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17-Oct-2019

Parnell Pharmaceuticals Holdings Ltd Announces New CDMO Agreement and Business Update

Parnell announces a new contract manufacturing agreement for one animal health product and a memorandum of understanding for two additional products with a global multi-national; revenue in the first half of 2019 down 12% compared to 2018 due to timing of technology transfer revenues versus prior year; and holds 2019 guidance for a 17 - 25% increase over 2018 revenue and an EBITDA range of $7.5 - $8.5m.

SYDNEY, October 15, 2019 (Newswire.com) - Parnell Pharmaceuticals Holdings Ltd (OTC: PARNF) today announced the signing of a new technology transfer agreement for the manufacture and CMC dossier development of the first of three animal health products with a large multi-national organization.

Brad McCarthy, CEO and Executive Director, said, "We are very pleased to announce the signing of this new agreement, which commences with one product immediately and with a memorandum of understanding in place for an additional two products over the coming twelve to eighteen months. Not only does this add to our blue-chip customer base of CMO customers, it further reinforces the reputation and capabilities of our sterile injectable facility and its exemplary quality management system and technical people here in Sydney, Australia." Full details will remain confidential, as per the non-disclosure provisions of the agreement.

"We also completed an FDA routine re-inspection of our facility in the month of July receiving zero 483 observations. This was a very positive result for a sterile injectable facility and a further endorsement of our manufacturing competencies," Mr. McCarthy continued.

Parnell also provides an update on its financial results for the half year ended 30 June 2019 comprising; revenue of $11.8 million compared to $13.5 million for the corresponding period in 2018, and a $0.7 million increase in operating expenses from increased investment in US Production and Manufacturing, combining to deliver a $2.8 million reduction over the same period in 2018 in Earnings Before Interest, Tax, Depreciation, Amortization and Other Income/(Expense) (EBITDAOI) to $1.0 million.

Mr. McCarthy said, "Reductions in our revenue and EBITDAOI compared to the first half of 2018 were attributable to our not securing a new Contract Manufacturing (CMO) agreement in the first half of 2019. Otherwise, the sales and order generating performance of all our established business units are tracking well at the half year point and costs remain well under control. Although closing slightly later than we would have preferred, this new agreement further utilizes the available capacity in our facility and contributes to maintaining our full year EBITDA guidance."

Business Segment Performance

Unless otherwise specified, all amounts are presented in Australian Dollars (AUD).​

"Sales of our proprietary products and CMO product revenues in the first half grew 3% over the corresponding period in 2018," Mr. McCarthy stated. "In contrast, technology transfer revenue from new CMO contracts was Nil for the first half of 2019 compared to $2.2 million in the first half of 2018."

"In Production Animal sales to June 30, 2019 increased 6% over the corresponding period in 2018 to $6.5 million, continuing our solid momentum in our established markets," Mr. McCarthy said. "​​In the first half of 2019 our US Companion Animal business sales were slightly behind plan but management of expenses enables this business to remain in sight of our full year EBITDA targets. Our Australian Companion business continues to grow, being up 4% over the first half of 2018."

"As previously communicated, our Board issued provisional full-year 2019 guidance at 17-25% revenue growth to $31 - $33 million, and an EBITDAOI range of $7.5 - $8.5 million, over our 2018 results of $26.5 million revenue and $6.1 million," Mr. McCarthy said. "At the end of the first half we remain on track to deliver those results, although the delayed timing of securing a new contract manufacturing agreement may result in some associated revenue pushing into the following year."

Corporate Updates

Dr. Alan Bell, Executive Director and Chairman of the Board, said "As previously communicated, further inside-director loans to the Company were necessary during Quarter 2 to accommodate ongoing cash-flow needs given the absence of revenue from new CMO contracts and the later delivery dates for CMO batches on order from established customers. Those loans totalled $600,000 in Quarter 2, and were made under the same terms as those advanced in Quarter 1 as reported in the March 31 Business Results."

Work on the human generic agreement with our large global pharma partner continued apace during the period. During the period, the project expanded to address known technical challenges related to the complexity of the chemical structure. We believe the technical plan to achieve the agreed milestones is robust, well supported by both parties, and bolstered by external expertise. We anticipate there will be more progress to report later in 2019, subject to the confidentiality provisions of the governing agreement.

As reported previously we are the subject of an employment claim by our former CEO following his dismissal in 2017 and have filed a counter-suit. Our attempts to date at a negotiated settlement have failed and the trial has recently commenced.

Commercial Highlights to 30 June 2019

Unless otherwise specified, all amounts are presented in Australian Dollars (AUD).​

Regarding the Company's financial performance at the end of Quarter Two 2019, your directors report the following achievements:

Total revenue was $11.8 million for the six months ended June 30, 2019, being $1.7 million (13%) down over the same period in 2018.

Our operating segments performed as follows:

  • Production Animal sales of $6.5 million globally representing an increase of $0.4 million (4%) over the same period in 2018, comprised of; 3% growth in US Production, 7% growth in Australia and New Zealand Production, and 104% growth in Rest of World Production. The performance in our key markets (USA, Australia and New Zealand) continues to demonstrate our strong market positioning and value proposition, especially in those regions in which we have an established presence. As we recruit and on-board sales staff in additional territories in the US we expect to continue to build on this growth throughout the second half of the year. Our digital asset, mySYNCH, continues to build significant momentum in 2019 with a 52% increase in the number of cows now being reported on daily to their owners in the six months to June 30, 2019.
     
  • Companion Animal sales of $1.6 million for the half year ended June 30, 2019 were flat compared to the same period in 2018. US Companion Animal was down 4% for the period, in conjunction with a further reduction in cost base of this business segment previously delivered, was especially pleasing. The Australian Companion Animal business continues to grow, posting 4% year on year revenue growth in the first half 2019, after recording 11% full-year growth in 2018.
     
  • Contract Manufacturing revenues for the six months ended June 30, 2019 were $3.7 million, a decrease of 36% over revenues of $5.8 million for the same period in 2018. No technology transfer revenues were recorded in the first half of 2019, compared to $2.2 million for the same period in 2018, and batch delivery revenues were $3.7 million, compared to $3.5 million for the same period in 2018, a 3% increase that we believe will continue to grow further in the second half of the year based on orders secured to date.
     
  • Operating expenditure across the business increased by $0.6 million in the period to $5.9 million, compared to $5.3 million for the same period in 2018.

As a result, EBITDAOI decreased to $1.0 million for the six months ended June 30, 2019, compared to $3.8 million for the same period in 2018.

2019 Guidance

Unless otherwise specified, all amounts are presented in Australian Dollars (AUD).​

Mr. McCarthy said, "We maintain our 2019 full year guidance of a revenue range of $31.0 to $33.0 million and an EBITDAOI range of $7.5 to $8.5 million based on securing the recent third-party manufacturing contract as stated above. However, dependent on timing of activities to be conducted under this agreement and achievement of certain additional milestones in previous agreements, we expect that some of these revenues may push into 2020."

Financial Results for the six months ended 30 June 2019:

Unless otherwise specified, all amounts are presented in Australian Dollars (AUD).​

Total revenue was $11.8 million for the six months ended June 30, 2019, a 13% decrease compared to $13.5 million for the same period in 2018. A detailed description of the revenue performance by business unit is provided above.

Expenses:

  • Cost of Sales for the period ended June 30, 2019 were $4.9 million, compared to $4.4 million for the comparable period in 2018. Gross margin as a percentage of revenue, using a Cost of Goods Sold - Product basis, was 81% in 2019 compared to 86% in 2018, due to higher technology transfer revenues recorded in the period in 2018 and $Nil recorded in the first six months of 2019.
     
  • Selling and Marketing expenses increased by $0.2 million, or 8%, to $2.8 million for the quarter compared to the same period in 2018, primarily from the increase in US Production Animal sales and marketing presence as we continue to establish new territories in this region.
     
  • Regulatory and R&D spending for the quarter was $0.5 million, an increase of $0.2 million over the same period in 2018, primarily due to increased government regulatory fees.
     
  • Administration expenses increased $0.2 million to $2.6 million in 2019 compared to $2.4 million for the same period in 2018 due to slight timing differences in administration expenses.
     
  • Finance costs of $4.2 million for the six months ended June 30, 2019 increased by $1.3 million over the same period in 2018, due to the difference in structure of our senior debt facility compared to the previous facility. The cash-flow component for the period in 2019 was equal to the same period in 2018, under the previous facility; however the cost of the new facility is substantially lower over the full term of the loan.
     
  • Other Income/(expense) for the six months ended June 30, 2019 was income of $0.2 million compared to income of $2.4 million for the same period in 2018. This reduction in income was entirely due to foreign exchange movements between the Australian dollar and the US dollar for the period.

Earnings Before Interest, Tax, Depreciation, Amortization and Other Income/(Expense) (EBITDAOI) & Total Comprehensive Loss:

  • Earnings Before Interest, Tax, Depreciation, Amortization and Other Income/(Expense) for the six months ended June 30, 2019, decreased by $2.8 million to $1.0 million compared to $3.8 million for the same period in 2018.
     
  • Total comprehensive loss for the six month period ended June 30, 2019 was $5.1 million compared to $1.5 million in 2018, predominately due to a $2.2 million reduction in technology transfer revenues and a $2.2 million reduction in other income associated with foreign exchange movements, offset by an increase in foreign currency translation reserve.

The unaudited Financial Statements for the six months ended June 30, 2019 compared to prior year are presented below.

About Parnell

Parnell (OTC: PARNF) is a fully integrated pharmaceutical company focused on developing, manufacturing and commercializing innovative animal and human health solutions. Parnell is a technology and clinical science leader in dairy reproduction, marketing its proprietary brands estroPLAN and GONAbreed via its dedicated sales force and digital technology mySYNCH in the USA and Australia-New Zealand, and via distributors in other markets. Parnell has a rapidly growing contract manufacturing business supplying industry majors with specialized sterile injectable products. Recently, Parnell leveraged its novel intellectual property position in the Pentosan Polysulfate drug class to address the human market through a new contract with a major global human health company. In companion animal, Parnell manufactures and markets its proprietary canine osteoarthritis brands Zydax and Glyde.

For more information on the company and its products, please visit www.parnell.com

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  • Company:
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Last Updated: 17-Oct-2019