Pharming Group reports financial results for the first half of 2020

Delivered 14% increase in revenue, 31% increase in operating profit and 33% increase in net profit year-on-year

LEIDEN, Netherlands, July 30, 2020 /PRNewswire/ -- Pharming Group N.V. ("Pharming" or "the Company") (Euronext Amsterdam: PHARM) presents its (unaudited) financial report for the six months ended 30 June 2020.

The Company will hold a conference call at 13:00 CEST / 07:00 EST today. Dial-in details can be found on page 6 of this report.

Financial summary

Six months to 30 June 2020

Financial highlights

• The Company achieved record revenues in H1 2020, with a 14% increase year-on-year to €88.6 million (H1 2019: €77.9 million). 
• US revenues increased 13% year-on-year to €85.0 million (H1 2019: €75.0 million), however, sales in Q2 2020 declined by 21% compared to Q1 2020. This was as a result of an unusually high sales level towards the end of Q1 2020, which is believed to have included some pre-filling of prescriptions in response to the emerging COVID-19 pandemic. The Company therefore believes that the H1 2020 results are more representative of underlying performance, than either quarter in isolation.
• In Europe and the rest of the world (RoW), revenues for H1 2020 increased 24% year-on-year to €3.6 million (H1 2019: €2.9 million), as a result of significant growth in the EU. This follows the reacquisition of commercial product rights in EU territories, effective from 1 January 2020, as well as volume increases in the EU.
• Operating profit in H1 2020 increased 31% year-on-year to €32.3 million (H1 2019: €24.6 million). 
• Net profits in H1 2020 increased 33% year-on-year to €18.1 million (H1 2019: €13.6 million). Despite the decrease in US sales in Q2 2020, net profit for the quarter increased to €9.7 million from €8.4 million in Q1 2020, mainly as a result of lower financing costs following the successful convertible bond refinancing in January 2020 and continued cost control.
• Strengthened cash position to €155.1 million as of 30 June 2020, an increase of €19 million from €136.1 million at 31 March 2020 (cash at 31 December of €68.6 million). This is a result of strong positive operational cashflows during both Q1 and Q2, from Q2 onwards also supported by lower financing costs as result of the successful convertible bond re-financing in Q1. 
• The equity position improved from €104.7 million at the end of December 2019 to €127.6 million at the end of June 2020. The majority of the increase in equity is related to the net result for the first half.
• Other financial liabilities, which refers to the contingent consideration reserved for the final successful sales performance milestone of US$25 million to Bausch Health, did not increase. As a result, our estimation of the likelihood of paying this milestone in the future has not changed during the period.
• Since the last reporting date of 20 May 2020, the Company has issued, or reserved for issue, a total of 2.748.244 shares in connection with a number of exercises of options under the current schemes. The number of issued shares as of 30 July 2020 is 637.743.008.  The fully diluted number of shares as of 30 July 2020 is 740.943.581.

Operational highlights

• On 14 January 2020, the Company announced the placement of a €125 million 3% senior unsecured convertible bonds due 2025. The proceeds of the issue were used to redeem the remaining $56 million of the original $100 million loan from Orbimed Advisors and therefore reduced the Company's financing costs. The remaining balance of the net proceeds will support the Company's capital expenditure in relation to the expansion of commercialisation and manufacturing infrastructure.
• During Q1 2020, Pharming received European and US validation of its new production facility of starting material for the Company's lead product, RUCONEST®. On 21 January 2020, the Company received European Medicines Agency (EMA) approval for a Type II Variation for the new production facility. On 9 March 2020, the Company received approval on its Prior Approval Supplement from the US Food and Drug Administration (FDA) for the new production facility.
• On 11 March 2020, the Company announced Chief Financial Officer (CFO), Robin Wright, would not put himself up for re-election as a member of the Board of Management and therefore as CFO at the General Meeting of Shareholders. As a result, Robin Wright's term with Pharming ended on 20 May 2020. The search for a new CFO is well underway.
• On 23 March 2020, the Company announced it had been promoted to the Euronext Amsterdam MidKap index (AMX).
• On 21 April 2020, the Company reported encouraging results from a study of five patients with confirmed COVID-19 (SARS-CoV-2) infections hospitalised with related severe pneumonia that were treated with RUCONEST® under a compassionate use programme at the University Hospital of Basel, Switzerland. Following these encouraging results, a multinational, randomised, controlled investigator-initiated study, led by Dr Michael Osthoff from the University Hospital of Basel, is ready to recruit patients. Pharming expects the study to include up to 150 patients and to be carried out in multiple research centres in parallel, in Switzerland, the US and Latin-America.
• On 30 April 2020, the Company announced that the European Commission had approved an extension in the indication of RUCONEST®'s Marketing Authorisation to include the treatment of acute hereditary angioedema (HAE) attacks in children (aged 2-13). In the EU, RUCONEST® has been approved for the treatment of acute HAE attacks in adults since 2010 and in adolescents since 2016.
• On 20 May 2020, the Company announced the nomination of Barbara Yanni and Mark Pyktett to the Board of Supervisory Directors. An Extraordinary General Meeting of Shareholders (EGM) is expected to convene in Q4 2020 for their official appointments. Until that time, both Barbara and Mark will hold observational roles.

COVID-19 update

Pharming continues to comply with international guidance and requirements across its operations to prioritise the health and safety of its employees during the COVID-19 pandemic.

An update on the impact of COVID-19 on the operations of the business is summarised below.

• No impact on the upscaling or continued production of RUCONEST®. The Company's new starting material facility, approved earlier this year, significantly increases Pharming's production capacity of RUCONEST®.
• No impact on the availability or distribution of RUCONEST® to HAE patients.
• The recruitment of new patients in ongoing clinical trials has been temporarily halted; patients already incorporated into ongoing clinical trials will continue to receive treatment.
• As a result of halted recruitment, timelines for the pre-eclampsia and acute kidney injury studies are expected to incur delays, subject to the return of recruitment.
• Recruitment in the registration enabling trial for leniolisib has started again and we continue to expect the potential launch of leniolisib in mid-2022.

Sijmen de Vries, Chief Executive Officer, commented:

"We are delighted to announce strong results for the first half of the year, demonstrating consistent progress in a challenging period that included the restriction of all face-to-face sales and marketing activities. Thanks to the dedication, creativity and tenacity of our employees, we have been able to continue our growth trajectory, both in terms of production capacity and sales expansion, to deliver record results. We also continued to increase net profitability, supported by our successful convertible bond refinancing, which significantly lowered our financing costs, and the re-acquisition of RUCONEST®'s commercialisation rights for the remaining EU territories.

"In addition, we have continued to demonstrate operational success, receiving EMA and FDA approval for a new production facility of RUCONEST® starting material, receiving approval for an expansion of the EU Marketing Authorisation for RUCONEST® to include children aged 2-13, and reporting encouraging results from a compassionate use study in the treatment of severe pneumonia related to COVID-19 with RUCONEST®, a further investigation into which is due to begin shortly. We are also encouraged that recruitment in the pivotal study for leniolisib has started again and we continue to expect the potential launch of the product in mid-2022. We remain confident we are well positioned to continue to deliver significant value to all our stakeholders in the second half of the year and beyond."

Outlook

For the remainder of 2020, the Company expects:

• Subject to progression of the COVID-19 pandemic in the US; continued growth in revenues from sales of RUCONEST®, compared to the first half of 2020, mainly driven by the US and expanded European operations.
• Maintenance of positive net earnings during the year.
• Continued investment in the expansion of production of RUCONEST® in order to ensure continuity of supply to the growing markets in the US, Europe, China and the RoW.
• Investment in the ongoing clinical trials for pre-eclampsia and acute kidney injury, and support for investigators wishing to explore additional indications for RUCONEST®, such as the planned study in patients confirmed with COVID-19 infections with related severe pneumonia.
• Initiation of patient recruitment of the investigator sponsored, randomised controlled COVID-19 study, in centres in Switzerland, USA and Latin America.
• Investment in the continuing registration-enabling study for leniolisib for APDS, leading to headline data early in 2021.
• Investment in an Investigational New Drug Application to the FDA enabling studies for α-glucosidase in Pompe disease and preclinical development of the new recombinant α-galactosidase candidate for Fabry's disease.
• Investment in acquisitions / in-licensing of other new development opportunities and assets as these occur.
• Increasing marketing activity where this can be profit-enhancing for Pharming.
• Continued close monitoring of the ongoing COVID-19 pandemic and the potential impact on the business.

No further financial guidance for 2020 is provided.

About Pharming Group N.V.

Pharming is a specialty pharmaceutical company developing innovative products for the safe, effective treatment of rare diseases and unmet medical needs. Pharming's lead product, RUCONEST® (conestat alfa) is a recombinant human C1 esterase inhibitor approved for the treatment of acute Hereditary Angioedema ("HAE") attacks in patients in Europe, the US, Israel and South Korea. The product is available on a named-patient basis in other territories where it has not yet obtained marketing authorisation.

RUCONEST® is commercialised by Pharming in the US and in Europe, and the Company holds all other commercialisation rights in other countries not specified below. In some of these other countries distribution is made in association with the HAEi Global Access Program (GAP). RUCONEST® is distributed in Argentina, Colombia, Costa Rica, the Dominican Republic, Panama, and Venezuela by Cytobioteck, in South Korea by HyupJin Corporation and in Israel by Kamada.

RUCONEST® is also being evaluated for various additional indications. Pharming's technology platform includes a unique production process that has proven capable of producing industrial quantities of pure high quality recombinant human proteins in a more economical and less immunogenic way compared with current cell-line based methods.

Leads for enzyme replacement therapy ("ERT") for Pompe and Fabry's diseases are also being produced and optimised respectively at present.

Pharming has recently in-licensed leniolisib from Novartis, a small molecule and selective PI3Kδ inhibitor, which is in a registrational study for activated PI3K-delta syndrome (APDS), a rare form of Primary Immunodeficiency.

Pharming has a long term partnership with the China State Institute of Pharmaceutical Industry ("CSIPI"), a Sinopharm company, for joint global development of new products, starting with recombinant human Factor VIII for the treatment of Haemophilia A. Preclinical development and manufacturing will take place to global standards at CSIPI and its affiliates and are funded by CSIPI. Clinical development will be shared between the partners with each partner taking the costs for their territories under the partnership.

Additional information is available on the Pharming website: www.pharming.com

Forward-looking Statements

This press release of Pharming Group N.V. and its subsidiaries ("Pharming", the "Company" or the "Group") may contain forward-looking statements including without limitation those regarding Pharming's financial projections, market expectations, developments, partnerships, plans, strategies and capital expenditures.

The Company cautions that such forward-looking statements may involve certain risks and uncertainties, and actual results may differ. Risks and uncertainties include without limitation the effect of competitive, political and economic factors, legal claims, the Company's ability to protect intellectual property, fluctuations in exchange and interest rates, changes in taxation laws or rates, changes in legislation or accountancy practices and the Company's ability to identify, develop and successfully commercialize new products, markets or technologies.

As a result, the Company's actual performance, position and financial results and statements may differ materially from the plans, goals and expectations set forth in such forward-looking statements. The Company assumes no obligation to update any forward-looking statements or information, which should be taken as of their respective dates of issue, unless required by laws or regulations.

For further public information, contact:
Pharming Group N.V.
Sijmen de Vries, CEO, Tel: +31 71 524 7400
Susanne Embleton, Investor Relations Manager: +31 71 524 7400

FTI Consulting, London, UK:
Victoria Foster Mitchell, Tel: +44 203 727 1136

LifeSpring Life Sciences Communication, Amsterdam, The Netherlands:
Leon Melens, Tel: +31 6 53 81 64 27

Conference call information

 

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Pharming Group N.V.

Condensed Consolidated Interim Financial Statements (unaudited)

For the period ended 30 June 2020

• Condensed consolidated statement of profit or loss
• Condensed consolidated statement of comprehensive income
• Condensed consolidated statement of financial position
• Condensed consolidated statement of changes in equity
• Condensed consolidated statement of cash flow

Notes to the condensed consolidated interim financial statements

Appendix: Main Condensed Consolidated Interim Financial Statements reported in US dollars

(This appendix is not part of the Condensed Consolidated Interim Financial Statements)

• Condensed consolidated statement of profit or loss in US Dollar
• Condensed consolidated statement of financial position in US Dollar
• Condensed consolidated statement of cash flows in US Dollar
  

Condensed Consolidated Statement of Profit or Loss                                     
For the period ended 30 June

The notes are an integral part of these interim financial statements

Condensed Consolidated Statement of Comprehensive Income 
For the period ended 30 June

The notes are an integral part of these interim financial statements

Condensed Consolidated Balance Sheet
As at date shown

The notes are an integral part of these interim financial statements

Condensed Consolidated Statement of Changes in Equity
For the period ended 30 June
Attributable to owners of the parent

The notes are an integral part of these interim financial statements

Attributable to owners of the parent

                                      The notes are an integral part of these interim financial statements

Condensed Consolidated Statement of Cash Flow
For the period ended 30 June

The notes are an integral part of these interim financial statements

Notes to the Condensed Consolidated Interim Financial Statements
For the period ended 30 June

1.  Company information

Pharming Group N.V. is a limited liability public company which is listed on Euronext Amsterdam (PHARM), with its headquarters and registered office located at:

Darwinweg 24
2333 CR Leiden
The Netherlands

2.  Basis of preparation

The consolidated interim financial statements for the six-month ended 30 June 2020 have been prepared in accordance with Accounting Standard IAS 34, Interim financial reporting. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations applicable to companies reporting under IFRS as endorsed by the European Union and valid as of the balance sheet date.

3.  Accounting policies

Accounting policies are consistent with those of the financial statements for the year ended 31 December 2019.

4.  Estimates and judgements

The preparation of interim financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. In preparing these condensed interim financial statements, the significant judgements made by management in applying the Company's accounting policies were the same as those applied to the consolidated financial statements for the year ended 31 December 2019.

5.  Going concern

In preparing and finishing the interim financial statements the Board of Management of Pharming has assessed the Company's ability to fund its operations for a period of at least eighteen months after the date the interim financial statements are issued. Based upon the assessment on a going concern basis, the Company has concluded that funding of its operations for a period of eighteen months, after the date the interim financial statements are issued, is realistic and achievable. Overall, based on the outcome of this assessment, the interim financial statements have been prepared on a going concern basis.

6.  Seasonality of operations

Seasonality has no material impact on Company's interim financial statements.

7.  Segment information

The Board of Management is the chief operating decision-maker. The Board of Management considers the business from both a geographic and product perspective. From a product perspective, the Company's business is almost exclusively related to the recombinant human C1 esterase inhibitor business. From a geographic perspective, the Company is operating in the areas: the US, Europe and Rest of the World (RoW). The Board of Management primarily measures revenues to assess the performance of the operating areas. Costs and assets are not allocated to the geographic areas.

Total revenues and gross profit per geographic segment for the period ended 30 June:

8.  Expenses by nature

Cost of sales in the first half year of 2020 amounted to €9.9 million (HY 2019: €11.0 million). Inventory impairments amounted to a release of € (0.3) million in the first half of 2020 (2019: addition of €0.5 million). The impairment stems from the valuation of the inventories against lower net realisable value, related to reallocation of inventories to the different markets with different prices, based on sales forecasts by management and commercial partners, and clinical programmes.

Operating costs increased to €46.9 million from €42.5 million in the first half year of 2019. The increase is a result of the increased sales activities in the US, increased development costs for both our current product as the new pipeline, and increased cost for strengthening of supporting departments.

Employee benefits

Employee benefits are charged to research and development costs, general and administrative costs or marketing and sales costs based on the nature of the services provided.

Depreciation and amortisation charges

The depreciation on right-of-use assets relates to leased buildings and cars.

The amortisation of the intangible assets mainly relates to the re-acquired US commercialisation rights and are allocated to marketing and sales costs in the statement of income.

9.  Financial expenses 

The exit fees and expenses relate to the repayment in full of the loan from Orbimed Royalty Opportunities II, LP.

10.  Share of net profits in associates using the equity method

On April 7^th, 2019 Pharming Group, through its 100% subsidiary Pharming Technologies B.V., has taken a 43,85% stake in BioConnection B.V. through conversion of EUR 2.6 million of existing credits ("prepayments") and EUR 2.5 million of cash payment for a total of EUR 5.1 million.

In the Board of Management's judgement, the investment in BioConnection constitutes an investment in an unconsolidated structured entity, as Pharming has significant influence but does not have control of BioConnection and is embargoed by a shareholders agreement between the shareholders of BioConnection from influencing any activity between the two parties which is in any significant way different from the relationship which existed between the two prior to the investment.  In addition to its carrying value for the investment, Pharming's risk is limited to the provision of a €3 million corporate guarantee in favour of ABN AMRO Bank in the unlikely event that BioConnection were to default on all its debts and its assets did not meet the outstanding liabilities owing to ABN AMRO Bank. In the opinion of the Board of Management, the fact that BioConnection is a growing profitable company which has met all its obligations as they became due since inception makes the likelihood of this guarantee ever being used very small.  The guarantee is accounted for under IFRS 9 and appears as financial guarantee liabilities in Other financial liabilities.

The carrying amount of this investment has changed as follows:

11.  Inventories

Inventories include batches of RUCONEST® drug substance and product and skimmed milk available for production of RUCONEST®.

The inventory valuation at 30 June 2020 of €16.2 million (31 December 2019: €14.5 million) is stated net of a provision for impairment of €0.4 million (31 December 2019: €0.4 million) and net of a provision for obsolescence of €0 million (31 December 2019: €0.4 million).

Changes in the adjustment to net realisable value:

The main portion of inventories at 30 June 2020 has expiration dates starting beyond 2021 and is expected to be sold or used before expiration.

12.  Equity

The Company's authorised share capital increased by 10% to €8.8 million and is divided into 880,000,000 ordinary shares with a nominal value of €0.01 each. All 637.703.008 shares outstanding at 30 June 2020 have been fully paid-up. Other reserves include those reserves related to currency translation, share-based compensation expenses and other equity-settled transactions. In the first half year of 2020 a total of 6.379.541 new shares have been issued resulting from conversion of warrants, the issuance of LTIP shares, and the exercise of options.

Please refer to the condensed consolidated statement of changes in equity.

13.  Loans and borrowings 

In 2017, the Company entered into a debt facility with Orbimed Royalty Opportunities II, LP to raise US$100 million (€91.3 million at 2017 exchange rate).

Under the terms and conditions of this debt facility, the lenders provided an amount of US$100 million secured senior debt funding against 48 months promissory notes with interest of the sum of (i) the Applicable Margin of 11% plus (ii) the greater of (x) One-Month LIBOR and (y) 1.00%. Quarterly repayment of the loan has been started in September 2018. The Company has the option to prepay the loan before its maturity date. As further consideration for the facility, the lenders received a 4% warrant coverage (9,174,372 warrants) with a strike price of €0.455 representing the closing price of Pharming shares immediately prior to the closing date, plus a 2.5% commitment fee of the principal sum and an assignment fee on the maturity date of US$3.7 million. The warrants have been separated from the loan and recognised in equity. On repayment of the loan on January 25, 2020 the Company had to pay an exit fee of 5%.

Movements of the loan were as follows:

14.  Convertible bonds

In January 2020, the Company offered €125 million of 5-year convertible bonds. The net proceeds of the issue of the bonds were used to redeem the balance of approximately US$ 51 million of the loan with Orbimed Advisors in full, and the remaining balance of the net proceeds will also be used to support capital expenditure in relation to the expansion of the commercialisation and manufacturing infrastructure of the Company and also serve as funding for the launch of Pharming's recently acquired leniolisib product, as well as for additional acquisitions/in-licensing opportunities.

The bonds were issued at par and carry a coupon of 3.00% per annum payable semi-annually in arrears in equal instalments. Unless previously converted, redeemed or purchased and cancelled, the Bonds will be redeemed at par on 21 January 2025. The Bonds will be convertible into ordinary shares of the Company with an initial conversion price of €2.0028, which represented a premium of 40% above the volume weighted average price (VWAP) of an ordinary Pharming share on Euronext Amsterdam between opening of trading on the launch date and the pricing of the Bonds (which was €1.4306). This initial conversion price may be subject to customary adjustment provisions as set out in the terms and conditions of the Bonds. The number of ordinary shares initially underlying the Bonds is 62,412,622, representing 9.9% of the Company's current issued share capital.

These bonds are listed on the Frankfurt Exchange (Börse Frankfurt: PHARMING GRP 20/25 CV).

The convertible bonds comprise of two components. The first component is a financial liability, which represents Pharming's contractual obligation to deliver cash or another financial asset for payment of interest and principal, if not converted. The second component is an equity instrument as it represents a written call option granting the holder the right, for a specified period of time, to convert it into a fixed number of Pharming Group N.V. 's ordinary shares.

The fair value of the consideration in respect of the liability components is measured at the fair value of a similar liability that does not have any associated equity conversion option (IFRS 9 paragraph 5.1.1). This is the liability component's carrying amount at initial  recognition.

The equity component will be measured at the residual  difference between the nominal value and the fair value of a similar liability that does not have any asoociated equity conversion option ( IAS 32 paragraph 31).

Movements of the convertible bonds were as follows:

15.  Fully-diluted shares

The total number of outstanding shares at 30 June 2020 was 637.703.008. The weighted average shares outstanding over the first half year were 634.155.889. The basic earnings per share, based on the weighted average, was € 0.029 for the first half year 2020.

For the first six month of 2020 and 2019, the basic and fully diluted profit per share were:

Since the reporting date, the company has issued 40.000 shares through the exercise of employee options.  The number of issued shares as at 30 July 2020 is 637.743.008.

The composition of the number of shares and share rights outstanding as well as authorised share capital as at 30 June 2020 is provided in the following table:

16.  Intangible Assets

In 2020 intangible assets increased mainly as result of the payment of €7.5 million, related to the reacquisition of the EU commercial rights, formerly owned by SOBI.

17.  Deferred tax assets

The changes in the deferred tax asset can be summarised as the result of the payment of the contingent consideration of €16.5 million, leading to a tax effect of €4.1 million, and in addition taxable profits realised during H1 2020.

18. Events since the end of the reporting period

There have been no significant changes or material events since the reporting date.

Appendix: Main Condensed Consolidated Interim Financial Statements reported in US dollars

Condensed Consolidated Statement of Income in US Dollars                                     
For the period ended 30 June

Condensed consolidated Balance Sheet in US Dollars
As at date shown

          

Condensed consolidated Statement of Cash Flows  in US Dollars
For the period ended 30 June