Parnell Pharmaceuticals Holdings Ltd Announces Business Results for the Three Months Ended 30 September 2018

Parnell delivers 39% revenue growth and a $5.9 million year-to-date improvement in EBITDA as at the third quarter of 2018 compared to the same period in 2017, consolidates the return to profitability, and maintains full-year 2018 guidance at a 35 - 40% increase over 2017 revenue to $26 - $27 million and an EBITDA range of $5.5 - $6.5 million.

Parnell Pharmaceuticals Holdings Ltd (OTC: PARNF) today announced business results for the period ended 30 September 2018 including; revenue growth of 39% over the first nine months of 2017 to $20.0 million, a $2.0 million (or 20%) reduction in operating expenses, combining to deliver a $5.9 million improvement over 2017 in year-to-date Earnings Before Interest, Tax, Depreciation, Amortization and Other Income (or EBITDAOI) to $5.3 million; and Net Profit After Tax (or NPAT) for the nine months to 30 September 2018 of $1.3 million, an improvement of $9.7 million over the corresponding period in 2017.

Brad McCarthy, CEO and Executive Director, said, "Our third-quarter financial results for 2018 further confirm that the trajectory of our business is aligning to our strategic direction. At the start of 2018, our Board of Directors set us firmly on the path to profitability, and our Quarter 3 performance again verifies that we are delivering on this goal for our shareholders.

"The ongoing 2018 business performance achieved to 30 September allows the Board to reaffirm our full-year 2018 guidance of 35 - 40% revenue growth to $26 - $27 million, and an EBITDAOI range of $5.5 - $6.5 million, over our initial 2018 guidance of $25 - 26 million revenue and $5.0 - 6.0 million EBITDA", Mr McCarthy said.

Business Segment Performance

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

"Our year-to-date sales performance is very pleasing", Mr McCarthy stated. "With a disciplined approach by our sales and marketing team, focused on delivering our core value proposition across our customer base, we continue to deliver solid revenue growth across almost all of our business segments compared to the same period in 2017.

"In US Production Animal, sales to 30 September 2018 increased 19% over the same period in 2017 to $8.6 million. In digital technology during Quarter Three, we launched new mySYNCH features and enrolled further users; our database has now expanded to over 700,000 US dairy cows. The upward momentum in mySYNCH and our continued focus on technical market leadership in dairy reproduction have combined to deliver above-market revenue growth, with more herd managers than ever benefiting from our on-call, targeted fertility insights", Mr McCarthy said.

"In manufacturing, our production output continues to rise in line with forecast and contracted demand from our branded products and CMO customers", Mr. McCarthy continued. "Our sterile injectable output in Quarter Three alone exceeded our entire manufactured volume for the first nine months of 2017. Total CMO revenues to 30 September 2018 were $7.7 million, an increase of 137% over prior year revenues for the corresponding period", Mr McCarthy said.

"Our US Companion and Australia-New Zealand businesses continue to perform solidly", Mr McCarthy said. "Our Company-wide Companion Animal business revenues at 30 September 2018 are in line with the prior year after extracting over $1.5m of operating costs from the US division compared to the same period in 2017. Our Australian Companion Animal business continues to be a strong performer this year, delivering 20% year-on-year growth to the end of Quarter Three. The Australia-New Zealand Production Animal business keeps growing strongly, with major new corporate customers being won in Quarter Three. Our Rest of World Production business is down 44% year-on-year and is reliant on delivering a number of delayed orders in Quarter Four to achieve its full year budget goal", Mr McCarthy concluded.

Business Development and Legal

Dr. Alan Bell, Executive Director and Chairman of the Board, said, "Quarter Three has seen us further expand our engagement with numerous Animal Heath companies requiring CMO services in sterile injectables. As a result, we have worked with an increasing number of new potential customers on projects that, if brought to fruition, would achieve our stated goal of tripling 2017 CMO revenues by 2019".

"Our efforts to identify and secure a new direction for the global Zydax Canine project have not yet resulted in a suitable strategic collaboration. Nonetheless, our discussions with qualified potential partners continue to show promise and remain open. Given the ongoing uncertainty of finding a definitive path it remains possible that commercialization in major world markets may ultimately elude us; in the circumstances, we continue to budget and invest conservatively in this franchise", Dr Bell stated.

"In Quarter 3 there have been no significant developments in ongoing legal actions initiated by ex-employees. The Company continues to both attempt settlement and litigate the matters with conviction", Dr Bell said.

Commercial Highlights to 30 September 2018

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

Regarding the Company's financial performance at the end of the third quarter of 2018, your directors report the following achievements:

  • Total Company sales of $20.0 million for the nine months ended 30 September 2018, comprising growth of 39% over the same period in 2017;

  • Production Animal sales of $10.0 million for the nine months ended 30 September 2018 represented an increase of $1.2 million (14%) over the same period in 2017, comprised of: 19% growth in US Production; 28% growth in Australia-New Zealand Production; and a 44% decline year on year in Rest of World Production due to variations in shipment timing for committed orders. Overall, Production Animal sales remain in line with guidance for the full year with some anticipated upside in US and Australia-New Zealand businesses expected to offset any shortfall in the Rest of World.

  • Companion Animal sales of $2.4 million for the nine months ended 30 September 2018 were equivalent to sales for the same period in 2017, arresting the decline in this segment due to prior year underperformance in US Companion. This in conjunction with the reduction in the cost base of the US Companion Animal segment has delivered a $1.3 million year on year improvement in contribution margin from this business in the first nine months of 2018. The Australian Companion Animal business continues to outgrow the market, posting a further 20% year on year revenue growth in the first three quarters of 2018, after recording 12% full year growth in 2017.

  • Contract Manufacturing revenues for the nine months ended 30 September 2018 were $7.7 million, an increase of 137% over revenues of $3.2 million for the same period in 2017. The total for the first three quarters of 2018 comprised technology transfer revenues of $2.4 million, compared to $3.2 million for the same period in 2017, and batch delivery revenues of $5.2 million, compared to $Nil in 2017.

  • Operating expenditure across the business decreased by 20% in the first nine months of 2018 to $7.8 million, compared to $9.8 million for the same period in 2017.

  • As a result, EBITDAOI improved $5.9 million to $5.3 million for the nine months ended 30 September 2018 over a $0.6 million loss for the same period in 2017, while NPAT was $1.3 million positive in 2018 compared to a loss of $8.4 million in 2017.

2018 Guidance

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

Mr McCarthy said, "In light of our business achievements in the first nine months of 2018, we reiterate our 2018 full year revenue guidance of $26.0 to $27.0 million, being a 35% to 40% increase over 2017, and an EBITDAOI range of $5.5 to $6.5 million compared to a near-breakeven result in 2017. This guidance is increased from our initial 2018 guidance delivered in January 2018, namely, revenue of $25.0 to $26.0 million and EBITDAOI of $5.0 to $6.0 million".

Financial Results for the nine months ended 30 September 2018:

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

Revenue:

  • Total revenue was $20.0 million for the nine months ended 30 September 2018, a 39% increase compared to the same period in 2017. A detailed description of the revenue performance by business unit is provided above.

Expenses:

  • Cost of Sales for the nine months ended 30 September 2018 was $6.9 million, compared to $5.2 million for the comparable period in 2017. Gross margin as a percentage of revenue, using a Cost of Goods Sold - Product basis, was 86.3% for the three quarters of 2018 compared to 86.6% in 2017, due to higher technology transfer services revenues in 2017 compared to 2018, partially offset by improved manufacturing operations and efficiencies implemented since late 2017.

  • Selling and Marketing expenses decreased by $0.9 million, or 19%, to $3.8 million for the nine months of 2018 compared to the same period in 2017, resulting primarily from the reduction of our US Companion Animal field sales and marketing cost base.

  • Regulatory and R&D spending year to date 2018 was $0.4 million, a 46% reduction over the same period in 2017. Termination of PAR121 and PAR122 earlier in the year was the major contributor to this reduction.

  • Administration expenses decreased $0.7 million, or 17%, to $3.5 million in the nine months to 30 September 2018 compared to $4.2 million for the same period in 2017 as a result of the management changes and savings initiatives implemented in late 2017.

  • Finance costs of $5.5 million for the first nine months of 2018 increased by $2.0 million over the same period in 2017, of which $0.6 million relates to the non-cash write-off of the unamortized borrowing costs from our previous debt facility. Our future finance costs are expected to be reduced under the new debt arrangements.

  • Other income/(expense) for the nine months ended 30 September 2018 was income of $3.2 million compared to a $2.5 million expense for the same period in 2017. This reduction in expense is entirely due to non-cash 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) & Net Profit after Tax:

Earnings Before Interest, Tax, Depreciation, Amortization and Other Income/(Expense) for the first nine months of 2018 improved by $5.9 million to a profit of $5.3 million compared to a $0.6 million loss for the same period in 2017. As stated above, this was achieved by strong revenue growth in the first three quarters of 2018 in conjunction with significant operational cost reductions totalling $2.0 million for the nine month period.

Net result after tax for the period ended 30 September 2018 improved by $9.7 million to a net profit of $1.3 million, from a net loss of $8.4 million in the first nine months of 2017.

The unaudited Financial Statements for the nine months ended 30 September 2018 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.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements and information within the meaning of the U.S. Private Securities 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 risks 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 31, 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.

For more information, contact:

Parnell Pharmaceuticals Holdings
Brad McCarthy
Phone: +61 2 9667 4411
Email: brad.mccarthy@parnell.com

Financial Statement for the nine months ended September 30, 2018
Consolidated Statements of Comprehensive Profit and Loss
(Unaudited)

For the Nine-Months Ended September 30,

2018

2017

($AUD)

($AUD)

Revenue

19,982,608

14,363,194

Cost of goods sold

(6,876,228)

(5,174,652)

Gross Margin

13,106,380

9,188,542

Selling and Marketing expenses

(3,845,743)

(4,760,234)

Regulatory, R&D expenses

(443,928)

(818,386)

Administration Expenses

(3,488,396)

(4,181,773)

E.B.I.T.D.A.O.I.

5,328,313

(571,851)

Depreciation and Amortisation expenses

(1,752,227)

(1,834,723)

Finance costs

(5,496,174)

(3,510,074)

Other income/(expense)

3,192,623

(2,493,950)

Profit/(loss) before income tax

1,272,535

(8,410,599)

Income tax expense

0

(12,111)

Profit/(loss)for the year

1,272,535

(8,422,710)

Foreign currency translation

(5,256,809)

3,932,406

Total comprehensive loss for the year

(3,984,274)

(4,490,304)


Consolidated Balance Sheets
(Unaudited)

30 September 2018

AUD$

31 December 2017

AUD$

ASSETS

CURRENT ASSETS

Cash and cash equivalents

5,628,998

2,378,950

Trade and other receivables

2,420,200

2,555,341

Inventories

3,756,125

2,136,123

Prepayments

498,740

306,354

TOTAL CURRENT ASSETS

12,304,063

7,376,768

NONCURRENT ASSETS

Trade and other receivables

69,873

65,306

Property, plant and equipment

10,495,003

10,593,383

Intangible assets

12,832,481

12,168,712

TOTAL NONCURRENT ASSETS

23,397,357

22,827,401

TOTAL ASSETS

35,701,420

30,204,169

LIABILITIES

CURRENT LIABILITIES

Trade and other payables

7,314,621

8,150,610

Borrowings

15,628

9,990

Provision for employee benefits

766,525

577,840

TOTAL CURRENT LIABILITIES

8,096,774

8,738,440

NONCURRENT LIABILITIES

Trade and other payables

89,424

480,872

Borrowings

42,999,444

32,174,792

Provision for employee benefits

163,278

126,924

TOTAL NONCURRENT LIABILITIES

43,252,146

32,782,588

TOTAL LIABILITIES

51,348,920

41,521,028

NET ASSETS

(15,647,500)

(11,316,859)

EQUITY

Ordinary shares

63,521,533

64,218,142

Sharebased compensation reserve

3,245,883

2,895,641

Reserves

(5,285,136)

(28,327)

Accumulated losses

(77,129,780)

(78,402,315)

TOTAL EQUITY

(15,647,500)

(11,316,859)

Source: Parnell Pharmaceuticals Holdings Ltd


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About Parnell

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Parnell (OTC:PARNF) is a fully integrated, veterinary pharmaceutical company focused on developing, manufacturing and commercializing innovative animal health solutions.