BLIS Technologies Grows Revenues

19 November 2010

BLIS Technologies Grows Revenues Despite a Tough International Market

Dunedin based biotechnology company, BLIS Technologies Ltd (NZX: BLT), which develops and manufactures advanced oral probiotics for the New Zealand and international markets, announced today, the deficit before tax and finance costs for the six months to 30 September 2010 was $142k. Despite the increase in deficit over the previous corresponding year ($11k), trading revenue has increased significantly in the United States. The Company has just released its half yearly operations report to the New Zealand Stock Exchange that includes financial results for the first six months and shows that trading revenue continued to strengthen and improve despite a tough global operating environment.

This improvement in trading revenue was achieved despite the impact of the strong New Zealand dollar on international sales, and the absence of major health concerns such as H1N1, which drove market growth in 2009.

Although the Company’s trading revenues increased 34% over the previous corresponding year from $663k to $886k, it had expected revenues would be higher than those reported. Total revenue for the six months, compared to the previous period increased 8% to $1,166K.

BLIS Technologies’ CEO, Dr Barry Richardson has indicated some factors that he believes are responsible for this budgeted revenue shortfall;

A major contributor is the slower than expected sales in the North American market, resulting from delays in the long anticipated launch of the US BioGuard product into the major retail outlets such as CostCo and Rite Aid Pharmacy, which only just occurred at the end of the reporting period.

A significant seasonal impact on revenue, which had not been anticipated, and as the US business grows, is now having an impact on the timing of sales for North America. This was the reason for the later than expected up take for the company’s BLIS K12 probiotic in the BioGuard product for both CostCo and Rite Aid Pharmacy as these retailers ramp up and adjust their seasonal inventory for the cough and cold season. The Company has done a good job promoting the benefit of BLIS K12 probiotic for the protection and prevention of bacteria and viruses associated with winter colds and flu, which is a lucrative but seasonal market compared to using the BLIS K12 probiotic for the management of bad breath; the latter market is not seasonal, but is less attractive, due to strong competition from inexpensive breath freshening chewing gum and candies.

While sales in Asia have been promising, it is the tightening of the regulatory environment in markets such as China and Korea, together with initial business development issues in some other markets that have delayed the onset of Asian sales. Food scares in the domestic Chinese market over the past few years, in particular have dramatically tightened regulatory controls and subsequently impacted on the Company’s market access. However BLIS Technologies is well positioned to handle these issues in China and continues to make progress.

The Company has incurred increased costs associated with a major human clinical safety study in the United States. This study has commenced, and is receiving supporting funding from the Foundation for Research Science and Technology through a TechNZ fund. The requirement to undertake this study is due largely to the tightening regulatory requirement for all probiotics, including its flagship ingredient, BLIS K12 and this is an essential requirement in the process of being approved for use as a food ingredient. This GRAS (Generally Recognised as Safe) process is in addition to the current status of BLIS K12 where it is already approved as an ingredient in dietary supplements.

The Company estimates the impact of adverse movements in the US exchange rate in recent months has decreased its revenue by more than $50K against the original budgeted exchange rate.

Finally, the company remains committed to growing its brands and driving innovation through targeted R&D and focusing on operational excellence. There have been further costs associated with the growth of the company’s business and operations, which has required recruitment of additional personnel.

Despite these factors having impacted on revenue during the first six months of the financial year, the Company was able to report a number of commercial milestones during the past six months.

In addition to the success in the United States of the BLIS K12 product called BioGuard, the Company is pleased to report plans to launch BioGuard into CostCo Mexico. There are approximately 32 CostCo retail stores in Mexico and the use and consumption of probiotics in general, is known to be high in this market. Additionally, it is anticipated that a further BLIS K12 based product will be launched in another major national retail chain early in 2011.

Despite a toughening regulatory environment for all dietary supplement products there is still plenty of opportunity with the successful execution of its North American business strategy as the Company seeks to increase sales and achieve profitable operations.

A strategic decision taken by the Company and its distributor, Frutarom, at the beginning of the year recognised the benefits of providing an authoritative resource for helping increase consumer awareness and education in USA in regard to BLIS K12 in particular and probiotics in general. Consumer awareness and acceptance of probiotics is still in its early stages in USA compared to say Japan and Europe for example, and this is a very cost-effective way to complement the significant investment from industry partners in promoting their products containing our branded ingredients. Accordingly, the Company, in conjunction with Frutarom has launched a website aimed at the education of North American consumers (www.blisk12.com) and media tours are planned for early in 2011.

The Company will not pay interim dividend on ordinary shares. On 12 November, 2010, the Company paid 5 cents per share on convertible preference shares.

The priority for the Company is a commitment to attainment of profitability through a focus on leveraging of its intellectual property through the development of key international partnerships and the careful management of costs.

Mid-way through our three year commercialisation strategy embarked concurrent with our May 2009 capital raising, and not withstanding the lower than anticipated sales for the period and the increased regulatory requirements, we remain extremely encouraged by the significant investments that third parties are making in development and marketing of products based on our proprietary ingredients.

ENDS

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