LEIDEN, Netherlands, July 26, 2018 /PRNewswire/ --
Record revenue from product sales, up 96% on 2017
Pharming's first half year of net profitability
Expanding pipeline of new products plus new large indications and dosage forms for RUCONEST®
Pharming Group N.V. ("Pharming" or "the Company") (Euronext Amsterdam: PHARM) presents its (unaudited) financial report for the six months ended 30 June 2018.
The Company will hold a conference call at 13:00 CEDT/ 07:00 EDT today: dial-in details can be found on page 8.
- Invested in commercial teams to meet continued underlying demand for RUCONEST® in the USA, driving growth and good patient retention rates
- FDA acceptance of supplemental Biologics License Application file for RUCONEST® for prophylaxis of HAE, with an action date set for 21 September 2018
- Announced new versions of small vial liquid and fast-dissolving dose forms for RUCONEST® in subcutaneous, intramuscular and 'virtually painless' intradermal versions for use in clinical studies starting later in 2018/early 2019
- Announced five studies ongoing or starting to expand the pipeline strongly:
- An ongoing investigator-sponsored study of RUCONEST® in Basel, Switzerland in a double-blind, placebo-controlled trial in contrast-induced nephropathy, with top-line data expected in Q3 2018
- A new Phase I/II study of rhC1INH in pre-eclampsia to be filed by Pharming shortly to start in Q4 2018
- An ongoing investigator-sponsored study of RUCONEST® head-to-head against a competitor in a trial testing therapy failure rates in treating acute attacks of hereditary angioedema ("HAE"), with top-line data expected in Q4 2018
- Initiation of an investigator-sponsored study of RUCONEST® to treat delayed graft function, a form of ischemic reperfusion injury, at the University of Wisconsin
- A new in-house clinical trial of Pharming's proprietary recombinant human alphaglucosidase in Pompe disease to be filed early 2019
- Delivered net profitability for the half year
- Revenues from product sales for the half year increased by 96% to €59.1 million (HY 2017: €30.1 million, and Q2 2018 €29.8 million), as a result of continuing growth in revenue from US and EU product sales from increasing patient numbers
- Total revenues increased by 94% to €59.5 million (including €0.4 million of license revenue) from €30.6 million (including €0.5 million in license revenue) in HY 2017
- Operating results improved 288% to a profit of €16.3 million from €4.2 million in HY 2017, despite a considerable increase in manufacturing and clinical activities
- The net result was a profit of €6.4 million (HY 2017: loss of €30.2 million)
- The company's cash position increased from €60.0 million at year-end 2017 to €66.9 million at 30 June 2018 (up from €25.2 million at 30 June 2017), largely due to sales growth and the proceeds of option exercises by employees balanced by increased inventory manufacturing relating to restoring US inventories following significant free-of-charge emergency supplies to HAE patients as result of the pdC1INH supply crisis in Q4 2017 as well as increasing US sales and clinical and development costs
Sijmen de Vries, Chief Executive Officer, said:
"We are delighted with the further progress we have made expanding the reach of RUCONEST®, allowing more patients to access the clinical benefits of our product. We have continued net profitability in the second quarter of the year, which gives us the confidence and the financial resources to move forward with our new programs. With five studies underway or expected to initiate over the next six months, we anticipate significant strengthening of our pipeline."
Chief Executive Officer's comment
During the first half of the year, we continued to invest in the development of our commercial infrastructure in North America and Europe to drive the growth of new patients using our lead product, RUCONEST® (Recombinant Human C1 Esterase Inhibitor/ conestat alfa, or rhC1INH), for the treatment of HAE, as well as to manage the increased demand for the product. This strategic decision has significantly increased revenue and profit generation for the first half of the year compared to the first half of 2017. As a result, we have reported our first half year of net profitability significantly earlier than previously expected at the time of reacquiring the US commercial rights to RUCONEST® in December 2016.
Product sales for the half year increased by 96% to €59.1 million (HY 2017: €30.1 million). The positive sales momentum in the USA continued in Q2, following higher than expected sales in Q1 as a result of the shortage of a competitor product, with net sales of $33.9 million in Q2 ($34.3 million in Q1) despite stock level adjustments and a weakening in the exchange rate between US dollars and euros. As the clearest measure of the success of RUCONEST®, the number of patients using the product regularly in the USA has been increasing steadily since we reacquired the commercial rights. The growth rate, although affected in some periods by competitors' failures to supply their blood-derived products and consequent sudden increases in patients using RUCONEST®, has been fairly consistent.
Underlying sales volumes increased in Q2 (up by 8% compared with Q1). On a reported basis, Q2 sales were higher at €29.8 million compared with €29.3 million for Q1. This reflects good retention of the patients who switched to RUCONEST® following stabilisation of the competitor supply situation, and a slightly higher volume of EU and rest of the world ("RoW") sales.
Gross profits increased from €24.5 million in Q1 to €25.5 million in Q2, also reflecting slightly lower costs of goods balanced by the higher mix of lower-margin RoW sales.
Operating profit for the first half of the year was €16.3 million, of which €8.2 million was recorded in Q1 and €8.1 million in Q2. As previously guided, we have invested in expanding the pipeline for RUCONEST® and for our follow-up programs in Pompe disease and Fabry's disease, the costs of which are reflected in a flat operating profit (and consequently net profit) for Q2. We expect to see the benefits of this investment in subsequent periods.
In January, we announced that the U.S. Food and Drug Administration (FDA) had accepted for review Pharming's supplemental Biologics License Application (sBLA) for RUCONEST® [Recombinant Human C1 Esterase Inhibitor/ conestat alfa] for routine prophylaxis to prevent attacks in adult and adolescent patients with HAE. The FDA indicated that the sBLA was sufficiently complete to permit a substantive review and has set an action date of 21 September 2018.
At our Capital Markets Briefing Day in June, we announced a number of exciting new pipeline developments which will build out Pharming's future from a company focused on RUCONEST® in HAE to a company with multiple products approved for commercial sale as well as a wide development franchise in several major unmet disease indications with very limited (if any) therapeutic options at present.
The highlights of these announcements were as follows:
- An ongoing investigator-sponsored study of RUCONEST® in Basel, Switzerland a double-blind, placebo-controlled trial of contrast-induced nephropathy which was initiated last year and is expected to report top-line data in Q3 2018.
- Pharming will file in Q3 for a new Phase I/II study of rhC1INH in treatment of pre-eclampsia to start in Q4 2018. Pre-eclampsia has no specific therapies at present, and affects 2.5 million pregnancies a year worldwide. Many women suffer from very severe cardiac and liver damage caused by the condition, and many pregnancies are either terminated or result in dangerously early deliveries.
- An ongoing investigator-sponsored head-to-head study of RUCONEST® in an open label clinical trial testing therapy failure rates (i.e. the need for re-dosing under either therapy) to treat an attack of hereditary angioedema, which is expected to be fully recruited in Q3, with top-line data expected in Q4 2018.
- Pharming has developed new versions of small vial liquid and fast-dissolving dosage forms for RUCONEST®, for use in subcutaneous and intramuscular versions and in an entirely new, intradermal version expected to be painless, starting with subcutaneous studies later in 2018/ early 2019.
- An investigator-sponsored study of RUCONEST® to treat delayed graft function, a form of ischemic reperfusion injury, is being initiated at the University of Wisconsin. This study is not expected to read out until 2020 due to the long follow-up required.
- Pharming will take its new, highly-improved alpha-glucosidase PGN004 into the clinic in a Phase I/II study in Pompe disease in early 2019, with the timing depending only on final manufacturing filings. This new recombinant form of alpha-glucosidase, the enzyme which is deficient in patients with Pompe disease, has been developed with the same technology platform as RUCONEST® and is expected to have little or no immunogenicity, as well as high efficacy.
- A similar program with alpha-galactosidase for use in the related Fabry's disease has also been initiated and is expected to enter clinical development from 2H2020 onwards following ongoing process development and subsequent manufacturing runs.
Based on the continued momentum in sales volumes, underpinned by improving trends in identifying and diagnosing HAE patients, combined with better patient care and management practices, a focus on specialty pharmacy customers and subject to an FDA approval for prophylaxis of HAE, we expect to continue to increase sales of RUCONEST® further. If that approval is granted, we expect the efficacy of RUCONEST® to be appealing to healthcare professionals and the patients they manage for complete management of their HAE condition. It will also be the only approved product for both prophylaxis and treatment of breakthrough HAE attacks. We will continue to control costs and investments to improve profitability and to allow us to drive sustainable long-term growth. We continue to expect additional positive results for the remainder of the year. No further financial guidance is provided.
Sijmen de Vries
Chief Executive Officer
Financial Summary Amounts in EURm, except per share data HY 2018 HY 2017 % Change Income Statement Product sales 59.1 30.1 96% License fees and other income 0.4 0.5 (20%) Revenue 59.5 30.6 94% Gross Profit 50.0 27.0 85% Net Operating Costs (34.0) (22.9) 48% Operating Result 16.3 4.2 288% Finance Costs (9.0) (34.5) (74%) Income Tax expense (0.9) - n/a Net Result 6.4 (30.2) n/a Balance Sheet Cash & marketable securities 66.9 25.2 165% Share Information Earnings per share - undiluted - fully diluted 0.0105 (0.0635) n/a 0.0096 n/a n/a
Revenues from product sales increased slightly in euro terms from €29.3 million in Q1 to €29.8 million in Q2, Part of the reason for the higher than expected sales in Q1 was that some specialty pharmacies ordered precautionary replacement supplies after the supply failure of a rival company's blood-derived C1INH product. Underlying patient numbers continue to increase steadily, which we anticipate will be further enhanced as the effects of the enlarged sales and marketing teams become more visible later in the year, and if approval is given for RUCONEST® in prophylaxis of HAE by the FDA. The benefits of these increasing patient numbers should also be seen then. Direct sales in the EU and rest of the world improved to €1.4 million in Q2 from €1.3 million in Q1.
Other license fee income amounted to €0.2 million in Q2, which was in line with Q1. This license fee income reflects the release of accrued deferred license fees following receipt of €21.0 million upfront and milestone payments in 2010 and 2013 from SOBI and CSIPI.
Gross profit increased from €24.5 million Q1 to €25.5 million in Q2, reflecting the exchange improvements and the slightly reduced proportion of sales to SOBI.
Direct commercialisation by Pharming in Western Europe increased by over 150% between the first half of 2017 and the first half of 2018, and sales by our EU partner, SOBI, also showed an increase in the first half year of 2018.
Gross profit overall was up from €27.0 million in the first half of 2017 to €50.0 million in the first half of 2018.
Operating costs increased to €34.0 million in the first half year of 2018 from €22.9 million in the same period of 2017. Research and development (R&D) costs were slightly higher in the second quarter, resulting from the increased activity around new indications and new forms of RUCONEST®, and General and Administrative costs remained flat across the second quarter, whilst marketing and sales costs were slightly higher in the second quarter due to increased direct commercialisation activities by Pharming in the US and in Western Europe.
As a result of the combination of the increase in gross profit and the increase in operating costs due to greater investment in clinical and sales and marketing activities, the operating profit in the first half decreased slightly from €8.2 million in the first quarter to €8.1 million in the second quarter, and €16.3 million overall for the half year.
Financial Income and Expenses
The net loss on financial income and expenses was €9.0 million (2017: loss of €34.5 million). The improvement is due almost entirely to the elimination of non-cash elements related to the now-cleared warrant and convertible instruments. The regular costs of repayments and effective interest under IFRS were €6.3 million, of which cash items were €5.4 million and non-cash items amounted to €0.9 million. The revaluation on the small number of outstanding warrants resulted in a loss of €1.2 million in the first half year (2017: loss of €1.2 million), mainly due to the effect of the larger increase in the share price on a much smaller number of warrants. The foreign currency exchange result, from revaluation of bank accounts and debt denominated in foreign currency, was a netloss of €0.5 million (2017: €2.8 million).
Income Tax Expense
The income tax expense relates to a provision of €0.9 million for corporate taxes expected on profits generated in our US subsidiary. These taxes have been set against accumulated net operating losses through a reduction of the deferred tax asset by the same amount.
As a result of the above items, the accounting net result changed from a €30.2 million loss in the first half of 2017 to a net profit of €6.4 million in the first half of 2018. The improvement was related to strong growth in sales over the last 12 months and the elimination of the financial expenses associated with the refinance in 2017.
Cash and Cash Equivalents
The total cash and cash equivalent position (including restricted cash) increased by €6.9 million from €60.0 million at March 31, 2018 to €66.9 million at 30 June 2018 (and €25.2 million at the end of June 2017). The increase in cash is consistent with the underlying growth in product sales. From Q3 onwards, Pharming will be making quarterly repayments of its outstanding debt facility to Orbimed and so we expect cash to decrease slowly over the rest of the year.
The company's equity position increased to €40.7 million at the end of June 2018 (30 June 2017: €18.8 million), with the increase due to exercises of options and warrants as well as the net result.
Since the last reporting date of 31 December2017, the company has issued a total of 27.7 million shares in connection with a number of exercises of options and warrants. The exercises resulted in total cash receipts of €6.9 million.
The number of issued shares as at 26 July 2018 is 610,411,871. The fully diluted number of shares as at 26 July 2018 is 657,296,716.
Performance of Pharming Shares
During the first half year, the Pharming stock price fluctuated around an average price of €1.33 per share. The half year-end price was €1.40 (30 June 2017: €0.31), with a high of €1.62 in January and a low of €1.15 in April 2018.
For the remainder of 2018, the company expects:
- Continued growth in revenues from sales of RUCONEST®, mainly driven by the US operations
- Achievement of additional positive quarterly (operating and net) results throughout the remainder of the year
- Continued investment in the production of RUCONEST® in order to ensure continuity of supply to the growing markets in the US, Europe and the rest of the world
- Investment in RUCONEST® in prophylaxis of HAE (following approval) and in the development of new intramuscular and subcutaneous versions of RUCONEST®
- Investment in clinical trial development for RUCONEST® in other indications where the drug's unique properties may help solve large unmet medical needs.
- Continued investment in our pipeline programs in Pompe disease and Fabry's disease
- We will look to acquire additional development opportunities and assets as they occur
- Increasing marketing activity where profitable for Pharming
We will continue to support patients in all territories, as we continue to believe that RUCONEST® represents a fast, effective, reliable and safe therapy option for HAE patients.
No further financial guidance for 2018 is provided.
The Board of Management
Sijmen de Vries, CEO
Bruno Giannetti, COO
Robin Wright, CFO
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 authorization.
RUCONEST® is distributed by Pharming in Austria, France, Germany, Luxembourg, the Netherlands, the United Kingdom and the United States of America. Pharming holds commercialisation rights in Algeria, Andorra, Bahrain, Belgium, Ireland, Jordan, Kuwait, Lebanon, Morocco, Oman, Portugal, Qatar, Syria, Spain, Switzerland, Tunisia, United Arab Emirates and Yemen. In some of these countries distribution is made in association with the HAEi Global Access Program (GAP).
RUCONEST® is distributed by Swedish Orphan Biovitrum AB (publ) (SS: SOBI) in the other EU countries, and in Azerbaijan, Belarus, Georgia, Iceland, Kazakhstan, Liechtenstein, Norway, Russia, Serbia and Ukraine.
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 examined for approval for the treatment of HAE in young children (2-13 years of age) and evaluated for various additional follow-on indications.
Pharming's technology platform includes a unique, GMP-compliant, validated process for the production of pure recombinant human proteins that has proven capable of producing industrial quantities of high quality recombinant human proteins in a more economical and less immunogenetic way compared with current cell-line based methods. Leads for enzyme replacement therapy ("ERT") for Pompe and Fabry's diseases are being optimized at present, with additional programs not involving ERT also being explored at an early stage at present.
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. Pre-clinical development and manufacturing will take place to global standards at CSIPI 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: http://www.pharming.com
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 commercialise 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.
Conference call information
Today, Chief Executive Officer, Sijmen de Vries, and Chief Financial Officer, Robin Wright, will discuss the half year 2018 financial results with investors in a conference call at 13:00 CEDT/07:00 EDT. To participate, please call one of the following numbers 10 minutes prior to the call:
From the Netherlands: +31(0)20 709 5189
From the UK: +44 (0)33 3300 0804
From Belgium: +32 (0)2 403 5814
From France: +33 (0)1 70 75 07 11
From Switzerland: +41(0)22 580 9034
From the US: +1 6319131422
For further international dial-in numbers: http://events.arkadin.com/ev/docs/NE_W2_TF_Events_International_Access_List.pdf
Conference Call PIN: 33609588#
Presentation Password: 301238552
Pharming Group N.V.
Consolidated Interim Financial Statements (Unaudited)
For the first six months ended 30 June 2018
Consolidated statement of income
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes to the consolidated interim financial statements
Appendix: Main Financial Statements reported in US dollars
(This appendix is not part of the Consolidated Interim Financial Statements)
Consolidated statement of income in US Dollar (unaudited)
Consolidated balance sheet in US Dollar (unaudited)
Consolidated Statement of Income For the first six months ended 30 June Amounts in EUR'000, except per share data Notes HY 2018 HY 2017 Product sales 59,051 30,109 License fees 403 536 Revenues 6 59,454 30,645 Costs of sales 7 (9,473) (3,657) Gross profit 49,981 26,988 Other income 300 167 Research and development (12,013) (9,154) General and administrative (5,242) (2,628) Marketing and sales (16,736) (11,140) Costs 7 (33,991) (22,922) Operating result 16,290 4,233 Fair value gain (loss) on revaluation derivatives (1,218) (1,225) Other financial income and expenses 4, 8 (7,785) (33,226) Financial income and expenses (9,003) (34,451) Result before income tax 7,287 (30,218) Income tax expense (932) - Net result for the period 6,355 (30,218) Attributable to: Owners of the parent 6,355 (30,218) Total net result 6,355 (30,218) Basic earnings per share (EUR) 0.0105 (0.063) Fully-diluted earnings per share (EUR) 14 0.0096 n/a
Consolidated Statement of Comprehensive Income For the first six months ended 30 June Amounts in EUR'000 Notes HY 2018 HY 2017 Net result for the period 6,355 (30,218) Currency translation differences 4 (160) (672) Items that may be subsequently reclassified to profit or loss (160) (672) Other comprehensive income, net of tax (160) (672) Total comprehensive income for the period 6,195 (30,890) Attributable to: Owners of the parent 6,195 (30,890)
Consolidated Balance Sheet As at date shown Amounts in EUR'000 Notes 30 June 31 December 2018 2017 Intangible assets 55,843 56,631 Property, plant and equipment 8,291 8,234 Long term prepayment 1,865 2,296 Deferred tax asset 8,526 9,442 Restricted cash 1,366 1,336 Non-current assets 75,891 77,939 Inventories 9 23,162 18,334 Trade and other receivables 16,775 11,260 Cash and cash equivalents 65,539 58,657 Current assets 105,476 88,251 Total assets 181,367 166,190 Share capital 6,104 5,790 Share premium 387,760 370,220 Legal reserves (1,098) (938) Accumulated deficit (352,101) (356,270) Shareholders' equity 10 40,665 18,802 Loans and borrowings 11 47,860 58,684 Deferred license fees income 1,067 1,467 Finance lease liabilities 247 390 Other financial liabilities 27,155 28,319 Non-current liabilities 76,329 88,860 Loans and borrowings 11 35,174 21,962 Deferred license fees income 800 804 Derivative financial liabilities 12 1,382 8,301 Trade and other payables 26,754 27,198 Finance lease liabilities 263 263 Current liabilities 64,373 58,528 Total equity and liabilities 181,367 166,190
Consolidated Statement of Cash Flows For the first six months ended 30 June Amounts in EUR'000 HY 2018 HY 2017 Operating result 16,290 4,233 Non-cash adjustments: Depreciation, amortization 1,903 1,689 Accrued employee benefits 1,750 872 Deferred license fees (403) (536) Operating cash flows before changes in working capital 19,540 6,258 Changes in working capital: Inventories (4,829) 468 Trade and other receivables (5,515) (6,015) Payables and other current liabilities (444) (1,792) Total changes in working capital (10,788) (7,339) Changes in non-current assets, liabilities and equity 814 (3,109) Cash generated from (used in) operations before interest and taxes 9,566 (4,190) Interest received - - Net cash flows generated from (used in) operating activities 9,566 (4,190) Capital expenditure for property, plant and equipment (1,380) (1,457) Investment intangible assets (634) (598) Net cash flows used in investing activities (2,014) (2,055) Proceeds of loans and borrowings - 89,139 Payments of transaction fees and expenses - (16,051) Prepayments and interests on loans and borrowings (7,622) (73,399) Proceeds of equity and warrants 6,907 284 Net cash flows generated from (used in) financing activities (715) (27) Increase (decrease) of cash 6,837 (6,272) Exchange rate effects 75 (620) Cash and cash equivalents at 1 January 59,993 32,137 Total cash and cash equivalents at 30 June 66,905 25,245 Of which restricted cash 1,366 248 Cash and cash equivalents at 30 June 65,539 24,997
Consolidated Statement of Changes in Equity For the first six months ended 30 June Attributable to owners of the parent Number of Share Share Amounts in EUR'000 Notes shares capital Premium Balance at 1 January 2017 455,587,312 4,556 301,876 Result for the period - - Other comprehensive income - - Total comprehensive income - - Share-based compensation - - - Bonuses settled in shares 908,437 9 246 Shares issued for cash/conversion of bonds 26,432,796 264 7,306 Warrants exercised/ issued 1,000,000 10 1,479 Options exercised - - - Total transactions with owners recognized directly in equity 28,341,233 283 9,031 Balance at 30 June 2017 483,928,545 4,839 310,907 Balance at 1 January 2018 579,014,891 5,790 370,220 Result for the period - - Other comprehensive income - - Total comprehensive income - - Share-based compensation - - Bonuses settled in shares 961,114 10 354 Shares issued for cash/conversion of bonds 2,746,476 27 753 Warrants exercised/issued 10,348,502 103 3726 Options exercised 17,340,079 173 12,707 Total transactions with owners, recognized directly in equity 31,396,171 314 17,540 Balance at 30 June 2018 610,411,062 6,104 387,760
Consolidated Statement of Changes in Equity For the first six months ended 30 June (cont) Attributable to owners of the parent Legal Accumulated Amounts in EUR'000 Notes reserves Deficit Total Equity Balance at 1 January 2017 60 (279,025) 27,467 Result for the period - (30,218) (30,218) Other comprehensive income (672) - (672) Total comprehensive income (672) (30,218) (30,890) Share-based compensation - 873 873 Bonuses settled in shares - - 255 Shares issued for cash/conversion of bonds - - 7,570 Warrants exercised/ issued - - 1,489 Options exercised - - - Total transactions with owners, recognized directly in equity - 873 10,187 Balance at 30 June 2017 (612) (308,370) 6,764 Balance at 1 January 2018 (938) (356,270) 18,802 Result for the period - 6,355 6,355 Other comprehensive income (160) - (160) Total comprehensive income (160) 6,355 6,195 Share-based compensation - 1,133 1,133 Bonuses settled in shares - - 364 Shares issued for cash/conversion of bonds - - 780 Warrants exercised/issued - - 3,829 Options exercised - (3,319) 9,562 Total transactions with owners, recognized directly in equity - (2,186) 15,668 Balance at 30 June 2018 (1,098) (352,101) 40,665
Notes to the Consolidated Interim Financial Statements
For the first six months 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:
2333 CR Leiden
2. Basis of preparation
The consolidated interim financial statements for the six-month ended 30 June 2018 have been prepared in accordance with 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 2017, 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 adopted by the European Union and valid as of the balance sheet date.
3. Accounting policies
The Company has adopted the new IFRS 15 - Revenue from contracts with customers - as at January 1, 2018. The adoption of this new standard has no material impact on these interim financial statements. The Company also adopted the new IFRS 9 - Financial instruments - as at January 1, 2018. The adoption of this new standard has no material impact on these interim financial statements. Other accounting policies are consistent with those of the financial statements for the year ended 31 December 2017.
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 ended 31 December 2017 with one exception. The balance of the intercompany account between the parent and the US subsidiary Pharming Healthcare Inc. is now treated as a short-term cash balance in 2018, rather than informal capital as in previous years. Accordingly, any change in recorded value in the reporting currency will be taken as a gain or loss as the case may be to the income statement. This change reflects the fact that the company has moved to a normal transfer pricing mechanism in which this balance is short term in nature and not equity-like informal capital as in previous years. This impacts only the foreign exchange movement on net cash, as the large cash balances held in the US act as a natural hedge to movements in the recorded debt value due to movements in the exchange rate. In the first half year of 2018, a total amount of €1.6 million has been reported as a credit in the financial income and expenses, whereas in the first half year of 2017 a total amount of €2.0 million was reported as an expense in the currency translation differences under other comprehensive income for the period, because the balance was regarded at that time as informal capital and therefore not subject to foreign exchange movements. This policy will be applied consistently going forward.
5. Seasonality of operations
Seasonality has no material impact on Company's interim financial statements.
6. 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 first half year: Amounts in EUR '000 HY 2018 HY 2017 Revenues: US 56,328 28,582 Europe 2,627 1,600 RoW 499 463 Total revenues 59,454 30,645 Gross profit: US 49,365 26,211 Europe 227 411 RoW 389 366 Total gross profit 49,981 26,988
7. Expenses by nature
Cost of product sales in the first half year of 2018 amounted to €9.5 million (HY 2017: €3.7 million). Inventory impairments amounted to an addition of €0.6 million in the first half of 2018 (2017: addition of €0.1 million). The impairment stems from the valuation of the inventories against lower net realizable 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 €34.0 million (€33.7 million net of research credit grant income) from €22.9 million in the first half year of 2017. 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 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 amortization charges Amounts in EUR '000 HY 2018 HY 2017 Property, plant and equipment (480) (266) Intangible assets (1,423) (1,423) Total depreciation and amortization (1,903) (1,689)
The increase of depreciation charges of property, plant and equipment in the first half year of 2018 compared to 2017 mainly relates to the new milk production site in Schaijk (NL).
The amortization of the intangible assets mainly relates to the re-acquired US commercialization rights and are allocated to marketing and sales costs in the statement of income.
8. Financial expenses Amounts in EUR '000 HY 2018 HY 2017 Interest income 17 - Interest expenses (31) (44) Foreign currency results (510) 2,761 Interest loans and borrowings (6,306) (12,157) Contingent consideration 1,164 - Settlement fees and expenses (2,119) (23,786) Total other financial income and expenses (7,785) (33,226)
The reduction of the financial expenses is mainly related to the elimination of the large adjustments required under IFRS in respect of the non-equity elements of the refinancing of the old loans and the amortizing bonds by the new loan from Orbimed.
Inventories include batches of RUCONEST® drug substance and product and skimmed milk available for production of RUCONEST®.
9. Inventories 30 June 31 December Amounts in EUR '000 2018 2017 Finished goods 17,703 8,271 Work in progress 3,847 6,334 Raw materials 1,612 3,729 Balance at end of period 23,162 18,334
The inventory valuation at 30 June 2018 is stated net of a provision for obsolescence of €1.8 million (2017: €1.0 million) and €0.6 million (2017: €0.3 million) to write inventories down to their net realizable value.
Changes in the adjustment to net realizable value: Year to Period to 31 December Amounts in EUR '000 30 June 2018 2017 Balance at 1 January (336) (642) Reversal of (addition to) impairment for the period (646) 90 Related to costs of product sales 345 207 Related to operating costs - 9 Balance at end of period (637) (336)
In 2018, the addition to the impairment of €0.6 million was based on adjusted sales forecasts.
Cost of inventories included in the cost of product sales in the first half year 2018 amounted €9.5 million (2016: €3.7 million). The main portion of inventories at 30 June 2018 has expiration dates starting beyond 2019 and is expected to be sold or used before expiration.
The Company's authorised share capital amounts to €8.0 million and is divided into 800,000,000 ordinary shares with a nominal value of €0.01 each. All 610,411,062 shares outstanding at 30 June 2018 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 2018 a total of 31,396,171 new shares have been issued resulting from bonusses settled in shares, conversion of a convertible bond and warrants, and the exercise of options.
Please refer to the Consolidated statement of changes in equity.
11. Loans and borrowings
In 2017 the Company entered into a debt facility with Orbimed Royalty Opportunities II, LP of US$100 million (€91.3 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%. Repayment of the loan will start in September 2018 in quarterly instalments. 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 $3.7 million. Other facility fees of €0.6 million have been deferred from the original loans. The warrants have been separated from the loan and recognised in Equity.
The Company, and its subsidiaries, have pledged all receivables, movable assets and intellectual property rights as security to the new lenders, in the same way as those assets were pledged to the original lenders.
In the first half year 2018 all 9,174,372 warrants have been exercised by the lender and have been converted into 6,315,235 ordinary shares.
Initial recognition and movements of the loan was as follows: Period to Year to Amounts in EUR '000 30 June 2018 31 December 2017 Carrying value initial recognition 85,544 Carrying value at 1 January 2018 79,812 Amortized costs 6,286 7,406 Interest paid (5,384) (5,726) Revaluation loan 2,320 (7,412) Carrying value at end of period 83,034 79,812 -/- current portion (21,451) Non-current portion 58,361
Ordinary Convertible Bonds
All of the Ordinary Convertible Bonds issued in 2016 have now been converted or redeemed in accordance with their terms.
Initial recognition and movements of the convertible bonds were as follows: Period to Year to Amounts in EUR '000 30 June 2018 31 December 2017 Balance at 1 January 834 5,333 Amortized costs 19 1,251 Interest paid - (860) Adjustment net present value 396 6,402 Redemption/conversion (1,249) (11,292) Balance at end of period - 834 -/- current portion - (511) Non-current portion - 323
12. Derivative financial liabilities
Derivative financial liabilities include conversion options embedded in borrowings and warrants issued in relation to the issue of equity and loans in 2013, 2015 and 2016. Derivative financial liabilities include the initial fair value of warrants as well as changes in the fair value of the warrants resulting from adjustments of their exercise prices.
In 2018 a total number of 4.9 million of warrants have been exercised out of the warrants with expiration date in 2021, with a total fair value of € 4.6 million.
Also in 2018, the ordinary convertible bond issued in 2016 has been converted or redeemed in accordance with their terms. A total amount with a fair value of € 2.6 million has been converted.
Movement of derivative financial liabilities can be summarized as follows: Period to Year to Amounts in EUR '000 30 June 2018 31 December 2017 Balance at 1 January 8,301 9,982 Reclassification from equity 19,552 Fair value losses (gains) derivatives 244 40,284 Conversion into shares (7,163) (61,517) Balance at end of period 1,382 8,301
Fair value gains and losses on derivatives have been presented within financial income and expenses.
13. Commitments and contingencies
There were no material changes to the commitments and contingent liabilities from those disclosed in Note 30 of the 2017 Annual Report.
14. Fully-diluted shares
The total number of outstanding shares at 30 June 2018 was 610,411,062. The weighted average shares outstanding over the first half year were 605,667,099. The basic earnings per share, based on the weighted average, was € 0.010 for the first half year 2018.
Since the reporting date, the company has issued 809 shares through the exercise of employee options. The number of issued shares as at 26 July 2018 is 610,411,871.
The composition of the number of shares and share rights outstanding as well as authorised share capital as at 30 June 2018 is provided in the following table.
31 December Shares Shares 30 June 2017 issued reserved 2018 Shares 579,014,891 31,396,171 610,411,062 Warrants 15,251,000 (14,028,289) 1,222,711 Options 54,901,629 (17,052,550) (250,000) 37,599,079 Convertible bonds 2,746,476 (2,746,476) - LTIP 7,974,803 (961,114) 1,050,175 8,063,864 Issued 659,888,799 657,296,716 Available for issue 140,111,201 142,703,284 Authorised share capital 800,000,000 800,000,000
The composition of the number of shares and share rights outstanding as well as authorised share capital as per the date of these interim financial statements is provided in the following table.
Shares Shares 26 July 30 June 2018 issued reserved 2018 Shares 610,411,062 809 610,411,871 Warrants 1,222,711 1,222,711 Options 37,599,079 (809) 37,598,274 LTIP 8,063,864 8,063,864 Issued 657,296,716 657,296,716 Available for issue 142,703,284 142,703,284 Authorised share capital 800,000,000 800,000,000
15. Events since the end of the reporting period
There have been no significant changes or material events since the reporting date.
Appendix: Main Financial Statements reported in US dollars
Consolidated Statement of Income in US Dollars For the first six months ended 30 June Amounts in $'000, except per share data HY 2018 HY 2017 Product sales 71,459 32,662 License fees 488 581 Revenues 71,947 33,243 Costs of sales (11,464) (3,967) Gross profit 60,483 29,276 Other income 362 182 Research and development (14,537) (9,930) General and administrative (6,343) (2,851) Marketing and sales (20,253) (12,085) Costs (41,133) (24,866) Operating result 19,712 4,592 Fair value gain (loss) on revaluation derivatives (1,474) (1,329) Other financial income and expenses (9,711) (37,706) Financial income and expenses (11,185) (39,035) Result before income tax 8,527 (34,443) Income tax expense (1,128) - Net result for the period 7,399 (34,443) Attributable to: Owners of the parent 7,399 (34,443) Total net result 7,399 (34,443) Basic earnings per share ($) 0.012 (0.072) Fully-diluted earnings per share ($) 0.012 n/a
Consolidated Balance Sheet in US Dollars As at date shown Amounts in $'000 30 June 31 December 2018 2017 Intangible assets 65,022 67,827 Property, plant and equipment 9,654 9,862 Long term prepayment 2,171 2,749 Deferred tax asset 9,928 11,309 Restricted cash 1,592 1,600 Non-current assets 88,367 93,347 Inventories 26,971 21,958 Trade and other receivables 19,533 13,487 Cash and cash equivalents 76,313 70,254 Current assets 122,817 105,699 Total assets 211,184 199,046 Share capital 7,108 6,935 Share premium 451,508 443,412 Legal reserves (1,280) (1,124) Accumulated deficit (409,986) (426,703) Shareholders' equity 47,350 22,520 Loans and borrowings 55,729 70,286 Deferred license fees income 1,242 1,757 Finance lease liabilities 288 467 Other financial liabilities 31,619 33,918 Non-current liabilities 88,878 106,428 Loans and borrowings 40,957 26,304 Deferred license fees income 932 962 Derivative financial liabilities 1,609 9,942 Trade and other payables 31,152 32,575 Finance lease liabilities 306 315 Current liabilities 74,956 70,098 Total equity and liabilities 211,184 199,046
For further public information, contact
Sijmen de Vries, CEO: T: +31-71-524-7400
Robin Wright, CFO: T: +31-71-524-7432
Julia Phillips/ Victoria Foster Mitchell, T: +44-203-727-1136
LifeSpring Life Sciences Communication, Amsterdam, The Netherlands
Leon Melens, Tel: +31-6-53-81-64-27
SOURCE Pharming Group N.V.