Pharming Group N.V. — FY2020 Form 20-F
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone 2020 Q4 report; quarterly results are not clearly provided in the filing text. Financial statements are prepared under IFRS and presented in euros.
Business context
Pharming is a commercial-stage biopharmaceutical company focused on rare diseases. Its principal product is RUCONEST, a recombinant C1 esterase inhibitor approved for acute hereditary angioedema (HAE) attacks. Sales are concentrated in the United States; the company sells directly in the U.S., U.K. and EU, and uses distributors elsewhere. Its pipeline includes leniolisib for APDS, rhC1INH studies in COVID-19, acute kidney injury and pre-eclampsia, and preclinical enzyme-replacement programs.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | €185.7 million | €169.0 million |
| Gross profit | €165.1 million | €147.7 million |
| Gross margin | 88.9% | 87.4% |
| Operating profit | €66.7 million | €60.9 million |
| Operating margin | 35.9% | 36.0% |
| Profit before tax | €38.6 million | €46.7 million |
| Net profit | €33.0 million | €36.2 million |
| Basic / diluted EPS | €0.051 / €0.048 | €0.058 / €0.054 |
| Operating cash flow | €74.0 million | €66.5 million |
| Cash and cash equivalents at year-end | €167.1 million | €66.3 million |
| Capital expenditure on property, plant and equipment | €4.1 million | €2.4 million |
Margins are calculated from reported revenue and profit figures. Revenue was almost entirely RUCONEST-related. U.S. revenue was €177.4 million, or about 95% of total revenue. Two U.S. customers accounted for €141.5 million, or 76% of revenue.
Changes versus FY2019
- Revenue rose 9.9%, primarily from higher U.S. RUCONEST sales; U.S. sales increased to €177.4 million from €162.7 million. European revenue increased to €7.2 million from €5.0 million, while Rest of World revenue declined to €1.1 million from €1.3 million.
- Gross profit grew 11.8%, and gross margin improved. Management attributed lower cost of sales partly to validation and operation of a new production facility.
- Operating profit increased 9.6%, but operating margin was broadly flat as research and development, general and administrative, and sales and marketing costs rose.
- Net profit fell 8.7% despite stronger operating profit. Net finance costs rose to €28.5 million from €14.5 million, including €16.8 million in foreign-exchange losses, €3.8 million in loan-settlement costs and €3.3 million of contingent-consideration expense.
- Operating cash flow increased by €7.5 million. Investing cash outflow decreased to €13.7 million from €25.2 million, while financing cash flow swung to a €53.1 million inflow, mainly reflecting €125 million of convertible-bond proceeds and repayment of the OrbiMed loan.
Debt, liquidity and capital resources
- Pharming issued €125 million of 3.00% senior unsecured convertible bonds due January 2025, convertible at an initial price of €2.0028 per ordinary share. The bonds have semiannual interest payments; carrying value at year-end was €123.6 million.
- The company repaid its OrbiMed loan in full in January 2020, including a €3.8 million exit fee. The loan had carried an 11% margin over the specified LIBOR floor.
- Year-end cash was €167.1 million, with €1.2 million of restricted cash. Management said year-end cash was expected to fund operations for more than 12 months and reported cash of approximately €176.7 million at March 31, 2021.
- Management expected 2021 RUCONEST proceeds to exceed operating, financing and other cash requirements, including capital expenditure, but gave no numerical revenue or earnings guidance. It said it saw no need to raise capital for current operations, while retaining the possibility of financing acquisitions or licensing opportunities.
- The company reported net cash of €44.7 million under its defined non-GAAP net-debt measure. However, another financial-risk table reports net debt of positive €43.5 million, which appears inconsistent with the definition and balance-sheet figures; the filing does not clearly reconcile this discrepancy.
Outlook, risks and unusual items
- Commercial outlook: Management expected continued RUCONEST demand and sufficient sales to fund planned activities. No quantified 2021 guidance was provided. Commercial expansion in Europe followed the reacquisition of RUCONEST rights from Sobi, effective January 2020.
- Development pipeline: Leniolisib’s registration-enabling Phase 2/3 study had resumed after a COVID-19 interruption; data were expected in the second half of 2021, with a potential launch in the second half of 2022 if approved. Planned studies in acute kidney injury and pre-eclampsia had been delayed by COVID-19. COVID-19 studies of RUCONEST were underway, but the filing reports no confirmatory efficacy results.
- COVID-19: Sales, field activities, clinical trials and supply chains faced possible disruption. Management considered a material adverse effect on liquidity unlikely over the next 12 months, while acknowledging uncertainty.
- Concentration and supply: Revenue dependence on RUCONEST and two U.S. customers is significant. The company also relies on a limited number of suppliers and third-party manufacturers; manufacturing interruptions or quality issues could affect supply.
- Regulatory and market risks: Product acceptance, competition, pricing and reimbursement, clinical-trial outcomes, regulatory approvals and intellectual-property protection could affect future revenue and pipeline value.
- Contingency: Pharming was contesting a French health-products committee claim seeking approximately €750,000 related to 2018 RUCONEST sales under pricing arrangements with a former licensee. The company stated it was not party to that agreement.
- Internal controls: Management identified material weaknesses across the COSO control components, including insufficiently formalized controls, risk assessment and IT-related financial-reporting controls, and inadequate accounting and reporting resources. Disclosure controls were deemed ineffective at December 31, 2020. Remediation was underway; the company cautioned that success was not assured. The auditor did not express an opinion on internal-control effectiveness.
- Audit: Deloitte issued an unqualified opinion on the FY2020 and FY2019 financial statements. The audit highlighted U.S. rebate accrual estimation and accounting for the Sobi rights reacquisition as critical audit matters.
- Other items: The final $25 million U.S. sales milestone to Bausch Health was triggered in 2020 and was scheduled for payment in 2021 (€20.4 million). The company reported no material off-balance-sheet arrangements and no anticipated dividends in the foreseeable future.
Important facts for investors to verify
- Reconcile the conflicting net-cash/net-debt figures and confirm the treatment of restricted cash and convertible bonds.
- Track U.S. sales growth, customer concentration and gross-to-net rebate accruals; U.S. rebates were a critical audit matter.
- Assess progress in remediating the disclosed material weaknesses and whether subsequent filings report effective controls.
- Verify clinical-trial timelines, results and regulatory milestones for leniolisib and the rhC1INH programs, including the effects of COVID-19 delays.
- Confirm payment of the final Bausch Health milestone and monitor planned manufacturing-capacity expansion and supply reliability.
- Monitor the outcome of the French €750,000 claim and any material changes in pricing, reimbursement or regulatory conditions.