Strategic spin-off for NattoPharma

Company to launch a new entity to operate in the pharma industry

NattoPharma has decided to spin-off its pharma business and form a new, yet-to-be-named company (PharmaCo). NattoPharma ASA will continue as an operating entity, focusing on its cash-generating supplement business. “We are very happy to finalise the spin-off,” says Chairman Frode Bohan, adding: “With two separate entities, the underlying value of the company will become more visible and thus create more shareholder value.”

“Sales of our supplement business continue to reach new and record levels, and the pharma business is progressing into a very exciting stage. The timing of the spin-off has been carefully planned,” says CEO Daniel H. Rosenbaum. “I’m confident that PharmaCo will enable greater focus across the entire organisation, so we can continue to build the global leadership within vitamin K2 and MenaQ7."

"Further, we believe it’s time to add more critical mass to our dietary supplement business by focusing additional resources on expanding our product portfolio with new, scientifically validated ingredients. An expanded product offering also allows us to take advantage of our existing global sales and customer technical support organisations,” says Rosenbaum.

 

Background

NattoPharma’s main strategy is to build a global supplement business on the basis of vitamin K2 and other attractive ingredients. Today, NattoPharma’s own vitamin K2 brand, MenaQ7, is the world leading vitamin K2 supplement brand, and consumer demand continues to show robust growth.

In the coming years, NattoPharma sees a great potential in focusing more on working with new and existing customers to capitalise on this increasing awareness and growing consumer demand for vitamin K2, and specifically MenaQ7.

The compelling clinical data obtained in recent years has created a strong basis for a focused pharmaceutical path. To pursue the therapeutic potential within the K2 pharmaceutical area, the Board has decided to establish a separate legal entity within which to organise this business.

 

PharmaCo

A comparable drug development process typically requires 5–10 years prior to commercialisation and can involve costs in excess of $100-200 million. However, the current estimate for a first indication — according to an external CRO company — is that a novel product could be on the market within 4–6 years at a cost of $30–50 million. There will potentially also be major synergies related to both timelines and costs for additional indications.

A successful process can create value of many multiples of this expenditure, depending, of course, on the target indications and effectiveness of results. Progressing a pharma project will require substantial funding during a prolonged period, and while providing for substantial upside, it also involves high risk. The risk profile and business model for a pharma company differs significantly compared to the model for a supplement company.

In recognition of these distinctions, the Board of NattoPharma believes that the preferred path forward for both current and potential future shareholders is to derisk the K2 supplement business by spinning-off the pharma company, while at the same time creating the opportunity for today’s shareholders to participate directly in PharmaCo as investors, and thereby participate in the potential upside this business case has to offer.

Nattopharma going forward

PharmaCo will be established as a 100% owned legal entity of NattoPharma ASA. All rights related to the pharmaceutical business, currently controlled by NattoPharma ASA, will be transferred to PharmaCo.

NattoPharma’s main strategy is to build a global supplement business on the basis of vitamin K2 and other attractive ingredients

NattoPharma and PharmaCo will enter into a licensing agreement, wherein NattoPharma will have exclusive access to all relevant know-how and patents, crucial to operate the K2 supplement business.

NattoPharma will pay a yearly license fee to PharmaCo for the rights to use the transferred patents in the supplement business. This will include the right to use any future patent granted to PharmaCo for new claims or other intellectual property that PharmaCo obtain in the initial license period.

After completing the series of transactions, NattoPharma will focus exclusively on building a strong sales and marketing company, while still retaining, with limited risk, the potential benefits of the pharmaceutical upside. Transferring all future investments in science and pharma driven projects will immediately reduce the operating cost base for NattoPharma.

With strong growth in the supplement business, combined with significant reduction in operating costs, 2018 should be the first full year with operating profit for NattoPharma ASA, and a foundation in place for a future with a continuous dividend stream.

Eric Anderson, Senior Vice President of Global Marketing & Business Development, commented: “What we have seen when doctors can test for vitamin D levels, or when doctors started recommending fish oil or writing prescriptions for Lovaza, was an explosion in supplement sales. We totally expect to see a huge lift in supplement volumes now that vitamin K2 is headed down the pharmaceutical path.”

"Another interesting note is that we are very close to doctors being able to test their patients for vitamin K2 deficiency. With a test, they will be able to diagnose a K2 deficiency, which is integrally linked to the development of atherosclerosis (hardening of arteries) and recommend K2 for optimal health."

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