Xbrane Biopharma — Update 31 January 2017

Xbrane Biopharma is a Swedish company with two business lines: a range of developing long-acting generic drug formulations and low-cost production of biosimilars. Currently, Xbrane is focusing just on Spherotide (prostate cancer) and Xlucane (AMD). Spherotide is produced by Xbrane’s Italian subsidiary. Xbrane plans to run clinical studies from 2017 to enter the European market from 2019. It may have initial Iranian sales in 2017 and Chinese sales from 2021/22. The bigger, but less advanced, product is Xlucane. This requires more clinical development and could reach the US market from 2021 and the European market from 2022. There may be Iranian sales from late 2017/18. Xbrane listed on the Nasdaq Stockholm stock exchange on 3 February 2016 at SEK42.50 per share, raising SEK100m.

The overall value comprises the present value of the cash flows after costs and tax between 2017 and 2030 plus a continuing value. The NPV of the cash flows is estimated at SEK169.5m, with a continuing NPV at a minus 1% growth rate of SEK202.5m. This gives a combined value of SEK372.0m. A partner prepared to fund half the SEK230m cost of Xlucane trials from 2017 is assumed, but there is still potential for further dilution. Further deals and clinical data will add value by reducing risk and lowering the dilution potential.

We forecast Xbrane will start 2017 with about SEK38m cash and a SEK7m Iranian order awaiting shipment. European sales of Spherotide are not expected until 2019. A SEK17m Chinese upfront payment is expected in Q1 on signing a distribution deal. Sales are expected to develop in Iran over 2017 and 2018. The cash outflow in 2017 might be SEK17m on cautious clinical expenditure. Xbrane needs to complete clinical development of the one-month formulation and to develop the higher value three-month Spherotide formulation. Edison expects about SEK21m cash at year end 2017. This implies that Xbrane will need further funding for the estimated SEK230m clinical trial programme required for Xlucane. This funding could come from Xlucane and European Spherotide deals.

Xbrane has a number of short-term sensitivities that will have a high impact on its cash flow and valuation. The Chinese deal, which needs to be signed, yields a SEK17m upfront. This would offset some clinical trial costs and the development of a three-month formulation required for the European market. Once the initial SEK7m Iranian order is fulfilled, sales development will depend on gaining a high market share by aggressive pricing. Validating the one- and three-month formulations to European standards is an essential target for 2017; a European deal may require a validated three-month product. Spherotide competes against Decapeptyl and indirectly against leuprorelin and goserelin. Accordingly, several competitors may compete fiercely.

With Xlucane, Xbrane has the challenge of funding equivalence clinical studies. The obvious route is partnering and Edison has assumed a 50-50 split in the costs. However, a full partnering deal could be concluded, or Xbrane may have to find the cash required itself. The Lucentis market targeted by Xlucane is shrinking and Xlucane might be the third product to market, possibly from 2021 in the US, provided that clinical trials start in 2017. Iranian sales may start from 2018. Roche and Novartis may employ various strategies, including competitive pricing, to prevent Lucentis biosimilars gaining market share. Edison notes that the Xbrane system has never been used for manufacturing at commercial scale, so there may be unexpected technical scale-up challenges and opportunities.

Xbrane Biopharma is a Swedish company, founded in 2007, developing long-acting generic drug formulations and injectable biosimilars. The focus on generic molecules means that Xbrane does not have the standard costs and risks of developing novel therapeutic entities. This potentially allows Xbrane to run a broader pipeline in future as it only needs to manufacture the product and run clinical equivalence trials to gain regulatory approval. Currently, Xbrane is focusing on two products Spherotide, a slow-release depot delivery of a generic prostate cancer therapy, and Xlucane, a biosimilar for age-related macular degeneration (AMD). Xbrane listed on the Nasdaq Stockholm exchange on 3 February 2016 at SEK42.50 per share, raising SEK100m.

Xbrane diversified into small molecule delivery systems with the acquisition of Primm Pharma on 30 September 2015. Terms are given in the financial section below. Primm Pharma creates microspheres that are mixtures of biocompatible polymers and small molecule therapeutics.1 The polymers degrade in the body and release the therapeutic entity at a steady, calibrated rate.

Xbrane, like other companies, uses poly(lactic-co-glycolic acid) (PLGA) as the polymer carrier for triptorelin. PLGA is well understood and approved by regulators. Xbrane’s delivery pipeline is shown in Exhibit 1. The lead slow-release delivery project is Spherotide. Exenasphere has completed preclinical testing. The others are in process development.

Of the other products, Bydureon (exenatide), a diabetes control agent, is on patent. Leuprolide for prostate cancer already has generic competitors. Risperidone, an antipsychotic, is used to control schizophrenia and bipolar disorder. It came off patent as a molecule in 2003. Risperdal Consta is the only FDA-approved slow-release version of risperidone and is patented until 2020; the first patent (US 5792477) expires in 2017. Sandostatin treats acromegaly: excessive growth due to the pituitary gland producing too much growth hormone; this is often due to a benign tumour.

Triptorelin is one of a class of gonadotropin releasing hormone (GnRH) agonists. The total market was worth $446m in 2015 (IMS data).2 This excludes some countries, including Iran. About $388m of these sales are for depot3 formulations, like Spherotide, with the remaining $58m for single injection treatments, mainly usually used for fertility treatments. The market was stable over 2013 and 2014, but prices fell about 20% in 2015. World sales by territory are shown in Exhibit 2. The European market is in Exhibit 3; Exhibit 4 gives background.

Triptorelin is marketed as Decapeptyl by Ipsen and as Trelstar by Allergan. In 2015, Decapeptyl was Ipsen’s second-biggest product with €334m of sales, accounting for 30% of its total revenue. It is therefore likely that Ipsen will try to defend this revenue, at least in core territories. There are two other molecules in this class (see Exhibit 5): Zoladex (goserelin, AstraZeneca) and Lupron (leuprolide, AbbVie). A fourth, related product is a GNRH antagonist, Firmagon (degarelix, Ferring). There are three depot doses of triptorelin sold: one month (3.75mg), three months (11.2mg) and six months (22.5mg). The other two GnRH agonists are similar.

The European market (excluding single use injections) was worth about $244m in 2015 (IMS). The top five European countries account for about 86% of sales, see Exhibit 3 above. The biggest market is Italy with $54m of sales (apparently due to a high market share according to Xbrane). Xbrane will follow the decentralised procedure with Spherotide, ie country-by-country approvals.

The market by value is dominated by the three-month formulation, which outsells the one-month by 3:1, Exhibit 6. According to IMS data, there were the equivalent of 2.5 million monthly doses sold in 2015, but the actual number of packs was about 1.1 million, comprising 570k one-month, 450k three-month and 80k six-month depot formulations Exhibit 7. However, preferred dose formats vary; Italy, for example, predominantly uses the one-month formulation, whereas Germany prefers three- and six-month formulations. Consequently, Xbrane needs to develop and validate a three-month dose formulation to gain significant sales.4 In marketing terms, this also means that the number of opportunities per year to switch brands is more limited compared to patients on monthly dosing.

The US market is worth $36m, largely the three-month depot formulations. Allergan sells all the product under the Trelstar brand. This makes it uneconomic to run the rigorous trials demanded by the FDA. Canada might be accessible and is worth $6.6m (2015) with falling prices. Edison has not included the US in its market forecasts.

The Chinese market, $69m, could be significant for Xbrane; Ipsen sold $57m of the one-month product in 2015 at $195 per dose comprising 290,000 doses; Ferring sold $8m in 2015 a three-month depot product; there were $4m sales of a higher dose formulation. The market is stable with a small price fall in 2015. The high price may reflect the perceived status of Western branded products. Ipsen has stated in corporate presentations that triptorelin has a 50% market share.

Xbrane announced in November that it had signed a non-binding term sheet with a prospective Chinese partner. The $8m deal is expected to complete in Q117 with a down payment of SEK17m, with a further three payments due. Marketing approval is needed from the China Food and Drug Administration (SFDA) and requires prior European authorisation. The willingness of the Chinese partner to buy the rights and fund the Chinese clinical trials indicates an expectation of high returns. Exhibit 8 discusses market expectations. Edison has followed Xbrane in forecasting an 85% share in China, but does not assume volume growth as there is insufficient data to be sure of a growth trend. A 50% probability adjustment is then applied, giving a forecast of SEK100m of Xbrane revenues.

There are about $30m of triptorelin sales in Russia and a variety of other countries in Asia, Latin America and Africa. These are all individually small markets using the one-month formulation. IMS tends to underreport these markets. Collectively, these are more likely to take up a lower-priced generic product. Xbrane projects over 80% triptorelin market share with Spherotide.

A deal for Israel was signed in December 2016 with BioAvenir. Xbrane estimates a sales potential of SEK5m per year. Xbrane and BioAvenir will share the profits. Xbrane will receive a licence fee of SEK1m divided in upfront and milestone payments prior to launch in 2020.

The other market being addressed by Xbrane is the Middle East. There is limited data on the markets in the small countries; most are minute. The major market identified by Xbrane is Iran, Exhibit 9, where triptorelin is sold by Ipsen as Diphereline (Ipsen in a 2011 presentation claimed a 65% market share in Iran) and by Varian as Variopeptyl (from Ferring). Xbrane has received a SEK7m initial order of the one-month triptorelin formulation from its partner, Pooyesh Darou. Pooyesh Darou will sell using the brand name Microrelin. To avoid high import tariffs, the drug-loaded microspheres will be manufactured in Italy and dispensed into vials in Iran. This will be supplied once Primm Pharma has received Italian GMP quality approval.

For forecasting, Edison has used the distributor market estimate of $30m and followed Xbrane in assuming that Spherotide gains 90% share by 2020. This gives an Edison estimate of SEK44m in Xbrane revenues from 2020. We assume a 50% gross margin and apply a 50% probability given the various uncertainties and lack of firm data.

In the IPO prospectus, Xbrane stated its goal of Spherotide revenues of over SEK200m by 2020. The more conservative Edison market projection (not risk-adjusted) is shown in Exhibit 10. To avoid too many assumptions, we have assumed that the overall market share of triptorelin is stable with Spherotide taking share only from other triptorelin brands. Before probability adjustment, this gives an Xbrane revenue forecast of SEK357m by 2030, about $39m. The unadjusted Spherotide gross margin would be SEK243m, about $27m. After adjustment, this is SEK114m.

The core of the forecast is Iran, with SEK44m peak sales per year at a 50% margin. The actual sales growth in Iran is particularly important over the 2017-20 period for cash management. The one-month formulation could be sold in Europe from 2019 if approved. This is a low-margin product.5 Volume is also relatively low outside China and Iran. However, it is reasonable to assume that CoG will fall as volumes increase; Edison assumes an annual 5% decrease from 2020.

Chinese sales are estimated to start in 2021/22. Because the current Chinese price is $195 for one month, even after dropping prices by 50% then giving a 50% distributor margin there is still a significant gross margin; Edison estimates maybe 60%. However, competition could erode this.

The core market is the European three-month dose. CoG is marginally higher than the one-month dose, but the market price is three times higher, so a gross margin of over 70% is possible. Edison has seen no data on the three-month formulation and EU launch is unlikely before 2020. One or more European marketing partners is assumed to be required. While these could be agreed at any time, Edison assumes a deal for SEK80m with SEK20m upfront and SEK60m on approval of the key three-month formulation. As deal structure is uncertain, a 60% probability is applied to the one-month and 45% to the three-month formulation milestones. The deal value could be much higher.

Many biological drugs are complex proteins like antibodies that must be manufactured in expensive mammalian cell culture systems; an example is Humira (adalimumab) with sales of $14bn in 2015. Large, well-resourced companies target these. By contrast, the Xbrane bacterial fermentation system is designed to make smaller, less complex biological drugs such as antibody fragments, peptides (small proteins or sections of larger proteins) or simple enzymes. Bacterial systems are much simpler and cheaper to run, where they can be used. Lucentis, of which Xlucane is a proposed biosimilar, is a smaller monoclonal antibody fragment. As such, it can be made in the Xbrane system, similar to the Lucentis system. Exhibit 11 shows the current Xbrane biosimilar pipeline with two other products:

Cimzia (certolizumab) is a pegylated antibody fragment with an improved half-life. It binds TNF and is used to treat inflammatory diseases like Crohn’s disease and moderate rheumatoid arthritis. It is sold by UCB.

Oncaspar (pegaspargase) is used to treat acute lymphoblastic leukaemia alongside chemotherapy. It is sold by Shire. It is a bacterial enzyme: L-asparagine amidohydrolase. This is then covalently conjugated to monomethoxy-polyethylene glycol (mPEG) to improve its half-life when injected. The treatment of ALL is potentially being changed by the development of CAR T-cell therapies.

High-efficiency manufacturing of small proteins

Xbrane owns IP pertaining to a protein expression system in E. coli. Xbrane’s system, named Lemo21, has been published (Wagner et al. 2008). It is detailed in Exhibit 12. The core patent is titled “Expression system for proteins” (WO2009106635). The patent has been granted in the US (US8138324B2) and Europe (EP2268818B1); protection in both regions extends to February 2029.

Xbrane has used this system to develop tailor-made expression systems for specific proteins and enzymes for clients in the biopharma sector achieving up to 85% lower production costs compared to standard T7 systems. This could give a cost advantage in a competitive market for products made in bacterial systems such as Lucentis, Cimzia, Oncaspar and others.

Xbrane runs a 20l pilot-scale facility and does not have its own GMP production facility for Xlucane. Commercial manufacturing will be outsourced to a CMO with capacity to produce at a larger scale. The plan is to scale up production for the clinical trials required for registration in the US and EU.

Xlucane is Xbrane’s proposed biosimilar of Lucentis. Lucentis is used to treat wet AMD (wAMD), Exhibit 13 and competes with Eylea (aflibercept Regeneron) and off-label Avastin (Bevacizumab, Roche) (Exhibit 14)

There are three potential biosimilar competitors alongside Xlucane, Exhibit 15. A proposed biosimilar Lucentis, Razumab, is already marketed in India by Intas. It is unclear whether Razumab will pass the FDA and EMA biosimilarity standards so it is not included in our forecasts. Two other projects are visible. The major threat seems to be from Formycon, which is the most advanced and in a Phase III study. The other, from Pfenex, is on hold while a fresh partner is sought after the withdrawal of Pfizer.

As Xlucane is in early development, there are very limited preclinical and no clinical data. Xbrane plans to register and market Xlucane in Iran in 2017 through a partnership with Helvetic Biopharma, which involves a small PK/PD clinical trial, manufacturing, registration and launch of the product during H217. The deal involves an exclusive distribution agreement in which the company gets development, regulatory and sales milestones plus royalties on net sales. According to Helvetic Biopharma, 70,000 people suffer from wAMD in Iran.

A biosimilar product typically needs to be tested in clinical trials, a PK/PD Phase I study and potentially a Phase III trial. The Phase I with the analytical data package shows similarity and the Phase III confirms that the biosimilar has the same therapeutic action at the expected dose levels. As the dose is known, there is no need for a Phase II dose ranging trial. The Phase I and Phase III elements can be combined in a two-stage trial.

Xbrane will send a full biosimilarity package to the EMA and FDA during Q117. This will enable Xbrane to meet with the agencies to seek advice on the design of a Phase I/III trial. However, the agencies will need to see the comprehensive GMP analytical package before approving use in clinical trials.

The proposed Phase III primary endpoint will be either the change of retinal thickness after one month or visual acuity (ETDRS letters). In the current Formycon Phase III trial being run in Europe and the US, the primary endpoint is retinal thickness at one month, with visual acuity at six months as a secondary endpoint. This trial involves 650 patients and will take at least three years to run. In our view, the FDA will require a visual acuity test and a trial design similar to the Formycon study is used in our forecast. Clinical costs could be between SEK200m and SEK250m plus manufacturing costs of about SEK16m: Edison uses a figure of SEK230m in the valuation model. The cost is high because it includes the cost of Lucentis at market prices plus all the ancillary clinical costs.

We assume that Xbrane gains a partner able to fund between 50% and 100% of the clinical trial costs. We have not assumed any milestones or upfronts on this deal but does assume a 50% chance of finding such a partner. Xbrane is then assumed to receive a 15% royalty.

Sales of Lucentis were $3.6bn in 2015, down 15% vs 2014 as competitor Eylea (aflibercept, Regeneron/Bayer) gained market share due to its clinical profile, longer dosing interval and lower overall cost. Eylea had 2015 sales of $4bn, up 45% vs 2014.

The Lucentis market is split between the US, with about 930,000 doses used at $2,000 per dose (monthly), and other territories, largely Europe, selling 2,441,000 doses at $1,000 per dose. Accordingly, the two are roughly equal in value but the US offers better margins.

There is currently no Lucentis biosimilar in the US or EU as the composition of matter patents do not expire until 2020 and 2022, respectively. On expiry in the US, Formycon should be in a strong position to launch its product first. Edison assumes a decline in the Lucentis market with share taken by Eylea in wAMD; off-label Avastin is the current low-cost option, but is not easy to use in practice. Market launch in the US at the time of Lucentis patent expiry in 2020 seems difficult, hence we believe Xlucane will be third to market in the US as its competitors are ahead in development. Launch in 2022 in the EU could be possible if clinical trials begin in 2017 and complete successfully by late 2020. In Europe, we expect either one or two other competitors to launch alongside Xlucane.

We forecast the Lucentis market to decline to $3.3bn by 2019. By 2030, Edison forecasts that Lucentis retains a 41% volume share at full price with biosimilars taking 70% by volume of the European market and 51% of the US market at 55% discounts. The biosimilar share of this market is estimated by Edison to be worth about $930m. If Xlucane is third in the market in the US, it may capture a 20% biosimilar share. In the EU, the market share could be higher at 30% if launched at the same time as competitors. This indicates peak partner sales of $242m, Exhibit 16.

The strategy that Roche and Novartis adopt is an additional factor that may hamper market penetration of biosimilars. They may decide to lower the price to keep it closer to the biosimilar or even match it. This will help to retain market share and defend its price.

Xbrane’s Iranian partner intends to start selling Xlucane in H217. As Lucentis is not currently sold in Iran, the market is new and the market dynamics are unknown. Edison has assumed, on a nominal basis, that Iran equates to 5% of the projected European sales value (based on population size and the relative proportion of people aged over 65). A 50% probability adjustment is then applied reflecting the significant uncertainties and lack of data.

Xbrane has a number of short-term sensitivities that will have a high impact on its cash flow and valuation. The Chinese deal, which needs to be signed, yields a SEK17m upfront. This would offset some clinical trial costs and the development of a three-month formulation required for the European market. Once the initial SEK7m Iranian order is fulfilled, Iranian sales development will depend on gaining a high market share against an established competitor by aggressive pricing. Validating the one- and three-month formulations to European standards is an essential target for 2017. More deals could be concluded, adding value. Spherotide competes against Decapeptyl and indirectly against leuprorelin and goserelin. Accordingly, several competitors may compete fiercely.

With Xlucane, Xbrane has the challenge of funding considerable clinical studies. The obvious route is partnering and Edison has assumed a 50-50 split in the costs; however, a full partnering deal could be concluded. If not, Xbrane may have to find the cash required. The Lucentis market targeted by Xlucane is shrinking and Xlucane might be the third product to market, possibly from 2021 in the US, provided that clinical trials start in 2017. Roche and Novartis may employ various strategies, including competitive pricing to prevent Lucentis biosimilars gaining market share. Edison notes that the Xbrane system has never used been for manufacturing at scale so there may be both unexpected technical challenges and opportunities.

Edison has applied probability adjustments to Spherotide, as in Exhibit 17.

The net present value calculated is the annual gross margin for Xbrane before other costs and tax. Unadjusted peak sales are shown. Probabilities are conservative since Edison has seen very little technical information on the products and no clinical development has been run to date. Xbrane is confident of achieving up to SEK80m in revenues from Spherotide in Iran and the Middle East by 2020. Edison is more cautious about this, but has nonetheless projected SEK44m revenues before risk adjustment. Xbrane has been successful in agreeing terms for a major Chinese deal, which would partially offset the likely clinical trial costs of SEK60m for Spherotide in 2017. A European deal of at least the same size as China is assumed, but focused on the three-month formulation needed for the European market.

The net present values of the Xlucane royalty streams from 2017 to 2030 are shown in Exhibit 18. These are before any clinical trial costs and other administration. Royalties in 2030, before probability adjustment, are estimated at SEK343m. These, in effect, have no costs attached other than tax.

The overall value comprises the present value of the cash flows after costs and tax between 2017 and 2030, Exhibit 19. Xbrane could be a highly profitable business because all marketing costs are delegated to partners, leaving only manufacturing, core regulatory and quality assurance functions within the business. Edison has therefore assumed a 30% cost level (after cost of goods) which is typical of pharmaceutical companies. A simple adjustment for working capital changes has been made after the detailed forecast to 2018. This assumes some low-level research costs on other projects.

This period allows sufficient time for market development and ends with the expiry of the core manufacturing patent for Xlucane. Because these are generic products, there seems no reason to assume a drastic fall in market shares after 2030, and therefore a continuing value is applied. However, they will generally decline as treatments change so a -1% growth rate is applied. The significant continuing value element implicitly assumes a return on invested R&D from other pipeline products, but this cannot be quantified at this time.

The overall value net of tax and adjustments for working capital is SEK372m. This equates to about SEK78 per share. However, as discussed in the financials section, Xbrane has to meet significant short-term clinical trial costs to launch products on the timescales envisaged above. Xbrane either needs to sign partnering deals or raise further funds. There is therefore a significant potential for further dilution. If the trials are delayed or extended, the value will be lower than currently estimated.

However, Edison also notes that it has used conservative probability assumptions on generic products entering well-defined, established markets. Hence, value will develop rapidly if probabilities rise and as further deals are signed. As a scenario, a risk-free valuation would currently be about SEK200 per share, but this depends on all timelines being met and all products performing at least as well as forecast in the market and meeting the required technical and clinical standards.

Xbrane listed on the Nasdaq First North exchange in Stockholm in February 2016. Xbrane issued 2.33m shares at SEK0.224 par value at a price of SEK42.50. This raised SEK100m gross, SEK90m after expenses, and increased the shares in issue from 2.23m to 4.59m shares. The proceeds were partly used to repay a 2015 loan of SEK10m from the main shareholder.

Revenues for 2016 to 30 September comprise SEK2m in upfront fees paid to secure the rights to Spherotide in Iran. Xbrane has stated that a SEK7m order has been received and will be shipped in early 2017 once the Primm subsidiary has achieved Good Manufacturing Practice (GMP) standards. In addition, Xbrane had received SEK149k in Italian tax credits to 30 Sept 2016. A deal for Israeli distribution was signed in December and may have given a SEK0.25m payment.

Overall, Edison expects a reported loss of about SEK31m in 2016 with a slightly lower loss in 2017 due to the expected SEK17m upfront payment on the Chinese distribution deal and limited expenditure of up to SEK26m on clinical trials. Iranian sales of only SEK7m are assumed with a 50% gross margin. Note that although Edison includes deal estimates in valuation forecasts, it only includes signed deal values in financial and cash flow forecasts.

It is assumed that the sales will increase in 2018 to at least SEK11m but, at the moment, no milestones are forecast. It is assumed that at least half of the Xlucane clinical trial costs are offset by a partnering deal.

Cash use for the first nine months of 2016 was SEK27.2m in operations and a further SEK12.6m in investments, of which SEK8.6m was in capital expenditure. This investment has largely been in the Swedish operation (SEK6.9m). R&D valued at SEK3.4m seems to have been capitalised as an intangible asset held in the Italian subsidiary. This made the overall outflow SEK41.2m. The IPO yielded SEK81.1m after expenses and loan repayments; cash on 30 September was SEK43.9m.

Edison forecasts an operational cash use of about SEK33m for 2016 plus SEK12m of investment. This would leave year end cash at about SEK38m. This does not appear to be sufficient to fund the required clinical expenditure over 2018. Xbrane management expects to do major new partnering deals on Spherotide and Xlucane. However, as these deals are as yet undisclosed and unsigned, Edison has included an illustrative long-term debt of SEK100m in 2018 as is its normal practice.

Balance sheet and corporate structure

The group consists of the parent Swedish company and an acquired Italian subsidiary; see below. The balance sheet shows a large intangible asset of SEK59.4m, mostly comprising goodwill from the Primm Pharma acquisition but also including capitalised R&D in Primm. The goodwill is being amortised over 10 years by the group but is contained in the Primm subsidiary balance sheet at cost.

On 31 December 2015, the Xbrane parent company reported the Primm Pharma shareholding value at SEK62.8m. During 2016, the parent made a cash investment in Primm Pharma of SEK20.3m taking the book value to SEK83.1m. We estimate that Primm Pharma held SEK1.4m in cash on 30 September so this may have been an accounting adjustment. The value of fixed assets in Primm is estimated at SEK9.9m at the end of 2015, rising to SEK10.9m on 30 September. Investment in 2016 to September appears to have been SEK1.7m; depreciation was SEK0.7m.

The total value of consolidated fixed assets on 30 September was SEK17.2m. During 2016, capital investment of SEK6.3m was made in the Swedish company, largely laboratory equipment. Depreciation was SEK0.8m.

Xbrane has low short-term liabilities of SEK8.1m. Creditors amounted to SEK3.3m. Other short-term liabilities include a liability acquired with Primm of SEK1.8m and deferred revenue of SEK2.6m. There is a long-term liability in Primm Pharma of SEK4.4m (SEK5.5m in 2015) plus provisions of SEK0.6m. The long-term liability contains SEK2.7m due to Primm CEO Paolo Sarmiento.

On 30 September, Xbrane had SEK43.9m of cash in the consolidated accounts.

The Italian company Primm Pharma was created by Primm Srl, a biotech services company founded in Milan in 1990, trading as Primm Biotech. In 2014, Primm Srl is stated to have had a turnover of €3.8m. Primm Srl developed a generic microsphere technology. This technology was used to found Primm Pharma and a small production site outside Naples was established.

On 30 September 2015, Xbrane acquired Primm Pharma Srl from four private shareholders for a deferred consideration of SEK56,203,200. The value of fixed assets and capitalised investments at the date of acquisition on 30 September 2015 was SEK15.3m. At the time of acquisition, there were three employees at Prim Pharma, of which one was the CEO, Paolo Sarmiento. On 30 September 2016, there were four employees at the Naples plant.

The consideration for Primm Pharma, SEK56.2m, is a contingent convertible bond being redeemed in stages as detailed below (Exhibit 20). The conversion price is SEK42.5 per share. If fully converted, the number of shares in issue will increase by 1,322,428. This is equal to a further dilution of 22%. The first of these milestones was reached in September 2016. The convertible liability is treated as equity.