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HEADING FOR PROFITABILITY IN 2017
Q3/16 results were close to our expectations and showed Pharming at
breakeven at the operating level on a proforma basis (assuming ownership
of US marketing rights to lead product Ruconest). We expect Pharming to
close the acquisition of the US marketing rights to Ruconest from Valeant
before the end of November. Completing this transaction will give the
company full access to the market for treatment of acute hereditary
angioedema attacks, which is currently worth over USD750m worldwide.
Meanwhile, excellent preliminary results of a phase II study with Ruconest
in the prophylaxis of hereditary angioedema suggest that Pharming will be
able to tap a market worth an additional USD800m before the end of this
decade. We expect the sharper focus entailed by Pharming’s marketing of
its own lead drug as well as increased resources to enable the company to
make the case for the advantages of the recombinant product, Ruconest,
over rival blood-based products more effectively than Valeant did.
Pharming has so far received 30% of the revenue from US Ruconest sales.
We expect the inclusion of 100% of Ruconest’s US revenues on Pharming’s
P&L to push the company to profitability in 2017. We continue to see fair
value for the Pharming share at €1.40.
Valeant transaction expected to close in November Pharming has published
Q3 results as shown in figure 1 overleaf. The numbers were close to our
expectations – in part because the company had already released results for the
first two months of the quarter on 3 October. Q3 sales came in at €3.4m (Q3/15:
€3.2m; FBe: €3.5m) while EBIT was €-3.2m (Q3/15: €-3.0m; FBe: €-3.1m)
These numbers were released two days ahead of the AGM on 5 October at
which shareholders voted in favour of the capital raise necessary to implement
the acquisition of the north American marketing rights to Ruconest. Management
expects this transaction to close in November.
US Ruconest sales continue to be affected by turmoil at marketing partner Valeant. In the
course of a refocusing of its business, Valeant halved the sales force dedicated to Ruconest.
Pharming has undertaken to restore the US sales team to its former size in a stepwise
fashion and also to hire several medical liaison personnel if it succeeds in acquiring the
Ruconest marketing rights. Looking at the development of Ruconest in the US over recent
quarters, sales have continued to recover from the low point of €1.2m reached in Q4/15.
Q1/16 sales were €1.5m, Q2 sales were €2.0m and Q3 sales came in at €2.3m as stated
above. Proforma figures (assuming ownership of the US marketing rights to Ruconest and
that Pharming therefore receives 100% of the product’s US revenues compared with the
30% it receives currently) showed worldwide Ruconest revenues of €20.5m at the nine
months stage compared with €12.4m for H1/16. We estimate that US revenues accounted
for ca. 95% of both these figures. Annualised worldwide Ruconest sales were €32m based
on September numbers compared with €24.8m based on the H1/16 numbers.
Q3/16 operating result at breakeven The reported gross profit climbed to €2.2m (Q3/15:
€1.9m) equivalent to a margin of 64.1% (Q3/15: 57.5%). The gross margin widened because
of a shift in the product mix towards higher margin US revenues. However, the reported
operating loss widened to €3.2m (Q3/15: €3.0m) mainly due to a €300k increase in R&D
expenditure. On a proforma basis, the operating result was a loss of €3.1m at both the
H1/16 and 9M/16 stage. The proforma Q3/16 operating result was thus breakeven.
Excellent preliminary results from phase II prophylaxis trial Preliminary results of the
phase II clinical trial of Ruconest for prophylaxis of HAE published in July were excellent.
The primary efficacy endpoint was the number of HAE attacks per 28 day treatment period
and the secondary endpoint was clinical response, defined as a = 50% reduction in the
number of attacks from treatment with placebo to treatment with Ruconest. Patients who
received Ruconest twice weekly had a mean of 2.7 attacks per four week treatment period,
compared with a mean of 7.2 attacks for the placebo group. Meanwhile, among the perprotocol
population of patients who completed the study without any major deviations (n=23),
96% of patients who received Ruconest twice weekly had at least a 50% reduction in their
attack frequency. The study also confirmed a high level of tolerability for Ruconest. No
patients withdrew from the study due to adverse events and no thrombotic or
thromboembolic events were observed. In addition, there were no hypersensitivity or
anaphylactic reactions and no neutralizing antibodies were detected.
Value of US HAE prophylaxis market projected to reach USD800m in 2017
Management tell us that comprehensive peer-reviewed results of the phase II prophylaxis
trial will be presented at the Annual Scientific Meeting of the American College of Allergy,
Asthma and Immunology from 10-14 November in San Francisco.
28 October 2016
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Pharming Group NV
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Pharming will then begin discussions with the FDA on further steps towards approval of
Ruconest for prophylaxis of HAE. We expect a phase III study to begin before the end of this
year. Results are likely to be available in 2017 and first revenues before the end of this
decade are realistic. The US market for prophylaxis of HAE is expected to be worth
USD800m in 2017 (up from USD500m in 2014). The only product currently approved for
HAE prophylaxis in the US is Shire’s Cinryze. If Ruconest is approved for HAE prophylaxis
in the US, it will be the only product approved for both acute attacks and prophylaxis. The
availability of one product for both indications has the potential to simplify management of
the disease.
We maintain our Buy recommendation and price target of €1.40 Our 2016 numbers
are based on the assumption that the Valeant transaction will not close until the end of the
year. However, management now expects closing during November. If the December P&L
includes 100% of North American Ruconest revenues rather than just the 30% which
Pharming is currently booking, our numbers are likely to be exceeded. The structure of the
transaction (the split between straight debt, convertibles and straight equity) has still to be
finalised, but management has indicated that minimisation of shareholder dilution is a priority.
Pending publication of this information, we are leaving our forecasts and valuation
unchanged. We maintain our Buy recommendation and price target of €1.40.