“We are delighted with a second quarter of profitable operations, even after increased costs as we finish our integration and infrastructure investments. Now that our capital position is properly secured following the refinancing in May/July 2017, we can look forward to more stable growth as the big one-off accounting costs have been taken in this quarter.”
Chief Executive Officer’s Comment
Our strategic decision to re-acquire the commercial rights to sell RUCONEST® in North America has significantly increased revenue and profit generation for the first half of the year compared to the first half of 2016.
Product sales for the half year increased by 617% to €30.1 million (HY 2016: €4.2 million). The positive sales momentum in the US continued in Q2, following higher than expected sales in Q1, with net sales of $15.3 million in Q2 ($15.5 million in Q1) despite stock level adjustments.
Combined with ongoing growth in the number of US patients entering our full patient care plan, RUCONEST® SOLUTIONS, and new European patients starting RUCONEST® therapy with our recently introduced EU home use kit, we expect sales to increase in H2.
Our strategy of increasing market access in the US with our sales, market access, nursing and patient management teams, and in the EU with continued expansion of our direct commercialization efforts, is driving the growth in new patients using RUCONEST®. As previously announced, marketing costs have increased as a direct result of hiring additional US personnel and start-up investments in marketing activities.
Underlying sales volumes somewhat increased in Q2. On a reported basis, however, Q2 sales were slightly reduced to €14.9 million, from €15.2 million in Q1, reflecting the adverse movement in exchange rates (the dollar weakened against the euro). This was offset by a better performance in the EU and the Rest of the World (RoW) sales, which were up from €0.7 million in Q1 to €0.9 million in Q2.
Gross profits reduced in line with the reduction in sales expressed in euros from €13.8 million in Q1 to €13.2 million in Q2, also reflecting slightly higher costs of goods and the higher mix of lower-margin RoW sales. We remain focused on increasing efficiency and controlling costs.
Operating profit for the first half of the year was €4.2 million, of which €3.9 million was recorded in Q1. As previously guided, we have invested in expanding the US sales and marketing team and making further significant investments in our market presence especially in the USA, the costs of which are reflected in a lower operating profit for Q2. We expect to see the benefits of this investment in subsequent periods.
In March, the European Commission adopted the Commission Implementing Decision to amend the marketing authorisation for RUCONEST® to include self-administration using the RUCONEST® Administration Kit. This decision allows for self-administration of RUCONEST® for acute hereditary angioedema (HAE) attacks by adolescents and adults with a new custom-designed RUCONEST® Administration Kit in the comfort and privacy of their own homes or at any other place they choose, without the necessity of a healthcare professional (HCP) being present. The Administration Kit is now available for use in various EU markets, following approval of the Educational Materials by the local authorities in those markets.
In May, we announced a major refinancing of most of the financial instruments taken out in order to complete the acquisition of the commercialization rights to RUCONEST® from Valeant Pharmaceuticals International, Inc. (“Valeant”) (NYSE/TSX: VRX). Pharming completed a new US$100 million finance agreement with Orbimed Advisors. The new facility has been used to redeem the Amortizing Convertible Bonds due 2017/2018 and to refinance the Company’s senior debt facility with Silicon Valley Bank and Kreos Capital, together with the associated prepayment fees, legal fees and other costs of the transaction. The loan, initially structured as a bridge facility, was replaced last week by a full loan agreement with a maturity date of July 2021 under the same terms and conditions. This refinance enabled the company to recover 115 million shares, which had been set aside to meet conversions of the Amortizing Convertible Bonds, thereby removing the risk of 24% dilution from conversion of these Bonds from existing shareholders. At the same time, we were able to lower the cash cost of the debt overall and to reduce significantly the non-cash accounting effects of the Amortizing Bonds, which amounted to almost €8 million in Q1 2017 alone.
As expected, net profit was impacted by the one-off legal, accounting and other professional services costs resulting from the refinancing in May, which amounted to €16.1 million before non-cash financing expenses required to be shown under IFRS associated with the extinction of the Amortising Convertible Bonds 2017/2018 and replacement of the old debt facility.
Based on the increased momentum in sales volumes, underlying improving trends in identifying and diagnosing patients, combined with better patient care and management practices, and a focus on specialty pharmacy customers, we expect to further increase sales. We will continue to control costs and investments to improve profitability and drive sustainable long-term growth. We continue to expect additional positive operating results for the remainder of the year. No further financial guidance is provided.
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