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HSCI Announces 2018 Consolidated Results under IFRS

Moscow — 30 April, 2019. PJSC “HSCI” — The Human Stem Cells Institute (“HSCI”, MOEX: ISKJ), one of Russia’s leading biotech companies, today announced its audited consolidated results for 2018 in accordance with the International Financial Reporting Standards (IFRS).

In 2018, the HSCI Group of Companies (hereinafter — “the Company”, or “HSCI Group”, or “HSCI”) demonstrated the following key consolidated financial results:

Consolidated revenue and revenues generated by key products and services

The Company’s consolidated revenue in 2018 amounted to RUB 644.688 million, a year-on-year increase of 30.4% — as a result of increase in revenues from all the Company’s products and services in the market.

The largest portion of the consolidated revenue — 54.3% — was generated by Genetico® services (genetic testing and counselling), as well as services of Reprobank®. The second largest revenue generator was HSCI PJSC as well as its subsidiaries, IMCB LLC and Cryonix JSC, from cord blood stem cell isolation, cryopreservation and personal storage service — the HSCI’ original business started in 2003.

SPRS-therapy service accounted for 6.0% of consolidated revenue, the sales of Neovasculgen® — for 1.9%, other revenues — for 0.2% of the consolidated revenue in the reporting period.

The total (summarized) revenue generated by Genetico® (with Reprobank) increased by 65.8% year on year — from RUB 210.964 million in 2017 to RUB 349.854 million in 2018, and the share of the sum of these revenues in total revenue increased from 42.7% to 54.3%.
Genetico® services (genetic testing and counselling by Genetico® center & lab), and Reprobank® services

In 2018 revenues from Genetico® and Reprobank® services amounted to RUB 349.854 million — a year-on-year increase of 65.8%.

The services that accounted for the biggest share of revenues in the reporting period were non-invasive prenatal testing (NIPT) and preimplantation genetic diagnosis and screening (PGD/PGS). The third main revenue generator in 2018 was Reprobank® (HSCI’s reproductive cell and tissue bank offers services of sperm and oocytes donation as well as their personal storage as a form a bio-insurance).

Genetico® is HSCI’s socially significant project for the development of personalized medicine in the field of early detection, prediction and prophylactic treatment of genetic disorders, including reproductive system diseases (via HSCI’s own Medical genetics center & lab providing a wide range of genetic testing and counseling services).

The project is implemented by HSCI in partnership with RVC BioFund (a Russian state investment fund), and with support from IDF (the Russian State Industrial Development Fund). The services are provided by GENETICO LLC — a subsidiary of HSCI, in which RVC BioFund has a 20.01% stake as of now.

Genetico® services were introduced in the Russian market in 2013, and their range is continually expanding with a sustainable revenue growth. Genetico® center & molecular diagnostic lab is striving for leadership in the Russian market of reproductive genetics offering a wide range of services relating to different human reproduction stages starting from pregnancy planning and up to a newborn health.

In 2018, the project Reprobank was carved out into a separate entity Reprolab LLC. Beginning from 2019 Genetico is a separate company with a focus on genetic research for the testing, prevention and treatment of diseases with a genetic component. Genetico laboratory is one of the most equipped medical laboratories in Russia, offering genetic research for medical and scientific purposes. Last year we launched new equipment and obtained good results of research in quality, timing and cost characteristics. The focus of the strategy of Genetico is to expand the presence on the market of genetic research in Russia, and to develop and launch new test systems based on NGS sequencing. In particular, we are working on the development of our own test systems for oncogenetics. Industry-wise, Genetico has the status of a genetic laboratory of expert level, high professionalism and quality. In the course of the last year Genetico and Reprolab were successfully able to increase the power of their brands, as evidenced by obtainment of status of Centre of collective use (CCU) SKOLKOVO.

The main markets of services of Genetico® and Reprobank® are still far from being saturated and continued growth in 2018. This is one of the main drivers of sustainable revenue growth.

Cord blood stem cell isolation, cryopreservation and personal storage service — bio-insurance (Gemabank®)

In 2018 consolidated revenues from this service provided by Gemabank® amounted to RUB 242.317 million (37.6% of the Company’s consolidated revenue) — a year-on-year increase of 8.8%.

The increase in Gemabank’s revenue was driven by:

—     a sustainable growth in revenues from the long-term storage of cord blood stem cells — as a result of increase in the number of samples stored in Gemabank®;

—     a launch of attractive package offers with flexible pricing and new tariff plans.

Gemabank® maintains a flexible pricing policy and also seeks to expand its products offering for customers in order to attract new business and achieve synergy among the HSCI projects.

From November 1st, 2016, Gemabank® offers a new unique service called «Bio-insurance with cryostorage of DNA,» which, along with cord blood banking, includes the preservation of a DNA sample isolated from a drop of newborn’s umbilical cord blood — for future use for genetic testing.

This stored DNA can be immediately used for neonatal screening for inherited disorders — treatable genetic conditions. From January 1, 2017, Gemabank®, as part of the package proposal, provides a service of the genetic screening of a newborn for a wide range of the most common hereditary diseases and their carrier status: in order to prevent the development of complications and even clinical symptoms of the disease if early identified, or for family prophylactic treatment of the most widespread inherited disorders (if carrier status is detected).

Since the summer of 2017, an extended «Personal genetic test «Gemabank»” has been available to customers of Gemabank. The test provides information about personal genetic features: risks of multifactorial diseases, propensity for sports, peculiarities of metabolism and recommendations on nutrition, as well as tolerability of medications.

In addition, starting from 2016, Gemabank® provides the service of cryopreservation and storage of mesenchymal stem cells isolated from umbilical cord — a valuable biomaterial with the potential for therapeutic application in the field of regenerative medicine.

In 2018 Gemabank offered its customers a new service of preservation of umbilical cord tissue in addition to the existing service of preservation of mesenchymal stem cells of the umbilical cord.

The Company pays much attention to informing the target audience about the uses of cord blood stem cells in medical practice, including informing about cases of using the samples stored in Gemabank® for the therapy of various diseases.

In total, the number of cord blood stem cells personal samples stored in Gemabank® as of the date of publication of this press release exceeds 29 thousand.

In 2018 revenues from Gemabank® services increased despite the decline in the number of births in Russia and remained important sources of cash flow for the HSCI group.
Neovasculgen® — the first-in-class gene-therapy drug for treatment of Peripheral Arterial Disease (PAD), including Critical Limb Ischemia (CLI)

In 2018 revenues from the sales of Neovasculgen® amounted to RUB 12.206 million (1.9% of the Company’s consolidated revenue), compared to RUB 25.409 million in 2017. Production delays were the main reason for the decline in revenue.

In 2016 an in-house commercial department was set up and since October 2016 the Company has been increasing Neovasculgen® sales using its own marketing and sales force.

In 2018 the project developed on the basis NextGen LLC, a 100% subsidiary of HSCI PJSC. Originally part of HSCI PJSC, the project was carved out and is developed by NextGen LLC and its subsidiary NextGen Pharma LLC. NextGen LLC owns the intellectual property for the drug and NextGen Pharma LLC has been responsible for contract manufacturing and shipment of the drug since the second quarter of 2019. In 2018 the drug was included in Clinical and Statistical Groups of Diseases which opened the door to hospital sales. Other important achievements for the project in 2018 were permission to conduct clinical trials of Neovasculgen for diabetic foot syndrome (DFS) and approval of the Skolkovo grant towards clinical trials for DFS.

As Neovasculgen’s action mechanism — therapeutic angiogenesis — introduces a new approach to the treatment of ischemia (the use of a genetically 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®.

Together with its American partners, the Company continues to work on a project for the development of a candidate drug (the prototype of which is Neovasculgen®) in the United States.

In cooperation with our partners, we develop a pipeline of gene-activated materials — a new class of medical products intended for the effective treatment of patients suffering from alveolar ridge atrophy, skeletal bone defects or skin lesions.

The advanced part of the project is aimed at the development of standardized and personalized (3D-printed) gene-activated bone substitutes containing plasmid DNA encoding VEGF to cover a bone reconstruction in any clinical cases. As of now, R&D is in progress for the first product in a line — “Histograft”, a complex of octacalcium phosphate granules with the plasmid DNA. Its clinical trial was successfully completed in 2018.

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

In 2018 revenues from SPRS-therapy®, including the long-term storage of autologous skin fibroblasts, amounted to RUB 38.913 million (6.0% of the Company’s consolidated revenue) — a year-on-year increase of 10.7%.

The SPRS-therapy® complex service was authorized by the Russian healthcare regulator in 2009-2010 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 for future use. At the moment, more than 80% of patients return for the second and/or additional skin treatments in other areas besides the face as they are satisfied with the therapeutic effect.

The service is primarily offered through the leading dermatology and cosmetics clinics of Moscow and St. Petersburg, with the growing number of clinics in Russia’s regions and CIS (in 19 cities). Overall, more than 100 clinics are providing the service as of now. The total number of patients who have used the service since its introduction to the market is over 1000 people.
Also, the Company maintains the protection of the IP related to SPRS-therapy®. The Company fights any violation of exclusive rights to the intellectual property, including trademarks, in court.

Since SPRS-therapy® service targets the premium segment of market, the decrease in real disposable income in Russia negatively impacts plans for sales growth. The dynamics of revenue in the reporting year was influenced by the deceleration of the first-time customer visits due to unstable economic situation of potential customers. However, there was a steady increase in secondary treatments. More than 80% of patients are treated again, two or more times, which indicates customer satisfaction with the result. Money-wise, getting a secondary treatment is cheaper for customers because for the production of a cell product we use fibroblasts of the patient’s own skin stored in the fibroblasts cryostorage facility. Thus, the overall increase in demand for various services of SPRS-therapy (both primary and secondary treatment) provides stable revenue growth.

Operating expenses, OIBDA, Operating profit/ (loss)

In 2018 Company’s consolidated operating profit amounted to 117.391 million rubles (in 2017 operating loss amounted to 58.143 million rubles). The increase in operating profit is mainly due to a significant increase in revenues of the Genetico project, as well as increase in revenues of Gemabank and SPRS-therapy.

Consolidated operating expenses in 2018 decreased by 4.6% year on year to RUB 527.297 million.

The decrease in operating expenses is associated with the more than 50% drop in expenses for services of outsourcers due to the launch of new laboratories of GENETICO LLC and a subsequent refusal from the services of external laboratories when performing non-invasive prenatal testing. Other reasons for the decrease in operating expenses are reduction of costs associated with the reserves for bad debts, and capitalization of certain costs associated with R&D.

In 2018, the HSCI Group mainly completed the formation of a full-fledged independent business units (subsidiaries). The key business projects were carved out in these subsidiaries as part of the restructuring (organization of the production process, creation of full-fledged management, financial reporting etc.).

Operating expenses including depreciation and amortization amounted to RUB 117.391 million, resulting in a positive OIBDA of RUB 147.043 million.

Net other gains/ losses, Profit / (loss) before income tax

In 2018, the Company’s consolidated Net other losses (loss from associates + net interest expense + net other non­operating income + net foreign exchange gain) amounted to RUB 171.220 million (see Appendix I below). These losses resulted from the revaluation of securities.

As a result of operating and non-operating loss in the reporting period the Company recognized loss before income tax in the amount of RUB 53.829 million (comparing to RUB 127.179 million in 2017).

Profit / (loss) for the period (net profit / (loss))

Due to the reasons mentioned above, in 2018 the Company demonstrated a consolidated net loss totaling RUB 18.243 million, which is 83.4% less than the net loss for 2017.

Consolidation

The consolidated financial statements for 2018 include the operating results of HSCI PJSC and its subsidiaries — IMCB LLC, GENETICO LLC, NextGen LLC, Vitacel LLC, Cryonix JSC, Cell Technologies Laboratory LLC, NVG-cardio LLC, “Angiogenesis” LLC, and also Reprolab LLC — a subsidiary of GENETICO LLC, created in April 2017 in order to separate the business of Reprobank® from other Genetico® services), and HSCI’s share in the loss of its associated company IceGen LLC (see Notes 3 and 15 to HSCI’s condensed consolidated interim financial statements as of and for the 2018 under IFRS).APPENDICES:

1.       Condensed consolidated interim statements of profit and loss and other comprehensive income for 2018 and 2017 — in RUB thousands (extended).

2.       Condensed consolidated interim statements of financial position as of December 31, 2018 and December 31, 2017 — in RUB thousands.

HSCI’s condensed consolidated interim financial statements in 2018 prepared in accordance with IFRS (with an auditor’s review) can be viewed on the Company’s corporate website under “For Investors” (Financial Reports -> IFRS):

http://eng.hsci.ru/investoram-i-aktsioneram/financial-reports/financial-reports-in-accordance-with-international-

 

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