses to €6.9 million, compared to €15.2 million in 2004. Strengthened cash position As of September 30, 2005, Innogenetics’ cash position increased significantly to €50.1 million compared to €24.8 million at the end of September 2004. The improvement is due to the net capital increase of €33.3 million in March 2005, and the first payment of € 9.8 million from the sale of the Spanish non-Innogenetics activities. The remainder of cash (€7 million) will be received in the course of the fourth quarter upon agreement with the buyer on the closing balance sheet. (1) Revenues include product sales, royalty, and license fee income
(2) Net R&D investments include R&D expenses, grants received for R&D, and R&D contract income
(3) Earnings before interest, taxes, depreciation, and amortization *Due to the sale of Innogenetics’ Spanish affiliate IDT, mandatory IFRS 5 rules have been applied to the presentation of the quarterly financial statement. The IFRS rule 5 requires the disclosure of discontinued operations as a single and separate item on the income statement (‘Profit/loss from discontinued operations’) so that other standard reporting items can continue to be compared.