Earnings Release • Apr 26, 2012
Earnings Release
Open in ViewerOpens in native device viewer
Leiden, The Netherlands, April 26, 2012. Biotech company Pharming Group NV ("Pharming" or "the Company") (NYSE Euronext: PHARM) today published its financial report for the first quarter ended March 31, 2012.
Sijmen de Vries, CEO, commented: "The first three months of 2012 has seen us delivering on extending the geographical coverage for Pharming's C1 inhibitor franchise, and this remains a key goal. We are also pleased to report that recruitment into our ongoing pivotal clinical trial Study 1310 remains on track and we look forward to updating on further progress."
In the three months to March 31, 2012 the Company generated revenue and other income from continuing operations of €1.0 million (Q1 2011: €0.7 million). This increase comes, in part, from Ruconest® sales of €0.4 million (up from €0.15 million in Q1 2011) and increased income from grants of €0.1 million. Costs associated with the revenues and other income amounted to €0.4 million (Q1 2011: €0.1 million).
Total operating costs from continuing operations increased by €0.3 million from €4.9 million in the first quarter of 2011 to €5.2 million in the same quarter of 2012. The increase reflects the Company's activities in relation to Study 1310 required for US regulatory approval for Rhucin®. Successful completion of this study, which is anticipated to readout by the third quarter of 2012, will trigger a US\$10.0 million milestone payment by Santarus. In addition, the Company anticipates submitting a BLA filing approximately three months thereafter with another US\$5.0 million due from Santarus as and when the U.S. Food and Drug Administration accepts the BLA filing for review.
Early in 2012 the Company finalized a transaction announced in December 2011 under which it issued €8.4 million convertible bonds plus 38,717,484 warrants. The bonds have to be repaid in six monthly instalments and can be settled in cash and/or in shares. To date four of the six payments have been made. If the Company elects to pay in shares the instalment amount plus interest is converted to a number of shares based on the share price (average of volume weighted average price over the period and to which a discount is applied). With regards to these pay- backs in shares, the Company issued a total of 67,437,000 shares until the end of the first quarter of 2012. These items largely
accounted for a net loss in financial income and expense of €1.9 million as compared to a €0.1 million net profit on financial income and expenses in the comparative quarter of 2011.
As a result of the above items, net loss from continuing operations increased by €2.3 million to €6.5 million in Q1 2012 (Q1 2011: €4.2 million). Due to a one-time €0.6 million profit on discontinued operations in the first quarter of 2011, which followed liquidation and deconsolidation of the DNage business early in 2011, total net loss increased from €3.6 million to €6.5 million. The net loss per share for the first quarter of both 2011 and 2012 amounted to €0.01.
Total cash and cash equivalents (including restricted cash) increased by €3.7 million from €5.1 million at year end 2011 to €8.8 million at the end of the first quarter 2012.
As explained in the financial results section, the Company anticipates receiving US\$10.0 million from Santarus upon the successful completion of Ruconest®'s Study 1310 in Q3 2012 and another US\$5.0 million as and when the U.S. Food and Drug Administration accepts the BLA filing for review. Receipts of these milestones are expected to significantly improve the Company's cash and equity position.
In December 2011 the Company announced that it had entered negative equity. This negative equity position of €1.2 million at year end 2011, as expected, increased by €2.4 million to €3.6 million and reflects the €6.5 million net loss for the first quarter, net of €4.1 million posted for shares issued as a repayment of convertible bonds (€3.8 million) and other share-based payments (€0.3 million).
The negative equity position has in itself no immediate impact on the execution of Pharming's business plan, nor does it imply that the Company is legally required to issue new share capital. However, the Company is considering various options in order to reduce the negative equity and return to a positive equity position.
Pharming is continuously reviewing its financial and liquidity position and has various options to improve its equity standing under International Financial Reporting Standards (IFRS). Notably, the Company reports that the negative equity position was mainly caused by the inability to recognize the €19.7 million upfront payments and milestones received from Sobi and Santarus as equity (at March 31, 2012 the deferred license fees income amounted to €16.9 million; if release to the statement of income would have been permitted under IFRS, the Company would have reported a positive equity position of €13.3 million). Anticipated receipt of the two development milestones associated with the successful readout of Study 1310 (US\$10.0 million) and acceptance of the BLA filing by the FDA (US\$5.0 million) will, under IFRS, be recognized immediately and thus augment the equity position.
As a result of the negative equity position announced in December 2011, the Company committed to comply with Euronext Amsterdam Notice 2011-001 paragraph 3 requirements, which include the publication of quarterly financial statements within two months after the end of the quarter in compliance with International Accounting Standard 34 (Interim Financial Reporting). Therefore, the condensed consolidated interim financial statements for the quarter ended March 31, 2012 can be found on Pharming's website as of today.
Pharming is conducting a Phase III clinical study with RHUCIN under a Special Protocol Assessment (SPA) that is intended to support the submission of a Biologics License Application (BLA) to the U.S. Food and Drug Administration (FDA). RHUCIN is being evaluated for the treatment of acute attacks of angioedema in patients with HAE in an international, multicenter, randomized, placebo-controlled Phase III study at a dosage strength of 50 U/kg with a primary endpoint of time to beginning of relief of symptoms. Santarus has licensed certain exclusive rights from Pharming to commercialize RHUCIN in North America for the treatment of acute attacks of HAE and other future indications. Under the terms of the license agreement, a \$10 million milestone is payable to Pharming upon successful achievement of the primary endpoint of the Phase III clinical study. The study is expected to be completed by the third quarter of 2012.
RUCONEST® (INN conestat alfa) is a recombinant version of the human protein C1 inhibitor (C1INH). RUCONEST is produced through Pharming's proprietary technology in milk of transgenic rabbits and in Europe is approved under the name RUCONEST for treatment of acute angioedema attacks in patients with HAE. RHUCIN® is an investigational drug in the U.S. and has been granted orphan drug designation for the treatment of acute attacks of HAE, a genetic disorder in which the patient is deficient in or lacks a functional plasma protein C1 inhibitor, resulting in unpredictable and debilitating episodes of intense swelling of the extremities, face, trunk, genitals, abdomen and upper airway. The frequency and severity of HAE attacks vary and are most serious when they involve laryngeal edema, which can close the upper airway and cause death by asphyxiation. According to the U.S. Hereditary Angioedema Association, epidemiological estimates for HAE range from one in 10,000 to one in 50,000 individuals.
Pharming Group NV is developing innovative products for the treatment of unmet medical needs. RUCONEST® (RHUCIN® in non-European territories) is a recombinant human C1 inhibitor approved for the treatment of angioedema attacks in patients with HAE in all 27 EU countries plus Norway, Iceland and Liechtenstein, and is distributed in the EU by Swedish Orphan Biovitrum (OMX: SOBI). RHUCIN® is partnered with Santarus, Inc (NASDAQ: SNTS) in North America where the drug is undergoing Phase III clinical development. The product is also being evaluated for follow-on indications in the areas of transplantation and reperfusion injury. The advanced technologies of the Company include innovative and validated platforms for the production of protein therapeutics, technology and processes for the purification and formulation of these products. A feasibility study, using the validated transgenic rabbit platform, aimed at the development of recombinant Factor VIII for the treatment of Haemophilia A is underway with partner, Renova Life, Inc. Additional information is available on the Pharming website, www.pharming.com. To download the Pharming Group Investor Relations App, click here.
This press release contains forward looking statements that involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from the results, performance or achievements expressed or implied by these forward looking statements.
Sijmen de Vries, CEO: T: +31 (0)71 524 7400 Karl Keegan, CFO: T: +31 (0)71 524 7400
FTI Consulting Julia Phillips/ John Dineen, T: +44 (0)207 269 7193
Consolidated Statement of Financial Position
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Condensed Consolidated Interim Financial Statements
| March 31, | December 31, |
||
|---|---|---|---|
| Note | 2012 | 2011 | |
| Intangible assets | 943 | 987 | |
| Property, plant and equipment | 9,299 | 9,567 | |
| Restricted cash | 6 | 917 | 979 |
| Non-current assets | 11,159 | 11,533 | |
| Inventories | 7,483 | 6,580 | |
| Trade and other receivables | 5 | 1,161 | 2,495 |
| Restricted cash | 6 | 309 | 309 |
| Cash and cash equivalents | 6 | 7,588 | 3,777 |
| Current assets | 16,541 | 13,161 | |
| Total assets | 27,700 | 24,694 | |
| Share capital | 22,460 | 20,405 | |
| Share premium | 226,543 | 224,495 | |
| Other reserves | (252,558) | (246,088) | |
| Total equity | 7 | (3,555) | (1,188) |
| Deferred license fees income | 14,947 | 15,431 | |
| Finance lease liabilities | 2,023 | 2,215 | |
| Other liabilities | 94 | 101 | |
| Non-current liabilities | 17,064 | 17,747 | |
| Deferred license fees income | 1,936 | 1,936 | |
| Derivative financial liabilities | 8 | 2,155 | 1,171 |
| Convertible bonds | 9 | 2,860 | - |
| Trade and other payables | 10 | 5,950 | 3,810 |
| Finance lease liabilities | 1,290 | 1,218 | |
| Current liabilities | 14,191 | 8,135 | |
| Total equity and liabilities | 27,700 | 24,694 |
For the quarter ended March 31, 2012 (amounts in €'000, except per share data)
| Note | March 31, 2012 |
March 31, 2011 |
|
|---|---|---|---|
| Continuing operations: | |||
| License fees | 484 | 484 | |
| Product sales | 394 | 152 | |
| Revenues | 878 | 636 | |
| Costs of revenues | (394) | (119) | |
| Gross profit | 484 | 517 | |
| Income from grants | 108 | 42 | |
| Other income | 108 | 42 | |
| Research and development | (4,243) | (3,920) | |
| General and administrative | (881) | (892) | |
| Share-based compensation | (73) | (42) | |
| Costs | (5,197) | (4,854) | |
| Loss from operating activities | 11 | (4,605) | (4,295) |
| Financial income | 12 | 298 | 177 |
| Financial expenses | 13 | (2,178) | (123) |
| Financial income and expenses | (1,880) | 54 | |
| Net loss from continuing operations | (6,485) | (4,241) | |
| Net profit from discontinued operations | 14 | - | 643 |
| Net loss | (6,485) | (3,598) | |
| Attributable to: | |||
| Net loss from continuing operations | (6,485) | (4,241) | |
| Net profit from discontinued operations | - | 739 | |
| Owners of the parent | (6,485) | (3,502) | |
| Net loss from continuing operations | - | - | |
| Net profit from discontinued operations | - | (96) | |
| Non-controlling interest | - | (96) | |
| Share information: | |||
| Basic and diluted net loss per share (€) | (0.01) | (0.01) | |
| Weighted average shares outstanding | 537,562,032 | 443,919,310 |
| March 31, 2012 |
March 31, 2011 |
|
|---|---|---|
| Net loss | (6,485) | (3,598) |
| Foreign currency translation | (58) | (111) |
| Other comprehensive income, net of tax | (58) | (111) |
| Total recognized income and expense | (6,543) | (3,709) |
| Attributable to: | ||
| Equity owners of the parent | (6,543) | (3,613) |
| Non-controlling interest | - | (96) |
| Note | March 31, 2012 |
March 31, 2011 |
|
|---|---|---|---|
| Receipts from license partners | 389 | 201 | |
| Receipts of Value Added Tax | 245 | 222 | |
| Interest received | 18 | - | |
| Receipts of grants | 72 | 384 | |
| Other receipts | 64 | 115 | |
| Payments of third party fees and expenses, including Value Added | |||
| Tax | (2,813) | (3,551) | |
| Net compensation paid to board members and employees | (813) | (967) | |
| Payments of pension premiums, payroll taxes and social | |||
| securities, net of grants settled | (632) | (854) | |
| Net cash flows used in operating activities | 6 | (3,470) | (4,450) |
| Purchase of property, plant and equipment | (121) | (135) | |
| Deconsolidation of DNage | - | (40) | |
| Net cash flows used in investing activities | 6 | (121) | (175) |
| Proceeds of equity and warrants issued | 6 | - | 10,008 |
| Proceeds of convertible bonds issued | 6, 9 | 8,000 | - |
| Payments of transaction fees and expenses | 6, 9 | (447) | (66) |
| Payments of finance lease liabilities | (191) | (12) | |
| Net cash flows from financing activities | 7,362 | 9,930 | |
| Increase cash | 3,771 | 5,305 | |
| Exchange rate effects on cash | (22) | (135) | |
| Cash at January 1 | 5,065 | 10,478 | |
| Cash at March 31 | 8,814 | 15,648 | |
| Cash composition: | |||
| Restricted cash (non-current) | 917 | 1,164 | |
| Restricted cash (current) | 309 | 247 | |
| Cash and cash equivalents | 7,588 | 14,237 | |
| Cash at March 31 | 8,814 | 15,648 |
| Notes | Number of shares |
Share capital |
Share premium |
Other reserves |
Accu mulated deficit |
Share holders' equity |
Non controlling interest |
Total equity |
|
|---|---|---|---|---|---|---|---|---|---|
| Balance at January 1, 2011 | 436,261,010 | 17,450 | 219,220 | 15,407 | (241,213) | 10,864 | (764) | 10,100 | |
| Total recognized income and expense | - | - | - | (111) | (3,598) | (3,709) | - | (3,709) | |
| Share-based compensation | - | - | - | 42 | - | 42 | - | 42 | |
| Deconsolidation of DNage | 7 | - | - | - | - | - | - | 764 | 764 |
| Bonuses settled in shares | 7 | 515,837 | 21 | 82 | - | - | 103 | - | 103 |
| Warrants exercised | 7 | 24,339,623 | 974 | 4,186 | (4,186) | - | 974 | - | 974 |
| Balance at March 31, 2011 | 461,116,470 | 18,445 | 223,488 | 11,152 | (244,811) | 8,274 | - | 8,274 | |
| Balance at January 1, 2012 | 510,116,470 | 20,405 | 224,495 | 12,325 | (258,413) | (1,188) | - | (1,188) | |
| Total recognized income and expense | - | - | - | (58) | (6,485) | (6,543) | - | (6,543) | |
| Share-based compensation | - | - | - | 73 | - | 73 | - | 73 | |
| Bonuses settled in shares | 7 | 3,950,211 | 158 | 117 | - | - | 275 | - | 275 |
| Repayments of Bonds 2012 | 7, 9 | 47,437,000 | 1,897 | 1,931 | - | - | 3,828 | - | 3,828 |
| Balance at March 31, 2012 | 561,503,681 | 22,460 | 226,543 | 12,340 | (264,898) | (3,555) | - | (3,555) |
Pharming Group N.V. ('Pharming' or 'the Company') is a limited liability public company which is listed on NYSE Euronext Amsterdam, with its headquarters and registered office located at: Darwinweg 24 2333 CR Leiden The Netherlands
Pharming focuses on the development, production and commercialization of human therapeutic proteins to be used as highly innovative therapies. The Company's products are aimed at treatments for genetic disorders and surgical and traumatic bleeding. Pharming's technologies include novel transgenic platforms for the production of biopharmaceuticals, as well as technology and processes for the purification and formulation of these biopharmaceuticals.
These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 (Interim Financial Reporting). As permitted by IAS 34, the condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with Pharming's Annual Report 2011. In addition, the notes to these condensed consolidated interim financial statements are presented in a condensed format.
These condensed consolidated interim financial statements have not been reviewed or audited and are based on IFRS as adopted by the European Union. The Board of Management has approved these condensed consolidated interim financial statements on April 25, 2012.
The Board of Management of Pharming has, upon preparing and finalizing these condensed consolidated interim financial statements, assessed the Company's ability to fund its operations for a period of at least one year after the date of these condensed consolidated interim financial statements.
Pharming does not expect to generate sufficient cash from product sales to meet its cash requirements for one year after the date of these condensed consolidated interim financial statements. In addition, under the existing commercialization agreement with Santarus, Inc. the Company is entitled to receive US\$10.0 million upon successful completion of Study 1310 and US\$5.0 million upon acceptance by the U.S. FDA of the subsequent BLA filing; in case the Company does not successfully complete Study 1310 or does not finish it in time (as per the date of these condensed consolidated interim financial statements the receipt of the US\$10.0 million milestone is anticipated to take place in the third quarter of 2012), the cash inflows from operating activities on which the Pharming business plan is based will, provided no other cash resources as described further in this Going Concern Assessment have been made available, be insufficient. Therefore, and next to the Company's ability to generate additional cash inflows from existing and new licensing partners, Pharming for its cash requirements is also dependent on financing arrangements with third parties to finance its ongoing operations.
To enable continued operations for a period of at least 12 months after the date of these condensed consolidated interim financial statements, several sources to raise or conserve cash in addition to product sales and license agreements have been outlined below:
shareholders (e.g. to issue additional shares). Any failure to successfully complete Study 1310, at all or within the anticipated time (third quarter of 2012), may (severely) hamper the possibility to enter into a capital markets transaction;
This indicates the existence of a material uncertainty which may cast significant doubt about the Company's ability to continue as a going concern.
In case the Company is not able to attract sufficient additional cash from any or a combination of these items, it may ultimately enter into bankruptcy and/or sell all or a part of its assets. Such an event could have a material impact on the carrying value of, in particular, property, plant and equipment as well as inventories.
Overall, based on the outcome of this assessment, these condensed consolidated interim financial statements have been prepared on a going concern basis. Notwithstanding their belief and confidence that Pharming will be able to continue as a going concern, the Board of Management emphasizes that the actual cash flows for various reasons may ultimately (significantly) deviate from their projections. Therefore, in a negative scenario (actual cash inflows less than projected and/or actual cash outflows higher than projected) the going concern of the Company could be at risk.
The applied accounting principles are consistent with those as described in Pharming's Annual Report 2011.
The preparation of financial statements requires judgments and estimates that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are addressed below.
Pharming at the end of the first quarter 2012 has property, plant and equipment with a net carrying value of €9.3 million. These assets are dedicated to the production of Rhucin inventories (€6.0 million), the US cattle facilities (€1.9 million) and other corporate purposes (€1.4 million). It is assumed these asset groups will continue to be used in ongoing production, research and development or general and administrative activities over its anticipated lifetime. The carrying value of these assets may be impaired in 2012 (or the years beyond) in case of a decision to cancel and/or defer certain activities, as per the going concern assessment in Note 2.
At the end of the first quarter 2012, the Company has capitalized rhC1INH product and milk with an aggregate net carrying value of €7.5 million. The Company has planned for additional inventory investments after the end of the reporting period. These inventories are available for use in commercial, preclinical and clinical activities. Estimates have been made with respect to the ultimate use or sale of the product, taking into account current and expected preclinical and clinical programs for both the HAE project and other indications of the rhC1INH product as well as anticipation of market approval(s). In doing so, best estimates have been made with respect to the timing of such events in view of both the existing and expected lifetimes of the product involved.
As per the going concern assessment in Note 2, due to the early stage commercialization cycle of Rhucin the actual cash proceeds from these product sales are currently difficult to predict in terms of volumes, timing and reimbursement amounts. In addition, further inventory investments and execution of preclinical and clinical activities are subject to availability of sufficient financial resources.
The Company at the end of the first quarter 2012 has presented derivative financial liabilities with a carrying value of €2.2 million. These liabilities primarily represent the fair values of warrant issued and are based on models using assumptions with respect to, amongst others, the exercise of the warrants on or before maturity dates as well as (historical) volatility. Actual share price developments may trigger exercise of these warrants on a different moment than anticipated in the model and also cause transfer of assets to warrant holders under conditions that are (much) more or (much) less favorable than anticipated at March 31, 2012. As a result, the difference between the value of assets transferred to warrant right holders upon exercise and the carrying value at the end of the first quarter 2012 as charged to the statement of income may be material.
Share price developments may also result in the warrants expiring unexercised while the fair value of warrants unexercised may fluctuate (significantly) until expiration. Fair value changes of warrant rights unexercised between March 31, 2012 and subsequent reporting dates are charged to the statement of income.
In view of the Company's line of business, revenues and cash income from operating activities are subject to the timing of entering into commercial activities as well as the underlying mechanisms of the deal structure (e.g. achievement of milestones). Expenses incurred for research and development activities as well as their associated cash flows highly depend on the phase of research or development. Such items may vary significantly from period to period (i.e. from quarter to quarter) due to the timing and extent of commercial activities as well as research and development activities and are partially beyond control of the Company.
The €2.5 million of trade and other receivables at year end 2011 included an amount of €1.5 million in relation to an advance payment of 20,000,000 shares following the December 2011 announcement of a transaction with convertible bondholders. This €1.5 million was charged to the carrying value of convertible bonds upon completion of the convertible bonds issue in the first quarter of 2012 (further reference is provided to Note 9).
The overall net cash position for the quarter ended March 31, 2011 and March 31, 2012 is as follows:
| Amounts in €'000 | 2012 | 2011 |
|---|---|---|
| Non-current restricted cash | 917 | 1,164 |
| Current restricted cash | 309 | 247 |
| Cash and cash equivalents | 7,588 | 14,237 |
| Balance at March 31 | 8,814 | 15,648 |
| Balance at January 1 | 5,065 | 10,478 |
| Net increase for the period | 3,749 | 5,170 |
Restricted cash represent the value of banker's guarantees issued with respect to (potential) commitments towards third parties and are primarily related to finance lease liabilities and rent.
The main cash flow items for the first quarter of 2011 and 2012 can be summarized as follows:
| Amounts in €'000 | March 31, 2012 |
March 31, 2011 |
|---|---|---|
| Net cash flows used in operating activities | (3,470) | (4,450) |
| Net cash flows used in investing activities | (121) | (175) |
| Net cash flows from financing activities | 7,362 | 9,930 |
| Exchange rate effects on cash | (22) | (135) |
| Net increase for the period | 3,749 | 5,170 |
Cash flows used in operating activities decreased by €1.0 million and is largely explained by timing of payments.
Cash flows used in investing activities in both the first quarter of 2011 and 2012 primarily reflected investments in manufacturing equipment.
Cash flows from financing activities of €9.9 million in the first three months of 2011 largely reflected €10.0 million received from Socius CG II, Ltd. ('Socius') in relation to the December 2010 transaction (€9.0 million) and the 2011 exercise of warrants (€1.0 million). In the first quarter of 2012 the €7.4 million cash flows from financing activities follow receipt of €8.0 million in relation to the issue of convertible bonds, payment of transaction fees and expenses (€0.4 million) and payment of finance leases (€0.2 million).
In December 2010 the Company entered into an agreement with Socius under which Pharming issued €12.0 million debt notes and 24,339,623 warrants with a two year exercise period and an exercise price of €0.212. The warrants were paid for through issuance of interest-free debt notes Socius valued at €4.2 million with the remaining €1.0 million due in cash upon exercise. Socius exercised all 24,339,623 warrants in the first half of 2011 and accordingly paid a cash amount of €1.0 million.
In addition, the Company also transferred 515,837 shares to members of the Board of Management and employees in lieu of €0.1 million in bonus rights over the year 2010.
Following liquidation of DNage early 2011, the Company deconsolidated the entity and accordingly the year end 2010 negative non-controlling interest in the amount of €0.8 million, representing the share of third parties in the negative equity position of DNage, was removed.
Pharming in the first quarter issued a total of 47,437,000 shares with an aggregate fair value of €3.8 million to holders of Bonds 2012 (further see Note 9).
The Company also transferred an aggregate number of 3,950,211 shares to members of the Board of Management and employees in lieu of €0.3 million in bonus rights for the year 2011.
Movement of derivative financial liabilities for the first quarter of 2011 and 2012 can be summarized as follows:
| Amounts in €'000 | 2012 | 2011 |
|---|---|---|
| Carrying value at January 1 | 1,171 | 573 |
| Initial recognition upon issue | 1,148 | - |
| Fair value gains derivatives | (280) | (177) |
| Fair value losses derivatives | 116 | - |
| Carrying value at March 31 | 2,155 | 396 |
The amount of €1,148,000 recognized for derivative financial liabilities in the first quarter of 2012 relates to the Bonds 2012. Fair value gains are presented as financial income and fair value losses within financial expenses.
Following an announcement in December 2011 the Company in February 2012 issued €8.4 million private convertible bonds ('Bonds 2012') carrying 8.5% annual interest. An advance payment of 20 million shares valued at €1,503,000 was made in 2011; the amount was capitalized within Trade and other receivables at December 31, 2011 (see Note 5) and charged to liabilities in the first quarter of 2012.
In connection to the issue of the Bonds 2012 the Company also incurred transaction fees and expenses of €624,000 in total, of which €447,000 was paid in Q1 2012. The amount of €624,000 has been allocated to the derivative financial derivates and the Bonds 2012 based on their relative weight in the €8.0 million as received and accordingly an amount of €90,000 as charged to the derivative financial liabilities was charged to financial expenses with the remaining €534,000 charged to the carrying value of the Bonds 2012.
For accounting purposes, the convertible bond portion is initially recognized at the aggregate value of the value received minus the fair value of the derivative financial liabilities and the portion of transaction fees and expenses allocated to the convertible bond. Pre(payments) of the monthly installment (maturity is in July 2012) plus interest can take place either in cash or shares; the Company has so far decided to pay in shares and as a result of certain conditions in the agreements this has resulted in transfer of shares for a value higher than if such a repayment had taken place in cash. Accordingly, a transaction loss of €702,000 was incurred in the first quarter of 2012.
Movement of the Bonds 2012 in the first quarter of 2012 can be summarized as follows:
| Received in cash | 8,000 |
|---|---|
| Fair value of warrants issued | (1,045) |
| Fair value of conversion right | (103) |
| Transaction fees and expenses | (535) |
| Carrying value initial recognition | 6,317 |
| Effective interest | 1,173 |
| Result bond settlements | 702 |
| Advance payment in shares 2011 | (1,503) |
| Fair value of shares issued first quarter 2012 | (3,829) |
| Carrying value March 31 | 2,860 |
Effective interest and the result on bonds settlements of €1.9 million in total have been charged to financial expenses.
Trade and other payables balances increased from €3.8 million at year end 2011 to €6.0 million at March 31, 2012 as a result of investments in inventories and costs associated with Study 1310.
In the first quarter of 2012, the Company reported a loss from operating activities (from continuing operations) of €4.6 million compared to €4.3 million in the first quarter of 2011. The €0.3 million increase is largely driven by costs associated with Study 1310.
As explained in Note 4, Pharming operates in an industry in which revenues and expense are to some extent varying based on the timing of events such as entering into commercial agreements, achievement of milestones or the phase of research or development. These activities are partially beyond control of the Company.
Financial income in the first quarter of 2011 amounted to €0.2 million, which exclusively related to the decrease in the fair value of a derivative financial liability (from €573,000 to €396,000). In the quarter ended March 31, 2012 total financial income of €0.3 million represents fair value movements of derivative financial liabilities as explained in Note 8.
Financial expenses of €0.1 million in the first three months of 2011 were caused by foreign currency results. The financial expenses of €2.2 million in the same period of 2012 are associated with Bonds 2012 (€1.9 million, as per Note 9), derivative financial liabilities (€0.1 million, as per Note 8) and other items such as foreign currency results, interest on finance leases and costs related to the issue of derivative financial liabilities (€0.2 million in total).
On January 31, 2011 the shareholders of DNage B.V. ('DNage'), an entity in which Pharming as per that date had a 51% interest, decided to put DNage into voluntary liquidation. Due to this decision Pharming effectively lost control and accordingly the DNage operations have been deconsolidated as of that date.
In 2011, DNage until deconsolidation as per January 31, 2011 incurred a net loss of €196,000, of which €100,000 was born by Pharming and €96,000 to other DNage shareholders. Following deconsolidation of the negative equity of DNage and including minor other movements, a profit of €839,000 was posted as a result from discontinued operations. Altogether, the net profit from discontinued operations amounted to €643,000 of which a net profit of €739,000 was attributable to owners of the parent and a net loss of €96,000 to noncontrolling interest.
The Company has one operating segment remaining which is the recombinant proteins business unit.
In the first quarter of 2012 there were no material changes to the commitments and contingent liabilities from those disclosed in Note 31 of the Annual Report 2011.
Subsequent to the end of the reporting period until the date of issue of these condensed consolidated interim financial statements, the Company transferred a total of 24,718,694 shares to holders of the Bonds 2012 (see Note 9). As a result, the 561,503,681 shares outstanding at March 31, 2012 increased to 586,222,375.
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.