Pharming reported financial results for 1Q15, posting EPS of €(0.003) vs. our estimate of €(0.01) and revenues of €1.8 million vs. our estimate of €1.7 million. Pharming ended the year with €30.3 million in cash. We believe Pharming is gradually optimizing its manufacturing and distribution process, which should eventually lead to improved margins and operational profitability over the next 12-18 months. Reiterate Buy.
Event
Pharming reported financial results for 1Q15, posting EPS of €(0.003) vs. our estimate of €(0.01) and revenues of €1.8 million vs. our €1.7 million. Royalties from sales of Ruconest in the U.S. contributed €0.6 million and E.U. sales contributed €0.4 million. Pharming ended the year with €30.3 million in cash.
Impact
We believe Pharming is gradually optimizing its manufacturing and distribution process, eventually leading to improved margins. Despite current negative cash flow, we believe that Ruconest sales will grow, particularly in the U.S. with the expansion of the Ruconest Solutions program and direct sales in Europe. We believe that as operations reach full scale and expenses plateau, Pharming will reach operational profitability, which we expect to occur in the next 12-18 months. We believe increases in sales will continue to be supported by Ruconest's differentiated profile. Ruconest is a pure recombinant product, which in contrast to plasma based products should appeal to health care providers and patients alike. While acute HAE management is important for Ruconest, we believe the core value of the drug is found in HAE prophylaxis, which is where we assign it's highest potential value in our model (contributing $1.52 should it be approved). Recall that Ruconest is in a Phase II study for this indication and we believe this represents a "clear and present danger" to Shire's Cinryze. Ruconest could compete with Cinryze on cost and more importantly on potential safety differentiation. Cinryze and other plasma based products have clear warnings on their labels, specifically the risk for thromboembolic events as well as infectious disease risk. Ruconest has had no thromboembolic events reported to date.
Action
We reiterate our Buy rating and our target of $3. The company's strategy to expand geographies through collaborations and to develop therapies for rare diseases should bear fruit over the long term, in our opinion. Given the pricing power of orphan drugs and the expanding markets in these indications due to better diagnoses, we believe that Pharming is well-positioned for commercial success.
