Q3, JULY - SEPTEMBER 2023

• Net revenue increased by 68% to SEK 532k (316k) driven by an increase in sales of Omega-3 and sales of cyanobacterial standards.
• Personnel and other external costs increased by 25% to
  SEK -5 799k (-4 629k) largely driven by the new costs of staff acquired with the Cyano Biotech acquisition.
• With the additional investments outlined above, EBITDA declined by 1% to SEK -4 525k (-4 471k).
• With the additional investments outlined above, the EBIT/ Operating result declined by 32% to SEK -8 042k (-6 115k).

JANUARY - SEPTEMBER 2023

• Net revenue decreased by 55% to SEK 1 697k (3 762k). Sales revenue from B2B biomass sales was delayed into Q4.
• Personnel & other external costs increased by 54% to SEK -19 089k (-12 403k) behind investments in the algae farm, marketing of Omega-3 products in USA, and the additional personnel at Simris Biologics.
• EBITDA declined by 42% to SEK -16 963k (-11 941k).
• EBIT/ Operating result declined by 86% to SEK -27 952k (-15 026k).

KEY EVENTS IN Q3

• On 5th July 2023, Simris announced an extension to the term of the flexible funding facility from TBL, a company associated with the Simris Chairman, Steven Schapera.
• On 5th July 2023, the Board of Simris proposed that an Extraordinary General Meeting (EGM) resolves on a rights issue of no more than ca. SEK 24,3m and a Shareholder proposed a directed issue of no more than ca. SEK 26,6m.
• On 5th July 2023, Simris announced that it was bringing forward the date of the Interim Report for Quarter 2 from 9th August to 24th July 2023.
• On 5th July 2023, Simris gave notice of an EGM of Simris Group AB to be held on 24th July 2023 to resolve on a capital raising comprised of a rights issue in combination with a directed issue.
• On 17th July 2023, Simris CEO published a letter to the shareholders.
• On 24th July 2023, Simris published a bulletin from an EGM which resolved on the terms of a capital raising which was to include both a preferential Rights Issue to existing shareholders and a Directed Issue to a group of strategic investors.
• On 27th July 2023, Simris confirmed that its preferential Rights Issue was 100% underwritten.
• On 28th July 2023, Simris confirmed that it had strengthened its management team through the appointment of Dr Heike Enke as CSO for Simris Group.
• On 31st July 2023, Simris published its first forward looking statement and a financial forecast for its subsidiary Simris Biologics.
• On 31st July 2023, Simris published its information memorandum for the Rights Issue.
• On 2nd August 2023, Simris confirmed a new patent application based around its ADC-payload platform.
• On 8th August 2023, Simris announced that it had signed a Letter of Intent (LoI) with Protinext BV that secured industrial scale production capacity via a commercial partnership.
• On 18th August 2023, Simris announced the outcome of its fully secured Rights Issue, which was approximately 58.9 percent subscribed with and without the support of subscription rights.

KEY EVENTS AFTER Q3

• On 29th October, Simris completes a Directed Share issue of approximately SEK 3m to strategic investors
• On 7th November 2023, Simris announced the appointment of a distributor in the USA that will sell Simris Omega-3 products on Amazon and other relevant eCommerce platforms.

WORDS FROM THE CEO
Whilst the summer months in Europe are often a period of lower intensity, the third quarter for Simris was as busy as ever. Shareholders in Simris will be aware that the company completed a capital raising which combined a fully guaranteed preferential Rights Issue with a Directed Issue, attracting new strategic investors. In total we succeeded in raising 41.1MSEK before transaction costs. This significantly improved our balance sheet and extended our runway into 2024. Q3 is also peak season for growing and harvesting algae at our algae farm in Hammenhög, culminating in the shipment of biomass to our customers in October. Finally, I have been greatly encouraged by the commercial interest shown in our platform for novel ADC payloads at the recent World ADC summit I attended last month in San Diego. With over 1,400 ADCs now in development, the industry has matured to the point where the need for product differentiation through the use of new payloads is obvious. Simris is uniquely poised to provide drug developers with a pipeline of novel payloads for their ADC development programmes and is well positioned to ride this trend. We are currently following up on a number of sales leads generated at the San Diego summit.

The Simris Group is built on three pillars:

1. The Hammenhög growing facility where we cultivate a proprietary strain of microalgae biomass for the production of fucoxanthin, a potent antioxidant, for B2B sale;
2. Simris-branded Omega 3 supplements, derived from microalgae, that we market internationally primarily B2B; and
3. Simris Biologics, a Berlin-based biotech that we acquired just less than 18 months ago, and which develops toxins extracted from microalgae for use in the lucrative pharmaceutical space as a key compound in ADC (Antibody Drug Conjugate) cancer therapeutics.

It's hard for me to believe that its been just 18 months since I was brought in by the Board to lead the transformation of Simris. I had 3 challenges: first, to refocus the growing facility in Hammenhög to high value fucoxanthin and to significantly increase productivity. Second, to reformulate the SIMRIS Omega 3 product for global regulatory approval and adopt a new business model. Third, to lead the acquisition of Cyano Biotech GmbH (now Simris Biologics) to take SIMRIS into the pharmaceutical space where cyanobacterial toxins can command prices of around €3.0m per kg. Our long-term shareholders will have followed this transformation, and (hopefully), will have noted that we have made significant progress.

Hammenhög: Following the investments made to upgrade the smaller reactors last winter, they have produced biomass at their highest ever rates and at consistently good levels of fucoxanthin. The data that we have generated from these upgraded reactors, together with data captured from numerous other trials, has enabled us to create and submit a capital investment plan to the Board. Our major B2B customer retains a strong interest in the high-quality biomass we produce and as demand for their product is increasing, they are forecasting an increased demand for biomass from Simris. Based on this relationship, and the success of the investments made in the first phase of improvements, the Board is currently reviewing the capital investment strategy which is designed to make the Hammenhög site into one the top microalgae production facilities in Europe.

Simris Omega 3: The Simris brand of Omega 3 dietary supplements has been reformulated such that is approved for sale in the EU. At the same time, it is now packaged in more recyclable packaging, which better fits with Simris’ commitment to making the world a better place. As you may have seen from our recent announcement of 7 November, we have now moved to a Distributor model in North America. The switch to a distributor model will deliver annual savings of approximately €200,000, costs previously associated with the administration of Simris Inc, which will shortly be closed, and the management of direct sales operations via amazon.com. All stock currently held by Simris Inc. in the USA will be sold to the Distributor, generating revenue of approximately €60,000. This completes the final phase of the Simris’ Omega 3 transformation.

Simris Biologics: Four months after joining Simris, and two weeks after we closed on the acquisition of Cyano Biotech GmbH, I travelled to San Diego to attend my first World ADC summit. I returned to Stockholm with a very bullish view of the technology platform we had acquired and a handful of newly forged relationships. One of those relationships resulted in us partnering with the world's largest ADC manufacturer, Lonza Ltd, as announced 28th February 2023. In the last 12 months we have progressed in building relationships with many others, whilst developing our technology further. I again attended the World ADC summit in San Diego in mid-October, this time where Simris Biologics was a Lead Partner of the event. With over 1,000 attendees from across the industry globally it was the perfect opportunity to meet with the decision makers within drug discovery and drug development. Just one year ago those I talked with were mostly concerned about the specificity of the antibody, and the stability of the linker. Their focus was therefore on improving these technologies before taking on novel payloads (which is what ours are). Just twelve months later things have changed significantly. There are reported to be more than 1,400 ADCs in current development*. This is driving drug developers to differentiate their ADCs from those being developed by others towards the same or similar cancer targets. As a result, the interest in novel payloads is greater than it has ever been and Simris is perfectly placed to take advantage of this developing trend.

Much of our time currently is spent following up on the leads generated at the summit. The primary aim is to enable drug developers to evaluate our payloads on their antibody through small-scale feasibility studies. Alternatively, or in parallel, we are evaluating whether to enter collaborative projects with partners to develop jointly owned IP. One such example could be a payload-linker product comprised of a Simris payload and a partner’s proprietary linker. Alternatively, the IP could even be a full ADC where a payload-linker is attached to an antibody. Such IP could later be commercialized by one or both partners or via licensing of the product to a third party.

Beyond our internal progress, the market for Antibody Drug Conjugates (ADCs) continues to accelerate at pace. At the end of October Daiichi Sankyo and Merck announced an agreement whereby Merck will pay a record $4bn up-front to license three ADCs that Daiichi has in development. In the week before, Eli Lilly announced that they were to acquire Mablink for their proprietary linker technology for an undisclosed sum. Also in October, Pfizer gained unconditional anti-trust approval for its acquisition of Seagen, considered the leaders in the ADC field, who have three commercial ADCs and multiple other ADCs at various stages of clinical development.

Financing: To enable the business to complete its transformation, and unlock the full value of its assets, it must be properly capitalised. The recent preferential Rights Issue and Directed Issue raised a total of 41,1MSEK before transaction costs (which amounted to approximately 6,0MSEK). As described in the Information Memorandum, Simris has used these funds to pay the second and final installment of €1m for the acquisition of Cyano Biotech GmbH. A further €1m of debt was converted to equity, thereby clearing a loan of the same value from The Brand Laboratories, a company associated with Simris Chairman, Steven Schapera. Combined, this significantly reduced company debt, in turn reducing interest payments and strengthening the Balance Sheet.

The original goal of the Board was to raise a total of 51,1MSEK. The capital raising therefore had a shortfall of 10MSEK, and on this basis the Board therefore accepted an approach from strategic investors to subscribe for 2,93MSEK. This was accepted, and recently completed as an additional Directed Issue. The Board continues to evaluate options to ensure that the company is adequately funded and can execute its strategic plan.

Summary: When I joined Simris in May 2022, biotech shares had already been falling from their peak in the summer of 2021*. By the end of October of this year, they had not recovered any of that lost value*. Furthermore, the top 20 pharmaceutical companies in the world had, by the end of October, lost $190bn in value since the start of the year**. However, the ADC space is bucking the trend in the biotech space as evidenced by significant license agreements such as those announced by Daiichi / Merck and M&A activity such as Eli Lilly’s acquisition of Mablink and Pfizer’s acquisition of Seagen.

The distressed market is resulting in many biotech companies being undervalued and I believe this is true for Simris. The market has not yet fully understood the scale of revenue that our ADC platform can bring the Simris Group. This is exacerbated by many still viewing Simris through the lens of a struggling algal Omega 3 business.

The market for Antibody Drug Conjugates continues to accelerate and there is a new and significant interest in novel payloads of the type that Simris’ technology platform can develop and produce. Since our acquisition of the platform last year, we have been able to develop the science and submit new patents. We gained Lonza as a collaboration partner to promote our technology and are now negotiating R&D collaborations with the type of organisations that could eventually want a license agreement. Taken together, I remain confident that we will see a significant uplift in the valuation of the company as investors come to better understand the opportunity.

I will continue my work to ensure that the market properly understands the transformation Simris is going through. I thank you, as always, for your ongoing support and loyalty, as we complete the journey to securing our first ADC license agreement by the end of 2024.

The report is published on Simris Groups website: https://simrisgroup.com/financial-information/financial-reports/

* Beacon Intelligence, Hanson Wade
**NASDAQ Biotechnology Index dropped 30.6% between August 2021 (5,348) and May 2022 (3,711) and stood at 3,637 end October 2023.
***Stifel Healthcare: Biopharmaceutical sector report, October 30, 2023