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Devgen ready for product driven revenue growth:

Regulated information

In line with its strategy to focus its business on agrobiotech, Devgen throughout 2008, considered all possible options to sell or spin-out its pharma assets. When it became clear that in the current markets, it was unlikely that a buyer or investor could be found, Devgen terminated its pharma research program and is now fully focused on its agrobiotech business, where the company has strong track record in technology and is building a product driven business. 

The mission of this business is to enable farmers worldwide to grow more food in a sustainable manner using less land, water, agrochemicals and labor.

Devgen uses advanced biotechnology and molecular breeding technology to develop high yielding seeds and crop protection solutions with a superior environmental profile. Devgen brings this technology to market in the world's major food and feed crops through two complementary strategies:

• In corn, cotton and soybean the company has market access through licensing arrangements with the industry leader, in exchange for R&D funding, milestone payments and royalties.
• In rice, sunflower, sorghum, and pearl millet, major field crops in Asia, Devgen is a provider of premium hybrid seeds in India and is on the path to become a top 3 player. Devgen operations in India encompass biotech R&D, advanced breeding, seed production and conditioning and sales and marketing.  In Indonesia and the Philippines, Devgen has taken the first steps towards market entry in rice.

In its Crop Protection unit, Devgen develops a novel nematicide, an agro-chemical product that protects crops from damage by parasitic nematodes.

Devgen has obtained regulatory approval in the US to sell its lead nematicide compound in selected crops and has submitted its first registration dossier for approval in Europe. First sales in the US are targeted in 2010.

In 2008, agriculture was on the priority list of many governments around the world as food prices rose strongly. The price of rice peaked during 2008 and today remains considerably higher than one year ago. As a result, the need for hybrid seeds and technology-supported agriculture became increasingly evident. Governments expressed the need for hybrid seeds and biotechnology to help satisfying the growing global demand for food. In 2008 biotech crops once more grew their market presence and the price for seed with built-in technology increased, reflecting the value they bring to farmers. The global outlook for the agricultural business is positive.

In India, currently Devgen's major market, Devgen targets a top 3 position in value and volume for rice and sunflower and a number 1 position in sorghum. Devgen will launch new products that will increase the productivity of the farmer. Devgen's hybrid rice business is targeted to grow considerably faster than the market for hybrid rice, which is expected to grow at 30% a year.

Financial highlights 2008

• Revenues, including seed sales in India of EUR 6.1 million, at EUR 9.3 million, up 28% from EUR 7.3 million in 2007.
• Expenses for R&D (continued operations only) amounting to EUR 13.2 million (excl. depreciation), up 34 %.
• Total loss for the year amounting to EUR 25.1 million including EUR 8.5 million for discontinued operations. 
• Cash position of EUR 24.2 million at end of December 2008.

Business highlights 2008

• Devgen discontinued the pharma business to fully focus on its hybrid seeds and agro-biotech activities.
• Devgen is recognized as a premium quality seed company in India for rice, sorghum, pearl millet and sunflower.
• The basis was laid for growth with a strong team, high quality production capabilities, and a marketing and distribution network creating demand across key markets in India.
• Devgen is ready for 2009 market entry in Indonesia, through cooperation with SHS, the country's leading seed producer and distributor, after successful local testing and subject to product registration of the Devgen rice hybrids.
• Devgen successfully activated the seed assets acquired in the Philippines and is ready for market launch end 2009 - beginning of 2010.
• Devgen identified hybrids in its pipeline to be launched during the next 5 years to enable sustainable growth.
• Global integration and strengthening of Devgen R&D:
• germplasm and breeding in Kenya, India and the Philippines;
• molecular techniques and bio-informatics in Belgium and Singapore.
• A pipeline of rice traits is at various stages of development with first traits (transferred into elite germplasm) ready to move to India in 2010.
• Devgen completed the nematicide registration dossiers for submission as planned.

Devgen turned the seed business assets, acquired in 2007, into a fully operational business and is ready for substantial growth as of 2009. Total sales in 2008 of premium hybrids seeds for rice, sorghum, pearl millet and sunflower amounted to EUR 6.1 Mio which is at the high end of expectations.

In preparation of 2009, the following actions have been taken:

• Indian team strengthened throughout all functions: 159 permanent staff and over 300 temporary staff deliver premium top quality products to the market;
• Production capacity increased:  acreage in place to increase seed production 3-fold over 2008 levels. Tolling capacity for seed processing secured for growth up to 2011;
• Market reach: number of distributors tripled,  and number of dealers more than doubled to over 20.000;
• Strong demand created: extensive product testing and demo's to farmers in established and new sales territories resulting in advance bookings and related, prepayments by distributors, today already exceeding total sales achieved in 2008.

During 2008, Devgen demonstrated that its hybrids are adapted and potentially competitive in the Philippine and Indonesian markets. In 2009, Devgen plans to expand its hybrid rice business to these two major rice growing countries. Key relationships were established to prepare for market launch by the end of 2009. Devgen plans on creating demand by product demonstrations to farmers as it does already in India.

The hybrid seed business is driven by technology (germplasm, breeding and traits). To remain at the forefront Devgen puts extensive research efforts into the development of new hybrids. The Devgen breeders now benefit from the integration of research platforms in Kenya, India and the Philippines and receive support from molecular assisted breeding expertise and dedicated breeding IT systems in Ghent.

Solid progress was also made in Devgen's RNAi technology platform and in rolling-out a pipeline of biotech traits in rice, based on proprietary technologies, either developed in-house or licensed-in.

The dossier for registration of Devgen's nematicide has been submitted in Italy.

Extensive product testing continued in 2008 to support these filings and to further optimize agricultural practice and product formulation. Approval of registration for selected crops has been obtained in the US. More news on the launch of the product will be announced in the course of the year. The research performed to date revealed new opportunities for crops which today are not actively treated for nematode problems as no suitable products were available. These opportunities will be included in Devgen's target markets.

Business objectives 2009:

• Double turnover in India
  • Growing Devgen's market leadership position in sorghum (#1) through volume increases and launching a new generation of premium products.
  • Target a top 3 position in sunflower and a top 4 position in hybrid rice - ready for growing towards a top 3 position.
  • Strengthening our position in pearl millet
• Launch hybrid rice in Indonesia (2009) and the Philippines (209/2010).
• Implementation of key steps for market launch of the nematicide product in the US, targeting 2010 sales.

Key figures 2008

2008 revenues amounted to EUR 9.3 million, an increase of 28% compared to the previous year.

Earnings before amortization, interest and taxes (EBITDA) decreased by EUR 7.2 million to EUR -15.0 million, while net loss for the year amounted to EUR -16.6 million, as compared to EUR -7.8 million in 2007. Net loss including discontinued operations amounted to EUR 25.1 million compared to EUR 13.9 million. The cash position of the Devgen group amounted to EUR 24.2 million at the end of 2008.

Details of 2008 results

Revenues

Total revenue, amounting to EUR 9.3 million, was entirely generated by the Devgen Agro division. This represents an increase of 28 % as compared 2007. Sales of seeds represent EUR 6.1 million of total revenues whilst income out of research and development activities amounts to EUR 3.2 million against respectively EUR 0.3 million and EUR 5.7 million in 2007. Grant income amounted to EUR 0.1 million compared to EUR 1.3 million in 2007. The reduction of the collaborative income and the grant income is more than offset by income out of commercial activities. Seed sales during the second half of the year were lower than during the first half of the year due to the seasonality of the seed business.

No income was generated from discontinued operations. The Human Therapeutics division was closed at the end of 2008. In 2007 revenue (grant income) of EUR 0.60 million was generated by the now discontinued operations. 

Results

The net loss resulting from continued operations for 2008 amounted to EUR 16.6 million, compared to a loss of EUR 7.8 million for the same activities last year, an increase with EUR 8.8 million. The higher revenues were more than offset with higher expenditure for all categories of costs. The geographical expansion of the company - mainly India in 2008 - resulted in expenditure which was not immediately fully offset by product sales and should be considered as business development expenditure.

As main drivers at the cost side we identify higher R&D expenditure:

• With respect to nematicides we increased considerably our outsourcing activities in order to prepare our registration dossiers.
• With respect to seeds and traits the geographical expansion into India, but also into the Philippines, where a breeding station was deployed, resulted in higher R&D expenditure, all in order to create our hybrids for the future. In addition our R&D account was also impacted by higher depreciation charges (depreciation of knowhow acquired in 2007).

While in the past revenues generated under research collaborations were mainly aimed to cover R&D expenses, the revenues now coming from product sales have to cover COGS and marketing and local G&A expenses. They do not yet contribute to cover R&D expenses.

Net loss resulting from discontinued operations amounted to EUR 8.5 million, compared to EUR 6.0 million in 2007. This entirely relates to Pharma R&D and G&A, including restructuring costs.

Total net loss from continued and discontinued operations increased to EUR 25.1 million compared to EUR 13.9 million for 2007.

Cash flow and cash position

The cash used in operations in 2008 amounted to EUR 18.0 million - including EUR 8.1 million cash used for discontinued operations - as compared to EUR 12.7 million in 2007. Cash used in operations is related to the net operating cash outflow amounting to EUR 22.5 million, and EUR 4.5 million improvement in working capital (mainly due to lower inventory and advance collections for the 2009 sales season). Total cash used in operations including interest paid amounts to EUR 18.9 million.

Cash used in investing activities was nihil.[2] Investments amounted to EUR 1.5 million in 2007 including EUR 1.0 as a remainder of the business acquisition. Investments were completely offset by interest received of EUR 1.5 million.

Cash flow from financing activities amounted to EUR -0.7 million in 2008, entirely related to net financial debt repayments.

As a result from these operational, investing and financing cash flows, a net decrease of EUR 19.6 million in cash and cash equivalents was recorded for 2008.

Devgen's cash and cash equivalents amounted to EUR 24.2 million on December 31, 2008, including restricted cash of EUR 4.8 million, as compared to EUR 43.9 million on December 31, 2007, including restricted cash for an amount of EUR 5.0 million and available for sale financial assets for an amount of EUR 5.0 million.

Consolidated balance sheet

The balance sheet at 31 December 2008 remains solid, with a solvency ratio (equity vs. total assets) of 71 % (vs. 80% on December 31, 2007).

2008 segment reporting

In prior years the group was organized in two operating business units: Seeds and Crop Technologies and Human Therapeutics. This was also used for reporting the primary segment information.

On November 27, 2008 it was decided to discontinue the Human Therapeutics business unit, which hence has been reported as the "discontinued operation" and is no longer a segment for reporting purposes.

Staffing

Per 31 December 2008, Devgen employed 218 staff for its continued operations. Compared to 2007, this is an increase of 37 % in headcount. Devgen has been successful in attracting additional experienced people in accordance with its business needs. In Belgium Devgen employs 54 people, consisting of a core research team, supporting the business worldwide, together with the staff responsible for global coordination with respect to legal & regulatory affairs, intellectual property management, IT, finance,and HR. Growth in number of employees was realized abroad, mainly in India where Devgen increased its presence with in total 159 employees on Devgen's payroll on December 31. Further growth in India and South East Asia is expected in 2009.

Corporate highlights

Remi Vermeiren was appointed chairman of the board on August 25, 2008.  Remi Vermeiren replaces Pol Bamelis who chaired the board since 2007.

Financial outlook 2009

• Revenues: aggressive growth of product sales in India further supported by a product launch in Indonesia and the Philippines should lead to product sales growing up to 100%, subject to currency exchange fluctuations. With revenue out of collaborative research agreements at least at same level as in 2008, total revenues are targeted to be at least EUR 15 million.
• R&D expenditure: Devgen remains highly committed to R&D as the best way to support its future growth. R&D expenses excluding depreciation will amount to approx. EUR 10 million.
• Cash burn for the year including planned investments and loan repayments (allowing to free a higher amount of presently related restricted cash) is estimated to be at EUR 19 million resulting in a net cash position at year end of approx. EUR 5 million. This will include EUR 1.4 million of restricted cash with respect to lease of the research building in Ghent. The company is actively pursuing different ways to strengthen its cash position and is confident that it will obtain sufficient cash in due course to pursue its strategy.

Financial statements

More complete financial statements for 2008 are available for downloading in the investor section of www.devgen.com.

Auditor's report

The auditor has confirmed that he has accomplished substantially all of the audit work and that, as a result of the audit, no meaningful corrections need to be applied to the financial information as included in this press release.

The Statutory Auditor
DELOITTE BEDRIJFSREVISOREN
Represented by Gino Desmet

About Devgen

Devgen is publicly listed since 2005 on Euronext, Brussels (DEVG) and has operations in Ghent (Belgium), Kenya, Delaware (US), Singapore, the Philippines and Hyderabad (India), with a total work force of more than 250 people. For more information on Devgen, please visit the company's website: www.devgen.com.

[1] Including restricted cash for an amount of EUR 4.8 million as per December 31, 2008.

[2] A cash inflow for an amount of EUR 5.0 million, resulting from the sale of "financial assets held for sale" is not taken in account as this amount has already been taken in account in the opening cash position for the year deviating from the IFRS presentation - see also above

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