Press Release (ePRNews.com) - SYDNEY, Australia - Aug 18, 2017 - Parnell Pharmaceuticals Holdings Ltd (OTC: PARNF), a fully integrated, commercial-stage pharmaceutical company focused on developing, manufacturing and marketing innovative animal health solutions, today announced an update on business results including strong revenue growth of 25% to $10.3 million, substantial improvement in profitability for the first half of 2017 with an EBITDAOI loss of $0.2 million, advances in product development, partnering negotiations and contract manufacturing.
I am very pleased to announce that Parnell continues to achieve our stated goals of; strong revenue growth; becoming profitable in 2017; and seeking to leverage our pharmaceutical and manufacturing assets to enhance shareholder value. I am particularly excited about opportunities we are exploring for the use of the active pharmaceutical ingredient in Zydax for human use and we are reaching final stages of negotiations with several companies in this area.
Robert Joseph, President and C.E.O. said “I am very pleased to announce that Parnell continues to achieve our stated goals of; strong revenue growth; becoming profitable in 2017; and seeking to leverage our pharmaceutical and manufacturing assets to enhance shareholder value. I am particularly excited about opportunities we are exploring for the use of the active pharmaceutical ingredient in Zydax for human use and we are reaching final stages of negotiations with several companies in this area”.
Mr. Joseph went on to say, “At the start of the year we stated that we were seeking to transform our company from the previous heavy investment phase in pharmaceutical and manufacturing asset development, to now take advantage of the intrinsic value in those assets and hence become EBITDA profitable in 2017. In particular, we wanted to:
- ensure our commercial operations in both Production Animal and Companion Animal businesses are profitable in all incumbent markets;
- drive geographic expansion of our approved products through strategic marketing partnerships;
- focus on developing our novel pipeline products including Zydax for use in dogs and cats as well as PAR121 (bone healing) and PAR122 (skin healing);
- enhance the value we derive from our FDA and EMA approved sterile manufacturing facility through expansion of contract manufacturing operations;
- set out to leverage the Zydax asset by seeking opportunities for use in humans.
At the half-way point of the year the Board of Directors is very pleased with the progress on all four of these strategies. We have:
- achieved strong revenue growth of 25% for the first six months of 2017 compared to the same period in 2016 with the Production Animal business unit growing strongly and contributing significant earnings to the business. We also right-sized our US operations in Companion Animal saving approximately $6.5 million on an annualized basis and now expect our Companion Business to contribute profit in 2018 after making a small loss in 2017.
- continued to seek and negotiate partnering opportunities for both our Production Animal and Companion Animal products which could allow us to launch these products in additional major markets. We have been pleased with the level of interest expressed in these assets and we believe this interest underpins their intrinsic value.
- made further progress on the approval of Zydax albeit, as we have stated previously, more slowly than we anticipated. We remain confident of approvals in the US and Europe but these timelines may move into 2018.
- planned to ramp up development activities of PAR122 and PAR121 in the second-half of the year with PAR122 potentially having a rapid path to market for use in dogs with dermatitis that may not require an FDA approval process.
- signed a new contract manufacturing agreement in May, 2017 with a major multi-national that is a multi-million dollar, multi-year agreement. When fully realized, this contract will convert our contract manufacturing operations to profitability, and we will continue to negotiate additional agreements that we may complete before year-end.
- Commenced, at the beginning of 2017, the process to identify potential partners for seeking an approval of the Active Pharmaceutical Ingredient (API) in Zydax for use in humans. We have been encouraged by the response from a number of companies which confirms that the Zydax portfolio could branch into a significant opportunity for human use if approved by regulatory authorities. Subject to ongoing negotiations, development and commercial partnering may be in place in the coming months.
Not only have we achieved a number of important objectives in the first six months of 2017, I am most pleased to announce that our earnings before interest, tax, depreciation, amortization and other income/expenses (EBITDAOI), a proxy measure for the cash generation of our business operations before finance costs, was a loss of $0.2 million for the six months ended June 30, 2017. For the same period in 2016 we recorded a loss of $9.7 million. We expect the full year result to be a profit at the EBITDAOI level of between $1 to $2 million. This improvement in profitability has been achieved through strong sales growth but most importantly we have reduced operational costs in our business by $7.8 million for the first six months of 2017 compared to the same period in 2016 and we expect the full year saving to be approximately $13 million for 2017 as compared to 2016″.
Mr. Joseph added, “In the second half of the year we are looking forward to the potential announcement of several deals spanning our product and manufacturing assets and we believe that in addition to our successful transformation to being a profitable pharmaceutical company we have several potential opportunities to add significant value to our company in the near future”.
Unless otherwise specified, all amounts are presented in Australian Dollars (AUD).
- Total Company sales were $10.3 million for the six months ended June 30, 2017 which was growth of 25% over the same period in 2016;
- Sales in our Production Animal segment were $6.1 million for the six months ended June 30, 2017 which was growth of 34% over the same period in 2016. This growth was underpinned by strong performance in the US where we continued to execute our strategy of clinical science leadership through PROCEPT®, (our patent pending breeding program) and differentiation through the use of mySYNCH®; our innovative digital technology that assists dairy farmers to improve the profitability of their operations.
- We also continue to improve the profitability of this segment to a contribution margin of over 60% for the six months to June 30, 2017. We expect that our guidance of double digit growth for the Production Animal business for full year 2017 will be maintained.
- Sales in our Companion Animal segment were $1.6 million for the six months ended June 30, 2017, which was growth of 7% over the same period in 2016. This growth was lower than expected, partially driven by a one-time impact of US distributors reducing their inventory holdings. As we have previously reported, in the second-half of 2016, we reduced the size of our US Companion Animal sales team to ensure that each business segment at Parnell is profitable. We have now made an additional shift in focus to rely on the digital technology side of our business to generate demand directly with pet parents. Our partner veterinary clinics continue to be a key part of our business model but we believe that we can better serve them by generating demand for our products with pet parents and sharing the profitability of that approach with our partner clinics. We believe that this business model, which utilizes our app FETCH® and other digital communications with pet parents, is better aligned to the way consumers purchase products in the era of online consumption and allows our partner veterinary clinics to offer a more effective sales model to their clients. We will continue to develop this side of our business and we believe that as we prove continued success we can offer our products to a wider market of pet parents than if we only rely on a large sales team with the expense that comes with that model.
- Contract Manufacturing revenues for the six months to June 30, 2017, were $2.5 million which was a 17% increase over the same period in 2016. We commenced a new contract manufacturing agreement in May 2017, with associated technology transfer revenues in 2017 and we expect manufacturing revenues from this agreement to commence in 2018 and continue over the term of the multi-year agreement. As with our other business segments, the profitability of our Contract Manufacturing segment increased considerably.
- As previously communicated, returning to EBITDA profitability in 2017 is a prime focus for management and the results from the first half of the year continue to demonstrate that this objective remains on track. EBITDAOI (being Earnings Before Interest, Tax, Depreciation, Amortization and Other Income/(Expenses) improved $9.5 million to a small loss of $0.2 million year to date.
- We continue to reiterate our 2017 revenue guidance as previously stated in our 2016 Earnings Release dated March 21, 2017 of:
- Strong double digit revenue growth in our Production Animal Business across the US, Australia/New Zealand and Rest of World.
- In our Companion Animal business, we expect growth to moderate from previous guidance to single digit growth in 2017 (down from previous guidance of double digit revenue growth). We expect strong double-digit growth in Australia in 2017 and beyond and in the US, we expect sales growth to trend back to growth in 2018 as our digital strategy has continued success.
- Contract Manufacturing will continue to grow strongly in 2017 and beyond as a result of the agreements already in place and we continue to expect to sign more contracts as a result of our increased outbound marketing activities.
- As we previously reported, in the first half of 2017, we completed the refiling of the Chemistry and Manufacturing Controls, or CMC, section as well as the Drug Master File, or DMF, for Zydax for dogs with the FDA. We believe that the time taken to compile these responses, including productive meetings with the Center for Veterinary Medicines, or CVM, of the FDA has placed us in a strong position to have this section of the dossier approved.
- We believe that the strength of the drug master file that we have created for Zydax will bring the opportunity to rapidly pursue an approval for the use of the active pharmaceutical ingredient (API) in Zydax for human use. We are currently in negotiations with several human pharmaceutical companies who have expressed strong interest in partnering with Parnell to gain access to our patents and manufacturing know-how for the API in Zydax. This opportunity has progressed more rapidly than we first anticipated and we could appoint a partner company in the coming months which will potentially result in a significant financial opportunity to take advantage of the asset array we have created in Zydax.
- With respect to the efficacy filings for Zydax for veterinary use, we have previously reported that we have considered the questions received from the FDA and EMA and developed a refiling strategy. We will now request a pre-submission conference with the Center for Veterinary Medicine (CVM) of the FDA in October to discuss our plans and seek their concurrence. This may result in an immediate refiling or depending on the discussions, it may result in a delay to filing to allow us to compile additional data. In any event, we are mindful that the approval process for Zydax has taken longer than we would have hoped but we remain confident in obtaining approval. We continue to hear compelling stories of treatment success from pet parents who have used Zydax and believe that there is a significant opportunity for Zydax in the US. The process for approval for Europe is expected to follow a similar path. We have a meeting with the EMA in October and hope to ensure a clear path to approval at this meeting. Depending on the outcome, we could expect approval before the end of 2017 or we may be required to produce additional data to support our filings.
- Much of the first half of 2017 was dedicated to Zydax related activities including work focused on Zydax for human use. As a result, we delayed several studies planned for PAR121 (bone healing candidate) and PAR122 (skin healing candidate); however, these are all expected to now commence in the second half of 2017 and are relatively quick studies. Our current expectation is that we may be able to bring PAR122 to market for use in dogs with dermatitis without the need for an FDA approval which will significantly speed this product to market and if the studies are successful we could quickly launch a product for sale direct to consumers that could leverage our digital technology promotional platform we are currently using for Glyde. We also believe that our new nutraceutical Luminous® would complement a product based on PAR122 and along with Reviderm® would provide us an attractive array of dermatitis products for dogs.
- We have a pilot clinical study in dogs planned for PAR121 which we anticipate will demonstrate the effectiveness of this compound at rapidly speeding the healing of bone after an orthopedic surgery procedure. We believe this study will give a good indication of the opportunity for PAR121 in the large and growing orthopedic surgery market for dogs.
- Our updated 2017 guidance is as follows:
- We expect to receive a response from the FDA on the refiling of the Chemistry and Manufacturing Controls and Drug Master File for Zydax in approximately November 2017. If we receive a section complete letter, this could lead to the potential to commence the approval processes of Zydax for human use much faster than we previously anticipated and as such we are focused on appointing a partner company for human pharmaceutical development in the coming months.
- We expect to make a decision on when to refile our efficacy section for Zydax for dogs with the FDA after we next meet with them in approximately October.
- We will meet with the EMA in October to discuss the filings we have made to date and based on that feedback we will provide updated guidance on the potential approval timing of Zydax in Europe.
- We expect to progress to pilot studies for PAR121 (bone healing) and PAR122 (skin healing).
- We have had expressions of interest from a number of companies interested in partnering with us to market Zydax. Based on our regulatory strategy described above, we expect to be in a position to appoint a partner once we have met with the regulators and determined the path to market for Zydax that will ensure the optimal label language leading to the best opportunity for Zydax in the market. We remain optimistic about the opportunities for Zydax and we have been pleased with the level of interest from companies in this product.
- Subject to the outcome of negotiations, we expect to appoint a development and commercial partner for Zydax for human use in the coming months.
- We are working on securing one or more contract manufacturing agreements before the end of 2017. We reiterate our 2017 profitability guidance that we expect to markedly improve profitability returning to EBITDA profit in 2017, having removed over $13 million in annualized costs from the business operations, including a large saving of $4.7 million in administration and corporate expenses from the business, particularly after moving from the NASDAQ to the OTC Open market.
- Based on the multi-million dollar annual cost and the inefficiency we observed of being NASDAQ listed as a company with a small market capitalization and a thinly traded stock, the Board of Directors currently believes that a return to the NASDAQ in the short term is not in the best interest of shareholders. The Directors likewise presently see no liquidity benefit for shareholders given share trading volumes for PARNF since converting to the OTC Open Market have been only slightly less than during the immediate prior period of NASDAQ listing. The Board of Directors remains focused on unlocking, for the benefit of shareholders, what they believe to be the substantial value within the Company. While the Directors currently believe that a return to the NASDAQ in the immediate short term would not, of itself, align intrinsic value with the share price, the Directors continue to focus the Company on configuring each of its revenue generating assets towards profitability while prudently investing for future revenue generation in the growth assets. The Directors believe that the Company-wide business progress reported today continues to build shareholder value within the Company while its capital management, including various asset and deal structuring options and a potential return to NASDAQ if justified in the best interest of shareholders, are being evaluated in light of that ongoing progress.
Financial Results (for the six months ended June 30, 2017)
Total revenue of $10.3 million for the six months ended June 30, 2017, a 25% increase compared to the same period in 2016.
Our operating segments performed as follows:
- Production Animal – US: Revenue for the period was $5.1 million, an increase of $1.0 million, or 23%, over the same period in 2016. Our market share continues to grow lending support to our differentiated value proposition combining clinical science leadership (through the PROCEPT™ breeding program) with digital technology (mySYNCH) for this high margin business segment.
- Production Animal – Rest of World (ROW): Revenue for six months ended June 30, 2017, increased by $0.6 million (133%) to $1.0 million compared to the same period in 2016. This increase is due to the combined effect of increases in Australia ($0.1 million), the Middle East & Africa ($0.4 million) and New Zealand ($46k). In Canada, although we did not have revenues in the first half of 2017 due to the cessation in Q3, 2016 of our previous marketing agreement with Vetoquinol®, we expect revenues to recommence in the second half of 2017 with the appointment of a new marketing partner and we expect to be able to launch our second hormone GONAbreed® in Canada in 2018 potentially leading to higher revenues than what we had under the previous agreement with Vetoquinol, which only involved estroPLAN®. We also expect to pursue geographic expansion in 2017 and 2018 for our reproductive hormone products, in particular in Europe which we expect could provide an attractive additional revenue stream.
- Companion Animal: Companion Animal revenues were $1.6 million for the period, growing 7% for compared to the same period in 2016. This increase is due to growth in both Zydax and Glyde sales in Australia ($0.1 million or 15%) and flat sales in the US. However, our sales “in-market” in the US which represents sales from distributors to veterinary clinics, grew 20% for the first six months of 2017 compared to the same period in 2016. The lower sales growth “ex-Parnell” (sales from us to distributors) appears to have been impacted by distributors reducing the stock levels they previously held. We believe this was a one-time effect and our sales growth ex-Parnell will more closely match the sales in-market in the second half of 2017. We also achieved reduction in the cost base of the US business of $3.7 million for the first six months of 2017 as compared to the same period in 2016 and we expect the full year cost saving to be approximately $6.5 million for 2017 compared to 2016.
- Contract Manufacturing: Revenues of $2.5 million were generated in the first half of 2017 compared to $2.2 million during the same period in 2016, a $0.3 million or 17% increase. Given the global scarcity of FDA and EMA approved sterile manufacturing facilities, we expect to continue to attract several new opportunities in the second half of 2017 and future years.
Cost of Sales for the six months ended June 30, 2017, was $3.6 million, compared to $3.3 million for the comparable period in 2016. This 10% increase year on year, was driven by a 25% increase in sales. Gross margin as a percentage of revenue, using a Cost of Goods Sold – Product basis, was 86.6% for the first half of 2017 compared to 83.7% in 2016, due to a higher mix of Contract Manufacturing sales in 2017 compared to 2016 and a focus on higher profitability in our Production Animal business.
Selling and Marketing expenses decreased by $4.3 million, or 55% to $3.5 million for the first half of 2017 compared to the same period in 2016 resulting from the right sizing of our US Companion Animal sales and marketing team. We anticipate the combination of reduced personnel expenditure with an increased focus on our digital technologies will drive faster and more profitable revenue growth across our business segments. In total, we expect this will reduce annual expenditure on sales and marketing costs across the business by approximately $8 million in 2017 to $6.1 million as compared to $14.0 million in 2016.
Regulatory and R&D spending in the first half of 2017 was $0.7 million, an 11% reduction of the same period in 2016. All development costs directly associated with the Zydax development work during the period ended June 30, 2017 and 2016 respectively have been capitalized.
Administration expenses in line with the move from the NASDAQ to the OTC Open Market and due to an overall reduction in the size of corporate operations, administration expenses decreased $3.4 million, or 56% to $2.8 million, in the six months ended June 30, 2017, compared to $6.1 million the same period in 2016. We expect to see a full year reduction in these expenditures in 2017 of nearly $5 million as compared to full year 2016. The Board of Directors believes these significant savings in administration expenses have been a prudent move, especially to ensure our stated goal of becoming EBITDA profitable in 2017, and achieving a net profit after tax in 2018.
Finance costs increased $1.2 million to $2.3 million for the first six months of 2017 compared to $1.1 million for the same period in 2016. The increase in 2017 is predominantly due to refinancing of our previously held $USD11.0 million term loan in late 2016. This facility was in place for the first 10 months of 2016 and was paid off with the proceeds from our new $USD20.0 million term loan in November 2016, resulting in higher interest charges in the first half of 2017 compared to the same period in 2016.
Other Income/(expense) for the first six months of 2017 was an expense of $1.8 million compared to a $0.2 million expense for the same period in 2016. This increase is primarily due to foreign exchange movements between the Australian dollar and the US dollar for the period. For both 2017 and 2016 year to date, $0.4 million was recorded in Other Income as part of research and development incentives received in Australia.
Earnings Before Interest, Tax, Depreciation, Amortization and Other Income/(Expense) (EBITDAOI) & Net Loss after Tax:
Earnings Before Interest, Tax, Depreciation, Amortization and Other Income/(Expense) for the first half of 2017 improved by $9.5 million to a loss of $0.2 million compared to a $9.7 million loss for the same period in 2016. This was achieved by strong revenue growth and operational cost reductions of $7.8 million. As stated previously, we expect to return to EBITDA profitability in 2017 due to an ongoing focus on reduction in expenditure and increasing revenues from our existing business segments.
Net loss after tax for the period ended June 30, 2017, improved by $7.0 million to $5.5 million compared to $12.5 million in 2016.
Conference Call Information
Due to the recent cessation of investor services provided by the NASDAQ (associated with our delisting), we cannot provide an exact date for our investor call. As soon as a new service provider is appointed, we will announce the date and time for an investor call and expect to return to hosting an investor call on the day of earnings release in future.
Parnell (OTC:PARNF) is a fully integrated, veterinary pharmaceutical company focused on developing, manufacturing and commercializing innovative animal health solutions. Parnell currently markets five products for companion animals and production animals in 14 countries and augments its pharmaceutical products with proprietary digital technologies – FETCH™ and mySYNCH®. Parnell also has a pipeline of four drug products covering valuable therapeutic areas in orthopedics, dermatology, nutraceuticals for companion animals. For more information on the company and its products, please visit www.parnell.com.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements and information within the meaning of the US Private Securities Litigation Reform Act of 1995. Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “develops,” “believes,” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. Forward-looking statements represent management’s present judgment regarding future events and are subject to a number of risk and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks include, but are not limited to, risks and uncertainties regarding Parnell’s research and development activities, its ability to conduct clinical trials of product candidates and the results of such trials, as well as risks and uncertainties relating to litigation, government regulation, economic conditions, markets, products, competition, intellectual property, services and prices, key employees, future capital needs, dependence on third parties, and other factors, including those described in Parnell’s Annual Report on Form 20-F filed with the Securities and Exchange Commission, or SEC, on March 4, 2017, along with its other reports filed with the SEC. In light of these assumptions, risks, and uncertainties, the results and events discussed in any forward-looking statements contained in this press release might not occur. Investors are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this press release. Parnell is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise.
Consolidated Balance Sheets
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CONTACT: For more information, contact:Source :
Parnell Pharmaceuticals Holdings
Parnell Pharmaceuticals Holdings