Pharming Group N.V. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone Q4 filing. Financial statements are prepared under IFRS as issued by the IASB and presented in U.S. dollars.
Business context
Pharming is a rare-disease biopharmaceutical company. Its main commercial products are RUCONEST, for acute hereditary angioedema (HAE) attacks, and Joenja (leniolisib), approved in the U.S. in March 2023 for activated PI3K-delta syndrome (APDS) in patients aged 12 and older. RUCONEST remained the principal revenue source; Joenja began U.S. commercialization in April. The pipeline includes pediatric and Japan studies of leniolisib, research into additional primary immunodeficiencies, and preclinical HAE gene therapy OTL-105.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $245.3 million | $205.6 million |
| Gross profit / gross margin | $220.1 million / approximately 89.7% | $188.1 million / approximately 91.5% |
| Operating profit (loss) | $(5.4) million | $18.2 million |
| Net profit (loss) | $(10.5) million | $13.7 million |
| Operating cash flow | $(17.3) million | $22.5 million |
| Cash and cash equivalents | $61.7 million | $207.3 million |
| Marketable securities | $151.7 million | — |
| Convertible bonds, carrying amount | $138.4 million | $133.4 million |
| Lease liabilities | $33.1 million | $33.3 million |
Revenue rose 19.3%. RUCONEST revenue was $227.1 million, up from $205.6 million; Joenja contributed $18.2 million, including $17.9 million in the U.S. RUCONEST represented approximately 92.6% of revenue. Two U.S. specialty pharmacy customers accounted for $204.3 million, or 83% of revenue.
Operating expenses increased substantially: research and development was $68.9 million (2022: $52.5 million), general and administrative $55.9 million (2022: $46.0 million), and marketing and sales $124.0 million (2022: $85.8 million). Other income included a $21.3 million gain from sale of the Joenja-related Rare Pediatric Disease Priority Review Voucher. Without treating this one-off item as recurring, reported results include a material unusual contribution to income.
Investing cash outflow was $129.4 million, largely reflecting purchases of marketable securities, partly offset by sales of securities and PRV proceeds. The company reported $213.4 million of cash and cash equivalents plus marketable securities, excluding restricted cash, at year-end; including restricted cash, these balances totaled $215.0 million. Management said available cash, restricted cash and marketable securities were expected to fund operations for more than 12 months from the report date. Net cash, as defined by the company and after convertible bonds but before lease liabilities, was $76.5 million.
Material changes and unusual items
- Joenja’s first commercial year added revenue, while launch preparation and expanded commercial, clinical and administrative activity drove higher costs.
- Gross margin declined approximately 1.8 percentage points, reflecting higher product costs, Novartis royalties on Joenja and inventory impairment charges.
- Other income included the $21.3 million PRV sale in 2023; 2022 included a $12.2 million gain from dilution of Pharming’s BioConnection investment.
- Inventory rose to $56.8 million from $42.3 million, while the inventory impairment balance increased to $4.3 million. Management attributed impairments mainly to products no longer eligible for commercial sale.
- Pharming recorded a further $4.7 million impairment of a right-of-use asset associated with an underused downstream production facility in Oss; the asset’s carrying value was $5.5 million at year-end.
- The Pompe disease program was discontinued. Capital expenditures were $1.4 million, unchanged from 2022.
Outlook, risks and contingencies
- Management expects 2024 investment in Joenja launch preparation and commercialization in additional markets to weigh negatively on profit; it expects Joenja revenue to grow from 2024 onward, but gave no specific revenue or earnings guidance. Management said it could not assure the timing or amount of future profits.
- The company was awaiting the European CHMP opinion on the leniolisib marketing application and anticipated regulatory decisions in 2024 in Canada, Australia and Israel. UK filing under the International Recognition Procedure was submitted in March 2024. Pediatric and Japan studies were ongoing.
- Commercial risk is concentrated in RUCONEST and two U.S. specialty pharmacy customers. Competition, changes in prophylactic HAE treatment, pricing and reimbursement pressure, and customer demand could affect sales.
- Manufacturing and supply depend on a limited number of third parties and suppliers. The company also relies on third parties for product quality-control procedures and clinical development activities.
- Pharming’s €125 million 3.00% convertible bonds mature January 21, 2025 unless converted, redeemed or repurchased. The filing says repayment may be funded through operating cash, bank financing and/or bonds; no new borrowings were made in 2023.
- Minimum commitments under manufacturing and development agreements totaled approximately $58.3 million at year-end, of which $21.9 million related to 2024. Joenja carries Novartis royalties, including a 12% minimum rate up to specified sales levels and rates rising to a maximum of 18%, plus potential regulatory and sales milestones.
- Management and the auditor identified material weaknesses across all five COSO components of internal control over financial reporting. Management concluded disclosure controls were ineffective at December 31, 2023, and Deloitte issued an adverse opinion on internal control. Deloitte issued an unqualified opinion on the IFRS financial statements. The auditor identified U.S. revenue rebate accruals as a critical audit matter because estimation requires significant judgment and historical claims data are limited.
- The auditor’s report notes no material legal proceedings; the filing says the company was not party to any material legal or administrative proceedings. The company does not anticipate paying dividends in the foreseeable future.
Important facts for investors to verify
- Whether Joenja adoption and patient identification translate into recurring revenue growth, and whether international approvals and launches progress as anticipated.
- How revenue and gross margin evolve given RUCONEST’s continued dominance, competition and the high concentration of sales through two U.S. customers.
- Whether operating cash flow improves as launch and development spending rises, and whether the stated liquidity runway remains adequate.
- The plan and funding for the January 2025 convertible bond maturity, including potential dilution if bonds convert or new equity is issued.
- Progress in remediating the internal-control material weaknesses and results of the planned 2024 operating-effectiveness testing.
- Actual U.S. rebate claims versus accrued estimates, inventory utilization and impairment assumptions, and recoverability of the underused Oss facility asset.