LEIDEN, the Netherlands,
October 3, 2016 /PRNewswire/ --
Pharming Group N.V. ("Pharming" or "the Company") (Euronext
Amsterdam: PHARM) announces its (unaudited) financial report for
the eight months ended 31 August
2016. These financial statements are being published to
provide all shareholders and investors with the most current
financial information in order to enable a full understanding of
the implications of the Company's recently announced deal to
acquire the commercialization rights to RUCONEST® in North America from its partner Valeant and the
related proposed financing activity.
These results do not replace the quarterly report for the first
nine months of 2016, which is due to be published on 27 October 2016.
Highlights
- Sales of RUCONEST® for the period to 31 August
were up 48% overall compared to the six
months to 30 June 2016,
so that sales in the two months of July and August
alone were higher than the whole of the first quarter this
year.
- Sales in the US to 31 August up by
approximately 28% compared to the same
period last year, and up 43% compared
to the first half year of 2016.
- Gross Profit increased by 24%
relative to the same period last year, and up
42% compared to the first half year of
2016.
Financial Review
Amounts in EURm, except First 8 First 8 % H1 %
per share data months 2016 months 2015 Change 2016 Change
Income Statement
Product sales 6.2 5.6 11% 4.2 48%
License fees 1.5 1.5 - 1.1 36%
Revenue 7.7 7.1 8% 5.3 45%
Gross Profit 4.7 3.8 24% 3.3 42%
Costs (13.2) (12.0) (10%) (9.7) (36%)
Operating Result (8.3) (8.1) (3%) (6.2) (34%)
Balance Sheet
Cash & marketable securities 18.1 35.4 (49%) 21.7 (17%)
Share Information
Earnings per share (0.022) (0.014) (36%) (0.016) (38%)
Pro Forma Financial Review
If the Valeant transaction had been completed before
January 1, 2016, the highlights of
our eight month results would have been significantly different.
Overall, the Company would have been much closer to profitability
in this period. We show below an approximate pro forma set
of numbers for comparison and illustrative purposes only:
Amounts in EURm
(unaudited) except per Actual Pro Forma % Net Pro Forma % Net
share data YTD 2016 YTD 2016 Change 1H 2016 Change*
Income Statement
Product sales 6.2 17.7 186% 12.4 195%
License fees 1.5 0.7 (53%) 1.1 -
Revenue 7.7 18.4 139% 13.5 155%
Gross Profit 4.7 15.4 228% 11.5 248%
Costs (13.0) (18.6) (43)% (14.7) 52%
Operating Result (8.3) (3.2) 61% (3.1) 50%
Balance Sheet
Cash & marketable securities 18.1 23.6 30% 26.3 21%
Share Information
Earnings per share (0.022) (0.013) 42% (0.013) 19%
*On the basis of the results for the first six months ended
30 June 2016, announced on 28
July 2016.
Please note that this pro forma summary represents
Pharming management estimates as well as actual figures and has not
been independently verified by the Company'
s auditors. These numbers may be subject to change if
the current financial plans should change.
- These results show a marked improvement from the 30 June pro
forma results which were reported at the time of the
acquisition announcement, with annualized sales levels based on
July and August of €31.8 million versus €24.8 million based on
1H2016 results.
- At the operating result level, the 30 June pro forma
resulted in a loss of €3.1 million for 1H2016, compared with a €3.2
million loss for the total pro forma period of eight months
to August.
- It can be calculated that if the current July and August level
of sales had been achieved on average for all eight months of the
year to date, the total sales for the period would have been €21.2
million instead of €17.7 million, and as a result an extra €3.0
million gross profit would have been achieved. This would
have resulted in an almost break-even result at operating level for
the period.
CEO's Commentary
After a relatively modest start to sales of RUCONEST®
(recombinant C1 esterase inhibitor, 50 IU/kg) in 2016, revenue
growth during the first two months of the third quarter has
significantly increased. Sales efforts in the US drove this
growth.
Income from product sales increased 48% from €4.2 million in the
first half of 2016 to €6.2 million in eight month period to
31 August 2016, with sales of
RUCONEST® in the US up from €1.5 million in the first quarter and
€2.0 million in the second quarter to €1.5 million in the two
months (July, August), which equates to a quarterly rate of €2.3
million on an average basis and represents a strong performance.
Gross profits from sales has also continued to increase; from
€3.3 million in the first half of 2016 to €4.7 million in the first
eight month period as a result of improving US sales. We
continue to keep pressure on cash expenditure, despite the
improvement, resulting in resource management improvement in the
first eight months of 2016 compared with the same period in 2015,
despite much greater research and development (R&D)
activity.
On 9 August 2016, the Company
announced that it has entered into a definitive agreement to
acquire all North American commercialisation rights to its own
product RUCONEST® (recombinant human C1 esterase inhibitor),
including all rights in the US, Mexico and Canada, from Valeant Pharmaceuticals
International, Inc. ("Valeant") (NYSE/TSX: VRX). Under the
terms of the agreement, Pharming will pay Valeant an upfront fee of
US$60 million upon Closing, which is
expected during the fourth quarter this year. In addition,
over the coming years the Company will make one-time-only
(self-funding) payments to Valeant on the achievement of a small
number of specific sales milestones events, totalling a maximum of
US$65 million. The specific
details of these self-funding additional transaction terms are not
disclosed for commercial reasons. The transaction is subject to
Pharming obtaining adequate financing over the coming weeks prior
to Closing.
Based on our financial results for the first eight months of
2016, we expect that both sales and gross profits will continue to
improve during the remainder of the year and that investments in
R&D will continue to increase gradually. Subject to closing the
acquisition of the North American rights for RUCONEST and if sales
of Ruconest are maintained at the levels seen in the third quarter
of 2016 to date, we would expect to become profitable at the
operating level during 2017. No further financial guidance for 2016
or 2017 is currently provided
Sijmen de Vries
Chief Executive Officer
Operational Review
- Acquisition of Rights to RUCONEST® from
Valeant
Since the US Food and Drug Administration ("FDA") approval of
RUCONEST® on 16 July, 2014, US net
product sales have grown from $0.8
million in 2014 to an annualized rate of approximately
$33 million on the basis of the first
two months of the third quarter of 2016 within the US acute
hereditary angioedema ("HAE") market of around $840 million. Recently RUCONEST® demonstrated
good positive data for prophylaxis in patients with HAE. If
approved for this indication, RUCONEST® will have access to this
additional market, also worth almost $700
million. RUCONEST®, therefore, has the potential to be the
only recombinant C1 esterase inhibitor product approved to target
both the acute market and the HAE prophylaxis market.
Under the terms of the agreement, Pharming will pay Valeant an
upfront fee of US$60 million upon
Closing, which is expected during the fourth quarter of 2016. In
addition, over the coming years the Company will make one-time-only
(self-funding) payments to Valeant on achievement of a small number
of specific sales milestones events, totalling a maximum of
US$65 million. The specific
details of these self-funding additional transaction terms are not
disclosed for commercial reasons. The transaction is subject
to Pharming obtaining adequate financing via a financing round to
obtain sufficient new capital over the coming weeks.
- Growth of sales force and supplementary marketing efforts
crucial for success
To ensure a seamless transition, Pharming anticipates that
Valeant's dedicated RUCONEST® sales force, a total of 11 people,
will accept offers to join Pharming to continue the RUCONEST® sales
effort in the US. The Company also plans to increase the size
of this sales force to drive growth in US product sales, together
with increased investments in medical science liaison personnel and
additional marketing activities, including patient advocacy
programmes and the provision of significant unconditional support
for the HAEA (the US HAE patients association) and its programmes,
as well as HAE centers of excellence in the US.
Valeant and Pharming will work closely on the transition for
customers and HAE patients under a transition services agreement
entered into at the same time as the transaction. This will
enable Pharming to replace core functions currently undertaken by
Valeant and its contractors in a timely manner.
Financial Highlights
Revenues
Revenues from product sales slightly increased in the first
eight months of 2016 to €6.2 million from €5.6 million in the
same period in 2015, as a result of increased US product sales.
RUCONEST® sales in the US amounted to €5.0 million compared to €3.9
million in 2015; RUCONEST® sales in the EU & RoW amounted to
€1.2 million compared to €1.8 million in 2015, as a result of SOBI
adjusting inventory levels in Q1 2016.
Outside the US, revenue was 71% higher at the eight month stage
than at the half year stage, showing a significantly improved
performance in direct sales by Pharming and sales by our EU partner
SOBI.
Other license fee income amounted to €1.5 million, which was in
line with 2015. This license fee income reflects the release of
accrued deferred license fees following the receipt of €21.0
million upfront and milestone payments in 2010 and 2013 from SOBI,
Salix and CSIPI. It should be noted that the remaining license fee
income related to Salix and Santarus which has not been released by
the date of Closing of the acquisition will be released immediately
and deducted from the acquisition cost in determining the level of
intangible asset acquired. This is expected to be €4.7
million.
Gross Profit
Gross profit increased by €0.9 million to €4.7 million in the
first eight months of 2016 compared with the same period in 2015,
mainly as a result of an improving mix between US product sales,
direct sales and sales by our EU partner SOBI. Compared with the
first half of 2016, gross profit was up from €3.3 million to €4.7
million in the eight month period, an improvement of 42% in only
two months.
Operating Costs
Operating costs increased to €13.2 million in the first eight
months of 2016 from €12.0 million in the same period in 2015.
Within this increase, R&D costs increased by €0.8 million to
€9.6 million in the period, mainly due to costs for the expansion
of our R&D site in the
Netherlands and increased R&D activities related to
process development costs for the new projects.
General and administrative costs increased by €0.3 million to
€2.8 million in the first eight months of 2016 as a result of new
hires.
Marketing and sales costs increased slightly in the first eight
months of 2016 to €0.8 million compared to €0.7 million for the
same period in 2015. These costs are for direct commercialization
activities by Pharming in Germany,
Austria, the Netherlands and support to other countries
(outside US and EU).
Operating Result
As a result of the combination of the increase in gross profit
and the increase of operating costs due to increased investment in
new programs, the operating loss of €8.3 million in the first eight
months of 2016 was only slightly increased relative to last year's
loss for the same period (€8.1 million), despite the significant
increase in R&D activity since then.
Financial Income and Expenses
The 2016 net loss on financial income and expenses was €1.0
million, compared with a (mainly non-cash) net gain of €2.5 million
in 2015. This is predominantly due to the gain on revaluation of
warrants of €2.3 million in 2015 and the interest expense in 2016
of €1.3 million on the loans and the interest expense on finance
lease liabilities of €0.1 million. The gains on revaluation of
warrants, which represented the bulk of last year's gain,
represented only €0.3 million part of this year's loss, but are
non-cash gains accounted for in accordance with IFRS which cannot
actually be realized.
Net Result
As a result of the above items, the accounting net loss
increased from €5.5 million in the first eight months of 2015 to
€9.2 million in the same period in 2016. The increase of the net
loss was mainly related to the increase in financial expenses as a
result of interest on the loans and reduced non-cash income from
revaluation of derivatives.
Cash and Cash Equivalents
The total cash and cash equivalent position (including
restricted cash) decreased by €13.7 million from €31.8 million at
year-end 2015 to €18.1 million at the end of August 2016. The decrease in cash mainly relates
to increased R&D spend, offset by an increase in trade and
current liabilities. In 2015, the change in cash balances was
offset by entering into a US$17
million, four year straight debt (working capital) facility
with Oxford Finance and Silicon Valley Bank and was mainly related
to the build up of inventories. Cash at the end of the second
quarter of 2016 was €21.7 million, and the decrease since then is
mainly attributable to inventory costs for the most recent batches
of RUCONEST® and the pre-payment of supply prices to our
fill&finish partner BioConnection.
Equity
The Company's equity position amounted to €16.0 million at the
end of August 2016 (31 December 2015: €23.8 million), mainly due to
the net loss and the share-based compensation. In addition, it
should be noted that the Company still has a significant amount of
deferred license fee income (August
2016: €8.5 million) regarding non-refundable license fees
received in 2010 and 2013 which will be recognised in the statement
of income over the term of the license agreements involved, except
that if the acquisition closes, the amount of €4.73 million will be
released immediately from the deferred license fee revenue and used
to defray the value of the acquired assets.
The number of outstanding issued shares at 31 August 2016 was 412,555,374 and at
October 2, 2016 was 412,605,374.
Performance of Pharming Shares
During the first eight months of the year, Pharming's stock
price fluctuated around an average price of €0.24 per share. The
period-end price was €0.23 (31 August
2015: €0.30), with a high of €0.31 in March and a low of
€0.17 occurring in June.
Outlook
For the remainder of 2016, the Company expects:
- Completion of the financing round to enable closing of the
acquisition of the North American commercialization rights to
RUCONEST® from Valeant, with the associated payment of $60 million (approximately €53.4 million)
- 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.
- Assessment of the Phase II clinical trial results for RUCONEST®
in prophylaxis of HAE with the US FDA and EMA and the continued
development and expansion of RUCONEST®.
- We will also continue to invest carefully in the new pipeline
programs in Pompe Disease and Fabry Disease, as well as additional
development opportunities and assets as these occur.
- Increasing marketing activity where this can be profitable for
Pharming, in addition to our current territories of Austria, Germany and the
Netherlands. From October, we will begin operations in
the UK and France, followed by
Belgium, Spain and Portugal, once reimbursement has been obtained
where necessary.
- We will continue to support all our global marketing partners
in order to enable the maximization of the sales and distribution
potential of RUCONEST® for patients in all territories, as we
continue to believe that RUCONEST® represents a fast, effective,
reliable and safe therapy option available to HAE patients.
Subject to acquisition of the North American commercialization
rights to RUCONEST and maintenance of the current average level of
sales of the product seen in the US in the third quarter of 2016 so
far, we expect to achieve profitability at the operating level in
the course of 2017. No further financial guidance for 2016 or 2017
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 and rest of the world. The
product is available on a named-patient basis in other territories
where it has not yet obtained marketing authorization.
RUCONEST® is commercialized by Pharming in Austria, Germany and The
Netherlands. From October 1,
2016, Pharming will also commercialize the product in
Algeria, Andorra, Bahrain, Belgium, France, Ireland, Jordan, Kuwait, Lebanon, Luxembourg, Morocco, Oman, Portugal, Qatar, Syria,
Spain, Switzerland, Tunisia, United Arab
Emirates, United Kingdom
and Yemen.
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 the United
States by Valeant Pharmaceuticals International, Inc. (NYSE:
VRX/TSX: VRX), following Valeant's acquisition of Salix
Pharmaceuticals, Ltd.
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 Megapharm.
RUCONEST® is also being investigated in a Phase II clinical
trial 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 Shanghai Institute
of Pharmaceutical Industry ("SIPI"), 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 SIPI and are funded by SIPI. Clinical development will be shared
between the partners with each partner taking the costs for their
territories under the partnership.
Pharming has declared that the
Netherlands is its "Home Member State" pursuant to the
amended article 5:25a paragraph 2 of the Dutch Financial
Supervision Act.
Additional information is available on the Pharming website:
http://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 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.
Pharming Group N.V.
Consolidated Interim Financial Statements (Unaudited)
For the first eight months ended 31
August 2016
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
Consolidated Statement of Income
For the first eight months ended 31 August
Amounts in EUR'000, except per share data Notes YTD 2016 YTD 2015
Product sales 6,196 5,663
Release of deferred license fee income 1,471 1,471
Revenues 6 7,667 7,134
Costs of product sales (2,794) (3,508)
Inventory impairments (209) 200
Costs of sales 7 (3,003) (3,308)
Gross profit 4,664 3,826
Other income 242 93
Research and development (9,596) (8,792)
General and administrative (2,757) (2,469)
Marketing and sales (803) (734)
Costs 7 (13,156) (11,995)
Operating result (8,250) (8,076)
Fair value gain (loss) on revaluation
derivatives 306 2,302
Other financial income and expenses (1,301) 240
Financial income and expenses (995) 2,542
Result before income tax (9,245) (5,534)
Income tax expense - -
Net result for the period (9,245) (5,534)
Attributable to:
Owners of the parent (9,245) (5,534)
Total net result (9,245) (5,534)
Basic and diluted earnings per share (EUR) (0.022) (0.014)
Consolidated Statement of Comprehensive Income
For the first eight months ended 31 August
Amounts in EUR'000 YTD 2016 YTD 2015
Net result for the period (9,245) (5,534)
Currency translation differences (2) 4
Items that may be subsequently reclassified to
profit or loss (2) 4
Other comprehensive income, net of tax (2) 4
Total comprehensive income for the period (9,247) (5,530)
Attributable to:
Owners of the parent (9,247) (5,530)
Consolidated Balance Sheet
As at date shown
Amounts in EUR'000 Notes 31 August 31 December
2016 2015
Intangible assets 689 724
Property, plant and equipment 5,917 5,661
Restricted cash 270 200
Long term prepayment 8 1,000 -
Non-current assets 7,876 6,585
Inventories 9 18,842 16,229
Trade and other receivables 4,921 3,220
Cash and cash equivalents 17,802 31,643
Current assets 41,565 51,092
Total assets 49,441 57,677
Share capital 4,126 4,120
Share premium 283,528 283,396
Legal reserves 64 66
Accumulated deficit (271,727) (263,743)
Shareholders' equity 10 15,991 23,839
Loans and borrowings 11 8,990 11,757
Deferred license fees income 6,376 7,808
Finance lease liabilities 718 798
Non-current liabilities 16,084 20,363
Loans and borrowings 12 5,653 3,047
Deferred license fees income 2,167 2,207
Derivative financial liabilities 13 642 953
Trade and other payables 8,645 7,005
Finance lease liabilities 259 263
Current liabilities 17,366 13,475
Total equity and liabilities 49,441 57,677
Consolidated Statement of Cash Flows
For the first eight months ended 31 August
Amounts in EUR'000 YTD 2016 YTD 2015
Operating result (8,250) (8,076)
Non-cash adjustments:
Depreciation, amortization 405 352
Accrued employee benefits 1,261 1,814
Deferred license fees (1,471) (1,471)
Operating cash flows before changes in working
capital (8,055) (7,381)
Changes in working capital:
Inventories (2,613) (2,216)
Trade and other receivables (1,701) (3,241)
Payables and other current liabilities 1,636 (831)
Total changes in working capital (2,678) (6,288)
Changes in non-current assets, liabilities and
equity (738) 256
Net cash flows used in operating activities (11,471) (13,413)
Capital expenditure for property, plant and
equipment (893) (616)
Divestments of assets - 2
Net cash flows used in investing activities (893) (614)
Proceeds of debt loans - 15,524
Payments of transaction fees and expenses - (608)
Payments of finance lease liabilities - (12)
Repayments of loans (1,096) (150)
Net cash flows from financing activities (1,096) 14,754
Increase (decrease) of cash (13,460) 727
Exchange rate effects (311) 273
Cash and cash equivalents at 1 January 31,843 34,385
Total cash at 31 August 18,072 35,385
Of which restricted cash 270 200
Cash and cash equivalents at 31 August 17,802 35,185
Consolidated Statement of Changes in Equity
For the first eight months ended 31 August
Attributable to owners of the parent
Number of Share Share
Amounts in EUR'000 Notes shares capital Premium
Balance at 1 January 2015 407,686,599 4,077 282,260
Result for the period - -
Other comprehensive income - -
Total comprehensive income - -
Share-based compensation - - -
Bonuses settled in shares 523,813 5 168
Shares issued for cash - -
Warrants exercised/ issued - -
Options exercised 56,250 - 3
Total transactions with owners
recognized directly in equity 580,063 5 171
Balance at 31 August 2015 408,266,662 4,082 282,431
Balance at 1 January 2016 411,971,790 4,120 283,396
Result for the period - -
Other comprehensive income - -
Total comprehensive income - -
Share-based compensation - - -
Bonuses settled in shares 10 533,584 5 121
Shares issued for cash - - -
Warrants exercised/ issued 50,000 1 11
Options exercised - - -
Total transactions with owners,
recognized directly in equity 583,584 6 132
Balance at 31 August 2016 412,555,374 4,126 283,528
Attributable to owners of the parent
Legal Accumulated
Amounts in EUR'000 Notes reserves Deficit Total Equity
Balance at 1 January 2015 36 (256,530) 29,843
Result for the period - (5,534) (5,534)
Other comprehensive income 4 - 4
Total comprehensive income 4 (5,534) (5,530)
Share-based compensation - 1,814 1,814
Bonuses settled in shares - - 173
Shares issued for cash - - -
Warrants exercised/ issued - - -
Options exercised - - 3
Total transactions with owners,
recognized directly in equity - 1,814 1,990
Balance at 31 August 2015 41 (260,250) 26,303
Balance at 1 January 2016 66 (263,743) 23,839
Result for the period - (9,245) (9,245)
Other comprehensive income (2) - (2)
Total comprehensive income (2) (9,245) (9,247)
Share-based compensation - 1,261 1,261
Bonuses settled in shares 10 - - 126
Shares issued for cash - - -
Warrants exercised/ issued - - 12
Options exercised - - -
Total transactions with owners,
recognized directly in equity - 1,261 1,399
Balance at 31 August 2016 64 (271,727) 15,991
Notes to the Consolidated Interim Financial
Statements
For the first eight months ended 31 August
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
These consolidated interim financial statements for the eight
months ended 31 August 2016 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 2015, which
have been prepared in accordance with with International Financial
Reporting Standards (IFRS) and IFRS Interpretations Committtee
(IFRS IC) interpretations applicable to companies reporting under
IFRS as adopted by the European Union and valid as of the balance
sheet date.
Going concern assessment
In preparing and finalising the consolidated interim financial
statements for the eight months ended 31
August 2016, The Board of Management of Pharming has, ,
assessed the Company's ability to fund its operations for a period
of at least one year after the date of signing these financial
statements.
Based on the above assessment, the Company has concluded that
funding of its operations for a period of one year after the date
of signing of these consolidated interim financial statements is
realistic and achievable.
3. Accounting policies
Compared to the financial statements for the year ended
31 December 2015, the Company
haschanged the consolidated statement of cash flows from the direct
method to the indirect method. The main difference is the
presentation and determination of cash flows from operating
activities. Under the indirect method the figure is produced by
adjusting the profit and loss by removing the effects of non-cash
items and changes in working capital. The Company has chosen the
operating result as a starting point for the reconciliation because
most of the other elements in the net result have a non-cash
nature. This way the statement properly reflects the cash
flows.
The reasons for the Company for this change are: Clear
reconciliation with income statement through operating result, and
balance sheet through working capital changes, more relevant
information about the Company's cash flow and more consistency with
market standards.
Besides the above mentioned, the accounting policies adopted are
consistent with those of the financial statements for the year
ended 31 December 2015.
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 apllied to the
consolidated financial statements for the ended 31 December 2015.
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 RUCONEST®
business. From a geographic perspective, the Company is operating
in two main segments: the US, and the Rest of the World
(Europe & RoW). The Board of
Management primarily measures revenues to assess the performance of
the operating segments, because prices for RUCONEST® are not in its
control, and therefore it can not influence gross profit. Costs and
assets are not allocated to the geographic segments.
Total revenues per geographic segment for the first eight
months:
First Six
Amounts in EUR'000 YTD to 31 months to 30 YTD to 31
(unaudited) 31 August 2016 June 2016 Change August 2015
USA:
Product Sales 4,968 3,504 1,464 3,918
Deferred License
Revenue released 758 568 190 757
Total 5,726 4,072 1,654 4,675
Europe & RoW:
Product Sales 1,227 666 561 1,745
Deferred License
Revenue released 714 536 178 714
Total 1,941 1,202 739 2,459
Total Revenue 7,667 5,274 2,393 7,134
7. Expenses by nature
Cost of product sales in the first eight months of 2016 amounted
to €2.8 million (YTD 2015: €3.5 million). Inventory impairments
amounted to an addition of €0.2 million (2015: reversal of €0.2
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. Actual sales can differ from
these forecasts.
Operating costs increased to €13.2 million from €12.0 million in
the first eight months of 2015. The increase is a result of the
increased costs for the new R&D sites in France and the
Netherlands and increased R&D activities in the Netherlands.
In the first eight months of 2016, Research and Development
costs increased by €0.8 million compared to the same period in 2015
and amounted to €9.6 million, General and Administrative costs
increased to €2.8 million from €2.5 million in the same period in
2015 and Marketing and Sales costs increased by €0.1 million to
€0.8 million in the same period in 2015.
Employee benefits
Employee benefits are charged to Research and development costs
or General and Administrative costs or Marketing and Sales costs
based on the nature of the services provided.
Depreciation and amortisation charges
Amounts in EUR '000 YTD 2016 YTD 2015
Property, plant and equipment (370) (317)
Intangible assets (35) (35)
Total (405) (352)
The increase of depreciation charges of property, plant and
equipment in the first eight months of 2016 as compared to 2015
stems from investments.
Amortisation charges of intangible assets have been fully
allocated to research and development costs in the statement of
income; for property, plant and equipment, in the first eight
months of 2016 an amount of €302k was charged to research and
development costs (YTD 2015: €244k) and €68k to general and
administrative expenses (YTD 2015: €73k).
8. Long term prepayment
The Long term prepayment is part of a new manufacturing
agreement with BioConnection B.V. and represents two of a total of
four instalments, each of €500,000. BioConnection may decide at its
sole discretion to lower the total amount of the last 2 instalments
that are due in 2017. The prepayment will be settled by
Bioconnection for paying for Drug Product batches in the
future. The Company does not expect to settle the instalments
within 1 year.
9. Inventories
Inventories include batches RUCONEST® and skimmed milk produced
and available for conversion to RUCONEST®.
31 August 31 December
Amounts in EUR'000 2016 2015
Finished goods 9,939 11,397
Work in progress 6,820 3,232
Raw materials 2,083 1,600
Balance at end of period 18,842 16,229
The inventory valuation at 31 August
2016 is stated net of a provision of €0.4 million
(2015: €0.5 million) to write inventories down to their net
realisable value.
Changes in the adjustment to net realisable value:
31 August 31 December
Amounts in EUR '000 2016 2015
Balance at 1 January (462) (1,691)
Reversal of (addition to) impairment for the year (230) 247
Related to costs of product sales 291 548
Related to operating costs 5 434
Balance at end of period (396) (462)
In 2016, the addition of €0.2 million was based on adjusted
sales forecasts. The impaired amount related to operating costs was
used for investigational medicinal product drugs in clinical
studies.
Cost of inventories included in the cost of product sales in the
first eight months of 2016 amounted €2.8 million (2015: €3.5
million). The vast majority of inventories at 31 August 2016 has expiration dates starting
beyond 2018 and is expected to be sold or used before
expiration.
10. Equity
The Company transferred an aggregate number of 533,584 shares to
members of the Board of Management and employees in lieu of bonus
rights for the year 2015.
A total of 50,000 warrants were exercised in exchange for 50,000
shares.
11. Loans and borrowings
On 20 July 2015, the Company
entered into a straight debt financing with Oxford Finance LLC and
Silicon Valley Bank (the Lenders).
Under the terms and conditions of the agreement, the Lenders
provide USD17 million (net €15.5
million) secured senior debt funding against 48 months' promissory
notes with a 7.02% fixed interest per annum. The initial 12 months
of the notes are interest payments only, followed by monthly
re-payment of the notes in a 36 months' straight amortization
scheme. In 2016 the total amount of interest was €1.3
million.
As further consideration for the facility, the Lenders have
received 2,315,517 warrants (amounting to a 3.95% warrant coverage)
with a strike price of €0.29, representing the average closing
price of Pharming shares over the last ten days prior to the date
of the loan, and a final payment on maturity (1 July 2019) of 9% of the principal sum. Other
facility fees of €0.6 million have been deferred from the original
loans.
The Company and its subsidiaries have pledged all of its
receivables, tangible assets and intellectual property rights as
collateral security to the Lenders.
After initial recognition at fair value, the carrying amount of
the loan is restated at each reporting date.
In case of a change in the underlying cash flows, the carrying
amount of the loan is restated to the net present value of the
underlying cash flows discounted at the effective interest rates of
12.2% and 13.1%.
The Loans can be summarised as follows:
31 August 31 December
Amounts in EUR '000 2016 2015
Loans from banks 14,643 14,804
Current portion of the long-term loans due within one year (5,653) (3,047)
Portion of long-term loans due after one year 8,990 11,757
The remaining lifetimes of the loans are less than 5 years.
12. Derivative financial liabilities
Derivative financial liabilities relate to financial instruments
and include warrants issued in relation to the issue of equity.
Derivative financial liabilities include the initial fair value of
the 4,253,125 warrants issued in connection with the private
placements in October 2013 and the
Loan and Security Agreement with Oxford Finance LLC and Silicon
Valley Bank, as well as changes in the fair value of the warrants
resulting from adjustments of their exercise prices. All
outstanding warrants were revalued for accounting purposes at
31 August 2016.
Movement of derivative financial liabilities can be summarised
as follows:
Period to Year to
31 August 31 December
Amounts in EUR '000 2016 2015
Balance at 1 January 953 4,266
Initial recognition upon issue - 590
Fair value losses (gains) derivatives (306) (3,380)
Exercise of warrants (5) (523)
Balance at end of period 642 953
Fair value gains and losses on derivatives have been presented
within financial income and expenses.
13. Commitments and contingencies
In the first eight months of 2016, the Company entered into a
Manufacture and Service Agreement with BioConnection for the fill
& finish of RUCONEST® (Drug Product), placebo and other
products. In July 2016, the
Company entered into a Manufacturing Service Agreement with
Therapure, Inc. of Canada with
respect to process development for one of the Company's new
programs.
There were no other material changes to the commitments and
contingent liabilities from those disclosed in Note 28 of the 2015
Annual Report.
14. Fully-diluted shares
The total number of outstanding shares at 2 October 2016 is 412,605,374.
The composition of the number of shares and share rights
outstanding as well as authorised share capital as per the date of
these financial statements is provided in the following tables.
2 October 2016
Shares 412,605,374
Warrants 4,203,125
Options 43,300,672
LTIP 5,092,396
Issued 465,201,567
Available for issue 184,798,433
Authorised share capital 650,000,000
15. Events since the end of the reporting
period
The Company has announced that it will hold an extraordinary
general meeting of shareholders on 5 October
2016, at which the Board of Management is proposing that the
Authorised Share Capital be increased by 150 million new shares to
ensure to enable the financing associated with the acquisition of
North American rights to Ruconest® to succeed.
Apart from this, there have been no significant events since the
end of the reporting period which are not already explained in the
text of this report.
Contact
Sijmen de Vries, CEO: T: +31-71-524-7400
Robin Wright, CFO: T:
+31-71-524-7432
FTI Consulting
Julia Phillips/ Victoria Foster Mitchell, T:
+44-203-727-1136
PRN NLD