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HSCI Reports Financial and Operating Results for the First Nine Months of 2015 the under RAS

Moscow – 5 November 2015. PJSC HSCI – The Human Stem Cells Institute (“HSCI”, MOEX: ISKJ), one of Russia’s leading biotech companies, today announced its unaudited unconsolidated results for the first nine months of 2015 in accordance with the Russian Accounting Standards (RAS):

  • HSCI’s revenue for the first nine months of 2015 amounted to RUB 185.1 million compared to RUB 234.4 million in the same period of the previous year.
  • Gross profit amounted to RUB 72.2 million representing gross profit margin of 39.0%.
  • Operating profit was RUB 4.3 million, as opposed to operating loss of RUB 0.2 million in the same period of the previous year.
  • OIBDA1 amounted to RUB 14.5 million for an OIBDA margin of 7.9%.

HSCI’s total revenue and revenues generated by key products and services

Revenue, generated by PJSC HSCI (hereafter – “HSCI”, “the Company”) for the first nine months of 2015 amounted to RUB 185.119 million – a year on year decrease of 21.0%.

The decrease is primarily attributable to lower revenues from the sales of HSCI’s own innovative drug Neovasculgen® (for details - see below).

It should be noted, that revenues from the provision of genetic diagnostic and consulting services as well as Reprobank® services starting Q2 2013 have been reflected in the revenue of GENETICO LLC (renamed from RGMC HSCI LLC in October 2015) – a subsidiary of HSCI, and, therefore, are reported in the consolidated IFRS statements. The Company releases IFRS reports for half-year and full year results, while RAS reports are released for 3, 6, 9 months and for the full year. Therefore, in order to present regular comparative information on the development of the Genetico project, supported by an investment from RVC BioFund, HSCI RAS results press-releases include information on the revenues of GENETICO LLC received from aforementioned services for the period under review (see the Genetico section below - page 3).

Neovasculgen® – the first-in-class gene-therapy drug for treatment of Peripheral Arterial Disease (PAD), including Critical Limb Ischemia (CLI)

In the reporting period revenues from the sales of Neovasculgen® amounted to RUB 1.3 million, while for the first nine months of 2014 revenues from the sale of this drug to distributors amounted to RUB 42.4 million.

Currently, patient access to the drug and, accordingly, Neovasculgen® sales on the Russian market are highly influenced by the absence of this first-in-class innovative drug in the list of Vital and Essential Drugs (VED)2 and state drug reimbursement programs. This strongly constrains the accessibility of Neovasculgen® for all patients suffering from PAD.

But for 2016 Neovasculgen® is already included in the List of Vital and Essential Drugs (VED) of Russia. The Ministry of Health Commission made this decision on September 4, 2015 after thorough study of the drug’s safety, clinical efficacy and pharmacoeconomics. The corresponding government directive should be issued before the year-end. Inclusion of Neovasculgen® into the VED List will substantially increase the drug’s availability for PAD patients, especially for those who are inoperable for an occlusive PAD.

As of today, more than 50 healthcare centers (hospitals) across the Russian Federation have positive track of Neovasculgen® clinical administration. The Company continues to work on further promotion of the drug within medical community as well as on increasing vascular surgeons’ and angiologists’ awareness of this new therapy approach.

In June 2015, HSCI took part in the 30th International conference of angiologists and vascular surgeons held in Sochi. At the conference data on therapeutic effect during 4 years after a treatment course with Neovasculgen® were reported. Updated data on therapeutic effect following a treatment course of Neovasculgen® accordingto 4-year observation of patients participated in clinical trials and received the treatmentwill be presented in November 2015 at the XXI All-Russian Congress of Cardiovascular Surgeons in FSBSI «A.N. Bakoulev SCCVS» and also at the XXXI International Conference «Selected topics of cardiovascular surgery» at A.V. Vishnevsky Institute of Surgery.

In October 2015, Neovasculgen® and its action mechanism - therapeutic angiogenesis - were presented at the XII Congress of Russian Surgeons in Rostov-on-Don.

In addition, active work with the Agency for Strategic Initiatives (ASI)3 is under way as ASI renders a support to HSCI’s program of production and marketing of Neovasculgen® innovative drug. Currently, under the aegis of ASI regional events (round tables) are held for the discussion of therapeutic angiogenesis application in PAD treatment.

During the reporting period HSCI also received from the Federal State Institution “The Fund for Promotion of Small Innovative Enterprises in Science and Technology” a grant of RUB 12 million to finance the project “Neovasculgen® innovative gene-therapy drug commercialization in Russia and abroad”.

Peripheral Arterial Disease (PAD) is a serious, incapacitating disease, which is exceeded in frequency (amongst cardiovascular diseases) only by ischemic heart disease (IHD) and brain stroke. In Russian Federation the number of patients with critical form of the disease (CLI, Critical Limb Ischemia) annually amounts up to 145,000, of which 35,000 - 40,000 undergo amputations, while around 25% of patients die. A part of patients diagnosed with CLI is inoperable, and for them Neovasculgen® could be the only treatment, allowing the opportunity to evade amputation as well as to significantly improve the quality of live.

According to the drug’s clinical trial results and more than 3-year track of its use in practical healthcare (starting autumn 2012 when the drug was launched in the Russian market), Neovasculgen® increases the functioning capillaries number in ischemic tissues, improves the blood supply, reduces the rate of amputation and mortality in patients with lower limb ischemia, especially in those who are inoperable. Containing the gene of the Vascular Endothelial Growth Factor (VEGF) embedded in a plasmid vector (carrier), Neovasculgen® stimulates the growth of collateral blood vessels (аngiogenesis) and, as a result, promotes a long-term therapeutic effect and improves patients’ quality of life, first of all manifested in a substantial increase of Pain Free Walking Distance.

As the drug’s action mechanism – therapeutic angiogenesis – introduces a new approach to the treatment of ischemia (the use of an evolutionarily programmed process of blood vessel creation and growth), HSCI plans to implement new clinical trial protocols in order to expand the range of indications for applying Neovasculgen®. HSCI aims to work in the therapy of Diabetic Foot Syndrome, IHD (Ischemic Heart Disease), trauma-induced peripheral nerve damage. Also, the R&D is in progress for the creation of gene-activated bone grafts based on Neovasculgen®.

In addition to the Russian market, HSCI intends to make Neovasculgen® available on other markets as well. At the moment the Company is negotiating with potential co-development partners as well as working on attracting required funds, including grants for the development, FDA clearance and launch of Neovasculgen® in the United States and China. The Company considers those markets, taking into consideration their size, present great prospects.

Isolation, cryopreservation and storage of umbilical cord blood stem cells – bio-insurance (Gemabank®)

For 9mo 2015 revenues from this service amounted to RUB 151.4 million (81.8% of the Company’s total revenue) – almost flat compared to 9mo 2014 (+0.1%) due to sustainable growth in revenues from the storage of cord blood stem cells but the decrease in revenues from the isolation and cryopreservation of cord blood stem cells (new contracts) which was attributable to the decline in consumer demand because of economic recession in Russia. According to a preliminary assessment, Russian cord blood banking market size in 2015 decreased compared to 2014.

As of today, the total number of personal cord blood stem cell samples held in storage at Gemabank® has exceeded 23.7 thousand.

From October 1, 2015 the Company started rendering Gemabank® services through IMCB LLC LLC (HSCI’s 100% subsidiary) – with the aim to increase effectiveness as well as to use state tax allowance for medical companies. IMCB (International Medical Center for Biomaterials Processing and Cryostorage) was set up in October, 2014 and obtained the corresponding license (for hematopoietic cord blood stem cell isolation, transportation and storage services) in July 2015.

SPRS-therapy – a set of personalized diagnostic and treatment procedures for repairing skin damage due to aging or other structural changes

Revenue from SPRS-therapy, including the long-term storage of autologous skin fibroblasts, for 9mo 2015 amounted to RUB 23.9 million (12.9% of the Company’s total revenue) – a year-on-year increase of 54.4%.

This service was authorized by the Russian healthcare regulator and introduced to the Russian market starting in January 2011. An innovative medical technology, SPRS-therapy entails the use of autologous skin fibroblasts to correct the effects of aging and skin damage. The service includes diagnostics of the condition of the patient’s skin; a therapy course using the cell product with the patient’s own fibroblasts; and long-term storage of the patient’s skin fibroblast culture in a cryogenic bank.

The service is primarily offered through the leading dermatology and cosmetics clinics of Moscow (more than 30); however, in 2012 cooperation in providing this service began to extend to clinics in Russia’s regions and CIS (covering 15 cities as of September 30, 2015).

The total number of patients that had used this service, as of the end of the reporting period, exceeded 550 people. More than 50% of patients have returned for second and/or additional skin treatments in other areas besides the face. Therefore, the increase in number of requests for services within the spectrum SPRS-therapy (both initial and follow-up applications) is securing revenue growth.

The age of patients undergoing SPRS-therapy ranges from 40 to 65. In the end of Q1 2015 a stand-alone SPRS-bank service was launched for the younger clients as the type of bio-insurance. The service allows them to cryostore autologous skin fibroblasts in order to use in future – for repairing skin damage due to aging in such areas as face, neck, décolleté or hands applying SPRS-therapy as well as for the treatment of skin after burn injury or other trauma-induced skin damage.

In parallel with continued work with doctors and clinics specializing in aesthetic medicine, the marketing strategy continues to also include a focus on the promotion of SPRS-therapy services directly to consumers (including Social Media engagement).

In addition to the Russian market, the Company is making efforts to launch SPRS-therapy and the Service of personalized skin diagnosis (“Skin Passport”) internationally.

Alongside, work on receiving global patent protection for the unique diagnostic component of SPRS-therapy know-how, i.e. personalized skin diagnosis (“Skin Passport”), is underway.

In September 2012, Vitacel LLC (HSCI’s subsidiary) applied for an international patent (PCT) to protect its IP “Diagnostic method for connective tissue and its application” and this PCT application was published on April 11, 2013 and in 2013-2014 moved to the national and regional phases (EU, Eurasia, USA, Brazil and Japan).

In February 2014, the US Patent Office completed its expert review and issued Vitacel a patent for its “Method of determining tissue regenerative ability of the skin” (published on July 29, 2014).

Genetic diagnostics and consulting as well as Reprobank® services at Genetico® medical centers & testing lab

The revenues from genetic diagnostic and consulting services as well as Reprobank® services, reflected in the RAS revenue of HSCI’s subsidiary GENETICO LLC (former RGMC HSCI LLC), for 9mo 2015 amounted to RUB 44.3 million – doubled compared to FY 2014 results and representing a 3.3-fold increase over 9mo 2014.

More detailed information on the development of all services provided by a testing lab and Russia-wide network of advanced medical genetics centers under the Genetico brand will be given in the press-release on HSCI’s FY2015 IFRS results (which is to be distributed after the publication of the Company’s FY2015 consolidated financial statements under IFRS in the end of April 2015).

Operating Expenses, OIBDA, Profits and Losses

HSCI’s operating expenses for 9mo 2015 decreased by 22.9% year on year to RUB 180.788 million. The decrease in operating expenses is attributable to the reduction in cost of sales as well as in administrative expenses.

Business costs optimization primarily include minimization of overall staff costs - through optimization of the number and structure of HSCI’s personnel, including by the transfer of certain employees to subsidiary companies where specific projects are developed. In addition, it should be noted lower rent expenses resulting from the reduction of office space.

As a result, the reduction in operating expenses outpaced the revenue decrease and the Company demonstrated a year-on-year increase in operating profitability and margins (see Key Financial Results below).

OIBDA amounted to RUB 14.540 million for an OIBDA margin of 7.9% (compared to RUB 11.805 million and 5.0% respectively for 9mo 2014). Operating profit totaled RUB 4.331 million – compared to operation loss of RUB 0.215 million for 9mo 2014.

Other gains & losses for 9mo 2015 amounted to a net gain of RUB 2.775 million which is mainly attributable to the gain from revaluation of the Company’s financial instruments (purchased quoted securities) which comprised RUB 39.222 million.

As for the operating profit and positive result from other (mainly, non-operating) activities, the Company delivered 9mo 2015 profit before tax of RUB 7.106 million, but for the deferred tax liabilities of RUB -7.402 million, it demonstrated a net loss for the period of RUB 1.397 million. Deferred tax liabilities were mainly attributable to the above mentioned net revaluation gain (20% rate on, in accordance with Russian Accounting Standards).

Key Financial Results:

Profit and Loss Statement,  ’000 RUB

9mo 2015

9mo 2014

% change,

y-o-y

Revenue

185,119

234,387

-21.0%

Cost of goods sold (COS)

(112,887)

(149,559)

-24.5%

Gross profit

72,232

84,828

-14.8%

Gross margin

39.0%

36.2%

n/a

SG&A

(67,901)

(85,043)

-20.2%

Total operating expenses, incl.

(180,788)

(234,602)

-22.9%

Depreciation & amortization

(10,209)

(12,020)

-15.1%

OIBDA

14,540

11,805

23.2%

OIBDA margin

7.9%

5.0%

n/a

Operating profit/ (loss)

4,331

(215)

n/a

Operating margin

2.3%

n/a

n/a

Other gains & losses, net – including:

2,775

28,786

-90.4%

Interest loss, net

(2,043)

(4,604)

-55.6%

Other income / (loss), net, incl.

4,818

33,390

-85.6%

Gain from revaluation of financial instruments /purchased quoted securities/

39,222

42,529

-7.8%

Profit before tax

7,106

28,571

-75.1%

Profit tax

(1,924)

(409)

370.4%

Deferred tax liabilities

(7,402)

(7,799)

-5.1%

Deferred tax assets

823

(2,407)

n/a

Net profit / (loss)

(1,397)

17,956

n/a

Net margin

n/a

7.7%

n/a

1OIBDA is a non-U.S. GAAP and non-IFRS financial measure, which the Company calculates as total revenues less operating expenses excluding depreciation and amortization. We believe that OIBDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance investments and to incur and service debt. OIBDA should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP or IFRS.

2The Vital and Essential Drugs (VED) List is a register of pharmaceutical drugs approved by the Russian Government in order to provide state control over prices to increase availability of essential medicines to the people of Russia. The VED List mainly serves as the basis for drug purchases by hospitals and for recommended treatments of various diseases.

3The autonomous non-profit organization established by the Government of Russia in order to implement the set of measures in economic and social spheres.


Full Version of the Press Release (373 kb)



06 November 2015