Pharming Group NV (PHAR) 2021 Q4 法說會逐字稿

Good evening or good afternoon, ladies and gentlemen. Welcome to the Pharming Group full year results webinar out of Amsterdam here.

And for those of you who join us for the first time, my name is Sijmen de Vries, and I'm the CEO of Pharming. And I'm here together with my colleague, our Chief Financial Officer, Jeroen Wakkerman, and we will present and then present some questions that we have received.

But before we do that, I would like to draw your attention to this safe harbor slide, safe harbor statement about forward-looking statements because this presentation may contain or we will be making probably forward-looking statements, which are, of course, based upon our current beliefs, plans and expectations, and those obviously can change towards the future.

So without further ado, I would like to start the presentation. We are in a very special situation at this point in time. For the second time in the history of our company, we are actually in possession of positive pivotal trial data for one of our products. The last time, however, in 2013, when that was the case, that was for RUCONEST, we were in a very, very different stage. We were actually hanging on for survival, for dear life, I may say, and we had to out-license our products to survive, and we're not in control of the commercialization of our own product.

And now we are in a very different situation. We're a well-funded business with commercial sales operations on both sides of the ocean. And we are very proud that despite a difficult year 2021 because of COVID and the hindrances that we had with commercialization of our products, we still booked $199 million of sales in last year for RUCONEST. And we are, of course, very excited, as I was just saying, because of the pivotal data that we have in our hands that is positive, recently reported that we have a near-term inflection point ahead of us with the anticipated launch of leniolisib, the product we in-licensed from Novartis, which we anticipate, subject, of course, to approval, to be able to launch in the first quarter of 2023. So within a year from now, in this treatment, APDS, activated phosphoinositide kinase delta syndrome.

So we, of course, can do this now because, as I said before, we have a commercial infrastructure on both sides of the ocean, both in the U.S. and in Europe, and we can therefore roll out this product under our own control, very, very different as it was in the 2014.

In addition to that, because of this strong financial position and the strong commercial operation, we can also leverage our in-house expertise to drive forward the R&D of our specialist products that we are developing, including in-licensed products -- including such in-licensed products as our potentially curative gene therapy candidate for hereditary angioedema, OTL-105. And we'll talk about it a little bit later in this presentation as well. And of course, we can look for further life cycle management potential of our internal portfolio. And we're very proud that we have a very experienced leadership team and a strong balance sheet at this point in time.

So how does our growth strategy looks like now going forward? So I'll try to take you through the story here by means of 3 pillars here. And I will start on the left-hand side of the slide, where you see that, of course, here in now and in the near future, we plan to further work on the global commercial infrastructure. And of course, we have now RUCONEST. But at the bottom now, we can say that we have the potential to actually launch leniolisib, and that's very important because, yes, we have a very nice business. Yes, we book very nice sales. And yes, we believe there is still some growth in RUCONEST going forward, but we are depending with one product on one market. And leniolisib puts us in a very unique position now to become a company that can rely on 2 products, and that can have a balanced portfolio geographically speaking as well.

So both in the United States and in Europe and the rest of the world, we can actually generate revenues and therefore derisk -- significantly derisk the company. That is the fastest way in which we can do that. And that's why we took that opportunity to in-license leniolisib from Novartis 2.5 years ago with 2 hands because that is very, very important, in our opinion, to accelerate the growth of the company.

If then you look at the middle of the pillar, you see the near-term expansion of the portfolio with in-house -- with ultra-rare disease in-house expertise to grow our business. So that's why we really focus now, and we continue to do that like we did with leniolisib, to look for in-licensing and acquisition of late -- additional late-stage assets because our commercial infrastructure can actually handle more of these products with relatively limited additional investments. That's the great news when you have already invested such an enormous sums of money in commercial infrastructure as we have.

What you see on the bottom there as well that we are, of course, continue to develop for the middle term and the longer term, the C1 inhibitor products that we are -- the C1 inhibitor indications that we do. And also, of course, that is new PI3 kinase delta potentially has more indication as well behind it. So APDS is the first indication for leniolisib, but thanks to the good work of Novartis that was engaged in quite a few research collaborations looking into other indications. Our Chief Scientific Officer, Robert Friesen, and his team can now look into actually finding new indications for leniolisib as well. And that's, of course, very interesting for the medium term as well to stimulate the growth of the company.

And then the other additional interesting bit is that because we are testing a lot of patients now for APDS, and we do that especially in the U.S., and I'll come back on that a little bit later. We now actually develop -- gradually develop a genetic database of patients with primary immune deficiencies, where we can see other patterns of other mutations that lead to other rare diseases, rare primary immune deficiencies. That means that we can actually use that database and use that information to identify other diseases and focus our business development efforts on to those mutation patterns that we see in that database. And that, of course, means that we can do a lot more focused BD&L and can actually also do our own research into the future for longer-term development of such primary immune deficiency products.

And of course, you see there on the bottom that we are, of course, developing our early-stage OTL-105 product for hereditary angioedema. And last but not least, we still have an asset of alpha-glucosidase for Pompe's disease as well, still in the pipeline in preclinical stage.

So let's just take a look back now on 2021. What we have -- what the progress was during 2021. And we start on the left-hand side with commercial RUCONEST. And you see there's 2 things that happened with RUCONEST. We expanded the footprint of RUCONEST by a commercialization agreement with NewBridge into North Africa and the Middle East. And we obtained reimbursement in Spain. That is important because we continue to roll out RUCONEST further across the world because not so much that we make a lot of money with RUCONEST, as you know, RUCONEST is suffering from being caught in reference pricing systems. And therefore, we cannot make so much money on it, but it's important for the future that we lay the footwork for the launch of leniolisib, and therefore we go on and on with our geographic expansion so that we can roll out more expeditiously leniolisib.

Then you also saw an important thing here that we renewed our strategic manufacturing agreement with Sanofi and that meant that we took a decision to step back from building our own drug substance production plant. And you've seen the press release on that by the end of last year, which saves us $40 million in expenses, which we can put to good use, of course, for the investment in additional in-licensing opportunities or the financing of M&A transactions. Then on the late-stage pipeline, you saw, we referred already to it, we, of course, booked positive top line data in a pivotal study for leniolisib, very important. We invested significantly in 2021, and Jeroen will come to that as well for the pre-launch activities for leniolisib. And we anticipate the regulatory filings in the second quarter of this year.

We launched a navigateAPDS, that's a sponsored genetic testing program in the U.S., to identify these patients with APDS. And very important, on the bottom here, we received a positive decision from the European authority on our pediatric investigation plan, which is very important because it means that the European regulator actually buys into the concept of this clinical trial because that pediatric trial will have the same primary endpoints as the pivotal trial. So we were very pleased to see that the European authority was very much aligned with the American authority with regards to the primary endpoints of the study. And we can go forward with confidence, therefore, to bring the regulatory filing towards the European authorities as well later on in this year after we've done this to the FDA.

And then, of course, on the right-hand side, the earlier stage pipeline also made some significant progress. We have managed to in-license OTL-105 from Orchard Therapeutics, which is a potentially curative candidate, gene therapy for hereditary angioedema. The first patient was enrolled in our Phase IIb study for C1 inhibitor in the prevention of acute kidney injury. And of course, we saw some interesting results from the C1 esterase inhibitor trial for the treatment of pneumonia as a result of COVID-19 infections. So it was quite a busy year 2021.

Now let's shift gears and let's look at the most important value driver, of course, for the company, hereditary angioedema and RUCONEST and see how the ongoing sales performance is still very positive with RUCONEST. And here is the picture of how we see the market. Now as you see on this picture here, traditionally, of course, and when you come first to market, that's a natural situation. You get the patients that cannot actually be helped with existing therapies. That's how RUCONEST was launched. And that is where RUCONEST has found its real core segment and still it is. So RUCONEST is serving the severely affected patients that are suffering from this disease and cannot get by on other products. That's important, of course, to have that position. It means that people rely on RUCONEST, that cannot rely on other therapies.

In addition to this, prophylaxis has become a major feature in the U.S. market and prophylactic therapies have significantly improved over time. But it also means that the paradigm of prophylaxis changed away from C1 inhibition, which is the mode of action of RUCONEST to bradykinin kallikrein inhibition, which is affecting 1 of the 3 pathways that people with hereditary angioedema suffer from. It means, therefore, that if you suppress one of these pathways, like the bradykinin kallikrein inhibition, that you could have good efficacy, and that's the good news for patients. Efficacy of prophylactic therapies have gone up significantly over the last few years. However, those prophylactic therapies are not watertight.

Still a very significant portion of patients, approximately half, are suffering from breakthrough attacks from time to time. Some of them very frequently, some of them less frequently. But it means that they still need to have an acute treatment for breakthrough attacks at hand. And given the fact that the paradigm shifted away from C1 inhibition, which was the original mode of action for the prophylactic therapy to the bradykinin kallikrein inhibition. It now makes, it's very rational to use RUCONEST, which is a C1 inhibitor to actually have that available as your breakthrough medication. And although we never, in the beginning, we never had any usage of RUCONEST in that breakthrough attack segment here, all of those blue dots that you see under the curve, we now see increasingly the usage of RUCONEST by a different patient population that's actually using it for breakthrough medication.

Therefore, we're very confident that not only we're serving an important segment of the market of severely affected patients with RUCONEST, but we also see that more and more patients start to use RUCONEST as their breakthrough medication. So over the years, we see a very interesting tendency, not only more and more doctors prescribe RUCONEST in the U.S., but also we see more and more and more patients using RUCONEST over the years in the U.S. And that gives us a very confident feeling about the future of RUCONEST in the hereditary angioedema market is this.

And this next picture is giving us an even better feeling because, as you can see here, the market turned totally upside down over the last couple of years. Whereas in the past, the majority of people -- patients were using acute therapy and the minority was using prophylactic therapy. You see this has totally turned around. Now approximately 70% of the patients, it's a little bit stabilizing at the moment, around 70% of patients are using prophylactic therapy and fewer than -- and of course 30% use acute therapy only. However, what I just told you is also important that still those prophylactic patients need to use breakthrough medication.

And then you see at the bottom end there of the slide, you see the blue line indicating the RUCONEST market share. And you can see that over time, RUCONEST has at least stayed stable, if not grown slightly in market share over time. So we believe this is a sign of a maturing market, and this is a sign of a stabilizing market. And that means that RUCONEST, again, we have all the signs there that we have a good business in our hands and that we will continue into the future with having a solid business that can drive our company going forward and allows us to do all of these investments in the future growth of the company.

And about the nearest term investment, APDS and leniolisib, I would like to talk to you a little bit more. So what is APDS? Well, as I was already alluding to, APDS is a primary immune deficiency. It means that we don't know what it is until you make a formal diagnosis, it is an immune deficiency of unknown origin. But in this case, we know, of course, the origin. It means that the PI3 kinase delta is over-activated. So it's a so-called gain of function mutation that these patients have in technical terms. It means that part of the immune system, the B-cell segment of your immune system, which is actually your guard against infections cannot make good immune cells. So although cells do not ripen out and the immune system goes in overdrive and goes in overdrive and cannot make appropriate immune defenses against the infections.

So these patients are suffering from, and you see it on the bottom hand there, from a very young age, starting with severe lung infections very quickly, leading to permanent lung damage. GI disease, swollen organs like swollen livers and lymph nodes and spleens and livers and also autoimmunity that they develop and last but not least, a lot of these patients develop -- at a very early stage in the life develop lymphomas. And there's simply nothing you can do about it. Also these patients, because it is a primary immune deficiency and rare, some of them spent years and years being misdiagnosed and spend their life, their childhood, in hospitals and visiting all sorts of doctors. And of course, it is a downward spiral because there's no causative therapy available.

There's only, as you see on the right-hand side of the slide, there's only supportive therapy available, lots of antibiotics, lots of steroids, a lot of immunoglobulin replacement therapy, which are not only very tedious but also very expensive and other symptomatic treatments of medications with quite severe side effects. And of course, we're very excited about being able to offer these patients something. But it is also the name of the game in rare diseases is if you especially have a new disease like APDS, which was only discovered 9 years ago, the challenge is, do you find how can you find the patients? And especially how can you find the patients in markets where you have decentralized health care systems, such as the U.S.? In Europe, it's a little bit better because in Europe there's specialized centers that they'll develop with these kind of difficult diseases. And therefore, the majority of the patients we have already identified are in Europe here. But it means that in the U.S., we have to do a lot more work about it.

Speaking of which, we have discovered, for instance, in France, a couple of key opinion leaders started a database of patients, and they have already discovered 60 of those patients on a population of 60 million. So that means that we are at least certain that 1 in a 1 million has this disease. And of course, that is only without any systematic searching for this disease because that is there's not much systematic searching going on so far.

In the U.S., as I was saying, it's a bigger challenge. The decentralized health care system is far more widespread. So what have we done there? So we started to create this key opinion leader network of immunologist and referral pathways and try to find how actually our patients describe? What is the phenotype of these patients? And when we know the phenotype of these patients, you can do some analytics and a little bit of help from artificial intelligence to look in databases of immunologists because that's the good news, most of them are already mostly with the immunologists or with the hematologists. And that is when you can start looking a little bit more focused on where you can actually find those patients. Now that is the second step.

And then when we have identified in those immunologists or in a hematologists patient databases, those patients with a suspected phenotype of the disease, we can then offer them a free genetic testing under our navigateAPDS program. And in such a way, we can discover these patients and can offer them in the future leniolisib because leniolisib can offer them, of course, a better future.

And what is leniolisib? Well, leniolisib is exactly treating the cause of the disease, the gain of function mutation because it's a PI3 kinase delta inhibitor. It suppresses the overactive enzyme and can bring it back to normal proportions. And that means that we can mitigate the disease or we can give those patients a normal life back, and we can, of course, find them with the genetic tests. So we're very excited about this prospect of having this product because we can leverage our existing commercial infrastructure because we are already going to the immunologists and we can actually, therefore, find these patients with the help of our medical colleagues who go into the market and look into those patient databases.

So how do you -- what kind of data do we have on leniolisib? Well, the pivotal trial design is built up in the following way. You see here the part 1 and part 2. So part 1 was the sort of dose finding study that was done on leniolisib. So dose escalation study. Typical when you start the development of the drug, you start escalating the dose and see what the effective dose is. Novartis did that study, of course, back in the days, and they started treating 6 patients for 12 weeks with the drug and looked for what the effective dose was. And the highest dose that came out was 70 milligrams BID, it established, by the way. And that was the effective dose that was chosen to actually take them into part 2, which was the pivotal study.

And the pivotal study was quite unique also for a rare disease was a placebo-controlled study. Placebo-controlled study was typical for rare diseases, about 30 patients, and they were again treated with the highest dose of 70 milligrams BID for 12 weeks, and they started to look at the primary endpoints that were defined by the FDA and Novartis, but approved by the FDA. And those were 2 core primary endpoints, the swelling of the lymph nodes and the look of the immunophenotype normalization. So it means that you look at actually whether the patient still continues to make dysfunctional B cells or whether they could actually start making functional B cells. And in technical terms, it's called the naive B cells out of the total B cells. That's what you start looking for. And of course, there were safety assessments.

And that is then if we take the next slide, we can look at the part 1 data, what came out of that. So the part 1 data was a very -- had some -- was looking primarily, of course, at safety, and you can see that it was very well tolerated and 70 milligrams was still very well tolerated, and there was no significant side effects or study drug discontinuations. And mostly interesting, of course, already 12 weeks of treatment, you saw some very interesting effects, of course, on the disease activity. So what do you see? You see the suppression of the pathway on the arrows here leads to the naive B cells that are getting normalized. So the naive B cells can build into normal functioning B cells. And then you see a reduction of the IgM and IgM is the first line of defense by the immune system, but it has to go to IgG. And if you don't produce normal B cells, then that doesn't -- that switch over to IgG doesn't happen. So this was actually also an effect that you immediately saw.

So it means you see that the dysfunctional and T cells were actually also replaced. And already regression of the lymph nodes were seen because of the fact that the immune system goes into overdrive, the lymph nodes starts swelling. And if you see that not happening, that's very important. That's why these endpoints were chosen. And we already saw in those 12 weeks of those, [there are plenty] of studies, that significant discrepancy in the size of lymph nodes. You see it here on the left-hand side of the slide, and down by about 40% and the spleen volume went down by about 40%.

And on the right-hand side here, you see that immediately and CDZ173 is here, the Novartis codename for the product, that it has an immediate effect on the patients using that in that 12-week study.

And here's another very interesting graph, something you would like always to see. Here is the 6 patients that were subsequently after the first 12 weeks, that is the first bit of the lines there, were offered open-label extension to get more safety data. And this safety data, as you can see here, was published a while ago, was already covering 2 years of -- for some of those patients. And you see here that immediately after taking -- starting the drug on the dose-finding study, the IgM levels, and you remember, IgM has to go down as an effect of the drug, go down immediately.

Then you see another interesting phenomenon here that for logistical reasons, those patients had to stop treatment before they could be offered the open-label extension. And in some cases, in patient #3, you see that because of COVID, it took her a long time because she couldn't travel. It was a long time before she can get to the open-label extension again. You see that all the parameters start going in the wrong direction again. And that's what you want to see, of course. If you stop the drug, that the indicator goes in the wrong direction. And then you see immediately after the drug is resumed in the open-label protocol, actually, the IgM immediately starts going down and continues to go down.

And we have data now here not only for 2 years, but in the meantime, we have gathered data for over -- for some patients over 5 years, and those data will be later on published during the year at scientific conferences and in peer review journals.

So as you can see, we are very excited about the data that we had in our hands when we actually made the deal with Novartis. We thought it was a very promising drug candidate at the point in time and of course, we are now very pleased with the recent results that we recorded. And there you see the 2 co-primary endpoints were highly statistically significant and very cleanly meaningful, reducing both of the primary endpoints that you're looking for. And of course, the full results of these will be published at upcoming medical conferences and in peer-reviewed journals.

So looking forward with regards to leniolisib, what are we looking at? Well, the pivotal trial research came in recently in the second quarter of this year, so before the first half of the year is over, we expect to bring the file to the FDA for their review. Pediatric studies, the pediatric investigation plan was approved, very important asset because it's a children's disease, and you want to start pediatric studies therefore as soon as possible because you want to treat those children as soon as possible before permanent damage is done to their organs and before they go into lymphomas. So therefore the initiation of the pediatric studies is a high priority for us, and we hope to be able to start them in the second half of this year.

Then of course, the EMA filings and the filings to the U.K. authority, U.K. regulatory authority, are on the agenda in the second half of this year as well. And important for our company, we also have inbound requests from Japan, where there's APDS patients, from immunologists, if you could please consider to come to Japan. And we have talked to the Japanese regulatory authorities, and we have formulated a small Japanese clinical trial that we need to do. So we're very excited that this could mean for us, as well, expansion into Japan, a country where we have no commercial presence, of course, at this point in time. So a very important step forward because Japan is quite a significant large, I think it's the second large pharmaceutical market in the world.

And then, of course, looking forward to H1-'23, subject, of course, to approval by the FDA, we're anticipating a potential launch in the first quarter of this year -- of next year, so within the year from now to bring leniolisib to the market. And of course U.S. is, in that respect, a great market because virtually immediately after approval, you can go into the market.

So very quickly after that, you could see the -- you could see after the approval, you could see the U.S. launch. The EU regulatory approval, of course, because we filed later with the EU, are expected later on in the first half, but still probably in the first half of 2023, depending, of course, on how quickly the regulatory review goes in the European Union. But the commercial launches in the European Union will be staggered, of course, because in every country, you have to get market access by means of reimbursement approval. And in some markets, that goes relatively quickly. In other markets, it takes a lot more time. So it will be more of a phased rollout starting in the second half, anticipated to start in the second half of 2023 of the launches of leniolisib in the European Union.

So as you can see, a very busy 2 years ahead of us with regards to, roughly speaking, with regards to the leniolisib regulatory process and the anticipated leniolisib launches in the major markets.

So that's it for me at this point in time. I would like to know -- no, sorry, I still have the slides, OTL-105. Sorry about that. I'd now like to switch to OTL-105 and hereditary angioedema. Yes. So we were hunting, of course, for additional assets in hereditary angioedema. Hereditary angioedema is our home turf, of course. And we were looking for how we could actually extend our stay in the hereditary angioedema in a very significant way. So we set out with a very high goal in our mind to actually provide a best-in-class and, hopefully, curative treatment to the hereditary angioedema patients.

So we started looking at all sorts of gene therapy opportunities that were available there, and we landed at Orchard. And Orchard was actually looking for a partner because Orchard has a platform that has already delivered approved products, and that we found very attractive. Also Orchard was in the -- was of the same opinion of us, is that we shouldn't block a bradykinin kallikrein pathway, but we should actually provide the patients with hereditary angioedema that cannot make normal C1 inhibitor or functioning C1 inhibitor because that's the disease, to actually provide them with a possibility of making their own C1 inhibition. So as it were, we give them RUCONEST, which is protein replacement therapy, but this product could actually make them make their own C1 inhibitor. That's, of course, the holy grail in -- when you look at hereditary angioedema.

And this is not the concept, of course, it's in early stage, but we already have seen some preclinical data that we can -- that Orchard was able to express the relevant gene SERPING1 in this lentiviral-mediated transduction in multiple cell lines and the C1 inhibitor was also functional. So we have a preclinical proof of concept in our hands, and we know that the C1 inhibitor is actually functional that this system produces.

So how does it work? Very briefly. Well, the -- what happens is the patient goes into the clinic and blood is collected from the patient. And out of their blood, the stem cells are purified outside of the patients, obviously, and then in the factory, those stem cells are infected with the lentiviral factor that has the proper gene. So then the stem cells actually are still the patient's own stem cells, that's important to realize, but they have a functioning gene for SERPING1 in them. So it means that if you bring those stem cells back in the patient, they go into the bone marrow and they should start producing blood cells that actually can produce C1 inhibitor. And that's a very simple, by the sound of it, but a very revolutionary approach because it means that you can actually, outside of the patients, modify the patient stem cell and bring them back.

What you have to do, though, in between is condition the patient so that you destroy some of the bone marrow to make place, of course, for the new bone marrow, for the new stem cells that are going to produce the blood cells. And this is a revolutionary, but already proven approach. And you see that on this slide here. The HSC, the hematopoietic stem cell, ex vivo has gene therapy has already -- is a proven approach. It has already proven its efficacy and proven the durability of effect. And why is this important? Because -- it's important because the challenge is still here, of course, that yes, we are going to make the blood cells produce C1 inhibitor. But normally speaking, in the body, the liver is actually the main site of production of C1 inhibitor. And that's, of course, the big question mark is, can we make sufficient amount of C1 inhibitor in the blood cells? We believe so because we modeled it, but that has to be proven, of course, to what's the future. Otherwise, it's a proven therapy.

And you see here in comparison to other approaches to gene therapy where you see that there is a number of crosses and question marks still associated with these approaches. And very interesting, of course, AAV, you're infecting the patients with a virus and it has all sorts of potential implications. And that is what you're not doing here in the HSC gene therapy and gene editing has some projects going on as well. But these are aimed at blocking the bradykinin kallikrein pathway. And we believe that providing the patients with the capability of producing their own C1 inhibitor is the better approach going forward.

So we're very excited about this program. It's still early stages, obviously, and will take a few years to come to the clinic. But we look forward to updating you on further progress of this compound as and when we get new data in hand.

And then it is now, of course, time for me to hand over to my colleague, Jeroen, for the financials. Jeroen, over to you, please.

Yes. Thank you very much, Sijmen.

I'd like to take you through the key financial developments of 2021, starting off with the revenues. And the revenues in 2021 were $198.9 million, which is a decrease of 6% from 2020. And in the graph, you see -- you can see what happened basically because Q4 2020 was a very good quarter. You see that with, in total, $212 million revenue for the year. But Q4 was marked by a wave of COVID in the U.S. And what did that mean for us? Well, patients were, in Q4 2020, pre-filling RUCONEST prescription. And that had an impact on Q1 2021 because we saw lower prescription refill rates in Q1 2021 and also a reduction of new patient enrollments. And the latter was because many doctors' offices were closed and, therefore, new patients couldn't enroll at the time. And if you then look at the following quarters in 2021, we saw a good recovery from that difficult Q1 2021, in the end, still leading to overall a decrease of 6% in revenues.

And then when we look at the geographical split in revenue, we saw that the U.S. sales were $193.4 million in 2021, which means a decrease of 5% to the year before. And again, here, that is because of the poor Q1 but recovery in the following quarters. In -- what we also see is important to say is that we saw that more doctors prescribed RUCONEST. We saw more patients using RUCONEST, but we saw the average use per patient going down.

European sales decreased to $4.9 million from $8.2 million the year before, and that was mainly caused by phasing of ordering related to Brexit, so big order in -- at the end of 2020 to avoid any potential Brexit problems. And we hardly got any orders from the U.K. in 2021. And the rest of the world, excluding Europe, sales decreased to $0.5 million, which is for now a small business -- a small part of our business anyway. The gross profit was $177.7 million. It basically decreased in line with the decrease in revenue. But the gross margin slightly improved by 50 basis points to 89.4%.

Moving on to operating costs and operating profit. The operating profit of $36.9 million in 2021, but that is before some big one-off costs. And the one-off costs are in the first instance related to the investment in the pipeline of $13.1 million for in-licensing OTL-105 from Orchard Therapeutics, as Sijmen just described. And we had an impairment of assets of $10.2 million, and that was because of strategic decisions.

Operating profit after the one-off cost of $13.6 million -- were $13.6 million, sorry, so that is the real operating profit, and we continued and will continue to significantly invest in Pharming's long-term growth.

And what was done in 2021? Well, we increased our research and development expenditure. OTL-105 was part of the R&D expenditure. We increased prelaunch marketing preparations and manufacturing cost for leniolisib, a total of $11.6 million. We increased the number of employees to support future growth of the business. We went from 239 FTEs to 300, so an increase of 61. And more than half of that increase was new employees in the R&D functions.

And we have an increase in insurance cost, and that was related to the NASDAQ listing that we got at the end of 2020. So that was an increase versus the year before. The net profit was $16 million, a 58% decrease compared to the year before, and that is because of the increase in the operating expenses that I've just mentioned. And it was partly offset by favorable foreign currency effects, and that was almost $15 million, 1-5 million, in 2021. Basically, the same information but more graphically displayed.

So what happened? We went from $44.1 million profit before tax in 2020 to a profit before tax of $23.1 million in 2021. And then just going through the graph from left to right, minus $10.9 million is underlying business growth. So that was mainly volume related. This is the gross profit effect of that. We had the investment in OTL-105, again, one-off. We had a one-off impairment of tangible and intangible assets, amongst others, related to the plants that we decided not to build in the end. And we had an increase in expenditure of R&D, SG&A and marketing and sales. That was payroll-related, that was leniolisib related, that was insurance related in SG&A and also in marketing and sales, increased payroll, but also almost $3 million additional cost from leniolisib.

You see a positive effect of foreign exchange, and that was in 2020. We had a negative foreign exchange effect in 2020 of $19 million. And in 2021 we had a positive foreign exchange effect of $15 million. And then we had some one-off costs in 2020 that we didn't have in 2021, one of them being the settlement expense of the Orbimed loan. So these are the key reasons for a change in profit before tax.

Then moving from the P&L to the cash flow statements and the cash that we have on the balance sheet. Our cash and cash equivalents decreased from $206.7 million at the end of 2020 to $193 million, so a decrease of $13.7 million. How come? Why did that happen? Well, we first had a positive cash flow from operating activities of $37.8 million. These are offset by negative cash flows from investments and financing activities. The total of that was $49 million. And almost half of that $49 million or just over half is the $25 million that we paid to Bausch Health, and that was in relation to the reacquisition of the North American RUCONEST commercialization rights in 2016. That was the final milestone to Bausch, the RUCONEST product, and the rights are completely (inaudible).

Again, a graphical display of the same story, $205 million we started off. And on the January 1, 2021, this is excluding restricted cash, a operating cash flow before changes in working capital of almost $43 million. We had a small cash outflow because of changes in working capital. Inventory, amongst others, went up slightly. We had a net cash flow in investment activities of $21 million. The big ticket items there are $11 million for the -- for PP&E, so basically property, 2 elements there. One was the plant that we, in the end, decided not to build. And also we built a new and a third upstream production facility and that was done on time and in budget. And the same goes for an SAP implementation, $3.4 million of intangible assets we created there. And that was implemented and going live on the 1st of January in this year.

We bought for $5 million almost, Orchard's shares, Orchard Therapeutic's shares as part of that licensing transaction and also we paid $2.5 million for a license for -- the license for leniolisib. Net cash flows used in financing activities, again, that's the $25 million, mostly in -- from the Bausch transaction and the rest is interest and lease cost. We had some exchange rate effects. And we ended the year with a staggering $192 million of cash, on the dollars of cash on the balance sheet. And that shows a very strong financial position that Pharming is currently in and also provides obviously good opportunities for growth for the future.

And with that, I would like to hand over to Sijmen for the outlook.

Thank you, Jeroen. Thank you.

Yes, the outlook, and this is again, historical. We have, for the first time, we give guidance on sales for RUCONEST. You see there a return to single-digit growth from RUCONEST sales that we are anticipating in if we compare '22 to '21. The second one, of course, we talked about it a lot as well is we expect to be able to submit the regulatory filings to the FDA and EMA. And then of course, at this point in time, we expect to be able to launch the product in the first quarter, so within a year from now in the U.S. and onwards in the European Union. And the third one is important because as you heard from Jeroen, we have already significantly invested in leniolisib prelaunch activities, and we will continue to do so. In fact, we will continue to significantly accelerate the efforts that we put in leniolisib to actually make sure that we do a stellar launch of our products into the market, and that will have a significant impact on the profits of this year.

However, important to note is that with the continued cash flow from RUCONEST sales to fund all of these investments, no additional financing to support the current business is anticipated or expected. Then another one important is we will continue as we -- as I already was alluding to in the beginning of the presentation, to invest in potential acquisitions or in-licensing of new late-stage assets to broaden the portfolio of the company even further and accelerate the growth further. Now however, that may require some financing, but that would come from a combination of our strong balance sheet and our access to capital markets. And last not least, we will, of course, continue to work on the projects that we have in our hands to expand our pipeline.

That continues -- that of course is the outlook for 2022. And then probably it's time to go over to some questions that we have received, Jeroen, right?

Yes, absolutely. So we got quite some questions from attendance in the run-up to this WebEx, and let's just go to them directly. So the first one is about the future of Pharming. So Sijmen, I guess, you're the right person to answer this one. How does Pharming see its own future?

Well, first and foremost, I think we look to stay an independent company. And that means we have to become an integrated -- fully integrated, even further fully integrated than we currently are. So I was already alluding to, we're currently relying on one country and one product. So it means as soon as possible, we should have more products in more markets.

Now of course, leniolisib is an important step forward. It will bring us the possibility to have business in Europe and the rest of the world that is more balanced. And then, of course, the product risk is no longer concentrated in one product but in 2.

But of course, the in-licensing of additional late-stage compounds, because we have this wonderful financial situation, is another imperative, I think, for keep the company growing in the short term and in the medium term, of course, to actually stay independent because that's the name of the game, right, to stay independent as a company. And of course, whilst we do that, I think we can also look towards more internal -- the internal projects that we have that are taking some more time, of course, because they're early on in the pipeline, but also to start new research activities towards the future, where we can actually build again from our own platform and other platforms that we may have acquired.

And leniolisib is another important one, of course, that we already have acquired, but we can actually develop new indications from as well. And so further diversify the business and derisk the business and leverage our commercial infrastructure that we have because we invested already so much money in that.

Have you got anything else from you or...

Well, no, I think the core of it is indeed reduction of the risk in the business by going into more products, more geographies, filling the pipeline with new products, either from our own research or external. And as you say, we've got a lot of firepower with the cash that we have to in-license products but also to invest in our own R&D capabilities, which is what we have done in the past as well. So clear.

Yes. Next one is more about HAE, and I think you have already alluded to in the presentation. But maybe you can, yes, say something about it. How do you see the HAE market? And especially, what do you think is RUCONEST's position in 3 years' time from now, also with the developments of the prophylactic market?

Yes. Again, as we can see, we think the prophylactic market is more or less stabilized around -- between 70% and 75% of patients that are taking prophylaxis. Again, we have not seen any prophylactic therapy so far, and we do not see any of the prophylactic therapies in development that are watertight. So in other words, there will still be breakthrough medication necessary. And therefore, since also all the therapies that we have in the market now and coming to the market are bradykinin/kallikrein pathway related, there is a high necessity to have a protein replacement therapy like RUCONEST available.

So I'm actually, together with our colleagues in commercial, we're actually [clearly] confident in the position of RUCONEST in the coming years because there is this need. And this need remains because none of the prophylactic therapies are watertight for breakthrough medication reliable. And the severe end of the market cannot necessarily always be served with the bradykinin/kallikrein inhibition for the reasons that basically, the attacks are too heavy and they bypass the kallikrein and bradykinin pathway and still come through, and that is precisely what RUCONEST is blocking because it's blocking all the pathways.

So therefore, I -- we look to -- with the optimism towards the future for RUCONEST.

And that's why we also give -- for the first time in our history, we give guidance that we expect sales to grow again. And therefore, I can say in 3 years' time, we should probably see a gradual -- still a gradual increase in the use of RUCONEST if we do our work right. But it certainly is from a perspective that nothing new on the horizon does bring any other perspective to what I just described, except, of course, when in the future, but that's a little bit more -- quite a bit more than 3 years ahead. We may be able to bring OTL-105 to the market because then, we offer patients to cure potentially, right?

Yes. But even then, that will only be for a specific group of patients.

Yes, of course. It's not all the patients are going to take that. So yes, indeed, a specific group of patients will take that.

Correct. Yes. So basically, we're saying RUCONEST has found its space in the market, and this will continue to keep that space in the market.

I think that's a very good description. That's how I look at it. Yes.

Okay. Very good. Thank you.

So maybe I have another one for you, Jeroen, now here. Can you explain how the cash balance is divided between euros and dollars? And maybe you can do the next one as well on leniolisib manufacturing.

Absolutely. Yes. Now the short answer to the first question is, where do you have the cash, where is it and in what currency? Well, the short answer is we've got -- at year-end, we had $115 million of euros in entities with euro as the functional currency and we had $62 million in dollars. And most of that was in our U.S. entity Pharming health care. So the policy is that a large part of our cash is in euros, in line with the functional currency of the legal entities, and that is mainly Pharming group. So that's where the cash sits. And the cash in Pharming group used to be in dollars, and that created quite some swings in the P&L. I've just shown it, the swing from 2020 to 2021. And that swing has reduced significantly by putting those cash in euros instead of dollars.

And the second one is the buildup of manufacturing for leniolisib. What impact will this have in terms of the cost, in terms of gross margin and assuming that it's approved this year? And I've just shown that indeed we have some manufacturing cost of leniolisib already in 2020. And that is not manufacturing as if we are going to manufacturing leniolisib in the future. We will use a CMO, a contract manufacturing organization, to do that for us. But we -- the product is still in development. So we had to bring the technology from Novartis over. We have to scale up because, I guess, the scale of Novartis was only maybe 2 kilograms of the product. So we have to scale it up to commercial use eventually. So it created also a lot of validation work, testing work, et cetera. So that's where the money went.

And then in terms of the cost and gross margin going forward, we've got some very sharp minds in the U.S. now working on the pricing. That is not easy, but it's an important part, obviously, of the launch, at what price should we launch it and what will be the cost. So we don't know yet is the honest answer to this, and that is something that is being worked on at the moment.

Thanks, Jeroen. More questions. Let's see.

Yes. So the -- you mentioned filling the pipeline from external licensing acquisitions, et cetera. What are the key search criteria that Pharming uses? And also within that, what was the attraction of this specific OTL-105 transaction?

Yes, the OTL-105 is a very different kettle of fish, obviously, because that was our home territory where we wanted to actually extend significantly our presence. And therefore, that was the only exception to the rule that we currently have where we in-licensed an early-stage asset because of the fact that we want to create a horizon that is way beyond RUCONEST and as it were potentially a leapfrog to competition. That was a very exciting prospect to do. And we have our networks for 2 decades already in this market. So that was something we had to do.

The other acquisitions are different, of course, because here we're looking at to as quickly as possible, differentiate the company away from this one product, one market or even 2 products with various geographies to a multiple company that is well balanced. But important, I think, when we look at acquisitions, is we look to build on top of our core capabilities. And on top of our core capabilities is like we are now in immunology. That's why it's logical to take on leniolisib. But we're also, because of leniolisib, sometimes come, the patients present themselves maybe with very late, with lymphomas already, they come to the hematologist. So we're looking at hematology. That's an important doctor group that we look at, but also gastroenterology sometimes and pulmonology because they have these pneumonias from early stage onwards.

So if you define those core capabilities, then as -- that you have a network, not only with the immunologists like we currently have, but also with the pulmonologists, for instance, and the hematologists and gastroenterologists a little bit less than that, I would say that this is where we first look, right? And then because we see the primary immune deficiencies now and with the database that we build up over a longer time, this is also an area of special interest, where there is still a lot of unserved patients. And those unserved patients, I think, need to be served, right? So I think that is something we would like to really concentrate on in the future. And that is some of the criteria we take into consideration. And we end up then in rare diseases.

Why? Because we have a commercialization apparatus, that is knows very well how to commercialize these ultra-rare diseases and rare diseases. And that is something we can leverage. Because other than if you go in mass, in bigger diseases, we have, as you know, a limited percentage of our people are actually selling the product, like 25% or something on that. And the rest is, of course, all infrastructure that you need to clear, especially in a market that is so fractioned as the U.S., to clear all the reimbursement and all the annual prescription renewal, administrative procedures. That takes a lot of effort from our company to help there and to work on that.

That's why you can easily leverage that apparatus with other products because you only have to add about 25% of new staff for a new product and maybe the next one even 10% of their new staff. That makes the CFO happy as well, of course, because we don't have to invest so much extra for new products. But that seems to be the logical way, I think, in which everybody will find it easy to digest that we can actually do more acquisitions.

Yes. Yes. Absolutely. And also important, you said it before, Sijmen, is we do not have a need for additional funding for the current business. But maybe also good to say that we are not only well funded, but we also have access to -- well, the debt market and also to the equity market with the NASDAQ listing and the Amsterdam listing for external growth opportunities, licensing in or acquisitions or what have you.

Yes. And we saved ourselves this $40 million that we not have to invest in a factory now, of course, which is not our core capability, manufacturing, of course, because other people can do that, who are specialized in that, Jeroen was mentioning, that we do with leniolisib, which is fully transferred to us already and -- but which we are now actually outsourcing their production of. And I think that's a good way. So we really want to focus on our core capabilities and get these new products in and bring the company then to a far wider platform, and that will stimulate the growth and the multiple that the market will give for a product that has 2 or 3 -- for a company that has 2 or 3 products in the market is far higher than the multiple that you get for one product in the market. You should not forget that, right?

Absolutely.

That makes everybody happy as well. So that's why we're really investing instead of maximizing profits in 2022. That's why we're really investing in the launch of leniolisib this year because that's the best opportunity we have to actually establish this derisking and diversification of the company.

Very good.

And I think we're coming to the end of our time now.

Well, almost. So in the interest of time, let's go to the last few questions and they are about leniolisib. And the first one is, what is the current status of the transfer of leniolisib from Novartis?

Yes, it's fully transferred. We have received the pivotal data from the study from Novartis. We're now working on the regulatory filings. So we take it on from now onwards. We did a complete tech transfer for the manufacturing, as you were already alluding to. So we outsource the manufacturing of the product and it is -- yes, it's basically in our hands now to bring it to the regulators and to actually hopefully get it approved and start commercialization. And then we will be very happy, of course, to pay them royalties, right?

Yes. Yes, we will. So the question is, if you find further indications for leniolisib, so apart from APDS, will you have to pay royalties and fees? Yes, we do.

Doesn't make any difference, right?

We will pay a milestone payment for the first commercial sale, and we will have normal royalties for the product as is usual in this market.

And the last question for you, I suppose. Yes.

Following the launch of leniolisib, do you expect to introduce former guidance?

Well, not from the beginning because it won't serve the shareholders or the stakeholders, I think, because it's pretty -- it could be pretty volatile. We will first, obviously, and that's what we're doing now, find the patients. But maybe over time, when things get a bit more stable, then we can make a sensible and formal guidance on leniolisib. Okay.

And I think that's all we can handle for within our timeframe today. So we thank you very much for being here with us with our full year results presentation and hopefully a bit more insights into the plans that we have. So we're very excited to have, again, pivotal data for a product in our hands, the second time in the history of our company, and we look very much forward to bringing the product to the FDA and EMA and hopefully be able to launch the product in the beginning of -- from the beginning of '23 onwards. And of course, we're very excited also to be able to give for the first time in history, guidance about the RUCONEST sales. And so we look towards the future with confidence, and we would like to update you again on the next occasion.

Thank you very much for attending our Webinar. Goodbye.