Simris Alg

Q1, JANUARY-MARCH 2023
· Net revenue decreased by 85% to SEK 488k (3 206k) following a planned 3-month shutdown in production to upgrade the Hammenhög production facility.
· Personnel and other external costs increased by 79% to SEK -6 291k (-3 517k) due to increased investments in capability and infrastructure, including Cyano Biotech.
· Comparing Personnel and other external costs on a like-for-like basis (i.e., excluding Cyano Biotech), costs increased by 34% vs Q1 2022 of which a large proportion were one-off costs.
· In line with limited sales, EBITDA declined by 75% to SEK -5 999k (-3 420k).
· EBIT/ Operating result declined by 132% to SEK -9 595k (-4 144k) driven by depreciation following the acquisition of Cyano Biotech.

KEY EVENTS ANNOUNCED IN Q1
· Simris announced the launch of its newly formulated Omega-3 product in Sweden on 10th January.
· On 24th January, Simris confirmed an increase in the flexible funding facility from The Brand Laboratories (TBL), a company associated with the Chairman, by €0,5m, taking the full value of the facility to €1,5m.
· On 31st January, Simris announced it was proposing to change the name of the company to Simris Group AB.
· Simris published its Year End Report on 15th February.
· On 28th February, Simris announced it had signed a strategic collaboration agreement with Lonza, who as Simris’ CDMO hold the exclusive rights to promote its ADC payload platform to drug development companies.
· An EGM was held on 6th March; Shareholders resolved to (1) change the name of the business to Simris Group; (2) approve an increase in the funding facility from The Brand Laboratories; (3) amend the Articles of Association.
· On 13th March Simris confirmed that the name of the company had been officially changed to Simris Group AB.
· On 27th March, Simris announced that following the restart of bioreactors at its Hammenhög facility in January it had experienced record growth rates.

KEY EVENTS AFTER Q1
· On 17th April, Simris published its Annual Report for 2022 and announced its Annual General Meeting would be moved from 15th to 29th May.
· On 21st April, the Board of Simris announced it had resolved to accept an offer to extend its flexible loan facility with TBL by a further €150k.
· On 28th April, Simris announced broader distribution of its Omega-3 products with launch on www.amazon.com in USA and a listing in two Swedish pharmacy chains.
· On 2nd May, Simris announced it had received its largest single B2B order for fucoxanthin-rich biomass, worth up to 4,0MSEK.
· On 5th May, the Board accepted an offer from the former owners of Cyano Biotech to extend the due date on the second payment for the acquisition, from 25th August to 2nd October.
· On 5th May, the Board accepted an offer from TBL to extend the due date for payment of its flexible loan facility, from 25th August to 2nd October.

CEO UPDATE
I joined the company almost one year ago, with a clear objective to position the company for robust sales growth. We began with a focus on building new revenue platforms, and these investments are already delivering results. First came the transformational acquisition of Cyano Biotech, moving us firmly into the more lucrative biopharma space. Next came the collaboration agreement we secured with Lonza, which not only gave 3rd party validation to our patented ADC platform but also brings us much closer to securing high value licensing contracts with drug developers. Time and resource investments made at our Hammenhög facility have yielded astounding results: biomass is now growing at twice our best historical rates, and other process improvements from our R&D now show highest-ever cell density and much-improved biosecurity. Taken together, this has culminated in the recent receipt of our first B2B order for the year, which is also the largest order we have ever received. The newly formulated Simris Omega-3 products have been launched on amazon.com in the USA as well as our own website in Sweden and will shortly be online at the two largest pharmacy chains in Sweden. On top of all of this, we have strengthened the teams in both Berlin and Hammenhög to build upon this momentum. Not surprisingly, as I reflect on the progress Simris has made since the start of the year, I am more optimistic than ever about the future.

FUNDING:
The question I receive most frequently from investors regards the funding of the business. I therefore feel it is appropriate to address this question directly to you, our Shareholders, in this report. Simris currently has cash for operations through to the end of Q3. Before this date, the Board of Directors intend to secure additional investment to fund the longer-term growth of the business in line with our corporate objectives. In our previous quarterly report, we confirmed that the business had cash for operations through to the end of Q2. This improvement of our runway stems from four areas:
1. Sales revenues from Omega-3, fucoxanthin-rich biomass and cyanobacterial laboratory standards are strengthening our short-term cashflow;
2. The former owners of Cyano Biotech have offered to extend the original due date for the second (final) acquisition payment of €1m from 25 August 2023 to 2 October 2023;
3. The Brand Laboratories FZ has also offered to extend the repayment date on their flexible loan facility from 25 August 2023 to 2 October 2023, for better alignment;
4. The Brand Laboratories FZ has also extended the total loan facility amount by €150k to €1,65m, should it be needed.
Based upon the substantial progress the business has made over the past 12-months, by any measure Simris is in a stronger position than it has ever been. In light of this, the Board are currently evaluating a broader raft of options for future funding than have been previously available. A decision as to which route (s) will be taken will be communicated shortly.
 
BIOPHARMACEUTICALS:
The market for Antibody Drug Conjugates (ADC's) is growing rapidly in scale and revenue. In June 2022 there were over 400 ADC drugs in development, of which more than 200 were in the clinical stage. As for revenue, Daiichi Sankyo alone expects global revenue for its Enhertu® drug to exceed $1.5B in 2023. In March of this year, Pfizer offered $43B to acquire Seagen, whose late-stage development programs and expertise in ADC’s strongly complement Pfizer’s Oncology portfolio. Post-merger, Pfizer will hold six of the fourteen FDA-approved ADC's as well as a pipeline of clinical-stage ADC candidates. The ADC space is on fire, as the full potential of precision cancer therapeutics unfolds. In this context it is immediately apparent that the collaboration agreement that Simris signed with Lonza earlier this year is transformative in unlocking value.

As one of the world’s largest pharmaceutical Contract Development and Manufacturing Organisations (CDMOs), Lonza already produces the majority of commercially available ADCs for the major drug developers. Now, as Simris’ CDMO partner, Lonza holds the exclusive rights to promote Simris’ patented ADC payload technology to its customers. Simply put, Lonza bridges the gap between Simris and the drug developer. As an example of how this collaboration can be immediately beneficial, Simris has been invited to present to Lonza customers during a three-day Conjugation Summit later this month.

A few months back, in March, I attended a World ADC conference in London where the majority of companies working in the ADC field gathered to promote their various technologies. I was taken aback by the diverse interest shown in our patented payload technology, resulting in a number of discussions which are now underway with drug developers internationally. At about the same time we engaged a specialist external consultancy (with considerable experience in pharmaceutical licensing deals relating to ADCs), to advise us on an optimised license model and to put likely numbers to each stage. The output of this work confirmed our model. ADC license agreements have a typical structure:
1. An upfront licence fee to reserve the exclusive right for the drug developer to develop their ADC with our payload towards a specific target on one or more cancer cell lines. On average these fees have been 5% of the total value of the license agreement; a typical upfront license fee can be several millions of dollars.
2. Funded research collaboration fees during pre-clinical development, whereby Simris would be paid to perform research and development to modify its payload for optimal performance as part of the developing ADC medicine and to supply the drug developer with toxic payloads.
3. Milestone Payments, made during the development of the product, are paid upon achieving key milestones e.g., at the end of the pre-clinical stage, at the end of each stage of clinical trials, and again when the medicine gains regulatory clearance. Average milestone payments are each single-digit millions of dollars in the early clinical stage and increase to double-digit millions of dollars during the later stages of clinical trial and regulatory approval.
4. Royalty fees from commercial sale of the ADC medicine carrying one of our payloads. From disclosed FY2022 financial statements sales of ADC drugs were more than $7bn. The market is expected to be grow to over $20bn by 2030 making it apparent that revenue from royalties can be significant.

Our research on deals done goes back to 2018; since then, the average total value of a single ADC license deal (with all milestone payments and royalties included) has been $300m. Whilst it is true that only a few drug candidates have made it all the way through to commercial sale, even just the upfront licensing fees and early milestone payments from a single license agreement for our ADC payload platform would represent meaningful revenue for Simris and attract further significant interest in our technology. Encouragingly, 6 of the 15 FDA-approved ADCs are based on cyanobacteria toxins, which is exactly the space we are in.

As previously communicated, we have already welcomed one new scientist to the Berlin team in February. Our second new team member joined at the beginning of May, thereby expanding our capabilities in conjugation chemistry and payload production. We plan to strengthen the team further before the end of the year, on the Business Development / Sales side, to drive progress commercially.

NUTRACEUTICALS:
SWEDEN: We are off to a very encouraging start! Direct to Consumer (D2C) Q1 sales of our newly launched Omega-3 products in Sweden are twice the sales we achieved for all of the products in the previous range during Q1 of 2022. On top of this, all the reviews we have received for the new product have been 5-star with favourable comments about how easy the new capsules are to swallow, how nice the storage jar is, and the merits of the refill pack concept that minimises wasteful packaging.
Listing in the main pharmacy chains is a central part of our distribution strategy for Sweden. A 2022 IPSOS consumer study showed that more than 60% of shoppers expect to find food supplements in pharmacies, and I am pleased to report that we have secured listings for our new Omega-3 products with the two largest pharmacy chains in Sweden; Kronans Apotek began selling Simris Omega-3 products from May 1st, and the first shipment to Apoteket will be made shortly to enable sale beginning of June.

USA: Following a successful marketing trial that began on amazon.com in the USA in mid-March, Simris Omega-3 products are now available on the world's largest retail website. In just a short time Simris has made it onto the first page when searching for algal Omega-3 products. Based on favourable results to date we will continue to invest in first page visibility whilst simultaneously driving trial and successful reviews. Once a clear revenue pattern is established, the broader plan is to add other innovative microalgae and cyanobacteria inspired supplement products, as well as to launch into key European markets during H2.
 
ENHANCED BIOSECURITY & QUALITY:
As mentioned in the previous Quarterly Report, in Q4 of last year (when electricity prices are highest and growth rates are lowest) we emptied our entire photobioreactor production system to perform a deep clean and to make a number of upgrades recommended by our R&D Team. The results have surpassed our expectations. The smaller bioreactors were restarted in January, and new growth rates are more than three times historical record rates. Likewise, scale-up from the smaller to the larger reactors has gone smoothly and, thanks to the accelerated growth rates, harvesting began at the end of April, 6-weeks ahead of schedule. Overall, with these higher growth rates, we expect to produce twice as much biomass as before. This is an outstanding result from the Hammenhög team, and for the first time sets the foundation for the facility to be a profit centre for the Group.
 
FOOD INGREDIENTS FOR B2B:
We received our first order of the year for fucoxanthin-rich biomass early in May. The order, which has a total value of up to 4.0MSEK, comes from an existing customer that requires the highest possible quality of the biomass. This is the single largest order we have received to date, with deliveries required from June to August. The first 60% of the order is confirmed, with the remaining 40% to be confirmed by the end of Q2. Based upon the latest production forecast for Hammenhög, we expect to have capacity to make to make additional sales before the end of 2023.
 
SUMMARY:
After 12-months of targeted action across multiple business areas, Simris Group is in its strongest position ever. We have completed the successful and accretive acquisition of Cyano Biotech, we have secured the collaboration agreement with Lonza, we have lifted the capacity and efficiency of the Hammenhög facility by a factor of 2x, we have reformulated the Simris Omega 3 range to be globally compliant, we have launched it on amazon.com and made it freely available in Sweden, and we have kicked off the B2B business with our largest order ever of approximately 4,0MSEK. Most importantly, we are sitting on an exceptional, patent protected, technology platform within one of the hottest biotech areas, namely ADC medicines, and believe that a licensing deal is achievable within the next 9-12 months.

This is a completely new Simris: new Board, new management, new objective, new business model, new biopharma positioning. Simris is finally ready to deliver on its potential and I am looking forward to the years ahead.

The report is published on Simris Groups website:
https://simrisgroup.com/financial-information/financial-reports/