A N N U A L R E P O R T 2 0 0 6
Contents
nanotechnology and Biotechnology ______________ 4-5
2006 in brief __________________________________ 6
Ceo at an exciting time __________________________ 7
Business concept _______________________________ 8
Genovis’ jour ney _______________________________ 9
Genovis’ three business areas ________________ 10-13
nIMt™ competitive advantages __________________ 14
Business model, goals and strategies _____________ 15
Mar ket analysis _______________________________ 16
Business risk and risk management _______________ 17
Capital stock and owner ship __________________ 18-19
Board of Director s ____________________________ 20
senior executives and auditor s ___________________ 21
Board of Director s’ remuneration, etc. ____________ 22
Management repor ts ________________________ 23-25
Income statement _____________________________ 26
Balance sheet _____________________________ 27-28
Cash flow statement ____________________________ 29
supplementar y infor mation ______________________ 30
notes to the financial statements ______________ 31-33
Audit repor t __________________________________ 34
Genovis AB, Ideon, SE-223 70 Lund, Sweden Phone +46 46-10 12 30, Fax +46 46-286 24 95
www.genovis.com
FInAnCIAl CAlenDAr
Annual General Meeting _______________ April 19, 2007 Interim repor t, Fir st Quar ter _________ August 16, 2007 Interim repor t, six Months __________ oktober 25, 2007
Financial repor ts are also available at www.genovis.com
Legal disclaimer
This annual report contains statements about the future consisting of estimates.
Predictions for the future only apply as of the date they are made and by their very nature, in the same way as research and development in the biotech segment, are associated with risk and uncertainty. With this in mind, the actual outcome may deviate significantly from the scenarios described in this annual report.
NANotEchNoLoGy
involves science, engineering skills and manufacturing processes that are used to produce and describe nano- sized structures (one nanometer is one billionth of a meter). These structures can carry out specific electrical, mechanical, biological, chemical or computerized tasks.
Nanotechnology is based on the fact that material structures and entire systems demonstrate fundamentally new properties when scaled down to a nanoscale.
The concept of nanotechnology was first introduced in 1959, when physicist Richard Feynman gave a lecture called “There’s plenty of room at the bottom” in which he predicted that it would be possible to write the entire 24 volumes of the Encyclopedia Britannica on the head of a pin.
The term nanotechnology was coined in 1974 when Norio Taniguchi, a researcher at Tokyo Science University in Japan, used it to describe the possibility of designing and fabricating materials with great precision on a nanoscale. The biggest driving force behind the development of nanotechnology comes from the electronics industry, which steadily worked at fabricating smaller and smaller (and therefore faster) components on silicon circuits for use in applications such as computers.
In drug development, nanotechnology mainly focuses on improving diagnostics and developing new pharma- ceutical substances and drug delivery systems.
BIotEchNoLoGy
is the technological use of cells and cell components to produce or modify products used in health care, food handling and agriculture. It is an interdisciplinary science that links medicine, technology and biology and converts biological knowledge into technical applications.
Biotech is usually divided into five areas:
green (agriculture), red (drug development), blue (based on aquatic organisms), white (industry) and gray (waste treatment). In addition, food science (especially functio- nal foods) and bioinformatics are also considered to fall under this classification.
Biotechnology has an extremely broad area of appli- cation; most industries affected by biology and medicine will also be affected by biotechnology.
thIS IS GENovIS
Genovis is a biotech company that uses nanostructures as the core of the company’s products. With a focus on speed, safety and high performance, the company deve- loped the Nano Induced Magnetic Transfer (NIMT™) technology, which is both a method and a technical tool for drug development and preclinical research within the life science industry. Genovis will offer its customers new tools to facilitate their daily work in the laboratory and to quickly, simply, and advantageously pave the way to new discoveries. Genovis’ vision for the future is to pro- vide innovative next-generation medications that lead to a healthier life for more people.
The company developed NIMT™ on its own in its premises located in IDEON Science Park in Lund, Sweden. To date, Genovis has rolled out NIMT™ in three applications: gene transfer, RNA interference and magnetic labeling of cells. The company has initiated projects with reference customers in Scandinavia.
Genovis’ objectives are to market NIMT™ on the global market and to report positive results and cash flow in 2008.
thIS IS NIMt™
NIMT = NanoInducedMagneticTransfer.
Genovis’ typical customer can be found in a labora- tory at a biotech company, pharmaceutical company or in academic research. The main task for this particular customer is to discover and test substances that could become medications through the use of biotechnology.
Standing on the laboratory bench in front of our customer are several test tubes with cells, such as white blood cells, which grow and divide in the test tube.
Other test tubes contain several different RNA mole- cules. Each RNA molecule will be tested to discover whether it can turn off individual genetic traits inside the white blood cells. To conduct this test our customer needs to find a way to deliver the RNA molecules into the individual cells (the white blood cells) without dama- ging either the cells or the RNA molecules. Genovis has developed a delivery system that can be used quickly and easily for this purpose. The technology is called NIMT™
and it uses nanosized particles, NIMT™ FeOdots, and a laboratory instrument, the NIMT™ Nanoheater, to control the properties of the small particles.
NIMT™ was created in the borderland where physics, biotechnology, and nanotechnology intersect.
2006 was an extremely eventful year for Genovis.
The company transitioned from research and development to launching products. Much of what happened will influence the company’s future in a positive direction.
Below is a summary of the most important events of the year.
Product LAuNch
On September 26, 2006, Genovis presented NIMT™ Nano- heater and the consumable NIMT™ FeOdots at the Biotech/
ScanLab trade fair in Copenhagen. The products were presen- ted in applications within three different business areas:
Gene transfer
One way to study the effect of individual genes on sick or healthy cells is to follow what happens inside an individual cell when a new gene is transferred into the selected cell. Genes are made up of large molecules called DNA. Special tools are needed to transfer these molecules into the cell, while bypassing the cell’s innate defenses. “Gene transfer” is the procedure used to move DNA molecules from the test tube into living cells.
Genovis has developed an innovative concept for gene transfer.
RNA interference
NIMT™ technology has been adapted to deliver siRNA molecules into cell cultures. Genovis has initiated projects together with reference customers in which the goal is to make it possible to study RNA interference in cells that are normally difficult to study.
Magnetic labeling of cells
Studies of stem cells and primary cells in preclinical research can involve transferring these cells back into an animal model.
The cell must be marked in some way in order to follow it inside the animal. Genovis’ method is to introduce magnetic particles and follow the cell by Magnetic Resonance Imaging (MRI).
The total market for the three business areas for which the different applications for NIMT™ technology were developed is about USD 600 million. The annual growth rate in these rapidly growing markets ranges between 10 and 30%. The geographic distribution of the market around the world is ap- proximately: USA 40%, Europe 30%, and Japan/Asia–Pacific Rim 20%. Genovis’ goal is to capture about 5% of the market after an international launch.
PoSItIvE rESuLtS
Genovis has one project already underway with a U.S.
research group from the National Institutes of Health (NIH). During the fourth quarter of 2006 this group reported favorable results in which they showed they could trace cells treated with NIMT ™ technology using MRI.
rEFErENcE cuStoMErS
The company has initiated about ten projects with reference customers in Scandinavia. The projects will continue until April–May 2007
FAcILItIES
Genovis has expanded its facilities in order to make room for production of NIMT™ FeOdots and conco- mitant projects with reference customers. A large cell laboratory has also been set up in order to streamline the work.
FINANcING
To finance the shift from research and development to launching a product, Genovis carried out a new share issue for about SEK 10 million in March 2006.
The shift involved focusing resources on completing products as well as on branding, design and formula- ting marketing materials and product descriptions.
To maintain its pace of commercial development and to finance quality-assured continuous production, Genovis carried out an additional preferential rights issue for SEK 20.3 million in December 2006
thE ShArES
The company moved trading in its Class B shares from the Öresund List (Nordic OTC) to First North, which is part of the OMX Nordic stock exchange. Chang- ing stock exchanges resulted in increased sales of the company’s shares.
2006 In BrIeF
Genovis’ most important objective in 2006 was the premiere presentation of NIMT™ products at a trade fair in Copenha- gen in late September. The work was often a struggle against time, but it was also an extremely positive, intense, and creative journey. On the way we achieved new results and in August we realized that we could present products in two new business areas – RNA interference and magnetic labeling – and not just in the gene transfer business area as originally plan- ned at the beginning of the year. I could nervously conclude with great satisfaction that we had met our challenge when I presented NIMT™ for interested parties at Bella Center in Copenhagen on September 26. As I look back, strategically, the subsequent events stand out as the most important for Genovis during 2006.
The response at the premiere presentation marked the kickoff of product testing by our first reference customers. The response also gave enough feedback to corporate management, which decided to implement another preferential rights issue in December to finance Genovis’ continued business develop- ment. The projects with reference customers are based on the individual needs of these customers for new technology. This approach equips us to make decisions relating to production, the value of upcoming projects, the choice of market strategy and pricing. We have taken the step from technical develop- ment to business development based on the needs and under- standing of NIMT™ by our customers. Personally, this is the most exciting challenge I’ve faced as CEO of Genovis.
In 2007 the most important objectives are to test the business model and proceed from prototype production to more conti- nuous production of a CE-labeled NIMT™ Nanoheater and quality-assured production of NIMT™ FeOdots. In order to test the business model we will focus on the projects initiated with reference customers in Scandinavia, and the objective is to acquire additional reference customers in Europe, the United States and Asia. The U.S. is the single largest market for our products, while Asia is the fastest growing market. In 2007 we intend to adopt a market strategy and objectives for capturing the international market. Reference customers in each market will be an important resource for achieving success in our endeavor.
My first goal is to work with Genovis’ customer base in Sweden to establish delivery procedures that can be adapted to varying international requirements and customer needs. Re- gardless of nationality, our customers work with research and development of pharmaceuticals and some wonderful things are happening in their laboratories. They need new technology to handle current needs, but perhaps even more, to handle the needs that will become apparent a few years down the road. During the year we have shown that we can apply our aggregate knowledge of NIMT™ to develop several different products in a relatively short period of time. We will also apply this strategy in the future to expand into new business areas.
New medications are right around the corner. For decades people have discussed, speculated and planned for a time when biotechnology would produce innovative new medications.
In recent years this has begun to become reality. Today there are good examples of drugs consisting of antibodies and other proteins for the treatment of various types of cancer. Gene therapy has taken several steps forward in various clinical tri- als. New advances in stem cell research and RNA interference inspire hope that we will have a new generation of medications in the not-too-distant future. This is all beginning to happen, but many challenges still remain. My vision for Genovis is that we will contribute innovative and effective technological aids along the way. By extension I would like to see nanotechno- logy and biotechnology integrated into a tool not only for re- search and development, but also for drug delivery of the next generation of pharmaceutical substances, so they can become available as effective medications.
I am honoured to work with my fabulous employees and colleagues who made invaluable contributions in 2006. We are all looking forward to the year 2007 that poses new challenges for Genovis.
Sarah Fredriksson, CEO, Genovis AB
Ceo At An eXCItInG tIMe
GENovIS’
BuSINESS coNcEPt
Genovis develops and markets innovative tools
to enable cutting edge cell discoveries
oBjEctIvES For 2007– 2008
Genovis’ objectives for continued commercial development of its products in 2007 are to complete a CE-labeled pre-series of the NIMT™ Nanoheater, to proceed to quality-assured continuous production of NIMT™ FeOdots and to begin mass production of the NIMT™ Nanoheater.
The company will begin to sell its products in 2007. The Board of Directors and corporate management expect that the company will report positive earnings and cash flow in 2008.
In 2006 Genovis launched its first product with a marketing campaign that mainly targeted the Scandinavian market. Genovis contacted a group of qualified customers with various needs for new gene transfer technology, siRNA studies and labeling of cells. About ten projects with reference custo- mers have been initiated. The selected reference customers will test NIMT™
technology while providing Genovis with additional knowledge about the potential of the products and of customer needs. The next step in the marketing campaign is to expand direct sales in the Scandinavian market and to expand internationally.
The industry needs good tools and models in order to detect any negative side effects in a drug well before initiating expensive studies on patients (clinical development). Genovis’ products are useful tools in the early phases of drug discovery, usually referred to as basic research and preclini- cal research. Drug development is a time-consuming process and requires substantial investments. Taking a new drug to market takes 10 to 15 years and costs an average of over USD 800 million. With these high costs it is important to discover as early as possible if a drug candidate proves to be inappropriate.
The company estimates that there are almost 1 million employees in basic medical research (including academia) and preclinical research around the world. This group is Genovis’ potential customers. The annual cost of preclinical research for biotech and pharmaceutical companies is estimated at about USD 20 billion.
EMPLoyEES ANd NEtworkS GENErAtE vALuE
Genovis’ employees are its most important intangible assets. The company’s success depends on taking the best advantage of their skills, knowledge and innovative ability. Genovis’ current employees are dedicated in their work in development, production and marketing, and Genovis intends to expand its work force by adding the skills that it will need as it grows. During a transition period, however, it will be necessary to temporarily engage external skills.
Genovis has an extensive network and cooperates with universities and hospitals in Sweden and abroad, including Lund Institute of Technology, Herlev Hospital in Denmark and the National Institutes of Health in Mary- land, in the United States. Such collaboration provides access to cutting- edge expertise to a greater extent than what otherwise would be possible.
Genovis AB was founded
The concept for Genovis’ product was born;
inspiration for the technology derived from physics, biology and nanotechnology.
00 - 00
research-focused activities
Concepts, models and prototypes evaluated;
number of employees increases from one to five.
00
Product development
First product series developed; development intensified through investment in new equip- ment and premises. Results presented both in Sweden and abroad.
00
Genovis introduces NIMt™
Genovis presents NIMT™ in the laboratory instrument NIMT™ Nanoheater and the consumable NIMT™ FeOdots at the BioTech/
ScanLab trade fair in Copenhagen. Products presented in applications within three business areas: gene transfer, delivery of siRNA and labeling of cells.
Alliances with reference customers initia- ted. U.S. research group from NIH reports positive results in Q4 2006 using MRI to track cells treated with NIMT™ technology.
GenoVIs’ journey
0
Genovis
three BusIness AreAs
Tools and methods are needed to study and analyze how future drugs or hereditary traits affect different kinds of cells in the body. Human cells, such as tumor cells, can be cultured (grow and multiply) in a laboratory test tube.
Such cell cultures are often used for basic research and in drug development. Genovis has developed a patented technology called the Nano Induced Magnetic Trans- fer (NIMT™) technology, which is intended to deliver substances into individual cells in a wide variety of cell cultures. The products encompassed by the NIMT™
concept include a laboratory instrument, the NIMT™
NanoHeater, and a series of reagents, NIMT™ FeOdots (a solution containing nanoparticles). All products are intended for laboratory use.
Genovis’ products will be marketed and compete with other products in three business areas. Marketing activities and strategy originate in part from the existing market, and in part from the unique characteristics of the company’s products.
GENE trANSFEr
One way to study the effect of individual genes on sick or healthy cells is to follow what happens inside an individual cell when a new gene is transferred into the selected cell. Genes are made up of large molecules called DNA, and special tools are needed to transfer them into the cell, while bypassing the cell’s innate defenses. The procedure in which DNA molecules are moved from a test tube into living cells is generally called gene transfer.
Genovis has developed an innovative concept for gene transfer.
Market
All human genes have been mapped in a large interna- tional project called HUGO (HumanGenome), which means that the entire human genome is documented in a digital library. Access to this information along with new findings in stem cell research and development of gene- based drugs (such as gene therapy and gene vaccine) are the strongest driving forces behind a robust growth mar-
ket. Currently, the primary limitation for market growth is the lack of good technological solutions, which favors new innovative products. This market situation is the single largest driving force underpinning demand for products of the type that Genovis develops. In 2002 MedMarket Diligence published a report called “Trans- fection and Gene Transfer: Technologies and Markets,”
which concluded that since gene therapy has not yet fully taken off, the hunt for new drugs will expand the market for gene transfer techniques over the next five years. This conclusion was confirmed by Frost & Sulli- van, which in May 2005 issued the report “World Gene Therapy Market.” This report estimates that the global market for gene therapy would amount to about USD 167 million in 2005 and anticipated rapid growth to about USD 6.4 billion in 2011. The same report conclu- ded that the market for laboratory equipment alone and reagents for gene transfer in preclinical research (e.g., not applications such as gene therapy or gene vaccine) amounted to USD 624 million in 2005.
(World Gene Therapy Market, Frost & Sullivan, May 2005).
For more information,
please see the popular science animation of NIMt™ technology at www. genovis.com
rNA INtErFErENcE
RNA interference – fastest growing business area.
In 1998 Craig Mello and Andrew Fire reported in the publication Nature that they discovered that the body has an innate mechanism of great significance for gene regulation. Last year they received the Nobel Prize in medicine for their discovery. The discovery is called RNA interference. RNA interference as a field of research is in its infancy, but it has already had great impact on both basic research and drug development. It is entirely possible to create small molecules known as siRNA molecules that resemble the body’s own RNA interference molecules. When properly designed and transferred into a target cell, they are able to turn off the activity of a single gene inside the cell. This discovery opens up possibilities for completely new medications, and also contributes to increased knowledge about established drug candidates.
Much research remains to be done in this area, and new technologies for drug delivery and formulation are needed before pharmaceutical companies will be able to use RNA molecules as medications.
NIMT™ technology has been adapted to deliver siRNA molecules into cell cultures. Genovis has initia- ted projects together with reference customers aimed at making it possible to study RNA interference in cells that are normally difficult to study.
Market
The total market for products related to RNA interferen- ce was estimated at USD 1.1 billion in 2004. The market for instruments and consumable reagents for transfer of RNA into cells was estimated in 2006 at about USD 10 million with an annual growth rate of up to 30%. North America (50%, USA 45%, and Canada 5%) is the biggest market geographically for products and reagents used in RNA interference studies, followed by Europe (32%), and Japan (13%)
(Sources: Genovis estimates, Business Insight Ltd 2006, Frost & Sullivan 2006)
MAGNEtIc LABELING oF cELLS
Animal studies (mainly mice and rats) are used in preclinical drug development in order to gain an under- standing of the drug candidate’s somatic effects (e.g., effects on the entire living organism and not just on individual cells or organs). These trials are a regulatory requirement and a mandatory complement to in vitro (test tube) studies.
The purpose of the studies is to be completely certain that no unexpected negative effects arise when transitio- ning to patient studies. Studies of stem cells and primary cells in preclinical research can involve transferring these cells back into an animal model. In order to be able to follow the cell inside the animal the cell needs to be marked in some way. One method is to introduce mag- netic particles and follow the cell by MRI. Currently this procedure is carried out using traditional contrast media combined with synthetic gene transfer reagents. Genovis has developed a type of NIMT™ FeOdot that can enter cells unassisted by other tools or gene transfer reagents.
The advantage is that the dose of magnetic particles per cell can be precisely regulated with minimal effort.
This type of study occurs in preclinical research, such as that carried out in drug development for cancer and cardiovascular diseases. The magnetic labeling is also useful when sorting and handling cell cultures.
Positive results reported
Genovis has one project already underway with a U.S.
research group from the National Institutes of Health (NIH). During the fourth quarter of 2006 this group reported positive results showing that MRI could be used to track cells that were labeled with NIMT™
technology.
Market
This relatively young market is still under development and therefore no market research has been carried out focusing exclusively on this application. The global market for magnetic nanoparticle applications in the life science industry in 2005 was nearly USD 200 million, of which the markets for the two applications “MRI contrast media “ and “magnetic sorting and separation processes” totaled about USD 5 and USD 100 million, respectively, with an annual growth rate of 10 to 20%.
(BCC Research Inc, 2005)
NIMT™ was created in the borderland where physics, biotechnology,
and nanotechnology intersect.
The company has carried out a comparison with existing technologies in the market. The NIMT™ concept offers the following technological advantages to customers in the three different business areas:
• To achieve high efficiency and optimum results in tests of the effects of the various siRNA molecules, thousands of variants must be tested. Experiments in which so many samples are processed simultaneously are known as
“high throughput”. NIMT™ technology is adapted to handle samples in different industrial formats and is also capable of handling samples in a high throughput setting.
• NIMT™ technology is gentle on cells; the method does not cause cell death and can therefore be used on sensitive cells such as stem cells and primary cells.
• NIMT™ technology is simple to handle and time-efficient.
• NIMT™ technology can be used efficiently with many different types of cells.
• NIMT™ technology enables the user to sort and wash cells with magnetic separation as well as to track treated cells using MRI.
MArkEt
Biotech tools that facilitate and enable more advanced studies of drug effects in cells within the laboratory as well as in rele- vant animal models are in great demand. The global biotech tool market in 2003 was worth about USD 7 billion and is expected to grow to USD 10 billion by 2008. In addition to instruments, these tools also include reagents and special che- micals. The market for reagents used in life science is estimated to be about the same as for instruments. The geographic distri- bution of the market around the world is approximately: USA 40%, Europe 30% and Japan/Asia–Pacific Rim 20%.
Because Genovis is still at an early phase of commercial development its market potential can only be assessed based on estimates. On the basis of knowledge of each of the company’s current business areas, Genovis’ corporate mana- gement believes that the company has the potential to achieve sales of 5% of the total market for the three business areas.
This estimate is based on a global market launch of NIMT™
technology.
Genovis’ products will be marketed and compete with other products in three business areas, each of which constitutes an individual segment of the total biotech tool market. Global sales of products in the business areas in which Genovis is active mainly take place through direct sales, often through e- commerce (especially reagents), and to a lesser extent through distributors. The products are often marketed together with user support and various types of technical reference materials.
Genovis’ biggest competitors offer their customers several dif- ferent gene transfer techniques. They market a large number of other products, such as laboratory equipment and consumable supplies, to the same customer base.
Genovis provides a new technology based on a combination of physics, chemistry and biology, which gives it an exclusive position in the market. The product has a distinct technological advantage because the magnetic particles are traceable using MRI.
This characteristic can be an important advantage in both delivery of siRNA and gene transfer into stem cells and primary cells. In addition, this technology can be automated and miniaturized, which is required if the technology is to be used in automated high- throughput labs or in the “lab on a chip” format.
NEw
tEchNoLoGy
u S A
u E P ro E
jA
PAN/AS
IA
othEr
S
40%
% 30
20%
10 %
nIMt™ CoMpetItIVe ADVAntAGes
StrAtEGy ANd IMPLEMENtAtIoN
Initiate strategic alliances for global sales
In order to effectively reach customers in an international market launch within all business areas, corporate manage- ment intends to initiate alliances with one or more established players in the market. The ideal partner should have a strong sales organization, with a knowledge of customers, and their confidence, in one or more of Genovis’ business areas.
Cooperation will probably take the form of sales and distri- bution agreements, or in special cases through licensing agreements.
Strengthen the marketing organization with sales, marketing, customer support and logistics resources
Genovis’ business is growing and changing character over time, which means that intensive external initiatives may be re- quired for short periods, while other projects involve long-term assignments and collaboration. Genovis had six employees on
December 31, 2006. The company’s employees are responsible for production, development, customer projects, technical sales materials and administration. To enhance the company’s expertise and experience in marketing strategy (including sales) and marketing (including project launches), Genovis’ manage- ment has decided to run a large part of its operations for the near term on a consultancy basis.
Engage external production capacity for mass production of NIMT™ Nanoheater
Nanoparticles, NIMT™ FeOdots, are produced in-house.
These products can be competitively priced, yet still produced at a cost that allows for high margins in the end product.
In 2007 the company will therefore dedicate resources to minimize production costs in continuous, quality-assured production. Martin Kullman, who has experience from similar operations, was hired in February 2007 as production super- visor for NIMT™ FeOdots. To date, the laboratory instrument NIMT™ Nanoheater has only been produced in a prototype series. Mass production of a CE-labeled version will be out- sourced beginning in 2007.
. The business model strategy is to sell instruments and/or reagents as well as relevant support directly to the end customer through Genovis’ organization or via distributors.
The strategy includes building long-term relationships with customers, since sales of instruments generate sales of the reagents that the customer will continue to need.
. An alternative to direct sales of instruments is to license the technology for certain geographic markets or business areas to one or more partners in the market.
One important element of the business model is to continuously monitor and strengthen the patent protection for the technology.
BuSINESS ModEL
Short-term goals:
• Deliver the first commercial products and launch international sales campaign
• Obtain CE labeling for NIMT™ Nanoheater
• Establish mass production
• Build the NIMT™ brand
Financial goal:
• Report positive results and cash flow in 2008
Long-term goals:
• Build an enterprise with a stable and profitable business, with good growth potential
• Launch and establish Genovis’
product portfolio in the inter- national market
o G A L S
BusIness MoDel, GoAls AnD strAteGIes
Many global players manufacture and sell products that compete with NIMT™; below are brief descriptions of some of these rivals. From Genovis’ perspective, they are not only competitors, but also potential partners. The most recent addition among the glo- bal players is the German company Amaxa, which differs from the other global players because it only markets gene transfer and siRNA delivery products. The other compa- nies all offer an extremely large number of other instruments and reagents in addition to the products that compete with Genovis’ products.
Amaxa
This German company has a technology platform for electro- poration and markets products (instruments and reagents) for gene transfer and RNAi. It was founded in 1998 and launched its products in 2001. Amaxa generated revenues of about EUR 16 million and had over 100 employees in 2005. Its sales increased by 3000% over the 5 years that the products have been on the market.
Bio-Rad
Bio-Rad is a U.S. firm that was founded over 50 years ago.
Its shares are traded on the American Stock Exchange.
Bio-Rad is an example of a biotech supply firm with a large line of products and global direct sales. Bio-Rad has its own research and development department, but also expands its product portfolio through acquisitions. The company offers a broad supply of both instruments and reagents, with sales of USD 1.2 billion in 2005. The firm markets three different types of gene transfer products.
Fisher Thermo
This company was formed through the merger of Fisher Scientific and Thermo Electron in 2006. Total sales for the two companies amounted to USD 8 billion in 2005. Together, they offer a broad selection of products, including both instruments and reagents. In 2004 Fisher acquired Dharmacon, one of the leading suppliers of reagents for RNA interference. Dharma- con was founded in 1995 to develop and commercialize the special reagents needed in RNA interference studies. Before the acquisition the company’s global sales amounted to USD 17 million.
Invitrogen
Invitrogen is based in the U.S. and mainly provides reagents for the life science market, with sales of USD 1.2 billion in 2005.
It expanded its product portfolio through several acquisitions, including the companies Dynal (Norway), Molecular Probes (U.S.), and several U.S. antibody suppliers. Invitrogen offers gene transfer products.
Qiagen
This German company mainly has reagents for the life science market, with sales of USD 400 million in 2005. It collaborates with both Dharmacon and Amaxa in marketing and sales of products for RNA interference studies.
othEr PLAyErS IN thE MArkEt
MArket AnAlysIs
Intellectual property
Genovis has engaged Awapatent AB to handle intellectual property issues. Genovis’ value is largely dependent on the ability to receive and defend patents; there are no guarantees that a patent will provide adequate protection for a product or that it will not be circumvented by others. If Genovis does not succeed in obtaining patents to protect its technologies, this may have a negative impact on the company’s future.
The company currently has one patent approved in Australia and the EU, as well as several patents under international review. Genovis owns all rights to these patents.
Dependence on key individuals
Genovis’ operations are dependent on a few key individuals.
The company’s future development largely depends on its ability to attract and retain skilled personnel. If any of these key individuals should leave Genovis it could have a negative effect on the company’s ability to achieve its planned targets.
Changes in regulations
Genovis’ operation is not particularly dependent on any permits, regulations or legislation.
Competition
Genovis’ existing competitors are significantly larger, finan- cially stronger and have been in business longer than Genovis.
Technology-related risks
The technology is constantly under development, and therefore there is a risk that the technology or different applications of the technology may not work as expected. Moreover, there is a risk that development will take considerably longer than ex- pected, which would result in accelerating development costs.
Corporate management’s strategy has therefore been to divide development into smaller stages and interim targets and eva- luate the outcome of each step before proceeding to the next.
Market
Genovis is active in a market with a constant flow of new products. An unsuccessful or misguided market launch could delay the company’s development. Moreover, there is a risk that the invested capital could be completely or partially lost if Genovis’ products do not reach the market as expected.
Working closely with customers and together with strategic partners minimizes the risk of major setbacks while becoming established in the market.
Production-related risk
Genovis will be dependent on outsourced production capacity, which could impact the company’s development and market launch. Genovis strives to minimize production risks by reach- ing agreements with subcontractors experienced in similar production activities.
The ability to identify and effectively handle risk is of utmost importance whether these risks are strategic, operative, financial, environmental or compliance-related.
IdENtIFy ANd hANdLE rISk
BusIness rIsk AnD rIsk MAnAGeMent
Genovis’ capital stock on December 31 was SEK 2,322,416. The new share issue conducted in November and December 2006 for 2,902,947 Class B shares was not registered at the end of the period. These shares were registered on January 3, 2007.
The total number of shares, 5,806,040, consisted of 800,000 Class A shares and 5,006,040 Class B shares.
After the rights issue was registered in January 2007, capital stock amounted to SEK 3,483,595 made up of 8,708,987 shares, including 800,000 Class A shares and 7,908,987 Class B shares, each share at par value of SEK 0.40. Class A shares entitle the stockholder to ten votes and Class B shares to one vote per share. Each share carries equal rights to the company’s assets and earnings and to any surplus upon liquidation.
As yet, Genovis has never paid any dividend.
Genovis class B shares
Genovis Class B shares have been traded since September 14, 2006, on the First North stock exchange under the name GENO B in trading blocks of 200 shares. Mangold Fondkommission is the company’s Certified Advisor and liquidity guarantor. The highest listed share price in 2006 was SEK 310.80. Most recent market price paid Decem- ber 29, 2006, was SEK 17.40.
Dividend
The Board of Directors proposes that no dividend be paid for fiscal year 2006.
The market value of all Genovis shares on December 31, 2006, was about SEK 101 million (SEK 151 million after the new share issue was registered).
1000 2000 3000 4000 5000
2 4 6 8 10 12 14 16 18 20
JAN
06 FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
Genovis
Class B shares SIX Biotechnology
Shares traded, 1,000s (incl. late entries)
(c) FINDATA
capital stock development
Increase in Increase in Total Capital Shares, Issue
Increase in number of number of number stock per value price
Year Transaction capital stock Class A shares Class B shares of shares SEK SEK SEK
1999 Formation of the company 100,000 1,000,000 0 1,000,000 100,000 0.1
2000 New issue 25,600 0 256,000 1,256,000 125,600 0.1 4.8
2001 Stock divided 376,800 0 0 1,256,000 502,400 0.4
2001 Stock convert -200,000 200,000 1,256,000 502,400 0.4
2001 New issue 125,456 0 313,640 1,569,640 627,856 0.4 9.5
2002 New issue 99,100 0 247,750 1,817,390 726,956 0.4 11
2003 New issue 74,400 0 186,000 2,003,390 801,356 0.4 11
2005 New issue 360,000 0 900,000 2,903,390 1,161,356 0.4 6
2006 New issue 1,161,060 0 2,902,650 5,806,040 2,322,416 0.4 3.5
2006 New issue (not registered) 1,161,179 0 2,902,947 8,708,987 3,483,595 0.4 7
cAPItAL Stock
GenoVIs shAres
The ownership structure changed during the fiscal year. The total number of stock- holders increased by about 500 and the percentage of foreign owners in this group increased. Beginning in 2007, all financial reports and press releases will be published in both Swedish and English.
owNErShIP
Major foreign stockholders per january 31, 2007
(after the rights issue was registered)Name country Number of Number of holdings votes
class A shares class B shares % %
SSB CL Omnibus AC OM07 (15 PCT) U S A 0 113,200 1.30% 0.71%
Elena E Lea S.P.A., Elena Italy 2,000 13,000 0.17% 0.21%
Canada Life Int Ltd 32570 Isle of Man (GB) 0 24,750 0.28% 0.16%
Cail Luxemburg 0 12,510 0.14% 0.08%
Nicklas Johansson Schweiz 0 10,000 0.11% 0.06%
SEB Trygg Life Ireland Assurance Ireland 0 9,000 0.10% 0.06%
SA, Nordnet Luxemburg 0 8,820 0.10% 0.06%
Antonius J.H.M. van Nuenen Belgien 0 7,500 0.09% 0.05%
SEB Trygg Life Ireland Assurance Ireland 0 4,500 0.05% 0.03%
Niels Jacob Madsen Denmark 0 4,000 0.05% 0.03%
Major stockholders per january 31, 2007
(after the rights issue was registered)Shares Number of Number of Number of holdings votes
stockholders class A shares class b shares % %
1 - 1,000 853 4,510 458,416 5.32% 3.16%
1,001 - 5,000 602 15,400 1,491,831 17.31% 10.35%
5,001 - 20,000 195 33,100 1,796,850 21.01% 13.38%
20,001 - 100,000 31 6,000 995,585 11.50% 6.64%
100,001 - 6 740,990 3,166,305 44.87% 66.48%
total 2007-01-31 1,687 800,000 7,908,987 100% 100%
Major stockholders per january 31, 2007
(after the rights issue was registered)Name Number of Number of holdings % votes %
class A shares class B shares
Sarah Fredriksson 565,000 287,900 9.79 37.32
Bo Håkansson 0 2,642,560 30.34 16.61
European Institute of Science AB 175,990 45 2.02 11.06
Hans Göran Arlock 0 142,500 1.64 0.9
SSB CL Omnibus AC OM07 (15 PCT) 0 113,200 1.3 0.71
Lennart Molvin 0 75,000 0.86 0.47
Didrik Hamilton 0 74,880 0.86 0.47
Viveca Rüter 0 64,500 0.74 0.41
Rolf Ericsson 4,000 23,900 0.32 0.4
Nicklas Gerhardsson 0 55,500 0.64 0.35
0
Nicklas Gerhardsson (b1965) Director M.S. in Business Administration and Economics Deputy board member for Genovis since 2001, Board member since 2004.
Active as CEO and board member of Nixspiro AB.
Former CEO of Aimpoint AB. Has held various positions at Ericsson since 1995, including head of product management in Japan and Sales Director for Mobile Platforms in Lund.
Number of shares: 55,500 Class B shares Office address: Professorsvägen 3, 237 31 Bjärred
Viveca Rüter (b 1945) Director L.L.B.
Board member of Genovis since 2004.
Former CEO and director for Albihns Malmö AB and chief legal advisor for Awapatent AB.
Chairman of the board of ALMI Företagspartner Skåne AB.
Board member of Midway Holding AB and AC Gruppen AB.
Prior corporate affiliations: Ahlbins Malmö AB and United Care Scandinavia AB.
Number of shares: 64,500 Class B shares Office address: Ejdervägen 6, 239 41 Falsterbo
Bo Håkansson (b 1946) Director
M.S. in Business Administration and Economics; Med. dr. h.c.
Deputy board member of Genovis AB since 2006.
Self-employed since 1970. Positions such as CEO, board member or chairman of the board for various listed companies since 1986. Chairman of the board of Biolin AB (publ) and board member of Farstorps Gård Förvaltnings AB and Fars- torps Gård AB. Prior corporate affiliations: Wilh. Sonesson AB (publ) and Active Capital AB (publ).
Number of shares: 2,642,560 Class B shares Office address: Farstorps Gård, 241 92 Eslöv
Hans Göran Arlock (b 1938) Chairman of the board M.S. in Business Administration and Economics Board member of Genovis since 2004.
Management consultant, previously active as CEO of Securitas AB; current assignments include Teknopol, Foundation for Technology Transfer and TeknoSeed AB. Mr. Arlock has years of experience of management positions with Svenska Handels- banken, including as controller of Regionbanken för Södra Skåne and as a member of the management of foreign opera- tions for Regionbanken. Chairman of the board of Promava AB. CEO and board member of Arlock Consulting AB and Akita Center in Sweden AB. Board member of WeAidU in Eu- rope AB (publ) and deputy board member of H-I-C European Management Syndicate AB, Funke Consulting AB, Micardo Consulting AB and Maträtt och Gastronomi i Båstad AB.
Prior corporate affiliations: Innova Enterprise Service in Sweden AB, Philip Jönsson Revisionsbyrå AB, Srekåsrot AB, Per-Åke Bergstrands Revisionsbyrå AB, Ordio AB, Speedskills AB, Monocell AB, Luvit AB (publ), Luvit Invest AB, Juridik &
Managementkonsulterna i Skåne AB, Montéra X AB, Bilmo i Lund AB and Univa AB.
Number of shares: 142,500 Class B shares
Office address: Järabacksvägen 20, 231 92 Trelleborg
Sarah Fredriksson (b 1968) CEO and board member M.S. in Engineering, PhD in Engineering.
Board member of Genovis since 1999. President of Genovis AB (publ) since 1999. Member of Nämnden för Biomedicinsk och Medicinsk Utbildning (NBMU - Committee for Biomedi- cal and Medical Education) at Lund University. Prior corporate affiliations: European Institute of Science AB (publ).
Number of shares: 565,000 Class A shares and 287,900 Class B shares
Office address: Genovis AB, IDEON, 223 70 Lund
BoArD oF DIreCtors
SENIor ExEcutIvES
Sarah Fredriksson (b 1968) President and Chief Executive Officer Sarah Fredriksson completed her postgraduate education in 1999 with the oral defense of her doctoral dissertation at the Department of Applied Biochemistry, Lund University. Through her postgraduate studies and in part while studying engineering with a focus on biotech- nology, Ms. Fredriksson has acquired extensive experience of laboratory work in the sector for which Genovis’ products are mainly intended.
She has published several scientific articles and is the author of seven patent applications.
Number of shares: 565,000 Class A shares and 287,900 Class B shares Office address: Genovis AB, IDEON, 223 70 Lund
Fredrik Olsson (b 1971) Head of Business Development
Fredrik Olsson holds an M.S. in Engineering from Lund Institute of Technology and has been employed by Genovis AB since 2002. Fredrik Olsson is an industrial doctoral student in a project sponsored by Medicon Valley Academy. Professor Leif Bülow, Department of Applied Biochemistry, Lund University, is Mr. Olsson’s principal supervisor.
The Department of Oncology at Herlev Hospital in Copenhagen is also participating in the four-year project, which began in 2004. Medicon Valley Academy covers 40% of Mr. Olsson’s wages during this period.
Number of shares: 18,000 Class B shares
Office address: Genovis AB, IDEON, 223 70 Lund
AudItor
Kristina Anderson (b 1959) BDO Nordic Malmö KB
B.S. in Social Work with a focus on Management; MS in Business Admi- nistration and Economics. Authorized public accountant and member of the Swedish Institute of Authorized Public Accountant since 1993.
Partner in BDO since 1997. Representative of the Swedish Institute of Authorized Public Accountant on the Board of Directors for the BAS accounting system trade association since 2005. Published several books and articles. Mainly works with owner-managed businesses. Elected auditor for about 40 public limited companies and associations. Auditor for Genovis AB (publ.) since 2004. Holds no shares in the company.
Office address: BDO Nordic Malmö KB, Arkivgat. 29 C, 223 59 Lund
Kenneth Olsson (b 1951) Deputy auditor - BDO Nordic Malmö KB M.S. in Business Administration and Economics studies in the United States. Authorized public accountant and member of the Swedish Insti- tute of Authorized Public Accountants since 1980. Partner in BDO since 1981; one the founders of BDO in Sweden. Board member of BDO Sweden 1982–1997. Multiyear involvement in the Swedish Institute of Authorized Public Accountants, including as board member 1990–
1998. Mainly works with owner-managed businesses. Elected auditor for about 70 public limited companies and associations. Deputy auditor for Genovis AB (publ) since 2004. Holds no shares in the company.
Office address: BDO Nordic Malmö KB, Skeppsgat. 9, 211 19 Malmö.
Fredrik Olsson
senIor eXeCutIVes AnD AuDItors
Nomination Committee
At the company’s Annual General Meeting on April 20, 2006, a nomination committee was appointed consisting of representatives for the three biggest shareholders in the company at the end of the third quarter of 2006.
The task of the committees is to nominate new directors for the board.
Remuneration to the Board of Directors
The 2006 Annual General Meeting resolved that remunera- tion to the Board of Directors would be paid in the amount of SEK 39,700 to each board member who is not employed by Genovis. During fiscal 2006 total remuneration paid to
the Board of Directors was SEK 158,800, divided equally among those directors who are not on the payroll of Genovis AB. No separate pension costs were paid for the Board of Directors.
Transactions with directors
Besides wages, salaries, and remuneration paid, external members of the Board of Directors were paid SEK 105,000 in remuneration for special assignments outside the direc- torship. Moreover, SEK 800,000 was reserved in com- pensation for board members who, through the company, guaranteed the implemented new share issue in December.
Environmental Information
The company has reported a facility for type F operations (Safety level 1) for closed use of genetically modified microorganisms to the Swedish Work Environment Authority.
An examination process relating to the company’s future production process in compli- ance with the Swedish Environmental Code has been initiated.
Patents and brands
NIMT™ technology is described in several patent applications. The first application was approved in Australia and the EU, and is being processed in several other countries.
Follow-up patent applications are under international review and Genovis owns all rights. Genovis has also registered several brands internationally.
Corporate governance
The Swedish Code of Corporate Governance (“the Code”) is not mandatory for the company, but the Board of Directors will carefully comply with practices relating to the Code and intends to apply the Code in those parts that can be considered relevant to the company and its stockholders.
Genovis’ directors were elected at the Annual General Meeting of Genovis AB on April 20, 2006. The term for all directors runs until the end of the next Annual General Meeting on April 19, 2007. A director has the right to withdraw from the assignment at any time. In May 2006 the Board adopted new rules of procedure and guidelines for the Chief Executive Officer. The Board’s rules of procedure state, among other things, instructions for conducting board meetings and which issues are to be addressed. The Board of Directors held nine meetings at which the minu- tes were recorded between January and December 2006. These meetings addressed regular issues, as well as issues such as annual financial statements, interim reports, the budget, and comprehensive strategy. During the year the Board of Directors and staff from Genovis have worked on information necessary for making deci- sions about strategy, the budget and financing at several working meetings during which no minutes were recorded.
