Financial Review
Revenue in Q1 2009 increased by 36% to EUR1.24 million from EUR0.92 million in the corresponding period of 2008. This increase was due to milestones received for the execution and expansion of the Abbott partnership, new collaboration agreements with Philips and Sysmex Corporation, as well as the successful completion of several biomarker collaboration projects with Johnson & Johnson, Centocor, Pfizer and others during Q1 2009. The diagnostics business contributed 70% to total revenue, or EUR0.87 million and biomarker services revenue was EUR0.37 million (30%).
Cost of sales rose to EUR0.95 million in the reporting period of Q1 2009 (Q1 2008: EUR0.16 million) and generated a gross profit of EUR0.29 million (Q1 2008: EUR0.76 million). R&D costs decreased from EUR2.40 million in the first three months of 2008 to EUR1.76 million in Q1 2009.
Marketing and business development costs decreased by 6% from EUR0.23 million in Q1 2008 to EUR0.21 million in Q1 2009, and general and administrative costs of EUR0.84 million decreased approximately 9% compared to EUR0.92 million in Q1 2008. Other expenses decreased considerably from EUR0.30 million in Q1 2008 to EUR0.05 million in Q1 2009 mainly due to foreign exchange rate effects.
In Q1 2009, EBIT was EUR–2.31 million, almost 22% better than the Q1 2008 EBIT of EUR–2.95 million. The improvement was foremost due to significant growth in revenue generated and continued fiscal discipline.
Epigenomics’ balance sheet total increased from EUR20.28 million as of December 31, 2008, to a total of EUR23.13 million as of March 31, 2009. This increase was in part due to a successful capital increase, which strengthened Epigenomics’ cash flow and financial position in addition to a decrease in net cash consumption from operations. In February 2009, the company successfully placed 2,671,088 new shares in a direct private placement with two European institutional investors, namely a 100% subsidiary of Swiss BB Medtech AG, and UK-based Abingworth LLP. The issue price was EUR1.94 per share, which was a 5% premium to the five-day trading volume-weighted average trading price preceding the announcement of the capital increase. Epigenomics intends to use the proceeds from this transaction to finalize the product development and commercialization of its most advanced product, a blood-based molecular diagnostic test for the early detection of colorectal cancer. Remaining proceeds will be used for clinical research and product development in the company’s programs in lung cancer and prostate cancer.
In sum, the financial position has improved substantially with liquid assets amounting to EUR14.98 million as of March 31, 2009, compared to EUR12.10 million as of December 31, 2008. Total net cash flow in Q1 2009 was positive at EUR3.36 million, due to the gross proceeds of EUR5.18 million resulting from the capital increase. Cash outflow from operating activities in Q1 2009 was EUR2.27 million.
Outlook
Epigenomics’ primary focus for the remainder of 2009 will remain on driving its colorectal cancer blood test based on mSEPT9 through the final stages of product development and clinical validation with an operational focus on completing the PRESEPT Study and delivering results from that trial.
The company will continue to support Abbott Molecular in the final phases of their product development and expects them to launch a CE-marked IVD blood test kit for colorectal cancer (CRC) based on mSEPT9 in Europe by the end of 2009. Further the company expects to introduce mSEPT9 testing in an increasing number of diagnostic laboratories in the US and Europe by enabling them through licenses and research products, respectively.
Marketing and business development efforts in 2009 and 2010 will focus on entering into additional non-exclusive licensing agreements for mSEPT9 similar to our recently signed agreement with Sysmex Corporation. In order to maximize the value of additional mSEPT9 license agreements, the company believes future licensing opportunities should be anticipated around, or after the results from the PRESEPT Study have been released as well as the expected Abbott product launch in Europe.
The company’s on-going research and development pipeline programs will continue to be focused on colorectal, lung, and prostate cancer.
As previously announced, Epigenomics’ expects revenue guidance of at least EUR3 million in FY 2009. This moderately increased revenue is expected to come from diagnostic milestones including Abbott’s CE-marked mSEPT9 kit launch, traction from the company’s RUO mSEPT9, mPITX2 and mGSTP1 kit sales, and revenues from new partnerships such as the Philips and Sysmex collaborations. Despite of the bulk of the PRESEPT expenses impacting 2009 operating expenses, the company expects EBIT and net loss for 2009 to be improving compared to 2008 actuals. Cash burn for fiscal 2009 should be at a very similar level compared to 2008 i.e. remain below EUR10 million.
