Pharming Reports on Financial Results for the First Six Months of 2016

LEIDEN, The Netherlands, July 28, 2016 /PRNewswire/ --

Pharming Group N.V. ("Pharming" or "the Company") announces its (unaudited) financial report for the six months ended 30 June 2016.
The Company will hold a conference call at 10:00 CET today, dial-in details can be found on page 7.

- Sales of RUCONEST(R) up 63% overall in second quarter relative to first quarter,
so that sales in the first half of 2016 sales were slightly ahead of the first half of
- Sales in the USA up by approximately 33% in the second quarter compared with the first
- Gross Profit increased by 14% for the half year compared with the first half of 2015
- Strongly Positive Results from Phase II study of RUCONEST(R) for prophylaxis of HAE
- Pharming agrees to market RUCONEST directly in 21 more EU and Middle East countries in
amendment with SOBI

CEO's Commentary 
After a relatively modest start to sales of RUCONEST(R) (recombinant C1 esterase inhibitor, 50 IU/kg) in 2016, sales trends during the second quarter improved again. More consistent sales efforts in the US, recovering from the impact of a significant reorganization of the Valeant sales force in Q4 2015, and a modest expansion in our EU direct commercialization efforts drove these improvements. Pharming is continually looking for ways to improve sales performance in the USA and the rest of the world in cooperation with our partners.
Income from sales increased 63% from EUR1.6 million in the first quarter to EUR2.6 million in the second quarter, with sales in the USA up from EUR1.5 million in the first quarter to EUR2.0 million in the second quarter.  This represents a good half year, and exceeds the first half of 2015 when the major wholesalers in the USA were ramping up their stocking levels of RUCONEST(R) to meet increasing demand. Gross profits from sales continue to increase as well; from EUR1.6 million in the first quarter to EUR1.7 million in the second quarter of 2016 as result of the changing mix between US sales and sales in the EU by Swedish Orphan Biovitrum ("SOBI") and by Pharming.  We continued to keep pressure on cash expenditure despite the improvement, resulting in resource management improvement in the first half of 2016 compared with the first half of 2015.
During March, the European Commission adopted the CHMP recommendation to include the treatment of hereditary angioedema ("HAE") attacks in adolescents and to remove the requirements for rabbit IgE testing that previously formed part of the EU label for RUCONEST(R).  The CHMP also noted that the importance of favorable effects of RUCONEST(R) is further supported by the continued availability of supply of RUCONEST(R) (produced by recombinant technology) in comparison to supply from blood donor plasma that may vary, and that as it is not a blood derived product RUCONEST(R) carries no potential risk of exposure to blood-borne pathogens.
We continue to make good progress in developing our pipeline to produce the next generation of therapies from our platform.  Our first program lead for Pompe disease is now entering its next stage of pre-clinical testing and process development with the second program for Fabry Disease following by approximately six months.  We will be announcing details of these programs and the timetable of their clinical development later this year.
After the end of the period we updated our distribution agreement with SOBI.  As of 1 October this year, Pharming will commercialize RUCONEST(R) directly in a further 21 countries.  SOBI had not yet begun significant sales efforts in most of these countries.   The countries include the major EU markets of the UK, France and Spain, and a number of countries across Europe and the Middle East which do not yet have optimal access to therapies for HAE.  In some of these countries we will continue to act in partnership with the HAEi Global Access Program.
Earlier this month we also announced positive results from a Phase 2 clinical study of RUCONEST(R)  for prophylaxis in patients with HAE.  In the study, RUCONEST(R) showed a clinically relevant and statistically significant reduction in attack frequency for both the twice-weekly (p-value
    Amounts in EUR '000                      HY 2016      HY 2015
    US                                         4,072        3,570
    Europe and RoW                             1,202        1,665
    Total revenues                             5,274        5,235

7.  Expenses by nature 
Cost of product sales in the first half year of 2016 amounted to EUR1.8 million (HY 2015: EUR2.6 million). Inventory impairments amounted to an addition of EUR0.2 million in the first half of 2016 (2015: reversal of EUR0.2 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 EUR9.7 million from EUR9.0 million in the first half year of 2015. The increase is a result of the increased costs for the new R&D site in France and increased R&D activities in the Netherlands.
Research and Development costs increased by EUR0.5 million compared to HY 2015 and amounted to EUR7.0 million in the first half year of 2016, General and Administrative costs increased to EUR2.0 million from EUR1.8 million in 2015 and Marketing and Sales costs remained the same and amounted to EUR0.6 million.
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 HY 2016 HY 2015
US 4,072 3,570
Europe and RoW 1,202 1,665
Total revenues 5,274 5,235

The increase of depreciation charges of property, plant and equipment in the first half year 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 half year of 2016 an amount of EUR230k was charged to research and development costs (HY 2015: EUR179k) and EUR60k to general and administrative expenses (HY 2015: EUR52k).
8.  Inventories 
Inventories include batches RUCONEST(R) and skimmed milk available for production of RUCONEST(R).

Amounts in EUR '000 HY 2016 HY 2015
Property, plant and equipment (290) (231)
Intangible assets (26) (26)
Total (316) (257)

The inventory valuation at 30 June 2016 is stated net of a provision of EUR0.5 million (2015: EUR0.5 million) to write inventories down to their net realisable value.
Changes in the adjustment to net realisable value:

30 June 31 December
Amounts in EUR'000 2016 2015
Finished goods 10,939 11,397
Work in progress 6,445 3,232
Raw materials 1,977 1,600
Balance at end of period 19,361 16,229

In 2016, the addition of EUR0.2 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 half year 2016 amounted EUR1.8 million (2015: EUR2.6 million). The main portion of inventories at 30 June 2016 has expiration dates starting beyond 2018 and is expected to be sold or used before expiration.
9.  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.
10.  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 EUR15.5 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 EUR0.9 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 EUR0.29, 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 EUR0.6 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:

30 June 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 145 548
Related to operating costs 5 434
Balance at end of period (542) (462)

The remaining lifetimes of the loans are less than 5 years.
11. 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 30 June 2016.
Movement of derivative financial liabilities can be summarised as follows:

30 June 31 December
Amounts in EUR '000 2016 2015
Loans from banks 14,912 14,804
Current portion of the long-term loans due within one
year (5,281) (3,047)
Portion of long-term loans due after one year 9,631 11,757

Fair value gains and losses on derivatives have been presented within financial income and expenses.
12. Commitments and contingencies 
In the first half year of 2016, the Company entered into a Manufacture and Service Agreement with BioConnection for the fill & finish of RUCONEST(R) (Drug Product), placebo and other products.
There were no other material changes to the commitments and contingent liabilities from those disclosed in Note 28 of the 2015 Annual Report.
13.  Fully-diluted shares 
The total number of outstanding shares at 30 June 2016 and at 28 July 2016 is 412,555,374.
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.

Year to
Period to 30 31 December
Amounts in EUR '000 June 2016 2015
Balance at 1 January 953 4,266
Initial recognition upon issue - 590
Fair value losses (gains) derivatives (455) (3,380)
Exercise of warrants (5) (523)
Balance at end of period 493 953

14.  Events since the end of the reporting period 
On 14 July 2016, Pharming Group NV and Swedish Orphan Biovitrum AB announced an amendment of the RUCONEST(R) distribution agreement signed in 2009 with Swedish Orphan Biovitrum AB.
In addition to Austria, Germany and Netherlands, Pharming will market RUCONEST(R) directly into an additional 21 countries, effective 1 October 2016. These countries include 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.
On 18 July 2016, Pharming Group N.V. announced positive results from a Phase 2 clinical study of RUCONEST(R) (recombinant C1 esterase inhibitor, 50 IU/kg) for prophylaxis in patients with hereditary angioedema (HAE). In the study, RUCONEST(R) showed a clinically relevant and statistically significant reduction in attack frequency for both the twice-weekly and once-weekly treatment regimens as compared with placebo.     PRN NLD

Pharming Group N.V.

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