Novozymes Reports Strong Q3, Triumphs in Patent Case

Oct 28 2011 --- Novozymes has reported satisfactory 9 months sales and earnings development with strong free cash flow. Full-year 2011 sales growth expected at ~ 8% in DKK, EBIT growth at 9−11%. Growth in local currencies was 11% (8% DKK, 7% organic) compared to the first 9 months of last year. EBIT increased by 8% and took the EBIT margin to 23.3% despite a negative impact from higher raw material prices, acquisitions, and unfavorable currency rates. Net profit grew by a strong 16% and free cash flow continued to be strong, especially from the higher net profit. The full-year 2011 sales, EBIT, and net profit growth expectations have been changed within the previously guided ranges, the investment level has been slightly adjusted and the free cash flow expectation has been increased. All other expectations are maintained.

Total sales in the first 9 months of 2011 were DKK7,921 million (EUR1,064 million), an increase of 8% compared to the same period last year. Exchange rates impacted sales negatively, and sales in LCY were up by 11%. Acquisitions contributed approximately 4% points to growth.

Enzyme Business sales were DKK 7,082 million, up by 3% compared to the first 9 months of 2010. Sales in LCY were up by 6%. Sales of Household Care Enzymes and Feed & Other Technical Enzymes were the strongest growth contributors in the period. BioBusiness sales were 77% higher in DKK and 85% higher in LCY compared to the first 9 months of 2010. Acquisitions had a positive impact on sales. Organic sales growth was approximately 22 % in the period, mainly driven by Biopharma sales.

Food & Beverages Enzymes sales increased by 6% in LCY and by 4% in DKK compared to the first 9 months of 2010. Higher demand, particularly from the specialty food, starch, and alcohol industries, continued to be the main driver. Enzyme sales to the baking industry continued to see a modest, expected decline, whereas newly introduced products and concepts for the production of healthy foods continued to contribute positively to growth.

“I’m very pleased to see that we were able to deliver sales and earnings growth after the first 9 months within our guided full-year ranges,” says Steen Riisgaard, President & CEO. “There’s no doubt that there’s still widespread uncertainty about the global economic situation, and we're seeing some customers holding back somewhat. As a consequence, and with the expectation that customers will continue to be cautious in the fourth quarter, we have adjusted our full-year sales growth expectations to the lower end of the previously given ranges. From an earnings point of view, I'm very pleased to see that the strong underlying performance in the business allows us to narrow our profit growth expectations at the higher end of the previous ranges. We have also increased the expectation for free cash flow. Finally, by signing a deal with US-based Repligen Corp., I’m certain that we’ve found a good home for our cell culture ingredient and Protein A activities.”

Although there have been no changes to Novozymes’ position or pace of innovation in the global markets, the general uncertainty concerning the global economic situation is making customers behave more cautiously, resulting in some of them holding back, the company reported. The full-year guidance includes the expectation that the current, cautious customer behavior continues throughout the year. However, more significant changes to the global demand situation have not been included in the full-year guidance. The full-year sales growth expectations have, as a result, been changed within their previous ranges. Organic sales growth is now expected at 7–8% for the full year.

The news came as a jury has found Danisco liable for infringing Novozymes’ US Patent No. 7,713,723 on alpha-amylases for use in the biofuel and starch industries. A jury in the US District Court for the Western District of Wisconsin found Novozymes’ US Patent No. 7,713,723 valid and ordered Danisco to pay damages of USD 18,290,500 for infringement. The jury also found Danisco’s infringement to be willful.

The jury’s decision is not the final verdict. The decision is subject to the judge’s affirmation and possible appeals, the timing of which is at the courts’ discretion.

Novozymes’ patent covers certain alpha-amylase enzymes for use in the biofuel and starch industries. The infringing products have primarily been used to produce ethanol from corn starch in the US. Novozymes filed the lawsuit against Danisco in May 2010. Danisco was acquired by DuPont earlier this year.

Meanwhile Novozymes has accepted an offer to divest Novozymes Biopharma Sweden to American-owned Repligen Corp. The divestment allows for an even sharper focus on the increasing potential within many of BioBusiness’ key focus areas, including hyaluronic acid and rAlbumin products and technologies for pharmaceutical and medical device applications. Earlier this year Novozymes announced that the company has been looking for a potential spin off or divestment of its AMP (antimicrobial peptide) projects such as Plectasin and Arenicin.

The deal is a cash transaction of roughly DKK 125 million (EUR17 million) with contingent milestone payments of roughly DKK 30 million (EUR4 million), payable in 2012-2015. It is not expected to impact Novozymes’ full year 2011 expectations. The divested annual sales amount is expected at roughly DKK 90 million, with a slightly positive EBITDA contribution, and a somewhat negative EBIT contribution.

“The decision to discontinue the AMP projects has called for a review of the purpose of Novozymes Biopharma Sweden operations, which from the outset was mainly intended as a launch plant for drug discovery projects, including AMPs, but also for the production and development of Novozymes’ cell culture ingredient and Protein A products,” says Dr. Thomas Videbæk, Executive Vice President of Novozymes. He continues: “In Novozymes, we have evaluated the options for ensuring the best possible development of the ongoing activities at our Biopharma Sweden operations, and Repligen has presented itself as a strong buyer with the strategic focus to strengthen their activities within the cell culture ingredient and affinity ligands business.”

As a consequence, Novozymes and Repligen Corp. have signed an agreement, whereby Repligen Corp. acquires Novozymes’ Biopharma Sweden activities. The agreement was signed October 27th, and the transaction is expected to be finalized during the fourth quarter of 2011. The transaction comprises Novozymes Biopharma Sweden, including the transfer of related tangible and intangible assets, specified liabilities, and employees. Novozymes Biopharma Sweden’s activites include cellculture ingredients (such as LongR3-IGF1 and rTransferrin) and affinity ligands (such as Protein A).