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2013

annual report
PART 1 AEROCRINE IN WORDS

k n o w l e d g e i n e v e r y b r e at h

KEY FIGURES FOCAL AREAS 2014

Contents

Key figures

Key figures Focal areas 2014

28

Aerocrine in brief
CEOs comments

7
89
1011
1214

Sales and Marketing

1517

Aerocrine products

1819

Respiratory diseases in-depth

2021

Aerocrines share

20

2527

Sustainability

2830

18

Future
reporting dates
First-quarter Interim Report:
12 May 8.00 AM
Annual General Meeting in Stockholm: 12 May 5.00 PM
Second-quarter Interim Report:
24 July 8.00 AM
Third-quarter Interim Report:
6 November 8.00 AM
Year-end report 2014:
19 February 2015 8.00 AM

93,498

72%

72%

69%

neg

neg

neg

27%

76%

29%

Net indebtedness, multiple

-0.73

-0.86

-2.09

Liquid ratio %

613%

392%

312%

133

107

71

3,320

5,468

6,108

75,127

75,511

53,198

25%

25%

27%

Return on average shareholders equity %


Equity/Asset ratio %

Average number of employees


Investments, SEK ths
Expenses related to development, SEK ths
Development expenses in % of total expense
For full financials, see part 2 Aerocrine in figures.

2224

Risk factors

Glossary

147,009

Gross margin %

Outlook: Chairman of the board

Aerocrine North America

136,168

25

Jan 1, 2011
Dec 31, 2011

Net sales SEK ths

2013 in summary Achieved targets 2013

Business model and potential

Jan 1, 2012
Dec 31, 2012

45

Market overview

Jan 1, 2013
Dec 31, 2013

31

Focal areas 2014


Develop and grow US clinical sales.

Continue to increase the number of private payers that covers the method
on the US market.

Continue to work towards achieving market clearance for NIOX VERO in the US.

Continue the work to get the method included in additional clinical guidelines.

Develop the co-operation with the Companys partners in Japan, Europe and China.

AEROCRINE IN BRIEF

Aerocrine in brief
Aerocrine AB (publ) sells medical technology products and tests used in healthcare to facilitate the
diagnosis, and improve the treatment and monitoring of patients with inflammation of the airways.
This allows physicians to apply the correct treatment or adjust on-going treatment if the patients
adherence is shown to be inadequate. In addition to enhanced quality of life for patients, this can
also entail major savings for society.

SWEDISH RESEARCH
These products are also used in research on respiratory diseases.
The method is based on Swedish research demonstrating that
raised levels of NO, nitric oxide, in exhaled air can be an indi
cator of inflammation in the airways. Aerocrine has developed
proprietary products that measure NO levels in exhaled air and
currently markets NIOX MINO and NIOX VERO in Europe,
small, handheld instruments, to physicians and healthcare units.

Aerocrines Vision
To improve the management of inflammatory
airway disease and the quality of patient lives
worldwide.

OWN PRODUCTS
NIOX MINO is sold worldwide. The US is currently the largest
market, with very rapid growth following the publication of
clinical guidelines in September 2011. Germany is currently the
largest market in Europe, with 80 percent of the countrys private
lung specialists as customers. The Companys most promising
markets are currently the US, alongside Japan and China.

Aerocrine is based in Sweden and owns subsidiaries in


Switzerland, the UK, Germany and the US, as well as maintaining sales offices or sales representatives in other locations
around the world.

INCREASED MARKET FOCUS


The Company was founded in 1997 and has, until 2011,
focused extensively on research, product development and
preparations for the future broadening of the commercial
operations. Since the end of 2011, a process of transition
towards an increased focus on sales and marketing has been
in progress, primarily in the US. The Company is in a highly
expansive phase and invests in sales resources and marketing
activities primarily in the US.
Aerocrines shares were quoted on the Stockholm Stock
Exchange on 15 June 2007 and have been included in the
Mid Cap Nordic list since January 2013.

Aerocrines Mission
To establish FeNO testing as part of the
standard of care in the management of
patients with inflammatory airway disease.
This will enable healthcare providers to
more effectively and efficiently diagnose
and manage patients, leading to a higher
quality of life and better clinical outcomes.

Aerocrine AB (Sweden)

Aerocrine Inc.
(US)

Aerocrine AG
(Germany)

Aerocrine Ltd
(UK)

Aerocrine Intl GmbH


(Switzerland)

Aerocrine
ESOP AB

CEOS COMMENTS

Scott Myers, CEO Aerocrine AB:

Many Achievements,
Challenging Financial Results
Aerocrine experienced growth in the US during 2013 which was one
of our main goals but our worldwide sales were flat year over year
which was not our expectation. We achieved a number of significant
milestones and continue to develop as a commercial organization.
We remain committed to creating a growing and valued company,
CEO of Aerocrine Scott Myers says.

Sales in the US are up, Europe sales are


flat and Asia is down, so it has been a mixed
year for us. We saw our total sales go from
SEK 147m last year to 136m during 2013.
However the US clinical sales grew by 26 percent in local currency, and the test utilization
increased by 44 percent. The number of installed devices for clinical use also increased,
by 36 percent.
In order to strengthen our position for
growth in the US market, we thoroughly
reviewed the US commercial organization
during 2013. We strengthened our knowledge
about the market by purchasing additional,
new targeting data and installing a new
Customer Relationship Management System
so we could get more direct feedback to and

from the field. We also introduced an enhanced device evaluation program and new
pricing models. During the fourth quarter,
we saw some disruption on the results due
to our sales leadership changes but we are
convinced that the positive effects of strengthened market expertise, a novel method for
clinicians to experience the value of NO and
strengthened sales management will help us
improve our execution and performance in
the US. It will take time to see the output from
our efforts.
The markets outside US were more or
less flat. In the EU, we did not see the
expected growth through our partnership
with Stallergenes in the key countries of
France and Italy.

CEOS COMMENTS

Sales in Asia were also down as we saw


lower sales in China. This was due to two
main reasons: first, the link between Shanghai
Pharma and the sub-distributors did not
produce the efficiency we anticipated, and
second, the influx of new customers experienced in the first half of the year slowed
dramatically in the second half of the year
due to the intense scrutiny of hospital purchasing practices by the Chinese authorities.
On the Asian market we saw signs of
sales returning to normal. In Japan, however,
Aerocrine experienced a stronger fourth
quarter than the year before. One of the
major highlights in the market was when
the Japanese regulatory agency granted
Aerocrine regulatory approval for the 2009
version of NIOX MINO. That opened up for
marketing and sales of Aerocrines products
in Japan and we saw positive effects on
inventory stocking in connection to this. The
sales in Japan actually did show improvement
in spite of not having started the period with
market clearance.
Thanks to the receipt of market clearance
for NIOX MINO, the distributor has now
started to promote the tests and we expect
a continued and improved growth, the first
indications on the market are positive.
Another highlight of special note with
regard to regulatory review and approval was
the positive recommendation by the National
Institute of Health and Care Excellence (NICE)

in the UK. This recommendation will lay


the ground-work for reimbursement of more
broad use by GPs in the UK. We anticipate
the final recommendations in Q2 2014.
Other governments and private payers
consider the NICE guidance as an important
piece of evidence. It is also impactful with the
payers in the US. In order to fully penetrate
the clinical segment on the US market, we
need more reimbursement and covered lives.

EXTENDED COLLABORATION
AND SUB-DISTRIBUTORS
In order to improve our commercial approach
in our RoW territories in a cost effective
manner, we extended the collaboration with
our Danish distributor, Intramedic AB. They
will now cover the Swedish market and
we are also evaluating if adding additional
distributors or amending our existing partnerships would improve our performance.
In China, we are now able to negotiate
directly with sub-distributors of our choosing
since Shanghai Pharma is no longer our exclusive importer. This will provide more flexibility
for us as we look to expand and diversify our
commercialization efforts in China. In 2014,
we will need to re-register our products in
China. We have taken over this process with
the help of new regulatory consultants.
The Aerocrine Global Strategic Account
sales are impacted by the size and timing of
clinical trials, which we do not control. As

a result, the revenues can, and do, fluctuate


substantially between periods. Year over year
our business saw a negative growth (-24%) but
exhibited strong performance in the back half
of 2013 with very good sales in Q4 (SEK 8.4m
vs. 3.3) as some large trials were initiated.
During 2013, we added additional resources
to this business to enable more growth in
what is already a very profitable area.

PRODUCT AND SCIENTIFIC


HIGHLIGHTS
The year ended with a positive approval
in our product line. We launched the
NIOX VERO , the latest innovation from
our product development group and our
collaboration with Panasonic. The device
is completely portable, easy to use and has
a long useful life; product qualities that we
believe will help NIOX VERO to be wellreceived on all our markets. We introduced
it to our direct markets in Europe already late
2013 and will expand to other territories in
Europe in early 2014. We have an application
at the FDA and we anticipate to launch the
NIOX VERO in mid- to late-2014.
The scientific foundation supporting FeNO
was further strengthened in 2013 evidenced by
several more papers demonstrating the utility
of FeNO in the clinical setting being published
during the year. The second trial demonstrating
that the use of FeNO in a care plan reduces the
number of exacerbations a patient experiences

by 50 percent was published and we believe


will help gain more reimbursement. We raised
the level of reimbursement in the US with
more Medicaid coverage, and are actively
pursuing other payers to establish coverage.
At Aerocrine we are committed to our
vision of changing the standard of care in the
diagnosis and treatment of asthma patients
worldwide with FeNO. We remain the world
leader in this category and we will continue
to invest our time, energy and resources to
create a growing and profitable business. To
all our shareholders and employees; thank
you for your support. Now I look forward to
a better 2014.

Scott Myers
Solna, April, 2014

2013 IN SUMMARY ACHIEVED TARGETS 2013

Achieved targets 2013

2013 in summary
Q1 2013

Q3 2013

Financial events

Financial events

22 February Year-end Report 2012.

25 July Interim report JanuaryJune 2013.

Operational events

Operational events

20 February Texas Medicaid adds coverage for


Aerocrines FeNO testing in asthma management.

11 September Aerocrine launches NIOX VERO


on selected markets in Europe.

25 Mach Aerocrine enters into a license agreement


with Medisoft S.A.
28 March Change in number of shares and votes.

27 September Aerocrine announces changes in


management.
27 September Aerocrine publish summons for EGM.

Q2 2013

Q4 2013

Financial events

Financial events

30 April Aerocrine completes 50 MUSD


debt and equity financing.

21 October Report from the EGM published.

7 May Interim report JanuaryMarch 2013.

2 January 2014 Change in number of shares and votes


in Aerocrine.

8 May Report from the 2013 Annual General Meeting.


31 May Change in number of shares and votes.

Operational events
4 April Summons to AGM published.
4 April Georgia Medicaid program adds coverage for
Aerocrines FeNO testing in asthma management.
4 April NIOX MINO version 08 receives market
clearance in Japan.
10 April NIOX MINO version 09 receives market
clearance in Canada.
20 May Aerocrine Announces Presentation of Data
on FeNO testing in Overlap Syndrome at ATS 2013.

5 November Interim report JanuarySeptember 2013.

Operational events
11 October Swedish primary care trial supports
FeNO-guided asthma treatment is published.
8 November British National Institute for Health and
Care Excellence (NICE) publishes preliminary recom
mendations for the use of FeNO testing to help diagnose
and treat asthma.
25 November NIOX MINO version 09 receives market
clearance in Japan.
18 December Aerocrine enters into distribution agree
ment with Intramedic regarding the Swedish market.
For further information visit the Aerocrine homepage.

The clinical sales on the US market grew by 21% (26%


in local currency) compared to 2012thanks to increased
market presence through an increased direct sales force
and improved reimbursement.

The total number of covered lives in the US for the
Companys method increased from approximately 58%
at the end of 2012 to 60% at the end of 2013.

The total number of tests sold increased by 10% and
reached over 2.0 million sold tests during the year.

Secured the Companys financial situation by raising
50 MUSD through debt and equity.

Launched the first product, NIOX VERO, in EU from the
collaboration with Panasonic.

Received market clearance in Japan for two different
versions of the NIOX MINO.

Additional positive data published on the clinical and
health economic benefits of FeNO monitoring.

OUTLOOK: CHAIRMAN OF THE BOARD

Aerocrines Chairman of the Board, Rolf Classon:

Strengthening the foundation


for the future Aerocrine
Rolf Classon became the Chairman of the Board of Aerocrine in 2013. He has extensive experience
from senior positions in the pharmaceuticals and MedTech sectors, including Pharmacia, Bayer
Diagnostics and as President of Bayer Healthcare. Rolf Classon is a member of several Boards of
Directors, including as Chairman of Auxilium Pharmaceuticals, Hill-Rom Corp and Tecan Group,
and as Board member of Fresenius Medical Care. He was elected to Aerocrines Board of Directors
in 2011 and as the new Chairman of the Board at the Annual General Meeting in May 2013.

What I see in Aerocrine is a company with a significant


product in an important area where there is a there is an
unmet need for new methods to enhance patients everyday
lives and quality of life. At the same time, this entails an
interesting challenge since a shift in clinical praxis is necessary
for A
erocrines method to have an impact. In several markets,
Aerocrines method, measuring the amount of nitric oxide
(FeNO) in exhaled air, has been written into national guidelines
for the assessment and treatment of asthma. One objective is
for the method to be included in more national guidelines
and to also become clinical practice on a broader front.
Changes of this nature take time. In the meantime, we are
focusing on building our business from the ground up and
creating the conditions to reach out with the product to the
right target groups. In 2013, Aerocrine continued to focus on
finding more effective ways of commercialising its product.
It was a significant and successful year from an educational
perspective and weand we increased our awareness of the

market. This is particularly important to us in becoming


established and achieving success in the US, which represents
Aerocrines largest and most important market. We are also
focusing even more on making Aerocrine a successful commercial enterprise.
In the US, we need to make our products more available to
both physicians and clinics so that they can use them in their
day-to-day clinical operations and so that they also begin to
seek opportunities for reimbursement for the tests. On the issue
of reimbursement, a dialogue is already in progress between
Aerocrine, insurance holders and insurance companies.
For Aerocrine, it is also a matter of continuing to dissemi
nate the clinical studies and data that prove the quality of the
method. With research results and reports demonstrating
the use of the method and its benefits in terms of healthcare
economics, an increasing number of clinics are gaining support
for applying Aerocrines method as Standard of Care when it
comes to asthma.

VD

MARKET
har
orde t OVERVIEW

Asthma a public health


problem of global proportions
About 300 million people worldwide suffer from some form of inflammatory
respiratory disease, such as asthma. Continuously monitoring FeNO levels in
exhaled air with Aerocrines patented technology facilitates the diagnosis
and treatment of these diseases. Over the year, Aerocrine successfully
defended its market-leading position in the area, with a calculated market
share of about 85 percent.

Globally, some 300 million people suffer from


some form of inflammatory respiratory disease,
with asthma affecting about 235 million people
according to the WHO.
Asthma is the worlds most frequent chronic
disease among children1). The WHO calculates
that the number of people with asthma will
increase by more than 100 million by 2025 2).
On average, asthma affects about 78 percent
of the worlds population. In Sweden, the average
is estimated at 8 percent of the population. If
treated incorrectly or left untreated, in worse case
asthma can be fatal. Each year, some 250,000
people die as a result of uncontrolled asthma.
Most of those deaths could be avoided with
regular monitoring 3) and treatment.
Attacks are generally triggered through trended
exposure to something which the individual is
highly sensitive; such as an allergen, tobacco
smoke or chemicals. This causes inflammation,
which in turn causes swelling in the airways,
preventing air from passing through normally.

On average, asthma affects


about 78 percent of the
worlds population.

Asthma has no cure, it is all about control. Acute


attacks and most of the discomfort associated with
the condition can be avoided through correctly
dosed medication. This can be determined through
continuous testing of nitric oxide levels (FeNO)
in exhaled air, combined with monitoring and
follow-up.

RISK FOR INCORRECT ASSESSMENT


Since conditions other than asthma can cause
similar symptoms, measurements of exhaled
air are extremely valuable in understanding
which patients should be given corticosteroids
and in assuring correct dosages over time.
If inflammation is tested to diagnose and in
regular follow-up visits, the over-prescription
of pharmaceuticals can be avoided, increasing
the opportunities to gain control of the disease.
With its tests and products, Aerocrine enjoys
considerable market potential in this area. The
number of unnecessary hospital visits can be
reduced and, thanks to continuous testing and

thus correct medication, most patients are


able to lead normal lives and gain control
of their condition.

CONTINUOUS BUSINESS
Aerocrines instrument includes a sensor that
analyzes the amount of nitric oxide in the
exhaled air. The instrument has a lifetime of
three years, corresponding to about 3,000

tests. The service and maintenance-free


instrument is then exchanged. Sensors with
a certain, predetermined number of tests are
used to analyze FeNO can be purchased
separately. Today, Aerocrine is the market
leader in instruments and disposables for the
testing of NO in exhaled air.
The fact that the instrument and test sensors
need to be exchanged on an on-going basis

MARKET OVERVIEW

ensures a continuous revenue stream for


Aerocrine and ensures the quality of measurements. This also leads to close cooperation
with customers. The regular updating of new
sensors also facilitates checks of the measurement function. The pre-programmed sensors
are sold with a variable number of tests and
customers are given quantity discounts. This
enables flexible pricing for the company while
making it possible to benefit large-scale users
without affecting gross margins negatively.
In 2013, sales of refill tests for Aerocrines
instruments rose by 11 percent.
In total, more than 2.0 million patient tests
for NIOX products were sold worldwide in
2013 an increase of 10 percent.

ESTABLISHED IN CLINICAL TRIALS


NIOX MINO is used in research on respiratory inflammation and in validating the results

of clinical studies on new medicines against


respiratory diseases. Sales of NIOX MINO
represent a strategic and decisive component
in Aerocrines business. Sales can, however,
vary considerably between periods and years
depending on when deliveries are made for
a particular study. Strategic sales declined by
24 percent in 2013 as a consequence of the
recognition of income from unusually large
deliveries associated with clinical studies that
begun in early 2012.

In the US, Aerocrine has its own sales force.


Aerocrine is the only company in the sector to have had its testing equipment FDA
cleared. For sales and marketing in several
European countries, the Middle East and
Asia, Aerocrine has signed agreements with
different import and distribution companies.
In the selection of distributors, good logistics,
a well-established and functional distributor
network and very good familiarity with the
local market play a critical role.

DISTRIBUTORS AND PROPRIETARY


CHANNELS

MARKET-LEADING

Aerocrine uses different channels in different


markets. In key markets, such as the US and
Germany, the company has its own sales
organizations and these are developed as
acceptance of Aerocrines method. Opportunities for reimbursement continue to increase.

According to our own estimates, the company


currently holds an 85 percent share of the
market and has successfully both defended
and strengthened its patents. Today, all major
competitors, such as Medisoft of Belgium
and Bedfont of the UK, have signed license
agreement that enable them to continue

marketing and selling their products in markets


where Aerocrine holds patents. The license
agreement entails those companies paying
a royalty to Aerocrine for each product
they market and sell in Europe. The unique
expertise FeNO technology, that Aerocrine
embodies; thanks to the research carried
out by its founders, represents a very strong
competitive factor for the Company.

(1) WHO, Asthma fact sheet


(2) WHO, Global surveillance, prevention and control
of chronic respiratory diseases: a comprehensive
approach, 2007.
(3) Global Strategy for Asthma Management and
Prevention, Global Initiative for Asthma, Updated 2009.

Rolling 12-months sales per quarter per area


MSEK
150

100

50

Q1-12

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13

Q3-13

Q4-13

Sales of NIOX MINO


represent a strategic
and decisive component
in Aerocrines business.

Studies have shown that 28%


of all asthma-patients receive an
incorrect diagnosis and 25% are
being unnecessary medicated.
Aerocrines technique to measure
NO in exhaled breath gives a very
valuable foundation to understand
which patients that should be on
corticosteroids and for a correct
dosage over time.

99

BUSINESS MODEL AND POTENTIAL

Economy and customer benefit


in the business model
Aerocrines business concept is to sell equipment, methods and tests that
facilitate the identification of respiratory inflammation, thus enhancing
the treatment of patients.

MARKET POTENTIAL

HEALTH ECONOMY
QUALITY OF LIFE

The method builds on the discovery by


Aerocrines founders that nitric oxide (NO) in
exhaled air acts as a marker for inflammation.
The Company has by itself developed
NIOX MINO and through the collaboration
with PHC (Panasonic Healthcare) NIOX VERO
based on this discovery. These are user-friendly
instruments that quickly and simply measures
NO levels in exhaled air FeNO; fractional
exhaled nitric oxide). The results guide
physicians in issuing correct diagnoses and
prescribing treatment of respiratory diseases
such as asthma and COPD.

REVENUES IN THE BUSINESS MODEL

The customer initially purchases


a starter kit including a device
and a sensor including a predetermined number of tests.
The method is the result of
research by the founders of
the Company. The products
are continuously upgraded and
enhanced based on customer
and market needs.

10

MARKET

Aerocrines pre-programmed
sensors secures recurrent
revenues.

RECURRING REVENUES
Consumption

INITIAL REVENUES
Product

RESEARCH,
DEVELOPMENT

The Companys revenues are generated


through sales of disposable sensors with a predetermined number of tests for the instrument.
The customer initially acquires an instrument
at relatively low cost along with a sensor
containing a certain number of tests. Once
these tests have been used up, the customer
orders new sensors with tests. This generates
recurrent revenues and contributes to an ongoing business relationship with customers.
The business model enables flexible pricing
and rewards large-scale users while maintaining the gross margin. The objective is to maintain the same principles in the business model
even when the target group is broadened
to include primary care and home use.

Today, Aerocrine sells pre-programmed


sensors with 50, 100, 300, 500, and 1,000
tests per sensor. The larger the number
purchased, the lower the cost per test to
the customer.

PRODUCT DEVELOPMENT AND


MARKET POTENTIAL
Aerocrine invests substantially in technological development. The vision is for patients
to be able to test inflammation themselves
with their own equipment at home in the
same way that diabetic patients currently
test their own values. To assess the potential
value of inflammation testing at home, it is

NIOX VERO is the first instrument developed


through the collaboration with PHC (Panasonic
Healthcare). The product was launched on
selected markets in Europe at the end of 2013.

BUSINESS MODEL AND POTENTIAL

Customer groups and


their needs
easiest to draw a parallel with diabetes. The
total market for blood glucose testing, that is
sales of instruments and test strips, amounted
to approximately USD 10.5 billion in 2009 and
is expected to increase to USD 15.5 billion in
2015. Those living with asthma will probably
not need to carry out inflammation tests as
frequently as diabetics test their blood sugar
levels, but the number of asthma patients is
greater than the number of insulin-dependent
diabetics.
There is also very considerable market
potential in the method being included in
larger countries clinical guidelines and tests
being reimbursed by national health insurance
systems. In the US alone, 80 million visits are
made to physicians each year in connection
with asthma. There are about 3,000 different
health insurance companies and interest
among these for approving reimbursement
for tests is increasing.

Researchers and pharmaceutical


development companies
Today, the pharmaceutical industry represents an important and growing customer
segment for Aerocrine. FeNO testing has become an established tool in both research
context, as well as in verifying and checking the effect of new pharmaceuticals on,
for example, respiratory inflammation in connection with asthma, COPD and other
inflammatory diseases.

Specialist physicians
Specialist physicians and allergy experts often meet the patients with the most
severe symptoms. Inflammation testing facilitates fast and correct diagnosis while
alleviating patient suffering. The impact of FeNO testing in Germany, where
more than 80 percent of pulmonary specialists use the method, is unique and the
Company is working actively to increase sales in the same way to specialist clinics
in several other markets. The potential is extensive in the US alone, there are some
8,000 specialist hospitals/clinics.

HEALTH ECONOMICS
AND QUALITY OF LIFE
FeNO testing is a preventive measure that
enhances the patients quality of life while
allowing considerable sums to be saved
in healthcare budgets. By means of continuous measurements, increased levels
of inflammation can be discerned and
the correct treatment can be prescribed.
In the US alone, direct and indirect costs
for asthma care total about SEK 50 billion.
If asthma is controlled well, the patients
suffering can be reduced tangibly. This
is beneficial in terms of social economy
since healthcare costs related to respiratory
diseases can be reduced.

Outpatient/primary care clinics

Patients with respiratory problems often turn to outpatient and primary care clinics
first. For these clinics to have access to FeNO testing, the method must first be included
in the relevant countrys national guidelines for asthma treatment and there must be a
functioning system for cost reimbursement. One of the markets where these parameters
are beginning to fall into place is the US. There is a large and significant target group
here in the countrys approximately 80,000 primary care physicians.

Patients
A sensor with pre-
programmed number of
tests is the corner-stone
in the Companys business
model to charge per test.

A precondition for people with asthma to be able to monitor and treat their own
condition is that they be provided with their own equipment. Here, there is a clear
parallel with diabetes and blood sugar testing whereby diabetics have their own
instruments and can continuously monitor their condition and administer their insulin.

11

AEROCRINE NORTH AMERICA

Ken Marshall, , President Aerocrine Inc.:

Actions taken to
strengthen our position
The clinical sales for Aerocrine Inc grew 21% (26% in local currency)
year over year. Key milestones were reached including an exit install
base of over 2,000 devices and cumulative test for clinical use for the
year of almost 612,000.

As important as the dollar and volume


growth metrics, an in-depth assessment of
how we approach the market was undertaken in the second half providing a deeper
understanding of our customer base and how
to more rapidly establish FeNO as part of the
standard of care in asthma management,
Ken Marshall, President Aerocrine Inc. says.
In addition to a deeper understanding of the
customer base the clinical platform strengthened significantly during the fourth quarter
with the Publications of SYK and Donahue*.
These important publications support a
much more focused message when
FeNO is used to support patient management exacerbations are reduced by nearly
50% vs the control arm.
In addition to the growing base of literature
supporting the importance of FeNO Aerocrine
more formally established a program that
allows clinicians to gain personal experience

with the NIOX MINO . Data published


early in the year at the European Respiratory
Society (ERS) annual meeting showed that
in the absence of a tool to more clearly
assess inflammation clinicians tend to underdiagnose inflammation nearly 50% of the
time. More importantly, when provided
that data after initial assessment treatment
changes were made in 36% of those patients.
Our evaluation program allows clinicians to
verify or change their treatment plan decision
based on the FeNO value, Ken Marshall says.
Finally, more flexible pricing options were
introduced to the market allowing clinicians
to use FeNO based on the clinical merits of
the test rather than trying to balance practice
economics.
As always clinics can purchase our device
along with an appropriate number of tests.
In addition to that option clinics may now
purchase our product under a subscription
model effectively spreading their payments
over the life of the sensor or chose to pay as
they use option under a consigned model.

Publication
FeNO-guided

Number of patients
Asthma-attacks/year

Traditional
guidance

Number of patients
Asthma-attacks/year
Weight

Shaw 2007

The success we enjoyed and momentum


we created in 2013 coupled a strengthening
data set, more precise targeting and programs closely aligned to customer needs will
continue to strengthen our position in the
US market.

*Characterization of Allergic Airway Inflammation


in Patients with COPD using Fractional exhaled
Nitric Oxide Level (FeNO) presented by Dr. James
F. Donohue, principle investigator for the study at
the 2013 American Thoracic Society International
Conference. Anti-inflammatory Treatment of
Atopic Asthma Guided by Exhaled Nitric Oxide: A
Randomized, Controlled Trial. Published online by
the principal investigator in the study Dr Jrgen Syk,
General Practitioner at Runby primary care clinic,
Stockholm, Sweden on the website of Journal of
Allergy and Clinical Immunology; In Practice.

Smith 2005

Powell 2011

Metaanalysis

52

46

111

209

0.33

0.49

0.288

0.32

51

48

109

208

0.42

0.9

0.615

0.59

29.4%

10.9%

59.7%

100%

By guiding the dose of corticosteroids based on a patients FeNO-value, the number of asthma attacks is reduced
by 40% compared to traditional methods. This is shown by a new meta-analysis on over 400 asthma patients.
Ref: Donohue , J.F. and N. Jain, Exhaled nitric oxid to predict corticosteroid responsiveness and reduce
a sthma exacerbation rates, Respiratory medicine, 2013.

12

AEROCRINE NORTH AMERICA

LESS EXACERBATION WITH


REGULAR MEASURING

Dr. Kathy Rickard:

A method
correlating to
inflammation

Thanks to regular measuring of


allergic airway inflammation with
FeNO, patients with asthma can
be kept under better control.
Measuring FeNO may help to lower
the overall cost of asthma care.

Chief Medical Officer Dr. Kathy Rickard is


working from the Aerocrine US office and is
responsible for Clinical Development, efter
Medical Affairs, Compliance, and Regulatory
Affairs on a global basis.
The method can help save money for both
clinics and governments. With a better way to
measure allergic airway inflammation and thus
provide appropriate treatment to patients, you
can decrease asthma exacerbations. This can
lead to fewer hospitalizations and less utilization of other healthcare resources such as
emergency rooms visits, she says.
Prior to the introduction of FeNO, It was
difficult for a physician to determine the level
of allergic inflammation present in the airways
of patients with asthma. As asthma is a disease
of inflammation understanding the level
present and prescribing the appropriate
medication is crucial for optimal control of
this disease. There is no other convenient
method to assess the level of allergic inflammation present in the airways of patients
with asthma.
FeNO provides valuable information to
physicians enabling them to treat with the
appropriate medications to reduce airway
inflammation leading to better asthma control.
Today it has also become a more or less

s tandard procedure and a very helpful tool


in research labs, when developing and evaluating new drugs for respiratory problems such
as asthma and COPD.
Prior to availability of FeNO testing, measuring airway inflammation was difficult and no
earlier method will give you more than a hint
about an inflammation going on in your airway
system. When you cant measure inflammation, the risk of having the patient on a medication they actually dont need increases. In
the US, approximately 30 percent of patients
diagnosed with asthma, do not have asthma.
And many of these patients are receiving
medications that they do not need.
We also see that once they are on a medication they are often left on the same medication for a long period of time. This can lead
to increased cost to health care systems as
patients may be treated with medications that
they no longer require. In order to reduce the
cost of healthcare overall, we need to consider
other strategies to ensure patients receive
appropriate medications when needed but
also enable physicians to decrease or stop
medications for patients when no longer
required. Being able to put people with airway
disease on the right medication directly would
help lower the costs, Kathy Rickard says.

Information generated through clinical trials


and other scientific studies provides answers
to questions from physicians related to FeNO
and helps to understand how to use the
method optimally.
During 2013 several papers have showed a
reduction in asthma exacerbations up to 50%
when FeNO testing is used to guide therapy,
particularly inhaled corticosteroid therapy, in
the management of patients with asthma,
says Kathy Rickard.

PRIMARY HEALTH CARE STUDY


The first randomized clinical trial of 187 adult
patients led by Syk et al, showed a lower incidence of asthma exacerbations and increased
asthma control with fractional exhaled nitric
oxide (FeNO)-guided anti-inflammatory treatment. The patients had a diagnosis of atopic
asthma and were being treated with inhaled
corticosteroids. One group was treated with
usual care whereas treatment of the patients
in the other group was guided by FeNO.
Overall, FeNO-guided management
resulted in improved asthma symptom control
and reduced exacerbation frequency by almost
50%. This study was performed entirely within
primary health care (Journal of Allergy and
Clinical Immunology: In Practice, published
online October 11, 2013).

lines. In addition, fewer children in the FeNO


guided group required an unscheduled visit to
a health care provider for asthma than those in
the clinical guideline group. (Pediatric Pulmonology, published online September 4, 2013).

DRUG RESPOND STUDY


Lastly, a 2013 study published by Hanania
shows that FeNO was able to identify patients
who were likely (or unlikely) to respond to the
biologic drug omalizumab (Xolair) which is
indicated for the treatment of moderate to
severe allergic asthma and costs $10,000
$30,000 per year.
In this study of 850 patients, the greatest
reductions in asthma exacerbations (53%)
were seen in the patients who had higher
FeNO levels, thus demonstrating that a high
FeNO value could predict a positive effect of
anti-IgE therapy in patients with severe persistent asthma. (American Journal of Respiratory
Critical Care Medicine 2013; 187(8):804-811).

STUDY ON CHILDREN WITH ASTHMA


A second study led by Peirsman included 99
children with persistent allergic asthma who
were treated either according to GINA asthma
clinical guidelines or according to FeNO levels.
Health outcomes were studied over a year.
50% fewer children in the FeNO group
experienced an asthma exacerbation compared to the group managed by clinical guide-

13

AEROCRINE NORTH AMERICA

Powerful data for both patient


and health care systems
During the last years there has been a great amount of new data published;
evidence that FeNO used as a guide in diagnosing and monitoring asthma
not only will help reduce asthma exacerbations and emergency room visits
but overall cost of asthma treatment as well.

Thanks to regular measuring of airway inflammation with FeNO, patients with asthma can
be kept under better control. Studies also show
that FeNO can be very useful for doctors in
detecting patients who are not compliant to
their medication and as a guide regarding
choice of therapy.

One study from a large inner city program


in the Bronx, New York 1), involved 8,200
patients treated at the Urban Health Centre.
They incorporated FeNO as part of their
asthma management plan. FeNO was used to
predict those patients who were at a higher
risk of experiencing an asthma exacerbation
as well as to check for compliance with the
patients prescribed treatment with inhaled
corticosteroids. By using FeNO they could
significantly reduce the rates of exacerbation
and keep the patients under better control.
Not only could they reduce the exacerbations, they could do it at a much lower cost.
The study compared the results with the
similar health plans where patients were

not managed using FeNO. With FeNO they


achieved better asthma control, at a lower
cost, says Dr. Kathy Rickard.
In another study, a group of 220 pregnant
women in Australia 2), had their asthma
managed by either FeNO-guided therapy or
therapy adjusted according to asthma guidelines. The study demonstrated that asthma
exacerbations during the pregnancy can be
significantly reduced with a validated FeNObased treatment algorithm and that better
control occurred at a lower dose of inhaled
corticosteroid overall. In addition, there was
a lower rate of neonatal hospitalizations and
complications.
Compliance and non-adherence with
medications is always an issue dealing with
asthma patients.
FeNO can be utilized to help doctors
detect patients who are not compliant with
inhaled corticosteroid medication and as a
guide regarding choice of therapy. One
study points out FeNO as an objective test
to distinguish adherent from nonadherent
patients with difficult asthma 3).

1) An Investigation of Asthma Care Best Practices in a Community; Health Center


Deborah Lester, LMSW, Acklema Mohammad, MD, Paloma Izquierdez Hernandez,
MS, MPH, Eileen Enny Leach, MPH, RN, Elizabeth A. Walker, PhD, RN, CDE.
2) Management of asthma in pregnancy guided by measurement of fraction of
exhaled nitric oxide: a double-blind, randomised controlled trial; Heather Powell,
Vanessa E Murphy, D Robin Taylor, Michael J Hensley, Kirsten McCaffery, Warwick
Giles, Vicki L Clifton, Peter G Gibson.
3) The Utility of Fractional Exhaled Nitric Oxide Suppression in the Identification of
Nonadherence in Difficult Asthma; Diarmuid M. McNicholl, Michael Stevenson,
Lorcan P. McGarvey and Liam G. Heaney Centre for Infection and Immunity
and Centre for Public Health, Queens University Belfast, Belfast, Northern
Ireland, UK.

14

Reimbursement
in the US market
Reimbursement for FENO-testing
has remained steady in the US
market for 2013.
Reimbursement by private insurance
companies as well as government
programs including Medicare and
Medicaid continue to cover more
than 60% of US lives.
Medicare, the first to cover 100
percent of its lives, has done so since
the introduction of FeNO-testing.
FeNO is covered under Medicaid in
36 states and the District of Columbia;
key additions in 2013 include Texas,
Georgia and Virginia Medicaid. As
managed Medicaid continues to grow
access should continue to increase.
The two largest private payers in the
US, United Healthcare and WellPoint,
continued to cover FeNO in 2013, as do
more than half of the Blue Cross Blue
Shield plans in the nation. BlueCross
BlueShield is a federation of 38 separate health insurance organizations and
companies around the United State.

SALES AND MARKETING

David Plotts: Europe/Asia/RoW:

A challenging year with great


prospects for 2014
There were several challenging issues which affected the success for
Aerocrine on the European and Asian markets during 2013. Looking back,
the year will be viewed as a rather difficult period with a continuing overall weak financial economic situation putting pressure on the healthcare
budgets in many of our markets and a lack of reimbursement as an ongoing
challenge. There are though some exciting and important highlights.

The year ended on a high note with very


positive developments in Japan when the
Japanese Pharmaceuticals and Medical
Devices Agencys (PMDA) granted Aerocrine
regulatory approval for NIOX MINO, says
David Plotts, new Head of Commercial
Operations in Europe and Asia for Aerocrine,
since November 2013.
We very quickly saw significant and
positive sales results in Japan via our distributor CHEST, as a consequence of the
approval. It will be exciting to follow the
market development in Japan during 2014.
In our pursuit of developing and enhancing
our sales channels in Europe we signed
new sales and distribution agreements with
Intramedic AB for the Swedish market and
Healthcare 21 Ltd for the UK and Irish market.
Both these agreements include significant
Aerocrine partnership and support for

marketing and promotion and KOL management to ensure continued high profile of
Aerocrine and FeNO.
The challenges of the Chinese market that
we experienced during quarters 2 and 3 of
2013 began to abate in the final quarter of the
year as hospitals across the country returned
to normal procurement operations and we
started to see a good uptake in placement of
NIOX MINO devices in new hospital accounts
as well as increased activity in existing sites.
Additionally we have signed new import and
distribution agreements to extend our coverage
of the Chinese market.
2013 also saw the launch of the new
NIOX VERO at the ERS Congress in Barcelona
in September. Sweden, UK and Germany
commenced handling and evaluation studies
of the NIOX VERO in Q4 with a variety of
key accounts in both primary and secondary
care settings. The first commercial sales of
the NIOX VERO were registered in the UK in
October which ensured that we ended 2013
on a high note with our first product launch
in 5 years a great success. Everyone at
Aerocrine is excited about the prospects for
the NIOX VERO as we continue the launch
programme globally in 2014.

REIMBURSEMENT IS A KEY
TO SUCCESS
One of the main obstacles in markets throughout Europe and Asia continues to be the lack
of payer acceptance in the form of reimbursement and lack of strong positive guidelines in
many countries.

It continues to be a challenge for the business and we work constantly at it. We have
made a number of positive steps in some key
markets in 2013 and we expect to see further
improvement in 2014 with the publication in
April of guidance on FeNO from the UKs
National Institute for Health and Clinical
Excellence (NICE) and later in the year the
German Federal Joint Committee of Physicians
and Insurers (GBA).

PARTNERSHIPS ARE MORE IMPORTANT


THAN EVER
Starting in 2013 Aerocrine have implemented
a strategy of creating and enhancing stronger
relationships with their distributors.
We are determined to continue to work
much closer with our many sales and distribution partners during 2014. The relationships
we build with them will be a key factor for
our success. We have for example started
working closer with our distributor in Spain
during 2013 and they have produced some
excellent sales results in what is a very tough
local market. During 2014 we will continue
to develop stronger collaborations and work
more closely with both our existing and
new distributors, supporting them with new
business models, KOL management, new
marketing materials and joint marketing and
promotional activities to improve sales across
Europe, Middle East and Asia.

15

SALES AND MARKETING

Market Updates
GERMANY
It was a challenging start to 2013 for Germany
with a large turnover of sales staff during
quarter 1 which did however allow us to
restructure and refocus with a new sales
organisation. Sales were subsequently behind
previous year in Q2 and Q3; however the
last quarter of the year showed a stabilisation
and good growth of the installed base and
demonstrated the potential of the new sales
team for 2014. An important success during
the year was the winning of a substantial
tender for an epidemiological study with
200,000 participants in which FeNO will
be measured and monitored using the new
NIOX VERO device. Aerocrine AG also
applied for reimbursement of FeNO at the
Gemeinsamer Bundesausschuss (German

Federal Joint Committee of Physicians and Insurers). In the initial investigation period of the
method the potential for FeNO has been identified and we will be working in 2014 towards
potential reimbursement along with continuing
engagement with the German guidelines.

UK
The United Kingdom saw excellent test-kit
growth in 2013 as a result of a concerted
effort to increase the installed customer base
across the secondary care hospital market. At
the same time considerable efforts were also
focused on raising the profile of FeNO and
Aerocrine within the primary care (GPs) and
pharmacy sectors. Further progress was also
made with the publication of the initial draft

version of the NICE Diagnostic Assessment


Guidance on FeNO and the NIOX MINO &
NIOX VERO. Publication of the final guidance
is on schedule and expected in April 2014.

that were ready for immediate delivery in


December. There is a great opportunity for
FeNO and the NIOX MINO and NIOX VERO
in Japan in 2014.

CHINA


KOREA

Aerocrine has continued to develop the


Chinese market in 2013 with two new
important local reimbursements in Guangdong province and Tianjin City, several
new distributors in different regions and the
ongoing partnership with Shanghai Pharma.
Major national investigations on corruption
in the Chinese health care system had led to
a 6-month period of stagnation in the market
but since December there has been a conclusion to the investigation and things have
started to return to normal.

JAPAN
After a long and extensive review by the
regulatory authority, PMDA in Japan, the
NIOX MINO -08 was approved for commercialization on the 28th of March. As this older
version device was a no longer manufactured
Aerocrine the impact of sales was limited.
As the NIOX MINO -08 had previously been
approved by the PMDA the current model
NIOX MINO -09 version was approved much
quicker and we received regulatory approval
in mid-November 2013. During this time the
Japanese distributor Chest M.I Inc., had built
up a substantial number of customer orders

16

Aerocrine passed a key milestone in Korea


in 2013 when it was accepted by the nHTA
that NIOX MINO can be sold to all clinicians
in Korea and not just for research use. Together
with the support of the local distributor
hospitals are now applying for reimbursement
which is, if accepted, expected in Q3 of 2014.

SWITZERLAND
Switzerland has a favourable market for the
implementation of FeNO in the standard care
of asthma, especially in the patients followed
by pneumology and allergology. In 2013 the
Swiss market continued to develop in a positive manner. We are working closely with the
distributor in 2014 to extend reimbursement
to additional medical specialities.

SPAIN
Despite a severe financial crisis in Spain,
our distributor, Thermo Fisher managed to
increase sales in 2013 compared to 2012, a
great feat under the circumstances. Aerocrine,
keen to support such a pro-active partner,
focused on the training of the sales team

SALES AND MARKETING

in Spain and implementation of the FeNO


challenge campaign with the objective of
increasing FeNO awareness. Aerocrine plans
to launch NIOX VERO as early as possible in
the first half of 2014 in Spain supporting the
process with product and sales trainings and
conjunct sales visits, with the aim of expanding the customer base and increasing test kits
usage in existing sites.

FRANCE
This was an important year to validate our
market access strategy in the French market.
With the low penetration and awareness of
FeNO in the secondary care segment we
understand that we need to increase the work
with the main university centres to position
FeNO measurement as key information in the
management of patients with inflammatory
airway diseases. During 2013 we have begun
building the foundations necessary to have
FeNO implemented in clinical guidelines
and in the clinical practice in several French
specialty centres.

BENELUX
The sales in the region started off with a very
good Q1, but lost momentum due to high
turnover of sales reps at the distributor. The
later part of the year showed some recovery,
following the focus to quickly rebuild a strong
sales team with active support by Aerocrine.

In the Netherlands, a number of Primary


Care sites are already using NIOX MINO
routinely, despite the lack of reimbursement
for GPs. We will in 2014 support their efforts
in achieving reimbursement, both for GPs in
the Netherlands and Specialists in Belgium.

SWEDEN
During the year Aerocrine continued to
grow the market in the world with highest
penetration in terms of FeNO usage in primary
care. In December, an exclusive distribution
agreement was signed with Intramedic AB for
the sales and distribution of NIOX VERO in
Sweden. This is part of Aerocrines strategy of
substantially growing the European business
in a cost-efficient manner. We are maintaining a direct presence in the Swedish market
to support development of FeNO guidelines,
KOL (Key Opinion Leader) management and
engagement with payers.

DENMARK
There is a high FeNO awareness among
specialists in the region, and there is also
reimbursement for adult specialists, resulting
in virtually every hospital in the country using
FeNO routinely with many times several NIOX
MINO devices in each site. The main opportunity for the coming period is payer acceptance,
achieving reimbursement for pediatricians.

NIOX: Changing the face


of asthma control
2013 saw Aerocrine exhibiting at two key European and Global
Congresses. Our first major congress during the year was in June
at the European Academy of Allergy and Clinical Immunology
(EAACI) meeting in Milano, Italy where Aerocrine showed of its
new Branding NIOX: Changing the face of asthma control.

With a brand new booth we attracted delegates from


53 different countries and performed 344 FeNO
measurements leading to 151 leads being collected
and passed to our distributors and direct
markets around the world.
The second major event of the year was
the 23rd European Respiratory Society
Annual Congress (ERS) held in Barcelona,
Spain in September where we unveiled
the new NIOX VERO with the theme of:
NIOX, Changing the face of asthma control.
Reaction to the new NIOX VERO was overwhelmingly positive with many booth visitors
expressing amazement and delight at the new
look. Our 5 NIOX test stations (2 NIOX VERO
and 3 NIOX MINO) conducted well over 400 tests
and more than 200 leads were collected. In addition to the booth we were also able to further raise
the profile of FeNO at the meeting with an Aerocrine
sponsored symposium at which 170 delegates attended
to hear Professor Robin Taylor, Dr Omar Usmani and
Professor Joao Fonseca presenting their experience of
FeNO in real life practice.

17

AEROCRINE PRODUCTS

Mats Carlson, Chief Technology Officer:

New generation being launched


During 2013, Aerocrine pre-launched the third generation of
instruments for measuring respiratory inflammation, NIOX VERO,
in a selection of the companys markets. The instrument is a result
of the companys cooperation with Panasonic Healthcare Co. Ltd.

We have developed an easy-to-use and


robust instrument that both children and
adults can manage, says Mats Carlson,
Chief Technology Officer, who is responsible
for development and production at Aerocrine.
NIOX VERO builds on the same basic
technology as its predecessor, NIOX MINO.
We have applied the experience gained
from our earlier models, developing and
packaging this as a new, robust and even
more user-friendly instrument. Our earlier
models have a screen that is turned away
from the user. The instrument is held by
hand when taking measurements, which
proved relatively difficult for children.
Children represent an important group of
patients for us and we wanted to develop
a solution that would be easier for them.
In preparing for the next stage of
development, Aerocrine returned to its
earlier models for inspiration.
The solution was a hose and a handle
connected to a small, square unit with a
screen where you can always see what is
happening while you blow into the mouth
piece. User-friendliness has been reinforced
with the new model also being battery
powered and easy to move around. The

18

CE labelling

design has already been honoured with a


product design award from iF International
Forum Design GmbH.

MORE TESTS PER INSTRUMENT


In pace with more healthcare units
accepting the method for measuring the
fraction of exhaled nitric oxide (FeNO) as
a regular procedure, it is advantageous for
Aerocrine to be able to present a modern
and competitive product that is easily
managed for both physicians and patients,
says Mats Carlson.
The new instrument has been optimised
for five times as many tests compared with
earlier generations. The new model has been
validated to cope with 15,000 tests before
the instruments need to be exchanged.
Our business model is based on selling
test-kits. With equipment that can manage
15,000 tests, each physician has the possibility
of conducting more tests with the same
instrument. We already know that this is an
advantage in countries including China where
healthcare clinics have large patient volumes.
Our pricing model already includes built-in
flexibility that takes into account how many
patients a clinic has.

NIOX VERO secured CE labelling


in the autumn and the product was
pre-launched in Sweden, the UK and
German in the fourth quarter of 2013.
Among other purposes, this allowed
user testing to be carried out in clinical
environments. The registration process
is in progress in the US and has been
initiated in Japan. The large-scale launch
and continued introduction will take
place during 2014.

Patents
The patent dispute between Aerocrine
and Belgian company Medisoft S.A. was
concluded in March 2013 and resulted in
a licence agreement between the parties
and entailed all patent suits between
them being dropped.
An important part of the development
strategy involves continuously applying
for new patents. As per 31 December
2013, the Companys broad patent
portfolio included 216 patents, divided
among 25 separate patent families.
These cover aspects including method,
design and critical technical functions.
Of 22 patents issued in the US, 15
have also been issued in key European
countries and 10 (9) in Japan. In the
Companys priority markets, it is the
basic and central aspects of respiratory
NO testing that are protected.

AEROCRINE PRODUCTS

This is how easy it is:


1) Empty your lungs. 2) Take a deep breath. 3) Exhale. 4) Read the results.
Measuring the level of inflammation provides both the
doctor and patient with swift, concrete information about
the status of the inflammation. When patients themselves
can clearly see the results of the test it improves understanding about the importance of taking the right dose
of medicine in order to bring about an improvement.
This motivates the patient to follow recommendations
and take their medication.
NIOX MINO and NIOX VERO can be used as a freestanding device or it can be connected to a computer.
Each stage of the measurement can be followed on a
display on the device, or on a computer screen.

Aerocrines method
Aerocrines discovery that exhaled
nitric oxide (FeNO) acts as a marker of
the underlying respiratory inflammation,
has resulted in a proactive method for
measuring the underlying inflammation
that causes asthma.
The more traditional diagnosis methods,
such as disease history, spirometry and
bronchial provocation, currently used in
accordance with guidelines on asthma,
have thus gained a valuable complement
in the shape of FeNO testing.
It is a quick and simple method that
provides valuable information on the
level of a patients airway inflammation.
Approximately 30 percent of patients
who are diagnosed with asthma, do not
have asthma when objectively assessed.
Compounding this problem is the fact that
of these patients incorrectly diagnosed
with asthma up to 70 percent of these
patients are receiving medications they
do not need or will respond to.
Testing of NO values using Aerocrines
instrument helps primary and secondary
care physicians provide the patient with
a more secure diagnosis. The test results
will provide the physician with information to a llow them to more a ppropriately
predict what medication the patient
with respond to their medication and
benefitted by it.

19

RESPIRATORY DISEASES IN-DEPTH

How doctors can use FeNO


in different patient situations

airflow from the lungs but does not correlate


well with the presence of airway inflammation.
FeNO helps direct you to the proper medication for the patient with allergic asthma. It will
indicate if the patient will respond to inhaled
corticosteroids. It also indicates those patients
who are not going to respond to inhaled corticosteroids. With FeNO as a complement in
your diagnosis you get a quick answer.

Aerocrines method helps the doctor in the assessment of his patient.


With the help of FeNO, the doctor can assess the level of inflammation
in the airways. As a physician, Dr. Kathy Rickard sees more situations
where the method, will be useful.

A patient visits the doctor with symptoms


of asthma. As her doctor, youve already
prescribed inhaled corticosteroids. but
now she has symptoms again. After measuring, you find the FeNO value normal.
This tells you the allergic inflammation is
under control, so that she doesnt need
more steroids, but what does she need?

Dr. Kathy Rickard:


These are the type of patients that you
would consider adding a long-acting or a
leukotriene antagonist. As the inflammation
is under control, you would consider adding
long-acting beta-agonist or a leukotriene
receptor antagonist to this type of patient,
to help control the patients symptoms.
Another patient, whom youve also
already have prescribed with inhaled
corticosteroids, continues to complain
of symptoms of asthma. This time the
FeNO turns out to be very high.

Dr. Kathy Rickard:


In this case I would question the patient; is
he really taking his medication? In many cases
like this they arent. Patients are not compliant

20

with their medications and this is one reason


why we have so many emergency room and
urgent care visits. Most patients dont take
their medications as prescribed and many
will experience an asthma exacerbation
requiring treatment in an emergency room
or urgent care center and at times requiring
hospitalization. In this case, the doctor can
educate this patient again, with guidance
from the FeNO value, and get him to take
his medication. Before the use of FeNO, the
physician would likely increase the dose of
inhaled corticosteroid or add another medication without realizing that the patient was
not taking his medication as prescribed.
But what to do if you truly believe
this patient is taking his medication?

Dr. Kathy Rickard:


In this case you might increase the dose of
inhaled corticosteroids. Later on, when you
have a follow up visit with the patient and
he complains of no symptoms with a FeNO
level in the normal range, you can start
backing down on his medication. While
dropping the dose of inhaled corticosteroids,
you can use FeNO to guide you. As long as

An older patient with COPD comes into


the practice. He has difficulties breathing
and coughs a lot. The question is; could
this patient have asthma in combination
with his COPD?

Dr. Kathy Rickard:


Dr. Kathy Rickard, Chief Medical Officer
at Aerocrine, has previously worked with
the development of drugs for asthma,
including inhaled corticosteroids and
long-acting beta-agonists.

the FeNO level stays in a normal range you


can keep backing the medicine down even
more. As youre titrating people off medication, you may see their FeNO starts rising.
This is an important signal which gives you
the possibility to readjust their medication
before an exacerbation occurs. You really want
to have them on the lowest dose they need,
both from a safety and a cost perspective.
Why give them more than they need?
Why should you use FeNO as a
complement to spirometry?

Dr. Kathy Rickard:


A lot of people forget that asthma is an
inflammatory disease. It is the inflammation
we are worried about. Spirometry measures

When you suffer from COPD you have


damages to your respiratory system generally
due to cigarette smoking. This leads to cough,
sputum production and to airflow obstruction. Some patients may have asthma in
combination with COPD. The two diseases
can coexist together and overlap. FeNO can
be used in this situation to tell the doctor if
allergic inflammation is present which will
respond to inhaled corticosteroids. Patients
with COPD alone tend to experience more
adverse effects from inhaled corticosteroid
treatment. If the patient doesnt have allergic
inflammation, he may not be responsive to
inhaled corticosteroids and thus should not
be prescribed them. FeNO helps guide the
doctor by indicating whether the patient has
the type of allergic inflammation that will
respond to inhaled corticosteroids.

RESPIRATORY DISEASES IN-DEPTH

Inflammation or not?

Simple steps in using FeNO measurement to determine whether


or not symptoms are due to an allergic reaction in the airways.

1 FIRST ASSESSMENT
1)
Anti-inflammatory medication is
the basic treatment for asthma but
there are several other illnesses
besides allergic asthma that display similar symptoms. Untreated
allergic inflammation leads to an
increased risk of deterioration in,
and impaired, lung function.
A normal FeNO indicates
that no allergic inflammation is
present. This means that treatment
using steroids will not make any
difference.
A raised FeNO value
confirms an ongoing allergic
inflammation in the airways,
which is highly likely to be
reduced by treatment using
steroids. It is also likely that the
patient will respond to the
treatment, which is monitored
using FeNO.

2 MONITORING AND
2)
CONTROL
Symptom and lung function examinations alone cannot control
inflammation following treatment.
Continued measurement of the
FeNO value is a fundamental
prerequisite for having improved
control and management of the

SABA1 + ICS dose adjustment FeNO follow up

FeNO normalized*

inflammation. The FeNO value


is an objective and direct marker
for controlling inflammation in
the airways. For some patients,
increasing the dose and using
steroids is not the only solution
for achieving control. The recently
published ATS guidelines in the
US include a description of how
doctors should use FeNO to aid
in the monitoring and treatment
of diagnosed asthma patients
(see chart below).

FeNO
not normalized*

History, symptoms, FeNO measurement

Normal FeNO*

Consider:

Diagnosis other than


(allergic) asthma

Elevated FeNO**

Strong predictor
of allergic asthma
(or eosinophilic bronchitis)
ICS responsiveness likely

Inflammation
controlled
and patient
symptom-free

Inflammation
controlled
but patient
symptomatic

Consider:

Continue
theraphy

Morbidities
LTRA3 or LABA 2
add-on theraphy

Inflammation
not controlled

Address:

Adherence and
inhaler technique
Persistent allergen
exposure

Management and
control with FeNO

Treatment should continue


for patients who are free of
symptoms and have a normal
FeNO value. If steroid treatment is
reduced, the patients FeNO value
should be closely monitored.

Consider:

Patients who still have


symptoms after controlling the
inflammation and reaching a
normal FeNO value should
consider other treatment methods.
If the FeNO value does not
normalise, the inflammation is
not under control. The doctor
needs to investigate whether the
patient is following the treatment
properly, look at inhaler technique
and see if there is any new or
prolonged exposure to allergens.

Patient with chronic


cough or symptoms
suggestive of asthma

FeNO level:

Anti-inflammatory medication:

HIGH
>50 ppb (adults)
>35 ppb (children)

Initiate or increase dose.

MEDIUM
2550 ppb (adults)
2035 ppb (children)

Start with clinical assessment.


No change if FeNO value stable..

LOW
<25 ppb (adults)
<20 ppb (children)

Consider reduced dose. The patient


probably does not respond to ICS.

Oral corticosteroid
treatment
Anti-IgE treatment

Measurements of 50 ppb or more in adults, or more than 35 ppb in


children, mean e levated FeNO value in the exhaled air, indicating
airway inflammation. The symptoms can be relieved using inhaled
corticosteroids (ICS). Low measurements can also be informative and
facilitate choice of medication when a patient presents with respiratory
problems. A level below 25 ppb in adults indicates that the patient is
unlikely to have a steroid-sensitive airway inflammation.

*525 ppb for adults, 520 ppb for children <12 years
**above 25 (20) ppb
Based on group consensus cut-offs given in: Taylor DR, Pinjenburg MW, Smith AD, De Jongste JC. Thorax 2006;61:817-27
1)

Short-acting bronchodilator 2)Long-acting bronchodilator 3)Leukotriene antagonist

21

AEROCRINES SHARE

Why invest in Aerocrine?


AEROCRINES SHARES
Aerocrines shares were quoted on the
NASDAQ OMX Stockholm, on June 15,
2007. The shares are traded under the AERO
ticker and are, since January 2013, included
in the list of mid-sized companies, during
2012 the share was also included in the
Morgan Stanley global small cap index.

SHARE STRUCTURE
There are 154,628,698 Aerocrine shares.
All shares have the same voting rights. The
shares have a quotient value of SEK 0.50.

SHARE PRICE TREND AND TURNOVER


Turnover in the Companys shares was higher
than in previous years, driven primarily by
an increased number of small shareholders.
Turnover is nonetheless relatively limited
since most shares in the Company are held
by a small number of large-scale owners. The
share-price development, especially during
the second part of the year, was negative as
a consequence of lower sales growth than
anticipated. The share-price was also affected
by the during the year performed financing.
The price for Aerocrines shares decreased
from SEK 13.75 on 28 December 2012 to
SEK 7.35 on 30 December 2013.
The highest price for the year was noted on
21 January 2013 at SEK 14.25 and the lowest
was noted on 21 November 2013 at SEK 6.80.

OWNERSHIP STRUCTURE
There were around 5,000 (3,315) shareholders
in Aerocrine AB (publ) on 28 December
2013. The five largest shareholders accounted
for around 64.3 percent of voting rights and
capital. It is the Companys continued ambition to increase the spread of its ownership.

22

Aerocrines products and method address a vast unmet medical need


within asthma care. The Companys products are market approved
in the US, EU, China and Japan. The method can lead to major cost
savings for society and improved disease control and quality of life
for the patient.

AEROCRINE HAS:
Sustainable and profitable business model.
Strong cooperation partner, Panasonic, which facilitates the development of
future products for outpatient care and for use directly in the home. Comparable
with diabetics and blood glucose testing, but with greater potential.
Strong owners who guarantee a long-term approach.
Strong and protected patent portfolio.
The method and Aerocrines products have achieved broad acceptance from
pharmaceutical companies and are used in almost all ongoing clinical studies
for the development of new asthma medicines.
The method is now included in clinical guidelines for the treatment of asthma
patients and in reimbursement systems, which is a fundamental prerequisite for
broader market penetration. Inflammation testing using FeNO is now included in
the guidelines issued by the American Thoracic society (ATS). The proportion of
US health insurance companies who reimburse physicians
for inflammation tests performed is increasing steadily.
New clinical data published that demonstrate improved
control at lower costs if treatment is guided using
FeNO testing.

FACTS IN BRIEF
Quoted on the stock exchange
since 2007
One share, one vote
Total number of outstanding
shares: 154,628,698
Ticker code: AERO
Market value on 30 December
2013: SEK 1,136.5 million

AEROCRINES SHARE

WARRANTS AND STAFF


STOCK OPTIONS

Shere price

SEK

On the balance sheet date, Aerocrine had


three staff stock option schemes and two
Board share ownership schemes. At the Annual
General Meeting on 7 May 2013, a decision
was made to introduce a new Board share
ownership scheme (SAP-2013). In the two
programmes (LIP-2007 and 2009) a total of
1,139,964 allocated but not exercised options
remained, corresponding to 1,358,563 shares.
LIP-2011 entails a maximum of 9,888,395
additional shares possibly being issued through
the exercise of 9,382,430 options. SAP-2012
entails a maximum of 39,697 shares possibly
being issued through the exercise of 39,697
options and SAP-2013 entails a maximum of
50,807 shares possibly being issued through
the exercise of 50,807 options.

Numbers of shares traded

15

5,000,000

12

4,000,000

3,000,000

2,000,000

1,000,000

0
Jan -13

Feb

March

April

May

Share capital break-down

June

July

Aug

Sept

Oct

Nov

Dec

Jan -14

Feb

March

Warrants and staff stock options

Amount per
Dec 28, 2012

New
share issue

Amount per
Dec 30, 2013

Voting value

Share capital
Dec 30, 2013

B-shares

145,637,781

8,990,917

154,628,698

154,628,698

100.0

77,314,349:00

100.0

Total

145,637,781

8,990,917 154,628,698

154,628,698

100.0

77,314,349:00

100.0

Shareholders at the annual general meeting on 7 May, 2013 authorized the Board on one or more occasions
up to the next annual general meeting at the latest to issue new shares, warrants and convertible. The number
of shares, warrant or convertible bonds that can be issued shall not exceed a dilution of 10 percent. The quota
value amounts to SEK 0.50 per share.

Outstanding shares
currently and on full
conversion

Maturity

Number

Share entitlement, number

Staff stock opt.

20072016

959,732

1,158,259

0:50

Staff stock opt.

20092018

180,232

200,304

0:50

155,987,261

Staff stock opt.

20112021

9,382,430

9,888,395

0.50X*

165,875,656

Type

Strike price SEK

(Remaining)

154,628,698
155,786,957

SAP-2012

20122022

39,697

39,697

0.50

165,915,353

SAP-2013

20132023

50,807

50,807

0.50

165,966,160

*Redemption price varies between quotient value and market price at the time of allocation.

23

AEROCRINES SHARE

Largest shareholders per Dec 30, 2013


As of December 28, 2013 the
Company had approximately
3,315 shareholders

Share capital development

Total
number
of shares

Share
of capital
and votes

Novo A/S
Invifed AB c/o Investor

39,160,713
35,821,770

25.3%
23.2%

Health Cap*
Tredje A-P fonden
Avanza Pension Frskring AB
Handelsbanken fonder
Catella Sverige Select
Carnegie fonder (Luxemburg)
Founders
Others

17,032,835
4,233,324
3,183,926
2,570,235
2,316,000
2,275,000
508,443
47,526,452

11.0%
2.7%
2.1%
1.7%
1.5%
1.5%
0.3%
30.7%

Total

154,628,698

100.0%
Source: Euroclear

* HealthCap comprises HealthCap Aero Holdings KB


and Odlander, Fredrikson & Co AB.
As of December 30, 2013 the company had approximately
5.000 shareholders.

Convertible debenture
The convertible debenture issued in 2010 was
converted into shares in May 2012 in accordance
with the terms of the loan. The conversion entailed
a further 12,857,142 shares being issued.

Dividend policy
Proposals regarding dividends to shareholders will not
occur until sustainable profitability has been attained.
Accordingly, no dividends will be considered for the
coming years.

24

No of
A shares

No of
B shares

100,000

900,000
360 ,000

Date

Event

Nov 1997
Dec 1997
Dec 1997
Aug 1999
Aug 1999
Okt 1999
Jun 2000
Dec 2000
Jun 2001
Dec 2002
Jan 2003
Maj 2003

Formation of company
New share issue
Bonus issue
Reclassification
Directed share issue to
HealthCap and Investor
New share issue
New share issue
Reclassification
New share issue
New share issue
New share issue
Reclassification

Jun 2003
Aug 2003
Dec 2004
Jan 2005
Maj 2005
Aug 2005
Aug 2005
Jun 2006
Jun 2006
Maj 2007
Jun 2007
Dec 2008

New share issue


New share issue
New share issue
New share issue
New share issue
New share issue
New share issue
New share issue
New share issue
New share issue
Reclassification
New share issue

9,000,000
45,968,236
20,523,669

2009
Sep 2010
Okt 2010
Nov 2010
Under 2010
Under 2011
Q1 2012
Maj 2012
Maj 2012
Q2 2012 I
Q2 2012 II
Q3 2012
Q4 2012
Q1 2013
Maj 2013
Q4 2013

Options subscribed
New share issue
New share issue
New share issue
Options subscribed
Options subscribed
Options subscribed
Conversion convertible bond
New share issue
Options subscribed
Options subscribed
Options subscribed
Options subscribed
Options subscribed
New share issue
Options subscribed

11,006
16,071,428
18,174,161
1,265,170
233,843
98,856
326,556
12,857,143
28,882,516
102,050
107,286
326,079
689,782
318,624
8,625,000
47,293

-100,000

No of
preference
shares)

Class P

100,000
1,600,000

P1

711,687
-30,693
1,732,414
1,526,142
171,454
-875
-2,430
2,013,508
378,030
3,196,436
4,000,000
999,457
4,000,000
1,304,348
4,000,000
1,304,348

P2
P2
P3
P4
P4
P2
P3
P1
P1
P1
P5
P5
P5
P5
P5
P5

288,451
30,693

3,305
3,020,262
567,045
4,794,654

-45,968,236

Total no of
shares

Quota value
per share,
SEK

Share
capital after
change, SEK

1,000,000
1,360 000
1,360,000
1,360,000

0.10
0.10
0.50
0.50

100,000
136,000
680,000
680,000

2,960,000
3,248,451
3,960,138
3,960,138
5,692,552
7,218,694
7,390,148

0.50
0.50
0.50
0.50
0.50
0.50
0.50

1,480,000
1,624,226
1,980,069
1,980,069
2,846,276
3,609,347
3,695,074

12,423,918
13,368,993
21,360,083
25,360,083
26,359,540
30,359,540
31,663,888
35,663,888
36,968,236
45,968,236
45,968,236
66,491,905

0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50

6,211,959
6,684,496:50
10,680,041:50
12,680,041:50
13,197,770
15,197,770
15,831,944
17,831,944
18,484,118
22,984,118
22,984,118
33,245,952:50

66,502,911
82,574,339
100,748,500
102,013,670
102,247,513
102,346,369
102,672,925
115,530,068
144,412,584
144,514,634
144,621,920
144,947,999
145,637,781
145,956,405
154,581,405
154,628,698

0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50
0.50

33,251,455:50
41,287,169:50
50,374,250
51,006,835
51,123,756:50
51,123,756:50
51,336,462:50
57,765,034
72,206,292
72,257,317
72,310,960
72,473,999:50
72,818,890:50
72,978,820:50
77,290,702:50
77,314,349:00

Subscrip
tion price,
SEK

70

25
25
50
70
23.33
23.33

10
10
10
10
10
10
11.50
10
11.50
25
4.25
0.50
7
7
7
0.50
0.50
0.50
8.75
9.00
0.50
8.20
0.50
0.50
0.50
11.00
0.50

RISK FACTORS

Risk factors
Aerocrines operations are subject to a number of risk factors that are
entirely or partly beyond the Companys control and that thus affect
or may come to affect the Companys operations, financial position
and/or earnings and consequently the value of shares. Described
below are the risk factors deemed to be of particular importance for
the future development of the Company.

Operational and sector-related risks


APPROVAL BY AUTHORITIES

Aerocrines operations are dependent on


the Companys products and method being
approved through clinical trials or decisions
by public authorities. It is not possible to
guarantee positive outcomes to various trials in
advance, nor that every application for product
or sales clearance will achieve approval.
Demands for additional clinical studies, trials
or product modification may be necessary
to secure approval. Such supplementary

procedures may delay and increase the cost


of a new product. In the event that Aerocrine
encounters problems securing or retaining the
permits or approvals it already holds, this may
impact Aerocrines business, earnings and
financial position negatively.

MARKET ACCEPTANCE AND


COMMERCIALISATION

Key prerequisites for the Companys products


achieving wide usage include users being

able to receive reimbursement from national


insurance systems and the method being
included in national clinical guidelines for the
treatment and monitoring of asthma patients.
Although Aerocrine is working to establish
such conditions in several markets, it cannot
guarantee that the method or its products
will be able to attain or maintain the relevant
requirements to qualify for reimbursement
from national insurance systems in the various
markets in which Aerocrine operates. Nor is
it possible to guarantee adequate reimbursement from those national insurance systems
or that the systems will pay such reimbursement within a certain timeframe. Nor are
there any guarantees that the Companys
products and method will gain clinical acceptance and be introduced into national clinical
guidelines. If the national insurance systems
in certain markets do not provide reimbursement and if clinical acceptance of the method
is not achieved, this will have a considerable
negative impact on future sales growth and,
consequently, on the Companys business,
earnings and financial position.
Aerocrines operations are also based on a
large proportion of the Companys future sales
being generated outside Sweden. International
expansion brings uncertainty and imposes
considerable demands on organisation and
resources. Costs for establishing proprietary
local sales companies are considerable

PATENTS, OTHER INTELLECTUAL


PROPERTY RIGHTS AND THEIR
PROTECTION

Aerocrine is dependent on its capacity to


file and maintain patents that protect its
intellectual property and specific knowledge.
Aerocrine files patent applications, and
registers brands and trademarks continuously

to cover its methods and the products that


the Company develops. To date, Aerocrine
has defended its patent portfolio successfully.
Aerocrine monitors its competitors carefully
and works methodically on managing its intellectual property through a global collaboration
with leading patent experts and patent offices
in the US and Europe. There are, however, no
guarantees that current or future patent applications will result in patents being approved.
There is always a risk that Aerocrines
competitors, whether intentionally or not, will
infringe on the Companys patents. If deemed
necessary, the Company will defend its patents
and other intangible rights through legal
process. However, there is a risk that Aerocrine
may be unable to fully assert its rights in a
court case. This could have a considerable
negative impact on the Companys business,
earnings and financial position.
Furthermore, the sector in which Aerocrine
operates is characterised by rapid technological development. Consequently, there
is always a risk that new technologies and
products will be developed that circumvent
or replace Aerocrines present and future
patents or other intellectual property rights.
It cannot be precluded that Aerocrine may
be viewed as infringing on the patents and/or
other intellectual property rights of another.
Nor can it be precluded that Aerocrine may
be drawn into court processes by competitors for alleged infringement of their patents
or other rights. As in disputes in general,
infringement disputes can be costly and time
consuming, even if the outcome of such a
dispute may be in the Companys favour, and
may therefore have a considerable negative
impact on Aerocrines business, earnings and
financial position.

25

RISK FACTORS

ECONOMIC CLIMATE

vis--vis Aerocrines undertakings towards


its customers. This could damage Aerocrines
reputation, causing the loss of customers and
revenues. Having distribution agreements in
place, as Aerocrine does, for the sale of the
Companys products also constitutes a risk
because such agreements can be revoked.
A revoked agreement can lead to an unexpected decline in sales and thus have a
negative impact on the Companys business,
earnings and financial position.

DEPENDENCY ON KEY INDIVIDUALS

Aerocrine works continuously to further


develop its products and to introduce
products to new markets. A possible delay
in development and marketing activities
would also cause a delay in launches of the
Companys products. The Company often
develops new products in partnership with
others, meaning that the execution and results
of trials, and thus also the risk of delay, are to
some extent beyond the Companys control.
Consequently, it cannot be precluded that such
delays will arise, which could have negative
consequences for Aerocrines business, earnings and financial position.

Aerocrines future sales are to a certain extent


dependent on the general economic climate.
In markets where the Companys method is
not yet included in the national clinical guidelines, the development of Aerocrines sales is
particularly sensitive to economic fluctuations.
An economic downturn in the markets where
the Company is active could adversely affect
demand for the Companys products, which
could negatively impact the Companys business, earnings and financial position.

DELAYED LAUNCHES
Aerocrine is heavily dependent on a number
of key individuals. The possible loss of any of
these individuals could lead to the development or commercialisation of the Companys
products being delayed or diminished. Aerocrines capacity to retain and recruit qualified
employees is important in safeguarding the
level of competence within the Company.
Aerocrine has signed employment agreements
with key individuals on what it considers to
be market terms. Nonetheless, there is no
guarantee that the Company will be able to
retain these key individuals and the loss of
any of them could, in the short term, have
a negative impact on Aerocrines business,
earnings and financial position.

DEPENDENCY ON SUB
CONTRACTORS AND DISTRIBUTORS
Aerocrine is, and will remain, dependent
on collaboration with other players for the
manufacture of the Companys products.
If one or more of Aerocrines suppliers were
to discontinue its cooperation with the
Company, or if production disruptions, such
as delayed deliveries or issues of quality,
were to arise, that could cause problems

26

DISPUTES

From time to time, Aerocrine is involved in


legal processes associated with its operations.
This includes disputes concerning infringement on intellectual property rights, the
validity of certain patents and commercial
disputes. For most of the claims Aerocrine
have been or potentially will be involved in
it isnt possible to make a reasonable estimate
of the expected financial effect of the legal
processes final conclusions. Aerocrine
implements no provisions in such instances.
In cases where a settlement is reached or

decisions reported, or when quantifiable fines


or punishment has been set and not subject
to appeal, or when a loss is likely and the
Company has been able to make a reasonable assessment of the loss, the Company
will report the loss or make an allocation
equivalent to the best possible assessment of
the expected loss. This position could change
over time and its therefore not possible to
make any guarantees that losses that a process
or investigation will lead to wont exceed the
allocations reported in the accounts.
Disputes and claims can be time consuming, disruptive to business, involve considerable sums or issues of principle, may entail
substantial costs and impact the Companys
operations, earnings and financial position.

PRODUCT LIABILITY

Aerocrines operations involve trials, marketing and sales of medical technology products,
which means that Aerocrine risks having
to remedy, compensate, recall or buy back
products that fail to work as intended. There
is a risk that Aerocrine, as the manufacturer,
be held responsible if a product were to cause
personal injury or damage to property. To
counteract this risk, Aerocrine holds product
liability insurance that, in the Companys
view, provides adequate insurance against
current product liability risks. New product
liability insurance policies are secured on
an ongoing basis and to the extent deemed
necessary. Despite this, there is no guarantee
that the Companys current or future insurance
cover will be sufficient for potential product
liability claims that may arise. Consequently,
it cannot be precluded that such claims may
impact Aerocrines business, earnings and
financial position negatively.

PERMITS AND LEGISLATION

Because Aerocrines research and development, production and marketing are subject
to constant review by the authorities there
are no guarantees that the Companys current
permits will be renewed under the same terms
as before. Nor are there any guarantees that
such permits will not be revoked or limited.
Changes to legislation, insurance systems
or permit rules, problems discovered with a
product or at a manufacturer can therefore
negatively impact Aerocrines business, earnings and financial position.

NEW METHODS

Significant resources are currently being


assigned to finding new methods within inflammation diagnostics. Even though research
has been conducted in Aerocrines area of
application for several years and considerable clinical documentation in this sphere
has been accumulated, it is possible that
new methods may eventually appear and
compete with the Companys method for
measuring exhaled NO. This could adversely
affect Aerocrines operations, earnings and
financial position.

COMPETITION

Aerocrine is a market leader in the analysis


of exhaled NO. There are other companies
active in the same segment, and new enterprises backed by more capital and skills may
appear. However, more intense competition
may make a positive contribution to increased
market acceptance for the exhaled NO
method and also help push prices down and
thereby lower margins for Aerocrine.

RISK FACTORS

risk. Fluctuations in exchange rates could


adversely affect Aerocrines earnings and
financial position.

CREDIT RISKS

When Aerocrine sells its products to customers, it incurs a risk of payment not being
made. Although the Group has guidelines to
ensure that sales are made to customers with
a suitable credit history, inadequate payment
capacity among customers could result in a
negative impact on the Companys operations,
earnings and financial position.

LIQUIDITY RISKS

Financial Risks
CURRENCY RISKS TRANSACTION
AND TRANSLATION EXPOSURE

Currency risk entails the Companys equity


and earnings being affected by fluctuations in
exchange rates. Currency exposures occur in
connection with payment flows in currencies
other than the Companys functional currency,
SEK, (transaction exposure), in the translation
of the balance sheets and income statements
of foreign subsidiaries and the during 2013
raised debt to SEK (translation exposure). All
internal invoicing, and subsidiary invoicing,
is in local currencies and all handling of other
currency is dealt with by the Parent Company.
The Groups exposure to foreign currency
relates primarily to USD, EUR and GBP. The
during 2013 raised debt is maintained in USD
as far as possible to minimize the currency

Liquidity risk refers to the risk that Aerocrine


will, due to shortage of funds, be unable to
meet its financial commitments or will be
less able to conduct its business efficiently.
Aerocrines liquidity is affected by factors
including payment terms on credit provided
to customers and on credit received from
suppliers. It cannot be precluded that, due
to events as yet unknown, the Company
may experience a shortage of funds that, in
turn, could have a negative impact on the
Companys business, earnings and financial
position.

RISKS ASSOCIATED WITH


FUTURE EARNING CAPACITY

Primarily due to the significant development


and marketing costs initially required by its
products, the Company has reported losses
since its inception. Aerocrines future growth
and profitability is dependent on the users of
the Companys method receiving reimbursement from national insurance systems and on
the method being included in national clinical
guidelines for the treatment and management
of asthma patients. It cannot be precluded

that the Companys method will not be


included in national reimbursement systems
and national clinical guidelines to a sufficient
extent for the Company to be able to achieve
future profitability.

RISKS ASSOCIATED WITH


FUTURE CAPITAL NEEDS

Although the during 2013 performed capital


raised strengthened Aerocrines financial
position, it cannot be precluded that the
Company will need additional financing in
the future. Access to, and the conditions for,
additional financing are affected by several
factors including market terms, the general
availability of credit, as well as Aerocrines
creditworthiness and credit capacity. Disruptions and uncertainty in the credit and
capital markets can further limit access to
additional capital. There is no guarantee that
the Company will in the future have sufficient
income or positive cash flow to maintain its
operations.

TAX RISK

Aerocrine conducts operations in several


countries. To the knowledge of the Board,
operations both in Sweden and abroad
comply with current tax legislation. However,
it cannot be precluded that the Companys
interpretation of such tax regulations is incorrect or that the legislation will be changed,
possibly retroactively. The Companys previous
or current tax situation may therefore change
as a consequence of decisions by Swedish or
foreign tax authorities and this may have a
negative impact on the Companys business,
earnings and financial position.

SHARE PRICE, DIVESTMENTS


AND LIMITED LIQUIDITY
Limited liquidity in Aerocrines shares can
cause increased share price fluctuations.
The shares limited liquidity can result in
difficulties for individual shareholders to sell
major blocks of shares. There are no guarantees that Aerocrines shares will always sell at a
price acceptable to the shareholder. A positive
share price trend cannot be guaranteed.

SIGNIFICANTLY
INFLUENTIAL OWNERS

Combined, Aerocrines three largest share


holders, Investor Investments Europe Ltd,
HealthCap Aero Holdings KB and Novo A/S
held approximately 59.5 percent of the total
number shares and votes in the Company as
per 30 December 2013. These three owners
could, with the support of their voting rights,
exercise significant influence over all issues
concerning the Company. This might benefit
the Company but could also be to the detriment of other shareholders whose interests
differ from those of Investor Investments
Europe Ltd, HealthCap and Novo A/S. The
Companys major shareholders could sell off
their holdings, which could lead to a fall in
share prices and/or other major shareholders
emerging into the Company.
The account of risk factors presented does not claim to
be comprehensive and is made with no mutual order of
importance. Additional risks that are, as yet, unknown
to the Company may have a significant impact on its
business, financial position and/or earnings. Not all risk
factors are described in detail and complete assessment
must include all of the information provided in the
annual report, while also taking an evaluation of external
influences into account.

27

SUSTAINABILITY

Aerocrine and society


Aerocrines products contribute to improved treatment for people with
respiratory inflammation, providing patients with increased well-being
and society with reduced healthcare costs. The foundation for Aerocrines
business concept lies in maximising these positive effects. In our operations,
we shall also act in accordance with current legislation in the markets where
we operate and conduct our operations with as little impact on the
environment as possible. We shall also provide a safe workplace where our
employees thrive and are given opportunities for personal development.

COMPLIANCE
During 2013, several serious cases of corruption were uncovered in the pharmaceuticals
industry, mainly in Asia. Aerocrine has not
been involved in any way, but the incidents
have nonetheless had negative effects on
Aerocrines sales. The explanation is that purchasers of medical equipment in certain markets have more or less halted all purchases for
fear of being accused of erroneous conduct.
With regard to Aerocrines external contacts, the company regulates anti-corruption

In this section, we account for how we are working towards more sustainable development the indicators we report find their inspiration in the Global Reporting Initiative
(GRI), internationally the most widespread format for sustainability reporting.

measures in each distribution and supplier


agreement in accordance with the Eucomed
guidelines. In this way, issues of business
ethics become a natural part of negotiation
procedures. In addition, Aerocrine maintains
an ongoing dialogue with its distributors and
suppliers regarding the companys values
and views on business ethics.
To further strengthen Aerocrines employees
skills and awareness in corruption prevention
and compliance, we carried out a training
course for all employees in 2013. The contents

Corrugated
Electronics 30%
cardboard 23%

Metal 6%

Other 3%

Plastic 38%

Material consumption in manufacture of NIOXVERO

28

SUSTAINABILITY

of the course were specifically tailored to


conditions in each of the countries where we
operate, although in all markets, the course
clarified what is considered to be compliant
and how Aerocrine employees are expected
to act in a number of everyday situations.
The course also addressed how employees
are to report deviations with regard to business
ethics and corruption. Through clear guidelines and continuous training, we can reduce
the risk of inadvertent irregularities, while using
clear structures and processes for purchasing,
attestation and representation to make it
more difficult to depart from established
frameworks.

ENVIRONMENTALLY AWARE
PRODUCTION AND LOGISTICS
Aerocrines greatest environmental impact
occurs in the production and transportation
of its products, as well as in connection with
employees business trips. Efforts to manage
these environmental aspects are conducted
within the framework of Aerocrines environmental management system, which is largely
based on the methodology of the ISO 14001
standard.

Aerocrines newly developed product


NIOX VERO is assembled by Panasonic
in Japan and key components are delivered
by suppliers in the UK, Germany and other
countries. Aerocrine always strives to mini
mise the use of materials and substances
that may impact people or the environment
negatively. Furthermore, we have the oppor
tunity to control the environmental effects of
this production to a certain extent through
our agreements with each of the suppliers,
where a basic requirement is that the suppliers
should be environmentally certified. A
erocrine
maintains an on-going dialogue with its key
suppliers to enhance the efficiency of shared
processes on both financial and environmental
grounds. Each of the significant suppliers is
assessed annually and Aerocrine also conducts
its own audits on-site at the suppliers facilities.
To achieve cost efficient and environment
ally adapted logistics, Aerocrine works to
minimise the use of air transport in favour of
transport by ship, rail or truck. In certain types
of transports, it remains difficult to avoid air
transport, since product volumes are low
and the time perspective often takes priority
in connection with service and repairs for
example.
Employees business travel is another
important aspect of Aerocrines direct environmental impact. Aerocrines decentralised
organisation with local offices in various
parts of the world has traditionally entailed
considerable environmental impact with
many journeys being made by air. However,
Aerocrine was early to install videoconferencing equipment and, since 2010, most
intercontinental meetings have been held
virtually. In recent years, we have complemented the videoconferencing equipment

with on-line conference resources, which are


used daily by our employees, bringing significant savings in terms of cost and time, while
also reducing environmental impact.

QUALITY IN OUR PRODUCTS


By means of smart product development,
efficient service and high quality, Aerocrine
strives to achieve a long lifetime for its
products. Aerocrine has a business model
whereby earnings capacity is based on the
number of tests sold rather than the number
of products sold. This reinforces the incentive
to maintain a high level of quality and a long
lifetime for the products. During the process
of developing NIOX VERO, the lifetime of
the product was prioritised, with the effect
that NIOX VERO can handle 15,000 tests
over its lifetime, which is three times more
than its predecessor NIOX MINO.
In 2013, an internal process was conducted to further develop Aerocrines quality
management system. As the Company grows,
demands increase that systems and proce
dures supporting the business be made clearer
and more efficient. Among other things, this
resulted in a new digital business system and
the coordination of the quality assurance processes in different countries.
Within the framework of Aerocrines quality
assurance efforts, we annually monitor a number of indicators that serve to demonstrate the
efficiency of our processes. A central indicator
is reliability of delivery, which denotes the
proportion of completely faultless orders
in the supply chain from the order being
placed to the customer holding the product
in his/her hand. In 2013, Aerocrine had a
delivery reliability level of 99.8 percent,
which was a marginal improvement on the

preceding year.

AEROCRINES EMPLOYEES AND


ORGANISATION
erocrines employees are highly educated
A
and have extensive industry experience and
leading edge expertise in their respective
fields of specialisation. Aerocrines decentralised organisation structure creates the
conditions to rapidly identify what customers
in different markets want and to translate this
into reality.
Overarching guidelines and policies,
together with Aerocrines basic values, guide
our employees. During 2013, Aerocrine
worked with its fundamental values together
with all employees to more clearly define
how we should act uniformly in the markets
where we operate. In smaller groups of

29

SUSTAINABILITY

representatives from our different offices,


we discussed what being an employee or a
manager at Aerocrine means, and what we
expect of one another and the company.
Besides developing a shared foundation
of values, the programme also served to
develop more efficient leadership. Based on
guidelines shared throughout the company,
each country office then has the opportunity
to develop its personnel processes based on
local conditions.

ATTRACTIVE EMPLOYER
All employees at Aerocrine have at least one
individual development interview per year at
which their performance and development
opportunities are reviewed. Personal training

Personnel turnover,
recruitments and departures

2013
Men

New recruitments during the year


US

plans are developed in connection with the


development interviews and each employee
has an opportunity to select courses and
seminars in which they want to participate
on Aerocrines behalf. To retain and develop
competence and innovative capacity, it is
important that Aerocrine continues to be
an attractive workplace. To live up to this,
we prioritise clear leadership, competence
development, communications and a pleasant
working environment.
The health of those who work within the
Company is important both for the individual
employee and for Aerocrine as a whole.
Aerocrine carries out a number of different
activities in this area to encourage a healthy
lifestyle, and this is reflected in our very low

2012
Women

Men

14

20

48
20

Women
61

Sweden

UK

Switzerland

46

Overall, Aerocrine has an even balance between women and men. The background to
this is that we work actively on equality issues
within the framework of our equality plan.
Aerocrine seeks diversity and an even gender
distribution, since we believe this engenders
a more innovative and successful company

Instructor-led
training (hrs.)

22

Average, women

through new perspectives and smarter ways


of working. It is our ambition that everyone
should feel welcome at Aerocrine, regardless of their background.
Aerocrine charts salaries annually to
assess structural salary discrepancies
between genders. In 2013, the charting
process showed the median salary for
women to be 93 percent of that for men,
which was 4 percentage points higher than
in the preceding year. The discrepancy that
exists is explained by there being a larger
number of men in senior positions in the
Company and, according to the charting
process, there are no structural salary
discrepancies between the genders.

Women 45%

2013

2012
6

22

Men 55%

Average number of teacher-led training hours per


gender. During 2013, we carried out extensive
training, as is reflected in the statistics.

Absence due
to illness (%)

2013

2012

Gender distribution, the Group

Gender
distribution 2013

Women

Men

Total

US

16

21

US

0.2

0.3

US

31

32

63

Sweden

Sweden

3.0

1.4

Sweden

18

26

44

Germany

1.7

3.4

Germany

Germany

UK

Switzerland

Total personnel turnover

36

17

Number of newly recruited employees and the number of departing employees by gender and country.
Total personnel turnover is also presented, which also includes temporary employees.

30

DIVERSITY AND EQUALITY

Average, men
23

Germany

People who left the company


during the year

level of absence due to illness. Among other


things, all employees in Sweden are offered
an annual fitness benefit of SEK 3,000.
Aerocrine also takes a positive view of
employees participating in fitness activities
in their free time and the Company provides
sponsorship by paying start fees for organized
fitness runs.

UK

2.8

2.6

UK

Switzerland

0.3

0.0

Switzerland

Average

1.3

0.9

Total

56

69

125

Absence due to illness in each country and the average


for Aerocrine as a whole.

Glossary
ALLERGY

CHEMILUMINESCENCE

When the body reacts to substances that


humans generally tolerate, it may be due to
some type of hypersensitivity.
Problems related to hypersensitivity most
often occur in the eyes, nose, airways and
stomach and on skin. Allergy refers to hypersensitivity triggered by an immune response,
resulting in inflammation.

Measurement of a reaction (light/photons)


resulting from certain chemical processes,
including in vitro, as a detection system in
sensitive chemical analyses.

ANTI-INFLAMMATORY MEDICINE
Medication that suppresses inflammation;
generally some form of cortisone. Cortisone
is usually administered as an inhaled spray
used once or twice daily.

ASTHMA
Asthma is an inflammatory syndrome that
affects the airways. The symptoms are often
caused by a limitation of airflow (airway
obstruction), which is reversible, either
spontaneously or in response to treatment.
The obstruction is caused by contraction of
the airway muscles, as well as swelling and
increased production of mucus in the airways. Severity may vary from mild to life
threatening. Asthma is traditionally divided
into two types: allergic asthma and non-allergic asthma. Allergic asthma usually begins in
childhood, while non-allergic asthma is more
common in adults. However, there are also
other classifications.

CE-MARKED/CE CERTIFICATION
Regulations that ensure that a product is safe
and effective to use; a seal of quality and a
necessity for the use of medical devices in
routine practice.

CORTISONE
A vital steroid hormone produced by the
adrenal glands. Corticosteroids are widely
used anti-inflammatory medications.
Cortisone is used to relieve or stop allergic
reactions, but also for autoimmune inflammatory diseases such as rheumatism.

FDA
US Food & Drug Administration.

HEALTH ECONOMICS
Science that uses and develops economic
theory and economic analytical methods to
answer questions concerning human health.
The basic premise is that resources are limited
and in principle can be used in a variety of
ways. The problem is to choose among the
various alternatives so the money yields
maximum health, welfare and quality of life.
Health economics therefore serves as a basis
to provide guidance for policy decisions and
how to use and distribute limited resources.

INFLAMMATION
In a broad sense, the bodys defence against
injurious factors. Inflammation causes redness,
swelling, pain, local heat reaction and reduced
function. Redness and heat are caused by an
increase in blood flow to the inflamed area,

which results in local swelling. Inflammation


can be divided into acute inflammation and
chronic inflammation. Inflammation is a
defensive reaction that can be compared to
a scorched earth policy. The inflamed tissues
are damaged. As the inflammation subsides,
the tissues are repaired. Depending on degree
and type of inflammation, the tissue is partially
or completely repaired.

KOL
Key opinion leader.

COPD
Chronic Obstructive Pulmonary Disease.

MDD
EU Medical Device Directive.

NICE
National Institute for Health and Care
Excellence (UK).

NO
Nitric oxide, a gas.

REIMBURSEMENT
Reimbursement system, compensation from
healthcare authorities for tests performed.

RoHS
EU directive (Restriction of Hazardous
Substances Directive) aimed at ensuring
that all electronics products that are sold
are lead-free. The entire production process,
as well as materials and purchases, must be

adapted to meet the new production conditions. Since 1 July 2006 essentially all electronic products must comply with the RoHS
Directive in order to be sold at all in the EU;
however, exemptions may be granted.

SKIN PRICK TEST


An allergy test that may provide an answer
when it is unclear what is causing an allergic
reaction such as rash, runny nose or itchy skin.
A drop containing an allergy-inducing substance is pricked into the skin on the underside of the arm or on the back. When the test
is positive and the person is allergic to the
substance, swelling the size of a mosquito bite
and redness occur after about fifteen minutes.

STEROIDS

Cortisone medications, often in aerosol


bottles, for inhalation. Cortisone dampens
inflammation.

SPIROMETRY
Pulmonary function test based on measurement of exhaled air volume and air flow rate
during exhalation. Carried out using a special
gas volume measurement instrument known
as a spirometerr.

WEEE
The EU Waste Electrical and Electronic
Equipment Directive (WEEE) establishes
targets for collecting, recycling and reusing
electronic products in order to reduce
hazardous electronics waste. WEEE is linked
to the RoHS.

NIOX, NIOX MINO , NIOX VERO and Aerocrine are trademarks registrated by Aerocrine AB.

Production: Admarco Editing: Karina Sannefjordh Print: Majornas Grafiska

Our vision is to improve the


management of inflammatory
airway disease and the quality
of patient lives worldwide.

CHANGING THE FACE


OF ASTHMA CONTROL

Aerocrine AB
Visiting address: Rsundavgen 18, Solna
P. O. Box 1024
171 71 Solna
Sweden
Phone: +46(0)8-629 07 80
Fax: +46(0)8-629 07 81
E-mail: info@aerocrine.com

Aerocrine Inc.
5151 McCrimmon Parkway
Suite 260
Morriisville, NC 27560
USA
Phone:: 1-866-275-6469
Fax: 1-866-630-6469
E-mail: info.US@aerocrine.com
sales.US@aerocrine.com

Aerocrine Ltd
The Tannery,
19 Kirkstall Road,
Leeds,
West Yorkshire, LS3 1HS
UK
Phone: +44 (0)845 548 1511
Fax: +44 (0)845 548 1512
E-mail:sales.uk@aerocrine.com

Aerocrine AG
Louisenstrae 21
61348
Bad Homburg
Germany
Phone: +49 6172 49560 0
Fax: +49 6172 683414
E-mail:Info@aerocrine.de

Aerocrine International GmbH


c/o A. Antunes
Rigistrasse 22D
8330 Pfffikon ZH
Switzerland

www.aerocrine.com www.nioxmino.com

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